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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gart.Gwth | LSE:GGOR | London | Ordinary Share | GB00B07BP660 | ORD 0.025P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 471.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMGGOR
GARTMORE GROWTH OPPORTUNITIES plc
Final Results for the year to 30 June 2009
The following comprises extracts from the Company's Annual Report and Accounts
for the year to 30 June 2009. The full Annual Report and Accounts is available
to be viewed on or downloaded from the Company's website at
http://www.gartmoregrowthopps.co.uk .
Copies will be mailed to shareholders shortly.
Annual Report Page 3
Chairman's Statement
I am always wary about being too satisfied about results, but a rise of 16.1%
in our NAV (net asset value per Ordinary share), when our Benchmark, the FTSE
SmallCap (excluding investment trust companies) index, fell 24.2% and the FTSE
All-Share index fell 23.9% does give some grounds for feeling upbeat.
This result comes from a combination of strong portfolio management and
precautionary action taken by the Board and the Manager in anticipating the
risks and opportunities of a major fall in the equity markets. Buying put
options on the FTSE100 index offset the risk of a stock market sell-off and
these options realised GBP16 million when they were sold in October 2008, whilst
the markets suffered major falls. This provided the Company with a greater
amount of capital to buy attractive high yielding small-cap stocks when they
were relatively cheap.
Since March 2009, when the market turned, the latent value of the smallest
"micro-cap" quoted companies, where the portfolio has been positioned, has
delivered a substantial rise in our NAV.
The additional high yielding small-cap stocks, and a greater ultimate recovery
of VAT, with interest, in relation to past management fees, than we previously
accrued, lead to revenue per share increasing to 7.75p compared with 1.18p last
year. In view of this, the Directors have declared a dividend of 4.3p per
Ordinary share for the year, up from 1.5p last year. For the third year running
the Company has also declared a special dividend, in this case of 2.0p per
Ordinary share in connection with the non-recurring VAT recovery, to make a
total dividend of 6.3p for the year.
In the volatile market conditions over the last year some shareholders
requested to sell their shares through the quarterly redemption opportunity.
All valid requests were approved and in the financial year 2,726,129 Ordinary
shares were redeemed, being 18.9% of the shares in issue at 30 June 2008.
The Managers outline in their review on page 6 why they believe we are entering
a period where small-cap stocks can outperform the broader equities market, in
spite of an expectation of modest growth in the economy.
As a consequence, the Board believes that small-cap investment trusts such as
ours should be of increasing interest to institutional and private investors.
The lower level of our discount and the July redemption of a further 843,012
shares being matched with institutional buyers gives some evidence for this
positive view.
David Peters
Chairman
4 September 2009
=---------
Annual Report Page 5
Manager's Review
The twelve months to 30 June 2009 presented a market environment as challenging
as we had feared, with faltering economic activity, concerns about the banking
system and substantial declines in equity markets. Despite their modest
valuations, smaller companies were once again particularly heavily affected by
the widespread withdrawal of capital from equities, falling victim to the
perception that smaller means higher risk. Since March, however, this attitude
appears to have moderated. Although data has been mixed, investors appear to
have started to anticipate recovery, and with sellers less evident smaller
companies significantly outperformed their larger capitalisation counterparts
over the last quarter of the Company's financial year.
The increase in NAV over the year was predominantly due to the decision in
October 2008 to exercise the put options the Company held. Put options, which
were first purchased during 2005, provided a means to protect the portfolio
from a fall in the wider UK equities market and the decision to purchase them
proved its worth following the dramatic decline in the FTSE100 in 2008.
Although detracting a little from the absolute gains of the put options with a
negative return of around 7% in the year, the equity portfolio performed
extremely well relative to the Company's benchmark, the FTSE SmallCap (ex
investment companies) index, which fell 24.2% in the year.
Our large overweight in the TV set-top box maker Pace was the leading
stock-level contributor over the twelve months to June. Shares in this company
registered very strong progress during the first quarter of 2009 after
delivering a robust trading update and receiving several broker upgrades. Over
the second quarter this continued with further upgrades after reporting
excellent full-year results. The firm continues to capitalise on the strength
of its franchise against the backdrop of a global migration to digital TV and
the introduction of new high definition services.
The next strongest contributor to performance was Tepnel Life Sciences. After
strong growth from its pharmaceutical outsourcing business the firm reported
solid growth in interim earnings and revenues before a takeover bid from
Gen-Probe, the US nucleic acid diagnostics specialist, led to its shares
climbing substantially. The acquisition was completed in April 2009 at a price
of 27.1p, compared with an average purchase price for the shares of 8.2p.
Another standout performer was human resources consulting group Penna
Consulting, which delivered strong share price appreciation over the second
half of 2009. These gains were delivered on the back of strong financial
results during that period, with the announcement of a quadrupling of interim
profits. Although returns were weaker between February and May, further gains
have been made since the end of June following a substantial broker upgrade
after announcing that it had acquired its rival, Barkers Group.
MBL Group also delivered strong gains to the portfolio over the year. The
distributor and wholesaler of home entertainment products, such as CDs and
DVDs, has benefited from a substantial increase in distribution sales following
the demise of rival Entertainment UK (EUK), a division of Woolworths. Although
margins have been squeezed and the conditions which led to the increase in
sales were unique to events occurring within the period, we believe that there
is still potential for further gains and that the company is well-positioned
for further growth.
On the downside, our overweight positions in Aero Inventory and Corac Group
detracted from returns. Industrial engineering firm Corac admitted during the
final quarter of 2008 that revised safety requirements would delay field trials
of its down-hole compressor, which is designed to increase yields
=---------
Annual Report Page 6
from gas wells. Additionally, concerns that lower energy prices will herald more
limited capital investment amongst gas producers have impacted its share price.
Aero Inventory also performed poorly in the first quarter of 2009 on news that
contract talks with a "major airline" had fallen through. However, we retain
our conviction that this company's business model is well-suited to the current
economic environment. Aero Inventory benefits from airlines seeking to cut
costs via the outsourcing of their inventory management.
Prospects
In spite of our anticipation of modest growth in the economy, we believe we are
entering a period where small-cap stocks can outperform the broader equity
market for a multi-year period. There are several reasons for this:
* Firstly, smaller companies were vastly oversold over the past two years as
institutions shied away from illiquid investments and those that were
significantly weighted in the FTSE All-Share Index. Even after their recent
rise many smaller companies appear to be significantly undervalued relative to
their larger equivalents.
* Secondly, the trends which caused larger capitalisation stocks to outperform
smaller companies appear to have come to an end. In particular, the period of
easy credit enabled large financial businesses to grow at a very rapid rate for
a long period and, as a group, they skewed the return of the larger-cap sector
relative to the small-cap stocks. Credit is likely to be constrained for many
years now so this trend appears to have come to an end.
* Thirdly, many businesses are being forced to cut their dividends because of
an unsustainable business model, or because they need to issue additional
equity to repay excessive debt taken on in the past. Many smaller businesses do
not pay dividends, but could do so in the future with ongoing returns available
from their niche businesses and given their strong balance sheets, often with
unutilised cash. We intend to engage with many of these companies and
articulate the advantages to them of paying good and growing dividends in the
future. In particular, we believe this will create increasing demand for
investments in the small-cap sector and be a driver for continuing sector
performance.
In summary, although the equity market will continue to be volatile, there is
great potential for small-caps to benefit from this environment. Strong
businesses should be in a position to take advantage of the weakness of others.
Quoted businesses with the ability to raise additional capital may be able to
make disproportionate returns by making very cheap acquisitions. And finally,
given that it has become more difficult for investors to find sustained income,
we believe that smaller companies with good and growing dividends will come to
the attention of the wider market increasing investor interest and their share
prices.
Gartmore Investment Limited
4 September 2009
=---------
Annual Report Page 7
Financial Statistics
At 30 June At 30 June Change
2009 2008 %
Shareholders' Funds:
Net Assets (GBP'000) 48,094 51,092 -5.9
Net Assets Value per Ordinary share 410.88p 354.04p +16.1
Share Price:
Market Capitalisation (Ordinary shares GBP 44,450 47,623 -6.7
'000)
Mid-Market Price 379.75p 330.00p +15.1
(Discount) (8%) (7%)
2,726,129 Ordinary shares were redeemed during the year, at a cost of GBP
8,796,000. (2008: 81,699 Ordinary shares repurchased and cancelled at a cost of
GBP273,000 and 380,902 redeemed at a cost of GBP1,342,000).
Benchmark Index:
FTSE SmallCap (excluding investment 1891.40 2494.70 -24.2
companies) Index
Equity-Linked Unsecured Loan Stock 2004/09:
Net Assets Value 189.14p 249.47p -24.2
Mid-Market Price 195.00p 250.00p -22.0
Premium/(discount) 3% 0%
6,454 (2008: 926,764) units of Equity-Linked Unsecured Loan Stock were redeemed
during the year at a total cost of GBP11,000 (2008: GBP2,553,000).
Gearing (expressed as a percentage of Net
Assets):
Potential Gearing 13.3% 16.5%
Actual Gearing 2.5% 0.8%
Potential gearing is the maximum level of gearing that would be achieved if all
existing loan facilities were fully drawn.
Total Return per Ordinary Share:*
Revenue 7.75p 1.18p
Capital 40.57p -89.65p
Total Return per Ordinary Share 48.32p -88.47p
*Based on weighted average of 12,959,428 (2008: 14,710,820) Ordinary shares in
issue during the year.
Total Expense Ratio 1.7% 1.6%
Dividend per Ordinary share for year 4.30p 1.50p
In addition to the above a Special Dividend of 2.0p was paid in March 2009 in
connection with the recovery of VAT on past management fees recognised at 30
June 2008 and another Special Dividend of 2.0p will be paid on 2 October 2009.
=---------
Annual Report Page 8
Principal Investments
Valuation at Percentage
Sector 30 June 2008 Of
Company Classification GBP'000 Portfolio
Pace Technology Hardware & 2,919 6.1
Equipment
BATM Advanced Technology Hardware & 1,891 4.0
Communications Equipment
Penna Consulting Support Services 1,642 3.4
Juridica Investments Financial Services 939 2.0
Management Consulting Group Support Services 908 1.9
Dragon Oil Oil & Gas Producers 878 1.8
MWB 9.75% 9/12 Corporate Bonds 836 1.8
Goldsheild Group Pharmaceuticals & Biotech. 780 1.6
Dart Group 1 Industrial Transportation 749 1.6
MBL Group 1 Media 739 1.6
Sportech Travel & Leisure 725 1.5
Aero Inventory 1 Aerospace & Defence 699 1.5
Optos Healthcare Equipment & 665 1.4
Services
Carclo Chemicals 589 1.2
Renovo Group Pharmaceuticals & Biotech. 561 1.2
Norcon Support Services 557 1.2
Gresham Computing Software & Computer 555 1.2
Services
XP Power Electronic & Electrical 540 1.1
Equipment
Nestor Healthcare Healthcare Equipment & 539 1.1
Services
Conygar Investment 1 Real Estate 538 1.1
Alphameric Software & Computer 527 1.1
Services
Assetco 1 Support Services 519 1.1
Lavendon Group Support Services 501 1.1
Allocate Software 1 Software & Computer 492 1.0
Services
Velosi1 Oil Equipment & Services 481 1.0
Osmetech 1 Healthcare Equipment & 453 1.0
Services
Costain Construction & Materials 436 0.9
Fibreweb Support Services 426 0.9
IQE 1 Technology Hardware & 418 0.9
Equipment
ORA Capital Partners 1 Financial Services 414 0.9
Freedom Group 1 Fixed Line 407 0.9
Telecommunications
Plant Healthcare 1 Chemicals 395 0.8
MDM Engineering Group 1 Construction & Materials 387 0.8
Indian Film Company Non Equity Investment 385 0.8
Instruments
Iomart Group 1 Software & Computer 373 0.8
Services
Immupharma 1 Pharmaceuticals & Biotech. 370 0.8
GW Pharmaceuticals 1 Pharmaceuticals & Biotech. 364 0.8
ARC International Technology Hardware & 361 0.8
Equipment
Faroe Petroleum 1 Oil & Gas Producers 356 0.7
Hellenic Carriers Industrial Transportation 355 0.7
Havelock Europa Household Goods 354 0.7
Greencore Group Food Producers 353 0.7
Trifast Industrial Engineering 346 0.7
Netplay TV 1 Media 345 0.7
Office 2 Office Support Services 340 0.7
Concurrent Technologies 1 Technology Hardware & 327 0.7
Equipment
MP Evans Group 1 Food Producers 327 0.7
KBC Advanced Technologies 1 Oil Equipment & Services 325 0.7
CSR Technology Hardware & 325 0.7
Equipment
FFastFill 1 Software & Computer 323 0.7
Services
Fifty Largest Investments 30,034 63.1
The value of the portfolio of investments on which the table is based was GBP
47,610,000.
The total number of investments at 30 June 2009 was 181.
1 Alternative Investment Market.
=---------
Annual Report Page 9
Sector Classification and Weightings of Equity Investments
Portfolio Index*
at 30 June 2009 At 30 June
2009
Sector GBP'000 % %
Oil & Gas
Oil & Gas Producers 2,617 5.5 2.0
Oil Equipment & Services 1,046 2.2 1.0
Alternative Energy 131 0.3 -
3,794 8.0 3.0
Basic Materials
Chemicals 2,118 4.4 1.4
Forestry & Paper 351 0.7 -
Industrial Metals - - 0.9
Mining 822 1.7 3.8
3,291 6.8 6.1
Industrials
Aerospace & Defence 1,107 2.3 2.0
Construction & Materials 1,039 2.2 4.1
Electronic & Electrical Equipment 1,249 2.6 2.5
General Industrials 440 0.9 1.3
Industrial Engineering 1,364 2.9 5.0
Industrial Transportation 1,175 2.5 2.7
Support Services 7,062 14.8 13.2
13,436 28.2 30.8
Consumer Goods
Automobile & Parts - - -
Beverages - - -
Food Producers 1,118 2.3 2.1
Household Goods 730 1.5 1.6
Leisure Goods 222 0.5 0.5
Personal Goods - - -
Tobacco - - -
2,070 4.3 4.2
Healthcare
Healthcare Equipment & Services 1,748 3.7 3.3
Pharmaceuticals & Biotechnology 2,739 5.8 4.4
4,487 9.5 7.7
Consumer Services
Food & Drug Retailers 343 0.7 0.3
General Retailers 26 0.1 4.5
Media 2,156 4.5 6.4
Travel & Leisure 874 1.8 3.9
3,399 7.1 15.1
Telecommunications
Fixed Line Telecommunications 407 0.9 1.6
Mobile Telecommunications - - -
407 0.9 1.6
Utilities
Electricity 455 1.0 -
Gas, Water & Multiutilities - - -
455 1.0 -
Financials
Banks - - -
Equity Investment Instruments 1 - 3.3
General Financial 2,551 5.4 6.7
Life Insurance 193 0.4 1.3
Non-life insurance 522 1.1 0.8
Real Estate 1,718 3.6 9.5
4,985 10.5 21.6
Technology
Software & Computer Services 4,046 8.5 6.3
Technology Hardware & Equipment 7,240 15.2 3.6
11,286 23.7 9.9
TOTAL 47,610 100.0 100.0
* FTSE SmallCap (excluding investment companies) Index
=---------
Annual Report Page 10
Analysis of Net Assets and Shareholders Funds
Valuation at Net Appreciation/ Valuation at
30 June 2008 Transactions (Depreciation) 30 June 2009
GBP'000 % GBP'000 GBP'000 GBP'000 %
Equities
Oil & Gas 4,867 9.5 744 (1,817) 3,794 7.9
Basic Materials 3,183 6.2 531 (423) 3,291 6.8
Industrials 15,609 30.6 2,865 (5,038) 13,436 27.9
Consumer Goods 1,902 3.7 495 (327) 2,070 4.3
Healthcare 2,776 5.4 848 863 4,487 9.3
Consumer Services 2,838 5.6 859 (298) 3,399 7.1
Telecommunications 221 0.4 77 109 407 0.9
Utilities 499 1.0 360 (404) 455 0.9
Financials 3,232 6.3 1,312 (595) 3,949 8.2
Technology 8,456 16.6 336 2,494 11,286 23.5
43,583 85.3 8,427 (5,436) 46,574 96.8
FTSE100 Put Options 5,102 10.0 (16,051) 10,949 - -
Convertibles/Corporate 1,162 2.3 - (126) 1,036 2.2
Bonds
49,847 97.6 (7,624) 5,387 47,610 99.0
Current Assets 2,191 4.3 89 - 2,280 4.7
including cash
Total Assets 52,038 101.9 (7,535) 5,387 49,890 103.7
Liabilities (946) (1.9) (749) (101) (1,796) (3.7)
Net Assets 51,092 100.0 (8,284) 5,286 48,094 100.0
Attributable to 51,092 100.0 (9,260) 6,262 48,094 100.0
Ordinary shareholders
=---------
Annual Report Page 14
Report of the Directors
The Directors submit their Report and the Accounts for the year ended 30 June
2009.
Business Review
The Business Review has been prepared in accordance with the Companies Act 2006
and should be read in conjunction with the Chairman's Statement on page 3, the
Manager's Review on pages 5 and 6 and the analyses on pages 8 to 10.
Nature and Status
The Company is an investment trust company and a member of The Association of
Investment Companies. It is registered as a public limited company and is an
investment company as defined by section 833 of the Companies Act 2006.
The Company has a wholly-owned subsidiary, Gartmore GO Dealing Limited, which
trades in shares and securities.
The Company was last approved by HM Revenue & Customs (HMRC) as an investment
trust under Section 842 of the Income and Corporation Taxes Act 1988 in respect
of the year ended 30 June 2008. This approval is subject to there being no
subsequent enquiry under corporation tax self-assessment. The Company has been
approved as an investment trust for all previous years. Since 30 June 2008, the
Company has directed its affairs so as to be able to continue to qualify for
approval by HMRC as an investment trust for tax purposes.
The close company provisions of the Income and Corporation Taxes Act 1988 do
not apply to the Company.
Investment Objective
The Company seeks capital appreciation from investment primarily in the shares
of quoted UK smaller companies and aims to be one of the leading investment
trusts in its sector.
Investment Policy
Asset Allocation:
The Company mainly invests in UK smaller companies, with a wide range of market
capitalisations, targeting sustained returns even in difficult markets. A
number of the UK smaller companies within the portfolio may therefore be
outside the universe of the benchmark index when it is believed this will
increase shareholder value. Whilst the majority of investments are equities,
other instruments such as warrants and convertible and non-convertible
securities (including preference shares and loan stocks) may be used. Cash and
derivative instruments (such as futures and options) may also be utilised for
efficient portfolio management and as part of investment strategy, not only as
a short-term measure. In addition, the Company's trading subsidiary targets
absolute returns in order to enhance shareholder returns under a broader range
of market conditions and to offer further downside protection to the portfolio
as a whole.
Risk Diversification:
Portfolio risk is mitigated by investing in a diversified spread of
investments. In compliance with section 842 Income and Corporation Taxes Act
1988 investments in any one company, other than holdings in another investment
company, shall not, on acquisition, exceed 15% of the portfolio value.
Gearing:
The Company will make use of borrowings when it is considered that gearing will
enhance total returns. The Company has "soft" gearing in the form of
equitylinked unsecured loan stock maturing on 18 December 2009 in respect of
which the liability varies in direct correlation to the benchmark index. The
Company also has bank borrowing facilities in place and the Board currently has
a policy that gearing under these facilities shall not exceed 20% of the value
of Net Assets.
=---------
Annual Report Page 15
Benchmark Index
Performance is measured against the FTSE SmallCap (excluding investment
companies) Index. The Company sources index and price data from Thomson Reuters
Datastream.
Performance
Please refer to the Manager's Review on pages 5 and 6 for an overview of the
Company's investment activities in the year and to the analyses on pages 7 to
9. These, together with this Business Review, illustrate how the Group's assets
have been invested with a view to spreading investment risk in accordance with
the Group's published investment policy.
The Directors consider that the key indicator of the Group's performance is the
movement of the net asset value per Ordinary share compared with the movement
of the Benchmark Index. Net asset value per share increased 16.1% in the year
under review (2008: 20.3% decrease) compared with a fall in the Index of 24.2%
(2008: decrease of 35.6%). The mid-market price of the Company's Ordinary
shares rose 15.1% (2008: 24.0% fall).
The principal contributors to the net 16.1% increase in net asset value per
share were a 21.4% uplift from put options held until October 2008 less a
negative contribution, in absolute terms, from the equity portfolio of 6.6%
(Relative to the benchmark index the equity portfolio outperformed by some
23%).
The put options, which were valued at GBP5.1 million in June 2008, had been held
to provide a level of protection against a fall in the wider market and were
realised for GBP16.1 million in October 2008, which was near the bottom of the
falls precipitated by the world banking crisis.
Particular positive contributors to the outperformance of the equity portfolio
relative to the benchmark included TV set-top box maker Pace, Tepnel Life
Sciences and MBL Group. Pace initiated a full-year dividend and received a
number of broker upgrades, while Tepnel was subject to a takeover offer by
Gen-Probe, which was finalised in April. MBL Group, who distribute
entertainment products such as CDs and DVDs, experienced a substantial increase
in revenues, having been well-positioned to take advantage of opportunities
presented following the collapse of competitor Entertainment UK.
Since investment in an investment trust company is generally considered to be
for longer-term returns it is also relevant to consider performance over a
longer period. Over the last three, five and ten years the Net asset value per
share increased, respectively, by 15.9%, 47.2% and 130.0% compared with
decreases in the index for those periods of -42.6%, -27.4% and -27.8%. The
mid-market price of the Company's Ordinary shares increased 11.0%, 60.1% and
171.7% over the same periods.
Financial Position and Finance
Net Assets at 30 June 2009 amounted to GBP48,094,000, compared with GBP51,092,000
at 30 June 2008. In the financial year 2,726,129 Ordinary shares, being 18.9%
of the shares in issue at 30 June 2008, were redeemed. The Company's equity
share capital at the year-end comprised 11,705,040 fully paid up Ordinary
shares of 0.025p (2008: 14,431,169 Ordinary shares).
The Company also has 50,000 Management shares of GBP1 in issue which are paid up
to 25p each and are treated as long-term debt on the balance sheet.
All of the Company's investments are quoted on recognised exchanges and are
realisable within a relatively short period.
At 30 June 2009 the Group had short-term bank borrowing of GBP900,000 (2008: GBP
Nil). The liability in respect of the loan stock in issue at 30 June 2009 was GBP
299,000 (2008: GBP411,000). The most stringent covenant applying to these
=---------
Annual Report Page 16
gearing sources is a requirement that the Group's indebtedness should not
exceed 25% of Net Assets. If the whole of the borrowing facilities had been
drawn at 30 June 2008 Group indebtedness would have been approximately 13.3% of
Net Assets.
The Group made a net revenue profit in the year, after expenses and taxation,
of GBP1,004,000, compared with a profit of GBP174,000 for the previous year. In
addition to the contribution from an increased portfolio yield the year's
revenue return also benefitted from a greater recovery of VAT on past
management fees (and related interest) than had been accrued at the 2008
year-end. The Company's trading subsidiary, Gartmore GO Dealing Limited,
contributed a profit of GBP92,000 to the above Group result (2008: GBP440,000
loss). The Company's ratio of annual expenses to average year-end net assets
(TER) for the year was 1.7% (2008: 1.6%). The following costs are excluded from
the annual expenses used to calculate the TER: transaction costs of GBP267,000
(2008: GBP279,000); interest on borrowings (including loan stock) of GBP67,000
(2008: GBP210,000); and tax.
The Directors have declared an increased dividend of 4.3p for the year, (2008:
1.5p) which will be paid on 2 October 2009, together with a special dividend of
2.0p in respect of the additional VAT recovery mentioned above.
Gearing
The Managers are authorised to borrow money to make additional investments on
top of shareholders' funds (gearing) and flexible borrowing facilities are
available for that purpose. These comprise a committed facility of up to GBP3
million and an uncommitted facility for a further GBP3 million, each provided by
The Bank of New York Mellon. These facilities were used to varying degrees
during the course of the year and at the year-end GBP900,000 had been drawn on
the committed facility (2008: GBPNil). The Directors currently have a policy that
gearing under these facilities shall not exceed 20% of the value of Net Assets.
The Company also has "soft" gearing in the form of equity-linked unsecured
loan stock maturing on 18 December 2009. The Company's liability in respect of
each loan stock unit varies in direct correlation to the benchmark index so the
risks and benefits from this gearing are both less than with bank borrowing.
Loan stockholders have a quarterly opportunity to redeem their stock. During
the year to 30 June 2009 6,454 units of Equity-Linked Unsecured Loan Stock 2004
/09 were redeemed at a total cost of GBP11,000, leaving 158,113 units in issue,
representing a liability of GBP299,000 at the year-end. Additionally, the Company
has a GBP100,000 Royal Bank of Scotland overdraft facility which is used for
normal business purposes and short-term settlement mismatches.
Socially Responsible Investment
The Company has delegated responsibility for making and holding investments to
the Manager, Gartmore lnvestment Limited, on the basis that, subject to an
overriding requirement to pursue the best economic interests of the Company and
its shareholders, the Manager should take account of social, environmental and
ethical factors.
Future Trends
Notwithstanding the recent rally, small-cap valuations are still low by
historic standards and after the general move to more defensive stock
allocations during the earlier market falls many investors are underweight
small caps and likely to seek to redress this. Also, many small-cap stocks now
offer good opportunities for dividend growth, with valuations expected to
respond accordingly, and so the outlook for the sector is positive.
=---------
Annual Report Page 17
Principal Risks and Uncertainties
The Board's policy on risk management has not changed from last year. As
expanded on pages 28 and 29 the Directors have put in place processes to
identify and manage significant risks to the company, including internal
controls to minimise operational risks.
The main areas of risk, in the opinion of the Board, are summarised below and
are further discussed in Note 26 to the Accounts on pages 54 to 57:
Market Risk
Since the Company is an investment company its performance is dependent on the
performance of the companies and market sectors in which it invests. Investment
risk is spread by holding a diversified portfolio that normally comprises
around 200 holdings, however a significant proportion of these holdings may not
be represented in the benchmark index. At their regular meetings, the Directors
and the Manager review the Company's activities and performance, and determine
investment strategy.
Gearing
With its current credit facilities the Company has the ability to gear up to
around 13% of the Group's net assets. Gearing will magnify portfolio returns
per share, be they positive or negative. The potential for bank gearing to have
a negative impact is limited by the short-term revolving (usually weekly)
nature of drawings on the bank loan facilities combined with the reasonable
level of liquidity of the investments in the portfolio. Although the loan stock
is longer-term, the correlation between the Company's liability and its
benchmark limits the gearing effect.
Other Financial Risks
The Company minimises the risk of a counterparty failing to deliver securities
or cash by dealing through organisations that have undergone rigorous due
diligence by the Manager.
The Group holds its liquid funds almost entirely in UK interest bearing bank
accounts or on short term deposit and has arranged flexible borrowing
facilities to accommodate foreseeable liquidity requirements. This, together
with the portfolio being invested in quoted securities, mitigates the Company's
exposure to liquidity risk.
Internal Control
As expanded on pages 28 and 29 the Board keeps under review the risks faced by
the Company and minimises operational risks through its arrangements with
service providers, whose services and internal controls it regularly reviews.
=---------
Annual Report Page 18
Discount Management
The Company's capital structure was altered in June 2005 to provide
shareholders with a quarterly opportunity to request redemption of their
shares. Redemption is subject to certain limitations and the Directors
exercising their discretion. The redemption value is close to net asset value,
being based upon the realisation value of the portfolio, less costs and an exit
charge of 2% that is retained by the Company. As a result, the shares tend to
trade at a narrow discount during normal market conditions. In the last year,
which saw extreme falls in the wider market, there was a general view that
larger stocks were less risky than smaller stocks and as a consequence the
small-cap investment trust sector lost favour and discounts widened. Although
the Company's discount had narrowed at the year-end, the average discount to
net asset value for the year to 30 June 2009 was 10% (2008: 5%) compared with
the sector average discount of 17% (2008: 16%).
=---------
Annual Report Page 23 (extract)
Declaration
Each of the Directors, who are listed on page 13 of this Report, confirm to the
best of their knowledge that:
(a) the Accounts, which have been prepared in accordance with applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the subsidiary
undertaking included in the consolidation taken as a whole; and
(b) the Annual Report includes a fair review of the development and performance
of the business and the position of the Company and the subsidiary undertaking
included in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
David Peters
Chairman
4 September 2009
=---------
Annual Report Page 34
Group Income Statement
for the year to 30 June 2009
Year to 30 June 2009
Revenue Capital Total
Return Return Return
Notes GBP'000 GBP'000 GBP'000
Income and Capital Profits
Dividends and other income 2 1,778 32 1,810
(Losses)/gains on investments held at fair 3 (51) 5,387 5,336
value
Currency gains - 5 5
Total Income 1,727 5,424 7,151
Expenses
Management fees 4 (228) - (228)
Other fees and expenses 5 (418) (267) (685)
Expenses before Finance Costs and Taxation (646) (267) (913)
Net Profit before Finance Costs and Taxation 1,081 5,157 6,238
Finance Costs
Interest payable 6 (67) - (67)
Movement in fair value of Loan Stock 14 - 101 101
Total Finance Costs (67) 101 34
Net Profit before Taxation 1,014 5,258 6,272
Taxation 7 (10) - (10)
Net Profit after Taxation 1,004 5,258 6,262
Earnings per Ordinary share 9 7.75p 40.57p 48.32p
The total column of this statement represents the Group's Income, prepared in
accordance with IFRS, as adopted by the European Union.
The revenue return and capital return columns are supplementary disclosures
provided in accordance with guidance issued by The Association of Investment
Companies.
All items derive from continuing operations.
The Notes on pages 40 to 57 form part of these Accounts.
=---------
Annual Report Page 35
Group Income Statement
for the year to 30 June 2008
Year to 30 June 2008
Revenue Capital Total
Return Return Return
Notes GBP'000 GBP'000 GBP'000
Income and Capital Profits
Dividends and other income 2 1,029 - 1,029
Losses on investments held at fair value 3 (457) (14,171) (14,628)
Currency losses - - -
Total Income 572 (14,171) (13,599)
Expenses
Management fees 4 220 - 220
Other fees and expenses 5 (405) (279) (684)
Expenses before Finance Costs and Taxation (185) (279) (464)
Net Profit/(Loss) before Finance Costs and 387 (14,450) (14,063)
Taxation
Finance Costs
Interest payable 6 (210) - (210)
Movement in fair value of Loan Stock 14 - 1,262 1,262
Total Finance Costs (210) 1,262 1,052
Net Profit/(Loss) before Taxation 177 (13,188) (13,011)
Taxation 7 (3) - (3)
Net Profit/(Loss) after Taxation 174 (13,188) (13,014)
Earnings/(Loss) per Ordinary share 9 1.18p (89.65p) (88.47p)
The total column of this statement represents the Group's Income, prepared in
accordance with IFRS, as adopted by the European Union.
The revenue return and capital return columns are supplementary disclosures
provided in accordance with guidance issued by The Association of Investment
Companies.
All items derive from continuing operations.
The Notes on pages 40 to 57 form part of these Accounts.
=---------
Annual Report Page 36
Group Balance Sheet
at 30 June 2009 At At
30 June 30 June
2009 2008
Notes GBP'000 GBP'000
Non-Current Assets
Investments held at fair value through profit or 10 47,610 49,847
loss
Current Assets
Investments held for trading 11 1,168 258
Balances due from brokers 680 777
Other receivables 13 216 849
Cash and cash equivalents 216 307
2,280 2,191
Total Assets 49,890 52,038
Current Liabilities
Equity-Linked Unsecured Loan Stock 2004/09 14 (299) (411)
Balances due to brokers (435) (334)
Bank loan 15 (900) -
Other payables 16 (149) (188)
(1,783) (933)
Total Assets less Current Liabilities 48,107 51,105
Non-Current Liabilities
Non-equity management shares 17 (13) (13)
Net Assets 48,094 51,092
Equity Attributable to Equity Shareholders
Called-up share capital 18 3 4
Special distributable reserve 20 51,523 51,523
Capital redemption reserve 21 1 -
Retained earnings: 22
Capital reserve (6,032) (2,494)
Revenue reserve 2,599 2,059
Total Equity 48,094 51,092
Net Asset Value per Ordinary share 23 410.88p 354.04p
Approved by the Board on 4 September 2009
David Peters
Chairman
The Notes on pages 40 to 57 form part of these Accounts.
=---------
Annual Report Page 37
Company Balance Sheet
at 30 June 2009 At At
30 June 30 June
2009 2008
Notes GBP'000 GBP'000
Non-Current Assets
Investments held at fair value through profit or 10 47,610 49,847
loss
Investment in subsidiary 12 1,361 310
48,971 50,157
Current Assets
Balances due from brokers 493 777
Other receivables 13 215 813
Cash and cash equivalents 61 291
769 1,881
Total Assets 49,740 52,038
Current Liabilities
Equity-Linked Unsecured Loan Stock 2004/09 14 (299) (411)
Balances due to brokers (285) (334)
Bank loan 15 (900) -
Other payables 16 (149) (188)
(1,633) (933)
Total Assets less Current Liabilities 48,107 51,105
Non-Current Liabilities
Non-equity management shares 17 (13) (13)
Net Assets 48,094 51,092
Equity Attributable to Equity Shareholders
Called-up share capital 18 3 4
Special distributable reserve 20 51,523 51,523
Capital redemption reserve 21 1 -
Retained earnings: 22
Capital reserve (4,995) (1,549)
Revenue reserve 1,562 1,114
Total Equity 48,094 51,092
Net Asset Value per Ordinary share 23 410.88p 354.04p
Approved by the Board on 4 September 2009
David Peters
Chairman
The Notes on pages 40 to 57 form part of these Accounts.
=---------
Annual Report Page 38
Statement of Changes in Equity
for the year to 30 June 2009
Called-up Special Capital
share Share Distributable Redemption Retained
capital premium reserve reserve earnings Total
Group and Company Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2008 4 - 51,523 - (435) 51,092
Redemption of 18 (1) - - 1 (8,796) (8,796)
Ordinary shares
Net profit for the - - - - 6,262 6,262
year to 30 June 2009
Equity dividends paid 8 - - - - (464) (464)
on Ordinary shares
At 30 June 2009 3 - 51,523 1 (3,433) 48,094
.
At 1 July 2007 4 29,704 21,781 38 14,640 66,167
Redemption of 18 - - - - (1,342) (1,342)
Ordinary shares
Buyback and 18 - - - - (273) (273)
cancellation of
Ordinary shares
Cancellation of 19,20,21 - (29,704) 29,742 (38) - -
reserves
Net loss for the year - - - - (13,014) (13,014)
to 30 June 2008
Equity dividends paid 8 - - - - (446) (446)
on Ordinary shares
At 30 June 2008 4 - 51,523 - (435) 51,092
The Notes on pages 40 to 57 form part of these Accounts.
=---------
Annual Report Page 39
Cash Flow Statement
for the year to 30 June 2009
Group Company Group Company
Year to Year to Year to Year to
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Notes GBP'000 GBP'000 GBP'000 GBP'000
Cash Flows from Operating Activities
Net Profit/(loss) before taxation 6,272 6,272 (13,011) (13,011)
Adjustments for:
Decrease in investments 1,327 1,186 20,548 20,903
Decrease in receivables 730 882 363 20
Increase/(decrease) in payables 63 (87) (561) (561)
Finance costs (34) (34) (1,052) (1,052)
Net Cash Flows from Operating 8,358 8,219 6,287 6,299
Activities before taxation
Taxation paid (10) (10) (3) (3)
Net Cash Flows from Operating 23 8,348 8,209 6,284 6,296
Activities
Cash Flows from Financing Activities
Redemption of Ordinary shares (8,796) (8,796) (1,342) (1,342)
Buyback and cancellation of Ordinary - - (273) (273)
shares
Redemption of Equity-linked loan (11) (11) (2,553) (2,553)
stock units
Bank loans drawn down/(repaid) 900 900 (1,500) (1,500)
Loan interest paid (68) (68) (221) (221)
Equity dividends paid on Ordinary (464) (464) (446) (446)
shares
Net Cash Flows used in Financing (8,439) (8,439) (6,335) (6,335)
Activities
Net Decrease in Cash and Cash (91) (230) (51) (39)
Equivalents
Cash and Cash Equivalents at 1 July 307 291 358 330
Cash and Cash Equivalents at 30 June 216 61 307 291
The Notes on pages 40 to 57 form part of these Accounts.
=---------
Annual Report Page 40
Notes to the Accounts
1. Accounting Policies
The Group comprises Gartmore Growth Opportunities plc (the "Company") and its
wholly owned subsidiary, Gartmore GO Dealing Limited.
The nature of the Group's operations and its principal activities are set out
in the Report of the Directors on page 14.
Group and Company accounts have been prepared in accordance with International
Financial Reporting Standards (IFRS), which comprise standards and
interpretations approved by the International Accounting Standards Board (IASB)
and International Accounting Standards Committee (IASC), as adopted by the
European Union (EU).
The principal accounting policies followed are set out below:
Basis of Preparation
The Group and Company accounts have been prepared on a going concern basis
under the historical cost convention, as modified by the revaluation of
investments at fair value.
Where presentational guidance set out in the Statement of Recommended Practice
(SORP) for investment trusts issued by The Association of Investment Companies
(AIC) in January 2009 (adopted early) is consistent with the requirements of
IFRS, the Directors have sought to prepare the accounts on a basis compliant
with the recommendations of the SORP.
Basis of Consolidation
The Group accounts comprise the audited Accounts of the Company and its
subsidiary drawn up to the Balance Sheet date. The Income Statement is only
presented in consolidated form, as provided by Section 408 of the Companies Act
2006.
Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with the guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement.
In accordance with the Company's status as a UK investment company under
section 833 of the Companies Act 2006, net capital returns may not be
distributed by way of dividend. Additionally, the net profit after taxation in
the revenue column is the measure the Directors believe to be appropriate in
assessing the Group's compliance with certain requirements set out in section
842 Income and Corporation Taxes Act 1988.
Revenue
Dividends from investments are recognised on the ex-dividend date and credited
to revenue, with the exception of dividends of a capital nature, which are
credited to the capital column of the Income Statement.
Where the Group has elected to receive its dividends in the form of additional
shares rather than cash, the amount of cash dividend foregone is recognised as
income in the revenue column of the Income Statement. Any excess in the value
of shares received over the amount of cash dividend foregone is recognised as a
gain in the capital column of the Income Statement.
Income on fixed income securities, deposit and other interest receivable is
recognised under the effective interest rate method. This method discounts the
estimated future cash flows, including any discount, premium or costs incurred,
in respect of the financial instrument through its expected life, or through an
appropriate shorter period.
Underwriting commission is recognised as revenue in so far as it relates to
shares the Company is not required to take up. Where the Company is required to
take up a proportion of the shares underwritten, an equal proportion of the
commission received is offset against the cost of the shares taken up.
Expenses
Management fees and administrative expenses are accounted for on an accruals
basis and charged wholly to revenue. Costs relating to corporate restructures
have been allocated to capital.
Expenses that are incidental to the acquisition and disposal of investments are
disclosed as expenses in the capital column of the Income Statement.
=---------
Annual Report Page 41
1. Accounting Policies (continued)
Finance Costs
Interest payable is calculated using the effective interest rate method and is
charged to revenue.
This method discounts the estimated future cash flows, including any discount,
premium or costs incurred, in respect of the financial instrument through its
expected life, or through an appropriate shorter period. Any fair value
movement is allocated to capital.
Taxation
The tax expense comprises the sum of current tax and deferred tax.
Current tax is based on taxable profit for the year. Taxable profit differs
from profit before tax as reported in the Income Statement because it excludes
items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
In line with recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented in the capital column of the Income
Statement is the marginal basis. Under this basis, if taxable income is capable
of being offset entirely by expenses presented in the revenue column of the
Income Statement, then no tax relief is transferred to the capital column.
Deferred Taxation
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that tax
profits will be available against which deductible temporary differences can be
utilised.
No provision for taxation is required in respect of any realised or unrealised
appreciation of the Company's investments as the Company expects to continue to
qualify as an investment trust for tax purposes.
Investment trust companies which have approval under section 842 Income and
Corporation Taxes Act 1988 are not liable for taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised and charged or
credited in the Income Statement.
Non-Current Asset Investments Held at Fair Value
Purchases and sales are normally transacted with contractual terms that require
delivery within a fixed timeframe according to the relevant market. The
investments concerned are recognised or derecognised on the trade date. On
initial recognition all non-current asset investments are designated as held at
fair value through profit or loss as defined by IFRS, as adopted by the EU.
Non-current asset investments including derivative instruments are measured at
fair value with gains and losses arising from changes in their fair value being
included in net profit or loss for the year as a capital item.
The fair value of listed investments and derivative instruments is based on
their quoted bid market price at the close of business on the balance sheet
date without any deduction for estimated future selling costs.
In accordance with the Articles of Association of the Company, any gains and
losses realised on disposal are recognised in the capital column of the Income
Statement, and are not distributable by way of dividend.
=---------
Annual Report Page 42
1. Accounting Policies (continued)
Current Asset Investments Held for Trading
Current asset investments held for trading are measured at fair value with
gains and losses arising from changes in their fair value being included in the
Income Statement as a revenue item.
Investment in Subsidiary
The Company's investment in its subsidiary company, Gartmore GO Dealing
Limited, is valued at fair value in the Company's balance sheet. Fair value is
considered to be the net assets of the subsidiary less any intercompany loan
balance due to the parent.
Loan to Subsidiary
Intercompany loans are free of charges and are recognised at their nominal
value, which is considered to be their fair value, both initially and
subsequently.
Such loans are disclosed as a component of the investment in the subsidiary.
Other Receivables
Other receivables do not carry any right to interest and are short-term in
nature. Accordingly they are stated at their nominal value reduced by
appropriate allowances for estimated irrecoverable amounts.
Cash and Cash Equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are
short-term, highly liquid investments that are readily convertible to known
amounts of cash.
Equity-Linked Unsecured Loan Stock 2004/09
On initial recognition the Equity-Linked Unsecured Loan Stock 2004/09 has been
designated as held at fair value through profit or loss. This results in more
relevant information as performance is evaluated on a similar basis to the
investment portfolio.
The liability represented by the loan stock is defined by the value of the FTSE
SmallCap (excluding investment companies) Index. Accordingly, the liability is
shown at the index value at the balance sheet date multiplied by the number of
loan stock units in issue divided by 1,000. This value (plus interest accruing)
is considered to be the fair value of the loan stock.
The movement in the fair value is treated as a finance cost and charged or
credited to the capital column of the Income Statement.
Short-Term Borrowings
Short-term borrowings under bank credit facilities are stated as the net
proceeds of the drawing plus related accrued finance costs at the balance sheet
date. The finance costs of servicing such borrowings are calculated using the
effective interest rate method and charged to the revenue column of the Income
Statement.
Other Payables
Other payables are not interest-bearing and are stated at their nominal amount.
Rates of Exchange
Transactions in foreign currencies are translated into sterling at the rate of
exchange ruling on the date of each transaction. Foreign currency assets or
liabilities at the balance sheet date are translated into sterling at the rates
of exchange ruling on that date. Realised profits or losses on exchange,
together with differences arising on the translation of foreign currency assets
or liabilities, are taken to the capital column of the Income Statement.
These accounts are presented in pounds sterling, as this is the principal
currency in which the Group's transactions are undertaken and is therefore
considered to be the functional currency of the Group.
=---------
Annual Report Page 43
1. Accounting Policies (continued)
Derivative Financial Instruments
The Group's activities expose it primarily to the financial risks of changes in
market prices and interest rates. The Company and its subsidiary may enter into
derivative transactions including futures, swaps, quoted options on shares held
within the portfolio, or on indices, for the purpose of providing protection
against falls in the capital values of holdings. The Company does not use
derivative contracts for speculative purposes.
The use of financial derivatives is subject to the Group's investment policy as
approved by shareholders.
The Manager consults with the Board on derivative investment strategies and
their implementation is closely monitored.
A derivative instrument is considered to be used for hedging purposes when it
alters the market risk profile of an existing underlying exposure of the Group.
The use of financial derivatives by the Group does not qualify for hedge
accounting. Derivatives are held at fair value and changes in the fair value of
derivative instruments are recognised in the Income Statement as they arise. If
capital in nature, the associated change in value is presented in the capital
column of the Income Statement.
Segmental Reporting
The Directors consider that the Group is engaged in a single segment of
business with the primary objective of investing in securities to generate
capital appreciation for its shareholders.
Consequently no business segmental analysis is provided.
The Group primarily invests in debt and equity related securities, issued by
companies operating and generating revenue in a single region, the United
Kingdom, therefore no geographical segmental analysis is provided.
Accounting Standards
(a) Standards, amendments and interpretations becoming effective in the year to
30 June 2009, none of which are currently relevant to the Group:
- IFRIC 11, `IFRS 2 - Group and treasury share transactions'
- IFRIC 12, `Service concession arrangements'
- IFRIC 14, `IAS 19 - the limit on a defined benefit asset, minimum funding
requirements and their interaction'.
(b) Standards, amendments and interpretations to existing standards that become
effective in future accounting periods and have not been adopted early by the
Group or Company:
- IAS 1 (Revised), `Presentation of Financial Statements' (effective for
financial years beginning on or after 1 January 2009, subject to endorsement by
the EU). Introduces financial statement name changes for the purposes of
accounting standards. The new names are not mandatory for financial reporting
and the Group does not currently expect to apply the new statement names.
- IAS 23 (Amendment), `Borrowing costs' (effective for financial years
beginning on or after 1 January 2009). It requires an entity to capitalise
borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset. The Group has no qualifying assets but
expects to apply the standard from 1 July 2009.
- IFRS 3 (Revised), `Business combinations' (effective for financial periods
beginning on or after 1 July 2009). Changes elements of the acquisition method
for business combinations, including that all payments to purchase a business
are to be recorded at fair value at the acquisition date, with contingent
payments classified as debt, subsequently re-measured through the income
statement. The Group will apply IFRS 3 (Revised) to all business combinations
from 1 July 2009, subject to endorsement by the EU.
=---------
Annual Report Page 44
1. Accounting Policies (continued)
Accounting Standards (continued)
- IAS 27 (Revised), `Consolidated and Separate Financial Statements'
(Consequential amendments arising from IFRS 3 `Business Combinations')
(effective for financial years beginning on or after 1 July 2009). Unlikely to
have any significant impact. The Group expects to apply IAS 27 (Revised) from 1
July 2009.
- IFRS 8, `Operating Segments' (effective for financial years beginning on or
after 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with
the requirements of the US standard SFAS 131, Disclosures about segments of an
enterprise and related information. The new standard requires a `management
approach', under which segment information is presented on the same basis as
that used for internal reporting purposes. The Group expects to apply IFRS 8
from 1 July 2009. Unlikely to have a significant effect.
- IAS 39 (Amendment), `Financial Instruments: Recognition and Measurement'. The
amendment permits an entity to reclassify particular financial assets in some
circumstances. The Group and Company will apply the IAS 39 (Amendment) from 1
July 2009. It is not expected to have an impact on the Group or Company's
financial statements.
There are also a number of minor amendments to the following standards, which
are part of the IASB's annual improvements project published in May 2008. These
amendments are subject to endorsement by the EU and they are unlikely to have
any significant impact on the Group or Company's financial statements.
- IAS 8, `Accounting policies, changes in accounting estimates and errors'
- IAS 10, `Events after the reporting period'
- IAS 18, `Revenue'
- IAS 29 (Amendment), `Investments in associates'
- IAS 32, `Financial Instruments: Presentation'
- IAS 34, `Interim financial reporting'
- IAS 36 (Amendment), `Impairment of assets'
- IFRS 7, `Financial instruments: disclosures'
(c) Standards, amendments and interpretations becoming effective in the year to
30 June 2009, but not relevant to the Group or Company:
- IFRIC 13 `Customer loyalty programmes'
- IAS 16 (Amendment), `Property, plant and equipment' (and consequential
amendment to IAS 7, 'Statement of cash flows')
- IAS 29 (Amendment), `Financial reporting in hyperinflationary economies'
- IAS 31 (Amendment), `Interests in joint ventures' (and consequential
amendments to IAS 32 and IFRS 7)
- IAS 32 (Amendment), `Financial instruments: presentation' and IAS 1,
`Presentation of financial statements - Puttable financial instruments and
obligations arising on liquidation'
- IAS 38 (Amendment), `Intangible assets'
- IAS 40 (Amendment), `Investment property' (and consequential amendments to
IAS 16)
- IAS 41 (Amendment), `Agriculture'
- IAS 20 (Amendment), `Accounting for government grants and disclosure of
government assistance'
- IFRIC 15, `Agreements for construction of real estates'.
=---------
Annual Report Page 45
2. Dividends and Other Income
30June 30June
2009 2008
GBP'000 GBP'000
Revenue:
Income from investments held at fair value through
profit or loss:
Franked dividends 1,035 802
Unfranked income 223 108
Interest on debt securities 112 96
1,370 1,006
Other income:
Interest on deposits 31 11
VAT reclaim interest received 296 -
Underwriting commission 81 12
1,778 1,029
Capital:
Special dividends allocated to capital 32 -
1,810 1,029
3. Gains/(Losses) on Investments held at Fair Value
30June 30June
2008 2008
GBP'000 GBP'000
Gains/(losses) on non-current asset investments 5,387 (14,171)
Losses on investments held for trading (see note 11) (51) (457)
5,336 (14,628)
4. Management Fees
30June 30June
2009 2008
GBP'000 GBP'000
Revenue:
Management fees 325 457
Value-added tax (97) (677)
228 (220)
5. Other Fees and Expenses
30June 30June
2009 2008
GBP'000 GBP'000
Revenue:
Secretarial fees 60 60
Directors' fees 93 93
Auditors' fees:
For audit of the annual accounts 21 20
For other services* 11 5
General expenses 200 190
Value-added tax 33 37
418 405
* Paid to the auditors for quarterly certification of the calculation of
interest in respect of the Equity-Linked loan stock and quarterly certification
of the Ordinary share redemption calculation.
Capital:
Purchase transaction costs on non-current asset 203 186
investments
Sales transaction costs on non-current asset 64 93
investments
267 279
=---------
Annual Report Page 46
6. Interest Payable
30June 30June
2009 2008
GBP'000 GBP'000
Revenue:
Short-term borrowing facility 51 139
Equity-Linked Unsecured Loan Stock 2004/09 16 71
67 210
Interest on the Loan Stock is paid quarterly on the last dealing day in
January, April, July and October. It is calculated for each quarter ending on
the relevant payment date by applying the published yield on the FTSE SmallCap
(excluding investment companies) Index in respect of the last day of December,
March, June and September respectively to the capital value of the loan stock
on that date.
7. Taxation
30June 30June
2009 2008
GBP'000 GBP'000
Revenue:
(a) Analysis of tax charge for the year:
Overseas tax 10 3
10 3
(b) Factors affecting tax charge for the year:
The charge for the year can be reconciled to the
profit per the Income
Statement as follows:
Net profit/(loss) before taxation 6,272 (13,011)
Tax at the UK corporation tax rate of 30% (2008: 30%) - (2,927)
Tax at the UK corporation tax rate of 28%* (2008: 28%) (1,756) (911)
Effects of:
Dividend income not subject to corporation tax (284) (233)
Gains and losses on investments that are not taxable 1,508 4,180
Expenses and finance costs not deductible for tax 76 98
purposes
Utilisation of losses brought forward (40) (207)
Overseas tax 10 3
Total tax for the year 10 3
There is an unrecognised deferred tax asset
comprising:
Unutilised management expenses 2,261 2,292
Non-trading loan relationship deficits 993 993
Trading losses 87 113
3,341 3,398
It is unlikely that the Company will generate sufficient taxable profits in the
future to utilise these expenses and deficits and therefore no deferred tax
asset has been recognised.
Due to the Company's status as an investment trust and the intention to
continue meeting the conditions required to obtain approval of such status in
the foreseeable future, the Company has not provided tax on any capital gains
arising on the revaluation or disposal of investments.
* Under the Finance Act 2008, the rate of corporation tax was lowered to 28%
from 1 April 2008.
=---------
Annual Report Page 47
8. Dividends on Ordinary shares
30June 30June
2009 2008
GBP'000 GBP'000
Amounts recognised in these Accounts as distributions 209 223
to
equity holders in the year:
Interim dividend declared in respect of the year to 30
June 2008 of 1.50p
per share paid on 17 October 2008 on 13,913,120 shares
(2008: 1.50p paid
on 12 October 2007 on 14,893,770 shares).
Special dividend of 2.00p paid on 31 March 2009 on 255 223
12,763,685
shares (2008: 1.50p paid on 12 October 2009 on
14,893,770 shares)
464 446
Neither the declared interim dividend payable in September 2009 in respect of
the year to 30 June 2009, which is in lieu of a final dividend, nor the special
dividend that is payable at the same time, have been included as liabilities in
these Accounts.
.
The total dividends payable in the respect of the financial year, which is the
basis on which the requirements of Section 842 Income and Corporation Taxes Act
1988 are considered, is set out below:
30June 30June
2009 2008
GBP'000 GBP'000
Interim dividend of 4.30p (2008: 1.5p) per share 503 209
payable on 2 October 2009
on 11,705,040 (2008: 13,913,120) shares
Special dividend of 2.00p per share payable on 2 234 -
October 2009 on 11,705,040
shares
Special dividend of 2.00p per share paid 31 March 2009 - 255
on 12,763,685
Shares
Special dividend of 1.50p per share paid on 12 October - 223
2007 on 14,893,770
shares
737 687
9. Earnings per Ordinary Share
(i) The Total profit per Ordinary share of 48.32p (2008: loss of 88.47p) is
calculated on the profit to equity shareholders of GBP6,262,000 (2008: loss of GBP
13,014,000) and 12,959,428 (2008: 14,710,820) Ordinary shares, being the
weighted average number of shares in issue during the year.
(ii) The Revenue profit of 7.75p (2008: 1.18p) per Ordinary share is calculated
on the revenue profit to equity shareholders of GBP1,004,000 (2008: GBP174,000) and
the weighted average number of shares in issue during the year as per (i)
above.
(iii)The Capital profit of 40.57p (2008: loss of 89.65p) per Ordinary share is
calculated on the capital profit to equity shareholders of GBP5,258,000 (2008:
loss of GBP13,188,000) and the weighted average number of shares in issue during
the year as per (i) above.
=---------
Annual Report Page 48
10. Non-Current Asset Investments Held at Fair Value
30June 30June
2009 2008
Group and Group and
Company Company
GBP'000 GBP'000
Opening valuation
Opening book cost 61,575 63,988
Opening fair value adjustment (11,728) 5,392
49,847 69,380
Movements in the year:
Acquisitions at cost 34,500 35,854
Proceeds of disposals (42,124) (41,216)
Net profit realised on disposals 5,172 2,949
Increase/(decrease) in fair value adjustment 215 (17,120)
Closing valuation 47,610 49,847
Closing book cost 59,123 61,575
Closing fair value adjustment (11,513) (11,728)
Closing valuation 47,610 49,847
All of the Group's investments are either listed or are quoted on the
Alternative Investment Market in the UK and are included in the balance sheet
at fair value. The Group's equity investments are registered in the name of
nominees of, and held to the order of, The Bank of New York Mellon, as
custodians to the Company.
11. Current Asset Investments Held for Trading
30June 30June
2009 2008
Group Group
GBP'000 GBP'000
Listed Equity Investments:
Opening valuation
Opening book cost 829 1,221
Opening fair value adjustment (205) 90
624 1,311
Movements in the year:
Acquisitions at cost 10,370 3,164
Proceeds of disposals (9,892) (3,662)
Net profit realised on disposals 115 106
Decrease in fair value adjustment (49) (295)
Closing valuation 1,168 624
Closing book cost 1,422 829
Closing fair value adjustment 254 (205)
Closing valuation 1,168 624
Derivative Positions:
Closing fair value of open derivative positions - (366)
Total closing valuation of current assets held for 1,168 258
trading
=---------
Annual Report Page 49
11. Current Asset Investments Held for Trading (continued)
30June 30June
2009 2008
GBP'000 GBP'000
(Losses)/gains on investments held for trading:
On equity investments:
Net profit realised on disposals 115 106
Decrease in fair value adjustment (49) (295)
On derivative positions:
Movement in fair value of open positions - (328)
Realised (loss)/gain on closed positions (117) 60
Total loss on investments held for trading (51) (457)
The investments held by the dealing subsidiary (Gartmore GO Dealing Limited)
have been designated as held for trading and valued at fair value through
profit or loss.
12. Investment in Subsidiary
Gartmore GO Dealing Limited
The Company owns the whole of the issued share capital (GBP2) of Gartmore GO
Dealing Limited, a dealing company registered in England and Wales.
30June 30June
2009 2008
GBP'000 GBP'000
Balance brought forward at 1 July 310 1,680
Movement in intercompany loan account 959 (706)
Profit/(loss) of subsidiary for the year 92 (664)
Balance carried forward at 30 June 1,361 310
No dividends were paid to Gartmore Growth Opportunities plc during the year
(2008: GBP223,000).
13. Other Receivables
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Accrued income 203 202 135 99
Prepaid expenses 11 11 14 14
Recoverable VAT - - 700 700
Recoverable overseas tax 2 2 - -
216 215 849 813
The carrying amounts of other receivables approximate their fair value. None of
the other receivables are past due or impaired.
=---------
Annual Report Page 50
14. Equity-Linked Unsecured Loan Stock 2004/09
30June 30June
2009 2009
GBP'000 GBP'000
Balance brought forward at 1 July 411 4,226
Cost of loan stock repurchased (11) (2,553)
Change in fair value (101) (1,262)
Balance carried forward at 30 June 299 411
On 17 December 1999, in connection with its capital reorganisation, the Company
issued 11,460,333 units of Equity-Linked Unsecured Loan Stock, maturing on 18
December 2004. In May 2000, 175,000 units were repurchased leaving 11,285,333
units in issue until April 2004, when the Company provided an early redemption
opportunity, amended the final redemption date to 18 December 2009 and
introduced a quarterly redemption facility. 9,311,674 units were redeemed
leaving 1,973,659 units of re-designated Equity-Linked Unsecured Loan Stock
2004/09.
Since then 1,815,546 units have been redeemed leaving 158,113 units in issue.
During the year to 30 June 2009 6,454 units were redeemed (2008: 926,764
units).
The fair value, in pence, of one Loan stock unit at any given date is
equivalent to the published capital value of the FTSE SmallCap (excluding
investment companies) Index at that date divided by 10.
15. Bank Loan
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Due within one week 900 900 - -
The Company has a committed facility to GBP3 million and an uncommitted facility
to GBP3 million, both provided by The Bank of New York Mellon. Interest is
charged at the prevailing interbank market rates, plus a contractually agreed
margin. The Company also has an overdraft facility of GBP100,000 with Royal Bank
of Scotland plc. Interest on any overdraft is charged at 1.5% over the base
rate set by the Bank of England.
16. Other Payables
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Accrued expenses 149 149 188 188
The carrying amounts of other payables approximate their fair value.
17. Non-Current Liabilities
30June 30June
2009 2008
GBP'000 GBP'000
Non-Equity Management Shares Authorised and Issued
50,000 Management shares of GBP1 50 50
Paid up
50,000 Management shares of GBP1, one quarter paid 13 13
Management shares are entitled to receive a fixed cumulative dividend equal to
0.00001p per annum, payable annually in arrears on 30 June.
The Management shares confer the right to be paid out of the assets of the
Company available for distribution the capital paid up on such shares, without
any right to participate in any surplus remaining following payment of such
amount.
=---------
Annual Report Page 51
18. Share Capital
Authorised
30June 30 June
2009 2008
GBP'000 GBP'000
282,953,790 Ordinary shares of 0.025p 71 71
285,144,702 `C' shares of 0.25p 713 713
300,000,000 `C1' shares of 0.25p 750 750
The `C' shares and the `C1' shares are conversion shares that could be issued
to avoid the dilutive effect that the proceeds of a large share issue might
otherwise have on existing assets of the Company. The `C' shares and the `C1'
shares will convert into Ordinary Shares upon the earlier of 90% of the
proceeds from their issue having been invested by the Investment Manager or
within three months of their allotment.
The number of Ordinary shares into which the `C' shares or `C1' shares will
convert will be determined by the ratio between the net asset value
attributable to each `C' share or `C1' share as at the relevant calculation
date for their conversion and that
of each Ordinary share in issue. The assets attributable to the `C' shares or
`C1' shares are recorded separately and `C' and `C1' shareholders are entitled
to receive such dividends as the Directors may resolve to pay out to that class
from income attributable to those shares. `C' and `C1' shares carry the same
voting rights as Ordinary shares in most circumstances.
Allotted, Called-up,
Issued and Fully-paid
30June 30 June
2009 2008
GBP'000 GBP'000
11,705,040 (2008; 14,431,169) Ordinary shares of 3 4
0.025p
Shareholders can request the redemption of Ordinary shares on a quarterly
basis, subject to certain limitations and the Directors exercising their
discretion. All movements in share capital are presented in the Statement of
Changes in Equity.
In respect of the four quarterly share redemption opportunities provided to
shareholders, the Directors agreed to the following redemptions:
16 July 2008 518,049 Ordinary shares
15 October 2008 922,788 Ordinary shares
14 January 2009 226,647 Ordinary shares
15 April 2009 1,058,645 Ordinary shares
None were matched with buyers, resulting in a reduction of 2,726,129 Ordinary
shares in issue, at a cost of GBP8,796,000 (2008: 81,699 Ordinary shares
repurchased and cancelled at a cost of GBP273,000 and 380,902 redeemed at a cost
of GBP1,342,000).
19. Share Premium
30June 30June
2009 2008
GBP'000 GBP'000
Balance brought forward at 1 July - 29,704
Cancellation of reserve - (29,704)
Balance carried forward at 30 June - -
20. Special Distributable Reserve
30June 30June
2009 2008
GBP'000 GBP'000
Balance brought forward at 1 July 51,523 21,781
Arising on cancellation of share premium and capital - 29,742
redemption reserve
Balance carried forward at 30 June 51,523 51,523
The Special Distributable Reserve can be used to finance the redemption and/or
repurchase of shares in issue.
=---------
Annual Report Page 52
21. Capital redemption Reserve
30June 30 June
2009 2008
GBP'000 GBP'000
Balance brought forward at 1 July - 38
Redemption of 2,726,129 Ordinary shares 1 -
Cancellation of reserve - (38)
Balance carried forward at 30 June 1 -
The Capital Redemption Reserve, which is non-distributable, holds the amount by
which the nominal value of the Company's issued share capital is diminished
when shares are redeemed or purchased out of the Company's profits.
22. Retained Earnings
Capital Revenue Retained
reserve reserve earnings
GBP'000 GBP'000 GBP'000
Group:
At 1 July 2007 12,309 2,331 14,640
Redemption of Ordinary shares (1,342) - (1,342)
Buyback and cancellation of Ordinary (273) - (273)
shares
(Loss)/profit for the year to 30 June 2008 (13,188) 174 (13,014)
Equity dividends paid on Ordinary shares - (446) (446)
At 30 June 2008 (2,494) 2,059 (435)
Redemption of Ordinary shares (8,796) - (8,796)
Profit for the year to 30 June 2009 5,258 1,004 6,262
Equity dividends paid on Ordinary shares - (464) (464)
At 30 June 2009 (6,032) 2,599 (3,433)
Company:
At 1 July 2007 13,918 722 14,640
Redemption of Ordinary shares (1,342) - (1,342)
Buyback and cancellation of Ordinary (273) - (273)
shares
(Loss)/profit for the year to 30 June 2008 (13,852) 838 (13,014)
Equity dividends paid on Ordinary shares - (446) (446)
At 30 June 2008 (1,549) 1,114 (435)
Redemption of Ordinary shares (8,796) - (8,796)
Profit for the year to 30 June 2009 5,350 912 6,262
Equity dividends paid on Ordinary shares - (464) (464)
At 30 June 2009 (4,995) 1,562 (3,433)
Under the terms of the Company's Articles of Association, sums standing to the
credit of the capital reserves are available for distribution only by way of
redemption or purchase of any issue of the Company's own shares. The Company
may only distribute accumulated "realised" profits.
The capital reserve account comprises both realised and unrealised gains and
losses on investments.
In accordance with guidance issued by The Institute of Chartered Accountants in
England and Wales (TECH 01/08) realised capital reserves comprise gains and
losses on realisation of investments together with changes in the fair value of
investments which are considered to be readily convertible into cash without
accepting adverse terms.
=---------
Annual Report Page 53
22. Retained Earnings (continued)
At the year-end 40% (2008: the put options plus 40%) of the portfolio were
considered to be sufficiently liquid to be regarded as readily convertible into
cash.
Accordingly, the split of capital reserve between realised and unrealised in
order to determine distributable realised profits is as follows:
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Capital reserve - realised 1,126 1,913 4,968 6,887
Capital reserve - unrealised (7,158) (6,908) (7,462) (8,436)
23. Net Asset Value per Ordinary share
The Net Asset Value per Ordinary share is calculated on attributable assets of
GBP48,094,000 (2008: GBP51,092,000) and 11,705,040 (2008: 14,431,169) Ordinary
shares in issue at the year-end.
24. Notes to the Cash Flow Statement Cash and cash equivalents comprise cash at
bank and other short-term highly liquid investments with an original maturity
of three months or less.
Purchases and sales of investments are considered to be operating activities of
the Company, given its purpose, rather than investing activities. However, the
cash flows associated with these activities are presented below:
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Proceeds on disposal of fair 52,049 42,344 47,390 43,349
value through profit or loss
investments
Purchases of fair value through 44,972 34,752 39,753 36,589
profit or loss investments
25. Related Party Transactions
The investment manager, Gartmore Investment Limited (GIL), is regarded as a
related party of the Company.
During the year, total management fees of GBP325,000 (2008: GBP480,000) and
secretarial fees of GBP70,000 (2008: GBP70,000), including value-added tax, were
payable to GIL for the provision of investment management and secretarial
services to the Company.
The basis of management fees charged is disclosed in the Directors' Report.
At the balance sheet date, management and secretarial fees totalling GBP61,000
(2008: GBP66,000) and GBP12,000 (2008: GBP12,000) respectively, were accrued.
The Company has also financed and been financed by the trading activity of its
subsidiary, Gartmore GO Dealing Limited, during the years to 30 June 2009 and
2008. In addition, the Company has borne audit fees in relation to the
subsidiary amounting to GBP500 (2008: GBP500). At 30 June 2009, there was an
outstanding balance of GBP324,000 due from (2008: GBP635,000 due to) the
subsidiary.
=---------
Annual Report Page 54
26. Financial Instruments: Risk Management
The Directors manage investment risk principally through setting an investment
policy (see page 14) (that is approved by shareholders), by contracting
management of the Group's investments to an investment manager under a contract
which incorporates appropriate duties and restrictions and by monitoring
performance in relation to these.
The Board's relationship with the investment manager is discussed on pages 26
of this Report. Internal control and the Board's approach to risk is discussed
on pages 28 and 29. There have been no material changes to the management or
nature of the Group's investment risks from the prior year.
The main risks arising from the Group's pursuit of its investment objective
(see page 17) are market risk, credit risk and liquidity risk. The effects of
these can also be increased by gearing.
Market risk
Market risk comprises three types of risk: market price risk, interest rate
risk and currency risk.
Market price risk:
The Company is an investment company and as such its performance is dependent
on the valuation of its investments. Consequently market price risk is the most
significant risk that the Group is exposed to. The fair value of the
investments in the portfolio is normally their bid-market price. Market price
of investee companies' shares is subject to their performance, supply and
demand for the shares and investor sentiment regarding the companies, or their
industry sectors.
The Company's investment objective and policy require that it invests primarily
in the shares of quoted UK smaller companies. The prices of shares of smaller
companies as a whole tend to be more volatile than those of larger companies.
The Company normally holds around 200 stocks which significantly spreads the
risk of individual investments performing poorly. The largest individual stock
at the year-end represented just 6.1% of the value of the portfolio.
The level of risk, relative to the benchmark, is increased by holding stocks
not represented in the benchmark index and by over or underweighting industry
sectors relative to the benchmark, which tends to concentrate risk in those
over and underweighted areas. At the year-end approximately 42% by value of
stocks held were not represented in the benchmark index. These stocks were
listed stocks that were too small to be included in the index, bonds or were
AIM quoted stocks. As can be seen from the chart on page 9 the largest industry
sector weighting variances were in the Financials, Consumer Services
(underweighted) and Technology, Oil and Gas (overweighted) sectors.
Although the net movement in the benchmark index over the 10 years to 30 June
2009 was a drop of 27.8%, the annual movement over that period averaged 19.3%.
This illustrates the volatility of this sector and indicates that it could move
by a similar amount in the forthcoming financial year. Accordingly, to
illustrate the Group's sensitivity to market prices, a 19.3% change to the
market value of the equity portfolio at 30 June 2009 would generate a
corresponding increase or decrease in the net asset value per share of around
18.7% and because of the effect on the management fee, would have a converse
effect on annual earnings per share of around 0.6p. The effect on capital
return would be materially the same as the effect on net assets.
During the year the Company's portfolio also included derivative investments,
although none were held at the year-end. The particular instruments held were
put options on the FTSE100 index that were purchased to provide a level of
protection should the UK stock market suffer a sustained fall. These were
realised in October 2009 for over three times their fair value at 30 June 2008.
Had they continued to be held to their expiry and if the FTSE100 index was
above the relevant "strike levels" at that time, the puts would expire
worthless.
The Company's trading subsidiary, Gartmore GO Dealing Limited, has similar
risks to its parent in respect of equity holdings in its trading portfolio
which are also valued at bid-market prices. Gartmore GO Dealing seeks to make
returns from short-term positions and the exposure to market price risk is
limited by this short-term nature of the holdings and because the trading
subsidiary portfolio is limited to 15% of Group Total Assets.
=---------
Annual Report Page 55
26. Financial Instruments: Risk Management (continued)
The trading subsidiary can also invest in derivatives and during the year held
equity and index swaps, also called contracts for difference, although none
were held at the year-end.
The index swaps, which were on the FTSE250 index, were intended to limit the
exposure to market movements of the other holdings in the subsidiary's trading
portfolio. Contracts for difference expose the company to the performance of
underlying stocks for little outlay and, as such, amount to highly geared
positions in the underlying stocks. This element of gearing means that the
trading subsidiary's exposure to market price risk tends to be concentrated in
these investments if they are held. The equity swaps held during the year
represented exposure to stocks with underlying portfolios of UK smaller
companies. The overall scale of the index swaps held was broadly equivalent to
that of the equity swaps.
At the year-end the group's assets exposed to market price risk were as
follows:
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Non-current asset investments at 47,610 47,610 49,847 49,847
fair value through profit or loss
Current asset investments held 1,168 - 258 -
for trading
48,778 47,610 50,105 49,847
The level of assets exposed to market price risk reduced by approximately 2.6%
during the year, through a combination of falls in the market prices of
investments held and reductions in loan stock and bank gearing.
Interest rate risk
The Group has Equity-Linked Unsecured Loan Stock 2004/09 in issue and can draw
on flexible loan facilities, the interest rates for which are set at the time
of drawing. Since cash positions are constantly monitored and drawings on the
loan facilities are normally for short rolling periods the risk of exposure to
excessive interest costs is limited.
The maximum level of drawings on the flexible bank loan facilities in the year
was GBP5.1 million (2008: GBP7.15 million).
No hedging of the interest rates paid on the Group's financial liabilities is
undertaken.
The Group also earns interest on its cash and short-term deposits. Fixed
deposits are normally placed on a one week rolling basis.
During the year 6,454 units of the Equity-Linked Unsecured Loan Stock 2004/09
were redeemed leaving 158,113 units in issue at the year-end.
At the year-end financial assets and liabilities exposed to interest rates were
as follows:
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Financial Assets:
Cash balances 216 61 307 291
Financial Liabilities:
Equity-Linked Unsecured Loan (299) (299) (411) (411)
Stock 2004/09
Bank loans (900) (900) - -
=---------
Annual Report Page 56
26. Financial Instruments: Risk Management (continued)
The weighted average rate of interest paid on the loan stock in the year was
5.9% (2008: 3.1%) and on bank loans under the Company's flexible loan
facilities was 3.1% (2008: 6.3%).
Although there were drawings of GBP900,000 on bank loan facilities at the
year-end this may not be representative of the exposure to interest rates in
the year ahead since the level of borrowings and/or cash held during the year
will be affected by the strategy being followed in response to the Board's and
Manager's perception of market prospects and the investment opportunities
available at any particular time. During the year the level of financial assets
exposed to interest obligations fluctuated between zero and GBP6 million. The
cost of borrowing compared with the anticipated returns from investment is
considered as part of the investment management process. To illustrate the
potential sensitivity to changes in interest rates, if the bank loan facilities
were fully extended to their GBP6 million limit a change of 0.5% in the rate of
interest charged would, over the course of a year, amount to GBP30,000, less than
0.1% of year-end net assets.
Currency risk:
The Group is not subject to a material level of currency risk since, with very
occasional exceptions, all of its investments are denominated in sterling.
Credit risk
Credit risk is the exposure to loss from the failure of a counterparty to
deliver securities or cash for acquisitions or disposals of investments or to
repay deposits. The Company manages credit risk by using brokers from a
database of approved brokers who have undergone rigorous due diligence tests by
the Manager's Risk Management Team and by dealing through Gartmore Investment
Limited with banks approved by the Financial Services Authority. During the
year all deposits placed were with banks that had ratings of A or higher.
The maximum exposure to credit risk at 30 June 2009 was as follows:
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Open derivative positions - - 1,052 -
Balances due from brokers 680 493 777 777
Other debtors 13 13 14 14
Accrued income 203 202 135 99
896 708 1,978 890
All of the above financial assets are current, their fair values are considered
to be the same as the values shown and the likelihood of a material credit
default is considered to be low.
Liquidity risk
Liquidity risk is the possibility of failure of the Group to realise sufficient
assets to meet its financial liabilities. The Group minimises this risk by
investing only in listed or quoted securities and by ensuring that it has
adequate cash and credit facilities in place to support normal operations. The
Group's liquidity is held primarily in sterling, almost entirely on
interest-bearing current accounts or short-term deposits in the money market.
As noted above, deposits are rarely fixed for terms in excess of one week.
In addition to using shareholders' funds to finance investments the Group can
also invest funds available from the Equity-Linked Unsecured Loan Stock 2004/
09, the management shares and from drawings on its flexible loan facilities
(gearing).
The Group's short-term borrowing facilities comprise a committed loan facility
of GBP3,000,000 and an uncommitted facility of a further GBP3,000,000 that can be
drawn to meet liquidity requirements arising either from operations or
investment strategy. Cash requirements are monitored constantly. Drawings on
the credit facilities are normally arranged on a rolling weekly basis.
=---------
Annual Report Page 57
26. Financial Instruments: Risk Management (continued)
At 30 June 2009 financial liabilities comprised:
30 June 30 June 30 June 30 June
2009 2009 2008 2008
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Due within 1 month:
Balances due to brokers 435 285 334 334
Accrued expenses 149 149 188 188
Bank loan 900 900 - -
Equity-Linked Unsecured Loan 299 299 411 411
Stock 2004/09*
Due after 1 year:
Management shares 13 13 13 13
The above liabilities are stated at fair value.
*The final redemption date for the loan stock is 18 December 2009. However,
holders have the right to redeem their holdings on a quarterly basis. The first
redemption date after the year-end is 18 September 2009.
Gearing
Market risks can be amplified by gearing. As discussed above, in addition to
using shareholders' funds to finance investments the Group can also invest
funds available from the Management shares, the Equity-Linked Unsecured Loan
Stock 2004/09 and from drawings on its loan facilities. See the liquidity risk
section above and the Business Review on page 16 for further information. Such
gearing will exaggerate the effect on net asset value of a change in the value
of the portfolio. If the Group's borrowing facilities were fully extended the
bank gearing would amount to 12.7% of net assets and in those circumstances a
change of 10% in the value of the portfolio would be expected to change the net
asset value by approximately 11%.
As noted on page 55 in the interest rate risk section, the level of borrowings
and/or cash held during the year will be affected by the strategy being
followed in response to the Board's and Manager's perception of market
prospects and the investment opportunities available at any particular time.
At the year-end there was bank gearing of GBP900,000 (1.9% of net assets) (2008:
nil).
27. Capital
The Company's capital, or equity, is represented by its net assets which are
managed to achieve the Groups' investment objective set out on page 14.
The main risks to the Company's investments are shown in Note 26. Note 26 also
explains that the company is able to gear and that gearing will amplify the
effect on equity of changes in the value of the investment portfolio.
The Board can also manage the capital structure directly since it has
discretion to approve requests by shareholders to redeem their shares,
determines dividend payments and has taken the powers, which it is seeking to
renew, to issue and buyback shares.
The Company is subject to externally imposed capital requirements with respect
to the obligation and ability to pay dividends by section 842 Income and
Corporation Taxes Act 1988 and by the Companies Act, respectively, and with
respect to the availability of borrowing facilities, by the covenant imposed by
The Bank of New York Mellon (see page 16).
The Board regularly monitors, and has complied with, the externally imposed
capital requirements. This is unchanged from the prior year.
Total Equity at 30 June 2009, the composition of which is shown on the Balance
Sheet on page 36, was GBP48,094,000 (2008: GBP51,092,000).
28. Contingent Liabilities and Commitments
At 30 June 2009 the Group had a capital commitment of GBP150,000 (2008: no
capital commitments) in respect of a placing and a potential commitment of GBP
183,000 (2008: GBP623,000) for the Group and of GBP128,000 (2008: GBP503,000) for the
Company in respect of exercise of warrants.
Gartmore Investment Limited
Corporate Company Secretary
4 September 2009
END
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