Statement re: Chapelthorpe

Second Advance Value Realisation Co
07 March 2005



7 MARCH 2005
PRESS RELEASE
BY
SECOND ADVANCE REALISATION COMPANY LIMITED
AND
NORTH ATLANTIC VALUE LLP
TO HOLDERS OF ORDINARY SHARES IN CHAPELTHORPE PLC


The Requisitionists of the Extraordinary General Meeting ('EGM') to be held on
18 March 2005 believe that Chapelthorpe has failed to deliver value to
shareholders since Brian Leckie became Chief Executive and Allan Thompson joined
the Board in April 1997. Since then:

     The mid market price of ordinary shares has fallen from 38.25 pence to 20 
     pence, a decline of 48 per cent.

     Earnings per ordinary share have dropped by one third.

     Dividends per ordinary share have fallen by over 60 per cent.

     Shareholders' funds have declined by more than one third.

     Over £31 million has been spent on acquisitions with no tangible benefit to
     shareholders.

Despite this record, Messrs Leckie and Thompson have received total emoluments
and pension contributions totalling well over £5 million and shareholders have
not had a comparable benefit. If the Chapelthorpe share price had moved in line
with the FTSE Fledgling Index then today it would be worth close to 100 pence.

The Requisitionists' case is that the past eight years have been characterised
by:

     Poor operating results
     Repeated earnings downgrades
     Shareholders' funds wasted on acquisitions
     The current Board slow to react to changing market conditions
     But also generous executive rewards.

The current Directors have been remunerated well but the price of the ordinary
shares has fallen significantly. The present team has had eight years to deliver
results for shareholders. The Requisitionists believe that it has significantly
failed and that shareholders deserve better.

The proposed new Directors have many years of experience and success in
delivering shareholder value. They have a clear strategy for Chapelthorpe:

     Realise value for shareholders over two years
     Return cash to shareholders
     Maintain the existing dividend policy
     Much reduced executive base costs and rewards largely on results.

The Requisitionists urge all shareholders to vote FOR each of the resolutions at
the EGM to be held on 18 March 2005.


For further information, please contact:

Robert Legget
Progressive Value Management Limited
Tel: [phone]


Rebuttal statement from Second Advance Realisation Company Limited and North
Atlantic Value LLP (for the Requisitionists) to holders of Chapelthorpe plc
ordinary shares


On 2 February 2005, Second Advance Value Realisation Company Limited ('SAVR')
and funds managed by North Atlantic Value LLP ('the Requisitionists'), which
together own 10.8 per cent of the issued ordinary share capital of Chapelthorpe
PLC ('Chapelthorpe' or 'the Company'), requisitioned an Extraordinary General
Meeting ('EGM') of Chapelthorpe for the purpose of proposing resolutions which,
if passed by the shareholders, would result in a major re-structuring of the
Board.


More Bad News from Chapelthorpe

On 8 February 2005, whilst announcing receipt of the EGM requisition, the
Company issued a trading update, which amounted to a profit warning. The
statement, released just two months after the Chairman had stated in the 2004
Interim Results that 'We look forward to improved trading in the second half'
referred to:

margin erosion in the Fibres division;

sales at the Umbrella Frames division being behind expectations;

a significant impact on Chapelthorpe's overall operating performance and a
second half of the year producing a trading result below the Company's earlier
expectations.


As a result of this trading update, the pre-tax loss for the full year to 31
March 2005, forecast by the Company's broker, widened by £1.1 million to £7.4
million and forecast underlying earnings per ordinary share for the full year to
31 March 2006 was downgraded by 28 per cent from 2.51 pence per ordinary share
(published on 20 July 2004) to 1.81 pence per ordinary share

An Inadequate Response

The Board of Chapelthorpe responded to the Requisitionists' shareholder
statement, dated 1 February, on 23 February 2005 and its reasons for
recommending shareholders to vote against the proposed resolutions can be
summarised as follows:


(i)   that the performance of the current Board should be measured over a three
      year period, the period since the appointment of John Standen as Chairman;

(ii)  that forced sales of businesses will reduce prices achievable for those
      assets;

(iii) that the ordinary dividend will be threatened;

(iv)  that pension liabilities and other risks may be incurred should businesses
      be disposed of in the UK; and

(v)   that only Messrs Leckie and Thompson can maintain key customer
      relationships.

The Requisitionists note that the current Board's response did not contain any
new proposal for the rebuilding of shareholder value.


Dealing in turn with each of the points made by the Chapelthorpe Board:


(i) That performance should be measured over a three year period:

By focusing on just the last three years, the current Board ignores the fact
that the Company's financial results over the previous five years were also
produced whilst the Company was under the leadership of Messrs Leckie and
Thompson. Even if three years were an appropriate period over which to measure
performance, the Requisitionists consider that should more appropriately be the
three year period to 31 March 2005 (using the forecasts of the Company's own
stockbroker for the current year). Using this measurement:

underlying earnings per ordinary share will have dropped by approximately 6%;

shareholders' funds at 30 September 2004 have dropped by £12 million;

cumulative post-tax losses will have amounted to approximately £4.5 million.

Messrs Leckie and Thompson will have received estimated total emoluments and
pension contributions in excess of £2 million.


(ii) That forced sales of businesses will reduce prices: The Requisitionists are
not advocating a fire sale. The proposed new Directors have set themselves two
years to execute their strategy, and fully intend to grow the underlying
businesses in order to make them attractive to strategic buyers - and create
shareholder value. Most of the compensation payable to the proposed new
Directors will be dependent on their achieving and returning enhanced value to
ordinary shareholders. The businesses will be marketed extensively and sold at a
time when the new Board believes their value can be maximised.


(iii) That ordinary dividends will be threatened: Chapelthorpe's broker
forecasts a total dividend of 1.1 pence per share for the current year, an
increase of ten per cent over the previous year. The Requisitionists believe
that this will be the fourth time in the last five years when the dividend has
been uncovered by reported earnings. Moreover, even if the Company continues to
grow the ordinary dividend by ten per cent per annum, it would take until 2014
to restore the dividend to the level of that in 1997. The new members of the
Board, if appointed, will support the maintenance of Chapelthorpe's current
progressive dividend policy.


(iv) That pension liabilities and other risks may be incurred: The current Board
of Chapelthorpe has argued that a significant potential pensions liability may
crystallise under the planned disposal of the underlying businesses in the UK.


The Requisitionists have received legal and actuarial advice which indicates the
following:-
     
a.)  The relevant draft legislation (under Section 75 of the Pensions Act 1995) 
     referred to by the current Board has not yet been published and, if
     effective as envisaged, is as likely to affect the current Board's own 
     disposal of the Umbrella Frames division.

b.)  The Government has indicated that the relevant ('anti-avoidance/moral
     hazard') legislation is not designed to halt bona fide merger & acquisition
     transactions.

c.)  On disposals, pension fund trustees should not obstruct transactions but
     should ensure that the interests of their members are safeguarded by 
     seeking assurances from the parties concerned in relation to their 
     financial strengths and their ability to fund accrued liabilities. Trustees 
     are expected to enter into dialogue with the relevant employers and, if 
     applicable, trustees of receiving funds with regard to protecting the 
     interests of the members before exercising any powers they may have in 
     relation to imposing an annuity purchase requirement.

The proposed Directors' current intention is that disposals will be to strategic
trade buyers who are in a stronger financial position than Chapelthorpe.
Furthermore, the Chapelthorpe Plc Pension Fund appears to be relatively well
funded in comparison with many similar schemes and the proposed new Directors
will co-operate with the trustees, and buyers, in connection with the disposal
process to ensure that the appropriate financial support structures are in
place. As a result, the Requisitionists believe that it is unlikely that a
liability, of the size envisaged by the current Board, will arise.


The proposed new Directors will consider retaining one business (possibly
Fibres) if that were judged to be beneficial to shareholders. This would give
the trustees confidence that a substantial company would remain in place to
support the Chapelthorpe Plc Pension Fund, and further diminish the likelihood
of a liability of the magnitude the current Board has referred to.


The proposed new Directors are accustomed to dealing with pension arrangements,
including issues that arise from mergers and acquisitions, and believe that they
have the necessary experience to manage such issues. In particular, they have no
current intention of closing any of the businesses or selling them to an
acquirer with a balance sheet that is weaker than that of Chapelthorpe. They
fully understand their obligations in relation to pensions and believe their
proposals will strengthen Chapelthorpe's businesses with the consequential
benefits for all stakeholders, including members of the Chapelthorpe plc Pension
Fund. The position suggested by the current Board assumes the worst possible
outcome.


v) That only the current executive Directors can maintain customer
relationships: This is a subjective suggestion and does not sit well with the
Company's own statement that each of the businesses has high barriers to market
entry. The Requisitionists believe that the proposed new Directors are very
experienced in customer relationships and are much better qualified to deliver
shareholder value.


The Requisitionists urge all shareholders to vote FOR each of the resolutions at
the EGM on 18 March 2005.


Unsuccessful Board Strategy:


Market Leadership: Despite the Company's three businesses being market leaders,
the current Board has been forced to issue two profit warnings in the last five
months. The Requisitionists believe that the current Board has consistently
shown itself incapable of exploiting these strong market positions for the
benefit of shareholders.


Focusing on the Fibres division: The Fibres business is the largest division by
sales but has the lowest net margins and return on operating assets within the
Group. Messrs Leckie and Thompson have been running this division for over eight
years and, in the Requisitionists view, cannot be relied on to deliver value
from it now.


Sale of the Umbrella Frames division: The current Board has recently announced
its intention to sell this division as part of its recently revised strategy.
The Company's broker suggests a low disposal value of £10-12 million, which
would result in earnings dilution of up to 20%. The Board only recently
acknowledged development value at this division's site at Penistone. The
Requisitionists believe that the current Board's timing is wrong and that the
disposal of the Umbrella Frames division should not be rushed. The proposed new
Directors intend to reposition carefully this business in order that the
property development value may be maximised for shareholders.


Accelerate returns from our strong businesses: The Company's own broker has
forecast that returns for the year to 31 March 2005 show a clear deceleration in
returns. The Requisitionists believe that the current Board will not achieve
this key strategy in the foreseeable future.


The current Board's strategy has not delivered value to shareholders. After two
recent profit warnings the Requisitionists believe there is little evidence to
suggest that the current Board will ever do so.


The Requisitionists urge all shareholders to vote FOR each of the resolutions at
the EGM on 18 March 2005.



There are other suggestions in the Board's defence statement of 23 February 2005
which require to be rebutted:


Key customer relationships will be lost: The proposed new Directors intend to
provide Chapelthorpe's customers with high levels of service and quality
products at competitive prices, and to maintain existing relationships. They
believe this is germane to improving the value of the businesses and has every
confidence in its ability to maintain key customer relationships.

Sole supply contracts will be jeopardised: The proposed new Directors have
considered the industry structures in all Chapelthorpe's businesses and believe
that any perceived risks are manageable. They have identified a number of
potential strategic buyers where ownership would enhance the market position of
each of the businesses.


The proposed new Directors are an inexperienced team: The proposed new team is
led by Ian Duncan who has managed businesses and management teams in a wide
variety of manufacturing industries, supplying customers in similar sectors to
those of the Company. In particular, he has a good working knowledge of the
customer base of Chapelthorpe's Fibre business. His record, and that of the team
managed by him, over fifteen years at Tomkins plc is outstanding; market
capitalisation rose from under £15.9 million to over £2.7 billion and the
company joined the FTSE-100 index. He was instrumental in delivering to
shareholders a 25% compound annual return over that period. Ian Duncan and Panos
Loizou later worked together at Compass Partners International where they
managed a number of difficult acquisition and restructuring programs. In
addition to investing £372,720 of their own money in Chapelthorpe ordinary
shares, they have taken time and effort to research comprehensively
Chapelthorpe's markets including by way of discussion with many industry
participants and the provision of qualified independent advice.


The Requisitionists urge all shareholders to vote FOR each of the resolutions at
the EGM on 18 March 2005.


Conclusions

The Requisitionists have lost confidence in the current Board.


The Requisitionists consider there is nothing in the current Board's defence
statement which detracts from the Requisitionists' rationale.


The Requisitionists believe the Company's own trading results, and broker's
forecasts, make their case.


The Requisitionists note that the current Board's defence statement did not
contain any new proposal for the re-building of shareholder value.


The Requisitionists are proposing the appointment of a strong team to enhance
and return shareholder value.


RECOMMENDATION


The Requisitionists urge all shareholders to vote FOR each of the resolutions at
the Extraordinary General Meeting to be held on 18 March 2005.


Contact: Robert Legget

Progressive Value Management Limited

Tel: [phone]


This is important and requires the immediate attention of holders of ordinary
shares in CHAPELTHORPE PLC. If you are in any doubt as to the action you should
take you should immediately consult your usual financial adviser.












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