Final Results

SMALL COMPANIES DIVIDEND TRUST PLC FINAL RESULTS FOR THE YEAR ENDED 30 APRIL 2009 The full Annual Report and Accounts can be accessed via the Investment Manager'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 2009 was 64.04p (2008: 149.32p), a decline over the year of 57.11%. During this period the FTSE All-Share Index decreased by 29.90%, the FTSE Small-Cap Index decreased by 29.87%. Since listing, on 12 May 1999, the FTSE All-Share has fallen by 26.70% and the net asset value per Ordinary share has declined by 18.90%. Since the year end, the net asset value per Ordinary share has risen to 65.48p as at 10 July 2009. The Company is currently invested in 53 companies across 22 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 economic slowdown combined with the banking crisis have made the past twelve months an extremely difficult time for equities generally and for small companies in particular. The severity of the downturn combined with a shortage of liquidity and an increase in pension fund deficits have led to a substantial fall in dividend payments by `Corporate UK'. In previous downturns our Company has been afforded a degree of protection by the income generated by our investee companies but we have not been immune from the dividend cuts this time as companies have sought to preserve cash. As the markets continued to fall our main focus was to pay down debt and to remain within our banking covenants. The gearing obviously had a substantial negative effect on performance. Although earnings estimates were downgraded for the majority of our companies in the past year the negative share price reaction was compounded by the affects of the lack of liquidity at the smaller end of the market. As the outlook improves and equity prices rise we will be able to rebuild capital in the Company from a relatively oversold position and we have seen the first tentative signs of this in the last six weeks of the Company's year. VAT Reclaims Following the European Court of Justice ruling in 2007 that management fees paid by investment trusts are no longer subject to VAT, the immediate effect is that invoices from the Investment Manager no longer include VAT. The Company has received £184,539 from its former investment manager, BFS Investments (in liquidation). The Investment Manager has also made a claim to HM Revenue & Customs to recover VAT previously paid and a sum of £189,000 has been recognised in the financial statements to reflect the virtually certain recoverable VAT from Chelverton. Bank Facility The Company's borrowing facility has been reduced over the period under review from £10 million to a £4 million fixed loan facility and remains compliant with all its required covenants. In the event of the covenants not being complied with, the loan would become repayable on demand. The Board intends to continue to monitor and if necessary restrict the borrowing arrangements with the bank, so as to limit the total amount of borrowings, to below 30 per cent of total assets at the time of drawdown. The Directors have full responsibility for gearing decisions. The Board has reviewed the position of the loan and continues to believe that it is in shareholders' interests that it should be retained. The Company's bank loan is currently covered by an interest rate swap of £5 million fixed at 6.2475% expiring on 10 July 2012. Dividend The fourth interim dividend declared of 1.70p per Ordinary share was paid on 15 July 2009 to shareholders on the register on 3 July 2009. This dividend brings the total payment for the year ended 30 April 2009 to 7.30p per Ordinary share. Given the harsh economic climate over the period the long-term aim of growing the dividend above the rate of inflation has not been achieved. The sum of £ 195,000 was deducted from revenue reserves. The Company has revenue reserves, which after payment of the fourth interim dividend represent 115% of the current annual dividend or 8.40p per Ordinary share. Shareholders should be aware that recent market falls and the reduction in the level of bank gearing required in order to stay within our banking covenants will continue to affect our capacity to pay dividends. In the last downturn by contrast the Company was geared by zero dividend preference shares. Outlook Whilst the increase in share prices in the last few months has been welcome, for a sustained improvement we will need more evidence that the banking sector is able to provide liquidity and that corporate earnings are improving. We believe this will be a slow process and that the economic recovery is still someway off. The dividend cuts across the market have led to an unprecedented shortage of income in the UK and we believe that our longstanding focus on income from outside of the more traditional areas will serve us well as investors return to equities. Lord Lamont of Lerwick Chairman 24 July 2009 Investment Manager's Report for the year ended 30 April 2009 After the dramatic sell off in September and October smaller companies rallied towards the end of the year only to hit new lows again towards the beginning of March. The recurrent themes of the liquidity crisis and the poor macro outlook continued to drive sentiment but as time moved on it became increasingly evident that the worst of these fears would not be realised. Companies were able to roll over debt, albeit at a substantially higher cost than before, and the equity market provided support by backing a wide range of rights issues. With the fears of a 'worst case scenario' of `Corporate UK' not being able to re-finance gradually easing, small companies staged a dramatic rally in the latter part of March and throughout April. It is important to stress that this 'relief bounce' happened from very low levels of valuation but at least it was the first welcome sign of an increase in investors' appetite for risk. The rally was led in the first instance by cyclicals and there was a definitive size bias as the micro caps substantially outperformed their larger counterparts, a reaction to being the most oversold. Portfolio Review Until the last couple of months the principle consideration of the last period remained a focus on the levels of bank gearing required to remain within our banking covenants. We continued to pay down bank debt with the partial sale of our holdings in Arbuthnot, Dee Valley and Stadium, and we sold out of Premier Foods in its entirety. At the same time we took some money out of Low and Bonar after they had a rights issue to pay down debt. There was a particularly disappointing performance from Dawson Holdings which suffered an unexpected loss of its newspaper and magazine distribution contracts to its competitors. On the plus side, Portmeirion looks to have made an excellent acquisition in buying the intellectual property rights and trade names of Royal Worcester and Spode from receivers. As investors at the smaller end of the market we suffered disproportionally as risk premiums rose and equities were sold off. Being temporarily 'out of favour' combined with low transaction volumes and a general lack of liquidity meant that many of our holdings fell to levels where as Managers we would have destroyed long term shareholder value if we had sold. As the macro environment improves capital will be rebuilt in the Company as a lot of these companies begin to perform. Reassuringly we have seen the first tentative signs of this in the last two months of our year. As these stocks begin to perform we will sell those holdings that have cut dividends where we believe there is little chance of them fulfilling our income requirements in the near term. An example of this is Pendragon that rose from under 2.0p per share in December to 24.5p in April at which point we sold our holding. Where we believe that the directors have the will to move the dividend back to previous levels quickly and where the balance sheet will support it we will tend to retain our investment. In all cases we will continue to focus on 'bottom-up' cash flows as we look to enhance our income prospects as liquidity improves. Outlook The outlook for corporate profitability is as uncertain as we can remember and visibility in order books remains exceptionately low. Earnings estimates have been downgraded for a substantial part of the market in the past six months and recent results have tended, by and large, to come in at the lower end of these reduced expectations. Whilst some Companies have noted a slight improvement in demand recently, the consensus suggests that this is a reaction to six months of de-stocking rather than a more fundamental sign of recovery. On a more positive note if current levels of activity are indicative of 'real' underlying levels of demand then we should see a floor being put under current valuations. For the next leg of the recovery we need to see a sustained upturn in earnings estimates and we believe this is still someway off. We expect corporate activity to remain muted in the short term although, as ever, the cash flow characteristics of our investee companies will be very attractive when the appetite for takeovers returns. It is now evident that a shortage of income in the UK equity market is a significant consequence of the liquidity crisis. We do not believe that this can be rectified in the short term as many companies that cut their dividends will either have to rebuild their balance sheets or will use the reduced payouts as the base level moving forward. We still have a substantial amount of income opportunities within the small company universe and we believe that as confidence returns we should see an early upturn in our fortunes by offering a combination of above average income and capital gearing to a recovery. Breakdown of Portfolio by Industry Support Services 14% Construction & Materials 12% General Financial 12% Household Goods 11% Travel & Leisure 9% Non-Life Insurance 7% Life Insurance 5% Electronic & Electrical 4% Equipment Food Producers 4% Beverages 3% Gas, Water & 3% Multi-utilities Industrial Engineering 3% Mining 3% Chemicals 2% Fixed Line 2% Telecommunications General Retailers 2% General Industrials 1% Media 1% Personal Goods 1% Software & Computer 1% Services Twenty Largest Holdings At 30 April 2009 % of portfolio Macfarlane Group Packaging distribution 4.8 Clarke (T) Electrical contractors with a 4.4 distinctive regional business covering the UK Portmeirion Group Markets and manufactures an 4.2 extensive range of high quality tableware, cookware and giftware Hilton Food Group International specialist 4.2 meat-packing business S&U Consumer credit, car finance 3.9 throughout England, Wales and Scotland Brit Insurance Holdings General insurance and reinsurance 3.9 group Arbuthnot Banking Banking and financial services 3.8 Victoria Manufacturer of carpets 3.5 THB Group A wholesaler for other 3.5 intermediaries and provides risk management and insurance broking services Alumasc Group An engineering company focused on 3.3 the design and manufacture of premium engineering and building products Dee Valley Group Provision of water services 3.3 Sinclair Williams Manufactures and distributes a range 3.2 Holdings of products for the retail and horticultural market. Nichols Soft drinks and dispense systems 3.1 Cineworld Operation of cinemas in the UK and 3.0 Ireland Jarvis Securities Retail execution only stockbrokers 2.9 and financial administrators ATH Resources Coal mining and reclamation 2.9 Marshalls Group Supplies the domestic, public sector 2.7 and commercial markets with ranges of hard landscaping products Zotefoams Manufacture of high performance 2.4 foams Chesnara Life assurance 2.3 Acal Distribution of electrical 2.2 components Top twenty companies 67.5 total Balance held in 34 32.5 holdings Total portfolio 100.00 Breakdown of Portfolio by Market Capitalisation as at 30 April 2009 Number of Companies £500m 3 £250 - 500m 2 £100 - 250m 7 £75 - 100m 3 £50 - 75m 1 £25 - 50m 10 £0 - 25m 28 % of Portfolio >£500m 7.7% £250 - 500m 2.6% £100 - 250m 18.2% £75 - 100m 5.1% £50 - 75m 2.2% £25 - 50m 26.7% £0 - 25m 37.5% David Horner and David Taylor Chelverton Asset Management Limited 24 July 2009 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 the financial statements. The Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs). Company law requires the Directors to prepare such financial statements in accordance with IFRSs and the Companies Act 2006. International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effect of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's `Framework for the Preparation and Presentation of Financial Statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. Directors are also required to: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information, and • provide additional disclosures when compliance and the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Report of the Directors and Directors' remuneration report which comply with the requirements of the Companies Act 2006. The Directors are responsible for the integrity of the information relating to the Company on the Investment Manager's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions. On behalf of the Board of Directors Lord Lamont of Lerwick Chairman 24 July 2009 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 2008. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 April 2009 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 2009 of 7.30p (2008: 13.65p) per Ordinary share has been paid to shareholders by way of one payment of 3.20p, two payments of 1.20p per Ordinary share and a fourth dividend payment of 1.70p per Ordinary share. - The NAV per Ordinary share at 30 April 2009 was 64.04p (2008: 149.32p). - The total expense ratio (including investment management fee and other expenses but excluding performance fee and exceptional items) for the year ended 30 April 2009 was 2.37% (2008: 1.93%). The ratio as at 30 April 2009 represents the effect of costs on a significantly reduced portfolio value. 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 as set out below: 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 and monitored by 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. Hedge accounting The Company took out an interest rate swap in order to minimise the cash flow interest rate risk that the Company was exposed to. The hedge has been accounted for as a cash flow hedge given that it is the use of a swap to change floating rate debt to fixed rate debt. As such the portion of the gain or loss on the hedge that is determined to be effective has been recognised directly in equity and the ineffective portion has been recognised in the income statement. 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 23 to the financial statements. Social, environmental and employee issues The Company does not have any employees and the Board consists of entirely 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. 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. The Directors are seeking to renew the appropriate powers at the next Annual General Meeting to enable the issue and purchase of it's own shares, when it is in shareholders' interests as a whole. Dividends paid 30 April 2009 30 April 2008 Payment date pence pence First interim 30 September 2008 3.20 3.20 Second interim 9 January 2009 1.20 3.20 Third interim 6 April 2009 1.20 3.20 Fourth interim 15 July 2009 1.70 4.05 7.30 13.65 The Directors have not recommended a final dividend in respect of the year ended 30 April 2009. Directors The Directors who served during the year ended 30 April 2009 were as follows: Lord Lamont D Harris B N Lenygon W van Heesewijk 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. None of the Directors has or has had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company, and which was effected by the Company during the current financial year. There have been no loans or guarantees from the Company to any Director at any time during the year or thereafter. Independent Auditors' report to the members of Small Companies Dividend Trust PLC The Company's financial statements for the year ended 30 April 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 and on the Investment Manager's website www.chelvertonam.com. The Directors announce the audited statement of results for the year 1 May 2008 to 30 April 2009 as follows: INCOME STATEMENT for the year ended 30 April 2009 2009 2008 Revenue Capital Total Revenue Capital Total Note £'000 £'000 £'000 £'000 £'000 £'000 Investments Losses on 10 - (12,949) (12,949) - (17,645) (17,645) investments Investment income 2 1,698 - 1,698 2,757 - 2,757 Expenses Investment 3 (44) (132) (176) (116) (350) (466) management fee Recovery of VAT 3 121 253 374 - - - on investment management fee Other expenses 4 (181) - (181) (200) - (200) Exceptional item - - - - 73 73 (104) 121 17 (316) (277) (593) Net return before 1,594 (12,828) (11,234) 2,441 (17,922) (15,481) finance costs and taxation Finance costs 6 (208) (624) (832) (249) (773) (1,022) Net return before 1,386 (13,452) (12,066) 2,192 (18,695) (16,503) taxation Taxation 7 (13) - (13) (7) - (7) Net return after 1,373 (13,452) (12,079) 2,185 (18,695) (16,510) taxation Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Return per: Ordinary share 9 8.45 (82.78) (74.33) 13.45 (115.05) (101.60) 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. The notes form part of these financial statements. STATEMENT OF CHANGES IN NET EQUITY for the year ended 30 April 2009 Share Share p Capital Hedge Revenue Total capital remium reserve reserve reserve account Note £'000 £'000 £'000 £'000 £'000 £'000 Year ended 30 April 2009 30 April 2008 4,063 11,917 6,740 (291) 1,836 24,265 Net return after - - (13,452) - 1,373 (12,079) taxation for the year Dividends paid 8 - - - - (1,568) (1,568) Transfer to profit and - - - 175 - 175 loss Movement in fair value - - - (387) - (387) of cashflow hedges taken to equity 30 April 2009 4,063 11,917 (6,712) (503) 1,641 10,406 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 8 - - - - (2,210) (2,210) Movement in fair value - - - (291) - (291) of cashflow hedges taken to equity 30 April 2008 4,063 11,917 6,740 (291) 1,836 24,265 The notes form part of these financial statements. BALANCE SHEET as at 30 April 2009 2009 2008 Note £'000 £'000 Non-current assets Fair value through profit or 10 14,369 34,077 loss investments Current assets Trade and other receivables 12 440 573 Cash and cash equivalents 318 79 758 652 Total assets 15,127 34,729 Current liabilities Trade and other payables 13 (92) (173) (92) (173) Total assets less current 15,035 34,556 liabilities Bank loan 14 (4,000) (10,000) Derivative financial instruments 15 (629) (291) (4,629) (10,291) Total liabilities (4,721) (10,464) Net assets 10,406 24,265 Represented by: Share capital 16 4,063 4,063 Share premium account 17 11,917 11,917 Capital reserve 17 (6,712) 6,740 Hedge reserve 17 (503) (291) Revenue reserve 17 1,641 1,836 Issued capital and reserves 10,406 24,265 The notes form part of these financial statements. These financial statements were approved by the Board and authorised for issue on 24 July 2009. Lord Lamont of Lerwick, Chairman STATEMENT OF CASH FLOWS for the year ended 30 April 2009 2009 2008 Note £'000 £'000 Operating activities Investment income received 1,983 2,809 Bank deposit interest received 17 11 Investment management fee paid (225) (556) Administration and secretarial (57) (55) fees paid Refund of VAT on Investment 185 - Management fees Other cash payments (129) (172) Cash generated from operations 1,774 2,037 Loan interest paid (731) (995) Other costs in respect of former - (26) subsidiary company Net cash inflow from operating 19 1,043 1,016 activities Investing activities Purchases of investments (1,017) (6,213) Sales of investments 7,781 13,725 Net cash inflow from investing 6,764 7,512 activities Financing activities Advance of bank loan - 10,000 Repayment of bank loan (6,000) - Dividends paid (1,568) (2,210) Repayment of Loan Note - (6,258) Repayment of commitment to - (5,316) subscribe for shares Net cash outflow from financing (7,568) (3,784) activities Increase in cash and cash 20 239 4,744 equivalents for year Cash and cash equivalents at 21 79 (4,665) start of year Cash and cash equivalents at end 21 318 79 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 2009 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 presentation (effective 1 January 2009). • Amendment to IAS39: Financial instruments: Eligible hedged items (effective 1 July 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). • IFRIC 15: Agreements for the construction of real estate (effective 1 January 2009). • IFRIC 16: Hedges of a net investment in foreign operation (effective 1 October 2008). • IFRIC 17: Distribution of non-cash assets to owners (effective 1 July 2009). • IFRIC 18: Transfers of assets from Customers (effective 1 July 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 January 2009, 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. The Directors have chosen to early adopt the January 2009 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 has utilised interest rate swaps as cash flow hedges to mitigate its exposure to interest rate changes on its bank loan which is subject to a variable rate of interest. As at 30 April 2009 the Company had one interest swap in place, details can be found in note 15. All derivatives are recognised at their fair value. The method of recognising movements in fair value of derivatives 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 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% (2008: 75%) of the Investment Manager's fee, 75% (2008: 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. 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 United Kingdom 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. Deferred tax is not provided on capital gains and losses because the Company meets the conditions for approval as an Investment Trust Company. 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 2009 2008 £'000 £'000 Income from listed investments UK net dividend income 1,595 2,722 Unfranked foreign dividend income 87 24 1,682 2,746 Other income Bank interest receivable 16 11 Total income 1,698 2,757 Total income comprises Dividends 1,682 2,746 Interest 16 11 1,698 2,757 3 Investment management fee 2009 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment 44 132 176 110 332 442 management fee Irrecoverable VAT - - - 6 18 24 thereon Recovery of VAT on (121) (253) (374) - - - investment management fees (77) (121) (198) 116 350 466 At 30 April 2009 there were amounts outstanding of £38,000 (2008: £87,000). A performance fee was not payable for the year ended 30 April 2009 or for the year ended 30 April 2008. 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 Company has received £185,000 in backdated VAT from the previous investment managers in respect of this claim, split 40% to revenue, 60% to capital. An amount of £189,000 is still to be recovered in respect of this claim from the Investment Manager. As this amount is considered virtually certain it has been included in receivables and split 25% to revenue and 75% to capital. The irrecoverable VAT charged during the previous 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 or subsequently. 4 Other expenses 2009 2008 £'000 £'000 Administrative and secretarial fee* 48 55 Directors' remuneration 55 61 Auditors' remuneration: audit services* 18 19 non audit services* - - Insurance 13 14 Other expenses* 47 51 181 200 *The above amounts include irrecoverable VAT where applicable. 5 Directors' Remuneration 2009 2008 £ £ Total fees 55,000 61,125 Remuneration to Directors Lord Lamont (Chairman) 20,000 20,000 D Harris 15,000 15,000 B N Lenygon 20,000 20,000 J E Chappell (retired 27 September - 6,125 2007) W van Heesewijk* - - * Mr van Heesewijk has waived his entitlement to fees 6 Finance costs 2009 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Bank interest payable 120 358 478 249 747 996 on bank overdraft and bank loan Cost of cancellation 57 171 228 - - - of portion of interest rate swap no longer effective Cost of ineffective 31 95 126 - - - loan swap Provision for loss in - - - - 26 26 former subsidiary company 208 624 832 249 773 1,022 The cost of cancellation of interest rate swaps and the cost of the ineffective portion of such swaps includes £175,000 previously recognised in equity. 7 Taxation 2009 2008 £'000 £'000 Based on the revenue return for the year Current tax 13 7 The current tax charge for the year is lower than the standard rate of corporation tax in the UK of 28% (2008: 30%). The differences are explained below: 2009 2008 £'000 £'000 Revenue on ordinary activities before (12,066) (16,503) taxation Theoretical tax at UK corporation rate of (3,378) (4,951) 28% (2008: 30%) Effects of: Capital items not taxable 3,626 5,294 UK dividends which are not taxable (447) (817) Excess expenses in the year 199 474 Withholding tax suffered on foreign 13 7 dividend income Actual current tax charged to the revenue 13 7 account The Company has unrelieved excess expenses of £15,630,000 (2008: £14,732,000). 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. 8 Dividends 2009 2008 £'000 £'000 Declared and paid per Ordinary share Fourth interim dividend for the year ended 658 650 30 April 2008 of 4.05p (2007: 4.00p) First interim dividend paid of 3.20p (2008: 520 520 3.20p) Second interim dividend paid of 1.20p 195 520 (2008: 3.20p) Third interim dividend paid of 1.20p (2008: 195 520 3.20p) 1,568 2,210 Proposed per Ordinary share Proposed fourth interim dividend for the 276 658 year ended 30 April 2009 of 1.70p (2008: 4.05p) 9 Return per share Ordinary shares Revenue return per Ordinary share is based on the net revenue on ordinary activities after taxation of £1,373,000 (2008: £2,185,000) and on 16,250,000 (2008: 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 £13,452,000 (2008: capital losses £18,695,000) and on 16,250,000 (2008: 16,250,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. 10 Investments 2009 Listed AIM Unlisted Total £'000 £'000 £'000 £'000 Year ended 30 April 2009 Opening bookcost 27,424 12,306 101 39,831 Opening unrealised depreciation (3,553) (2,126) (75) (5,754) Opening valuation 23,871 10,180 26 34,077 Movements in the year: Purchases at cost 1,017 - - 1,017 Disposals: Proceeds (6,802) (974) - (7,776) Net realised losses on disposals (333) (197) - (530) Increase in unrealised (8,172) (4,221) (26) (12,419) depreciation Closing valuation 9,581 4,788 - 14,369 Closing book cost 21,306 11,135 101 32,542 Closing unrealised depreciation (11,725) (6,347) (101) (18,173) 9,581 4,788 - 14,369 Realised losses on disposals (333) (197) - (530) Increase in unrealised (8,172) (4,221) (26) (12,419) depreciation Losses on investments (8,505) (4,418) (26) (12,949) 2007 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) Transaction costs During the year the Company incurred transaction costs of £7,000 (2008: £ 50,000) and £31,000 (2008: £39,000) on purchases and sales of investments respectively. These amounts are included in gains on investments, as disclosed in the Income Statement. 11 Significant Interests The Company has a holding of 3% or more in the following investments: 30 April 2009 Name of undertaking Class of share % held RTC Group Ordinary 5.209 Sanderson Group Ordinary 4.610 Victoria Ordinary 4.321 Sinclair (Williams) Holdings Ordinary 4.078 Avesco Group Ordinary 3.197 Chamberlin Ordinary 3.160 Portmeirion Group Ordinary 3.125 Stadium Group Ordinary 3.122 Macfarlane Group Ordinary 3.043 12 Trade and other receivables - amounts falling due within one year 2009 2008 £'000 £'000 Sales for future settlement - 5 VAT reclaim on management fees 189 - Dividends receivable 249 564 Prepayment and accrued income 2 4 440 573 13 Trade and other payables - amounts falling due within one year 2009 2008 £'000 £'000 Other payables 92 173 14 Bank loan 2009 2008 £'000 £'000 Bank loan 4,000 10,000 The bank loan is secured by a first legal charge over the Company's investment portfolio. The loan is repayable on 1 May 2014. 15 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. Following the reduction of the loan drawn, there was a mismatch with the two swap transactions. The remaining £4 million loan is only 80% of the remaining £5 million swap. Therefore 20% of the cost of the swaps are charged to income with the remaining 80% to equity. The fair value at the end of the financial year of interest rate swaps designated as cashflow hedges, calculated based on the value of entering into an equivalent swap at the 30 April 2009, was estimated as follows: 2009 2008 £'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 629 174 interest rate swap expiring 10 July 2012 629 291 * Terminated early on 4 November 2008 with an associated breakage cost of £ 228,000. 16 Share capital 2009 2008 £'000 £'000 Authorised 33,000,000 (2008: 33,000,000) Ordinary shares 8,250 8,250 of 25p each 8,250 8,250 Issued, allotted and fully paid 16,250,000 (2008: 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. 17 Reserves Share Capital Hedge Revenue premium reserve reserve reserve account £'000 £'000 £'000 £'000 At 1 May 2008 11,917 6,740 (291) 1,836 Net losses on - (530) - - realisation of investments Movement in unrealised - (12,419) - - depreciation Costs charged to capital - (503) - - Net deficit after - - - (195) dividends for the year retained Transfer to profit and - - 175 - loss* Movement in fair value - - (387) - of cashflow hedges At 30 April 2009 11,917 (6,712) (503) 1,641 At 1 May 2007 11,917 25,435 - 1,861 Net losses on - (1,415) - - realisation of investments Movement in unrealised - (16,230) - - appreciation Costs charged to capital - (1,050) - - Net deficit after - - - (25) dividends for the year retained Movement in fair value - - (291) - of cashflow hedges As 30 April 2008 11,917 6,740 (291) 1,836 * The transfer to profit and loss reflects the proportion of the hedge at 1 May 2008 which became ineffective during the year 18 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 2009 2009 2008 2008 pence £'000 pence £'000 Ordinary shares 64.04 10,406 149.32 24,265 19 Reconciliation of net return before and after taxation to net cash flow from operating activities 2009 2008 £'000 £'000 Net return before taxation (12,066) (16,503) Taxation (13) (7) Net return after taxation (12,079) (16,510) Net capital return 13,452 18,695 Cost of ineffective loan swap 126 - Decrease in receivables 128 71 Decrease in payables (81) (190) Interest and expenses charged to the (503) (1,050) capital reserve Net cash inflow from operating 1,043 1,016 activities 20 Reconciliation of net cash flow to movement in net debt 2009 2008 £'000 £'000 Increase in cash in year 239 4,744 Repayment of loan note - 6,258 Repayment of commitment to subscribe - 5,316 for shares Repayment/(advance) of loan 6,000 (10,000) Change in net debt 6,239 6,318 Net debt at 1 May 2008 (9,921) (16,239) Net debt at 30 April 2009 (3,682) (9,921) 21 Analysis of changes in net debt At 1 May 2008 Cash flows At 30 April 2009 £'000 £'000 £'000 Cash at bank 79 239 318 79 239 318 Debt due after more than one year (10,000) 6,000 (4,000) (9,921) 6,239 (3,682) 22 Related party transactions Under the terms of agreement dated 1 December 2005, the Company has appointed Chelverton to be 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 van Heesewijk, as an employee of the Investment Manager, has an interest. Mr Lenygon is also a director of another investment trust company managed by Chelverton. 23 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. A bank loan of £4 million was in place as at 30 April 2009. 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 and equity. 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 swaps can be found in note 15. The purpose of these swaps is to fix the interest level over a certain period and reduce cashflow volatility on the 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 and interest 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 portfolios 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; 2009 2008 £'000 £'000 Fair value through profit of loss 14,369 34,077 investments Sensitivity analysis A 10% increase in the market value of investments at 30 April 2009 would have increased net assets attributable to shareholders by £1,437,000 (2008: £ 3,408,000). 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 loan facility. The Company is exposed to interest rate risk on its variable rate loan. The Company has mitigated its exposure to cashflow variations arising from changes in interest rates by taking out interest rate swaps as described in note 15. As at 31 May 2009, there is one £5 million swap expiring on 10 July 2012. 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 bank of the cost or benefit of closing the contract. 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 2009 Cash and cash equivalents 318 - 318 Bank loan - (4,000) (4,000) Total exposure to interest 318 (4,000) (3,682) rates 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 A loan facility of £4 million was in place at 30 April 2009, repayable on 1 May 2014. Bank borrowings under this facility amounted to £4 million at 30 April 2009 (2008: £10 million), and incur interest at a rate of 1% above LIBOR. Sensitivity analysis The Directors believe that at 30 April 2009 the interest rate swap completely mitigates 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 listed securities in small companies, 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; and (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 the aggregate amount of interest paid and payable. At 30 April 2009, the level of borrowing was 27.8% (2008: 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 2009 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 - - 14,369 - 14,369 Trade and other - 440 - - 440 receivables Cash and cash equivalents - 318 - - 318 Total - 758 14,369 - 15,127 Liabilities as per Balance sheet Trade and other payables 92 - - - 92 Bank loan 4,000 - - - 4,000 Derivatives financial - - - 629 629 instruments Total 4,092 - - 629 4,721 30 April 2008 Assets at fair value Derivatives At Loans and through used for amortised cost receivables Profit or hedging Total 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 Derivative financial - - - 291 291 instruments Total 10,173 - - 291 10,464

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