Final Results

SMALL COMPANIES DIVIDEND TRUST PLC FINAL RESULTS FOR THE YEAR ENDED 30 APRIL 2008 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. Chairman's Report Results The Company's net asset value per Ordinary share at 30 April 2008 was 149.32p (2007: 266.32p), a decline over the year of 43.9%. During this period the FTSE All-Share Index decreased by 7.6% and the FTSE Small-Cap Index decreased by 23.0%. Since Listing of the Company's shares on 12 May 1999, the FTSE All-Share Index has risen by 4.6% and the net asset value per Ordinary share has risen by 53.5%. Over the same period the share price has increased by 32.5%. Since the year end, the net asset value per Ordinary share has fallen to 104.30p as at 11 July 2008. The Company is currently invested in 59 companies across 23 sectors; this spread provides a good diversification base and will assist the Company in providing a stable platform from which to grow in both capital and revenue terms. The last year has been a particularly difficult one for the Company as both small companies as an asset class and "value" as a style have underperformed at the same time. Almost since the last year end the macro environment has been deteriorating, but the Company felt the effect most dramatically in the last six months when the liquidity crisis, driven largely by problems in the banking sector, led to a flight to large companies. This "size effect" is, historically, a normal reaction to a slowing domestic economy, but the magnitude has been compounded this time by the banks' need to re-build their balance sheets and monetary easing being undermined by domestic inflationary pressures. Whilst the capital value of the Company's holdings have been adversely affected by increased macro concerns and rising risk premiums the ability of the underlying investee companies to generate strong cash flows and to pay good dividends has held up well, as can be seen from the Income statement. The portfolio yield has risen from just over 4% at the end of last year to some 7% now. The last time it was this high was in the last economic downturn five years ago and, reassuringly, the Company performed very well in the subsequent few years as the economy recovered. We believe that history should repeat itself as a recovery takes place in the future and we believe the Company's investments to be attractively valued on medium term cash flow parameters. The large unknown, however, is obviously the timing of the recovery and the fear that the economy and corporate earnings could still deteriorate from here. In the shorter term we can draw some comfort from the fact that in over half of the Company's investments, directors have been actively buying stock in their own companies since the recent sell off began. At the same time there has been a pick up in corporate activity by both companies and venture capitalists. This does not mean that there will not be further earnings downgrades across the market, but it does suggest that in a number of cases these are already being discounted in valuations. VAT reclaim In 2004 the Association of Investment Companies (`AIC') and JPMorgan Claverhouse (`Claverhouse') brought a case against HM Revenue & Customs to challenge the VAT charge 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. The immediate effect is that invoices from the Investment Manager will no longer include VAT. The Board is awaiting further clarification from HM Revenue & Customs on the timetable and procedure for reclaiming VAT paid on investment management fees since 1 January 2001. There may also be scope for recovering certain VAT paid in relation to earlier periods. At the current time the Board is not recognising the potential back claim in its results nor its published net asset value. Bank facility The Company has borrowing facilities represented by a £10.0 million fixed loan and a £3.0 million overdraft facility. Currently the overdraft facility is not being used. The Board intends to continue to restrict the borrowing arrangements with the Bank, so as to limit the total amount of borrowings to below 30% of total assets at the time of draw down. Dividend The Board has declared a fourth interim dividend of 4.05p per Ordinary share (2007: 4.00p) which, when added to the three quarterly interim dividends of 3.20p, equates to a total dividend for the year of 13.65p per Ordinary share (2007: 13.00p), an increase of 5.0% over the previous year. As can be seen from the Income statement the net return is slightly reduced, resulting in £33,000 of the dividends paid being drawn from revenue reserves. Outlook Although the macro outlook remains uncertain and short term sentiment towards small companies remains volatile, the performance of the Company over the medium to long term remains a function of the underlying cash flows of the companies that the Company is invested in, and despite all of the economic gloom, by and large they still represent good value. Lord Lamont of Lerwick Chairman 16 July 2008 Investment Manager's Report for the year ended 30 April 2008 As an asset class UK small companies has been in relative decline for the past year as a direct response to increasing macro economic concerns. The dramatic sell off from November through the first months of 2008 was a liquidity driven reaction to problems in the banking sector which ultimately served to accentuate the performance disparity between "large liquids" and "small illiquids". Unusually against such a backdrop, yield provided little short term support to the underlying share prices. In terms of the Company's own relative performance, our investment process only allows us to invest in those companies that yield at least 150% of our benchmark index. This has meant that in the past year we have been unable to hold any oil and gas or mining stocks, two sectors that have performed exceptionally well. At the same time performance was hindered by being relatively overweight in the smaller financials as the market fell, although we avoided the worst of the falls in the retail, property and building sectors by being underweight. Short term net asset value performance was also adversely affected by the gearing within the Company, although of course this had been reduced by some £6 million since the last year end. Whilst the last two months has seen a general reduction in share prices around the world, and our portfolio has obviously been affected, it is pleasing to be able to report that in this period the gross assets have done relatively well against the benchmark index, the FTSE SmallCap and also, for information, the FTSE 100 Index. Portfolio review During the last year a number of stocks were sold in their entirety. Of the larger companies, Alliance and Leicester was sold before the problems in the banking sector and Rentokil before the recent profit warning. United Utilities, Waterman and Personal Group were also sold, the latter two after long periods of very strong relative performance. On the other hand, CML and Johnson Service were sold after disappointing trading performances. The final part of the holdings in Foseco, Clinton Cards and Fenner were also disposed of. Funds were also realised from small sales of a wide range of the holdings after periods of particularly strong performance including ATH, Low & Bonar and Wogen. The shareholdings in two logistics companies were sold: Salvesen was acquired by Norbert Dentresslange and TDG was sold after approaches from a financial buyer and a trade buyer. Funds raised were used for a combination of paying down the overdraft and investing in new holdings. These were: Hilton Food, a processor of meat aligned to the leading food retailers in the UK, Ireland, Holland and Sweden, which was acquired on flotation, Office 2 Office, the third largest UK office products distributor, and Avesco, an international media company with strong businesses in the exhibition and broadcast rental markets which was purchased on a 6.2% yield. Throughout the period we added to a number of our existing holdings, including Marshalls, Macfarlane and Jarvis Securities. A focus on medium term cash flow rather than more volatile short term earnings forecasts has always been a feature of our investment process. As a result of this we believe the sell off last year has led to a substantial gap between the short term market value of a number of our stocks and their underlying medium term value. We would normally expect at this stage of the cycle to see this gap starting to close as a result of corporate activity. Interestingly, Jarvis Securities, Titan Europe, Acal, TDG and Gaming VC have all recently announced that they have received bid approaches. Outlook Against a backdrop of a deteriorating macro environment we expect continued short term volatility. One effect of this slowdown is that the universe in which the Company can invest has increased substantially and we will be taking this opportunity to slightly increase the market value of our holdings to partly offset this volatility. The timing of a sustained upturn remains uncertain but the recent pick up in director purchases and corporate activity is a tentative step in the right direction in terms of underpinning valuations. For this to translate into a full blown recovery in share prices we need to see an improvement in the liquidity environment. We believe that on the basis of medium term cash flow prospects, current valuations are attractive and we continue to focus on the ability of our portfolio to deliver income as a key component of our investment process. It is worth reflecting that this process has delivered excellent long term returns and that we believe that this will continue to be the case going forward. As we look forward to the next year, there is greater uncertainty than we are all normally used to. The inexorable rise in the price of oil has to stop somewhere, and if the price rise has been created by a speculative bubble it will come down as fast as it has gone up. The growth of the Chinese economy will itself slow as demand from the USA and Europe reduces, leading to a general reduction in the prices of raw materials. With the reduction in international inflationary pressure there will be an opportunity for further rate cuts in the UK at some point in the future. As we have said before, excellent buying opportunities become available for this Company when short, sharp corrections take place as solid, cash generative companies are marked down with the market but tend to recover rather more quickly. When buyers start to take advantage of the value opportunities available we believe the Company will show some real progress. David Horner and David Taylor Chelverton Asset Management Limited 16 July 2008 Statement of Director's responsibilities In respect of the Annual Report and the financial statements The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations for each financial period, and that to the best of the Directors' knowledge the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company for the period then ended. The Directors have elected to prepare the financial statements for the year ended 30 April 2008 in accordance with International Financial Reporting Standards as adopted by the EU. In preparing those 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; - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are also responsible for: - the financial statements as set out below, and that the financial statements contain a true and fair review of the development and performance of the Company's business and the position of the Company; - the description of the principal risks to the Company which are detailed below. - ensuring that proper accounting records are kept which disclose, with reasonable accuracy at any time, the financial position of the Company thus enabling them to ensure it's financial statements comply with the Companies Act 1985; - safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities; - maintaining the integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions; and - preparing a Report of the Directors, Statement of corporate governance and Directors' remuneration report that comply with applicable law and regulations. The Directors confirm that they have complied with the above requirements in preparing the financial statements. The responsibilities of the Auditors in relation to the financial statements are set out in the Independent Auditors' report below. On behalf of the Board of Directors Lord Lamont of Lerwick Chairman 16 July 2008 Business Review Company 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 30 April 2007. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 April 2008 so as to be able to continue to be approved as an authorised investment trust. The Company is an investment company as defined in section 833 of the Companies Act 2006. The investment objective of the Company is to provide Ordinary shareholders with a high income and opportunity for capital growth. Investment policies and restrictions The Company's investment policy, as approved by shareholders, is that: - funds will be invested principally in UK companies with a market capitalisation of up to £500 million at the point of investment; - a maximum of 20% of the Company's portfolio may be invested in companies without reference to their market capitalisation at the discretion of the Investment Manager; - the Company will invest in the ordinary shares of companies either listed on the Official List and traded on the London Stock Exchange's Main Market or on the London Stock Exchange's Alternative Investment Market; - no investment will be made in preference shares, loan stock or notes, convertible securities or fixed interest securities or any similar securities convertible into shares; and - the Company will not invest in the securities of other investment trusts or in unquoted companies. The Chairman's report and Investment Manager's report give details of the Company's activities during the financial year under review. Performance analysis using key performance indicators At each quarterly Board meeting the Directors consider a number of key performance indicators (`KPI's') to assess the Company's success in achieving its objectives, for example the net asset value (`NAV'), the movement in the Company's share price, the discount of the share price in relation to the NAV, the dividend per share and the total expense ratio. - The Company's Income statement is set below. - A total dividend for the year to 30 April 2008 of 13.65p (2008: 13.00p) per Ordinary shares has been paid to shareholders by way of three quarterly payments of 3.20p per Ordinary share and a fourth dividend payment of 4.05p per Ordinary share. - The NAV per Ordinary share at 30 April 2008 was 149.32p (2007: 266.32p). - The total expense ratio (including investment management fee and other expenses but excluding performance fee and exceptional items) for the year ended 30 April 2008 was 1.93% (2007: 1.72%). Principal risks The Board considers the following as the principal risks facing the Company. Migration of these risks is sought and achieved in a number of ways. Market risk The Company is exposed to UK market risk due to fluctuations in the market prices of its investments. The Investment Manager actively monitors economic performance of investee companies and reports regularly to the Board on a formal and informal basis. The Board formally meets with the Investment Manager on a quarterly basis when the portfolio transactions and performance are discussed and reviewed. 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 fluctuate significantly. The Board recognises that, as a closed ended company, 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, with its advisers, monitors the Company's discount levels and shares may be bought back should it be thought appropriate to do so by the Board. Regulatory risks A breach of Companies Act regulations and FSA 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, monitors 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, monitored and approved by the Board and the Audit Committee. New developments in accounting standards and industry related issues are actively reported to and monitored by the Board and its advisers, ensuring that appropriate accounting policies are adhered to. Banking A breach of the loan covenants may lead to funding being reduced or withdrawn. The Board monitors compliance with the loan covenants at each Board meeting and regularly reviews the loan and overdraft facilities, and the requirement for them, with the Investment Manager. A more detailed explanation of the risks facing the Company are given in note 26 to the financial statements. Current and future developments A review of the main features of the year is contained in the Chairman's report and the Investment Manager's report. 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. Independent Auditors' report to the members of Small Companies Dividend Trust PLC We have audited the financial statements of Small Companies Dividend Trust PLC for the year ended 30 April 2008 which comprise the Income statement, the Statement of changes in net equity, the Balance sheet, the Statement of cash flows and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors' remuneration report that is described as having been audited. This report is made solely to the Company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors The Directors' responsibilities for preparing the Annual Report, the Directors' remuneration report and the financial statements in accordance with applicable law and International Financial Reporting Standards (`IFRSs') as adopted by the European Union are set out in the Statement of Directors' responsibilities. Our responsibility is audit the financial statements and the part of the Directors' remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Report of the Directors is consistent with the financial statements. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors' remuneration and other transactions is not disclosed. We review whether the Statement on corporate governance reflects the Company's compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Company's corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Report of the Directors, the unaudited part of the Directors' remuneration report, the Chairman's report, the Investment Managers Report, the Company summary, the Financial highlights, details of the Directors, Investment Manager's and Secretary, and the Statement on corporate governance. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' remuneration report to be audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and preformed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' remuneration report to be audited. Opinion In our opinion: - the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Company's affairs as at 30 April 2008 and of its net revenue and total return for the year then ended; - the financial statements and the part of the Directors' remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985; and - the information given in the Report of the Directors is consistent with the financial statements. Hazlewoods LLP, Gloucester Chartered Accountants & Registered Auditors 16 July 2008 The Directors announce the audited statement of results for the year 1 May 2007 to 30 April 2008 as follows: INCOME STATEMENT for the year ended 30 April 2008 1 May 2007 to 30 April 1 May 2006 to 30 April 2007 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investments (Losses)/gains on - (17,645) (17,645) - 5,306 5,306 investments (note 11) Investment income 2,757 - 2,757 2,846 - 2,846 (note 2) Expenses Investment management (116) (350) (466) (177) (531) (708) fee (note 3) Other expenses (note (200) - (200) (233) - (233) 4) Exceptional item (note - 73 73 - (269) (269) 5) (316) (277) (593) (410) (800) (1,210) Net return before 2,441 (17,922) (15,481) 2,436 4,506 6,942 finance costs and taxation Finance costs (note 7) (249) (773) (1,022) (127) (1,283) (1,410) Net return before 2,192 (18,695) (16,503) 2,309 3,223 5,532 taxation Taxation (note 8) (7) - (7) (11) - (11) Net return after 2,185 (18,695) (16,510) 2,298 3,223 5,521 taxation Return per: pence pence pence pence pence pence Ordinary share (note 13.45 (115.05) (101.60) 14.14 19.84 33.98 10) The total column of this statement is the Income statement of the Company, prepared in accordance with International Financial Reporting Standards (`IFRS'). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. These financial statements have been prepared under IFRS. Applicable accounting policies are included in the notes. The notes form part of these financial statements. STATEMENT OF CHANGES IN NET EQUITY for the year ended 30 April 2008 Share Share Capital Hedge Revenue Total capital premium reserve reserve reserve account Note £'000 £'000 £'000 £'000 £'000 £'000 Year ended 30 April 2008 30 April 2007 4,063 11,917 25,435 - 1,861 43,276 Net return after - - (18,695) - 2,185 (16,510) taxation for the year Dividends paid 9 - - - - (2,210) (2,210) Movement in cashflow - - - (291) - (291) hedges taken to equity 30 April 2008 4,063 11,917 6,740 (291) 1,836 24,265 Year ended 30 April 2007 30 April 2006 4,063 11,917 22,212 - 1,635 39,827 Net return after - - 3,223 - 2,298 5,521 taxation for the year Dividends paid 9 - - - - (2,072) (2,072) 30 April 2007 4,063 11,917 25,435 - 1,861 43,276 These financial statements have been prepared under IFRS. The notes form part of these financial statements. BALANCE SHEET as at 30 April 2008 30 April 30 April 2008 2007 Note £'000 £'000 Non-current assets Fair value through profit or 11 34,077 59,001 loss investments Current assets Trade and other receivables 13 573 877 Cash and cash equivalents 79 247 652 1,124 Total assets 34,729 60,125 Current liabilities Trade and other payables 14 (173) (363) Bank overdraft - (4,912) Loan Note 16 - (6,258) Commitment to subscribe for 18 - (5,316) shares (173) (16,849) Total assets less current 34,556 43,276 liabilities Non current liabilities Bank loan 15 (10,000) - Derivative financial instruments 17 (291) - (10,291) - Total liabilities (10,464) (16,849) Net assets 24,265 43,276 Represented by: Share capital 19 4,063 4,063 Share premium account 20 11,917 11,917 Capital reserve 20 6,740 25,435 Hedge reserve 20 (291) - Revenue reserve 20 1,836 1,861 Issued capital and reserves 24,265 43,276 These financial statements have been prepared under IFRS. These financial statements were approved by the Board and authorised for issue on 16 July 2008. The notes form part of these financial statements. STATEMENT OF CASH FLOWS for the year ended 30 April 2008 1 May 2007 to 1 May 2006 to 30 April 2008 30 April 2007 Note £'000 £'000 Operating activities Investment income received 2,809 2,858 Bank deposit interest received 11 8 Investment management fee paid (556) (709) Investment management performance - (243) fee paid Administration and secretarial (55) (57) fees paid Exceptional expenses paid - (195) Other cash payments (172) (169) Cash generated from operations 2,037 1,493 Loan interest paid (995) (532) Other costs in respect of former (26) - subsidiary company Net cash inflow from operating 1,016 961 activities Investing activities Purchases of investments (6,213) (14,502) Sales of investments 13,725 20,110 Net cash inflow from investing 22 7,512 5,608 activities Financing activities Advance/ (repayment) of loan 10,000 (5,000) Dividends paid (2,210) (2,072) Repayment of Loan Note (6,258) - Repayment of commitment to (5,316) - subscribe for shares Net cash outflow from financing (3,784) (7,072) activities Increase/(decrease) in cash and 23 4,744 (503) cash equivalents for year Cash and cash equivalents at 24 (4,665) (4,162) start of year Cash and cash equivalents at end 24 79 (4,665) of year These financial statements have been prepared under IFRS. The notes form part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS as at 30 April 2008 1 ACCOUNTING POLICIES Small Companies Dividend Trust PLC is a company domiciled in the United Kingdom. Basis of preparation The financial statements of the Company have been prepared in conformity with International Financial Reporting Standards (`IFRS') issued by the International Accounting Standards Board (as adopted by the European Union) and Interpretations issued by the International Financial Reporting Interpretations Committee, and applicable requirements of United Kingdom company law, and reflect the following policies which have been adopted and applied consistently. At the date of authorisation of these financial statements the following Standards and Interpretations which are relevant to the annual financial statements and have not been applied in these financial statements were in issue but not yet effective: • IAS 1: (revised) Presentation of Financial Statements (effective 1 January 2009). • IAS 23: (revised March 2007) Borrowing costs (effective 1 January 2009). • IAS 27: (revised January 2008) Consolidated and separate financial statements (effective 1 July 2009). • Amendment to IAS 32: Financial Instruments (effective 1 January 2009). • Amendment to IFRS 2: (January 2008) Share based payment (effective 1 January 2009). • IFRS 3: (revised January 2008) Business Combinations (effective 1 July 2009). • IFRS 8: Operating segments (effective 1 January 2009). • IFRS 13: Customer Loyalty Programmes (effective 1 July 2008). • IFRIC14: IAS 19 - The Limit on a Defined Benefit Asset, minimum funding requirements and their interaction (effective 1 January 2009). • A further 15 standards were amended on 22 May 2008 as part of the IASB's annual improvements project (effective 1 January 2009). The Directors anticipate that the adoption of these Standards and Interpretations will have no material impact on the Company when the relevant standards come into effect. Convention The financial statements are presented in Sterling rounded to the nearest thousand. The financial statements have been prepared on a going concern basis under the historical cost convention, except for the measurement at fair value of investments classified as fair value through profit or loss and interest rate swaps taken out as cashflow hedges. Where presentational guidance set out in the Statement of Recommended Practice regarding the Financial Statements of Investment Trust Companies (`SORP'), issued in 2003 and revised in December 2005, is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a consistent basis compliant with the recommendations of the SORP. Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company invests in companies listed in the United Kingdom. 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 unrealised gains and losses on 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. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices and SETS at last trade price at the close of business on the Balance sheet date, without adjustment for transaction costs necessary to realise the asset. Derivative financial instruments and hedge accounting It is the Company's policy not to trade in derivative financial instruments. However, the Company does have two interest rate swaps taken out as cash flow hedges to mitigate its exposure to interest rate changes on its £10 million loan which is subject to a variable rate of interest. All derivatives are recognised at their fair value. The method of recognising movements in fair value of derivates depends on whether they are designated as hedging instruments and, if so, the nature of the item being hedged. Derivatives are only designated as hedges provided certain strict criteria are met. At the inception of a hedge its terms must be clearly documented and there must be an expectation that the derivative will be highly effective in offsetting changes in the cash flow of the hedged risk. The effectiveness of the hedging relationship is tested throughout its life and if at any point it is concluded that it is no longer highly effective in achieving the hedge relationship is terminated. The effective portion of changes in the fair value derivatives that are designated as cash flow hedges (being the interest rate swaps) is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Income statement. Trade date accounting All "regular way" purchases and sales of financial assets are recognised on the "trade date" i.e., the day that the entity commits to purchase or sell the asset. Regular way purchases, or sales, are purchases or sales of financial assets that require delivery of the asset within a time frame generally established by regulation or convention in the market place. Income Dividends receivable on quoted equity shares are taken into account on the ex-dividend date. Where no ex-dividend date is quoted, they are brought into account when the Company's right to receive payment is established. Other investment income and interest receivable are included in the financial statements on an accruals basis. Dividends received from UK registered companies are accounted for net of imputed tax credits. Expenses All expenses are accounted for on an accruals basis. All expenses are charged through the revenue account in the Income statement except as follows: - expenses which are incidental to the acquisition of an investment are included within the costs of the investment; - expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investments; and - expenses are charged to capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. The Company's investment management fees, bank interest and all other expenses are allocated to revenue with the exception of 75% (2007: 75%) of the Investment Manager's fee, 75% (2007: 75%) of bank and loan interest and 100% of the provision for the Investment Manager's performance fee, all of which are allocated to capital. In respect of the investment management fee, bank and loan interest allocation to revenue and capital this is in line with the Board's expected long term split of returns in the form of income and capital gains respectively, from the investment portfolio of the Company. This expectation was revised in the previous financial year based on a review of historical performance which the Board believe is the best current indication of future returns. Cash and cash equivalents Cash in hand and in banks and short-term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Bank overdrafts that are repayable on demand which form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the Statement of cash flows. Bank loans and borrowings All bank loans and borrowings are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Any difference between cost and redemption value is recognised in the Income statement over the period of the borrowings on an effective interest basis. Taxation There is no charge to income tax as the Company's allowable expenses exceed its taxable income. Deferred tax assets in respect of unrelieved excess expenses are not recognised as it is unlikely that the Company will generate sufficient taxable income in the future to utilise these expenses. Dividends payable to shareholders Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are charged to the Statement of changes in net equity. Dividends declared and approved by the Company after the Balance sheet date have not been recognised as a liability of the Company at the Balance sheet date. 2 Income 2008 2007 £'000 £'000 Income from listed investments UK net dividend income 2,722 2,766 Unfranked foreign dividend income 24 72 2,746 2,838 Other income Bank interest receivable 11 8 Total income 2,757 2,846 Total income comprises Dividends 2,746 2,838 Interest 11 8 2,757 2,846 3 Investment management fee 2008 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment 110 332 442 151 452 603 management fee Irrecoverable VAT 6 18 24 26 79 105 thereon 116 350 466 177 531 708 At 30 April 2008 there were amounts outstanding of £87,000 (2007: £177,000, including VAT). A performance fee was not payable for the year ended 30 April 2007 or for the year ended 30 April 2008. In 2004 the Association of Investment Companies (AIC) and JP Morgan Claverhouse (Claverhouse) brought a case against HM Revenue & Customs to challenge the VAT charge 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. The immediate effect is that invoices from the Investment Manager will no longer include VAT. The Board is awaiting further clarification from HM Revenue & Customs on the timetable and procedure for reclaiming VAT paid on investment management fees since 1 January 2001. There may also be scope for recovering certain VAT paid in relation to earlier periods. At the current time the Board is not recognising the potential back claim in its results nor its published NAV. The irrecoverable VAT charged during the year has been affected as a consequence of the above ruling. The Company was charged VAT on fees for the quarters to 31 July and 31 October 2007, but no VAT was charged for the quarters to 31 January and 30 April 2008. 4 Other expenses 2008 2007 £'000 £'000 Administrative and secretarial fee* 55 56 Directors' remuneration 61 70 Auditors' remuneration: audit services* 19 18 non audit services* - - Insurance 14 16 Other expenses* 51 73 200 233 *The above amounts include irrecoverable VAT where applicable. 5 Exceptional item The exceptional item in the year ended 30 April 2008 of £73,000 relates to the release of a provision for professional fees incurred in respect of advice and general meetings called to propose a deferral of the redemption date of the Zero Dividend Preference shares of the former subsidiary company no longer considered likely to be paid. In the year ended 30 April 2007 a charge of £ 269,000 was recognised in respect of such costs. 6 Directors' Remuneration 2008 2007 £ £ Total fees 61,125 70,000 Remuneration to Directors Lord Lamont (Chairman) 20,000 20,000 J E Chappell (retired 27 September 6,125 15,000 2007) B N Lenygon 20,000 20,000 D Harris 15,000 15,000 W van Heesewijk* - - * Mr van Heesewijk has waived his entitlement to fees 7 Finance costs 2008 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Bank interest payable 249 747 996 127 383 510 on bank overdraft and bank loan Finance costs in respect of former subsidiary company Appropriations in respect of: Zero Dividend - - - - 855 855 Preference shares Preference shares - - - - 4 4 Amortisation of Zero - - - - 32 32 Dividend Preference share issue costs Provision for loss in - 26 26 - 9 9 former subsidiary company 249 773 1,022 127 1,283 1,410 8 Taxation 2008 2007 £'000 £'000 Based on the revenue return for the year Current tax 7 11 The current tax charge for the year is lower than the standard rate of corporation tax in the UK of 30% (2007: 30%). The differences are explained below: 2008 2007 £'000 £'000 Revenue on ordinary activities before 2,192 2,309 taxation Theoretical tax at UK corporation rate of 658 693 30% (2007: 30%) Effects of: UK dividends which are not taxable (817) (830) Excess expenses in the year 159 137 Withholding tax suffered on foreign 7 11 dividend income Actual current tax charged to the revenue 7 11 account The Company has unrelieved excess expenses of £14,732,000 (2007: £12,194,000). It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised. 9 Dividends 2008 2007 £'000 £'000 Declared and paid per Ordinary share Fourth interim dividend for the year ended 650 609 30 April 2007 of 4.00p (2006: 3.75p) First interim dividend paid of 3.20p (2007: 520 487 3.00p) Second interim dividend paid of 3.20p 520 488 (2007: 3.00p) Third interim dividend paid of 3.20p (2007: 520 488 3.00p) 2,210 2,072 Proposed per Ordinary share* Proposed fourth interim dividend for the 658 650 year ended 30 April 2008 of 4.05p (2007: 4.00p) * The fourth interim dividend for the year ended 30 April 2008 was paid on 30 June 2008. 10 Return per share Ordinary shares Revenue return per Ordinary share is based on the net revenue on ordinary activities after taxation of £2,185,000 (2007: £2,298,000) and on 16,250,000 (2007: 16,250,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. Capital return per Ordinary share is based on capital losses of £18,695,000 (2007: capital gains £3,223,000) and on 16,250,000 (2007: 16,250,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. 11 Investments 2008 Listed AIM Unlisted Total £'000 £'000 £'000 £'000 Year ended 30 April 2008 Opening bookcost 35,495 9,770 101 45,366 Opening unrealised appreciation/ 11,557 2,153 (75) 13,635 (depreciation) Opening valuation 47,052 11,923 26 59,001 Movements in the year: Purchases at cost 4,745 1,468 - 6,213 Disposals: Proceeds (11,762) (1,730) - (13,492) Net realised gains on disposals 1,511 233 - 1,744 Reclassification of investment (2,565) 2,565 - - Decrease in unrealised (15,110) (4,279) - (19,389) appreciation Closing valuation 23,871 10,180 26 34,077 Closing book cost 27,424 12,306 101 39,831 Closing unrealised depreciation (3,553) (2,126) (75) (5,754) 23,871 10,180 26 34,077 Realised gains on disposals 1,511 233 - 1,744 Decrease in unrealised (15,110) (4,279) - (19,389) appreciation Losses on investments (13,599) (4,046) - (17,645) 2007 Listed AIM Unlisted Total £'000 £'000 £'000 £'000 Year ended 30 April 2007 Opening bookcost 34,087 9,839 101 44,027 Opening unrealised appreciation/ 14,167 1,620 (75) 15,712 (depreciation) Opening valuation 48,254 11,459 26 59,739 Movements in the year: Purchases at cost 12,093 2,191 - 14,284 Disposals: Proceeds (17,914) (2,414) - (20,328) Realised gains on disposals 7,229 154 - 7,383 (Decrease)/increase in (2,610) 533 - (2,077) unrealised appreciation Closing valuation 47,052 11,923 26 59,001 Closing book cost 35,495 9,770 101 45,366 Closing unrealised appreciation/ 11,557 2,153 (75) 13,635 (depreciation) 47,052 11,923 26 59,001 Realised gains on disposals 7,229 154 - 7,383 Increase in unrealised (2,610) 533 - (2,077) appreciation Gains on investments 4,619 687 - 5,306 Transaction costs During the year the Company incurred transaction costs of £50,000 (2007: £ 53,000) and £39,000 (2007: £71,000) on purchases and sales of investments respectively. These amounts are included in gains on investments, as disclosed in the Income statement. 12 Significant Interests The Company has a holding of 3% or more in the following investments: 30 April 2008 Class of share % held ATA Group Ordinary 5.209 Sanderson Group Ordinary 4.610 Victoria Ordinary 4.321 Sinclair (Williams) Holdings Ordinary 4.078 THB Group Ordinary 3.860 Stadium Group Ordinary 3.298 Portmeirion Group Ordinary 3.282 Avesco Group Ordinary 3.197 Chamberlin Ordinary 3.160 Macfarlane Group Ordinary 3.043 13 Trade and other receivables - amounts falling due within one year 2008 2007 £'000 £'000 Sales for future settlement 5 238 Dividends receivable 564 632 Prepayment and accrued income 4 7 573 877 14 Trade and other payables - amounts falling due within one year 2008 2007 £'000 £'000 Other payables 173 363 The Company has an undrawn bank overdraft facility of £6.5 million which is secured by a first legal charge over the Company's investment portfolio. Since the year end this facility has been renewed at £3.0 million. 15 Bank loan 2008 2007 £'000 £'000 Bank loan 10,000 - The bank loan is secured by a first legal charge over the Company's investment portfolio and is repayable on 1 May 2014. 16 UnsecureD loan note On 25 May 1999 the Company issued a Loan Note to its then Subsidiary with a value of £6,258,000. The Loan Note was non-interest bearing and was redeemable at par on 30 April 2007 on the winding up of the Subsidiary. The costs of issuing this Loan Note were amortised through the capital reserve. 2008 2007 £'000 £'000 Value at 1 May 2007 6,258 6,226 Amortisation of costs - 32 Repayment of Loan Note (6,258) - Value at 30 April 2008 - 6,258 The Loan Note was settled on 3 May 2007. 17 DERIVATIVE FINANCIAL INSTRUMENTS An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments based upon interest rates defined in the contract without the exchange of the underlying principal amounts. In each case noted below the Company has swapped its obligation to pay variable rates of interest for a fixed rate. The swaps are 100% effective cashflow hedges and the fair value has been deferred in equity. The fair value at the end of the financial year of interest rate swaps designated as cashflow hedges was estimated as follows: 2008 2007 £'000 £'000 £5,000,000 fixed at 6.3175% for floating 117 - interest rate swap expiring 12 July 2010 £5,000,000 fixed at 6.2475% for floating 174 - interest rate swap expiring 10 July 2012 291 - 18 Commitment to repay capital entitlement of Zero Dividend Preference shares and Preference shares The Company entered into an agreement with its then Subsidiary, pursuant to which the Company subscribed on 30 April 2007 for one Ordinary share in the Subsidiary. The subscription would be at such a premium as would result in the assets of the Subsidiary being sufficient to satisfy the capital entitlement on 30 April 2007 of 184.63p per share of the Zero Dividend Preference shares and the Preference shares in issue on that date. The proceeds from this issue were used by the Subsidiary to subscribe for a Loan Note in the Company. The premium hence in substance reflects a finance cost attributable to the Loan Note. The capital entitlement of the Zero Dividend Preference shares and the Preference shares increased daily at a compound rate over the period to redemption on 30 April 2007. A provision was made in the financial statements for the Company's commitment to subscribe for the Subsidiary share, equal to the increase in the capital entitlement of the Zero Dividend Preference shares and the Preference shares. This provision was taken to the capital reserve. The commitment was crystallised as a liability on 30 April 2007 on which date the Subsidiary was wound-up. 2008 2007 £'000 £'000 Value at 1 May 2007 5,316 4,515 Increase in capital entitlement of Zero - 855 Dividend Preference shareholders Increase in capital entitlement of Preference - 4 shareholders Revenue reserve profits in Subsidiary - (58) Repayment of commitment to subscribe for (5,316) - shares Value at 30 April 2008 - 5,316 The liability on 30 April 2007 arising under the commitment to subscribe for shares was repaid on 3 May 2007. 19 Share capital 2008 2007 £'000 £'000 Authorised 33,000,000 (2007: 33,000,000) Ordinary shares 8,250 8,250 of 25p each 8,250 8,250 Issued, allotted and fully paid 16,250,000 (2007: 16,250,000) Ordinary shares 4,063 4,063 of 25p each 4,063 4,063 As to dividends each year Ordinary shares are entitled to all the revenue profits of the Company available for distribution, including all undistributed income. As to capital on winding up On a winding up, the holders of Ordinary shares will receive all the assets available for distribution to shareholders after payment of all debts and satisfaction of all liabilities of the Company rateably according to the amounts paid or credited as paid up on the Ordinary shares held by them respectively. Duration The Directors shall convene an extraordinary general meeting of the Company to be held on 30 April 2014, or if that is not a business day, on the immediately preceding business day (`the First EGM'), at which an ordinary resolution will be proposed to the effect that the Company continues in existence (`the Continuation Resolution'). In the event that such resolution is not passed the Directors shall, subject to the Statutes, put forward further proposals to shareholders regarding the future of the Company (which may include the voluntary liquidation, unitisation or other reorganisation of the Company) (`Restructuring Resolution') at an extraordinary general meeting of the Company to be convened not more than four months after the date of the First EGM (or such adjournment). The Restructuring Resolution shall be proposed as a special resolution. If the Restructuring Resolution is either not proposed or not passed then the Directors shall convene an extraordinary general meeting not more than four months after the date of the First EGM (or such adjournment) if the Restructuring Resolution is not proposed or four months after the date the Restructuring Resolution is not passed, an ordinary resolution pursuant to section 84 of the Insolvency Act 1986 to voluntarily wind-up the Company shall be put to shareholders at this extraordinary general meeting and the votes taken on such resolution shall be on a poll. 20 Reserves Share Capital Capital Hedge Revenue premium reserve reserve reserve reserve account realised unrealised £'000 £'000 £'000 £'000 £'000 At 1 May 2007 11,917 11,800 13,635 - 1,861 Net losses on - (1,415) - - - realisation of investments Transfer of gains on - 3,159 (3,159) - - disposal of investments Movement in unrealised - - (16,230) - - appreciation/ (depreciation) Costs charged to capital - (1,050) - - - Net deficit after - - - - (25) dividends for the year retained Movement in fair value - - - (291) - of cashflow hedges At 30 April 2008 11,917 12,494 (5,754) (291) 1,836 At 1 May 2006 11,917 6,500 15,712 - 1,635 Net gains on realisation - 1,587 - - - of investments Transfer of gains on - 5,796 (5,796) - - disposal of investments Movement in unrealised - - 3,719 - - appreciation Costs charged to capital - (2,083) - - - Retained net revenue for - - - - 226 the year As 30 April 2007 11,917 11,800 13,635 - 1,861 21 Net asset value per share The net asset value per share and the net assets attributable to the Ordinary shareholders at the year end are calculated in accordance with the Articles of Association and are as follows: Net asset Net assets Net asset Net asset value per attributed value per attributed share to share to shareholders shareholders 2008 2008 2007 2007 pence £'000 pence £'000 Ordinary shares 149.32 24,265 266.32 43,276 22 Reconciliation of net return before and after taxation to net cash flow from operating activities 2008 2007 £'000 £'000 Net return before taxation (16,503) 5,532 Taxation (7) (11) Net return after taxation (16,510) 5,521 Net capital return 18,695 (3,223) Decrease in debtors 71 34 Decrease in creditors (190) (188) Interest and expenses charged to the (1,050) (1,183) capital reserve Net cash inflow from operating 1,016 961 activities 23 Reconciliation of net cash flow to movement in net debt 2008 2007 £'000 £'000 Increase/(decrease) in cash in year 4,744 (503) Repayment of loan note 6,258 - Repayment of commitment to subscribe 5,316 - for shares Finance costs in respect of former - (833) Subsidiary company Advance/(repayment) of loan (10,000) 5,000 Change in net debt 6,318 3,664 Net debt at 1 May 2007 (16,239) (19,903) Net debt at 30 April 2008 (9,921) (16,239) 24 Analysis of changes in net debt At 1 May 2007 Cash flows At 30 April 2008 £'000 £'000 £'000 Cash at bank 247 (168) 79 Overdrafts (4,912) 4,912 - (4,665) 4,744 79 Debts due within one year (11,574) 11,574 - Debts due after more than one - (10,000) (10,000) year (16,239) 6,318 (9,921) 25 Related party transactions The investments are managed by Chelverton a company in which Mr van Heesewijk, as an employee of the Investment Manager, has an interest. The amounts paid to the Investment Manager are disclosed in note 3. 26 Analysis of financial assets and liabilities Objectives, policies and strategies The Company primarily invests in companies with a market capitalisation of up to £500 million. The majority of investments comprise ordinary shares in companies listed on the Official List and companies admitted to AIM. The Company borrowed money by way of a short-term £6.5 million bank overdraft facility and bank loan. The £5.0 million bank loan was repaid on 30 March 2007 and a further £10.0 million bank loan taken out in May 2007. These facilities are used for investment purposes and to aid settlement and finance placings until other investments have been reduced. The Company finances its operations through bank borrowings, equity and retained profits. Cash, liquid resources and short-term debtors and creditors arise from the Company's day-to-day operations. It is, and has been throughout the year under review, the Company's policy that no trading in financial instruments shall be undertaken. Details of the Company's interest rate swap taken out during the year can be found in note 17. The purpose of these swaps is to fix the interest level over a certain period and reduce interest volatility on the £10 million bank loan. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for distribution. These risks are market risk (comprising currency risk, interest rate risk, and other price risk) and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. As required by IFRS 7: Financial Instruments: Disclosures, an analysis of financial assets and liabilities, which identifies the risk to the Company of holding such items, is given below. Market risk Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements and movements in exchange rates. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager. Market price risk Market price risks (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments. The Board manages the risks inherent in the investment portfolio by ensuring full and timely report of relevant information from the Investment Manager. Investment performance is reviewed at each Board meeting. The Company's exposure to other changes in market prices at 30 April on its investments is as follows; 2008 2007 £'000 £'000 Fair value through profit of loss 34,077 59,001 investments Sensitivity analysis A 10% increase in the market value of investments at 30 April 2008 would have increased net assets attributable to shareholders by £3,408,000 (2007: £ 5,900,000). An equal change in the opposite direction would have decreased the net assets available to shareholders by an equal but opposite amount. Foreign currency risk All 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. Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on the Company's variable rate borrowings. 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 and borrowing under the overdraft and loan facilities. The Company is exposed to interest rate risk on its variable rate loan and overdraft. The Company has mitigated its exposure to cashflow variations arising from changes in interest rates by taking out two £5.0 million interest rate swaps as described in note 17. The Company settles the difference between fixed and variable rate on a quarterly basis. Changes in interest rates will however affect the fair value of these derivative instruments. The fair value is determined by obtaining a quotation from the Company's banker of the cost of benefit of closing the contracts. The Company has cash, bank overdraft and loan. These assets and liabilities will be subject to fluctuations in current and future interest rates. The exposure at 30 April of financial assets and financial liabilities to interest rate risk is as follows: Within one year More than one Total year £'000 £'000 £'000 30 April 2008 Cash and cash equivalents 79 - 79 Bank loan - (10,000) (10,000) Total exposure to interest 79 (10,000) (9,921) rates 30 April 2007 Cash and cash equivalents 247 - 247 Bank loan (4,912) - (4,912) Total exposure to interest (4,665) - (4,665) rates The Company had an undrawn overdraft facility of £6.5 million. Since the year end this has been renewed at £3.0 million until 31 March 2009. Bank borrowings under this facility incur interest at a rate of 1% above base rate. A loan of £10.0 million was taken out in May 2007, repayable on 1 May 2014. Bank borrowings under this facility incur interest at a rate of 1% above LIBOR. Sensitivity analysis The Directors believe that at 30 April 2008 the interest rate swaps completely mitigate any cashflow risk through increases in interest rates. Though the fair value of the interest rate swap instruments will vary with changes in interest rates. Liquidity risk The majority of the Company's assets are small listed securities, which can under normal conditions be sold to meet funding commitments if necessary. They may however be difficult to realise in adverse market conditions. Under the terms of the bank facilities the Company must comply with the following financial covenants that: (a) the borrowing (including both loan and overdraft) does not at any time exceed 30% of the value of the investment portfolio after deducting (i) the amount by which the value of any single investment exceeds 5% of the value of the investment portfolio; and (ii) the amount by which the aggregate value of all investments in a single industry sector exceeds 20% of the value of the investment portfolio; or (b) the borrowing does not at any time exceed 80% of the value of the investment portfolio after deducting the value of any investment with a market capitalisation that (i) exceeds £500,000,000, by 10% of the value of such investment; (ii) equals or exceeds £75,000,000 but does not exceed £ 500,000,000, by 40% of the value of such investment; or, (iii) is less than £ 75,000,000, by 70% of the value of such investment; and (c) profit before interest and taxation is not at any time less than 200% of aggregate amount of interest paid and payable. At 30 April 2008, the level of borrowing was 29.3% of the value of the investment portfolio; a further marginal reduction in the market value of investments is likely to require disposal of investments to ensure ongoing compliance with the lending covenant. The covenant is reviewed frequently and monitored in conjunction with the Bank on a monthly basis. Financial instruments by category The financial instruments of the Company fall into the following categories. 30 April 2008 At Loans and Assets at Derivatives Total amortised receivables fair value used for cost through hedging profit or loss £'000 £'000 £'000 £'000 £'000 Assets as per Balance sheet Investments - - 34,077 - 34,077 Trade and other - 573 - - 573 receivables Cash and cash equivalents - 79 - - 79 Total - 652 34,077 - 34,729 Liabilities as per Balance sheet Trade and other payables 173 - - - 173 Bank loan 10,000 - - - 10,000 Derivatives financial - - - 291 291 instruments Total 10,173 - - 291 10,464 30 April 2007 Assets as per Balance sheet Investments - - 59,001 - 59,001 Trade and other - 877 - - 877 receivables Cash and cash equivalents - 247 - - 247 Total - 1,124 59,001 - 60,125 Liabilities as per Balance sheet Trade and other payables 363 - - - 363 Bank overdraft - 4,912 - - 4,912 Loan note 6,258 - - - 6,258 Commitment to subscribe 5,316 - - - 5,316 for shares Total 11,937 4,912 - - 16,849 27 POST BALANCE SHEET EVENTS Since 30 April 2008 there has been a further period of stock market volatility resulting in a reduction in the value of the investment portfolio. The value of the investment portfolio has been reduced by realisation of investments. On 11 July 2008 the Company repaid £3.0 million of its loan facility to avoid a breach of one of its borrowing covenants. The Company currently has £7.0 million drawn down under the loan facility. The Company has renewed its overdraft facility for £3.0 million until 31 March 2009, which is currently undrawn. As at the close of trading on 11 July 2008 the value of the investment portfolio stood at approximately £24 million following the net disposal of investments since 30 April 2008 which realised £3.075 million.

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