Final Results

CHELVERTON GROWTH TRUST PLC FINAL RESULTS FOR THE YEAR ENDED 31 AUGUST 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 Most commentators are in agreement that the `credit crunch' began at the start of our last financial year and it is this that has been the main influence on our performance over the past twelve months. The market was caught between the inflationary pressures of rising food, oil and raw material prices and the deflationary effects of falling house prices and consumer spending. At the same time, the well documented problems in the banking sector have meant that liquidity has dried up and large risk premiums have been applied to stocks with high levels of debt. The Company's net asset value per share has decreased this year from 50.58p to 33.18p - a decrease of 34.4%. In the same period the Company's benchmark index, the FTSE All-Share, decreased by 12.0%; the FTSE 100 Index, which makes up over 90% of the FTSE All-Share Index decreased 10.6%; and the AIM Index decreased by 27.6%. Since the year end the net asset value per share has declined to 27.15p as at 30 September 2008. At the start of our year, smaller companies began to sell off first as it became evident that the economy was slowing, and our portfolio suffered as a result. This is historically a normal reaction as we move through the economic cycle, but was compounded this time as imported inflation left no room for interest rate cuts. As we moved through the year it became apparent that the economic slowdown was to be worse than expected and that the problems in the global financial system would delay recovery. For example, at the micro level we would expect to see substantial levels of corporate activity at current valuations which would help to support share prices but the reluctance of banks to lend has undermined this. The worsening macro environment has manifested itself since the year end with the collapse of Lehman Bros and the proposed takeover of HBOS by Lloyds. Whilst the current macro environment persists, the small companies that we invest in will remain depressed and share prices will continue to be volatile. It is obviously difficult to predict the timing of a recovery but it is worth noting that we have entered this downturn with Sterling having already devalued and with smaller companies generally having relatively strong balance sheets. After the shocks in the last few months we believe that investors will look to get `back to basics' as economies recover and that the stocks that lead the way will be solid businesses that are well financed and cash generative. We should be well placed to benefit from this. Since the last interim statement investors will be too aware of the combined affects of the banking crisis and global economic slowdown on equity markets. These effects have been felt most acutely by smaller companies where valuations have fallen dramatically and where we expect the relative lack of liquidity and price volatility to remain for the foreseeable future. Against this background the Board felt that it was in the best interest of all shareholders not to proceed with the annual tender offer this year. In order to facilitate a tender offer we would have to realise funds from existing investments at prices the Investment Manager deems to be unattractive and not representative of underlying value. Alternatively, the tender offer could be funded by the overdraft facility, but this would currently be constrained by our bank facilities. Fixed tender costs have also played a significant part of the decision, not to offer a tender this year. In the absence of a tender offer and depending on underlying market conditions the Company may be able to use resources to buy back shares on a selective basis at a more appropriate time. Shareholders interested in realising a part of their holdings should contact the Company Secretary in the first instance. G Stevens Chairman 7 November 2008 Investment Manager's overview Although we are just over a year into the `credit crunch', the reality is that UK smaller companies have been trending down for over 18 months. In the early part of the period investors could mitigate against a declining domestic economy by investing in oil and gas and mining shares, but the inevitable consequences of a rapidly slowing global economy have finally taken their toll on these sectors. Although smaller companies have historically been perceived as `risky' assets to hold in a downturn, the events of the past few months have shown that there are no safe havens in the current environment. Whilst we have undoubtedly suffered from the small company effect for the majority of the past year we believe that moving forward quality and sustainability of both cash flows and earnings will be the prime determinant of investment performance. Portfolio Review Over the last twelve months we have made a number of additional investments in existing holdings. These included Belgravium, after directors had purchased stock and SPI Lasers. The latter was a funding at 30p to enable the company to step up marketing activity, and since our year end the company has been the subject of an agreed offer at 40p per share. We also made a new investment in limited liability partnership; Parmenion Capital which is a business founded in 2006 offering investment management services to the IFA community. On the sell side, we realised some funds from a partial sale of our holding in Smallbone after a period of good performance. Conder has decided to delist as part of a cost saving effort, a reaction to a problem encountered by an increasing number of AIM stocks where central overheads become too high relative to the market cap. Our portfolio has suffered from a particularly disappointing performance from General Capital, but the new management team has recently agreed new banking arrangements. Unfortunately Food and Drink Group went into administration. During the year, our holdings in Minorplanet and Titan Europe both received indicative offers at a very significant premium that ultimately did not materialise into hard offers. Outlook The lack of liquidity in the banking sector has effectively removed one of the short term supports to small cap share prices at the bottom of the cycle in that it will have the affect of preventing other companies and management teams taking over undervalued companies. As the liquidity environment improves however we expect that a surge in corporate activity will serve to highlight the value currently available at the smaller end of the market. In the meantime however we expect that prices will remain extremely volatile. David Horner Chelverton Asset Management Limited 7 November 2008 Top Twenty Investments 31 August 2008 31 August 2007 Valuation % of Valuation % of Investment £'000 total £'000 total IDOX 972 16.5 720 8.4 AI Claims Solutions 517 8.8 616 7.2 Closed Loop Recycling 336 5.7 249 2.9 Northbridge Industrial 312 5.3 328 3.8 Services Smallbone 300 5.1 376 4.4 Belgravium Technologies 250 4.2 580 6.8 Tristel 231 3.9 225 2.6 Minorplanet Systems 230 3.9 270 3.2 Datong Electronics 200 3.4 220 2.6 Newmark Security 196 3.3 184 2.2 CEPS 188 3.2 350 4.1 AT Communications Group 163 2.8 299 3.5 Hartest Holdings 153 2.6 194 2.3 Titan Europe 144 2.4 233 2.7 PSG Solutions 130 2.2 144 1.7 Satcom Group Holdings 120 2.0 183 2.1 MTI Wireless Edge 119 2.0 273 3.2 Forest Support Services Plc 118 2.0 171 2.0 EBTM 102 1.7 185 2.2 Parmenion Capital Partners LLP 100 1.7 - - Total 4,881 82.7 5,800 67.9 Business Review Status, objective and review The principal activity of the Company is to carry on business as an investment trust. The Company has been granted approval from HM Revenue & Customs as an authorised investment trust under Section 842 of the Income and Corporation Taxes Act 1988 for the year ended 31 August 2007. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 August 2008 so as to be able to continue to obtain approval as an authorised investment trust. The Company is an investment company as defined in Section 833 of the Companies Act 2006. Investment objective The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market with a market capitalisation at the time of investment of up to £50 million, which are believed to be at a "point of change". Its investment objective is also to increase net asset value per share at a higher rate than other quoted smaller company trusts and the FTSE All-Share Index. Investment policy The Company invests principally in securities of publicly quoted UK companies, though it may invest in unquoted securities. The concentrated UK portfolio comprises between 30 to 45 securities. The performance of the Company's investments is compared to the FTSE All-Share Index. The Company will also invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on the Alternative Investment Market or the investee company being sold. It is the Company's policy not to invest in any listed companies or listed investment trusts. To comply with the Listing Rules 15.2.7 and 15.6.2 the Company's investment policy is detailed above and should be read in conjunction with the subsequent sections entitled investment strategy and the portfolio analysis. It is intended from time to time, when deemed appropriate, that the Company will borrow for investment purposes. It currently has a £1.5m overdraft facility with Lloyds TSB Bank plc. The investment objective and policy stated are intended to distinguish the Company from other investment vehicles which have relatively narrow investment objectives and which are constrained in there decision making and asset allocation. The investment objective and policy allow the Company to be constrained in its investment selection only by valuation and to be pragmatic in portfolio construction by only investing in securities which the Investment Manager considers to be undervalued on an absolute basis. Investment strategy Investments are selected for the portfolio only after extensive research which the Investment Manager believes to be key. The whole process through which equity must pass in order to be included in the portfolio is very rigorous. Only a security where the Investment Manager believes that the price will be significantly higher in the future will pass the selection process. The Company's Investment Manager believes the key to successful stock selection is to identify the long-term value of a company's shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long term value involves detailed analysis of a company's earning prospects over a five year time horizon. The Company's Investment Manager is Chelverton Asset Management Limited, an independent investment manager focusing exclusively on achieving returns for investors based on UK investment analysis of the highest quality. The founders and employee owners of Chelverton include experienced investment professionals with strong investment performance records who believe rigorous fundamental research allied to patience is the basis of long term investment success. The Chairman's statement and the Investment Manager's overview give details of the Company's activities during the year under review. Performance analysis using key performance indicators At each Board meeting, the Directors consider a number of performance measures to assets the Company's success in achieving its objectives, for example: the NAV, the movement in the Company share price, the discount of the share price in relation to the NAV and the total expenses ratio. The Company's income statement is set out below. The movement of the NAV is compared to the FTSE All-Share Index, the Company's benchmark. The NAV per Ordinary share at 31 August 2008 was 33.18p (2007: 50.58p). The Company's share price at the year end was 21.50p (2007: 39.50p). During the year ended 31 August 2008 the Company purchased 2,635,173 shares for cancellation, of which 2,624,973 (15.0% of the Company's issued share capital) were by the way of tender offer. Principal risks The Board considers the following as the principal risks facing the Company. Mitigation of these risks is sought and achieved in a number of ways: Market risk The Company is exposed to market risk due to fluctuations in the market prices of its investments. The Investment Manager actively monitors economic and company performance and reports regularly to the Board on a formal and informal basis. The Board formally meets with the Investment Manager quarterly when portfolio transactions and performance are reviewed. The Management Engagement Committee meets as required to review the performance of the Investment Manager. Further details regarding the Company's various Committees and their duties are given in the Statement on corporate governance. The Company is substantially dependent on the services of the Investment Manager's investment team for the implementation of its investment policy. The Company may hold a proportion of the portfolio in cash or cash equivalent investments from time to time. Whilst during positive stock market movements the portfolio may forego notional gains, during negative market movements this may provide protection. Discount volatility As with many investment trust companies, discount can significantly fluctuate. The Board recognises that it is in the long term interests of shareholders to reduce discount volatility and believes that the prime driver of discounts over the longer term is performance. The Board does not intend to adopt a precise discount target at which shares will be bought back. However Ordinary shares will not be bought back for cancellation or into treasury at a discount to NAV of less than 7.5%. Regulatory risks A breach of Companies Act regulations and FSA/London Stock Exchange rules may result in the Company being liable to fines or the suspension of the Company from the London Stock Exchange. The Board with its advisers monitor the Company's regulatory obligations both on an ongoing basis and at quarterly Board meetings. Financial risk The financial situation of the Company is reviewed in detail at each Board meeting. The content of the Company's annual report and accounts is monitored and approved both by the Board and the Audit Committee. Inappropriate accounting policies or failure to comply with current or new accounting standards may lead to a breach of regulations. Banking risk The Board monitors overdraft limits at each Board meeting and regularly reviews the headroom of overdraft facilities with the Investment Manager. The industry loan providers ratings are regularly monitored. A more detailed explanation of the investment management risks facing the Company are given in note 19 to the accounts. Current and future developments A review of the main features of the year is contained in the Chairman's statement and the Investment Manager's overview. The marketing and promotion of the Company will continue to involve the Board and the Investment Manager, with communications with shareholders and other external parties. Results and dividends The results for the year and the proposed transfer from revenue reserves are set out in the income statement. The Directors do not recommend the payment of a dividend for the year. Statement of Directors' responsibilities in respect of the financial statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and those United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Company law requires the Directors to prepare financial statements for each financial year which present fairly the financial position of the Company and the financial performance and cash flows of the Company for that period. In preparing these financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; - state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors, to the best of their knowledge, state that: - the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and - the Chairman's Statement, Investment Manager's Review and Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principle risks and uncertainties that it faces. The Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken all the steps that ought to have been taken as a Director to make himself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board George Stevens Chairman 7 November 2008 Independent Auditors' report To the members of the Chelverton Growth Trust PLC The Company's financial statements for the year ended 31 August 2008 have been audited by Hazlewoods LLP. The text of the Auditor's report can be found in the Company's Annual Report and Accounts at www.chelvertonam.com. Income statement For the year ended 31 August 2008 2008 2007 Revenue Capital Total Revenue Capital Total Note £'000 £'000 £'000 £'000 £'000 £'000 (Losses)/gains 8 - (2,641) (2,641) - 2,718 2,718 on investments at fair value Income 2 129 - 129 106 - 106 Investment 3 (19) (56) (75) (27) (79) (106) management fee Other expenses 4 (139) - (139) (166) - (166) Net return (29) (2,697) (2,726) (87) 2,639 2,552 before finance costs and taxation Interest 5 (8) (25) (33) (15) (45) (60) payable Net return on (37) (2,722) (2,759) (102) 2,594 2,492 ordinary activities before taxation Taxation on 6 (1) - (1) - - - ordinary activities Net return on (38) (2,722) (2,760) (102) 2,594 2,492 ordinary activities after taxation Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Return per 7 (0.25) (17.18) (17.43) (0.58) 14.65 14.07 Ordinary share The total column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. A separate statement of total recognised gains and losses has not been prepared as all such gains and losses are included in the income statement. Reconciliation of movements in shareholders' funds For the year ended 31 August 2008 Called up Share Capital Capital Revenue Total share premium reserve redemption reserve capital account reserve £'000 £'000 £'000 £'000 £'000 £'000 Year ended 31 August 2008 1 September 2007 175 2,674 2,285 14 3,703 8,851 Cost of shares (26) - (1,158) 26 - (1,158) cancelled Net return after - - (2,722) - (38) (2,760) taxation for the year 31 August 2008 149 2,674 (1,595) 40 3,665 4,933 Year ended 31 August 2007 1 September 2006 182 2,674 (99) 7 3,805 6,569 Cost of shares (7) - (210) 7 - (210) cancelled Net return after - - 2,594 - (102) 2,492 taxation for the year 31 August 2007 175 2,674 2,285 14 3,703 8,851 Balance sheet as at 31 August 2008 2008 2007 Note £'000 £'000 Fixed assets Investments at fair value 8 5,900 8,542 Current assets Debtors 10 29 18 Cash at bank - 382 29 400 Creditors - amounts falling due within 11 996 91 one year Net current (liabilities)/assets (967) 309 Net assets 4,933 8,851 Share capital and reserves Called up share capital 12 149 175 Share premium account 13 2,674 2,674 Capital reserve - realised 13 2,030 3,058 - unrealised 13 (3,625) (773) - capital redemption reserve 13 40 14 Revenue reserve 13 3,665 3,703 Equity shareholders' funds 4,933 8,851 Net asset value per Ordinary share 17 33.18p 50.58p These accounts were approved by the Board of Directors and authorised for issue on 7 November 2008. They were signed on its behalf by George Stevens Chairman Statement of cash flows for the year ended 31 August 2008 2008 2007 Note £'000 £'000 Operating activities Investment income received 118 98 Deposit interest received 6 3 Investment management fees paid (78) (114) Secretarial fees paid (46) (45) Other cash payments (100) (113) Net cash outflow from operating 14 (100) (171) activities Returns on investments and servicing of finance Interest paid (28) (68) Investing activities Purchases of investments (528) (2,070) Sales of investments 493 4,220 Net cash (outflow)/inflow from (35) 2,150 investing activities Financing Share repurchase (1,118) (210) Cost of Tender Offer (38) - (1,156) (210) (Decrease)/increase in cash 16 (1,319) 1,701 NOTES TO THE FINANCIAL STATEMENTS as at 30 April 2008 1. Accounting policies Accounting convention The accounts are prepared in accordance with applicable accounting standards and the Statement of Recommended Practice ("SORP") issued in January 2003, revised in December 2005, regarding the Financial Statements of Investment Trust Companies. All the Company's activities are continuing. Income recognition Dividends receivable on quoted equity shares are included in the accounts when the investments concerned are quoted `ex-dividend'. UK dividends are disclosed excluding the associated tax credit. Dividends receivable on equity and non-equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. All other income is included on an accruals basis. Expenses All expenses are accounted for accounted for on an accruals basis and charged through the revenue account in the income statement except as follows: - expenses which are incidental to the acquisition or disposal of an investment are treated as capital and separately identified and disclosed (see note 8); - Management fees and bank interest have been allocated 75% to capital reserve (realised) and 25% to revenue reserve in the income statement, being in line with the Board's expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio of the Company. Investments All investments held by the Company are classified as `fair value through profit or loss'. Investments are initially recognised at cost, being the fair value of the consideration given. After initial recognition investments are measured at fair value, with 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. Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset. Where investments are unlisted or trading in the securities of an investee company is suspended, the investment is valued at the Directors' estimate of its net realisable value being their estimate of fair value. Capital reserves Capital reserve (realised) The following are accounted for in this reserve: - gains and losses on the realisation of investments; - realised exchange differences of a capital nature; and - expenses, together with related taxation effect, charged to this account in accordance with the above policies. Capital reserve (unrealised) The following are accounted for in this reserve: - increases and decreases in the valuation of the investments held at the year end. Taxation The charge for taxation, where relevant, is based on the revenue before taxation for the year. Tax deferred or accelerated can arise due to timing differences between the treatment of certain items for accounting and taxation purposes. Full provision is made for deferred taxation under the liability method, on all timing differences not reserved by the balance sheet date, in accordance with FRS 19: Deferred tax. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue on the same basis as the particular item to which it relates, using the Company's effective rate of tax for the accounting period. 2. Income 2008 2007 £'000 £'000 Income from investments Dividends from UK companies 120 97 Dividends from overseas companies 6 3 126 100 Other income Bank interest receivable 3 6 Total income 129 106 Total income comprises: Dividends 126 100 Interest 3 6 129 106 3. Investment management fee 2008 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment 18 54 72 23 67 90 management fee Irrecoverable VAT 1 2 3 4 12 16 thereon 19 56 75 27 79 106 The investment management fee is calculated at the rate of 1/6% per month of the gross value of funds under management and is payable monthly is arrears. At 31 August 2008 there was £5,000 outstanding (2007: £8,000). From 1 September 2006 the Investment Manager agreed to waive half its fee. In 2004 the Association of Investment Companies (`AIC') and JPMorgan Claverhouse (`Claverhouse') brought a case against HM Revenue & Customs to challenge the VAT 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 effect of the ruling was that invoices from the Investment Manager should no longer include VAT. The irrecoverable VAT charged during the year has been affected as a consequence of the above ruling. The Company was charged VAT on fees from 1 September 2007 to 31 October 2007, but no VAT was charged for the fees from 1 November 2007 to 31 August 2008. 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. 4. Other expenses 2008 2007 Revenue Revenue £'000 £'000 Administrative and secretarial services 47 45 Directors' remuneration 49 55 Auditors' remuneration: audit services 12 12 Other expenses 31 54 139 166 5. Interest payable 2008 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 On bank overdraft 8 25 33 15 45 60 6. Taxation 2008 2007 £'000 £'000 Analysis of charge in period Current tax Irrecoverable withholding tax 1 - 1 - Factors affecting current tax charge for the period The tax assessed for the period is lower than the standard rate of corporation tax in the UK for a medium or large company (29.17%). The differences are explained below: 2008 2007 £'000 £'000 Loss on ordinary activities before (37) (102) taxation Corporation tax at 29.17% (2007:30%) (11) (31) UK dividend income not taxable (35) (29) Deductible expenses charged to capital (23) (37) Excess expenses for the period 69 97 Withholding tax suffered on foreign 1 - income dividend Current tax charge for the period 1 - At 31 August 2008 the company had surplus management expenses of £2,919.000 (2007: £2,682,000) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future tax liabilities through the use of existing surplus expenses. 7. Return per Ordinary share 2008 2007 Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Basic (0.25) (17.18) (17.43) (0.58) 14.65 14.07 Revenue return per Ordinary share is based on the net revenue loss on ordinary activities after taxation attributable of £38,000 (2007: £102,000) and on 15,836,872 (2007: 17,709,375) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. Capital return per Ordinary share is based on the net capital loss of £ 2,722,000 (2007: net capital gains of £2,594,000) and on 15,836,872 (2007: 17,709,375) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. Total return per Ordinary share is based on the total loss of £2,760,000 (2007: total gain £2,492,000) and on 15,836,872 (2007: 17,709,375) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. 8. Investments 2008 2007 £'000 £'000 Delisted 105 - AIM 5,294 8,225 Unquoted 501 317 5,900 8,542 AIM Delisted Unquoted* Total l £'000 £'000 £'000 £'000 Opening book cost 8,669 - 646 9,315 Opening unrealised (444) - (329) (773) depreciation 8,225 - 317 8,542 Movements in the year: Purchases at cost 313 - 187 500 Sales: Proceeds (494) - (7) (501) Realised gains/(losses) on 347 - (136) 211 sales Transfer between categories (942) 942 - - (Increase)/decrease in (2,155) (837) 140 (2,852) unrealised depreciation 5,294 105 501 5,900 Closing book cost 7,893 942 690 9,525 Closing unrealised (2,599) (837) (189) (3,625) depreciation 5,294 105 501 5,900 2008 2007 £'000 £'000 Realised gains on sales 211 1,403 (Increase)/decrease in unrealised (2,852) 1,315 depreciation Net (losses)/gains on investments at (2,641) 2,718 fair value * Unquoted investments are valued at the Directors' estimate of their net realisable value, being their estimate of fair value. Transaction costs During the year, the Company incurred transaction costs of £2,374 (2007: £ 7,007) and £2,484 (2007: £7,271) on purchases and sales of investments, respectively. These amounts are included in'(Gains)/losses on investments at fair value' as disclosed in the income statement. 9. Significant Interests At 31 August 2008 the Company has a holding of 3% or more of the issued class of share that is material in the context of the accounts in the following investments: Number of Percentage of Security shares held issued share Issued share capital capital Forest Support Services, Ord 2,140,000 11.440 18,706,961 5p CEPS, Ord 5p 625,856 7.527 8,314,285 Belgravium Technologies, Ord 5,000,000 4.954 100,936,547 5p CEPS, Wts To Sub For Ord 20/04 65,706 4.570 1,437,769 /10 Hartest Holdings, Ord 10p 340,000 3.951 8,605,288 AI Claims Solutions, Ord 10p 2,200,000 3.582 61,416,189 Minorplanet Systems, Ord 1p 1,000,000 3.084 32,429,861 10. Debtors - amounts falling due within one year 2008 2007 £'000 £'000 Amounts due from brokers 8 - Prepayments and other debtors 6 10 Dividends receivable 15 8 29 18 11. Creditors - amounts falling due within one year 2008 2007 £'000 £'000 Amounts due from brokers - 28 Other creditors 59 63 Bank overdraft 937 - 996 91 The bank overdraft is secured by a floating charge over the Company's investment portfolio. Further details are disclosed in note 19(iii). 12. Called up share capital 2008 2007 £'000 £'000 Authorised: 27,000,000 Ordinary shares of 1p each 270 270 Allotted, called up and fully paid: 14,864,827 (2007: 17,500,000) Ordinary shares 149 175 of 1p each During the year the following Ordinary shares were cancelled: Number Total cost of % of issued purchase Date of shares including expenses shares at that date 14 January 2008 2,624,973* £1,154,000 15.00 16 January 2008 10,200 £4,000 0.07 2,635,173 £1,158,000 * These shares were repurchased pursuant to the Company's following a Tender Offer dated 23 November 2007. Duration The Articles of Association provide that the Directors shall convene an Extraordinary General Meeting of the Company on 30 November 2011, or if that day is not a business day, on the immediately preceding business day, at which proposals for the voluntary liquidation, unitisation or other reorganisation of the Company shall be put to the members ("Winding-up Resolution") unless the Directors shall have been previously released from their obligation to do so by a special resolution of the Company duly passed at the Annual General Meeting of the Company to be held in 2008 resolving to continue to operate as an investment trust company. If the Directors are released from the obligation, they shall be obliged to convene an Extraordinary General Meeting to be held on 30 November 2014, or if that is not a business day, on the immediately preceding business day and every fifth year thereafter, proposing a similar Winding-up Resolution which shall be proposed as a special resolution and the vote shall be taken on a poll. 13. Reserves Capital Capital Capital Share reserve reserve redemption Revenue premium realised unrealised reserve reserve £'000 £'000 £'000 £'000 £'000 At 1 September 2007 2,674 3,058 (773) 14 3,703 Net gains on realisation - 365 - - - of investments Transfer on disposal of - (154) 154 - - investments Decrease in unrealised - - (3,006) - - depreciation Cost of shares cancelled* - (1,158) - 26 - Costs charged to capital - (81) - - - Retained net loss for the - - - - (38) year At 31 August 2008 2,674 2,030 (3,625) 40 3,665 * Cost of shares cancelled include costs of £42,000 relating to the tender offer. 14. Reconciliation of net return before finance costs and taxation to net cash outflow from operating activities 2008 2007 £'000 £'000 Net return before finance costs and taxation (2,726) 2,552 Net capital return before finance costs 2,697 (2,639) Expenses charged to capital (56) (79) Decrease in creditors and accruals (11) - Increase in prepayments and accrued income (4) (5) (100) (171) 15. Reconciliation of net cash flow to net debt 2008 2007 £'000 £'000 Net cash/(debt) at 1 September 2007 382 (1,319) Net cash (outflow)/inflow (1,319) 1,701 Net (debt)/cash at 31 August 2008 (937) 382 16 Analysis of changes in net debt At At 1 September Cash 31 August 2007 flows 2008 Cash at bank 382 (382) - Bank overdraft - (937) (937) 382 (1,319) (937) 17. Net asset value per Ordinary share The basic net asset value per Ordinary share is based on net assets of £ 4,933,000 (2007: £8,851,000) and on 14,864,827 (2007: 17,500,000) Ordinary shares, being the number of shares in issue at the year end. 18. Capital commitments and contingent liabilities At 31 August 2008 there were no capital commitments and contingent liabilities (2007: £nil). 19. Analysis of financial assets and liabilities The Company's financial instruments comprises securities and other investments, cash balances and debtors and creditors that arise from its operations, for example, in respect of sales and purchases awaiting settlement and debtors for accrued income. The Company primarily invests in companies traded on AIM with a market capitalisation at the time of investment of up to £50 million. The Company finances its operations through its issued capital, existing reserves and a bank overdraft. In following its investment objectives, the Company is exposed to a variety of risks that could result in a reduction in the Company's net assets. These risks are market risk (comprising exchange rate risk, interest rate risk and other price risk), credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below: (i) Market risk - market price risk Market price risk arises mainly from uncertainty about future prices on financial investments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements other than movements in exchange rates and interest rates. The Company's investment portfolio is exposed to market price fluctuations which are monitored by the Manager who gives timely report of relevant information to the Directors. Investments performance is also reviewed at each Board meeting. The Directors are conscious of the fact that the nature of AIM investments is such that prices can be volatile. Investors should be aware that the Company is exposed to a higher rate of risk than exists within a fund which holds traditional blue chip securities. Adherence to the investment objectives and the internal control limits on investments set by the Company mitigates the risk of excessive exposure to any one particular type of security or issuer. The Company's exposure to other changes in market prices at 31 August on its investments is as follows: 2008 2007 £'000 £'000 Fair value through profit or loss investments 5,900 8,542 A 20% decrease in the market value of investments at 31 August 2008 would have decreased net asset attributed to shareholders by £1,180,000 (2007: £ 1,708,000). An increase of the same percentage would have an equal but opposite effect on net assets available to shareholders. (ii) Market risk - exchange rate risk All of the Company's assets are in sterling and accordingly the only currency exposure the Company has is through the trading activities of its investee companies. (iii) Market risk - interest rate risk Changes in interest rates may cause fluctuations in the income and expenses of the Company. The majority of the Company's financial assets are non-interest bearing. As a result, the Company's financial assets are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. The Company has a bank overdraft. This liability will be subject to fluctuations in current and future 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 facility. The exposure at 31 August of financial assets and financial liabilities to interest rate risk is as follows: 2008 2007 £'000 £'000 Cash at bank - 382 Bank overdraft (937) - (937) 382 The Company has an overdraft facility with Lloyds TSB Bank PLC of £1,500,000 bearing interest at 1% over the Bank's base rate (at 31 August 2008 6.00% per annum). The effect of an interest rate increase in 1% would have the effect of reducing net revenue before taxation on an annualised basis by £9,000. If there was a decrease in interest rates of 1% there would be an equal and opposite effect in the net revenue before taxation. These calculations are based on balances as at 31 August 2008 and may not be representative of the year as a whole. (iv) Liquidity risk Liquidity risk is the risk the Company will encounter difficulty meeting obligations associated with its financial liabilities. The Company has an available overdraft facility with Lloyds TSB Bank Plc of £ 1,500,000. The amount outstanding under the overdraft facility at 31 August 2008 was £937,000 (2007: nil). Under the terms of the bank facilities, the Company must comply with the following financial covenant condition. The bank overdraft must be less than 25% of the Company's permitted investments. The covenant is reviewed frequently and reported to the Bank on a monthly basis. The majority of the Company's assets are AIM listed securities, which can under normal conditions be sold to meet funding commitments if necessary. These may however be difficult to realise in adverse market conditions. (v) Maturity Analysis of Financial Liabilities The Company's financial liabilities comprise of the bank overdraft and creditors as disclosed in note 11. All items are due within one year. (vi) Managing Capital The Company's capital management objectives are to increase net asset value per share at a higher rather than other quoted smaller company trusts and the FTSE All-Share Index. Primarily the Company finances its operations through its issued capital and existing reserves. (vii) Fair values of financial assets and financial liabilities All of the financial assets and liabilities of the Company are held at fair value. (viii) Financial instruments by category The financial instruments of the Company fall into the following categories. Assets at fair At value amortised Loans and through cost receivables profit or Total loss £'000 £'000 £'000 £'000 31 August 2008 Assets as per the Balance sheet Investments - - 5,900 5,900 Debtors - 29 - 29 - 29 5,900 5,929 Liabilities as per the Balance sheet Creditors 59 - - 59 Bank overdraft - 937 - 937 59 937 - 996 31 August 2007 Assets as per the Balance Sheet Investments - - 8,542 8,542 Debtors - 18 - 18 Cash at bank - 382 - 382 Total - 400 8,542 8,942 Liabilities as per the Balance sheet Creditors 91 - - 91 20. Related party transactions Under the terms of the agreement dated 28 June 2001, the Company has appointed Chelverton Asset Management Limited to be the Investment Manager. The fee arrangements for these services and fees payable are set out in the Report of the Directors and in note 3 to the accounts. Mr Horner, a Director of the Company, is also a director of Chelverton Asset Management Limited and CEPS PLC. Mr Allen, a Director of the Company is a director and employee of Forest Support Services PLC, in which the Company has an investment (see note 9). 21. Post balance sheet events Since 31 August 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. As at the close of trading on 31 October 2008 the value of the investment portfolio stood at approximately £3,780,000 following the net disposal of investments since 31 August 2008 which realised approximately £343,000. ANNUAL GENERAL MEETING The Company's Annual General Meeting will be held at the offices of Chelverton Asset Management Limited, 9 Dartmouth Street, London SW1H 9BP at 11.30am on Wednesday, 17 December 2008. The notice of this meeting can be found in the Annual Report and Accounts at www.chelvertonam.com. AMENDMENTS TO ARTICLES OF ASSOCIATION At the Company's forthcoming AGM, a resolution will be put to shareholders to amend the Company's Articles of Association. Details of the proposed amendments to the Articles of Association are set out in an appendix to the Annual Report and Accounts, which have been posted on the Company's website at www.chelvertonam.com.

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