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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Stakeholders | LSE:DDIT | London | Ordinary Share | GB0002974375 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 246.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMDDIT
THE DIRECTORS' DEALING INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2009
The full Annual Report and Accounts can be accessed via the Company's website
at www.directorsdealing.co.uk or by contacting the Company Secretary by
telephone 01392 412122.
Highlights
? Net asset value per share ("NAV") up 24.0% since 31 Dec 2008 and up 2.6%
since 30 June 2008
? NAV outperformed the Extended Hoare Govett Smaller Companies Index (excl.
investment companies) by 18.1% over twelve months ended 30 June 2009
? Directors' Dealing investment policy adopted in March 2009
? Initial indications that the Directors' Dealing strategy is outperforming the
market
? Company ranked third on one year NAV performance in the Association of
Investment Companies ("AIC") UK Smaller Companies peer group
? GBP32.9m returned to shareholders through tender offer in April 2009 at a
premium of 25% to the average share price for the five days prior to the
General Meeting of 11 March 2009
?Cash tender to be implemented in the fourth quarter of 2009
Investment Policy
The Company's investment policy is to achieve returns for shareholders,
primarily through capital appreciation, by investing in companies listed on
regulated exchanges in the United Kingdom.
The investment policy of the Company will be achieved through investment in
companies identified by Knox D'Arcy Asset Management Limited ("KAM" or the
"Manager" or the "Investment Manager") as having patterns of directors' dealing
which suggest that the Company could achieve attractive returns. It is
contemplated that when fully invested in accordance with this policy the
Company will have holdings in between 40 and 80 companies.
The Company will not generally be investing in any companies which are not
listed on a regulated stock exchange in the United Kingdom (which means that
the Company will not generally be investing in companies listed on AIM) nor,
generally, in companies whose market capitalisation at the time of investment
is less than GBP25 million. If, in the view of the Directors, securities in
smaller companies generally are especially illiquid, then the Directors may
increase the minimum size threshold until such time as the Directors believe
that sufficient liquidity has returned to the market. At present the Company is
only investing in companies with a market capitalisation of GBP150m or more.
The investment portfolio will be managed with a view to maintaining an adequate
spread of investment risk in terms of the concentration and in terms of the
size of its investments. No holding in a company or group (including UK listed
closed-ended investment funds and investment trusts) will represent more than
15 per cent. of the value of the Company's total assets (at the time the
investment is made).
The Company may from time to time invest in contracts for differences, options
and/or futures and may hedge relevant FTSE indices (whether real or synthetic).
The Company may use gearing and the Directors reserve the right to borrow up to
a maximum of 30 per cent. of the Company's gross assets (at the time of
drawdown).
Performance Statistics
Six Six Twelve Three Five
months to months to months to years to years to
30 Jun 31 Dec 30 Jun 30 Jun 30 Jun
2009 2008 2009 2009 2009
% % % % %
Basic NAV 24.0 (17.3) 2.6 (17.1) (6.5)
FTSE All Share Index (2.0) (22.4) (24.0) (27.0) (3.1)
(excluding investment
companies)
Outperformance/ 26.0 5.1 26.6 9.9 (3.4)
(underperformance)
Performance of Directors' Dealing Portfolio since 22 April 2009
Directors'
Dealing - Directors'
FTSE Dealing - Total Composite Fund
Small FTSE FTSE Directors' FTSE Data
Cap Small 250 FTSE Dealing Small UK
holdings Cap holdings 250 Portfolio Cap and Growth
NAV Index NAV Index NAV FTSE 250¹ Index²
% % % % % % %
NAV increase 12.8 7.5 8.1 3.4 12.4 6.7 5.7
Directors' 5.3 4.7 5.7 6.7
Dealing
Portfolio
outperformance
Notes:
¹ Composite comprises a like - for - like weighted average of the FTSE 250
Index and FTSE Small Cap Index (excluding investment companies).
² Total return index. Source: Fundamental Data.
Chairman's Statement
The Chairman's Statement forms part of the Report of the Directors.
The last year has been an eventful one for your Company. Over the year, the
Company has implemented a cash tender to return capital to shareholders, has
changed its name to The Directors' Dealing Investment Trust plc, and is
currently pursuing a new investment strategy.
At the general meeting of shareholders of the Company held on 11 March 2009
(the "General Meeting" or "GM") pursuant to a circular issued to shareholders
on 18 February 2009 (the "Circular"), shareholders approved proposals that
included a tender offer for 58% of the outstanding shares in issue, a change in
the Company's investment policy and a change in the Company's name.
Following the General Meeting, the tender offer was completed on 3 April 2009
with GBP32,886,098.98 being returned to shareholders. In accordance with the
terms and conditions of the tender offer, a total of 12,831,877 shares were
purchased from shareholders. Shareholders who tendered all of their shares had
68.5% of their shares purchased at the tender price of 256.28 pence per share.
This represented a premium of 25.2% to the average share price over the five
days prior to the GM.
During the period under review, your Company's net asset value per share
("NAV") increased by 2.6% outperforming the FTSE All Share Index (excl.
Investment companies) by 26.6% and the Extended Hoare Govett Smaller Companies
Index (excl. investment companies) by 18.1%. This was due to the holding of
cash balances by the Company prior to the tender offer and more recently the
performance of new investments. Over the twelve months ended 30 June 2009, your
Company's NAV outperformed that of its Association of Investment Companies
("AIC") UK Smaller Companies peer group index by 25.8% and was ranked third out
of 16 trusts in that peer group (Source: AIC).
The Company's change of name to The Directors' Dealing Investment Trust Plc
("DDIT") has been effective since 11 March 2009 and the Company has commenced
implementation of the new investment policy. The new investment policy of the
Company is to achieve returns for shareholders, primarily through capital
appreciation, by investing in companies listed on regulated exchanges in the
United Kingdom. This policy will be achieved through investment in companies
identified by the Company's Investment Manager, Knox D'Arcy Asset Management
("KAM" or the "Manager") as having patterns of directors' trading which suggest
that the Company could achieve attractive returns.
As a result of the change in policy we are currently realigning the investment
portfolio. During the realignment process the Company's investments will be
managed as two distinct portfolios. These are the Legacy Portfolio, being those
investments made pursuant to the previous investment policy and which are in
the process of being realised; and the Directors' Dealing Portfolio being those
investments made pursuant to the new investment policy.
The market for the smaller/micro capitalisation companies in which the Legacy
Portfolio is predominately invested remains very illiquid. However,
notwithstanding market conditions, between 1 July 2008 and 30 June 2009 the
Company has realised a number of holdings at an aggregate premium to NAV of
2.46%. Between February 2008 and 31 July 2009, a total of GBP59.3m of Legacy
Portfolio investments have been sold at an aggregate premium of 1.38% to NAV.
Of the GBP59.3m realised, GBP15.9m or 76.8% of the value of the remaining Legacy
Portfolio as at 11 March 2009 has been realised at a premium to NAV of 1.41%
since the General Meeting of 11 March 2009. As at 31 July 2009, GBP8.4m of the
Company's net assets were held in the Legacy Portfolio.
As stated in the Circular, it is the Board's intention that, subject to there
being sufficient distributable reserves available to the Company for such
purpose, further tender offers will be considered by the Directors based on the
proceeds realised from the sale of the Legacy Portfolio. It is anticipated that
documents relating to the first of these tenders will be circulated to
shareholders by early October 2009.
Following the completion of the cash tender on 3 April 2009, the Company began
investing pursuant to the new investment policy and had invested in twelve
Directors' Dealing Portfolio holdings as at 30 June 2009. The early indications
for this portfolio are encouraging and this portfolio has outperformed the
market in a satisfactory manner. This has been reviewed in the Investment
Manager's Report.
Jonathan Carr
Chairman
28 August 2009
Investment Manager's Report
Following the change of name and investment policy the Company has been
realising actively investments contained in the Legacy Portfolio which were
made pursuant to the previous investment policy and acquiring investments for
the Directors' Dealing Portfolio ("DDP") pursuant to the new investment policy.
Notwithstanding the challenging market conditions, the Company continues to
realise Legacy Portfolio holdings at a premium to net asset value by applying
an activist approach where appropriate. Investments pursuant to the new policy
commenced on 22 April 2009 and, while this provides a limited amount of
performance data, the initial results are encouraging in that the Directors'
Dealing Portfolio has increased in value by 12.4% compared to like-for-like
increases of 7.5% and 3.4% in the FTSE Small Cap and FTSE 250 indices
respectively.
During the period under review, your Company's net asset value per share
("NAV") increased by 2.6% outperforming the FTSE All Share Index (excl.
investment companies) by 26.6% and the Extended Hoare Govett Smaller Companies
Index (excl. investment companies) by 18.1%. This was due to the holdings of
cash balances by the Company prior to the tender offer and more recently the
performance of new investments. Over the twelve months ended 30 June 2009, your
Company's NAV outperformed that of its Association of Investment Companies
("AIC") UK Smaller Companies peer group index by 25.8% and was ranked third out
of 16 trusts in that peer group (Source: AIC).
The market for the smaller/micro capitalisation companies in which the Legacy
Portfolio is predominantly invested remains very illiquid. Even on the
assumption that the Company could carry out 50% of the 10 day average volume
traded in the market, then 48% of the Legacy Portfolio holdings would still
require in excess of 240 trading days to sell. In order to achieve disposals in
such circumstances at close to NAV, the Company has pursued an activist
approach to certain of the portfolio holdings where value could be realised
from such an approach.
Notwithstanding market conditions, between 1 July 2008 and 30 June 2009 the
Company has realised a number of holdings at an aggregate premium to NAV of
2.46%. Between February 2008 and 31 July 2009, a total of GBP59.3m of Legacy
Portfolio investments have been sold at an aggregate premium of 1.38% to NAV.
Of the GBP59.3m realised, GBP15.9m or 76.8% of the value of the remaining Legacy
Portfolio as at 11 March 2009 has been realised at a premium to NAV of 1.41%
since the General Meeting of 11 March 2009. As at 31 July 2009, GBP8.4m of the
Company's net assets were held in the Legacy Portfolio.
After the approval of the new investment policy and the completion of the cash
tender on 3 April 2009, the Company began investing pursuant to the new
investment policy. This involves identifying certain types of directors'
purchases in the shares of the companies that they manage (each one a "Buy
Signal"). The date on which these purchases are reported is called the Process
Date. The Buy Signal results in the purchase of a stock on or after the Process
Date (the "Investment Date"). Between the Process Date and the Investment Date,
a Buy Signal is referred to as an open trade ("Open Trade"). A purchased stock
is held for a specified number of days after the Process Date (the "Holding
Period") and then sold. The Holding Period is typically between 120 and 180
days for the strategies currently employed.
Following the cash tender, the Company had limited cash resources and therefore
funded the purchase of Directors' Dealing investments as and when proceeds were
realised from the sale of Legacy Portfolio holdings. Investment therefore
commenced on 22 April 2009 based on Buy Signals from selected FTSE Small Cap
and FTSE 250 strategies. Inevitably, this meant that the Open Trades were
already part of the way through their Holding Periods and that part of the
anticipated outperformance had already taken place as at the Investment Date.
Notwithstanding that certain purchases were made part of the way through
Holding Periods, the Directors' Dealing Portfolio is showing encouraging
initial results.
The table below shows the performance of the Directors' Dealing Portfolio NAV
compared to the FTSE Small Cap Index, the FTSE 250 Index, a composite FTSE
Small Cap/FTSE 250 Index and the UK Growth Trust sectors in the period 22 April
2009 to 30 June 2009.
Directors'
Dealing - Directors'
FTSE Dealing - Total Composite Fund
Small FTSE FTSE Directors' FTSE Data
Cap Small 250 FTSE Dealing Small UK
holdings Cap holdings 250 Portfolio Cap and Growth
NAV Index NAV Index NAV FTSE 250¹ Index²
% % % % % % %
NAV increase 12.8 7.5 8.1 3.4 12.4 6.7 5.7
Directors' 5.3 4.7 5.7 6.7
Dealing
Portfolio
outperformance
Notes:
¹ Composite comprises a like - for - like weighted average of the FTSE 250
Index and FTSE Small Cap Index (excluding investment companies).
² Total return index. Source: Fundamental Data.
The performance of the Directors' Dealing Portfolio since the first Investment
Date against a value weighted composite of FTSE Small Cap and FTSE 250 Indices
and the performance of the Directors' Dealing Portfolio since the first Process
Date against the FTSE 250 Index, the FTSE small Cap Index and a value-weighted
composite index are illustrated in charts in the Company's Annual Report and
Accounts which are available at www.directorsdealing.co.uk.
This demonstrates that while the Directors' Dealing Portfolio outperformed the
weighted composite index by 5.7% in the period from 22 April 2009 to 30 June
2009, the outperformance since the first Process Date was significantly
greater. As new Buy Signals are generated, we envisage that more of the
portfolio will comprise holdings purchased on or close to the Process Date and
this should position the portfolio to benefit to a greater extent from the
potential outperformance.
Knox D'Arcy Asset Management Ltd
28 August 2009
Principal portfolio investments
as at 30 June 2009
Market % of Market
value portfolio capitalisation
GBP'000 GBPm
Concateno 3,716 19.7 127
Abcam 3,292 17.5 243
Harvey Nash 3,008 16.0 28
Group
Property 1,111 5.9 8
Recycling
Nationwide 979 5.2 34
Accident Repair
Services
Rapid 810 4.3 49
Realisations
Fountains 679 3.6 9
Zetar 540 2.9 20
Driver Group 534 2.8 14
OpSec Security 361 1.9 5
Group
Advance AIM 308 1.6 2
Value
Realisation
Inland 300 1.6 16
Glisten 274 1.5 8
Computacenter* 271 1.4 314
Southern Cross 255 1.3 267
Healthcare Group
*
Galiform* 228 1.2 223
RPC Group* 227 1.2 196
Avesco Group 226 1.2 6
Britvic* 218 1.2 603
Carpetright* 202 1.1 377
Total 17,539 93.1
The above holdings are in the ordinary shares of investee companies.
The 20 principal investments represent 93.1% of the investment portfolio.
* Directors' Dealing Portfolio holdings.
Twenty largest holdings
Classification and main activities
Holding Sector
Concateno Healthcare Equipment & Services
Drug and alcohol testing provider and
manufacturer of clinical diagnostic
products.
Abcam Pharmaceuticals & Biotechnology
Production and distribution of
research-grade antibodies via an
online catalogue featuring detailed
technical data sheets on each
product.
Harvey Nash Group Support Services
A global multi-service recruitment
organisation with 3,000 staff
worldwide and 28 offices covering the
USA, Europe and Asia-Pacific.
Property Recycling Real Estate
The company identifies and acquires
previously developed land, referred
to as brownfield sites, where it can
see the opportunity to improve
valuation significantly through
remediation and planning gain.
Nationwide Accident Repair Services Support Services
Repair of motor vehicles and the
provision of accident claim
management services.
Rapid Realisations Equity Investment Instruments
To exploit the investment opportunity
represented by companies in pre-IPO
and other late stage situations with
a view to arbitraging differences in
public and private company
valuations.
Fountains Support Services
Environmental and forestry management
service provider to local
authorities, utility companies and
landowners.
Zetar Food Producers
Manufacture of novelty and niche
chocolate, dried fruit and nut
products, sold under private label or
other chocolate manufacturer's brands
within the UK, Australia and other
export markets.
Driver Group Construction and Materials
Provision of specialist commercial
and dispute resolution services to
the construction industry.
OpSec Security Group Support Services
The group provides governments and
corporations worldwide with
anti-counterfeiting technologies
solutions and services.
Advance AIM Value Realisation Equity Investment Instruments
To realise value from a portfolio of
AIM securities and progressively
return cash to shareholders.
Inland Real Estate
Purchaser and developer of brownfield
property in the UK.
Glisten Food Producers
The group is involved in the
manufacture and sale of
confectionery, ingredients and
snacking products to a wide range of
outlets in the UK and abroad.
Computacenter Software & Computer Services
Provider of IT infrastructure
services across Europe.
Southern Health Care Group Health Care Equipment & Services
Provider of care homes and care
services across the UK.
Galiform Support Services
Supplier of kitchens and joinery to
trade customers across the UK.
RPC Group General Industrials
Supplier of rigid plastic packaging
across Europe.
Avesco Group Media
Provision of media services to the
corporate presentation, entertainment
and broadcast markets.
Britvic Beverages
UK soft drinks manufacturer.
Carpetright General Retailers
Retailer of carpet and floor
coverings across Europe.
Sector analysis of portfolio
as at 30 June 2009
Sector weightings Market value %
Support Services 33.6
Healthcare Equipment & Services 21.1
Pharmaceuticals & Biotechnology 17.5
Real Estate 8.5
Equity Investment Instruments 5.9
Food Producers 4.3
Software & Computer Services 3.7
Media 1.5
General Industrials 1.2
Beverages 1.1
General Retailers 1.1
General Financial 0.4
Non Life Insurance 0.1
Total 100
Report of the Directors
The Directors present their Report and Accounts for the year ended 30 June
2009.
Business Review
Introduction
The purpose of the Business Review is to provide an overview of the business of
the Company by:
? Analysing development and performance using appropriate key performance
indicators (`KPIs')
? Outlining the principal risks and uncertainties affecting the Company.
? Describing how the Company manages these risks.
? Explaining the future business plans of the Company.
? Setting out the Company's environmental, social and ethical policy.
? Providing information about persons with whom the Company has contractual or
other arrangements which are essential to the business of the Company.
? Outlining the main trends and factors likely to affect the future
development, performance and position of the Company's business.
Principal Activity and Status
The principal activity of the Company is to carry on the business of an
investment trust company. A description of the Company's activities and
developments in the twelve month period to 30 June 2009 is shown in the
Chairman's Statement, Investment Manager's Report and the Portfolio review
above which should be read in conjunction with this Business Review.
The Company is an investment company as defined under Section 833 of the
Companies Act 2006 and has received written approval from the HM Revenue and
Customs as an authorised investment trust, under Section 842 of the Income and
Corporation Taxes Act 1988 ("ICTA"), for the year ended 30 June 2008, although
under the Corporation Tax Self Assessment regime this approval is subject to
any enquiry that may be raised. The Company has been approved as an investment
trust in all previous years since its formation. The Company's eligible
investment income in the year commencing 1 July 2008 may not be sufficient to
meet the requirements of Section 842 of the ICTA, which could result in the
Company losing its investment trust status. In the event that the Company fails
to qualify as an investment trust company, it would become subject to
corporation tax on realised chargeable gains. The Company does not believe that
any additional tax liabilities would crystallise as a result of any loss of
investment trust status for the accounting period just ended.
Although the Company may not meet the requirements of Section 842 of the ICTA
for the year ending 30 June 2009, the Directors intend to run the Company in
such a way as to ensure it meets the requirements of Section 842 of the ICTA in
future periods.
At the Annual General Meeting of the Company falling in 2019 an Ordinary
Resolution will be put to the members proposing that the Company continue as an
investment trust for an unlimited period thereafter.
The Company's shares are currently fully eligible for inclusion in ISAs and
PEPs and the Directors anticipate that this status will be maintained in the
future. Shareholders are periodically entitled to vote on the continuation of
the Company.
Principal Risks and Uncertainties Associated with the Company
The Board is committed to the principles of the Combined Code, published in
2008, as detailed in the corporate governance section of this report. The
Company is a member of the AIC and is committed to compliance with the
provisions of the AIC Code of Corporate Governance. The Board also seeks to
mitigate risk through regular monitoring and review processes that are designed
to ensure that all compliance, regulatory and contractual obligations relating
to the Company are adhered to at all times. The processes of internal control
can only provide reasonable, not absolute, assurance against material
misstatement or loss. These processes are regularly reviewed by the Board in
accordance with the FRC guidance on internal controls to provide the ongoing
means to manage risk which have been in place during the period and to the date
of this report. The principal risks and the Company's policies for managing
these risks and the policy and practice with regards to financial instruments
are summarised in Note 22 to the financial statements.
The following additional risks and uncertainties have been identified and are
discussed below, with an outline of how the Board recognises and seeks to
control these risks.
i). Investment and Strategy
As an investment company, the returns generated by the Company are largely
dependent upon the stock market performance of the companies within the
portfolio. The Company could underperform its benchmark index due to risks
related to:
? the quality of its management and the management of the companies in which it
invests;
? its ability to select investment opportunities;
? general economic conditions; and
? its ability to liquidate its investments.
The Company is also exposed to a range of economic and market force risks
including interest rates, exchange rates and the general performance of stock
markets, which are viewed as part of the Company's normal business environment.
The Board discusses the Company's investment performance and portfolio at each
Board meeting.
ii). Gearing
The use of gearing magnifies both positive and negative movements in the NAV.
The Company has the ability to use gearing equating to a maximum of 30% of the
Company's gross asset and at 30 June 2009 the Company's had no borrowings
(2008: nil).
iii). Share Price and Discount
As an investment company, The Directors' Dealing Investment Trust is also
termed a closed-end fund. The share prices of closed-end funds often trade at a
discount to their NAVs. At 30 June 2009 the discount on the Company's shares
was 20.89%. The level of this discount is likely to fluctuate on a daily basis
and can vary significantly over time. It is possible that over given periods of
time the share price could go down despite an increase in the NAV, or that the
share price could appreciate at an inferior rate to the NAV, or that the share
price could fall to a greater degree than the NAV.
The Board monitors the discount at which the shares trade and where possible
seeks to manage the discount in order to limit discount volatility and to
enhance liquidity in the Company's shares. The Company has the ability to buy
back shares for immediate cancellation and to purchase shares into Treasury
which can potentially be re-issued at a later date. As at the date of this
report the Company had 982,000 shares in Treasury.
During the period under review the Company purchased 500,000 shares for
cancellation at an aggregate cost of GBP1,093,000 (representing 4.84% of the
issued capital as at the repurchase date of 28 April 2009) and no shares were
purchased to be held in Treasury.
On 20 April 2009, 1,348,000 shares were cancelled from Treasury (representing
11.55% of the issued capital as at that date). On 29 April 2009, a further
50,000 shares were cancelled from Treasury (representing 0.51% of the issued
capital as at that date). As part of the Tender Offer 12,831,877 shares
(representing 52.37% of the issued capital) were repurchased for cancellation.
The total consideration paid for shares repurchased during the period was GBP
34,600,000 including expenses. The maximum number of shares held in Treasury
during the year was 2,380,000 which, at 19 April 2009, represented 20.36% of
the issued capital of the Company.
iv). Operational
The Company, in line with the majority of investment companies, does not have
any employees and consequently relies upon the provision of services by a
number of third parties. The Board is therefore dependent on the monitoring and
control procedures of these third parties which include the Company's Manager,
Secretary and Registrar.
The Board reviews the internal control procedures of its third party service
providers and the Board's Audit Committee assesses the risks to the Company's
operations semi-annually. Further details are shown in the `internal control
assessment process' section of this report.
v). Regulatory
The principal legislation and regulations that apply to the Company are the
Companies Acts 1985 and 2006, the Listing Rules and Disclosure and Transparency
Rules of the FSA and the ICTA. Failure to qualify as an investment trust
company under the ICTA could result in the Company becoming subject to
Corporation Tax on its realised chargeable gains.
The Board is not aware that the Company has breached any applicable laws or
regulations during the year under review. At each Board meeting the legislative
and regulatory status of the Company is reviewed to ensure that all
requirements continue to be adhered to by the Company and its service
providers.
Key Performance Indicators
The key measures by which the Board judge the success of the Company, are the
share price and NAV. Due to the nature of the Company's strategy to invest in a
limited number of relatively small companies, the portfolio does not mirror the
benchmark index. This, therefore, may not be the best index by which the
Company's short-term performance should be measured. The Company's NAV
performance is however, reviewed by comparison to the FTSE All-Share Index
(excluding Investment Companies), other relevant indices and the NAV
performance of a peer group of similar investment companies that invest in UK
smaller companies. The Board also considers the performance of the FTSE
SmallCap Index (excluding Investment Companies) and the FTSE 250 Index
(excluding Investment Companies).
Given that the stated investment policy of the Company is to achieve returns
for shareholders, primarily through capital appreciation, over the longer-term
the Board considers performance relative to each of the above comparators.
The Company's NAV performance for the twelve month period to 30 June 2009 is
set out in the performance statistics above while further reference is made in
the Company's 2009 Annual Report and Accounts.
The Board regularly reviews the Company's discount which is monitored by the
Manager on a daily basis. The Manager will notify the Board of any material
short-term change in the discount. The level of discount is considered by
comparison to the discounts of a peer group of similar investment companies. As
detailed under Share Price and Discount above, the Board seeks to manage the
discount in order to limit discount volatility and to enhance liquidity in the
Company's shares.
The Board reviews the expenses incurred operating the Company at each Board
meeting and considers the Company's Total Expense Ratio ("TER"). The Company's
TER at 30 June 2009 was 2.24%% (2008: 2.84%).
Results and Dividends
The results for the year and the net revenue are set out in the Income
statement and are summarised below:
2009 2008
GBP'000 GBP'000
Revenue return after taxation 821 (330)
Capital return after taxation (8,253) (37,358)
Total return after taxation (7,432) (37,688)
Proposed annual dividend (pence per share) 13.0 nil
The dividend, if approved by shareholders, will be paid on 4 January 2010 to
shareholders on the register at 29 December 2009.
Net Asset Value
At 30 June 2009 the NAV per share, which includes revenue reserves, was 328.67p
(2008: 320.48p).
Management and Secretarial Agreements
The Company's investments are managed by Knox D'Arcy Asset Management Limited
under a Management Agreement dated 11 March 2009. KAM receive a fee of GBP10,000
per week.
The principal terms of the Investment Management Agreement entered into between
the Company and Knox D'Arcy Asset Management approved by Shareholders on 11
March 2009 are summarised below.
Under the Investment Management Agreement, KAM was appointed as the Company's
Investment Manager. KAM will be entitled to receive a management fee of GBP10,000
per week, exclusive of any VAT. Under the terms of a Management Warrants Deed
dated 11 March 2009, KAM will be entitled to management warrants in each year
after the publication of the Company's audited annual results.
The Investment Manager's appointment may be terminated by the Company on giving
not less than 7 days' notice, and by the Investment Manager upon giving not
less than 3 months' notice. The Investment Manager's appointment may be
terminated forthwith by either KAM or the Company, upon the insolvency of the
other party or in the event of the other party being in material breach of the
Investment Management Agreement. It may also be terminated in certain other
circumstances.
Further, in the event that the Company comes under the control of any person or
group of persons acting in concert (not including KAM or any of its
associates), KAM shall be entitled to terminate its appointment upon 28 days'
notice following it being notified of such change of control and will be
entitled to receive, in lieu of notice, a compensatory payment.
Pursuant to the Investment Management Agreement, KAM is entitled to appoint
Knox D'Arcy Investment Management ("KIM") as its investment adviser and is also
empowered to delegate certain of its functions to KIM or any of its associates.
Under an agreement, dated 21 June 1993, company secretarial services and the
general administration of the Company are undertaken by Capita Sinclair
Henderson Limited, trading as Capita Financial Group - Specialist Fund
Services.
Going Concern
The Directors, after due consideration of the Company's cash balances, the
liquidity of the Company's investment portfolio and the cost base of the
Company, are of the opinion that it is appropriate to presume that the Company
will continue in business for the foreseeable future and accordingly have
continued to adopt the going concern basis in preparing the accounts.
Statement of Directors' responsibilities in respect of the annual report and
the financial statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss 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 judgments and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Report of the Directors, a Directors' Remuneration Report and a
Corporate Governance Statement that complies with that law and those
regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions
Responsibility Statement of the Directors in Respect of the Annual Financial
Report
We confirm that to the best of our knowledge:
? the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
? the Directors' Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties that they face.
On behalf of the Board of Directors
Jonathan Carr
Chairman
28 August 2009
Independent Auditors' report
The Company's financial statements for the year ended 30 June 2009 have been
audited by KPMG Audit Plc. The text of the Auditor's report can be found in the
Company's Annual Report and Accounts at www.directorsdealing.co.uk.
Income Statement
for the year ended 30 June 2009
2009 2008
Note Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments 11 - (8,383) (8,383) - (36,231) (36,231)
at fair value
Income 2 1,438 - 1,438 1,593 - 1,593
Investment management 3 (121) (121) (242) (695) (695) (1,390)
fee
VAT reclaimed on 4 450 450 900 - - -
investment management
fees
Other expenses 5 (946) (199) (1,145) (1,005) (209) (1,214)
Net return before 821 (8,253) (7,432) (107) (37,135) (37,242)
finance costs and
taxation
Interest payable and 7 - - - (223) (223) (446)
similar charges
Return on Ordinary 821 (8,253) (7,432) (330) (37,358) (37,688)
activities before and
after taxation for the
financial year
Basic return per 10 4.35 (43.73) (39.38) (1.46) (165.18) (166.64)
Ordinary share (p)
Diluted return per 10 4.35 (43.69) (39.34) - - -
Ordinary share (p)
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital columns are prepared under
guidance issued by the Association of Investment Companies ("AIC"). All
recognised gains and losses are disclosed in the revenue and capital columns of
the Income Statement and as a consequence no Statement of Total Recognised
Gains and Losses has been presented.
No operations were acquired or discontinued during the year.
All revenue and capital items in the above statement derive from continuing
operations.
Balance sheet
as at 30 June 2009
2009 2008
Note GBP'000 GBP'000
Fixed assets
Investments at fair value 11 18,848 38,967
Current assets
Debtors 13 554 415
Cash at bank 9,656 32,538
10,210 32,953
Creditors - amounts falling due 14
within one year
Creditors - (382)
Accruals (161) (635)
Net current assets 10,049 31,936
Net assets 28,897 70,903
Share capital and reserves represented
by:
Called up share capital 15 2,444 6,126
Reserve for own shares - (8,847)
Share premium account - 28,319
Capital redemption reserve 5,520 1,838
Capital reserve 16,382 39,763
Revenue reserve 4,525 3,704
Warrant reserve 16 26 -
Shareholders' funds - equity interests 28,897 70,903
Net asset value per Ordinary Share 20 328.67p 320.48p
These financial statements were approved by the Board of Directors on 28 August
2009 and were signed on its behalf by:
Jonathan Carr
Chairman
Statement of cash flows
for the year ended 30 June 2009
2009 2008
Note GBP'000 GBP'000
Operating activities:
Investment income received 610 1,371
Bank interest received 758 31
Treasury interest received 322 -
VAT refund and interest 1,035 -
Investment management fees paid to Knox (260) (250)
D'Arcy Asset Management
Investment management fees paid to Unicorn (217) (1,003)
Asset Management
Secretarial fees paid (69) (52)
Other cash expenses (1,115) (670)
Net cash inflow/(outflow) from operating 18 1,064 (573)
activities
Servicing of finance
Interest paid - (487)
Net cash outflow from servicing of finance - (487)
Capital expenditure and financial investment
Purchases of investments (36,021) (23,149)
Sales of investments 47,236 69,656
Net cash inflow from capital expenditure and
financial investment 11,215 46,507
Equity dividends paid - (158)
Net cash inflow before financing 12,279 45,289
Financing
Reorganisation costs (242) (166)
Ordinary shares purchased for cancellation (34,919) (1,465)
Ordinary shares purchased for Treasury - (303)
Net cash outflow from financing (35,161) (1,934)
(Decrease)/increase in cash 19 (22,882) 43,355
Reconciliation of movements in shareholders' funds
for the year ended 30 June 2009
Reserve Share Capital
Share for own premium Special redemption Capital Revenue Warrant
capital shares account reserve reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30
June 2009
30 June 2008 6,126 (8,847) 28,319 - 1,838 39,763 3,704 - 70,903
Net revenue - - - - - - 821 - 821
return after
taxation for
the year
Dividends paid - - - - - - - - -
Net losses on - - - - - (4,425) - - (4,425)
realisation of
investments
Transfer - 3,650 (28,319) 28,319 - (3,650) - - -
between
reserves
Fair value - - - - - (3,958) - - (3,958)
movement in
investments
Costs - - - - - 130 - - 130
allocated to
capital
Cost of shares - 5,197 - - - - - - 5,197
held in
Treasury
Cost of shares - - - (28,319) - (11,478) - - (39,797)
purchased for
cancellation
Nominal value (3,682) - - - 3,682 - - - -
of shares
purchased for
cancellation
Warrants - - - - - - - 26 26
granted
30 June 2009 2,444 - - - 5,520 16,382 4,525 26 28,897
Reserve Share Capital
Share for own premium redemption Capital Revenue
capital shares account reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30
June 2008
30 June 2007 6,286 (8,544) 28,319 1,678 78,968 4,192 110,899
Net revenue - - - - - (330) (330)
return after
taxation for the
year
Dividends paid - - - - - (158) (158)
Net losses on - - - - (33,737) - (33,737)
realisation of
investments
Transfer between - - - - - - -
reserves
Fair value - - - - (2,494) - (2,494)
movement in
investments
Costs allocated - - - - (1,127) - (1,127)
to capital
Cost of shares - (303) - - - - (303)
held in Treasury
Cost of shares - - - - (1,847) - (1,847)
purchased for
cancellation
Nominal value of (160) - - (160) - - -
shares purchased
for cancellation
30 June 2008 6,126 (8,847) 28,319 1,838 39,763 3,704 70,903
Notes to the accounts
at 30 June 2009
1. Accounting policies
Accounting convention
The financial statements are prepared under the historical cost convention as
modified by the revaluation of fixed asset investments, and in accordance with
UK applicable accounting standards and with the Statement of Recommended
Practice regarding the Financial Statements of Investment Trust Companies and
Venture Capital Trusts ("SORP") issued in January 2009 and adopted early. The
early adoption of the SORP had no effect on the financial statements of the
Company other than the requirement to separately disclose capital reserves that
relate to the revaluation of investments held at the Balance sheet date. This
new requirement replaces the requirement to disclose the value of the capital
reserve that is unrealised. All the Company's activities are continuing.
Income recognition
Dividend income is included in revenue when the investments concerned are
quoted `ex-dividend' and shown net of any associated tax credit. Deposit
interest and underwriting commission receivable are included on an accruals
basis.
Management fees and finance costs
Management fees and finance costs are split equally between the revenue account
and capital reserve. This is based on the expected long-term returns of the
Company. Any performance fee paid to the Manager is charged 100% to the capital
reserve since the outperformance is principally based on capital appreciation.
All other expenses are allocated in full to the revenue account, except for the
incidental costs of purchasing and selling investments which are allocated to
capital.
Investments
All investments held by the Company are classified as `fair value through
profit or loss'. Investments are initially recognised at cost, being the fair
value of the consideration given.
After initial recognition, investments are measured at fair value, with
unrealised gains and losses on investments and impairment of investments
recognised in the Income statement and allocated to capital. Realised gains and
losses on investments sold are calculated as the difference between sales
proceeds and cost.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the Balance sheet date, without adjustment for
transaction costs necessary to realise the asset. Where investments have been
suspended the shares have been valued using a valuation technique.
Taxation
The charge for taxation is based on the net revenue for the year. Deferred
taxation is provided in accordance with Financial Reporting Standard No.19:
Deferred Tax ("FRS 19") on all timing differences that have originated but not
reversed by the Balance sheet date. Deferred taxation assets are only
recognised to the extent that they are regarded as recoverable, and are
measured on a non-discounted basis.
Dividends payable to shareholders
Dividends paid by the Company are accounted for in the period in which the
dividend has been approved in general meeting.
Capital reserves
In accordance with the guidance given in the AIC SORP issued January 2009 the
capital reserve is not separated into realised and unrealised. Therefore gains
and losses on realisation of investments and changes in fair value of
investments are shown in one reserve.
Share based payments
In accordance with FRS20, an amount of GBP26,000 has been charged to the Income
statement in respect of the valuation of the Management Warrants, with a
separate reserve being created in the Balance sheet.
2. Income
2009 2008
GBP'000 GBP'000
Income from UK listed investmentsand UK Treasury bills
UK dividend income 466 1,323
UK Treasury bill interest 322 -
Other income
Interest received on investment management fees 135 -
reclaimed VAT
Bank interest receivable 515 270
Total income 1,438 1,593
Total income comprises:
Dividends 466 1,323
Interest 837 270
Interest received on investment management fees 135 -
reclaimed VAT
1,438 1,593
3. Investment management fee
2009 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management 247 247 494 673 673 1,346
fee
VAT thereon - - - 22 22 44
Unwinding of provision (126) (126) (252) - - -
for unexpired period of
notice
121 121 242 695 695 1,390
Of these, the amounts payable to both Investment Managers, throughout the year
was as follows:
2009 2008
GBP'000 GBP'000
Unicorn Asset Management 224 1,140
Knox D'Arcy Asset Management 270 250
494 1,390
Knox D'Arcy Asset Management's investment management fees have been calculated
in accordance with the management agreements.
At 30 June 2009 GBP10,000 was due to Knox D'Arcy Asset Management Limited (2008:
GBP244,129 due to Unicorn Asset Management Limited).
4. VAT reclaimed on investment management fees
Unicorn Asset Management Limited ("Unicorn") was Investment Manager of the
Company until 5 November 2008. In the period up to September 2007, Unicorn
charged Value Added Tax ("VAT") to the Company in addition to its management
fees. During the course of litigation that culminated in the European Court of
Justice's decision in JP Morgan Fleming Claverhouse Investment Trust plc and
another v Revenue & Customs Commissioners [June 2007] (C-363/05 [2007] 3 CMLR
849, [2007] SWTI 1765). The Directors believed, based on information supplied
by Unicorn and the outcome of the case, that VAT paid on management fees would
be available for recovery from Her Majesty's Revenue and Customs ("HMRC"). The
Company therefore required Unicorn to reclaim VAT and interest from HMRC, and
required that the Company then be paid the same by Unicorn without deduction.
Unicorn filed its two protective claims on 30 December 2004 and 12 December
2007. The amount of VAT paid by the Company during the period covered by the
protective claims is GBP1,003,716.92 and Unicorn reclaimed this amount.
On 28 January 2009 HMRC paid to Unicorn the amount of GBP900,530.30 plus HMRC
statutory interest of GBP135,136.78, totalling GBP1,035,667.08. This amount of GBP
900,530.30 represents GBP1,003,716.92 owed by HMRC to the Company against which
has been netted off GBP103,186.62 owed by Unicorn to HMRC. The Company had at no
point agreed to bear the cost of the amount owed by Unicorn to HMRC.
Unicorn had 90 days until 28 April 2009 to pay the recovered VAT to the Company
failing which it had to be repaid to HMRC. Notwithstanding the fact that
Unicorn had signed an undertaking to HMRC dated 5 January 2009 to pass on any
reclaimed VAT to the Company, Unicorn failed to pay over the amount reclaimed
by 28 April 2009 and instead offered to pay the reduced amount in full and
final settlement of any and all claims by the Company against Unicorn.
As an interim measure and in order to avoid the money becoming repayable to
HMRC, the Company proposed that the net amount of GBP900,530.30 plus interest be
placed in the Company's solicitor's client account pending resolution of
whether or not Unicorn were obliged to return the reclaimed VAT to the Company.
Unicorn failed to pay this money to the Company's solicitors so the Company
sought a mandatory injunction ordering Unicorn to pay the money into the client
account of the Company's solicitor pending the resolution of the dispute as to
which party was entitled to the money.
40
A hearing was held on 28 April 2009 in the Chancery Division of the High Court
at which Unicorn, the Company and HMRC were represented, HMRC agreed to extend
the repayment deadline to 12 May 2009 and the court ordered that the Company's
application for an injunction be heard on 8 May 2009. Unicorn avoided the
injunction hearing by consenting to an order dated 7 May 2009 (the "Consent
Order") in which it was ordered to pay over GBP1,035,667.08 to the Company and to
pay the Company's costs in relation to the injunction hearing.
Prior to the injunction hearing, the Company took out an After the Event
("ATE") insurance policy which provided protection against adverse cost awards
of up to GBP500,000 in the event that the court ruled against the Company in the
injunction application. The policy was taken out with Templeton Insurance
Limited, a company of which Nicholas Jeffrey is a director and which is owned
by an associated company of KAM. Under the terms of the policy, the Company has
not incurred any premium cost. The cost of this premium will be recovered from
Unicorn under the terms of the Consent Order.
5. Other expenses 2009 2008
GBP'000 GBP'000
Secretarial services 64 57
Auditor's remuneration for audit 37 20
Directors' remuneration (note 6) 75 82
Directors' expenses 6 10
Brokers' fees 17 36
Directors' insurance 15 15
Registrars' fees 16 19
Fees in respect of Savings Scheme 13 15
Printing 15 16
Professional fees 583 684
Management warrants granted (note 16) 26 -
Other 79 51
946 1,005
In 2008, professional fees of GBP684,000 were paid in respect of non-recurring
corporate advice incurred by the Company's previous Board in relation to the
request by certain shareholders to appoint three Directors at the Annual
General Meeting of the Company on 11 December 2007. Of this amount, GBP398,000
was paid to KPMG for corporate finance advice.
In 2009, professional fees of GBP583,000 were paid in respect of the proposals
put to shareholders at the Extraordinary General Meeting of the Company held on
20 November 2008. Of this amount GBP51,000 was paid to KPMG for non audit
services.
2009 2008
GBP'000 GBP'000
Auditors remuneration
Audit of financial statements 37 20
Other services supplied pursuant to such 25 -
legislation
Other services relating to taxation 26 -
Corporate finance fees* - 398
88 418
* Services relating to corporate finance transactions entered into or proposed
to be entered into by or on behalf of the Company or any of its associates.
6. Directors' remuneration
2009 2008
GBP'000 GBP'000
Total fees 75 82
GBP GBP
Remuneration to Directors:
J Carr (Chairman) (appointed 11 December 2007) 30,000 16,613
N Jeffrey (appointed 11 December 2007) 25,000 15,792
G Milne (appointed 11 December 2007) 20,000 11,909
Lady Judge (Chairman) (resigned 12 December 2007) - 12,500
Peter Cowan (retired 11 December 2007) - 7,139
Guy Crawford (retired 11 December 2007) - 7,139
Robert Wade (retired 11 December 2007) - 7,139
Frank Dee (retired 11 December 2007) - 3,584
7. Interest payable and similar charges
2009 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
On bank overdraft - - - 223 223 446
8. Taxation
The Company is subject to corporation tax at 28% (2008: 29.50%). However, UK
dividends are not liable to corporation tax. Consequently, the tax deductible
expenses substantially exceed the taxable income of the Company and, as a
result, there is no taxation charge.
2009 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net revenue return 821 (8,253) (7,432) (330) (37,358) (37,688)
on ordinary
activities before
tax
Net revenue return 230 (2,311) (2,081) (98) (11,020) (11,118)
on ordinary
activities
multiplied by the
standard rate of
corporation tax in
the UK of 28%
(2008: 29.50%)
Losses on - 2,347 2,347 - 10,688 10,688
investments
UK dividends not (130) - (130) (390) - (390)
chargeable to
corporation tax
Expenses not 182 56 238 11 61 72
deductible for tax
purposes
Excess expenses of - - - 477 271 748
period
Excess management (282) (92) (374) - - -
expenses brought
forward
Total current tax - - - - - -
At 30 June 2009, the Company had surplus management expenses and non-trade
losses of GBP24.8 million (2008: GBP26.1 million), which have not been recognised
as a deferred taxation asset of GBP6.94 million and GBP7.32 million respectively.
This is because the Company is not expected to generate taxable income in
future periods in excess of the deductible expenses of those future periods,
and accordingly, it is unlikely that the Company will be able to reduce future
taxation liabilities through the use of existing surplus expenses.
9. Dividend paid
2009 2008
GBP'000 GBP'000
Payment of final dividend of nil (2008: 0.70p) per share - 158
- 158
A final dividend of 13.0p per share has been proposed in respect of the year
ended 30 June 2009.
10. Return per Ordinary share
2009 2008
*Net Per *Net Per
return Ordinary share return Ordinary share
Basic return GBP'000 shares pence GBP'000 shares pence
per
Ordinary share
Revenue
Return per 821 18,872,230| 4.35 (330) 22,615,798| (1.46)
share
Capital
Return per (8,253) 18,872,230| (43.73) (37,358) 22,615,798| (165.18)
share
Total
Return per (7,432) 18,872,230| (39.38) (37,688) 22,615,798| (166.64)
share
* Net return on ordinary activities attributable to Ordinary shareholders.
| Weighted average number of Ordinary shares in issue during the year
(excluding treasury shares).
2009 2008
*Net Per *Net Per
return Ordinary share return Ordinary share
Diluted return GBP'000 shares pence GBP'000 shares pence
per
Ordinary share
Revenue
Return per share 821 18,889,328# 4.35 - - -
Capital
Return per share (8,253) 18,889,328# (43.69) - - -
Total
Return per share (7,432) 18,889,328# (39.34) - - -
* Net return on ordinary activities attributable to Ordinary shareholders.
# Weighted average number of Ordinary shares outstanding during year 2009:
18,872,230 plus adjustments for outstanding share options: 17,098; total:
18,889,328.
There was no dilution for the year to 30 June 2008.
11. Investments
2009 2008
GBP'000 GBP'000
UK listed investments 18,848 38,967
All listed investments are of equity shares in quoted companies.
During the year the Company incurred transaction costs of GBP15,786 and GBP22,529
(2008: GBP107,546 and GBP160,334) on purchases and sales of investments
respectively. The amounts are included within losses on investments at fair
value, as disclosed in the Income statement.
2009 2008
Total Total
Analysis of investment portfolio movements GBP'000 GBP'000
Opening book cost 49,219 131,439
Opening fair value adjustment (10,252) (7,758)
Opening valuation 38,967 123,681
Movements in the year:
Purchases at cost 36,021 21,173
Sales - proceeds (47,757) (69,656)
- realised losses on sales (4,425) (33,737)
Changes in fair value (3,958) (2,494)
Closing valuation 18,848 38,967
Closing book cost 33,058 49,219
Closing fair value adjustment (14,210) (10,252)
18,848 38,967
30 June 2009 30 June 2008
Total Total
GBP'000 GBP'000
Net losseson investments at fair value through
profit or loss
Losses on sales (4,425) (33,737)
Changes in fair value (3,958) (2,494)
(8,383) (36,231)
12. Significant holdings
The Company has no interests exceeding 20% in the nominal value of the allotted
shares of investee companies.
The Company has 15 holdings over 3% including the following which is considered
to be material:
Market
Class of capitalisation
Name of undertaking Share GBPm % held
Harvey Nash Group Ordinary 25 10.778
Materiality has been defined as 5 % or more of the Company's gross assets.
13. Debtors - amounts falling due within one year
2009 2008
GBP'000 GBP'000
Dividends receivable 13 158
Prepayments and accrued income 20 257
Amounts due from brokers 521 -
554 415
14. Creditors - amounts falling due within one year
2009 2008
GBP'000 GBP'000
Amounts due to brokers re: purchases for cancellation - 382
Accruals 161 635
161 1,017
15. Called up share capital
2009 2008
GBP'000 GBP'000
Authorised:
48,000,000 (2008: 48,000,000) Ordinary shares of 25p 12,000 12,000
each
Allotted called up and fully paid:
9,774,049 (2008: 24,503,926) Ordinary shares of 25p 2,444 6,126
each
During the year the following Ordinary shares were purchases for cancellation:
Total cost
of purchase % of
Number of including issued shares
Date shares expenses at that date
GBP'000
02/04/2009 12,831,877 33,507 52.37
28/04/2009 500,000 1,093 4.84
13,331,877 34,600
During the year no Ordinary shares were purchased for Treasury:
On 20 April 2009, 1,348,000 Ordinary shares (representing 11.55% of the issued
shares at that date) were cancelled from Treasury.
On 1 May, 50,000 Ordinary shares (representing 0.51% of the issued shares at
that date) were cancelled from Treasury.
The number of shares held in Treasury at 28 August 2009 is 982,000 with an
aggregate nominal value of GBP245,500.
Since 30 June 2009 the Company has not purchased any further shares for
cancellation or any shares for Treasury.
One vote is attached to each Ordinary share in issue. Own shares held in
treasury do not carry voting rights.
16. Management Warrants
On 11 March 2009 shareholders approved a warrants deed agreement (the
"Management Warrants Deed") with the Manager relating to the performance of
investments made after 11 March 2009 pursuant to the new investment policy (the
"Directors' Dealing Investments").
Under the Management Warrants Deed, the Manager will be entitled to Management
Warrants in each year after publication of the Company's audited results and
also in the event of a takeover, subject to there having been an increase in
net asset value of Directors' Dealing Investments exceeding 8 per cent per
annum over the high water mark described further below. The precise number of
Management Warrants to which the Manager will become entitled in each year will
be determined by reference to a formula so as to give the Manager value
equivalent to 20% of the increase in net asset value of the Directors' Dealing
Investments.
For the purposes of the Management Warrants Deed, "net asset value" means the
aggregate value of the Directors Dealing Investments less the amount of all
costs, expenses and liabilities directly attributable to the Directors Dealing
Investments and a proportion of all costs, expenses and liabilities of the
Company not directly attributable to the Directors Dealing Investments (but
excluding any costs, expenses and liabilities which are directly attributable
to the assets of the Company other than Directors Dealing Investments).
The high water mark is an amount calculated as being the higher of the net
asset value as at:
i) 11 March 2009 (the "Implementation Date");
ii) the year end by reference to which any Management Warrants were last
issued; and
iii) the end of the prior financial year
in each case adjusted (i) by adding, so as to take into account the value of
any securities which the Company may have issued (whether for cash or
otherwise), the realisation proceeds of any investments held by the Company as
at the Implementation Date and any amounts (including dividends or other
distributions) received in respect of any such investments and which, in each
case, shall have been invested in Directors Dealing Investments and (ii) by
subtracting amounts returned to shareholders resulting from a sale of Directors
Dealing Investments, by way of dividends, and other distributions and returns
of capital (including payments made on buy-back of securities), and tax credits
in relation to any of the foregoing, since, in the case of each such
adjustment, the relevant date.
The Manager has been granted 19,201 Management Warrants in relation to the year
ending 30 June 2009. The Management Warrants entitle the holder to subscribe at
par for one Ordinary share for every Management Warrant held. The Management
Warrants are therefore deemed to be equity settled. The weighted average
exercise price of Management Warrants granted between 11 March 2009 and 30 June
2009, outstanding at the end of the period and exercisable at the end of the
period is 25p. The Management Warrants outstanding at the end of the period
have a remaining contractual life or exercise period of 10 years.
Fair value of Management Warrants
The Directors consider the Black-Scholes model to be the appropriate method to
calculate the fair value of the Management Warrants. Based on this model, the
fair value per Management Warrant is 135.03p with a total fair value of GBP25,927
for the 19,201 Management Warrants granted.
The inputs to the model include the share price at the grant date, an adjusted
share price that takes into account the additional Ordinary shares which would
be issued on exercise of the warrants, volatility, an expected dividend yield
deemed to be 5% and a risk free rate of return derived from the yield on an
appropriate 10-year UK gilt. Other inputs include the number of Management
Warrants and the number of Ordinary shares outstanding.
The effect of expected early exercise has been incorporated by using an
exercise period of five years compared to the actual 10 year life of the
warrants. The expected volatility has been determined by considering the
volatility of the daily share price return over the 12 months preceding the
Balance sheet date. Market conditions have been taken into account by using
publicly quoted share prices and publicly quoted gilt interest yields for the
relevant dates.
The total expense of GBP25,927 for the year to 30 June 2009 arising from the
granting of Management Warrants has been recognised in the Income statement.
The full amount is accounted for as equity-settled share-based payment
transactions. An equal amount of GBP25,927 has been credited to a Warrant reserve
on the Balance sheet. At the end of the period the price of Ordinary shares was
260p. Based on the exercise price of 25p, the intrinsic value of one Management
Warrant is therefore 235p.
17. Commitments and contingent liabilities
At 30 June 2009 there were no commitments (2008: GBPnil).
18. Reconciliation of net revenue before finance costs and taxationto net cash
inflow/(outflow)from operating activities
2009 2008
GBP'000 GBP'000
Net return before finance costs and taxation (7,432) (37,242)
Add back: losses on investments 8,383 36,231
Add back: capital expenses 199 209
Add back: management warrant expenses 26 -
(Decrease)/increase in creditors and accruals (494) 419
Decrease/(increase) in prepayments and accrued income 237 (238)
Decrease in dividends receivable 145 48
1,064 (573)
19. Reconciliation of net cash flow to net cash
2009 2008
GBP'000 GBP'000
Beginning of year 32,538 (10,817)
Net cash (outflow)/inflow (22,882) 43,355
End of year 9,656 32,538
The balance of net cash is shown in the accounts as
follows:
2009 2008
GBP'000 GBP'000
Cash at bank 9,656 32,538
9,656 32,538
20. Net asset value per Ordinary share
The basic net asset value per Ordinary share is based on net assets of GBP
28,897.000 (2008: GBP70,903,000) and on 8,792,049 (2008: 22,123,926) Ordinary
shares being the number of shares in issue at the year end, excluding shares
held in Treasury (see note 15).
21. Related party transactions
Under the Listing Rules the Manager is regarded as a related party of the
Company. The amounts paid and due to the Manager are disclosed in note 3.
However, the existence of an independent Board of Directors demonstrates that
the Company is free to pursue its own financial and operating policies, and
therefore, in terms of FRS8: "Related Party Transactions", the Manager is not
considered a related party. The relationship between the Company, its Directors
and the Investment Manager is disclosed in the Report of Directors.
22. Analysis of financial instruments
Background
The Company's financial instruments comprise securities, 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 risk management policies and procedures outlined in this note have not
changed substantially from the previous accounting period.
The principal risks the Company faces in its portfolio management activities
are:
? market price risks i.e. movements in the value of investment holdings caused
by factors other than interest rate or currency movement;
? interest rate risk;
? liquidity risk;
? credit risk; and
? gearing.
The Manager's policies for managing these risks are summarised below and have
been applied throughout the year:
Policy
(i) Market Price Risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments. The value of shares and the income from them may fall as
well as rise and shareholders may not get back the full amount invested. The
Investment Manager continues to monitor the prices of financial instruments
held by the Company on a real time basis. Adherence to the Company's investment
policy mitigates the risk of excessive exposure to one issuer or investment
sector by divesting the portfolio across many sectors.
The Board manages the market price risk inherent in the investment portfolio by
ensuring full and timely access to relevant information from the Investment
Manager. The Board meets regularly and, at each meeting, reviews the investment
performance, the investment portfolio and the rationale for the current
investments to ensure consistency with the Company's objective and investment
policy. The portfolio does not seek to reproduce the benchmark index,
investments are selected based upon the merit of individual companies and
therefore the portfolio may well diverge from the short term fluctuations of
the benchmark.
Investments in smaller companies and AIM traded Companies by their nature,
involve a higher degree of risk than investments in the mass market.
Fixed asset investments are valued at their bid price, which equates to their
fair value. A list of the Company's twenty largest equity investments and
analysis of the portfolio by market capitalisation of holdings and sector are
also given above.
The maximum exposure to market price risk is the fair value of investments of GBP
18.8 million (2008: GBP38.9 million).
If the investment portfolio valuation fell by 1% from the amount detailed in
the financial statements as at 30 June 2009, it would have the effect (assuming
all other variable held constant) of reducing the net capital return before
taxation by GBP188,000 (2008: GBP390,000). An increase of 1% in the investment
portfolio valuation would have an equal and opposite effect on the net capital
return before taxation.
(ii) Interest Rate Risk
Changes in interest rates may cause fluctuations in the income of the Company.
The Company receives interest on the cash deposits at a rate of 1% below bank
base rate. The interest received during the year amounted to GBP515,000 (2008: GBP
270,000). The interest rate risk profile of the Company is detailed later on in
this note.
If interest rates had increased by 1% from those paid as at 30 June 2009 it
would have the effect (assuming all other variables held constant) of
increasing both net revenue and net capital returns before taxation on an
annualised basis by GBP97,000 (2008: GBP35,000). If interest rates had reduced by
1% there would have been an equal and opposite effect on the net revenue return
before taxation. The calculations are based on year end figures and are not
representative of the year as a whole. The calculations are therefore only
approximate.
(iii) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities. The Investment
Manager does not invest in unlisted securities. However, the investments held
by the Company consist of UK quoted small companies which are inherently less
liquid than quoted large companies.
Liquidity risk is mitigated by the fact that the Company has GBP9,656,000 (2008:
GBP32,538,000) cash held at bank which can satisfy its creditors and that as a
closed end fund assets do not need to be liquidated to meet redemptions. The
Board has deemed that the Company's listed investments with a market
capitalisation of over GBP100 million are readily realisable as cash. Exposure to
listed investments with a market capitalisation of less than GBP100 million is GBP
9.7 million.
Short-term flexibility is achieved through the use of overdraft facilities.
(iv) Credit Risk
Credit risk is the risk of financial loss to the Company if the contractual
party to a financial instrument fails to meet its contractual obligations.
The carrying amounts of financial assets best represent the maximum credit risk
exposure at the Balance sheet date.
The Company's listed investments are held on its behalf by HSBC, the Company's
custodian, acting as agent. Bankruptcy or insolvency of the custodian may cause
the Company's rights with respect to securities held by the custodian to be
delayed. The Board monitors the Company's risk by reviewing the custodian's
internal controls reports.
Investment transactions are carried out with a large number of brokers whose
creditworthiness is reviewed by the Investment Manager. Transactions are
ordinarily undertaken on a delivery versus payment basis whereby the Company's
custodian bank ensures that the counterparty to any transaction entered into by
the Company has delivered in its obligations before any transfer of cash or
securities away from the Company is completed.
Cash is only held at banks that have been identified by the Board as reputable
and of high credit quality. The banks at which cash is held are kept under
constant review by the Board.
The maximum exposure to credit risk as 30 June 2009 was:
30 June 2009 30 June 2008
GBP'000 GBP'000
Investments at fair value 18,848 38,967
Cash at bank 9,656 32,538
Debtors and prepayments 554 415
29,058 71,920
None of the Company's assets are past due or impaired.
(v) Gearing
Gearing can have amplified effects on the net asset value of the Company. It
can be positive for a company's performance, although can have negative effects
on the performance in falling markets. It is the Company's policy to determine
the adequate level of gearing appropriate to its own risk profile and the
appropriate level of gearing is regularly monitored by the Board.
The Company had no borrowings as at 30 June 2009 (2008: GBPnil) representing nil%
(2008: nil%) of the net asset value.
Fair values of financial assets and financial liabilities
All of the financial assets and liabilities of the Company are held at fair
value.
Financial assets
The Company holds fixed asset investments which are UK listed and are traded on
the London Stock Exchange. All of the Company's assets are in sterling and
accordingly the Company has no currency exposure.
The investments are classified as fair value through profit or loss, and
measured at fair value. For investments actively traded in organised financial
assets, fair value is determined by reference to Stock Exchange quoted market
bid prices.
The Company's financial assets are substantially equity shares and debtors
which neither pay interest nor have a fixed maturity date.
Financial liabilities
The only financial liabilities of the Company are Creditors which are due
within one year, as disclosed in note 14.
Use of derivatives
The Company may from time to time invest in contracts for differences, options
and/or futures and may hedge relevant FTSE indices (whether real or synthetic).
NON STATUTORY ACCOUNTS
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 June 2009 or 2008, but is derived
from those accounts. Statutory accounts for 2008 have been delivered to the
registrar of companies, and those for 2009 will be delivered in due course.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the offices of Covington &
Burling LLP, 265 Strand, London EC2R 1BH at 11am on Thursday 29 September 2009.
The notice of this meeting can be found in the full Annual Report and Accounts
at www.directorsdealing.co.uk.
END
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