REG - Chelverton Grwth Tst - Half-year Report
14/04/2022 15:15
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RNS Number : 4691I Chelverton Growth Trust PLC 14 April 2022
Chelverton Growth Trust PLC
LEI: 213800I86P8BAE6UVI83
Half Yearly Report
For the six months ended 28 February 2022
The Directors announce the unaudited Half Yearly Report for the period 1 September 2021 to 28 February 2022.
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).
At the Annual General Meeting held on 12 December 2019, Shareholders voted to
amend the Company's Investment Policy to state that the Company:
• may participate in a CEPS placing (if it were to
have one);
• will liquidate its various other investments when it
is felt appropriate to do so;
• will repay the outstanding Jarvis Loan; and
• will pay all outstanding liabilities.
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
("CAM"), 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 CAM 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
In the six months to 28 February 2022, the Net Asset Value per share increased
by just under 1% to 58.02p. Although this performance shows only a modest
uplift in value since my last report, relative to our benchmark MSCI Small Cap
UK Index which declined by 15.42% it represents another period of
outperformance.
On the 24 February Russia invaded Ukraine. As far as we are aware, this
distressing situation has led to no material change in trading for the
businesses we are invested in. Realistically, the combination of geo-political
instability, inflationary pressures and higher interest rates will
inevitability depress valuations in the short term. The assumption made is
that this year will see a subdued level of macro-economic growth and
investment.
I had expected that we would now be in a position to put forward plans as to
how we proposed to return value to Shareholders. However, with the
heightened level of uncertainty, the Board feel that any proposals would
severely undervalue the underlying assets of the Company. We continue to
review the situation and will produce our proposals when we are confident that
the sensible value can be extracted.
The Board believe that there is significant potential for improvement in the
underlying investments and do not believe that it is in the Shareholders'
interests to forego this upside for the convenience of resolving the future of
the Company at this moment.
I remain grateful to Chelverton Asset Management, the Investment Manager of
the Company, who are waiving their management fee in its entirety, in
addition, Ian Martin and I have also waived part of our fees. The collective
effect of these actions means that the expense ratio, whilst still high, a
consequence of a very small sized Company, is much lower than it could have
been.
Financial Performance
Prior to the Russian invasion of Ukraine, the underlying performance of the
investments had been encouraging with strong market sentiment towards UK
publicly quoted equites, and in particular the small companies and micro-cap
value companies, which were recovering well after the "Covid Period". Almost
all this increase was eliminated by the invasion when sentiment turned
negative reflecting the higher level of uncertainty.
Over the same period, the AIM All-share index has declined by 19.54% and the
share price has decreased from 59.5p to 43.0p. At the period end, the shares
were trading at a discount of 25.89%.
Investments
CEPS is the largest investment in the Company and to remind Shareholders this
is a diversified AIM traded holding company that owns majority shareholdings
in three subsidiaries, and a significant minority in a fourth. My fellow
Board member, David Horner is Chairman of CEPS and has a similar sized
shareholding as the Company. CEPS is being built up by the growth of the
underlying companies and by strategic "bolt-on" acquisitions.
· With the new management in place at Aford Awards for some 18
months there has been significant activity. With a "self-help" programme of
revamping the warehouse and production areas the business is now much more
efficient and more importantly, can deliver more product from the same
premises with the same staff. This was important as three bolt-on
acquisitions were made last year which have been relocated to the company's
premises and integrated. An additional much larger purchase has just been
made which will make a significant contribution in the current year.
· Hickton Group, the fast-growing property services group, continues
to develop and is highly cash generative and is therefore expected to repay
its acquisition loans.
· Friedmans and Milano are starting to enjoy a return to normal
trading as the economy and society begins to unlock.
· The merger of Davis Odell and Vale Brothers has now been completed
with one banking arrangement and a single accounting system.
All the CEPS businesses, in common with all other enterprises in the United
Kingdom are experiencing rapidly increasing prices of materials. In
addition, a severe shortage, and a consequent rise in labour costs is also
proving to be challenging.
Touchstar has made further progress in the past six months with a positive
trading statement at the end of January. The company now has a very strong
balance sheet with some 40% of its market value represented by cash.
Petards is also expected to shortly produce its 2021 annual accounts showing a
return to profitability. A recent large buy-back and cancellation of its own
shares demonstrates that the company has a strong balance sheet and that its
Board considers the shares to be materially undervalued.
Universe was taken over at 12p per share which represented a very healthy
premium of 129%. The purchaser was a business based in the United States.
The saga at Main Dental Partners unfortunately continues with the appeal being
brought by the previous managing director, James Main, being postponed until
later this year. This relates to a material claim for employment
compensation that was judged in favour of the company.
La Salle Education ("La Salle"), a business involved in supplying schools with
the modern mathematics syllabus via the internet has been deeply involved in
providing services to many schools. After a slow start, there are signs that
market awareness is increasing leading to rising revenue streams.
Outlook
As I mention in the introduction, the trading climate is very uncertain due to
the invasion of Ukraine, while China continues to grapple with containing the
Coronavirus. The impact of these events is being closely felt all over Europe
and the United States due to the globalisation of business over the past 30
years. It might well be that we see a reversal of this trend over the next
period which may well lead to price rises as the cost of securing supply
chains increases.
We believe that the UK economy will recover once these macro themes become
factored into business thinking. The pressure on labour supply will be
resolved over the medium term, via a drive towards increased productivity.
As part of the resolution of the labour shortage, employing older workers
might be mutually beneficial for people struggling with low pensions and
companies struggling to recruit.
Kevin Allen
Chairman
14 April 2022
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 2021 on pages 14 and 15 and pages 55 and 56. 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 2022, has been prepared in accordance with FRS 104 "Interim
Financial Reporting", gives a fair view of the assets, liabilities, financial
position and profit of the Company; and
· this Half Yearly Report includes a fair review of the information
required by;
a) 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
b) 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 14
April 2022 and the above Responsibility Statement was signed on its behalf by:
Kevin Allen
Chairman
Portfolio Review
as at 28 February 2022
The Company's portfolio is set out below.
Investment Sector Valuation % of
£'000 total
portfolio
AIM Traded
CEPS Support Services 2,184 67.6
Trading holding company for a number of companies supplying services and
products
Petards Group Support Services 210 6.5
Development, provision and maintenance of advance security systems and related
services
Touchstar Technology Hardware & Equipment 595 18.4
Software systems for warehousing and distribution
Nasdaq Traded
Touchpoint Group Holdings Support Services - -
Provider of mobile satellite communications equipment and airtime
Unquoted
La Salle Education Support Services 182 5.6
A UK based company dedicated to providing online mathematics education
Pedalling Forth General Retailers 40 1.2
Internet retailer of cycling clothing for women
Redecol Healthcare Equipment & Services 21 0.7
A medical device company focused on the development of asthma monitoring
100.0
Portfolio Valuation 3,232
Portfolio Holdings
as at 28 February 2022
28 February 2022 31 August 2021
% of % of total
Valuation total Valuation
Investment £'000 portfolio £'000 portfolio
CEPS 2,184 67.6 1,771 57.1
Touchstar 595 18.4 637 20.6
Petards Group 210 6.5 190 6.1
La Salle Education 182 5.6 182 5.9
Pedalling Forth 40 1.2 240 7.7
Redecol 21 0.7 21 0.7
Touchpoint Group Holdings - - - -
Universe Group * - - 33 1.1
Zenith Energy * - - 24 0.8
Total 3,232 100.0 3,098 100.0
* Sold during the period
Portfolio breakdown by sector and by index
as at 28 February 2022
Sector distribution % of total
Support Services 79.7
Technology Hardware & Equipment 18.4
General Retailers 1.2
Healthcare Equipment & Services 0.7
Index distribution % of total
AIM 92.5
Unquoted 7.5
Income Statement (unaudited)
for the six months to 28 February 2022
Six months to Year to Six months to
28 February 2022 31 August 2021 28 February 2021
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments at fair value (note 4) - 80 80 - 1,042 1,042 - 542 542
Income (note 2) 4 - 4 10 - 10 9 - 9
Investment management fee* - - - - - - - - -
Other expenses (61) (1) (62) (117) (7) (124) (56) (5) (61)
Net (loss)/return on ordinary activities before taxation (57) 79 22 (107) 1,035 928 (47) 537 490
Taxation on ordinary activities - - - - - - - - -
Net (loss)/return on ordinary activities after taxation (57) 79 22 (107) 1,035 928 (47) 537 490
Revenue Capital Total Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence pence pence pence
(Loss)/return per Ordinary share**
(1.04) 1.44 0.40 (1.95) 18.95 17.00 (0.86) 9.83 8.97
The total column of this statement is the Statement of Total Comprehensive
Income 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 April 2021 by the Association of Investment Companies ("AIC SORP").
All revenue and capital items in the above statement derive from continuing
operations.
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.
* With effect from 1 September 2020, the Investment Manager agreed to waive
the entitlement to a fee.
** The return per Ordinary share is based on 5,460,301 (31 August 2021:
5,460,301; 28 February 2021: 5,460,301) 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 2022
Called up share capital Capital redemption reserve
£'000 Special reserve* Capital reserve £'000 Revenue reserve
£'000 £'000 £'000 Total
£'000
Six months to 28 February 2022
1 September 2021 55 787 2,011 134 159 3,146
Net return/(loss) after taxation for the period - - 79 - (57) 22
28 February 2022 55 787 2,090 134 102 3,168
Year to 31 August 2021
1 September 2020 55 787 976 134 266 2,218
Net return/ loss) after taxation for the year - - 1,035 - (107) 928
31 August 2021 55 787 2,011 134 159 3,146
Six months to 28 February 2021
1 September 2020 55 787 976 134 266 2,218
Net return/(loss) after taxation for the period - - 537 - (47) 490
28 February 2021 55 787 1,513 134 219 2,708
*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 2022
As at 28 February 2022 As at 31 August 2021 As at 28 February 2021
£'000 £'000 £'000
Fixed assets
Investments at fair value (note 4) 3,232 3,098 2,598
Current assets
Debtors 149 146 142
Cash at bank 22 34 348
171 180 490
Creditors - amounts falling due within one year
Creditors (20) (32) (60)
Short-term loans (note 5) (215) (100) (320)
(235) (132) (380)
Net current (liabilities)/assets 48
(64) 110
Net assets 3,168 3,146 2,708
Share capital and reserves
Called up share capital 55 55 55
Special reserve 787 787 787
Capital reserve 2,090 2,011 1,513
Capital redemption reserve 134 134 134
Revenue reserve 102 159 219
Equity Shareholders' funds 3,168 3,146 2,708
Net asset value per Ordinary share (note 6) 58.02p 57.62p 49.60p
Statement of Cash Flows (unaudited)
for the six months to 28 February 2022
Six months to Year to Six months to
28 February 31 August 28 February
2022 2021 2021
£'000 £'000 £'000
Cash flows (used in)/from operating activities
Net return on ordinary activities 22 928 490
Adjustment for:
Net capital (return) (79) (1,035) (537)
Expenses charged to capital (1) (7) (5)
Interest paid 1 10 6
(Decrease)/increase in creditors (12) (14) 14
(Increase)/decrease in debtors (3) 4 8
Cash used in operations (72) (114) (24)
Cash flows (used in)/from investing activities
Purchase of investments (160) - -
Proceeds from sale of investments 106 339 339
Net cash (used in)/from investing activities (54) 339 339
Cash flows from/(used in) financing activities
Capital repayment of loan (50) (220) -
Loan drawdown 165 - -
Interest paid (1) (10) (6)
Net cash from/(used in) financing activities 114 (230) (6)
(12) (5) 309
Net (decrease)/increase in cash
Cash at the beginning of the period 34 39 39
Cash at the end of the period 22
34 348
1 Accounting Policies
a) Statement of compliance
The Company's Financial Statements for the period ended 28 February 2022 have
been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and
the Statement of Recommended Practice, 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued in April 2021 ('the SORP')
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 2021.
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 2022 and 28 February
2021 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 2021 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. In assessing the Company's
ability to continue as a going concern, the Board has fully considered the
impact of the war in Ukraine and the continuing impact of the Covid-19
pandemic.
2 Income
Six months to Year to Six months to
28 February 2022 31 August 2021 28 February 2021
£'000 £'000 £'000
Income from investments
UK net dividend income - 14 14
Loan stock interest 4 (4) (5)
Total income 4 10 9
3 Taxation
The tax charge for the six months to 28 February 2022 is nil (year to 31 August 2021: nil; six months to 28 February 2021: nil).
The Company has an effective tax rate of 0% for the year ending 31 August 2022. 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 2022 2021 2021
listed quoted Unquoted NASDAQ Total Total Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening book cost 118 3,696 772 166 4,752 4,753 4,753
Opening investment holding losses (94) (1,065) (329) (166) (1,654) (2,358) (2,358)
24 2,631 443 - 3,098 2,395 2,395
Movements in the period:
Purchases at cost - 160 - - 160 - -
Sales proceeds (24) (82) - - (106) (339) (339)
(Losses)/gains on sales (94) (132) - - (226) 338 338
Movement in investment holding losses 94 412 (200) - 306 704 204
Closing valuation - 2,989 243 - 3,232 3,098 2,598
Closing book cost - 3,642 772 166 4,580 4,752 4,752
Closing investment holding losses - (653) (529) (166) (1,348) (1,654) (2,154)
Closing valuation - 2,989 243 - 3,232 3,098 2,598
Analysis of capital gains and losses
Realised (losses)/gains on sales (94) (132) - - (226) 338 338
Movement in fair value of investments 94 412 (200) - 306 704 204
- 280 (200) - 80 1,042 542
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 2022
Equity investments 2,989 - 243 3,232
Total 2,989 - 243 3,232
At 31 August 2021
Equity investments 2,655 - 443 3,098
Total 2,655 - 443 3,098
At 28 February 2021
Equity investments 2,164 - 434 2,598
Total 2,164 - 434 2,598
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. Partial repayments were made on 11 May
2020 of £280,000, on 2 March 2021 of £220,000 and on 7 February 2022 of
£50,000. At the period end a balance of £50,000 was outstanding. The loan is
secured on the assets of the Company and is repayable on demand.
On 16 September 2021, the Company entered in to a £165,000 unsecured interest
free loan agreement with Chelverton Asset Management Limited. At the period
end a balance of £165,000 was outstanding.
6 Net asset value
The basic net asset value per Ordinary share is based on net assets of
£3,168,000 (31 August 2021: £3,146,000; 28 February 2021: £2,708,000) and
on 5,460,301 Ordinary shares (31 August 2021: 5,460,301; 28 February 2021:
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 2022, there was £nil (31 August 2021: £nil; 28 February 2021: £nil) payable to the Investment Manager.
As stated in note 5, on 16 September 2021, the Company entered in to a £165,000 unsecured interest free loan agreement with Chelverton Asset Management Limited. At the period end a balance of £165,000 was outstanding.
The three Directors also have individual holdings in Chelverton Asset
Management Holdings, a company which has Mr Horner as a director. The
Directors' holdings are detailed below.
Percentage of Ordinary shares held
Ordinary shares held
£'000 %
K J Allen 1 1
D A Horner* 55.25 55.25
I P Martin 2 2
* Director and connected persons total holdings.
Information about the Company can be obtained at the Investment Manager's website at
www.chelvertonam.com. (http://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
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