REG - Chelverton Grwth Tst - Half-year Report
24/04/2023 07:15
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RNS Number : 1416X Chelverton Growth Trust PLC 24 April 2023
Chelverton Growth Trust PLC
LEI: 213800I86P8BAE6UVI83
Half Yearly Report
For the six months ended 28 February 2023
The Directors announce the unaudited Half Yearly Report for the period 1 September 2022 to 28 February 2023.
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
At the beginning of the current period the net asset value per share was
54.24p. Over the first six months of the current year which ended on 28
February 2023 the net asset value per share had declined by 3.39% to 52.40p.
Over the same period, the AIM All-share index has declined by 2.7% and the
share price has decreased from 31p to 29p. The shares were therefore trading
at a discount of some 44.7% at the period end.
In the light of the market turmoil following the Autumn "Mini Budget" and the
more recent volatility caused by the collapse of the Silicon Valley Bank and
the distressed emergency takeover of Credit Suisse, we consider this to be a
relatively robust performance.
In the UK, we are living with inflation of some 10% and interest rates at
multi-year highs, having risen 11 times since December 2021 from 0.1% to the
current 4.25%. The Bank of England has been forecasting for some time that
the UK economy would move into recession, which we are pleased to see has not
yet occurred. Very recently the IMF has forecast that the UK will be the
worst performing economy in the G20, with a small decline in GDP during the
next twelve months. However, it should also be noted that of the last 26
forecasts by the IMF, only two have turned out to be accurate.
We are experiencing an economy that is stagnating, with increased levels of
industrial action and a shortage of labour. In addition, there have been
significant rises in energy prices and industry wide increases in input prices
and supply chain issues. However there has been recent evidence that as time
passes and the economies of the world transition away from the Covid period,
these issues are beginning to ease.
Future Strategy
The Board has reviewed several options on how to achieve a return of value to
Shareholders, given that the current structure and small size of the fund make
it increasingly difficult to provide adequate returns.
We have, where possible, sought to minimise costs. The Company continues to
benefit from a zero-management charge from Chelverton Asset Management, the
Investment Manager of the Company, who is waiving its 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 smaller than
it could have been.
Notwithstanding the current level of market uncertainty, we feel that the time
is right to formulate proposals to present to Shareholders. Our objective is
to structure an efficient transaction which ensures that the embedded value in
the Company can be maximised. It is the Board's intention to work towards
completion of these proposals in 2023.
Investments
Over the last six months your Company saw a small decline in the net asset
value per share. Whilst in general, underlying investee performances have
been encouraging, wider market sentiment towards UK publicly quoted equites,
in particular small and micro-cap value companies, has been negative.
CEPS remains the largest investment in the Company. 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
business. The company is being developed by both organic growth of the
underlying companies and strategic "bolt-on" acquisitions.
As highlighted a year ago, an immense amount of work had gone into
restructuring, developing, and improving the Aford Awards business. It is
pleasing to be able to report that evidence of this progress is now being
shown via improved financial performance.
Hickton Group, the fast-growing property services group, continues to expand.
However, in common with many companies, in several sectors, it has experienced
significant wage inflation and struggled to recruit and retain staff within a
highly competitive employment environment. Of late, the company has improved
and developed its procedures and processes and its results have advanced.
As expected, Friedmans and Milano have both produced improved performances
with the opening-up, post Covid, of the UK economy.
Vale Brothers, in common with Hickton, has experienced a shortage of labour
and rapidly rising costs from bought in products and components sourced in
Asia.
Touchstar, the second largest investment, has made excellent progress in the
past six months with a very 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 announce its 2022 results showing an
increase in profitability and an improvement in the quality of earnings.
The employment appeal at Main Dental Partners has now been heard and we are
waiting for the judgement to be published in the next few months.
La Salle Education ("La Salle"), a business involved in supplying schools with
the modern mathematics syllabus via the internet has been involved in
providing services to many schools. The company is aware that there are
considerable opportunities available. However, to take full advantage of the
market, it is expected there will need to be a further fundraising.
Outlook
As mentioned in my introduction, things are very uncertain across the UK and
Europe. Sadly, the war in the Ukraine continues and currently there appears
to be no end in sight. European countries have rebalanced their economies and
have achieved major savings in energy which it is to be hoped will become
embedded.
With the impact of the draconian lockdown in China and with the "Ever Given"
container vessel blocking the Suez Canal it became clear to European buyers
that they had been under-pricing the risk of sourcing so many key products
from China. Coupled with the population issues in China, we believe there
will be a rebalancing of production, bringing it much closer to home.
The UK economy is expected to flat-line in 2023 but to "bounce back" to near
long term trend growth in 2024. Inflation is expected to decline sharply by
the end of the year and it might well be that interest rates have already
peaked. As the countries of Europe and the World return to "normal" there
will be steady growth in the UK economy.
It is the Board's intention to offer Shareholders the return of funds in the
simplest, most cost effective, tax efficient timely manner possible. Once
finalised, the details and recommendation will be sent for Shareholder
consideration and approval. As I indicated earlier, we plan to do this soon
with a view to completion in 2023.
Kevin Allen
Chairman
21 April 2023
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 2022 on pages 14 and 15 and pages 54 and 55. 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 2023, 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;
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 21 April
2023 and the above Responsibility Statement was signed on its behalf by:
Kevin Allen
Chairman
Portfolio Review
as at 28 February 2023
The Company's portfolio is set out below.
Investment Sector Valuation % of
£'000 total
portfolio
AIM Traded
CEPS Support Services 1,911 64.7
Trading holding company for a number of companies supplying services and
products
Petards Group Support Services 142 4.8
Development, provision and maintenance of advance security systems and related
services
Touchstar Technology Hardware & Equipment 680 23.0
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 221 7.5
A UK based company dedicated to providing online mathematics education
Redecol Healthcare Equipment & Services - -
A medical device company focused on the development of asthma monitoring
2,954 100.0
Portfolio Valuation
Portfolio Holdings
as at 28 February 2023
28 February 2023 31 August 2022
% of % of total
Valuation total Valuation
Investment £'000 portfolio £'000 portfolio
CEPS 1,911 64.7 2,075 68.0
Touchstar 680 23.0 595 19.5
La Salle Education 221 7.5 182 5.9
Petards Group 142 4.8 180 5.9
Redecol - - 21 0.7
Touchpoint Group Holdings - - - -
Total 2,954 100.0 3,053 100.0
Portfolio breakdown by sector and by index
as at 28 February 2023
Sector distribution % of total
Support Services 77.0
Technology Hardware & Equipment 23.0
Index distribution % of total
AIM 92.5
Unquoted 7.5
Income Statement (unaudited)
for the six months to 28 February 2023
Six months to Year to Six months to
28 February 2023 31 August 2022 28 February 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments at fair value (note 4) - (38) (38) - (72) (72) - 80 80
Income (note 2) 6 - 6 9 - 9 4 - 4
Investment management fee* - - - - - - - - -
Other expenses (68) - (68) (120) (2) (122) (61) (1) (62)
Net (loss)/return on ordinary activities before taxation (62) (38) (100) (111) (74) (185) (57) 79 22
Taxation on ordinary activities - - - - - - - - -
Net (loss)/return on ordinary activities after taxation (62) (38) (100) (111) (74) (185) (57) 79 22
Revenue Capital Total Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence pence pence pence
(Loss)/return per Ordinary share**
(1.13) (0.70) (1.83) (2.04) (1.35) (3.39) (1.04) 1.44 0.40
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 July 2022 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 2022:
5,460,301; 28 February 2022: 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 2023
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 2023
1 September 2022 55 787 1,937 134 48 2,961
Net loss after taxation for the period - - (38) - (62) (100)
28 February 2023 55 787 1,899 134 (14) 2,861
Year to 31 August 2022
1 September 2021 55 787 2,011 134 159 3,146
Net loss after taxation for the year - - (74) - (111) (185)
31 August 2022 55 787 1,937 134 48 2,961
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
*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 2023
As at 28 February 2023 As at 31 August 2022 As at 28 February 2022
£'000 £'000 £'000
Fixed assets
Investments at fair value (note 4) 2,954 3,053 3,232
Current assets
Debtors 145 146 149
Cash and cash equivalents 13 10 22
158 156 171
Creditors - amounts falling due within one year
Creditors (36) (33) (20)
Short-term loans (note 5) (215) (215) (215)
(251) (248) (235)
Net current liabilities (92)
(93) (64)
Net assets 2,861 2,961 3,168
Share capital and reserves
Called up share capital 55 55 55
Special reserve 787 787 787
Capital reserve 1,899 1,937 2,090
Capital redemption reserve 134 134 134
Revenue reserve (14) 48 102
Equity Shareholders' funds 2,861 2,961 3,168
Net asset value per Ordinary share (note 6) 52.40p 54.24p 58.02p
Statement of Cash Flows (unaudited)
for the six months to 28 February 2023
Six months to Year to Six months to
28 February 31 August 28 February
2023 2022 2022
£'000 £'000 £'000
Cash flows used in operating activities
Net (loss)/gain on ordinary activities (100) (185) 22
Adjustment for:
Net capital loss/(gain) 38 74 (79)
Expenses charged to capital - (2) (1)
Interest paid - 3 1
Change in creditors 3 1 (12)
Change in debtors 7 - (3)
Cash used in operations (52) (109) (72)
Cash flows from/(used in) investing activities
Purchase of investments - (160) (160)
Proceeds from sale of investments 55 133 106
Net cash from/(used in) investing activities 55 (27) (54)
Cash flows from financing activities
Loan advanced - 215 165
Capital repayment of loan - (100) (50)
Interest paid - (3) (1)
- 112
Net cash from financing activities 114
3 (24) (12)
Net increase/(decrease) in cash
Cash at the beginning of the period 10 34 34
Cash at the end of the period 13 10 22
1 Accounting Policies
a) Statement of compliance
The Company's Financial Statements for the period ended 28 February 2023 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 July 2022 ('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 2022.
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 2023 and 28 February
2022 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 2022 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
current economic environment and impact of the war in Ukraine.
2 Income
Six months to Year to Six months to
28 February 2023 31 August 2022 28 February 2022
£'000 £'000 £'000
Income from investments
Loan stock interest 6 9 4
Total income 6 9 4
3 Taxation
The tax charge for the six months to 28 February 2023 is nil (year to 31 August 2022: nil; six months to 28 February 2022: nil).
The Company has an effective tax rate of 0% for the year ending 31 August 2023. 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
Traded on 2023 2022 2022
AIM Unquoted NASDAQ Total Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Opening book cost 3,642 472 166 4,280 4,752 4,752
Opening investment holding losses (792) (269) (166) (1,227) (1,654) (1,654)
2,850 203 - 3,053 3,098 3,098
Movements in the period:
Purchases at cost - - - - 160 160
Sales proceeds (61) - - (61) (133) (106)
Losses on sales (61) - - (61) (499) (226)
Movement in investment holding losses 5 18 - 23 427 306
Closing valuation 2,733 221 - 2,954 3,053 3,232
Closing book cost 3,520 472 166 4,158 4,280 4,580
Closing investment holding losses (787) (251) (166) (1,204) (1,227) (1,348)
Closing valuation 2,733 221 - 2,954 3,053 3,232
Analysis of capital gains and (losses)
Realised losses on sales (61) - - (61) (499) (226)
Movement in fair value of investments 5 18 - 23 427 306
(56) 18 - (38) (72) 80
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 2023
Equity investments 2,733 - 221 2,954
Total 2,733 - 221 2,954
At 31 August 2022
Equity investments 2,850 - 203 3,053
Total 2,850 - 203 3,053
At 28 February 2022
Equity investments 2,989 - 243 3,232
Total 2,989 - 243 3,232
5 Short term loans
On 16 September 2021, the Company entered into an interest free loan agreement with Mr Horner. Drawdowns were made of £165,000 on 16 September 2021, £25,000 on 30 May 2022 and £25,000 on 31 May 2022. At the period end, £215,000 was outstanding. The loan is unsecured, interest free and can be repaid by the Company at any time or on 18 months notice from Mr Horner.
6 Net asset value
The basic net asset value per Ordinary share is based on net assets of
£2,861,000 (31 August 2022: £2,961,000; 28 February 2022: £3,168,000) and
on 5,460,301 Ordinary shares (31 August 2022: 5,460,301; 28 February 2022:
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, a subsidiary of Chelverton Asset Management Holdings Limited, and chairman of CEPS PLC, in which the Company has a significant investment.
Mr Martin is the chairman of Touchstar plc, in which the Company holds an investment as set out above.
As stated in note 5, on 16 September 2021, the Company entered into an interest free loan agreement with Mr Horner. At the period end a balance of £215,000 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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