THE ZERO PREFERENCE GROWTH TRUST PLC
PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS
The Chairman commented:
I am pleased to report that for the twelve-month period to the end of July
2007, the Company's equity assets increased by 5.96% (net of all expenses).
This compares favourably with the FD/AIC Investment Trust Zero Dividend
Preference Share Index, which rose 5.15%. The net asset value (`NAV') of the
Zero Dividend Preference shares increased from 59.02p to 66.43p and the NAV of
the units increased from 66.63p to 72.65p. I have previously mentioned the
effect of the high accrual rate of the Zero Dividend Preference shares which
this year acted negatively on the NAV of the Growth shares, resulting in a
decline from 7.61p to 6.22p. The mid-market share prices of the Zero Dividend
Preference shares, units and Growth shares rose by 8.73%, 10.57% and 5.88%
respectively.
The Zero Dividend Preference shares' premium to NAV fell from 6.74% to 3.12%
over the year. At the year end, the full entitlement of the Zero Dividend
Preference shares is now marginally covered by equity assets. At the same
date, the Ordinary units stood at 0.83% premium to their NAV compared with a
discount of 0.57% at the beginning of the year. The discount level on the
Growth shares has declined over the period to 27.65% having narrowed from
44.15% at the beginning of the year.
The Company remained fully compliant with its banking covenants during the
year. At the year end, the Company had £3,120,000 drawn down. The facility
provided by the Bank of Scotland allowed the amount drawn down to be varied as
market conditions changed and investment opportunities arose. The Company's
cost of borrowing is linked to the LIBOR rate which increased considerably
over the period. Although attractive opportunities exist within the Company's
investment universe, generally expected returns have not similarly increased.
Therefore, in order to avoid increasing the risk within the portfolio, the
Company decreased borrowing by a net amount of £2,200,000.
Subsequent to the Company's year end, money markets experienced acute
distress. Three month sterling LIBOR increased from 6.04% at the end of July
to over 6.90% by 11 September 2007. Accordingly, the drawdown by the Company
was reduced further without penalty and continues to be actively managed.
Additionally, the outstanding balance was fixed for very short terms,
capturing comparatively lower borrowing rates and maintaining maximum
flexibility.
The Company has a termination date of 9 August 2008 and, as such, the
foreseeable future of the Company is limited to a period of less than one year
from the date of this report. The Board is investigating various restructuring
possibilities which it feels will have a reasonable expectation of being
successful and might be put to the shareholders prior to this date so as to
extend the Company's life. The Board shall convene an EGM of the Company to be
held on 9 August 2008, requiring the Company to be wound-up voluntarily unless
the Board shall have previously been released from its obligation to do so by
a special resolution of the Company. The Company will be wound-up if a
continuation vote is not met. The Directors do not believe that in the event
of the Company being wound-up that this would have any material impact on the
stated assets and liabilities of the Company.
In these circumstances the accounts have been prepared on a going concern
basis, which the Directors believe to be appropriate. However, the Directors
emphasise that there is a material uncertainty regarding the ability of the
Company to continue trading in the event that no restructuring proposals are
practicable.
...................
Robert Ottley
Chairman
18 October 2007
THE ZERO PREFERENCE GROWTH TRUST PLC
PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS
The Directors announce the audited statement of results for the year ended 31
July 2007 as follows:
CONSOLIDATED INCOME STATEMENT
for the year ended 31 July 2007
2007 2006
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on
investments
Gains on
investments at fair
value - 1,176 1,176 - 1,662 1,662
Net investment - 1,176 1,176 - 1,662 1,662
result
Dividends and 50 - 50 55 - 55
interest
Expenses
Investment (37) - (37) (38) (23) (61)
management fee
Terminal payment - (88) (88) - - -
provision
Other expenses (192) - (192) (212) - (212)
(229) (88) (317) (250) (23) (273)
(Loss)/profit
before finance
costs and taxation (179) 1,088 909 (195) 1,639 1,444
Finance costs
Bank interest (273) - (273) (299) - (299)
payable
(Loss)/profit
before taxation and
finance
(costs)/gains
allocated in (452) 1,088 636 (494) 1,639 1,145
respect of
shareholders
Taxation - - - - - -
(Loss)/profit after
taxation for the
year but before
finance
(costs)/gains
allocated in
respect of (452) 1,088 636 (494) 1,639 1,145
shareholders
Finance
(costs)/gains in
respect of:
Zero Dividend
Preference shares - (1,052) (1,052) - (936) (936)
Growth shares 452 (36) 416 494 (703) (209)
- - - - - -
Return per share pence pence pence pence pence pence
(IAS 33 and
Articles of
Association basis):
Zero Dividend
Preference share - 7.41 7.41 - 6.59 6.59
Growth share (1.51) 0.12 (1.39) (1.65) 2.34 0.69
Ordinary unit (1.51) 7.53 6.02 (1.65) 8.93 7.28
The total column of this statement represents the Group's income statement,
prepared in accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the Association
of Investment Companies (`AIC').
All items in the above statement derive from continuing operations.
CONSOLIDATED BALANCE SHEET
as at 31 July 2007
2007 2006
£'000 £'000
Non current assets
Investments at fair value 13,952 15,948
Current assets
Trade and other receivables 22 25
Cash and cash equivalents 594 92
616 117
Total assets 14,568 16,065
Current liabilities
Trade and other payables (149) (88)
Bank loans (3,113) -
(3,262) (88)
Total assets less current 11,306 15,977
liabilities
Non current liabilities
Bank loans - (5,307)
Assets attributable to 11,306 10,670
shareholders
Liabilities due to shareholders
Zero Dividend Preference share (9,439) (8,387)
entitlement
Growth share entitlement (1,867) (2,283)
(11,306) (10,670)
- -
pence pence
Net asset value per share:
Zero Dividend Preference share 66.43 59.02
Growth share 6.22 7.61
Ordinary unit 72.65 66.63
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 July 2007
2007 2006
£'000 £'000
Cash flows from operating activities
Investment income received 37 29
Bank deposit interest received 15 16
Investment Manager's fees paid (61) (58)
Secretarial fees paid (49) (52)
Other cash payments (143) (154)
Cash expended from operations (201) (219)
Bank interest paid (269) (299)
Net cash outflow from operating activities (470) (518)
Cash flows from investing activities
Purchases of investments (6,919) (9,443)
Sales of investments 10,091 7,814
Net cash inflow/(outflow) from investing 3,172 (1,629)
activities
Cash flows from financing activities
Advances of bank loan 2,150 4,400
Repayments of bank loan (4,350) (2,400)
Net cash (outflow)/inflow from financing (2,200) 2,000
activities
Increase/(decrease) in cash and cash equivalents 502 (147)
for the year
Cash and cash equivalents at the start of the 92 239
year
Cash and cash equivalents at the end of the year 594 92
NOTES
The audited financial information set out above does not constitute the
Company's statutory accounts as defined in section 240 of the Companies Act
1985. The consolidated income statement, the consolidated balance sheet and
consolidated statement of cash flows have been prepared on the basis of the
accounting policies described below. The audited accounts for the year to 31
July 2006, which contained an unqualified auditors' report, have been lodged
with the Registrar of Companies and did not contain a statement required under
section 237(2) or (3) of the Companies Act 1985. Statutory accounts for the
period ended 31 July 2007 have been approved by the Board and audited and will
be filed with the Registrar of Companies following the Company's Annual
General Meeting.
The results for the period ended 31 July 2007 will be circulated to
shareholders in the form of an Annual Report, copies of which will be
available at the Company's registered office and will be filed with the
Registrar of Companies.
It is the intention of the Directors to conduct the affairs of the Company so
that they satisfy the conditions for approval as an investment trust company
set out in Section 842 of the Income and Corporations Taxes Act 1988.
1) ACCOUNTING POLICIES
(i) Basis of preparation
These financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of investments classified
as fair value through profit or loss. Where presentational guidance set out in
the Statement of Recommended Practice regarding the Financial Statements of
Investment Trust Companies (`SORP'), issued in 2003 and revised December 2005,
is consistent with the requirements of International Financial Reporting
Standards (`IFRS'), the Directors have sought to prepare the financial
statements on a consistent basis compliant with the recommendations of the
SORP. These financial statements consolidate the financial statements of the
Company and its wholly owned subsidiary undertaking, ZPGT Trading Limited,
drawn up to 31 July 2007.
A separate income statement is not presented for the Parent Company as
provided by Section 230 of the Companies Act 1985.
(ii) Accounting policies
The consolidated financial statements of the Group, and those of the Parent
Company, have been prepared in conformity with IFRS, which comprise standards
and interpretations approved by the International Accounting Standards Board
and International Financial Reporting Interpretations Committee
interpretations approved by the International Accounting Standards Committee
that remain in effect and to the extent they have been adopted by the European
Union. They have also been prepared in accordance with applicable requirements
of England and Wales company law, and reflect the policies below which have
been adopted and applied consistently.
Going Concern
The Company has a termination date of 9 August 2008 and, as such, the
foreseeable future of the Company is limited to a period of less than one year
from the date of this report. The Board is investigating various restructuring
proposals which it feels will have a reasonable expectation of being
successful and might be put to the shareholders prior to this date so as to
extend the Company's life. The Board shall convene an EGM of the Company to be
held on 9 August 2008, at which a special resolution will be proposed,
requiring the Company to be wound-up voluntarily unless the Board shall have
previously been released from its obligation to do so by a special resolution
of the Company. The Company will be wound-up if a continuation vote is not
met. The Directors do not believe that in the event of the Company being
wound-up that this would have any material impact on the stated assets and
liabilities of the Company.
In these circumstances the accounts have been prepared on a going concern
basis, which the Directors believe to be appropriate. However, the Directors
emphasise that there is a material uncertainty regarding the ability of the
Company to continue trading in the event that no restructuring proposals are
practicable.
Investments
All investments held by the Group are designated 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 recognised at fair value, which is
generally determined by reference to stock exchange quoted market bid prices
at the close of business on the balance sheet date.
Trade date accounting
All `regular way' purchases and sales of financial assets are recognised on
the `trade date' i.e. the day that the entity commits to purchase or sell the
asset. Regular way purchases, or sales, are purchases or sales of financial
assets that require delivery of the asset within a time frame generally
established by regulation or convention in the market place.
Income recognition
Dividends receivable on quoted equity shares are brought into account on the
ex-dividend date net of the associated tax credit. Dividends receivable on
equity shares where no ex-dividend date is quoted are brought into account
when the Company's right to receive payment is established. Returns on Zero
Dividend Preference shares arising through the movement of the market value
over time towards the redemption value are recognised as a capital return and
are shown in the capital column of the income statement. Interest receivable
is included on an accruals basis. Income arising on fixed interest securities
is recognised on a time apportionment basis so as to reflect the effective
interest rate on that security.
Expenses
All expenses are accounted for on an accruals basis. All expenses, including
investment management fees and finance costs, are charged in full to the
revenue column of the income statement except as follows:
- expenses which are incidental to the acquisition of an investment are
included within the cost of the investment;
- expenses which are incidental to the disposal of an investment are deducted
from the disposal proceeds of the investment; and
- the investment management performance fee and terminal payment provision (if
due) are charged to the capital column of the income statement as the fees are
payable by reference to the capital performance of the Company.
Cash and cash equivalents
Cash in hand and in banks are carried at cost. Cash and cash equivalents are
defined as cash in hand, demand deposits and short-term, highly liquid
investments readily convertible to known amounts of cash and subject to
insignificant risk of changes in value. Bank overdrafts that are repayable on
demand are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
Bank loans and borrowings
All bank loans and borrowings are initially recognised at cost, being the fair
value of the consideration received, less directly attributable issue costs
where applicable. After initial recognition, all interest bearing loans and
borrowings are subsequently measured at amortised cost. Any difference between
cost and redemption value is recognised in the income statement over the
period of the borrowings on an effective interest basis.
Zero Dividend Preference shares and Growth shares
Under IAS 32: Financial Instruments: Disclosure and Presentation, the Zero
Dividend Preference and Growth shares are classed as liabilities, falling due
on 9 August 2008, in order that the rights and obligations attributable to the
Zero Dividend Preference and Growth shareholders reflect the Company's
Articles of Association where there is no unconditional right for the Company
to avoid repaying both share classes their entitlement, if required to do so,
on that date. This means that in effect the Zero Dividend Preference and
Growth shares can be redeemed at the option of the shareholders on that date.
As a result share capital and reserves are not shown on the balance sheet.
This disclosure is presentational and has no impact on the Company's net
assets per share or returns per share, which are calculated using assets
attributable to shareholders and finance (costs)/gains allocated in respect of
Zero Dividend Preference and Growth shares respectively.
The Zero Dividend Preference shares are measured at amortised cost and it is
therefore deemed that the Growth shares are also measured at amortised cost.
The Zero Dividend Preference shareholders are entitled to payment of an amount
equal to 46.72p per share as increased each day from 8 August 2004 up to and
including 9 August 2008 at a daily compound rate of 0.03238% so as to give an
entitlement equal to 75p per share on 9 August 2008, assuming sufficient
assets exist. This payment is in priority to any capital repayment due to the
Growth shareholders.
Taxation
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit before tax as reported in the consolidated 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.
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 only recognised to the extent that it is probable
that taxable profits will be available against which deductible temporary
differences can be utilised.
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. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to capital, in which case the deferred tax is
also dealt with in capital.
2) RETURN PER SHARE
IAS 33 and the Articles of Association basis.
Returns per share have been calculated based on the following
returns attributable to each class of share;
2007 2006 Weighted average no.
of shares
Revenue Capital Total Revenue Capital Total 2007 2006
£'000 £'000 £'000 £'000 £'000 £'000 No. No.
Zero
Dividend
Preference
share - 1,052 1,052 - 936 936 14,209,498 14,209,498
Growth
share (452) 36 (416) (494) 703 209 30,000,000 30,000,000
(452) 1,088 636 (494) 1,639 1,145
There are no dilutive elements within the Group and hence no diluted return
per share calculations are presented.
3) NET ASSET VALUE
The net asset value per Zero Dividend Preference share is calculated using
assets attributable of £9,439,000 (2006: £8,387,000) and 14,209,498 Zero
Dividend Preference shares in issue at the end of the year.
The net asset value per Growth share is calculated using assets attributable
of £1,867,000 (2006: £2,283,000) and 30,000,000 Growth shares in issue at the
end of the year.
The net asset values stated include current period revenue.
A reconciliation of movements in assets attributable during the year is shown
below:
Zero
Dividend
Preference Growth
shares shares Total
£'000 £'000 £'000
Assets attributable
At 31 July 2005 7,451 2,258 9,709
Restatement of investments to `bid' - (184) (184)
valuations under IFRS
At 31 July 2005 (restated) 7,451 2,074 9,525
Profit after taxation for the year but before
finance
(costs)/gains allocated in respect of - 1,145 1,145
shareholders
Zero Dividend Preference share appropriation 936 (936) -
At 31 July 2006 8,387 2,283 10,670
Profit after taxation for the year but before
finance
(costs)/gains allocated in respect of - 636 636
shareholders
Zero Dividend Preference share appropriation 1,052 (1,052) -
At 31 July 2007 9,439 1,867 11,306
In accordance with IFRS, the Zero Dividend Preference and Growth shares are
classed as liabilities rather than equity, however, these shares are the
Company's capital. Therefore, the table below shows, for information only, how
the assets attributable to them are comprised in terms of share capital and
reserves.
2007 2006
£'000 £'000
Assets attributable
Share capital 4,421 4,421
Capital redemption reserve 1,579 1,579
Capital reserve (4,016) (4,052)
Zero Dividend Preference reserve 2,800 1,748
Special reserve 15,791 15,791
Revenue reserve (9,269) (8,817)
Assets attributable 11,306 10,670
4) INVESTMENT MANAGEMENT FEE, PERFORMANCE FEE AND TERMINAL PAYMENT
Under the terms of the investment management agreement, the Investment Manager
is entitled to an annual fee, payable quarterly in arrears, at the rate of
0.25% per annum of the total assets less current liabilities (other than
borrowing incurred for investment purposes) of the Group before deducting any
prior charge on the last business day of that quarter, plus a performance fee,
payable annually in arrears, at the rate of 0.15% of total assets less current
liabilities if total assets have increased by more than 5.5% during the year.
In the year ended 31 July 2007, no performance fee is due as the assets have
not increased sufficiently (2006: £23,000).
In addition, the Investment Manager is entitled to a terminal payment
calculated as 12% of the assets available for distribution to Growth
shareholders, after repayment of the bank debt and full satisfaction of the
final capital entitlement of the Zero Dividend Preference shares on 9 August
2008. At 31 July 2007, such assets available were £730,000 and, therefore, a
provision of £88,000 (2006: nil) has been included in the consolidated income
statement. However, because the terminal payment is only payable on 9 August
2008, the actual fee payable (if any) can only be determined at that time.