The Directors' Dealing Investment Trust plc (the "Company")
Half-Yearly Report for the six months ended 31 December 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 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 £25m. 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 £150m 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: Net Asset Value (capital growth)
Six months to Twelve months to Three year to Five years to
31 December 31 December 31 December 31 December
2009 2009 2009 2009
% % % %
Basic NAV 4.8 29.9 (26.1) (2.1)
FTSE All-Share Index (excluding
investment Companies) * 27.2 24.7 (14.4) 14.1
(Underperformance)/outperformance (22.4) 5.2 (11.7) (16.2)
* The Company's benchmark
Chairman's Statement
Over the last six months, your Company's net asset value per share
("NAV") increased by 4.8 per cent compared with a gain in the benchmark Index
of 27.2 per cent. This means that the Company's NAV has underperformed its
benchmark Index by 22.4 per cent over the six months ended 31 December 2009.
During the period under review, the Company has seen many changes.
Following the resignations from the Board of Nicholas Jeffrey on 28 October
2009, and Jonathan Carr and Garth Milne on 2 December 2009, myself and Brett
Miller were appointed to the Board as Directors of the Company. In addition,
the period has seen the termination of Knox D'Arcy Asset Management Ltd's
appointment as Investment Manager of the Company and the subsequent
appointment of Midas Investment Management Ltd ("Midas") as the new Investment
Manager, and the resignation of Arbuthnot Securities Ltd as the Company's
broker and appointment of Fairfax I.S. PLC as their replacement.
From the 4 December 2009, the date of the appointment of Midas as
Investment Manager, to 31 December 2009, your Company's net asset value per
share ("NAV") increased by 1.3 per cent compared with a gain in the benchmark
Index of 1.6 per cent.
Following the appointment of myself and Mr Miller to the Board, and
the appointment of Midas as Investment Manager, a review was undertaken of the
Company's existing cost structure, with a view to reducing non-essential
costs. The initial result of this is an estimated reduction of £500,000 per
annum. We continue to review the cost structure on an ongoing basis with a
view to further reductions.
In October 2009 the previous Board placed proposals before
shareholders which in summary, involved:
- a further tender offer, applicable to shareholders on the
register as at the close of business on 14 October 2009, which enabled the
Company to repurchase up to 41 per cent of the issued share capital for
cancellation at a price representing a five per cent discount to the unaudited
net asset value per share as at the calculation date of 30 September 2009; and
— an amendment to article 120 of the Company's articles of
association, in order to ratify and allow capital profits to be applied in the
purchase of the Company's own shares.
These proposals were voted on and passed at a General Meeting of
the Company held on 10 November 2009. The result of the Tender Offer and the
subsequent cancellation of the tendered shares and those previously held in
Treasury was a reduction in the issued share capital in the Company to
5,727,694 Ordinary shares.
The investment premise of The Directors' Dealing Investment Trust Plc remains
that directors of listed companies are better informed than the market generally
and therefore their investments in the companies they manage are expected to outperform
the market.
The Directors' Dealing Investment Trust Plc will continue to invest in shares of
UK listed companies which are identified as having patterns of directors' trading,
which suggest that following such patterns may lead to attractive investment returns.
These patterns have been combined to form various trading strategies which have
historically outperformed the relevant FTSE index.
Liam Murray.
Chairman.
26 February 2010.
Investment Manager's Report
During the six month period, the Company's net asset value per
share ("NAV") increased by 4.8 per cent, compared with an increase in the FTSE
All-Share Index (excl. investment companies) of 27.2 per cent. On a total
return basis, including the dividend of 13p paid on 4 January 2010, the
Company's return was 8.8 per cent. However, although the Company
underperformed during the period to 31 December 2009, the Company is now
outperforming the market since the appointment of Midas as Investment Manager.
Shareholders will be aware that a number of changes have been made to the Company,
including the appointment of Midas as Investment Manager, replacing the previous
Investment Manager, Knox D'Arcy Asset Management Ltd ("Knox D'Arcy").
In the short time following our appointment as Investment Manager, our first task
was to work with the new Board to look at ways of significantly reducing the high
costs with which the Company had been encumbered. This cost review led to the
termination of a number of material contracts, resulting in an annualised cost
saving to the Company going forward of approximately £500,000 per annum. We continue
to work closely with the members of the Board to make further cost savings for the
Company.
Legacy portfolio
Since our appointment as Investment Manager, we have reduced the
value in the legacy portfolio from £4.3m to £3.6m (as at 31 December 2009),
with key disposals so far being Advance Value Realisation Company Limited and
Inland plc. We continue to seek ways of further reducing this portfolio and as
at the date of publishing, the value of the legacy portfolio has dropped
further to £1.9m.
Directors' Dealing portfolio
During the period under review, we have carefully analysed this
section of the portfolio and increased the Company's positions in Barratt
Developments Plc, Quintain Estates and Development plc and SDL Plc.
New material positions have been taken in Shanks Group Plc,
Hamworthy Plc, Raven Russia Ltd and Weir Group Plc.
We have also taken the opportunity to reduce several positions
being Carpetright Plc, Computacenter UK Ltd, GKN Plc, Northern Foods Plc,
Psion Plc and Qinetiq Group Plc.
We have increased the weighted average market capitalisation of the
portfolio's holdings from £417m to over £1bn as at the date of this report
which is an approximate increase of 140 per cent in underlying liquidity in
the portfolio.
We are attempting to reposition the portfolio to increase liquidity
and to reduce risk whilst reducing corporate costs to ensure that income can
be distributed to shareholders rather than being absorbed by advisers' fees.
Interim Management Report
The important events that have occurred during the period under
review are set out in the Investment Manager's Report, which also includes the
key factors influencing the financial statements.
The Directors do not consider that the principal risks and
uncertainties have changed since the publication of the annual report for the
year ended 30 June 2009. The principal risks are set out on pages 14 and 15 of
the annual report which is available at http://www.directorsdealing.co.uk.
Portfolio Review
Portfolio breakdown by market capitalisation as at 31 December 2009
Number of companies Total
£150m+ 25
£100-150m 3
£50-100m 0
£25-50m 1
£0-25m 14
UK Treasury Gilts 1
Percentage of portfolio %
£150m+ 59.6
£100-150m 3.4
£50-100m 0.0
£25-50m 4.3
£0-25m 16.0
UK Treasury Gilts 16.7
100.0
Number of companies 44
Number of declarable (3% and over) 9
holdings
Sector analysis of portfolio as at 31 December 2009
Sector weightings Market Value
%
Support Services 22.5
UK Gilts 16.7
Real Estate 8.8
Software & Computer Services 5.9
General Financial 5.2
General Retailers 4.9
Household Goods & Home Construction 4.8
Equity Investment Instruments 4.5
Food Producers 3.6
General Industrials 3.5
Health Care Equipment & Services 2.6
Chemicals 2.5
Travel & Leisure 2.4
Gas, Water & Multi-utilities 2.2
Technology Hardware & Equipment 1.9
Beverages 1.8
Oil & Gas Producers 1.7
Personal Goods 1.6
Industrial Engineering 1.5
Media 1.2
Non Life Insurance 0.2
Total 100.0
The portfolio consists entirely of UK quoted equity investments and UK
Treasury Gilts.
Twenty largest holdings as at 31 December 2009
Classification and main activities
UK Treasury Gilts *
Conventional UK Government Gilts
Barratt Developments Household Goods and Home Construction
The Company builds and sells developments through a network of 25
housebuilding divisions located throughout Great Britain. Additional
services include the provision of homes for rent and shared ownership.
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
through remediation and planning gain.
Rapid Realisations Fund Equity Investment Instruments
An investment fund with an aim of exploiting 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.
OpSec Security Group Support Services
The Group provides governments and corporations worldwide with
anti-counterfeiting technologies, solutions and services.
Zetar * Food Producers
Manufacturer of novelty and niche chocolate, dried fruit and nut products,
sold under private label or other chocolate manufacturers' brands within
the UK, Australia and other export markets.
Halfords Group General Retailers
High street retailer geared towards car maintenance including parts,
services and body repairs, car enhancements including in-car entertainment
systems and cleaning products and leisure products such as bicycles and
accessories.
RPC Group * General Industrials
Supplier of rigid plastic packaging across Europe.
Aggreko Support Services
Global provider of rental equipment for power and temperature control.
Galiform * Support Services
The Company is engaged in the manufacture, distribution and sale of
kitchens and joinery products to the building trade.
Mouchel Group Support Services
A consulting and business services group that works with government
agencies, local authorities, government-regulated industries and the
private sector in order to provide safe, reliable roads and railways,
well-managed education and civic infrastructure, clean water, and
cost-effective energy.
Shanks Group Support Services
Independent waste management company offering waste solutions tailored to
individual customer needs in the UK, the Netherlands, Belgium and Canada.
Tullett Prebon General Financial
The Company acts as an intermediary in wholesale financial markets,
facilitating the trading activities of its clients, in particular
commercial and investment banks.
Southern Cross Healthcare Group Healthcare Equipment and Services
The Group is a provider of care homes for the elderly in the UK, and a
major provider of specialist services for people with physical and/or
learning disabilities.
WSP Group * Support Services
Global business group for the provision of management and consultancy
services, operating in four core divisions, Property, Transport &
Infrastructure, Environment & Energy and Management & Industrial.
Croda International Chemicals
The Company produces natural based speciality chemicals which are sold to
a wide range of markets ranging from Personal Care to Health Care and from
Crop Care to Polymers and Coatings. Its activities can be classed in two
sectors, Consumer Care and Industrial Specialities.
Rank Group Travel and Leisure
UK based European gaming, betting and bingo company, with established
brands such as Grosvenor Casinos and Mecca Bingo.
Phoenix IT Group * Software and Computer Services
The Company provides a range of IT services to a network of partners to
support them in delivering high quality, competitive services to
enterprises throughout the UK and Europe.
Northumbrian Water Group * Gas, Water and Multi-utilities
The companies within the Group provide UK water supply and waste water
services, water and waste water contracts and also provide technical and
consultancy services focusing on water and environmental issues.
Close Bros Group General Financial
An independent merchant banking group based in London, providing
market-making and corporate finance services.
* Holding now disposed of.
Principal portfolio investments
as at 31 December 2009
Market % of Market
value portfolio capitalisation
£'000 £m
UK Gilts 2,930 16.7 -
Barratt Developments 836 4.8 1,197
Property Recycling 794 4.5 5
Rapid Realisations Fund 747 4.3 48
OpSec Security Group 668 3.8 10
Zetar 633 3.6 23
Halfords Group 631 3.6 840
RPC Group 617 3.5 237
Aggreko 616 3.5 2,543
Galiform 556 3.2 469
Mouchel Group 550 3.1 294
Shanks Group 497 2.8 530
Tullett Prebon 463 2.6 601
Southern Cross Healthcare Group 459 2.6 261
WSP Group 455 2.6 175
Croda International 447 2.6 1,090
Rank Group 431 2.5 324
Phoenix IT Group 390 2.2 199
Northumbrian Water Group 382 2.2 1,402
Close Bros Group 366 2.1 997
Total 13,468 76.8
The above holdings are in the ordinary shares of investee companies or in
Treasury Bills.
The 20 principal investments represent 76.8 per cent of the
investment portfolio.
Related Parties
Under the Listing Rules, the Investment Manager is regarded as a
related party of the Company. The amount paid to Midas, the current Investment
Manager, during the period was £nil. The amount paid to the previous
Investment Manager, Knox D'Arcy, during the period was £242,000 (31 December
2008: £20,000; 30 June 2009: £270,000). Full details of the investment
management fees payable during the current period are set out in note 6.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements has been prepared in accordance
with the Statement on Half-Yearly Financial Reports issued by the UK
Accounting Standards Board;
- the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
This Half-Yearly Report was approved by the Board of Directors on 26 February
2010 and the above Responsibility Statement was signed on its behalf by Liam
Murray, Chairman.
Income statement
(incorporating the profit and loss account*) of the Company for the six months
to 31 December 2009
Six months to Year ended Six months to
31 December 2009 30 June 2009 31 December 2008
(unaudited) (audited) (unaudited) restated
Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses)
on investments
at fair value - 2,845 2,845 - (8,383) (8,383) - (12,284) (12,284)
Income 400 - 400 1,438 - 1,438 885 - 885
Investment
management fee 6 (121) (121) (242) (121) (121) (242) 3 3 6
VAT reclaimed on
investment
management fees - - - 450 450 900 - - -
Professional
fees 7 (94) - (94) - - - - - -
Other expenses (464) - (464) (946) (199) (1,145) (855) - (855)
Net return on
ordinary
activities
before and after
finance costs
and taxation (279) 2,724 2,445 821 (8,253) (7,432) 33 (12,281) (12,248)
Return per
Ordinary share
(pence) (3.52) 34.37 30.85 4.35 (43.73) (39.38) 0.15 (55.51) (55.36)
* 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 in the period are disclosed in the revenue and
capital column 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 period.
All revenue and capital items in the above statement derive from continuing
operations.
These accounts are unaudited and are not the Company's statutory accounts.
Reconciliation of movements in shareholders' funds
for the six months to 31 December 2009
Own
shares Share Capital Capital
Share held in premium Special redemption reserve Revenue Warrant
capital Treasury account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Six months ended
31 December 2009
(unaudited)
30 June 2009 2,444 - - - 5,520 16,382 4,525 26 28,897
Net return after
taxation for the
period - - - - - - (279) - (279)
Net losses on
realisation of
investments - - - - - (3,841) - - (3,841)
Dividend paid and
declared - - - - - - (745) - (745)
Fair value
movement in
investments - - - - - 6,686 - - 6,686
Cost of shares
purchased for
cancellation - - - - - (11,036) - - (11,036)
Nominal value of
shares purchased
for cancellation (1,012) - - - 1,012 - - - -
Costs allocated
to capital - - - - - (121) - - (121)
Expense of
warrants granted - - - - - - - 171 171
31 December 2009 1,432 - - - 6,532 8,070 3,501 197 19,732
Year ended 30
June 2009
(audited)
30 June 2008 6,126 (8,847) 28,319 - 1,838 39,763 3,704 - 70,903
Net return after
taxation for the
year - - - - - - 821 - 821
Net losses on
realisation of
investments - - - - - (4,425) - - (4,425)
Transfer between
reserves - 3,650 (28,319) 28,319 - (3,650) - - -
Fair value
movement in
investments - - - - - (3,958) - - (3,958)
Costs allocated
to capital - - - - - 130 - - 130
Cost of shares
held in Treasury - 5,197 - - - - - - 5,197
Cost of shares
purchased for
cancellation - - - (28,319) - (11,478) - - (39,797)
Nominal value of
shares purchased
for cancellation (3,682) - - - 3,682 - - - -
Warrants granted - - - - - - - 26 26
30 June 2009 2,444 - - - 5,520 16,382 4,525 26 28,897
Own
shares Share Capital Capital
Share held in premium Special redemption reserve Revenue Warrant
capital Treasury account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Six months ended
31 December 2008
(unaudited)
30 June 2008 6,126 (8,847) 28,319 - 1,838 39,763 3,704 - 70,903
Net return after
taxation for the
period - - - - - - 33 - 33
Net losses on
realisation of
investments
- - - - - (758) - - (758)
Fair value
movement in
investments - - - - - (11,526) - - (11,526)
Costs allocated
to capital
- - - - - 3 - - 3
31 December 2008 6,126 (8,847) 28,319 - 1,838 27,482 3,737 - 58,655
Balance sheet
as at 31 December 2009
As at As at As at
31 December 2009 30 June 2009 31 December 2008
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Fixed assets
Investments at fair
value 17,540 18,848 56,552
Current assets
Debtors 188 554 461
Cash at bank 2,627 9,656 1,904
2,815 10,210 2,365
Creditors - amounts
falling due within one
year
Creditors (367) - -
Accruals (256) (161) (262)
(623) (161) (262)
Net current assets 2,192 10,049 2,103
Net assets 19,732 28,897 58,655
Share capital and
reserves
Called up share capital 1,432 2,444 6,126
Own shares held in
Treasury - - (8,847)
Share premium account - - 28,319
Capital redemption
reserve 6,532 5,520 1,838
Capital reserve 8,070 16,382 27,482
Revenue reserve 3,501 4,525 3,737
Warrant reserve 197 26 -
Shareholders' funds -
equity interests 19,732 28,897 58,655
Total net assets for the
purposes of calculating
net asset values -
including current period
revenue 19,732 28,897 58,655
Net asset value per
Ordinary share 344.50p 328.67p 265.12p
Number of Ordinary
shares in issue
(excluding shares held
in Treasury) 5,727,694 8,792,049 22,123,926
Statement of cash flows
for the six months to 31 December 2009
Six months to 31 Year ended Six months to
31
December 2009 30 June 2009 December 2008
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Operating activities
Investment income received 232 610 423
Deposit interest received 1 758 590
Treasury interest purchased - - (172)
Treasury interest received 140 322 -
VAT refund and interest - 1,035 -
Investment management fees
paid (230) (477) (469)
Secretarial fees paid (28) (69) (37)
Other cash payments (218) (1,115) (808)
Net cash (outflow)/inflow
from operating activities (103) 1,064 (473)
Capital expenditure and
financial investment
Purchases of investments (21,815) (36,021) (32,475)
Sales of investments 26,729 47,236 2,605
Net cash inflow/(outflow)
from capital expenditure and
financial investment 4,914 11,215 (29,870)
Equity dividends paid (745) - -
Financing
Reorganisation costs - (242) 92
Shares purchased for
cancellation (11,095) (34,919) (383)
Shares purchased for
Treasury - - -
Net cash outflow from
financing (11,095) (35,161) (291)
Decrease in cash (7,029) (22,882) (30,634)
Notes to the accounts
as at 31 December 2009
1. Financial information
The financial information contained in this report does not
constitute full statutory accounts as defined in Section 434 of the Companies
Act 2006. The financial information for the six months ended 31 December 2009
and 31 December 2008 has not been audited nor reviewed by the Company's
Auditor pursuant to the Auditing Practices Board guidance on such reviews.
The information for the year ended 30 June 2009 has been extracted
from the latest published audited financial statements, which have been filed
with the Registrar of Companies. The report of the Auditors on those financial
statements contained no qualification or statement under Sections 498(2) or
(3) of the Companies Act 2006.
2. Accounting policies
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 the Statement of
Recommended Practice regarding the Financial Statements of Investment Trust
Companies and Venture Capital Trusts ("SORP") issued in January 2009.
The financial statements are prepared on the basis of the
accounting policies set out in note 1 of the annual financial statements for
the year ended 30 June 2009.
All investments held by the Company are classified as `fair value
through profit or loss'. For investments actively traded in organised
financial markets, fair value is generally determined by reference to Stock
Exchange quoted market bid prices or last traded prices at the close of
business on the balance sheet date.
3. Net asset value per share
These net asset values have been calculated in accordance with the accounting
policies set out in note 2.
31 December 2009 30 June 2009 31 December 2008
£'000 pence £'000 pence £'000 pence
Net asset
value* 19,732 344.50 28,897 328.67 58,655 265.12
* including current period revenue.
4. Taxation
The Company is subject to corporation tax at 28 per cent (2008: 28 per cent).
Certain re-organisation costs may not be deductible for corporation tax.
However, UK dividends are not subject to corporation tax and use of brought
forward losses covers any current taxable income of the Company and, as a
result, there is no taxation charge.
Six months to Year ended Six months to
31 December 2009 30 June 2009 31 December 2008
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Loss)/profit on ordinary activities (279) 2,724 2,445 821 (8,253) (7,432) 33 (12,281) (12,248)
before tax
Net revenue return on ordinary
activities multiplied by the
standard rate of corporation tax in
the UK of 28% (2008: 28%)
(78) 763 685 230 (2,311) (2,081) 9 (3,439) (3,430)
(Gains)/losses on investments - (797) (797) - 2,347 2,347 - 3,439 3,439
UK dividends not chargeable to (130) - (130) (74) - (74)
corporation tax (70) - (70)
Expenses not deductible for tax 182 56 238 197 - 197
purposes 9 - 9
Excess management expenses
carried/(brought) forward
139 34 173 (282) (92) (374) (132) - (132)
Total current tax - - - - - - - - -
5. Reconciliation of net revenue before finance costs and taxation to net cash
(outflow)/inflow from operating activities
Six months to Year ended Six months to
31 31
December 2009 30 June 2009 December 2008
£'000 £'000 £'000
Net revenue before finance costs 2,445 (7,432) (12,248)
and taxation
Subtract/ add back: (Gains)/losses (2,845) 8,383 12,284
on investments
Increase/(decrease) in creditors 153 (494) (463)
and accruals
(Increase)/decrease in prepayments (8) 237 (204)
and accrued income
(Increase)/decrease in dividends (19) 145 158
receivable
Add back: capital related expenses - 199 -
Add back: management warrant 171 26 -
expenses
(103) 1,064 (473)
6. Investment management Fee
The investment management fee was £242,000 for the period (Year ended 30 June
2009: £494,000, December 2008: £246,000)
Revenue Capital Total
£'000 £'000 £'000
Investment management 121 121 242
fee
Of these, the amounts payable to Investment Managers, throughout the period
were as follows:
Six months to Year ended Six months to
31 December 2009 30 June 2009 31 December 2008
£'000 £'000 £'000
Unicorn - 224 226
Knox D'Arcy 242 270 20
Unwinding of provision
for unexpired period
of notice (Unicorn)
- (252) (252)
242 242 (6)
7. Professional fees
During the six months ended 31 December 2009, a total of £94,000 (inclusive of
irrecoverable VAT) was spent on non-recurring advisers' fees.
8. Share Buybacks
During the period the Company purchased for cancellation 3,064,355 Ordinary
Shares under a Tender Offer for a total consideration of £10,645,218.
Inclusive of all expenses, the total cost of the tender offer was £11,036,376.
In addition, on 4 December 2009 the Company cancelled 982,000 Ordinary shares
held in Treasury. The Company no longer holds any shares in Treasury.
9. Management Warrants
(a) During the period to 30 June 2009, the former investment
manager, Knox D'Arcy Asset Management Ltd ("KDAM") was awarded 19,201 warrants
convertible into the Company's Ordinary shares ("Management Warrants").
Management Warrants entitle the holder to subscribe at par for one Ordinary
share for every Management Warrant held. The Management Warrants are
exercisable at the end of the period at 25p. The Management Warrants once
issued have a remaining contractual life or exercise period of 10 years.
Fair value of Management Warrants:
The former directors considered 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 was 135.03p with a
total fair value of £25,927 for the 19,201 Management Warrants granted as at
the 30 June 2009.
The inputs to the model included 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 Management 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 had been incorporated by
using an exercise period of five years compared to the actual 10 year life of
the Management 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 had been taken into
account by using publicly quoted share prices and publicly quoted gilt
interest yields for the relevant dates.
The total expense of £25,927 for the year to 30 June 2009 arising
from the granting of Management Warrants had been recognised in the Income
statement. The full amount is accounted for as equity-settled share-based
payment transactions. An equal amount of £25,927 has been credited to a
Warrant reserve on the Balance sheet. At the 30 June 2009 the price of
Ordinary shares was 260p. Based on the exercise price of 25p, the intrinsic
value of one Management Warrant was therefore 235p.
Whilst the current Directors feel that the Black-Scholes model is a
valid valuation model for these warrants, they believe a valuation method
based on intrinsic value using the Company's share price is more prudent.
American warrants are often valued using a binomial model that values warrants
at the higher of the Black-Scholes method and the intrinsic value for the sake
of prudence. This leads to a higher valuation for the warrants previously
issued which are now valued at £41,474 compared to a valuation of £25,927 at
30 June 2009. At 31 December 2009 the price of an Ordinary share was 241p.
(b) In addition, for the period to the 3 December 2009, KDAM has
been issued a further 71,750 Management Warrants which have been valued
intrinsically at £154,980.
(c) The combination of the charging of the new Management Warrants
and the movement on the previously issued Management Warrants results in a
charge through the profit and loss in the year of £170,527.
(d) The Company is aware that KDAM is contesting the amount of the
management fees paid to KDAM on termination of the investment management
agreement between the Company and KDAM (the "Management Agreement"). Although
the Company has received no claim from KDAM, the Company understands that KDAM
may argue that it is entitled to an additional £170,000 of management fees
following termination of the Management Agreement.
In addition, although the Company has received no claim from KDAM,
the Company understands that KDAM may assert that it is entitled to an
additional 117,693 Management Warrants following termination of the Management
Agreement pursuant to the terms of the management warrants deed between the
Company and KDAM.
The Company has received legal advice that any claim by KDAM for
additional management fees and warrants would be unlikely to succeed. However,
using the same intrinsic valuation methodology as at 31 December above, the
warrants would be worth £254,217 which, in aggregate with the disputed
management fees, would amount to a further aggregate charge of £424,217. This
aggregate amount is disclosed for information purposes only but has been not
charged through the accounts as the Company does not believe that it is valid.
10. VAT reclaimed on investment management fees
Note 4 to the accounts for the financial year ended 30 June 2009
set out details of the Company's claims against Unicorn Asset Management
Limited ("Unicorn") relating to the reclaim of VAT paid by the Company to
Unicorn during Unicorn's tenure as investment manager to the Company.
The Company has entered into a deed of settlement ("Settlement")
with Unicorn dated 25 February 2010 which, subject to the following
paragraphs, provides for the overall satisfaction and settlement of the
Company's claims against Unicorn.
As disclosed at Note 4 to the accounts for the financial year ended
30 June 2009, the Company took out an After the Event insurance policy (the
"ATE Policy") which provided protection against adverse cost awards of up to
£500,000 in the event that the Court ruled against the Company in relation to
injunction proceedings taken by the Company against Unicorn. The ATE Policy
was taken out with Templeton Insurance Limited ("Templeton"), a company of
which Nicholas Jeffrey, then a director of the Company, is a director and
which is owned by an associated company of KAM.
The cost of the ATE Policy has not been agreed by Unicorn as part
of the Settlement and, accordingly, the cost of the ATE Policy will be
assessed by the Court.
Directors and Advisers
Directors: Liam Murray (Chairman)
Brett Miller
Company Secretary Capita Sinclair Henderson Tel: 01392 412 122
Limited
and Registered Office: Trading as Capita Financial Fax: 01392 253 282
Group
- Specialist Fund Services
Beaufort House
51 New North Road
Exeter EX4 4EP
Registrar: Equiniti Limited Tel: 0871 384 2030
Aspect House Fax: 0871 384 2100
Spencer Road www.shareview.co.uk
Lancing
West Sussex BN99 6DA
Investment Manager Midas Investment Management Tel: 0161 228 1709
Ltd
2nd Floor, Arthur House Fax: 0161 228 2510
Chorlton Street www.midasim.co.uk
Manchester, M1 3FH
Sources of further information
The Company's shares are listed on the London Stock Exchange. The
Company has its own website at www.directorsdealing.co.uk.
Frequency of NAV publication
The Company's net asset value is released to the Stock Exchange weekly.
Banker: National Westminster Bank Solicitors: Stephenson Harwood
PLC One, St Paul's Churchyard
11 Spring Gardens London EC4M 8SH
Manchester M60 2DB
Auditor: KPMG Audit PLC Sponsor & Fairfax I.S. PLC
100 Temple Street Broker: 46 Berkeley Square
Bristol BS1 6AG Mayfair
London, W1J 5AT
An investment company as defined under section 833 of the Companies Act 2006.
Registered in England No. 2812946
