REG - Chelverton Grwth Tst - Half-year Report
RNS Number : 7649XChelverton Growth Trust PLC01 May 2019Chelverton Growth Trust PLC
LEI: 213800I86P8BAE6UVI83
Half Yearly Report
For the six months ended 28 February 2019
The Directors announce the unaudited Half Yearly Report for the period 1 September 2018 to 28 February 2019.
Investment objective and policy
The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market ("AIM") with a market capitalisation at the time of investment of up to £50 million, which the Manager believes to be at a "point of change". The Company will invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on AIM or the investee company being sold. Its investment objective is to increase the net asset value per share at a higher rate than other quoted smaller company trusts and the MCSI Small Cap UK Index.
It is the Company's policy not to invest in any listed investment companies (including listed investment trusts).
Investment strategy
Investments are selected for the portfolio only after extensive research which the Investment Manager believes to be key. The whole process through which equity must pass in order to be included in the portfolio is very rigorous. Only a security where the Investment Manager believes that the price will be significantly higher in the future will pass the selection process. The Investment Manager believes the key to successful stock selection is to identify the long-term value of a company's shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of a company's earnings prospects over a five-year time horizon.
The Company's Investment Manager is Chelverton Asset Management Limited, an investment manager focusing exclusively on achieving returns for investors based on UK investment analysis of the highest quality. The founder and employee owners of Chelverton include experienced investment professionals with strong investment performance records who believe rigorous fundamental research allied to patience is the basis of long-term investment success.
Chairman's Report
Your Company has seen a decline in the net asset value per share for the first six months of the current year. The net asset value per share fell from 60.48p to 49.59p, a decrease of 18.0%. Whilst in general the performance of the underlying investments has been as expected the sentiment towards UK publicly quoted equites, and in particular small companies and micro-cap companies, has been very negative.
Over the same period, the AIM All-share index has fallen by 17.6% whilst the Company's comparative index, the MSCI Small Cap UK index has fallen by some 9.9%. Reflecting this decline, the Company's share price has decreased from 56.5p to 48.5p and the shares were therefore trading at a discount of some 2.2% at the period end.
Since the period end the net asset value per share has recovered strongly to 55.81p per share whilst the share price has remained static.
The entire country, and apparently the whole of Europe, have become exasperated and exhausted by the Brexit process. As I write nothing is resolved and the whole process, which has been ongoing for almost three years has been delayed for either one month, three months or until the end of October. It is very difficult, to say anything positive about the current position.
Markets hate uncertainty, and, unfortunately, we are living in very uncertain times, which have borne down on the valuations of UK equities. By the same token when the current position is resolved, as it will be, then the removal of the current uncertainty should lead to a reappraisal of prospects and valuations. Ironically, because our portfolio is in small, highly UK-centric businesses, as long as we remain confident that the UK will not sink into recession, then our investments should prosper.
There are of course a whole range of other real concerns in the World. These include the ongoing trade disputes and introduction of tariffs by the United States and any subsequent retaliatory actions by China and the European Union and the ending of Quantitative Easing by the ECB followed by its possible reintroduction to try and ease the plight of some European countries, particularly Italy. In addition, the ongoing conflicts in Syria and Libya and the actions of Russia around the World continue to cause great concern.
CEPS is the largest investment held by the Company and just to remind Shareholders this is a diversified AIM traded holding company that owns majority shareholdings in five UK subsidiary businesses. Your Investment Manager, my fellow Board member, David Horner is chairman of CEPS and has a similar sized shareholding as that of this Company. CEPS is being built up by the growth of its underlying investee companies and by strategic "bolt-on" acquisitions. The results have, in common with any developing company, been difficult for shareholders to interpret, however we are confident that there is significant value that in time will become clearer.
Much the same could be said for Touchstar, Petards and Universe which are all making progress and appear to be undervalued at this time since the share prices have not risen to reflect this progress. Plutus Powergen has seen a significant reduction in its share price largely because of unexpected changes in the regulated markets in which it operates. Once the government has got its head out of the Brexit morass then hopefully some attention will be directed towards Britain's energy policy and how sufficient electricity is going to be produced to keep the lights on in the 2020's. Plutus Powergen has a number of small gas sites that are ready to be built once the regulatory structure becomes clear.
On the unquoted side, Chelverton Asset Management, the manager contracted by the Company, has had a solid six months growing funds under management and paying a maiden dividend.
Main Dental Partners was conditionally purchased by Spa Dental and it is expected that once some outstanding issues are resolved then the cash proceeds will be received.
A further investment was made in La Salle Education, a business involved in supplying schools with the modern mathematics syllabus via the internet. We had previously written this holding down to nil value and have been pleasantly surprised by the quiet progress that has been made over the past year. This is a good example of the need for patience in the development of young companies.
The members voluntary liquidation of Security Research has been completed and a final sum was received in cash. This was a very successful investment for the Company; the scale and price of the share buy-backs and the ultimate realisation of all of the assets for cash was unconventional but was conducted in a highly responsible manner by the directors.
Given the decline in the size of the Company (resulting from the program of tender offers and the recent decline in asset values) and the inevitable impact which this has had on the expense ratio, the Board has decided to formally pursue a strategy for winding up the Company and maximising the value for Shareholders from the remaining assets.
As and when value and liquidity are restored to the AIM traded shares these will be realised, with the cash proceeds being used firstly to settle all outstanding liabilities at that time and secondly to return value to Shareholders via a further tender offer or buybacks.
Subject to the valuation of any remaining illiquid assets at that time, the Board will examine the most tax efficient manner of returning value to Shareholders.
We expect this final process to take up to two years, but this estimate will of course be determined by the speed of recovery in the principal investments and their liquidity. It is unlikely that there will be a continuation vote in 2020.
Kevin Allen
Chairman
1 May 2019
Interim management report
The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Report. The Board considers that the principal risks and uncertainties facing the Company remain the same as those disclosed in the Annual Report for the year ended 31 August 2018 on pages 12 and 13 and pages 50 and 51. These risks include, but are not limited to, market risk, discount volatility risk, regulatory risk, financial risk and liquidity risk.
Responsibility statement
The Directors are responsible for preparing the unaudited Half Yearly Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:
The condensed set of financial statements for the six months to 28 February 2019, has been prepared in accordance with FRS 104 "Interim Financial Reporting", gives a fair view of the assets, liabilities, financial position and loss of the Company; and
this Half Yearly Report includes a fair review of the information required by;
rule 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
rule 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 Company 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 1 May 2019 and the above responsibility statement was signed on its behalf by Kevin Allen, Chairman.
Portfolio review
as at 28 February 2019
The Company's portfolio is set out below.
Investment
Sector
Valuation
% of
£'000
total
portfolio
AIM Traded
CEPS
Support Services
1,164
37.9
Trading holding company for a number of companies supplying services and products
MTI Wireless Edge
Technology Hardware & Equipment
152
4.9
Developer and manufacturer of sophisticated antennas and antenna systems
Petards Group
Support Services
500
16.3
Development, provision and maintenance of advance security systems and related services
Plutus Powergen
Flexible Energy Supply
133
4.3
Providers of management infrastructure and expertise to operate power plants and provide flexible electricity generation
Touchstar
Technology Hardware & Equipment
298
9.7
Software systems for warehousing and distribution
Universe Group
Support Services
30
1.0
Provision of credit fraud prevention, loyalty and retail systems
Fully Listed
Zenith Energy
Oil & Gas Producers
68
2.2
International energy production and exploration company
Nasdaq Traded
One Horizon Group
Support Services
-
-
Provider of mobile satellite communications equipment and airtime
Unquoted
Airways Engineering
Support Services
Ordinary B Shares
-
-
Loan Stock
-
-
Commercial aviation maintenance
Anaxsys Technology
Healthcare Equipment & Services
-
-
A medical device company for patient monitoring and screening
Chelverton Asset Management Holdings
Support Services
210
6.8
Investment management, including providing services to Chelverton Growth Trust Plc
La Salle Education
Support Services
130
4.2
A UK based company dedicated to improving mathematics education
Main Dental Partners
Support Services
138
4.5
Operator of dental surgeries
Pedalling Forth
General Retailers
250
8.2
Internet retailer of cycling clothing for women
Portfolio valuation
3,073
100.0
Portfolio holdings
28 February 2019
31 August 2018
Valuation
% of
total
Valuation
% of total
Investment
£'000
portfolio
£'000
portfolio
CEPS
1,164
37.9
1,417
40.6
Petards Group
500
16.3
460
13.2
Touchstar
298
9.7
374
10.7
Pedalling Forth
250
8.2
250
7.2
Chelverton Asset Management Holdings
210
6.8
210
6.0
MTI Wireless Edge
152
4.9
171
4.9
Main Dental Partners
138
4.5
138
4.0
Plutus Powergen
133
4.3
317
9.1
La Salle Education
130
4.2
80
2.3
Zenith Energy
68
2.2
37
1.1
Universe Group
30
1.0
31
0.9
One Horizon Group
-
-
-
-
Anaxsys Technology
-
-
-
-
Airways Engineering
-
-
-
-
Total
3,073
100.0
3,485
100.0
Portfolio breakdown by sector and by index
Sector distribution
% of total
Support Services
70.7
Technology Hardware & Equipment
14.6
General Retailers
8.2
Flexible Energy Supply
4.3
Oil & Gas Producers
2.2
Index distribution
% of total
AIM
74.1
Unquoted
23.7
Fully listed
2.2
Income statement (unaudited) for the six months to 28 February 2019
Six months to
Year to
Six months to
28 February 2019
31 August 2018
28 February 2018
Revenue
Capital
Total
Revenue
Capital
Total
Revenue
Capital
Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Losses on investments at fair value (note 4)
-
(505)
(505)
-
(1,263)
(1,263)
-
(228)
(228)
Income (note 2)
10
-
10
9
-
9
-
-
-
Investment management fee
(4)
(13)
(17)
(11)
(33)
(44)
(6)
(17)
(23)
Other expenses
(71)
(12)
(83)
(134)
(6)
(140)
(70)
(1)
(71)
Net return on ordinary activities before taxation
(65)
(530)
(595)
(136)
(1,302)
(1,438)
(76)
(246)
(322)
Taxation on ordinary activities
-
-
-
-
-
-
-
-
-
Net return on ordinary activities after taxation
(65)
(530)
(595)
(136)
(1,302)
(1,438)
(76)
(246)
(322)
Revenue
Capital
Total
Revenue
Capital
Total
Revenue
Capital
Total
pence
pence
pence
pence
pence
pence
pence
pence
pence
Return per Ordinary share*
(1.18)
(9.71)
(10.89)
(2.45)
(23.40)
(25.85)
(1.34)
(4.34)
(5.68)
The total column of this statement is the profit and loss account of the Company prepared in accordance with Financial Reporting Standards ("FRS"). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated in February 2018 with consequential amendments by the Association of Investment Companies ("AIC SORP").
All revenue and capital items in the above statement derive from continuing operations.
A separate Statement of Other Comprehensive Income has not been prepared as all such gains and losses are included in the Income statement.
The revenue column of the Income statement includes all income and expenses. The capital column includes the realised and unrealised profit or loss on investments and 75% of the management fee and finance costs charged to capital.
* The return per Ordinary share is based on 5,460,301 (31 August 2018: 5,563,242; 28 February 2018: 5,667,890) shares, being the weighted average number of shares in issue during the period.
Statement of changes in equity (unaudited)
for the six months to 28 February 2019
Called up share capital
£'000
Special reserve*
£'000
Capital reserve
£'000
Capital redemption reserve
£'000
Revenue reserve
£'000
Total
£'000
Six months to 28 February 2019
1 September 2018
55
787
1,843
134
484
3,303
Net loss after taxation for the period
-
-
(530)
-
(65)
(595)
28 February 2019
55
787
1,313
134
419
2,708
Year to 31 August 2018
1 September 2017
64
1,506
3,145
125
620
5,460
Cost of shares purchased for cancellation under tender offer and buybacks
(9)
(719)
-
9
-
(719)
Net loss after taxation for the year
-
-
(1,302)
-
(136)
(1,438)
31 August 2018
55
787
1,843
134
484
3,303
Six months to 28 February 2018
1 September 2017
64
1,506
3,145
125
620
5,460
Cost of shares purchased for cancellation under tender offer and buybacks
(9)
(725)
-
9
-
(725)
Net loss after taxation for the period
-
-
(246)
-
(76)
(322)
28 February 2018
55
781
2,899
134
544
4,413
*The Special reserve was created by the cancellation of the share premium account by order of the High Court on 20 January 2016.
Distributable reserves: The Special reserve and Revenue reserve can be used for the purchase of the Company's Ordinary shares.
Statement of financial position (unaudited)
as at 28 February 2019
As at 28 February 2019
£'000
As at 31 August 2018
£'000
As at 28 February 2018
£'000
Fixed assets
Investments at fair value (note 4)
3,073
3,485
3,900
Current assets
Debtors
2
9
3
Cash at bank
255
439
538
257
448
541
Creditors - amounts falling due within one year
Creditors
(22)
(30)
(28)
Short-term loans (note 5)
(600)
(600)
-
(622)
(630)
(28)
Net current (liabilities)/assets
(365)
(182)
513
Net assets
2,708
3,303
4,413
Share capital and reserves
Called up share capital
55
55
55
Special reserve
787
787
781
Capital reserve
1,313
1,843
2,899
Capital redemption reserve
134
134
134
Revenue reserve
419
484
544
Equity shareholders' funds
2,708
3,303
4,413
Net asset value per Ordinary share (note 6)
49.59p
60.48p
80.82p
Statement of cash flows (unaudited)
for the six months to 28 February 2019
Six months to
28 February
2019
Year to 31
August
2018
Six months to
28 February
2018
£'000
£'000
£'000
Cash flows from operating activities
Net loss on ordinary activities
(595)
(1,438)
(322)
Adjustment for:
Net capital loss
530
1,302
246
Expenses charged to capital
(25)
(39)
(18)
Interest paid
16
10
3
Decrease in creditors
(8)
(3)
(11)
Decrease in debtors
7
674
680
Cash (used in)/from operations
(75)
506
578
Cash flows from investing activities
Purchase of investments
(96)
(1,271)
(486)
Proceeds from sale of investments
3
736
571
Net cash (used in)/from investing activities
(93)
(535)
85
Cash flows from financing activities
Cost of shares purchased for cancellation under tender offer and buybacks
-
(719)
(719)
New loan advanced
-
600
-
Capital repayment of loan
-
(250)
(250)
Interest paid
(16)
(10)
(3)
Net cash used in financing activities
(16)
(379)
(972)
Net decrease in cash
(184)
(408)
(309)
Cash at the beginning of the period
439
847
847
Cash at the end of the period
255
439
538
1 Accounting Policies
a) Statement of compliance
The Company's Financial Statements for the period ended 28 February 2019 have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and the 2014 Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in February 2018 with consequential amendments ('the SORP') issued by the Association of Investment Companies.
The financial statements have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 August 2018.
b) Financial information
The financial information contained in this report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the period ended 28 February 2019 and 28 February 2018 have not been audited or reviewed by the Company's Auditor pursuant to the Auditing Practices Board guidance on such reviews. The information for the year to 31 August 2018 has been extracted from the latest published Annual Report and Financial Statements, which have been lodged with the Registrar of Companies, contained an unqualified auditors' report and did not contain a statement required under Section 498 (2) or (3) of the Companies Act 2006.
c) Going concern
The Company's assets consist mainly of equity shares in companies which, in most circumstances are realisable within a short timescale. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts.
2 Income
Six months to
Year to
Six months to
28 February 2019
31 August 2018
28 February 2018
£'000
£'000
£'000
Income from investments
UK net dividend income
10
9
-
Total income
10
9
-
3 Taxation
The tax charge for the six months to 28 February 2019 is nil (year to 31 August 2018: nil; six months to 28 February 2018: nil).
The Company has an effective tax rate of 0% for the year ending 31 August 2019. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company's status as an Investment Trust and there is expected to be an excess of management expenses over taxable income.
4 Investments
28 February
31 August
28 February
Fully
AIM
2019
2018
2018
Listed
quoted
Unquoted
NASDAQ
Total
Total
Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Opening book cost
72
4,236
998
166
5,472
4,953
4,953
Opening investment holding losses
(35)
(1,466)
(320)
(166)
(1,987)
(740)
(740)
37
2,770
678
-
3,485
4,213
4,213
Movements in the period:
Purchases at cost
46
-
50
-
96
1,271
486
Sales proceeds
-
-
(3)
-
(3)
(736)
(571)
Gains/(losses) on sales
-
-
3
-
3
(16)
156
Movement in investment holding losses
(15)
(493)
-
-
(508)
(1,247)
(384)
Closing valuation
68
2,277
728
-
3,073
3,485
3,900
Closing book cost
118
4,236
1,048
166
5,568
5,472
5,024
Closing investment holding losses
(50)
(1,959)
(320)
(166)
(2,495)
(1,987)
(1,124)
Closing valuation
68
2,277
728
-
3,073
3,485
3,900
Analysis of capital gains and losses
Realised gains/(losses) on sales
-
-
3
-
3
(16)
156
Movement in fair value of investments
(15)
(493)
-
-
(508)
(1,247)
(384)
(15)
(493)
3
-
(505)
(1,263)
(228)
Fair value hierarchy
In accordance with FRS 102 and FRS 104 the Company must disclose the fair value hierarchy of financial instruments.
The fair value hierarchy consists of the following three classifications:
Level 1 - Valued using quoted prices in active markets for identical assets or liabilities. This is usually the bid price.
Level 2 - Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1.
Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data.
Details of the Company's financial instruments are shown in the Portfolio Review including financial instruments which fall into Level 3 shown under the section heading "Unquoted". A summary reconciliation of the fair value movements of Level 3 investments is shown in the table above.
Financial assets at fair value through profit or loss;
Level 1
Level 2
Level 3
Total
£'000
£'000
£'000
£'000
At 28 February 2019
Equity investments
2,345
-
728
3,073
Total
2,345
-
728
3,073
At 31 August 2018
Equity investments
2,807
-
678
3,485
Total
2,807
-
678
3,485
At 28 February 2018
Equity investments
3,191
-
709
3,900
Total
3,191
-
709
3,900
5 Short term loans
On 4 June 2018, the Company entered in to a £600,000 loan agreement with Jarvis Securities plc. Interest is payable monthly in arrears at the rate of 4.5% above the Bank of England base rate.
The loan was drawn down on 4 June 2018 and at the period end £600,000 was outstanding.
6 Net asset value
The basic net asset value per Ordinary share is based on net assets of £2,708,000 (31 August 2018: £3,303,000; 28 February 2018: £4,413,000) and on 5,460,301 Ordinary shares (31 August 2018: 5,460,301; 28 February 2018: 5,460,301) being the number of Ordinary shares in issue at the period end. No shares are held in Treasury.
7 Related party transactions
Under the terms of the agreement dated 28 June 2001, the Company has appointed Chelverton Asset Management Limited to be the Investment Manager. Mr Horner, a Director of the Company, is also a director of Chelverton Asset Management Limited and chairman of CEPS in which the Company holds an investment as set out above. Mr Martin is the chairman of Touchstar in which the Company holds an investment as set out above.
At 28 February 2019 there was £2,800 (31 August 2018: £3,300; 28 February 2018: £3,700) payable to the Investment Manager.
The three Directors also have individual holdings in Chelverton Asset Management Holdings, a company which has Mr Horner as a director and which the Company also has a direct holding. The Directors' holdings are detailed below.
Ordinary shares held
Percentage of Ordinary shares held
£'000
%
K J Allen
1
1
D A Horner
56
56
I P Martin
2
2
Directors and Advisers
Directors
Auditors
Kevin Allen (Chairman)
Hazlewoods LLP
David Horner
Windsor House
Ian Martin
Bayshill Road
Cheltenham
Investment Manager
GL50 3AT
Chelverton Asset Management Limited
11 Laura Place
Custodians
Bath
Jarvis Investment Management Limited
BA2 4BL
78 Mount Ephraim
Tel: 01225 483 030
Royal Tunbridge Wells
TN4 8BS
Secretary and Registered Office
Tel: 01892 510 515
ISCA Administration Services Limited
Suite 8, Bridge House
Bankers
Courtenay Street
HSBC
Newton Abbot
46 Market Street
TQ12 2QS
Falmouth
Tel: 01392 487 056
TR11 3AA
Email: cgw@iscaadmin.co.uk
Registrar and Transfer Office
Share Registrars Limited
The Courtyard
17 West Street
Farnham
GU9 7DR
Tel: 01252 821 390
www.shareregistrars.uk.com
Information about the Company can be obtained at the Investment Manager's website at www.chelvertonam.com. Neither the contents of the manager's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website incorporated into, or forms part of this announcement.
An investment company as defined under Section 833 of the Companies Act 2006.
REGISTERED IN ENGLAND No 02989519
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR BBGDUBDGBGCB
Recent news on Chelverton Growth Trust
See all newsREG - Official List Chelverton Grwth Tst - Removal - Chelverton Growth Trust plc
AnnouncementREG - Stock Exch Notice Chelverton Grwth Tst - Cancellation - Chelverton Growth Trust PLC
AnnouncementREG - Chelverton Grwth Tst - Result of Meeting
AnnouncementREG - Official List Chelverton Grwth Tst - Suspension - Chelverton Growth Trust plc
AnnouncementREG - Chelverton Grwth Tst - Net Asset Value(s)
Announcement