REG-Chelverton UK Dividend Trust plc Chelverton UK Dividend Trust plc: ACS-Annual Financial Report
29/06/2023 15:30
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Chelverton UK Dividend Trust plc (SDVP)
Chelverton UK Dividend Trust plc: ACS-Annual Financial Report
29-Jun-2023 / 15:29 GMT/BST
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Chelverton UK Dividend Trust PLC
Annual Results for the year to 30 April 2023
Printed copies of the Annual Report will be sent to shareholders shortly.
Additional copies may be obtained from the Company Secretary - Apex Fund
Administration Services (UK) Limited (formerly Maitland Administration
Services Limited), Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY.
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 30 April 2023. The financial
information for 2023 is derived from the statutory accounts for that
year. The auditors, Hazlewoods LLP, have reported on the 2023 accounts.
Their report was unqualified and did not include a reference to any
matters to which the auditors draw attention by way of emphasis without
qualifying their report. The financial information for 2022 is derived
from the statutory accounts for that year. The following text is copied
from the Annual Report and Accounts.
Strategic Report
Financial Highlights
30 April 30 April
Capital 2023 2022 % change
Total gross assets (£’000) 53,674 58,805 (8.73)
Total net assets (£’000) 35,563 41,382 (14.07)
Net asset value per Ordinary share 168.15p 198.47p (15.28)
Mid-market price per Ordinary share 174.50p 192.50p (9.35)
Premium/(discount) 3.78% (3.01%)
Net asset value per Zero Dividend Preference 123.21p 118.52p 3.97
share 2025
Mid-market price per Zero Dividend Preference 117.50p 118.50p (0.84)
share 2025
Discount (4.64%) (0.02%)
Year ended Year
ended
30 April 30 April
Revenue 2023 2022 % change
Return per Ordinary share 12.94p 10.00p 29.40
Dividends declared per Ordinary share 11.77p 11.00p 7.00
Total return
Total return on Group’s gross assets (4.78%) (4.92%)
Total return on Group’s net assets* (total
return as proportion of net
(4.64%) (4.71%)
assets after the provision for the Zero
Dividend Preference shares)
Total return on Group’s net assets* (8.21%) (7.74%)
Ongoing charges** 2.44% 2.03%
Ongoing charges*** 1.62% 1.48%
* Adding back dividends paid in the year.
** Calculated in accordance with the Association of Investment Companies
(‘AIC’) guidelines. Based
on total expenses, excluding finance costs, for the year and average net
asset value.
*** Based on gross assets.
Chairman’s Statement
It gives me great pleasure to present this Annual Report, my first one as
Chairman, for the financial year to 30 April 2023.
I start by repeating what my predecessor Lord Lamont wrote in this report
last year. The last 12 months have undoubtedly continued to be
challenging. Although the Covid-19 pandemic and the associated lockdowns
are now well in the past, the impact is still being felt, not only in the
UK but also in Europe. In addition, the war in Ukraine started by Russia
in February 2022 continues and there are no signs of an end to it this
year.
Whilst we all recall the turmoil in the markets in the autumn, caused by a
febrile political situation in addition to the events around the
‘mini-budget’ and the more recent market volatility caused by the collapse
of the Silicon Valley Bank and the distressed emergency takeover of Credit
Suisse, the UK appears to be gradually recovering from these low points.
At this time in the UK, we are living with elevated inflation and interest
rates at multi-year highs which, since December 2021, have risen multiple
times from 0.1% to the current 5%. The Bank of England has been
forecasting for some time that the UK economy would move into recession,
which we are very pleased to see has, to date, proven to be wrong.
Recently the International Monetary Fund (‘IMF’) announced that the UK
will be the worst performing economy in the G20 with a decline in GDP of
0.3% in the next year. However, and true to form, where it should also be
noted that of the last 26 forecasts by the IMF, 24 have proven to be too
pessimistic and they have now upgraded their forecast of the UK economy to
grow by 0.4%!
In addition to an economy that has been stagnating, combined with a major
uptick in industrial action and a shortage of labour, there have been
significant rises in energy prices, industry-wide increases in costs and
supply chain issues. However, there has been recent evidence that these
issues are easing as time passes and the economies of the world move away
from the period of Covid-19 lockdowns.
In the last few months, a debate has begun in respect of the reduced
interest in investing in UK equities, in particular those shares outside
the FTSE 100. The Government and the Treasury are consulting on the
introduction of new policies aimed at encouraging all parties to increase
their weighting in UK equities. With a highly UK-centric portfolio,
invested only in smaller and mid-cap companies traded on UK markets, the
shares this Company is invested in are very underrated on an historical
basis notwithstanding the fact that the underlying trading performance of
the companies is very satisfactory. However, history suggests that a
recovery will take place in time, leading to longer term outperformance.
Results
The Company’s net asset value per ordinary share as at 30 April 2023 was
168.15p (2022: 198.47p), a decrease over the year of 15.3%, with an
ordinary share price of 174.50p per share (2022: 192.50p). Total assets,
including audited revenue reserves, were £53.674m (2022: £58.805m), a
decrease over the year of 8.7%, and the total net assets were £35.563m
(2021: £41.382m). During the same period the MSCI Small Cap Index
decreased by 5.2%.
The Company was launched on 12 May 1999, and since that time the net asset
value per Ordinary share has risen by 70.35% while in addition a total of
228.89p has been paid to shareholders in the form of dividends, including
the fourth interim dividend announced with this report. In the year under
review, total dividends of 11.77p per Ordinary share were paid and
proposed, including the fourth interim dividend of 2.9425p. The total
dividend in 2023 represents an increase of 7% year-on-year. The Company
has now returned to a position where the dividend is being paid entirely
from the current year revenue surplus after costs. The balance of the
surplus of £280,000, after the payment of the dividend, has been taken to
bolster revenue reserves. The intention in the future is to increase
dividends by 7% per annum and to take any surplus to replenish the revenue
reserves that have been used over the past two years to ensure the
dividend is not only being maintained but can be increased.
The underlying portfolio yield has increased this year as our investee
companies have continued to grow their dividends, whilst at the same time
there has been a continued general derating of shares. The portfolio yield
is currently 5.6%, which is significantly higher than the normal range of
4% to 4.5% for this Company over its 24-year life. It is also worth
pointing out that 6.5% of the portfolio is currently not paying a dividend
as the Investment Manager manages the balance between revenue and capital
growth.
The Company has increased its dividend each year for the last 13 years.
Because of the strength of the revenue reserves, and the intention to add
to them in the future, the Company is in a strong position and the Board
is confident in the Company’s ability to further grow the annual dividend,
assuming the current macro-economic conditions continue to improve.
The Company is currently invested in 81 positions across 17 sectors. This
spread creates a well-diversified portfolio which should, in the future,
lead to a strong return of dividend income and subsequently steady growth
in revenue and, in time, capital.
Capital structure
Over the year the Board has approved the modest issuance of shares at a
small premium to the prevailing
net asset value. The number of ordinary shares has increased by 510,000 to
21,360,000 shares.
In the past, the Company has been regularly asked to issue new shares to
meet market demand. However, the Board’s policy is that it will only
consider issuing new shares if it can do so at a premium to NAV which is
sufficient not only to cover all the costs of issuance but also to
recognise the value of the revenue reserves that have been built up over
many years and where there are attractive opportunities for investment.
Currently the Investment Manager considers that there are sufficient
undervalued high yielding shares in the market for the recycling of
existing funds and also for the proceeds of new share issuance to be
invested. The issue of new shares at a premium enhances net asset value
per share, and the increase in the size of the Company should improve
liquidity in the market for its shares while making it more attractive to
potential new investors.
Dividend
As briefly discussed in the Results Section, the Board has declared a
fourth interim dividend of 2.9425p per Ordinary share (2022: 2.75p) which,
when added to the three quarterly interim dividends of 2.9425p per
Ordinary share, brings the total paid and declared to 11.77p (2022:
11.00p) for the year ended 30 April 2023, an increase of 7% over the
previous year.
Under the dividend distribution policy, the Board has not declared a
special dividend (2022: nil) to be paid with the fourth interim dividend.
The Company has revenue reserves which, after payment of the fourth
interim dividend, represent 83.7% of the current annual dividend of
11.77p, or some 9.85p per Ordinary share. The Board is committed to
progressively improving the Company’s dividend for investors and expects
that the four interim dividends paid in respect of the financial year
ending 30 April 2024 will very likely exceed, but in any event will not be
less than, that paid in respect of the financial year ended 30 April 2023.
Outlook
As mentioned above, there is currently a great deal of uncertainty across
Europe and in the UK. Sadly, the war in Ukraine is continuing and at this
time there appears to be no end in sight. However, European countries have
rebalanced their economies and have achieved major savings in energy costs
which it is to be hoped will become embedded.
With the global impact of the draconian lockdown in China and after seeing
the effect of the blocking of the Suez Canal by the “Ever Given” container
vessel, it has become clear to European investors that they had been
under-pricing the risk of sourcing products from China; as a result we are
likely to see a major rebalancing of production to much closer to home.
The UK economy is expected to flat-line in 2023 but to recover to near
long-term trend growth in 2024. Inflation is expected to decline by the
end of the year, and it might well be that interest rates are therefore
close to a peak. As the countries of Europe and the world return to
‘normal’ we can hope for a period of steady growth in the UK economy.
Howard Myles
Chairman
29 June 2023
Investment Manager’s Report
The year to April 2023 has been another challenging one, with the global
economy feeling the effects of the war in Ukraine, supply chain
challenges, inflation, rising interest rates and a banking crisis. In the
UK, these combined forces were exacerbated by political turmoil,
culminating in multiple leadership changes and the mini-budget in
September, which severely dented both corporate and consumer confidence.
With this as the backdrop, it is not surprising that share prices have
suffered, with the small and midcap companies in which we invest
particularly affected. It should also be noted that the large open-ended
funds which invest in small and midcap UK equities have seen significant
redemptions over the past year, which has put further pressure on stock
market valuations in our part of the market. In the year to 30 April 2023,
there was a 15.28% decline in the Company’s net asset value per share from
198.47p to 168.15p. During the same period the MSCI Small Cap Index
decreased by 5.18%. At the same time the core dividend increased 7% to
11.77p, as explained in the half-year report in October 2022. The Company
has not paid a special dividend in respect of the 2022/2023 financial
year, in line with the dividend policy announced in March 2019.
It is encouraging that the underlying performance of the companies in the
portfolio continues to be resilient with the majority of businesses
reporting results in line with market expectations during the recent
reporting season. The more efficient processes developed during the
pandemic have helped our investee companies to navigate the difficult
trading conditions over the past year and have left them well prepared to
take advantage when the macro environment improves. Despite the resilient
underlying trading, the small and midcap market has de-rated, resulting in
the decline in the Company’s NAV. This was something of a year of two
halves, however, with the above conditions resulting in a 22.92% reduction
in the Company’s NAV to 152.99p in the first six months of the year,
before it rebounded to 168.15p at the end of the year. The stock market is
a forward-looking instrument and we believe the rebound in the second half
of the year is a signal that investors are starting to look forward
towards the end of interest rate rises and generally more stable macro
conditions.
Equally encouragingly, the resilient underlying performance of our
portfolio companies was reflected in good cash generation and dividends
which were generally in line with or ahead of expectations. This has
allowed us to continue rebuilding the income account after the pandemic
shock, while also building positions in companies which we believe will
deliver strong capital growth in the coming years. We are pleased to have
delivered an annual 7% rise in the dividend and, after three years of
utilising reserves to pay the increasing dividends, the Company has a
covered dividend and we are now able to pay the increased dividend from
current revenue.
Portfolio review
We reported last year that the de-rating of UK equities had resulted in a
pickup in corporate activity across the market. This trend continued into
the year to April 2023, with six bids received for our portfolio companies
in the year. At the beginning of the year we saw a recommend bid by KKR
for ContourGlobal. As the year progressed and uncertainty over interest
rates resulted in private equity deals drying up, corporates took up the
baton. Over the course of the year Appreciate, Curtis Banks, Devro, Numis
and RPS all received bids from trade buyers. While the takeout prices
generally represented attractive premiums to the prevailing share prices
at the time, it is fair to say that, overall, we feel the buyers have
managed to purchase these assets at advantageous prices. Including five of
the six bid situations (the Numis bid was announced on 28 April 2023), we
exited seven positions in their entirety with Braemar Shipping and Centaur
Media exited on yield grounds. Shareholdings were reduced in ten companies
including Belvoir Lettings, Bloomsbury Publishing, Conduit, Kitwave Group,
ME Group, Ramsdens Holdings, TP ICAP and Wilmington Group.
Twelve new shareholdings were added to the Company’s portfolio in the year
including private and commercial banking group Arbuthnot Banking Group,
Conduit – pure-play reinsurance business, Fonix Mobile – mobile payments,
Hilton Foods – meat and fish processing, Liontrust – asset management,
Marshalls – building materials, OSB Group – specialist mortgage lending,
One Health – outsourced NHS Surgery, RWS – content and IP translation and
Somero – concrete levelling equipment. Shareholdings were also increased
in 17 companies including Bakkavor, Chesnara, Close Brothers Group, Crest
Nicholson, Headlam Group, Personal Group Holdings, Regional REIT, Spectra
Systems, UP Global Sourcing Holdings and Vector Capital.
Outlook
After several years of significant negative events affecting markets,
there are some positive signs on the horizon for equity investors.
Expectations are starting to shift towards interest rates peaking and
inflation falling to more manageable levels, while the spectre of a
lasting UK recession appears to be receding. If this is the case, we would
expect investor sentiment to gradually improve over the coming year, which
would benefit our small and mid-cap universe.
We also continue to see an elevated number of companies undertaking share
buy-backs, another consequence of current valuations combined with good
cash generation and strong balance sheets. As we have previously said,
buy-backs are a positive for our stocks, as long as they are instigated
alongside an appropriate dividend policy.
We continue to have confidence in our investee companies and believe we
are yet to benefit from the positive steps taken to improve the underlying
operating efficiency of the businesses through the pandemic. Having traded
through the challenges of the last twelve months, our companies are
generally entering the next phase of the cycle as more lean, nimble
enterprises. It will take a positive shift in investor sentiment for our
companies to receive the ratings they deserve, but we are confident that
the small and midcap universe in which we invest will return to
outperformance over the medium term.
David Horner
Chelverton Asset Management Limited
29 June 2023
Breakdown of Portfolio by Industry
Market value
at 30 April 2023 % of
Bid
Market sector £’000 portfolio
Banks 1,149 2.2
Basic Resources 922 1.7
Chemicals 239 0.5
Construction & Materials 5,954 11.3
Consumer Products and Services 5,778 10.9
Energy 1,325 2.5
Financial Services 7,907 14.9
Food, Beverage & Tobacco 2,518 4.8
Health Care 623 1.2
Industrial Goods & Services 9,161 17.3
Insurance 4,426 8.4
Media 2,864 5.4
Personal Care, Drugs & Grocery Stores 1,197 2.3
Real Estate 3,441 6.5
Retail 3,251 6.2
Telecommunications 1,131 2.1
Travel & Leisure 939 1.8
52,825 100.0
Portfolio Statement
at 30 April 2023 Market % of
value
Security Sector £’000 portfolio
Belvoir Lettings Real Estate 1,624 3.1
UP Global Sourcing Consumer Products and 1,375 2.6
Holdings Services
Diversified Energy Energy 1,325 2.5
Smiths News Industrial Goods & Services 1,270 2.4
Alumasc Group Construction & Materials 1,256 2.3
ME Group Consumer Products and 1,143 2.3
Services
Kitwave Group Personal Care, Drugs & 1,197 2.2
Grocery Stores
Coral Products Industrial Goods & Services 1,120 2.1
Chesnara Insurance 1,110 2.1
MP Evans Group Food, Beverage & Tobacco 1,055 2.0
Ramsdens Holdings Financial Services 990 1.9
Redde Northgate Industrial Goods & Services 939 1.8
Castings Industrial Goods & Services 920 1.7
MTI Wireless Edge Telecommunications 918 1.7
Clarke (T.) Construction & Materials 881 1.7
STV Media 866 1.6
Duke Royalty Financial Services 853 1.6
Numis Corporation Financial Services 851 1.6
Conduit Insurance 847 1.6
Hilton Food, Beverage & Tobacco 845 1.6
Crest Nicholson Consumer Products and 805 1.5
Services
Portmeirion Group Consumer Products and 805 1.5
Services
Somero Industrial Goods & Services 800 1.5
Vistry Group Media 783 1.5
Fonix Mobile Industrial Goods & Services 780 1.5
Severfield Construction & Materials 753 1.4
Epwin Group Construction & Materials 740 1.4
Tyman Construction & Materials 738 1.4
Personal Group Holdings Insurance 735 1.4
Close Brothers Group Banks 726 1.4
Hargreaves Services Industrial Goods & Services 709 1.3
Jarvis Securities Financial Services 700 1.3
Regional REIT Real Estate 693 1.3
Bloomsbury Publishing Media 671 1.3
Palace Capital Real Estate 654 1.2
DFS Furniture Retail 630 1.2
Vector Capital Financial Services 630 1.2
Hansard Global Insurance 628 1.2
One Health Group Health Care 623 1.2
Bakkavor Food, Beverage & Tobacco 618 1.2
Spectra Systems Retail 615 1.2
Polar Capital Holdings Financial Services 611 1.2
R & Q Insurance Insurance 610 1.2
Genuit Group Construction & Materials 600 1.1
Ecora Resources Basic Resources 598 1.1
TP ICAP Financial Services 595 1.1
Watkin Jones Consumer Products and 578 1.1
Services
Vertu Motors Retail 577 1.1
Strix Group Industrial Goods & Services 549 1.0
Premier Miton Group Financial Services 546 1.0
Wilmington Group Media 544 1.0
1 TheWorks.co.uk Retail 542 1.0
Kier Group Construction & Materials 536 1.0
Orchard Funding Group Financial Services 525 1.0
Essentra Industrial Goods & Services 515 1.0
RWS Industrial Goods & Services 510 1.0
Sabre Insurance Insurance 496 0.9
Springfield Properties Consumer Products and 492 0.9
Services
Topps Tiles Retail 480 0.9
Town Centre Securities Real Estate 470 0.9
Marshalls Construction & Materials 450 0.9
Gattaca Industrial Goods & Services 448 0.9
Liontrust Asset Management Financial Services 430 0.8
Arbuthnot Banking Group Banks 423 0.8
Brown (N) Group Retail 407 0.8
Marston's Travel & Leisure 348 0.7
DSW Capital Financial Services 345 0.7
Finncap Group Financial Services 341 0.6
Chamberlin Basic Resources 324 0.6
OSB Group Financial Services 298 0.6
Restaurant Group Travel & Leisure 243 0.5
iEnergizer Industrial Goods & Services 242 0.5
Synthomer Chemicals 239 0.5
RTC Group Industrial Goods & Services 234 0.4
Saga Travel & Leisure 228 0.4
Aferian Telecommunications 213 0.4
Paypoint Industrial Goods & Services 125 0.2
Arbuthnot Banking - Financial Services 120 0.2
Placing
Revolution Bars Group Travel & Leisure 120 0.2
Sancus Lending Group Financial Services 72 0.1
Total Portfolio 52,825 100.0
Investment Objective and Policy
The investment objective of the Company is to provide Ordinary
shareholders with a high income and the opportunity for capital growth,
having provided a capital return sufficient to repay the full final
capital entitlement of the Zero Dividend Preference shares issued by the
wholly-owned subsidiary company, SDVP.
The Company’s investment policy is that:
• The Company will invest in equities in order to achieve its investment
objectives, which are to provide both income and capital growth,
predominantly through investment in mid and smaller capitalised UK
companies admitted to the Official List of the UK Listing Authority
and traded on the London Stock Exchange Main Market, AIM, or other
qualifying UK marketplaces.
• The Company will not invest in preference shares, loan stock or notes,
convertible securities or fixed interest securities or any similar
securities convertible into shares; nor will it invest in the
securities of other investment trusts or in unquoted companies.
Performance Analysis using Key Performance Indicators
At each quarterly Board meeting, the Directors consider a number of key
performance indicators (‘KPIs’) to assess the Group’s success in achieving
its objectives, including the net asset value (‘NAV’), the dividend per
share and the total ongoing charges.
• The Group’s Consolidated Statement of Comprehensive Income is set out
on page 57 of the Annual Report.
• A total dividend for the year to 30 April 2023 of 11.77p (2022:
11.00p) per Ordinary share has been declared to shareholders by way of
three payments totalling 8.8275p per Ordinary share plus a planned
fourth interim dividend payment of 2.9425p per Ordinary share.
• The NAV per Ordinary share at 30 April 2023 was 168.15p (2022:
198.47p).
• The ongoing charges (including investment management fees and other
expenses but excluding exceptional items) for the year ended 30 April
2023 were 2.44% (2022: 2.03%). The increase in the annualised ongoing
charges is primarily due to the decrease in net asset value during the
year.
Principal Risks
The Directors confirm that they have carried out a robust annual
assessment of the principal risks facing the Company, including those that
would threaten its objectives, business model, future performance,
solvency or liquidity. The Board regularly monitors the principal risks
facing the Company, the likelihood of any risk crystallising, the
potential implications for the Company and its performance, and any
additional mitigation that might be introduced. Mitigation of these risks
is primarily sought and achieved in a number of ways as set out below:
Market risk
The Company is exposed to UK market risk due to fluctuations in the market
prices of its investments.
The Investment Manager actively monitors economic performance of investee
companies and reports regularly to the Board on a formal and informal
basis. The Board meets formally with the Investment Manager on a quarterly
basis when the portfolio transactions and performance are discussed and
reviewed to ensure that the Investment Manager is managing the portfolio
within the scope of the investment policy.
The Company is substantially dependent on the services of the Investment
Manager’s investment team for the implementation of its investment policy.
The Company may hold a proportion of the portfolio in cash or cash
equivalent investments from time to time. Whilst during positive stock
market movements the portfolio may forego potential gains as a result of
maintaining such liquidity, during negative market movements this may
provide downside protection.
Discount volatility
The Board recognises that, as a closed-ended company, it is in the
long-term interests of shareholders to reduce discount volatility and
believes that the prime driver of discounts over the longer term is
performance. The Board is pleased to report that discount volatility
improved with the Company’s stronger net asset value position and share
price during the second half of the year. However, the Board, with its
advisers, continues to monitor the Company’s discount levels and shares
may be bought back in future should it be considered appropriate to do so
by the Board.
Regulatory risk
A breach of Companies Act provisions or Financial Conduct Authority
(‘FCA’) rules may result in the Group’s companies being liable to fines or
the suspension of either of the Group companies from listing and from
trading on the London Stock Exchange. Furthermore, the Company must comply
with the requirements of section 1158 of the Corporation Tax Act 2010 to
maintain its investment trust status. The Board, with its advisers,
monitors the Group’s regulatory obligations both on an ongoing basis and
at quarterly Board meetings.
Financial risk
The financial position of the Group is reviewed via detailed management
accounts at each Board meeting
and both financial position and controls are monitored by the Audit
Committee.
Political risk
The Board recognises that changes in the political landscape may
substantially affect the Company’s prospects and the value of its
portfolio companies. The Board and Investment Manager continue to monitor
the impact of sanctions imposed on Russia as a result of the war in
Ukraine. The Company has no exposure to Russian stocks within its
investment portfolio, hence there was no requirement to amend the
Company’s investment policy. Potential future changes to the UK’s policies
and regulatory landscape in light of the UK’s departure from the EU could
impact the Company and its portfolio companies. Potential political
consequences for the Company are regularly monitored and assessed by the
Board.
Loss of key personnel
The Board recognises the crucial part the Investment Manager plays in the
ongoing success of the Company’s performance. The departure of the
Investment Manager or a key individual at Chelverton Asset Management
Limited (‘Chelverton’) may therefore affect the Company’s performance.
As set out in the Investment Management Agreement, Chelverton is required
to provide one or more dedicated fund managers to the Company, who
provides the Board with regular updates on developments at Chelverton,
such as succession planning and business continuity plans. Chelverton
currently provides two fund managers to the Company, therefore lowering
the impact of the potential loss of key personnel.
Pandemic risk
The Board and Investment Manager continue to monitor the effects of the
social and economic changes arising from the Covid-19 pandemic, together
with its impact on the market. The Investment Manager seeks to mitigate
exposure to any future pandemics or health crises by continuously
monitoring the performance and adaptability of portfolio companies,
diversifying investments and seeking to learn valuable lessons from the
Covid-19 pandemic.
Accounting policies
New developments in accounting standards and industry-related issues are
actively reported to and monitored by the Audit Committee, the Board where
applicable and the Company’s advisers, ensuring that all appropriate
accounting policies are adhered to.
A more detailed explanation of the financial risks facing the Group is
given in note 21 to the financial statements on pages 74 to 79 of the
Annual Report.
Gearing
The Company’s shares are geared by the Zero Dividend Preference shares and
should be regarded as carrying above average risk, since a positive NAV
for the Company’s shareholders will be dependent upon the Company’s assets
being sufficient to meet those prior final entitlements of the holders of
Zero Dividend Preference shares. As a consequence of the gearing, a
decline in the value of the Company’s investment portfolio will result in
a greater percentage decline in the NAV of the Ordinary shares and vice
versa.
Section 172 Statement
The Directors are mindful of their duties to promote the success of the
Company in accordance with Section 172 of the Companies Act 2006, for the
benefit of the shareholders, giving careful consideration to wider
stakeholders’ interests and the environment in which the Company operates.
The Board recognises that its decisions are material, not only to the
Company and its future performance, but also to the Company’s key
stakeholders, as identified below. In making decisions, the Board
considered the outcome from its stakeholder engagement exercises as well
as the need to act fairly as between the members of the Company.
Investors
The Company’s shareholders have a significant role in monitoring and
safeguarding the governance of the Company and can exercise their voting
rights to do so at general meetings of the Company. Shareholders also
benefit from improving performance and returns.
All shareholders have access to the Board via the Company Secretary and
the Investment Manager at key company events, such as the Annual General
Meeting, and throughout the year by contacting the Company Secretary or
the Chairman. These regular communications help the Board make informed
decisions when considering how to promote the success of the Company for
the benefit of shareholders. Furthermore, the Investment Manager prepares
and publishes a monthly factsheet on their website.
This year’s Annual General Meeting is to be held on 7 September 2023 at
the offices of Chelverton Asset Management, Basildon House, 7 Moorgate,
London EC2R 6EA. Shareholders are strongly encouraged to vote by proxy and
to appoint the Chairman as their proxy. Shareholders are also encouraged
to put forward any questions to the Company Secretary in advance of the
Annual General Meeting.
The Board received enhanced Investor Relations themed reporting from its
broker, Shore Capital, during the year, including quarterly shareholder
analysis, to ensure continuing awareness of key shareholder groups.
Investment Manager
The Board recognises the critical role of the Investment Manager in
delivering the Company’s future success. The Investment Manager attends
Board and Audit Committee meetings, to participate in transparent
discussions, where constructive challenge is encouraged. The Board and
Investment Manager communicate regularly outside of these meetings with
the aim of maintaining an open relationship and momentum in the Company’s
performance and prospects. The Investment Manager’s performance is
evaluated informally on a regular basis, with a formal review carried out
on an annual basis by the Board when performing the functions of a
management engagement committee. The Investment Management Agreement is
reviewed as part of this process as further discussed on page 27 of the
Annual Report.
Key service providers
The Board relies on a number of advisors for support in the successful
operation of the Company and in order to meet its obligations. The Board
therefore considers the Investment Manager, Company
Secretary/Administrator, Broker, Registrar and Custodian to be
stakeholders.
The Company employs a collaborative approach and looks to build long term
partnerships with these key service providers. They are required to report
to the Board on a regular basis and their performance and the terms on
which they are engaged are evaluated and considered annually, as detailed
on page 35 of the Annual Report.
Portfolio companies
The Investment Manager regularly liaises with the management teams of
companies within the Investment Portfolio and reports on findings and the
performance of investee companies to the Board on at least a quarterly
basis.
Regulators
The Board regularly reviews the regulatory landscape and ensures
compliance with rules and regulations relevant to the Company via
reporting at quarterly Board meeting from the Company Secretary.
Compliance with relevant rules and regulations is regularly formally
assessed.
Community and environment
The Board believes that consideration of environmental, social and
governance (‘ESG’) factors as part of the investment process when pursuing
the Company’s objectives is key. The Board therefore discusses this with
the Investment Manager on a regular basis.
Principal Decisions
The Board defines principal decisions as those that are material to the
Company as well as those that are significant to any of the Company’s key
stakeholders as identified in the table above. In making the principal
decisions set out below, the Board considered the outcome from its
engagement with stakeholders as well as the need to maintain a reputation
for high standards of business conduct and the need to act fairly as
between the members of the Company.
Principal decision 1 – Issue of shares
Strong NAV performance for the first half of the financial year to 30
April 2023 enabled the Board to approve the issuing of new shares in
response to demand, as set out in more detail on page 28 of the Annual
Report. Since the beginning of the calendar year, the Company issued
510,000 shares at a premium to NAV.
Principal decision 2 – Block listing facility
As detailed further on page 28 of the Annual Report, the Board approved an
application to the Financial Conduct Authority for a Block Listing
Facility of 2,750,000 Ordinary shares to be admitted to the Official List
and to the London Stock Exchange.
Principal decision 3 – Monthly factsheets
In order to enhance communications with the Company’s shareholders, the
Investment Manager prepares
and publishes a monthly factsheet, which is available on the Chelverton
website.
The Board decided that a notification of the publication of the monthly
factsheet should be made to the London Stock Exchange, which has happened
every month since July 2022.
Principal decision 4 – Dividend policy
In accordance with the Company’s dividend policy, the Board approved four
quarterly dividends of 2.9425p
per Ordinary share (totalling 11.77p for the year).
In the financial year to 30 April 2022, the Company increased the
quarterly dividend rate by 7% from that of the previous year. For the
current financial year, the Board took the decision to once again increase
the quarterly dividend rate by 7%.
Viability Statement
The Board and Investment Manager continuously consider the performance,
progress and future prospects of the Company over a variety of future
timescales. These assessments, including regular investment performance
updates from the Investment Manager, and a continuing programme of risk
monitoring and analysis, form the foundations of the Board’s assessment of
the future viability of the Company. The Directors are mindful of the
Company’s commitments to shareholders of the Subsidiary in 2025 in forming
their viability opinion for the Company each year.
With this in mind, the Directors currently believe that future demand from
investors will enable the Group’s subsidiary to issue new zero dividend
preference shares (ZDPs) upon repayment of the existing ZDPs in 2025. The
Directors remain of the view, therefore, that three years is a wholly
realistic and the most appropriate period over which to assess the
viability of the Company. After careful analysis, taking into account the
potential impact of the current risks and uncertainties to which the
Company is exposed, the Directors confirm that in their opinion:
• it is appropriate to adopt the going concern basis for this Annual
Report and Accounts; and
• the Company continues to be viable for a period of at least three
years from the date of signing of this Annual Report and Accounts.
Three years is considered by the Board to be the maximum period over
which it is currently feasible to make a viability forecast based on
known risks and macroeconomic trends.
The following facts, which have not materially changed in the last
financial year, support the Directors’ view:
• the Company has a liquid investment portfolio invested predominantly
in readily realisable smaller capitalised UK-listed and AIM traded
securities and has a small amount of short-term cash on deposit; and
• revenue expenses of the Company are covered multiple times by
investment income.
In order to maintain viability, the Company has a robust risk control
framework for the identification and mitigation of risk, which is reviewed
regularly by the Board. The Directors also seek assurances from its
independent service providers, to whom all management and administrative
functions are delegated, that their operations are well managed and they
are taking appropriate action to monitor and mitigate risk. The Directors
have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period of the
assessment.
Other Statutory Information
Company status and business model
The Company was incorporated on 6 April 1999 and commenced trading on 12
May 1999. The Company is a closed-ended investment trust with registered
number 03749536. Its capital structure consists of Ordinary shares of 25p
each, which are listed and traded on the main market of the London Stock
Exchange.
The principal activity of the Company is to carry on business as an
investment trust. The Company has been granted approval from HMRC as an
investment trust under Sections 1158/1159 of the Corporation Tax Act 2010
on an ongoing basis. The Company will be treated as an investment trust
company subject to there being no serious breaches of the conditions for
approval. The Company is also an investment company as defined in Section
833 of the Companies Act 2006. The current portfolio of the Company is
such that its shares are eligible for inclusion in Individual Savings
Accounts (‘ISAs’) up to the maximum annual subscription limit and the
Directors expect this eligibility to be maintained.
The Group financial statements consolidate the audited annual report and
financial statements of the Company and SDVP for the year ended 30 April
2023. The Company owns 100% of the issued ordinary share capital and
voting rights of SDVP, which was incorporated on 25 October 2017.
Further information on the capital structure of the Company and SDVP can
be found on pages 77 to 78 of the Annual Report.
Alternative Investment Fund Manager (‘AIFM’)
The Board is compliant with the directive and the Company is registered as
a Small Registered AIFM with
the FCA and all required returns have been completed and filed.
Employees, environmental, human rights and community issues
The Board recognises the requirement under Section 414C of the Companies
Act to detail information about employees, environmental, human rights and
community issues, including information about any policies it has in
relation to these matters and the effectiveness of these policies. These
requirements and the requirements of the Modern Slavery Act 2015 do not
directly apply to the Company as it has no employees and no physical
assets, all the Directors are non-executive and it has outsourced all its
management and administrative functions to third-party service providers.
The Company has therefore not reported further in respect of these
provisions. However, in carrying out its activities and in relationships
with service providers, the Company aims to conduct itself responsibly,
ethically and fairly at all times.
Environmental, Social, Governance (‘ESG’)
The Investment Manager is committed to delivering the long-term investment
objectives of the Company. This long-term lens involves careful
consideration of systemic issues that can present investing opportunities
and challenges for investors, such as those relating to climate change and
more sustainable business practice.
Responsible investing and active stewardship lie at the heart of the
investing approach and the Investment Manager is signatory to the
United-Nations backed Principles of Responsible Investing (‘PRI’) and the
revised UK Stewardship Code 2020.
As signatory to these best-practice principles the Investment Manager
systematically incorporates relevant ESG issues within their investment
analysis and decision making and adhere to policies and processes designed
to ensure the responsible allocation, management, and oversight of capital
with the aim of protecting and enhancing value for investors, leading to
benefits for the economy, the environment and society.
The Responsible Investing policies, plans, and risk controls that guide
the Investment Manager’s investing activities are detailed in a
Responsible Investing Policies Pack, available to view on the Chelverton
website alongside an annual UK Stewardship Code Report and quarterly
Engagement and Voting reports.
The Responsible Investing Pack includes:
• An ESG Policy detailing how E, S, and G issues are incorporated within
the investment process and how ESG risk is monitored and controlled.
• A Shareholder Engagement and Voting Policy detailing the principles
that guide the Investment Manager’s engagement and voting behaviour.
• An annual Engagement Plan, designed to ensure ESG issues are
appropriately incorporated within company engagements and detailing
how the Investment manager engages to support. improvements in company
ESG management and reporting and the control of systemic risk.
The internal roles, governance structures, and resources that support the
responsible investing and active stewardship activities of the Investment
Manager include:
• A Head of Responsible Investing who leads an ESG Team that work
alongside the Investment Manager supporting E, S, and G analysis and
engagement and voting activities.
• A regular cycle of ESG meetings that input to Board oversight of ESG
risk.
• Proprietary ESG data collection and third-party ESG data services
ESG in a UK Small and Mid-cap Context
Small and medium-sized companies are neither immune from the impact of
systemic risk, nor without a significant role to play in the delivery of
required change. However, small and mid-sized companies are typically
poorly researched by external ESG ratings agencies and assessments show a
recognised large-cap bias. Consequently, the Investment Manager does not
rely on external ESG ratings, considering these for contextual purposes
only. The Investment Manager prefers in-house analysis supported by
proprietary ESG data collection, considering this more appropriate for the
small and mid-cap universe.
Corporate Governance Issues
The Investment Manager pays particular attention to corporate governance,
believing purpose driven companies, demonstrating strong and effective
governance and a healthy corporate culture, are best placed to succeed.
The Investment Manager has the support of the ESG Team in this assessment
and access to information and analysis gathered from proprietary ESG
questionnaires.
The assessment is sensitive to company size, level of maturity, and
specific circumstances of each company.
The Investment Manager is supportive of the general principles expressed
by the UK Corporate Governance Code and Quoted Companies Alliance CQCA)
Code for small and medium sized companies and expects companies to adhere
to these standards or explain why they have not done so.
The Investment Manager considers the following, engaging to understand
individual circumstances and to influence change where this is deemed to
be of value.
• Board Size and Composition
The Investment Manager considers the boards of small and medium-sized
companies should not become too large for cost and efficiency reasons and
that the Board should be well-balanced in terms of executive and
non-executive directors, with a majority of non-executive directors.
Non-executive directors are scrutinised for their independence and good
historic behaviour.
The tenure of directors should ideally not exceed 10 years. However, this
is always considered within the company context.
The Investment Manager prefers non-executives to be on fewer rather than
multiple boards whilst acknowledging good non-executives are in short
supply.
The Investment Manager looks for an appropriate mixture of abilities and
knowledge on the Board and consider the experience of an independent Chair
to be particularly important.
Diversity and inclusion at board level is considered an indicator of an
inclusive company culture and important in relation to the quality of
decision-making. Whilst encouraging boards to ensure their composition is
reflective of society, the Investment Manager accepts this can take time
to achieve. However, the Investment Manager will engage to ensure board
diversity is a consideration in the nomination process, where appropriate.
• Remuneration
Executive remuneration proposals are reviewed annually using the company
Report and Accounts and the Investment Manager will engage with the Chair
or Chair of the Remuneration Committee where proposals do not meet the
following broad criteria:
Remuneration should encourage long-term value creation and the alignment
of management and shareholder interests, including claw back mechanisms in
the event of misconduct.
Basic pay awards above inflation should be justified by performance.
Performance thresholds should be challenging and linked to clear targets.
The Investment Manager favours the inclusion of material ESG management
targets alongside financial targets and that awards should be sensitive to
the constraints on awards to the wider workforce during periods of
difficult trading.
Long term incentive schemes should be simple and share-based with minimum
holding periods, and the manager favours the inclusion of total
shareholder return metrics in long term incentive schemes.
Shareholder dilution resulting from the issuance of options or new shares
in remuneration packages should not be excessive.
One-off recruitment awards to secure the right candidate should not become
part of ongoing remuneration.
Executive pension contributions should progressively align with the
pension contributions of the wider workforce.
Capital Allocation, Dividend Policy and Capital Structure
Capital allocation, dividend policy and capital structure are regularly
and openly discussed at company engagement meetings, allowing a two-way
dialogue.
The Investment Manager seeks to invest in companies that recognise their
responsibilities to existing shareholders and expect to be consulted
regarding any changes in capital allocation or dividend policy.
The Investment Manager is not opposed to the retention of cashflow within
a business to fund opportunities at attractive rates of return but favour
excess cashflow to be paid out in line with a clear policy.
Dividend policies should be appropriate for the current and future cash
flows of the business, while recognising the need to deliver returns to
shareholders.
Where dividend policies are expressed as a payout ratio, the Investment
Manager typically favours a target range rather than an explicit ratio. If
there is excess capital to distribute, the preferred method is a gradual
increase in the ordinary dividend. The Investment Manager is not opposed
to special dividends or share buy-backs in line with policy, but expects
any shares bought back to be cancelled.
The Investment Manager does not favour unnecessary equity issuance, or the
dilution of existing shareholder returns through aggrandising corporate
activity. However, all proposals for new equity are considered on a
case-by -case basis.
Environmental Issues
The Investment Manager considers each company’s approach to the
identification, management and reporting of material environmental issues,
asking targeted questions via ESG questionnaire and relying on the support
of the ESG Team for additional insight where appropriate.
A review of company policies, standards, and commitments in relation to
environmental responsibilities is undertaken.
In addition, the Investment Manager writes annually to committed holdings
outlining expectations regarding issues considered so pervasive that they
have become the responsibility of all system participants to manage
regardless of materiality.
Climate
The Investment Manager accepts that limiting global warming to 1.5 degrees
above pre-industrials, in line with the Paris Agreement and national
commitments to net zero, is a central consideration for a responsible
investor.
The Investment Manager is committed to using shareholder influence to
ensure all investee companies are working towards the adoption of a Net
Zero strategy.
Biodiversity
The Investment Manager is mindful of the depletion in the natural capital
upon which we all depend and the urgency to reverse biodiversity loss and
is committed to engaging with investee companies to ensure focus on
natural resource efficiency, the control of negative impacts, and the
adoption of policies and practices that can support nature restoration.
Social Issues
The Investment Manager considers each company’s approach to the
identification, management and reporting of material social issues, asking
targeted questions via ESG questionnaire and relying on the support of the
ESG Team for additional insight where appropriate.
A review of company policies, standards, and commitments in relation to
social issues is undertaken.
In addition, the Investment Manager writes annually to committed holdings
outlining expectations regarding issues considered so pervasive that they
have become the responsibility of all system participants to manage
regardless of materiality.
Human Rights
The Investment Manager follows a process to understand each company’s
focus on the effective management of human rights issues, including within
supply chains. Questions are asked via an ESG questionnaire and a review
company policies, standards, and commitments in relation to human rights
is undertaken with the support of the ESG Team.
Human Capital
Competition for talent across all sectors of the economy has rarely been
so fierce and the employment expectations and training and support needs
of the workforce have rapidly evolved in recent years. Therefore, the
Investment Manager considers company focus on recruitment, employee
satisfaction, and retention to be central to ingredients of company
success.
Questions are asked via the ESG questionnaire and a review of company
policies, standards, and commitments in relation to human capital
management is undertaken with the support of the ESG Team.
In addition, the Investment Manager is committed to using shareholder
influence to ensure all investee companies are focussed on improving
diversity, equity and inclusion within leadership and the wider workforce.
Health and Safety
As a part of understanding company culture and the Company’s focus on
human capital, the Investment Manager reviews company policies, including
performance statistics where relevant, relating the occupational Health
and Safety, asking questions via the ESG questionnaire and reviewing the
approach with the support of the ESG Team where relevant.
Engagement
Engagement lies at the heart of the Investment Manager’s approach to
managing ESG risk and significant
time and resources are devoted to company engagement.
The Investment Manager fosters constructive relationships with the
executive and non-executive management teams, and increasingly with
sustainability and other professionals such as investor relations, seeking
purposeful dialogue on ESG issues.
Engagement activity is reported on an annual basis in the Investment
Manager UK Stewardship Code Report and is guided by the Chelverton
Shareholder Engagement and Voting Policy.
The Investment Manager considers their skill and expertise when engaging
with companies to be value enhancing and follow a structured approach,
relying on the support of the ESG Team to ensure the appropriate inclusion
of ESG issues and progress in relation to active engagement objectives.
The Investment Manager writes to all committed holdings on an annual basis
outlining ESG management and reporting expectations and asking for focus
on systemic issues, including climate change, diversity equity and
inclusion, ESG targets within executive remuneration packages, and more
recently natural resource usage and nature restoration.
Collaborative engagement aims to support the needs of small and mid-sized
companies within the financial system and promote their participation in
more sustainable business practice and the Investment Manager targets
collaborative engagements that address the market-wide and systemic risks
identified through the investment process as important.
The desired outcome of active engagement is to reduce investment risk and
enhance the prospects of investee companies through dialogue and support.
However, the Investment Manager is not a ‘forever’ investor and may look
to sell holdings where the investment case is considered at risk due to
inadequate management focus on material ESG risk.
Proxy Voting
The Investment Manager considers voting an important shareholder right and
seek to vote every eligible vote in line with the principles laid out in
the Chelverton Asset Management Shareholder Engagement and Voting Policy
and active engagement objectives laid out in the annual Engagement Plan.
However, in principle, having satisfied themselves regarding the integrity
of the investment case, the Investment Manager is likely to be supportive
of company management.
The Investment Manager does not rely on the services of a third-party
proxy voting advisor, believing in-house governance analysis by the ESG
Team’s Corporate Governance Manager, considered alongside the contextual
knowledge of the Investment Manager, is more pertinent for small and
mid-sized companies.
Voting behaviour, including the rationale for any vote that is not
supportive of a management resolution, is reported on a quarterly basis on
the Chelverton website and summarised annually in the UK Stewardship Code
Report.
Data Science and Third-party Data Resources
The Chelverton ESG Team have built a proprietary ESG data base using
company ESG questionnaire responses supplemented by desk-based research.
The Investment Manager also maintains a shared Corporate Engagement Log
recording relevant company engagements and progress in relation to
engagement objectives.
The Investment Manager has access to several external ESG data services
that provide contextual insight in relation to ESG risk factors, including
MSCI ESG data, Bloomberg ESG Data that includes summary ESG ratings from
Sustainalytics, ISS and RobecoSam, signatory CDP data (Carbon Disclosure
Project) relating to climate, water and deforestation, and ASR Macro ESG
research.
Screening
The Investment Manager does not currently set limits or apply exclusion or
inclusion criteria in relation to sustainability objectives, except where
required by law or in relation to banned activities under international
conventions. The Investment Manager relies on MSCI ESG data to provide
data regarding involvement in controversial business exposures or banned
weaponry.
However, the Investment Manager’s investment focus on quality
characteristics will tend to exclude companies assessed as managing ESG
risks badly and/or without a credible strategy. For example, if a company
operating in a high ESG risk sector is identified as managing ESG risk
poorly, the company will tend to be excluded from consideration by our
selection criteria, as paid out in the Investment Manager’s ESG Policy.
Global greenhouse gas emissions
The Company has no greenhouse gas emissions to report from its operations,
nor does it have responsibility for any other emission-producing sources
under the Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013.
Streamlined energy and carbon reporting
The Company is categorised as a lower energy user under the HMRC
Environmental Reporting Guidelines March 2019 and is therefore not
required to make the detailed disclosures of energy and carbon information
set out within the guidelines. The Company has therefore not reported
further in respect of these guidelines.
Culture and values
The Company’s values are to act responsibly, ethically and fairly at all
times. The Company’s culture is driven by its values and is focused on
providing Ordinary shareholders with a high income and opportunity for
capital growth, as set out on page 11 of the Annual Report. As the Company
has no employees, its culture is represented by the values, conduct and
performance of the Board, the Investment Manager and its key service
providers, all of whom work collaboratively to support delivery of the
Company’s strategy.
Current and future developments
A review of the main features of the year and the outlook for the Company
is contained in the Chairman’s
Statement on pages 2 to 4 of the Annual Report and the Investment
Manager’s Report on pages 5 and 6 of the Annual Report.
Dividends declared/paid
30 April 2023 30 April 2022
Payment date
p p
First interim 14 October 2022 2.9425 2.75
Second interim 9 January 2023 2.9425 2.75
Third interim 14 April 2023 2.9425 2.75
Fourth interim 14 July 2023 2.9425 2.75
11.77 11.00
The Directors do not declare a
final dividend.
Ten year dividend history
2023 2022 2021 2020 2019 2018 2017 2016 2015 2014
p p p p p p p p p p
1st Quarter 2.9425 2.75 2.50 2.40 2.19 2.02 1.85 1.70 1.575 1.475
2nd Quarter 2.9425 2.75 2.50 2.40 2.19 2.02 1.85 1.70 1.575 1.475
3rd Quarter 2.9425 2.75 2.50 2.40 2.19 2.02 1.85 1.70 1.575 1.475
8.8275 8.25 7.50 7.20 6.57 6.06 5.55 5.10 4.725 4.425
4th Quarter 2.9425 2.75 2.50 2.40 2.40 2.40 2.40 2.40 2.40 2.40
11.77 11.00 10.00 9.60 8.97 8.46 7.95 7.50 7.125 6.825
% increase of 7.00 7.087 4.17 7.02 6.03 6.47 6.00 5.26 4.40 3.41
core dividend
Special dividend – – 0.272 – 2.50 0.66 1.86 1.60 0.30 2.75
Total dividend 11.77 11.00 9.60 11.47 9.12 9.81 9.10 7.425 9.575
10.272
Diversity and succession planning
As at 30 April 2023 the Board comprised three Directors, two male and one
female.
The Company did not meet the FCA Listing Rules target on diversity which
requires 40% of the individuals on the board to be women and for at least
one senior board position to be held by a woman. Furthermore, one director
should come from an ethnic minority background. As at 30 April 2023, the
Company did not meet this gender diversity requirement as only one out of
three directors (33%) is female. The Board also does not have a director
from an ethnic minority background. The Board recognises the need to
consider the benefits of diversity when considering new appointments to
the Board. All appointments are made on the basis of merit against
objective criteria; however, the Board seeks to consider a wide range of
candidates with due regard to diversity, spanning gender, ethnicity,
background and experience. As all appointments are based on merit, and in
view of the small size of the Board, the Board does not consider it
appropriate to set diversity targets. The Board will continue to consider
succession planning on an annual basis.
The Strategic Report is signed on behalf of the Board by
Howard Myles
Chairman
29 June 2023
Statement of Directors’ Responsibilities
in respect of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report and the
financial statements. Company law requires the Directors to prepare
financial statements for each financial year. Under that law the Directors
have elected to prepare financial statements in accordance with UK adopted
international accounting standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under
international accounting standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they present fairly the financial position,
financial performance and cash flows of the Group and the Company for that
period.
In preparing each of the Group and the Company’s financial statements, the
Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state that the Group and the Company have complied with UK adopted
international accounting standards subject to any material departures
disclosed and explained in the financial statements;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with specific
requirements in UK adopted international accounting standards is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group and the
Company’s financial position and financial performance; and
• make an assessment of the Group’s ability to continue as a going
concern.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Group’s transactions and disclose
with reasonable accuracy at any time the financial position of the Group
and enable them to ensure that the Group’s financial statements comply
with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, a Directors’ Report, Directors’
Remuneration Report and Statement on Corporate Governance that comply with
that law and those regulations, and for ensuring that the Annual Report
includes information required by the Listing Rules of the FCA.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information relating to the Company on the
Investment Manager’s website. Legislation in the UK governing the
preparation and dissemination of financial statements differs from
legislation in other jurisdictions.
The Directors confirm that, to the best of their knowledge and belief:
• the financial statements, prepared in accordance with the relevant
financial framework, give a true and fair view of the assets,
liabilities, financial position and profit of the Group;
• the Annual Report includes a fair review of the development and
performance of the Group and the position of the Group, together with
a description of the principal risks and uncertainties faced;
• the Annual Report is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company’s
performance, business model and strategy; and
• the Investment Managers’ Report includes a fair review of the
development and performance of the business and the Group and its
undertakings included in the consolidation taken as a whole and
adequately describes the principal risks and uncertainties they face.
On behalf of the Board of Directors
Howard Myles
Chairman
29 June 2023
Consolidated Statement of Comprehensive Income
for the year ended 30 April 2023
2023 2022
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Losses on investments
at fair value through 10 – (5,543) (5,543) – (4,610) (4,610)
profit or loss
Investment income 2 3,202 – 3,202 2,576 – 2,576
Investment management 3 (133) (400) (533) (158) (473) (631)
fee
Other expenses 4 (333) (14) (347) (302) (12) (314)
Net deficit before
finance costs and 2,736 (5,957) (3,221) 2,116 (5,095) (2,979)
taxation
Finance costs 6 – (680) (680) – (654) (654)
Net deficit before 2,736 (6,637) (3,901) 2,116 (5,749) (3,633)
taxation
Taxation 7 (32) – (32) (32) – (32)
Total comprehensive 2,704 (6,637) (3,933) 2,084 (5,749) (3,665)
expense for the year
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Net return per:
Ordinary share 8 12.94 (31.77) (18.83) 10.00 (27.57) (17.57)
Zero Dividend 8 – 4.69 4.69 – 4.51 4.51
Preference share 2025
The total column of this statement is the Statement of Comprehensive
Income of the Group prepared in accordance with UK adopted IFRS and with
the requirements of the Companies Act 2006. All revenue and capital items
in the above statement derive from continuing operations. No operations
were acquired or discontinued during the year. All of the net return for
the period and the total comprehensive income for the period is
attributable to the shareholders of the Group. The supplementary revenue
and capital return columns are presented for information purposes as
recommended by the Statement of Recommended Practice issued by the AIC.
The accompanying notes form part of these financial statements.
Consolidated and Parent Company Statement of Changes in Net Equity
for the year ended 30 April 2023
Share Capital
Share Capital Revenue
capital premium redemption reserve reserve Total
account reserve
Note £’000 £’000 £’000 £’000 £’000 £’000
Year ended 30 April
2023
30 April 2022 5,213 17,517 5,004 11,201 2,447 41,382
Total comprehensive – – – (6,637) 2,704 (3,933)
expense for the year
Ordinary shares 75 466 – – – 541
issued
Expenses of Ordinary – (3) – – – (3)
share issue
Dividends paid 9 – – – – (2,424) (2,424)
30 April 2023 5,288 17,980 5,004 4,564 2,727 35,563
Year ended 30 April
2022
30 April 2021 5,213 17,517 5,004 16,950 2,661 47,345
Total comprehensive – – – (5,749) 2,084 (3,665)
expense for the year
Dividends paid 9 – – – – (2,298) (2,298)
30 April 2022 5,213 17,517 5,004 11,201 2,447 41,382
The accompanying notes form part of these financial statements.
Consolidated and Parent Company Balance Sheets
as at 30 April 2023
Group Group Company Company
Note 2023 2022 2023 2022
£’000 £’000 £’000 £’000
Non-current assets
Investments at fair value through 10 52,825 57,751 52,825 57,751
profit or loss
Investments in Subsidiary 12 – – 13 13
52,825 57,751 52,838 57,764
Current assets
Trade and other receivables 13 469 520 469 520
Cash and cash equivalents 380 534 380 534
849 1,054 849 1,054
Total assets 53,674 58,805 53,687 58,818
Current liabilities
Trade and other payables 14 (245) (237) (258) (250)
(245) (237) (258) (250)
Total assets less current 53,429 58,568 53,429 58,568
liabilities
Non-current liabilities
Zero Dividend Preference shares 15 (17,866) (17,186) – –
Loan from Subsidiary 16 – – (17,866) (17,186)
(17,866) (17,186) (17,866) (17,186)
Total liabilities (18,111) (17,423) (18,124) (17,436)
Net assets 35,563 41,382 35,563 41,382
Represented by:
Share capital 17 5,288 5,213 5,288 5,213
Share premium account 18 17,980 17,517 17,980 17,517
Capital redemption reserve 18 5,004 5,004 5,004 5,004
Capital reserve 18 4,564 11,201 4,564 11,201
Revenue reserve 2,727 2,447 2,727 2,447
Equity shareholders’ funds 35,563 41,382 35,563 41,382
The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Chelverton UK
Dividend Trust PLC and authorised for issue on 29 June 2023.
Howard Myles
Chairman
Company Registered Number: 03749536
Consolidated and Parent Company Statement of Cash Flows
for the year ended 30 April 2023
2023 2022
Note
£’000 £’000
Operating activities
Investment income received 3,170 2,370
Investment management fee paid (546) (643)
Administration and secretarial fees paid (64) (67)
Other cash payments (273) (236)
Cash generated from operations 19 2,287 1,424
Purchases of investments (12,624) (8,795)
Sales of investments 12,069 9,715
Net cash (outflow)/inflow from operating activities (555) 2,344
Financing activities
Issue of Ordinary shares 541 –
Expenses of Ordinary share issue (3) –
Dividends paid 9 (2,424) (2,298)
Net cash outflow from financing activities (1,886) (2,298)
Change in cash and cash equivalents 20 (154) 46
Cash and cash equivalents at start of year 20 534 488
Cash and cash equivalents at end of year 20 380 534
The accompanying notes form part of these financial statements.
Notes to the Financial Statements
as at 30 April 2023
1 ACCOUNTING POLICIES
Chelverton UK Dividend Trust PLC is a public company, limited by shares,
domiciled and registered in the UK. The consolidated financial statements
for the year ended 30 April 2023 comprise the financial statements of the
Company and its subsidiary SDV 2025 ZDP PLC.
Basis of preparation
The consolidated financial statements of the Group and the financial
statements of the Company have been prepared in accordance with UK adopted
International Financial Reporting Standards (‘UK adopted IFRS’) and with
the Companies Act 2006 as applicable to companies reporting under
international accounting standards, and reflect the following policies
which have been adopted and applied consistently.
New standards, interpretations and amendments adopted by the Group
There are no amendments to standards effective this year, being relevant
and applicable to the Group.
Critical accounting judgements and uses of estimation
The preparation of financial statements in conformity with UK adopted IFRS
requires management to make judgements, estimates and assumptions that
affect the application of policies and the amounts reported in the Balance
Sheet and the Statement of Comprehensive Income. The estimates and
associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgements about carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period, or in
the period of the revision and future period if the revision affects both
current and future periods. There were no significant accounting estimates
or significant judgements in the current period.
Basis of consolidation
The Group financial statements consolidate (under IFRS10), the financial
statements of the Company and its wholly-owned subsidiary undertaking,
SDVP, drawn up to the same accounting date. The disclosure basis of
recognition is at cost.
The Subsidiary is consolidated from the date of its incorporation, being
the date on which the Company obtained control, and will continue to be
consolidated until the date that such control ceases. Control comprises
the power to govern the financial and operating policies of the investee
so as to obtain benefit from its activities and is achieved through direct
or indirect ownership of voting rights. The financial statements of the
Subsidiary are prepared for the same reporting year as the Company, using
consistent accounting policies. All inter-company balances and
transactions, including unrealised profits arising from them, are
eliminated.
As permitted by Section 408 of the Companies Act 2006, the Company has not
presented its own Statement of Comprehensive Income. The amount of the
Company’s return for the financial period dealt with in the financial
statements of the Group is a loss of £3,933,000 (2022: loss of
£3,665,000).
Convention
The financial statements are presented in Sterling rounded to the nearest
thousand. The financial statements have been prepared on a going concern
basis under the historical cost convention, except for the measurement at
fair value of investments classified as fair value through profit or loss.
Where presentational guidance set out in the Statement of Recommended
Practice ‘Financial Statements of Investment Trust Companies and Venture
Capital Trusts’ (‘SORP’), issued by the Association of Investment
Companies (dated June 2022) is consistent with the requirements of UK
adopted IFRS, the Directors have sought to prepare the financial
statements on a consistent basis compliant with the recommendations of the
SORP.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single
segment of business, being
investment business. The Group only invests in companies listed in the UK.
Investments
All investments held by the Group are recorded at ‘fair value through
profit or loss’. Investments are
initially recognised at cost, being the fair value of the consideration
given.
After initial recognition, investments are measured at fair value, with
unrealised gains and losses on investments and impairment of investments
recognised in the Consolidated Statement of Comprehensive Income and
allocated to capital. Realised gains and losses on investments sold are
calculated as the difference between sales proceeds and cost.
For investments actively traded in organised financial markets, fair value
is generally determined by reference to quoted market bid prices at the
close of business on the Balance Sheet date, without adjustment for
transaction costs necessary to realise the asset.
Trade date accounting
All ‘regular way’ purchases and sales of financial assets are recognised
on the ‘trade date’, i.e. the day that the Group commits to purchase or
sell the asset. Regular way purchases, or sales, are purchases or sales of
financial assets that require delivery of the asset within a time frame
generally established by regulation or convention in the market place.
Income
Dividends receivable on quoted equity shares are taken into account on the
ex-dividend date. Where no ex-dividend date is quoted, they are brought
into account when the Group’s right to receive payment is established.
Other investment income and interest receivable are included in the
financial statements on an accruals basis. Overseas dividends received
from UK Companies are stated gross of any withholding tax.
Expenses
All expenses are accounted for on an accruals basis. All expenses are
charged through the revenue
account in the Consolidated Statement of Comprehensive Income except as
follows:
• expenses which are incidental to the acquisition of an investment are
included within the costs of the investment;
• expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment;
• expenses are charged to capital reserve where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated; and
• operating expenses of the Subsidiary are borne by the Company and
taken 100% to capital.
All other expenses are allocated to revenue with the exception of 75%
(2022: 75%) of the Investment Manager’s fee which is allocated to capital.
This is in line with the Board’s expected long-term split of returns from
the investment portfolio, in the form of capital and income gains
respectively.
Cash and cash equivalents
Cash in hand and in banks including where held by custodians and
short-term deposits which are held to maturity are carried at cost. Cash
and cash equivalents are defined as cash in hand, demand deposits and
short-term, highly liquid investments readily convertible to known amounts
of cash and subject to insignificant risk of changes in value.
Loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair
value of the consideration received, less issue costs, where applicable.
After initial recognition, all interest-bearing loans and borrowings are
subsequently measured at amortised cost. Any difference between cost and
redemption value is recognised in the Consolidated Statement of
Comprehensive Income over the period of the borrowings on an effective
interest basis.
Zero Dividend Preference shares
Shares issued by the Subsidiary are treated as a liability of the Group,
and are shown in the Balance Sheet at their redemption value at the
Balance Sheet date. The appropriations in respect of the Zero Dividend
Preference shares necessary to increase the Subsidiary’s liabilities to
the redemption values are allocated to capital in the Consolidated
Statement of Comprehensive Income. This treatment reflects the Board’s
long-term expectations that the entitlements of the Zero Dividend
Preference shareholders will be satisfied out of gains arising on
investments held primarily for capital growth.
Share issue costs
Costs incurred directly in relation to the issue of shares in the
Subsidiary are borne by the Company and taken 100% to capital. Share issue
costs relating to Ordinary share issues by the Company are taken 100% to
the share premium account in respect of premiums on issue of such shares.
Where there is no premium on issue, costs are taken directly to equity
against revenue reserves.
Capital reserve
Capital reserve (other) includes:
• gains and losses on the disposal of investments;
• exchange differences of a capital nature; and
• expenses, together with the related taxation effect, allocated to this
reserve in accordance with the above policies.
Capital reserve (investment holding gains) includes increase and decrease
in the valuation of investments held at the year end. This reserve is
distributable to the extent that gains have been realised.
Revenue reserve
This reserve includes net revenue recognised in the revenue column of the
Statement of Comprehensive
Income. This reserve is distributable.
Capital redemption reserve
This reserve represents the cancellation of the C shares when they were
converted into Ordinary shares
and deferred shares. This reserve is not distributable.
Taxation
There is no charge to UK income tax as the Group’s allowable expenses
exceed its taxable income. Deferred tax assets in respect of unrelieved
excess expenses are not recognised as it is unlikely that the Group will
generate sufficient taxable income in the future to utilise these
expenses. Deferred tax is not provided on capital gains and losses because
the Company meets the conditions for approval as an investment trust
company.
Dividends payable to shareholders
Dividends to shareholders are recognised as a liability in the period in
which they are paid or approved in general meetings and are taken to the
Statement of Changes in Net Equity. Dividends declared and approved by the
Group after the Balance Sheet date have not been recognised as a liability
of the Group at the Balance Sheet date.
2 INCOME
2023 2022
£’000 £’000
Income from listed investments
2,179
UK dividend income 2,651 2,179
Overseas dividend income 437 290
Property income distributions 114 107
Total income 3,202 2,576
Total income is comprised entirely of dividends.
3 INVESTMENT MANAGEMENT FEE
2023
Revenue Total Revenue 2022 Capital Total
Capital
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 133 400 533 158 473 631
At 30 April 2023 there were amounts outstanding of £61,000 (2022:
£73,000).
4 OTHER EXPENSES
2023 2022
£’000 £’000
Administration and secretarial 64 66
fees
Directors’ remuneration (note 89 58
5)
Auditor’s remuneration:
audit services* 25 23
Insurance 4 3
Other expenses* 165 164
347 314
Subsidiary operating costs (14) (12)
333 280
* The above amounts include
irrecoverable VAT where
applicable.
5 DIRECTORS’ REMUNERATION
2023 2022
£ £
Directors’ fees 84,942 57,500
Social security costs 4,213 275
89,156 57,775
Remuneration to Directors
Lord Lamont* 10,692 20,000
H Myles 28,276 20,000
A Watkins 23,974 17,500
D Hadgill 22,000 –
84,942 57,500
* Retired 8 September 2022.
6 FINANCE COSTS
2023 2022
Total Revenue Capital Total
Revenue Capital
£’000 £’000 £’000 £’000 £’000 £’000
Appropriations in respect of
– 680 680 – 654 654
Zero Dividend Preference
shares
– 680 680 – 654 654
7 TAXATION
2023 2022
£’000 £’000
Based on the revenue return for the year
Overseas tax 32 32
32 32
The current tax charge for the year is lower than the standard rate of
corporation tax in the UK of 19.5% to 30 April 2023 and 19% to 30 April
2022. The differences are explained below:
2023 Total Revenue 2022 Total
Capital Capital
Revenue
£’000 £’000 £’000 £’000 £’000 £’000
Return on ordinary
activities before (6,637) (3,901) 2,116 (5,749) (3,633)
taxation 2,736
Theoretical corporation 534 (1,294) (760) 402 (1,092) (690)
tax at 19.5% (2022: 19%)
Effects of:
Capital items not taxable – 1,213 1,213 – 1,000 1,000
UK and overseas dividends
which are not liable to – (602) (469) – (469)
UK corporation tax (602)
Excess expenses in the 68 81 149 67 92 159
year
Overseas tax 32 – 32 32 – 32
Actual current tax
charged to the revenue – 32 32 – 32
account
32
The Group has unrelieved excess expenses of £24,871,884 (2022:
£24,105,280). It is unlikely that the Group will generate sufficient
taxable profits in the future to utilise these expenses and therefore no
deferred tax asset has been recognised.
Changes in tax rates
The main rate of corporation tax in the United Kingdom has increased from
19% to 25% from 1 April 2023. The theoretical corporation tax rate for the
year ended is therefore 19.5% as disclosed above.
8 RETURN PER SHARE
Ordinary shares
Revenue return per Ordinary share is based on revenue on ordinary
activities after taxation of £2,704,000 (2022: £2,084,000) and on
20,889,726 (2022: 20,850,000) Ordinary shares, being the weighted average
number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on the capital loss of
£6,637,000 (2022: loss of £5,749,000) and on 20,889,726 (2022: 20,850,000)
Ordinary shares, being the weighted average number of Ordinary shares in
issue during the year.
Zero Dividend Preference shares
Capital return per Zero Dividend Preference share 2025 is based on
allocations from the Company of £680,000 (2022: £654,000) and on
14,500,000 (2022: 14,500,000) Zero Dividend Preference shares 2025, being
the weighted average number of Zero Dividend Preference shares in issue
during the year.
9 DIVIDENDS
2023 2022
£’000 £’000
Declared and paid per Ordinary share Fourth interim dividend 574 521
for the year ended 30 April 2022 of 2.75p (2021: 2.50p)
Special dividend for the year ended – 57
30 April 2022 of nil (2021: 0.272p)
First interim dividend of 2.9425p (2022: 2.75p) 614 573
Second interim dividend of 2.9425p (2022: 2.75p) 614 573
Third interim dividend of 2.9425p (2022: 2.75p) 622 574
2,424 2,298
Declared per Ordinary share*
Fourth interim dividend for the year ended 623 574
30 April 2023 of 2.9425p (2022: 2.75p)
All dividends are paid from Revenue Reserve.
* Dividend paid subsequent to the year end.
10 INVESTMENTS – Group and Company
Listed AIM 2023
Total
£’000 £’000
£’000
Year ended 30 April 2023
Opening book cost 35,194 27,518 62,712
Opening investment holding (losses)/gains (5,359) 398 (4,961)
Opening valuation 29,835 27,916 57,751
Movements in the year:
Purchases at cost 6,562 6,078 12,640
Disposals:
Proceeds (7,633) (4,390) (12,023)
Net realised gains on disposals 1,443 1,063 2,506
Increase in investment holding losses (2,047) (6,002) (8,049)
Closing valuation 28,160 24,665 52,825
Closing book cost 35,566 30,269 65,835
Closing investment holding losses (7,406) (5,604) (13,010)
28,160 24,665 52,825
Realised gains on disposals 1,443 1,063 2,506
Increase in investment holding losses (2,047) (6,002) (8,049)
Losses on investments (604) (4,939) (5,543)
Listed AIM 2022
Total
£’000 £’000
£’000
Year ended 30 April 2022
Opening book cost 37,344 27,884 65,228
Opening investment holding (losses)/gains (3,571) 1,111 (2,460)
Opening valuation 33,773 28,995 62,768
Movements in the year:
Purchases at cost 3,975 4,924 8,899
Disposals:
Proceeds (5,285) (4,021) (9,306)
Net realised losses on disposals (840) (1,269) (2,109)
Increase in investment holding losses (1,788) (713) (2,501)
Closing valuation 29,835 27,916 57,751
Closing book cost 35,194 27,518 62,712
Closing investment holding (losses)/gains (5,359) 398 (4,961)
29,835 27,916 57,751
Realised losses on disposals (840) (1,269) (2,109)
Increase in investment holding losses (1,788) (713) (2,501)
Losses on investments (2,628) (1,982) (4,610)
Transaction costs
During the year the Group incurred transaction costs of £33,000 (2022:
£20,000) and £11,000 (2022: £12,000) on purchases and sales of investments
respectively. These amounts are included in gains on investments, as
disclosed in the Consolidated Statement of Comprehensive Income.
11 SIGNIFICANT INTERESTS
The Company has provided notifications of holdings of 3% or more in
relevant issuers. The following issuer notifications remain effective as
at 30 April 2023:
Name of issuer Class of share % held
Chamberlin plc Ordinary 10.00
Coral Products plc Ordinary 7.75
One Health Group plc Ordinary 7.15
Orchard Funding Group plc Ordinary 5.85
RTC Group plc Ordinary 3.87
Vector Capital plc Ordinary 3.49
12 INVESTMENT IN SUBSIDIARY
Company Company
2023 2022
£’000 £’000
Cost as at 1 May and 30 April 13 13
The Company owns the whole of the issued ordinary share capital of SDVP,
especially formed for the issuing of Zero Dividend Preference shares,
which is incorporated and registered in England and Wales, under company
number: 11031268.
13 TRADE AND OTHER RECEIVABLES
Group Group Company Company
2023 2022 2023 2022
£’000 £’000 £’000 £’000
Amounts due from brokers – 46 – 46
Dividends receivable 464 464 464 464
Prepayments and accrued income 5 10 5 10
469 520 469 520
14 TRADE AND OTHER PAYABLES
Group Group Company Company
2023 2022 2023 2022
£’000 £’000 £’000 £’000
Amounts due to brokers 120 104 120 104
Trade and other payables 125 133 125 133
Loan from subsidiary undertaking – – 13 13
245 237 258 250
15 ZERO DIVIDEND PREFERENCE SHARES
On 8 January 2018, SDVP issued 10,977,747 Zero Dividend Preference shares
at 100p per share from the conversion of Zero Dividend Preference shares
of SCZ, the 2018 ZDP subsidiary. On 8 January 2018, 1,802,336 Zero
Dividend Preference shares were also issued at 100p per share by a placing
with net proceeds of £1.8 million. The expenses of the placing were borne
by the Company and the Investment Manager. On 11 April 2018, SDVP issued a
further 1,419,917 Zero Dividend Preference shares at 103p per share (a
premium of 3p per share), and net proceeds of £1.5 million. On the 10 May
2018 and 15 May 2018, SDVP issued a further 100,000 and 200,000 Zero
Dividend Preference shares at 104p per share (a premium of 4p per share),
and net proceeds of £313,000. The Zero Dividend Preference shares each
have an initial capital entitlement of 100p per share, growing by an
annual rate of 4% compounded daily to 133.18p on 30 April 2025, a total of
£19,311,000. The accrued entitlement as per the Articles of Association of
SDVP at 30 April 2023 was 123.22p (2022: 118.52p) per share, being
£17,186,000 in total, and the total amount accrued for the year of
£680,000 (2022: £654,000) has been charged as a finance cost to capital.
16 SECURED LOAN
Pursuant to a loan agreement between SDVP and the Company, SDVP has lent
the gross proceeds of the following Zero Dividend Preference transactions
to the Company:
• Gross proceeds of £10,978,000 raised from the conversion of 10,977,747
Zero Dividend Preference shares at 100p on 8 January 2018
• Gross proceeds of £10,978,000 raised from the placing of 1,802,336
Zero Dividend Preference share at 100p on 8 January 2018
• Gross proceeds of £1,463,000 raised from the placing of 1,419,917 Zero
Dividend Preference shares at a premium of 103p on 11 April 2018
• Gross proceeds of £313,000 raised from the placings of 300,000 Zero
Dividend Preference shares at a premium of 104p on the 10 and 15 May
2018
The loan is non-interest bearing and is repayable three business days
before the Zero Dividend Preference share redemption date of 30 April 2025
or, if required by SDVP, at any time prior to that date in order to repay
the Zero Dividend Preference share entitlement. The funds are to be
managed in accordance with the investment policy of the Company.
The loan is secured by way of a floating charge on the Company’s assets
under a loan agreement entered into between the Company and SDVP dated 27
November 2017.
A contribution agreement between the Company and SDVP has also been made
whereby the Company will undertake to contribute such funds as would
ensure that SDVP will have in aggregate sufficient assets on 30 April 2025
to satisfy the final capital entitlement of the Zero Dividend Preference
shares. The contribution accrued by the Company to cover the entitlement
for the year was £680,000 (2021: £654,000).
2023 2022
£’000 £’000
Value at 1 May 17,186 16,532
Contribution to accrued capital
entitlement of Zero Dividend 680 654
Preference shares 2025
17,866 17,186
17 SHARE CAPITAL
2023 2022
Number £’000 Number £’000
Issued, allotted and fully paid:
Ordinary shares of 25p each
Opening balance 20,850,000 5,213 20,850,000 5,213
Issue of Ordinary shares 300,000 75 – –
21,150,000 5,288 20,850,000 5,213
During the year, the Company announced the following issuances of new
Ordinary Shares of 25p each:
Date Shares Price £’000
08/02/2023 50,000 1.90 13
07/03/2023 50,000 1.85 13
15/03/2023 50,000 1.80 13
23/03/2023 50,000 1.76 12
24/03/2023 50,000 1.75 12
27/03/2023 50,000 1.75 12
300.000 75
The rights attaching to the Ordinary shares are:
As to dividends each year
Ordinary shares are entitled to all the revenue profits of the Company
available for distribution, including
all undistributed income.
As to capital on winding up
On a winding up, holders of Zero Dividend Preference shares issued by SDVP
are entitled to a payment of an amount equal to 100p per share, increased
daily from 8 January 2018 at such a compound rate, equivalent to 4%, as
will give a final entitlement to 133.18p for each Zero Dividend Preference
share at 30 April 2025, £19,311,000 in total.
The holders of Ordinary shares will receive all the remaining Group assets
available for distribution to shareholders after payment of all debts and
satisfaction of all liabilities of the Company rateably according to the
amounts paid or credited as paid up on the Ordinary shares held by them
respectively.
Voting
Each holder of Ordinary shares on a show of hands will have one vote and,
on a poll, will have one vote for each Ordinary share held. Each holder of
Zero Dividend Preference shares on a show of hands will have one vote at
meetings where Zero Dividend Preference shareholders are entitled to vote
and, on a poll, will have one vote for every Zero Dividend Preference
share held.
Duration
Under the Parent Company’s Articles of Association, the Directors are
required to convene a General Meeting of the Company to be held in April
2025 so as to align the vote with any timetable for a further issue of
Zero Dividend Preference shares or to save costs by proposing the
Continuation Resolution (as defined below) at the Annual General Meeting
or some other General Meeting of the Company (‘the First GM’), at which an
Ordinary Resolution will be proposed to the effect that the Company
continues in existence (‘the Continuation Resolution’). In the event that
such Resolution is not passed, the Directors shall, subject to the
Statutes, put forward further proposals to shareholders regarding the
future of the Company (which may include voluntary liquidation,
unitisation or other reorganisation of the Company) (‘the Restructuring
Resolution’) at a General Meeting of the Company to be convened not more
than four months after the date of the First GM (or such adjournment).
The Restructuring Resolution shall be proposed as a Special Resolution. If
the Restructuring Resolution is either not proposed or not passed then the
Directors shall convene a General Meeting not more than four months after
the date of the First GM (or such adjournment). If the Restructuring
Resolution is not proposed or four months after the date the Restructuring
Resolution is not passed, an Ordinary Resolution pursuant to Section 84 of
the Insolvency Act 1986 to voluntarily wind up the Company shall be put to
shareholders and the votes taken on such Resolution shall be on a poll.
18 NET ASSET VALUE PER SHARE
The net asset value per share and the net assets attributable to the
Ordinary shareholders and Zero Dividend Preference shareholders are as
follows:
Net assets Net assets
Net asset attributable to Net asset attributable
to
value per share shareholders value per share shareholders
2023 2023 2022 2022
pence £’000 pence £’000
Ordinary shares 168.15 35,563 198.47 41,382
Zero Dividend Preference shares 123.21 17,866 118.52 17,186
The net asset value per Ordinary share is calculated on 21,150,000 (2022:
20,850,000) Ordinary shares, being the number of Ordinary shares in issue
at the year end.
The net asset value per Zero Dividend Preference share is calculated on
14,500,000 (2022: 14,500,000) Zero Dividend Preference shares, being the
number of Zero Dividend Preference shares in issue at the year end.
19 RECONCILIATION OF NET RETURN BEFORE AND AFTER TAXATION
TO CASH GENERATED FROM OPERATIONS – Group and Company
2023 2022
£’000 £’000
Net deficit before taxation (3,901) (3,633)
Taxation (32) (32)
Net deficit after taxation (3,933) (3,665)
Net capital deficit 6,637 5,749
Decrease/(increase) in receivables 5 (172)
Decrease in payables (8) (3)
Interest and expenses charged to the capital reserve (414) (485)
Net cash inflow from operating activities 2,287 1,424
20 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH 2023 2022
– Group and Company
£’000 £’000
(Decrease)/increase in cash in year (154) 46
Net cash at 1 May 534 488
Net cash at 30 April 380 534
21 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES
Objectives, policies and strategies
The Group primarily invests in mid and small capitalised companies. All of
the Group’s investments
comprise ordinary shares in companies listed on the Official List and
companies admitted to AIM.
The Group finances its operations through Zero Dividend Preference shares
issued by SDVP and equity. Cash, liquid resources and short-term debtors
and creditors arise from the Group’s day-to-day operations.
It is, and has been throughout the year under review, the Group’s policy
that no trading in financial instruments shall be undertaken.
Objectives, policies and strategies
In pursuing its investment objective, the Group is exposed to a variety of
risks that could result in either a reduction in the Group’s net assets or
a reduction of the profits available for distribution. These risks are
market risk (comprising currency risk, interest rate risk and other price
risk), credit risk and liquidity risk. The Board reviews and agrees
policies for managing each of these risks and they are summarised below.
As required by IFRS 7: Financial Instruments: Disclosures, an analysis of
financial assets and liabilities, which identifies the risk to the Group
of holding such items, is given below.
Market risk
Market risk arises mainly from uncertainty about future prices of
financial instruments used in the Group’s business. It represents the
potential loss the Group might suffer through holding market positions by
way of price movements and movements in exchange rates and interest rates.
The Investment Manager assesses the exposure to market risk when making
each investment decision and these risks are monitored by the Investment
Manager on a regular basis and the Board at quarterly meetings with the
Investment Manager.
Market price risk
Market price risks (i.e. changes in market prices other than those arising
from currency risk or interest
rate risk) may affect the value of investments.
The Board manages the risks inherent in the investment portfolios by
ensuring full and timely reporting of relevant information from the
Investment Manager. Investment performance is reviewed at each Board
meeting.
The Group’s exposure to changes in market prices at 30 April on its
investments is as follows:
2023 2022
£’000 £’000
Fair value through profit or loss investments 52,825 57,751
Sensitivity analysis
A 10% increase in the market value of investments at 30 April 2023 would
have increased net assets by £5,283,000 (2022: £5,775,000). An equal
change in the opposite direction would have decreased the net assets
available to shareholders by an equal but opposite amount.
Foreign currency risk
All the Group’s assets are denominated in Sterling and accordingly the
only currency exposure the
Group has is through the trading activities of its investee companies.
Interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits. The Group does
not currently receive interest on its cash deposits.
The majority of the Group’s financial assets are non-interest bearing. As
a result the Group’s financial assets are not subject to significant
amounts of risk due to fluctuations in the prevailing levels of market
interest rates.
Interest rate risk
The possible effects on fair value and cash flows that could arise as a
result of changes in interest rates
are taken into account when making investment decisions.
The exposure at 30 April 2023 of financial assets and financial
liabilities to interest rate risk is limited to cash and cash equivalents
of £380,000 (2022: £534,000). Cash and cash equivalents are all due within
one year.
Credit risk
Credit risk is the risk of financial loss to the Group if the contractual
party to a financial instrument fails
to meet its contractual obligations.
The carrying amounts of financial assets best represent the maximum credit
risk exposure at the Balance Sheet date.
Listed investments are held by Jarvis Investment Management Limited acting
as the Company’s custodian. Bankruptcy or insolvency of the custodian may
cause the Company’s rights with respect to securities held by the
custodian to be delayed. The Board monitors the Group’s risk by reviewing
the custodian’s internal controls reports.
Investment transactions are carried out with a number of brokers whose
creditworthiness is reviewed by the Investment Manager. Transactions are
ordinarily undertaken on a delivery versus payment basis whereby the
Company’s custodian bank ensures that the counterparty to any transaction
entered into by the Group has delivered in its obligations before any
transfer of cash or securities away from the Group is completed.
Cash is only held at banks that have been identified by the Board as
reputable and of high credit quality. The maximum exposure to credit risk
as at 30 April 2023 was £53,764,000 (2022: £58,805,000). The calculation
is based on the Group’s credit risk exposure as at 30 April 2023 and this
may not be representative of the year as a whole.
None of the Group’s assets are past due or impaired.
Liquidity risk
The majority of the Group’s assets are listed securities in small
companies, which can under normal conditions be sold to meet funding
commitments if necessary. They may, however, be difficult to realise in
adverse market conditions.
Please see notes 15 and 16 for details of liabilities that fall due for
payment in more than one year. All other payables are due in less than one
year.
Financial instruments by category
The financial instruments of the Group fall into the following categories:
30 April 2023 Assets at
fair value through
At Loans and profit
cost receivables or loss Total
£’000 £’000 £’000 £’000
Assets as per Balance
Sheet
Investments – – 52,825 52,825
Trade and other – 469 – 469
receivables
Cash and cash equivalents 380 – – 380
Total 380 469 52,825 53,674
Liabilities as per
Balance Sheet
Trade and other payables 245 – – 245
Zero Dividend Preference – 17,866 – 17,866
shares
Total 245 17,866 – 18,111
At Loans and Assets at fair value
30 April 2022 through profit or loss Total
cost receivables
£’000 £’000 £’000 £’000
Assets as per Balance
Sheet
Investments – – 57,751 57,751
Trade and other – 520 – 520
receivables
Cash and cash equivalents 534 – – 534
Total 534 520 57,751 58,805
Liabilities as per
Balance Sheet
Trade and other payables 237 – – 237
Zero Dividend Preference – 17,186 – 17,186
shares
Total 237 17,186 – 17,423
IFRS 7 hierarchy
As required by IFRS 7 the Company is required to classify fair value
measurements using a fair value hierarchy that reflects the significance
of the inputs used in making the measurements. The fair value hierarchy
consists of the following three levels:
Level 1 – Quoted prices (unadjusted) in active markets for identical
assets or liabilities.
An active market is a market in which transactions for the asset or
liability occur with sufficient frequency and volume on an ongoing basis
such that quoted prices reflect prices at which an orderly transaction
would take place between market participants at the measurement date.
Quoted prices provided by external pricing services, brokers and vendors
are included in Level 1, if they reflect actual and regularly occurring
market transactions on an arm’s length basis.
Level 2 – Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices).
Level 2 inputs include the following:
• Quoted prices for similar (i.e. not identical) assets in active
markets.
• Quoted prices for identical or similar assets or liabilities in
markets that are not active. Characteristics of an inactive market
include a significant decline in the volume and level of trading
activity, the available prices vary significantly over time or among
market participants or the prices are not current.
• Inputs other than quoted prices that are observable for the asset (for
example, interest rates and yield curves observable at commonly quoted
intervals).
• Inputs that are derived principally from, or corroborated by,
observable market data by correlation or other means
(market-corroborated inputs).
Level 3 – Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair value
measurement is categorised in its entirety is determined on the basis of
the lowest level input that is significant to the fair value measurement
in its entirety. If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
The determination of what constitutes ‘observable’ requires significant
judgement by the Company. The Company considers observable data to
investments actively traded in organised financial markets. Fair value is
generally determined by reference to Stock Exchange quoted market bid
prices (or last traded in respect of SETS) at the close of business on the
Balance Sheet date, without adjustment for transaction costs necessary to
realise the asset.
IFRS 7 hierarchy
Investments whose values are based on quoted market prices in active
markets, and therefore classified within Level 1, include active listed
equities. The Company does not adjust the quoted price for these
investments.
Financial instruments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer quotations or
alternative pricing sources supported by observable inputs are classified
within Level 2.
Investments classified within Level 3 have significant unobservable
inputs. Level 3 instruments include private equity and corporate debt
securities. As observable prices are not available for these securities,
the Company has used valuation techniques to derive the fair value.
The Company has no Level 2 or Level 3 investments (2022: same).
22 CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The Group’s capital management objectives are:
• to ensure the Group’s ability to continue as a going concern;
• to provide an adequate return to shareholders;
• to support the Group’s stability and growth;
• to provide capital for the purpose of further investments.
The Group actively and regularly reviews and manages its capital structure
to ensure an optimal capital structure and to maximise equity holder
returns, taking into consideration the future capital requirements of the
Group and capital efficiency, prevailing and projected profitability,
projected operating cash flows and projected strategic investment
opportunities. The management regards capital as total equity and
reserves, for capital management purposes. The Group currently do not have
any loans and the Directors do not intend to have any loans or borrowings.
23 CAPITAL MANAGEMENT POLICIES AND PROCEDURES
Between the year end and 28 June 2023, the latest practicable date before
the publication of these financial statements, the Company has issued
210,000 Ordinary shares for a consideration of £355,400.
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Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
══════════════════════════════════════════════════════════════════════════
ISIN: GB0006615826, GB00BZ7MQD81
Category Code: ACS
TIDM: SDVP
LEI Code: 213800DAF47EJ2HT4P78
Sequence No.: 254486
EQS News ID: 1669285
End of Announcement EQS News Service
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