TIDMCGW
RNS Number : 4691I
Chelverton Growth Trust PLC
14 April 2022
Chelverton Growth Trust PLC
LEI: 213800I86P8BAE6UVI83
Half Yearly Report
For the six months ended 28 February 2022
The Directors announce the unaudited Half Yearly Report for the
period 1 September 2021 to 28 February 2022.
Investment Objective and Policy
The Company's objective is to provide capital growth through
investment in companies listed on the Official List and traded on
the Alternative Investment Market ("AIM") with a market
capitalisation at the time of investment of up to GBP50 million,
which the Manager believes to be at a "point of change". The
Company will invest in unquoted investments where it is believed
that there is a likelihood of the shares becoming listed or traded
on AIM or the investee company being sold. Its investment objective
is to increase the net asset value per share at a higher rate than
other quoted smaller company trusts and the MCSI Small Cap UK
Index.
It is the Company's policy not to invest in any listed
investment companies (including listed investment trusts).
At the Annual General Meeting held on 12 December 2019,
Shareholders voted to amend the Company's Investment Policy to
state that the Company:
-- may participate in a CEPS placing (if it were to have one);
-- will liquidate its various other investments when it is felt appropriate to do so;
-- will repay the outstanding Jarvis Loan; and
-- will pay all outstanding liabilities.
Investment Strategy
Investments are selected for the portfolio only after extensive
research which the Investment Manager believes to be key. The whole
process through which equity must pass in order to be included in
the portfolio is very rigorous. Only a security where the
Investment Manager believes that the price will be significantly
higher in the future will pass the selection process. The
Investment Manager believes the key to successful stock selection
is to identify the long-term value of a company's shares and to
have the patience to hold the shares until that value is
appreciated by other investors. Identifying long-term value
involves detailed analysis of a company's earnings prospects over a
five-year time horizon.
The Company's Investment Manager is Chelverton Asset Management
Limited ("CAM"), an investment manager focusing exclusively on
achieving returns for investors based on UK investment analysis of
the highest quality. The founder and employee owners of CAM include
experienced investment professionals with strong investment
performance records who believe rigorous fundamental research
allied to patience is the basis of long-term investment
success.
Chairman's Report
In the six months to 28 February 2022, the Net Asset Value per
share increased by just under 1% to 58.02p. Although this
performance shows only a modest uplift in value since my last
report, relative to our benchmark MSCI Small Cap UK Index which
declined by 15.42% it represents another period of
outperformance.
On the 24 February Russia invaded Ukraine. As far as we are
aware, this distressing situation has led to no material change in
trading for the businesses we are invested in. Realistically, the
combination of geo-political instability, inflationary pressures
and higher interest rates will inevitability depress valuations in
the short term. The assumption made is that this year will see a
subdued level of macro-economic growth and investment.
I had expected that we would now be in a position to put forward
plans as to how we proposed to return value to Shareholders.
However, with the heightened level of uncertainty, the Board feel
that any proposals would severely undervalue the underlying assets
of the Company. We continue to review the situation and will
produce our proposals when we are confident that the sensible value
can be extracted.
The Board believe that there is significant potential for
improvement in the underlying investments and do not believe that
it is in the Shareholders' interests to forego this upside for the
convenience of resolving the future of the Company at this
moment.
I remain grateful to Chelverton Asset Management, the Investment
Manager of the Company, who are waiving their management fee in its
entirety, in addition, Ian Martin and I have also waived part of
our fees. The collective effect of these actions means that the
expense ratio, whilst still high, a consequence of a very small
sized Company, is much lower than it could have been.
Financial Performance
Prior to the Russian invasion of Ukraine, the underlying
performance of the investments had been encouraging with strong
market sentiment towards UK publicly quoted equites, and in
particular the small companies and micro-cap value companies, which
were recovering well after the "Covid Period". Almost all this
increase was eliminated by the invasion when sentiment turned
negative reflecting the higher level of uncertainty.
Over the same period, the AIM All-share index has declined by
19.54% and the share price has decreased from 59.5p to 43.0p. At
the period end, the shares were trading at a discount of
25.89%.
Investments
CEPS is the largest investment in the Company and to remind
Shareholders this is a diversified AIM traded holding company that
owns majority shareholdings in three subsidiaries, and a
significant minority in a fourth. My fellow Board member, David
Horner is Chairman of CEPS and has a similar sized shareholding as
the Company. CEPS is being built up by the growth of the underlying
companies and by strategic "bolt-on" acquisitions.
-- With the new management in place at Aford Awards for some 18
months there has been significant activity. With a "self-help"
programme of revamping the warehouse and production areas the
business is now much more efficient and more importantly, can
deliver more product from the same premises with the same staff.
This was important as three bolt-on acquisitions were made last
year which have been relocated to the company's premises and
integrated. An additional much larger purchase has just been made
which will make a significant contribution in the current year.
-- Hickton Group , the fast-growing property services group,
continues to develop and is highly cash generative and is therefore
expected to repay its acquisition loans.
-- Friedman s and Milano are starting to enjoy a return to
normal trading as the economy and society begins to unlock.
-- The merger of Davis Odell and Vale Brothers has now been
completed with one banking arrangement and a single accounting
system.
All the CEPS businesses, in common with all other enterprises in
the United Kingdom are experiencing rapidly increasing prices of
materials. In addition, a severe shortage, and a consequent rise in
labour costs is also proving to be challenging.
Touchstar has made further progress in the past six months with
a positive trading statement at the end of January. The company now
has a very strong balance sheet with some 40% of its market value
represented by cash.
Petards is also expected to shortly produce its 2021 annual
accounts showing a return to profitability. A recent large buy-back
and cancellation of its own shares demonstrates that the company
has a strong balance sheet and that its Board considers the shares
to be materially undervalued.
Universe was taken over at 12p per share which represented a
very healthy premium of 129%. The purchaser was a business based in
the United States.
The saga at Main Dental Partners unfortunately continues with
the appeal being brought by the previous managing director, James
Main, being postponed until later this year. This relates to a
material claim for employment compensation that was judged in
favour of the company.
La Salle Education ("La Salle"), a business involved in
supplying schools with the modern mathematics syllabus via the
internet has been deeply involved in providing services to many
schools. After a slow start, there are signs that market awareness
is increasing leading to rising revenue streams.
Outlook
As I mention in the introduction, the trading climate is very
uncertain due to the invasion of Ukraine, while China continues to
grapple with containing the Coronavirus. The impact of these events
is being closely felt all over Europe and the United States due to
the globalisation of business over the past 30 years. It might well
be that we see a reversal of this trend over the next period which
may well lead to price rises as the cost of securing supply chains
increases.
We believe that the UK economy will recover once these macro
themes become factored into business thinking. The pressure on
labour supply will be resolved over the medium term, via a drive
towards increased productivity. As part of the resolution of the
labour shortage, employing older workers might be mutually
beneficial for people struggling with low pensions and companies
struggling to recruit.
Kevin Allen
Chairman
14 April 2022
Interim Management Report
The important events that have occurred during the period under
review and the key factors influencing the financial statements are
set out in the Chairman's Report. The Board considers that the
principal risks and uncertainties facing the Company, remain the
same as those disclosed in the Annual Report for the year ended 31
August 2021 on pages 14 and 15 and pages 55 and 56. These risks
include, but are not limited to, market risk, discount volatility
risk, regulatory risk, financial risk and liquidity risk.
Responsibility Statement
The Directors are responsible for preparing the unaudited Half
Yearly Report in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
-- The condensed set of financial statements for the six months
to 28 February 2022, has been prepared in accordance with FRS 104
"Interim Financial Reporting", gives a fair view of the assets,
liabilities, financial position and profit of the Company; and
-- this Half Yearly Report includes a fair review of the information required by;
a) rule 4.2.7R of the Disclosure and Transparency Rules being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) rule 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions described in the last Annual Report that could do
so.
This Half Yearly Report was approved by the Board of Directors
on 14 April 2022 and the above Responsibility Statement was signed
on its behalf by:
Kevin Allen
Chairman
Portfolio R eview
as at 28 February 2022
The Company's portfolio is set out below.
Investment Sector Valuation % of
GBP'000 total
portfolio
AIM Traded
CEPS Support Services 2,184 67.6
Trading holding company for a number of
companies supplying services and products
Petards Group Support Services 210 6.5
Development, provision and maintenance
of advance security systems and related
services
Technology Hardware &
Touchstar Equipment 595 18.4
Software systems for warehousing and distribution
Nasdaq Traded
Touchpoint Group Support Services
Holdings - -
Provider of mobile satellite communications
equipment and airtime
Unquoted
La Salle Education Support Services 182 5.6
A UK based company dedicated to providing
online mathematics education
P edalling Forth General Retailers 40 1.2
Internet retailer of cycling clothing for
women
Healthcare Equipment
Redecol & Services 21 0.7
A medical device company focused on the
development of asthma monitoring
Portfolio Valuation 3,232 100.0
---------- ----------
Portfolio Holdings
as at 28 February 2022
28 February 31 August 2021
2022
% of % of
Valuation total Valuation total
Investment GBP'000 portfolio GBP'000 portfolio
CEPS 2,184 67.6 1,771 57.1
Touchstar 595 18.4 637 20.6
Petards Group 210 6.5 190 6.1
La Salle Education 182 5.6 182 5.9
Pedalling Forth 40 1.2 240 7.7
Redecol 21 0.7 21 0.7
Touchpoint Group Holdings - - - -
Universe Group * - - 33 1.1
Zenith Energy * - - 24 0.8
Total 3,232 100.0 3,098 100.0
------------ ---------- ------------ ----------
* Sold during the period
Portfolio breakdown by sector and by index
as at 28 February 2022
Sector distribution % of total
Support Services 79.7
Technology Hardware & Equipment 18.4
General Retailers 1.2
Healthcare Equipment & Services 0.7
Index distribution % of total
AIM 92.5
Unquoted 7.5
Income Statement (unaudited)
for the six months to 28 February 2022
Six months to Year to Six months to
28 February 2022 31 August 2021 28 February 2021
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on
investments
at fair value
(note 4) - 80 80 - 1,042 1,042 - 542 542
Income (note
2) 4 - 4 10 - 10 9 - 9
Investment - - - - - - - - -
management
fee*
Other expenses (61) (1) (62) (117) (7) (124) (56) (5) (61)
--------- -------- -------- --------- -------- -------- --------- -------- --------
Net (loss)/
return on
ordinary
activities
before taxation (57) 79 22 (107) 1,035 928 (47) 537 490
Taxation
on ordinary
activities - - - - - - - - -
--------- -------- -------- --------- -------- -------- --------- -------- --------
Net (loss)/return
on ordinary
activities
after taxation (57) 79 22 (107) 1,035 928 (47) 537 490
Revenue Capital Total Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence pence pence pence
(Loss)/return
per Ordinary
share** (1.04) 1.44 0.40 (1.95) 18.95 17.00 (0.86) 9.83 8.97
The total column of this statement is the Statement of Total
Comprehensive Income of the Company prepared in accordance with
Financial Reporting Standards ("FRS"). The supplementary revenue
return and capital return columns are prepared in accordance with
the Statement of Recommended Practice issued in April 2021 by the
Association of Investment Companies ("AIC SORP").
All revenue and capital items in the above statement derive from
continuing operations.
The revenue column of the Income Statement includes all income
and expenses. The capital column includes the realised and
unrealised profit or loss on investments and 75% of the management
fee and finance costs charged to capital.
* With effect from 1 September 2020, the Investment Manager
agreed to waive the entitlement to a fee.
** The return per Ordinary share is based on 5,460,301 (31
August 2021: 5,460,301; 28 February 2021: 5,460,301) shares, being
the weighted average number of shares in issue during the
period.
Statement of Changes in Equity (unaudited)
for the six months to 28 February 2022
Called Capital
up share Special Capital redemption Revenue
capital reserve* reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Six months to 28 February 2022
1 September 2021 55 787 2,011 134 159 3,146
Net return/( loss)
after taxation for
the period - - 79 - (57) 22
---------- ----------- ---------- ------------ ---------- ----------
28 February 2022 55 787 2,090 134 102 3,168
---------- ----------- ---------- ------------ ---------- ----------
Year to 31 August 2021
1 September 2020 55 787 976 134 266 2,218
Net return/ loss)
after taxation for
the year - - 1,035 - (107) 928
---------- ----------- ---------- ------------ ---------- ----------
31 August 2021 55 787 2,011 134 159 3,146
---------- ----------- ---------- ------------ ---------- ----------
Six months to 28 February 2021
1 September 2020 55 787 976 134 266 2,218
Net return/( loss)
after taxation for
the period - - 537 - (47) 490
---------- ----------- ---------- ------------ ---------- ----------
28 February 2021 55 787 1,513 134 219 2,708
---------- ----------- ---------- ------------ ---------- ----------
*The Special reserve was created by the cancellation of the share
premium account by order of the High Court on 20 January 2016.
Distributable reserves: The Special reserve and Revenue reserve
can be used for the purchase of the Company ' s Ordinary shares.
Statement of Financial Position (unaudited)
as at 28 February 2022
As at 28 As at 31 As at 28
February August February
2022 2021 2021
GBP'000 GBP'000 GBP'000
Fixed assets
Investments at fair
value
(note 4) 3,232 3,098 2,598
Current assets
Debtors 149 146 142
Cash at bank 22 34 348
-------------------------- -------------------------- --------------------------
171 180 490
-------------------------- -------------------------- --------------------------
Creditors - amounts falling due within one year
Creditors (20) (32) (60)
Short-term loans (note
5) (215) (100) (320)
-------------------------- -------------------------- --------------------------
(235) (132) (380)
-------------------------- -------------------------- --------------------------
Net current
(liabilities)/assets (64) 48 110
-------------------------- -------------------------- --------------------------
Net assets 3,168 3,146 2,708
-------------------------- -------------------------- --------------------------
Share capital and reserves
Called up share
capital 55 55 55
Special reserve 787 787 787
Capital reserve 2,090 2,011 1,513
Capital redemption
reserve 134 134 134
Revenue reserve 102 159 219
-------------------------- -------------------------- --------------------------
Equity S hareholders'
funds 3,168 3,146 2,708
-------------------------- -------------------------- --------------------------
Net asset value per
Ordinary
share (note 6) 58.02p 57.62p 49.60p
-------------------------- -------------------------- --------------------------
Statement of Cash Flows (unaudited)
for the six months to 28 February 2022
Six months Six months
to Year to to
28 February 31 August 28 February
2022 2021 2021
GBP' 000 GBP' 000 GBP' 000
Cash flows (used in)/from operating activities
Net return on ordinary activities 22 928 490
Adjustment for:
Net capital (return) (79) (1,035) (537)
Expenses charged to capital (1) (7) (5)
Interest paid 1 10 6
(Decrease)/increase in creditors (12) (14) 14
(Increase)/decrease in debtors (3) 4 8
Cash used in operations (72) (114) (24)
--------------- ---------------- ---------------
Cash flows (used in)/from investing activities
Purchase of investments (160) - -
Proceeds from sale of investments 106 339 339
--------------- ---------------- ---------------
Net cash ( used in)/from
investing activities (54) 339 339
--------------- ---------------- ---------------
Cash flows from/(used in) financing activities
Capital repayment of loan (50) (220) -
Loan drawdown 165 - -
Interest paid (1) (10) (6)
--------------- ---------------- ---------------
Net cash from/(used in)
financing activities 114 (230) (6)
--------------- ---------------- ---------------
Net (decrease)/increase
in cash (12) (5) 309
--------------- ---------------- ---------------
Cash at the beginning of
the period 34 39 39
--------------- ---------------- ---------------
Cash at the end of the period 22 34 348
--------------- ---------------- ---------------
1 Accounting Policies
a) Statement of compliance
The Company's Financial Statements for the period ended 28
February 2022 have been prepared under UK Generally Accepted
Accounting Practice (UK GAAP) and the Statement of Recommended
Practice, 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' issued in April 2021 ('the SORP') by the
Association of Investment Companies.
The Financial Statements have been prepared in accordance with
the accounting policies set out in the statutory accounts for the
year ended 31 August 2021.
b) Financial information
The financial information contained in this report does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The financial information for the period ended
28 February 2022 and 28 February 2021 have not been audited or
reviewed by the Company's Auditor pursuant to the Auditing
Practices Board guidance on such reviews. The information for the
year to 31 August 2021 has been extracted from the latest published
Annual Report and Financial Statements, which have been lodged with
the Registrar of Companies, contained an unqualified auditors'
report and did not contain a statement required under Section 498
(2) or (3) of the Companies Act 2006.
c) Going concern
The Company's assets consist mainly of equity shares in
companies which, in most circumstances are realisable within a
short timescale. The Directors believe that the Company has
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the accounts. In assessing the Company's
ability to continue as a going concern, the Board has fully
considered the impact of the war in Ukraine and the continuing
impact of the Covid-19 pandemic.
2 Income
Six months Year to Six months
to to
28 February 31 August 28 February
2022 2021 2021
GBP'000 GBP'000 GBP'000
Income from investments
UK net dividend income - 14 14
Loan stock interest 4 (4) (5)
Total income 4 10 9
------------ --------------- -----------------
3 Taxation
The tax charge for the six months to 28 February 2022 is nil
(year to 31 August 2021: nil; six months to 28 February 2021:
nil).
The Company has an effective tax rate of 0% for the year ending
31 August 2022. The estimated effective tax rate is 0% as
investment gains are exempt from tax owing to the Company's status
as an Investment Trust and there is expected to be an excess of
management expenses over taxable income.
4 Investments
28 31 28
February August February
Fully AIM 2022 2021 2021
listed quoted Unquoted NASDAQ Total Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening book
cost 118 3,696 772 166 4,752 4,753 4,753
Opening
investment
holding losses (94) (1,065) (329) (166) (1,654) (2,358) (2,358)
------------ ----------------------- -------------- ------------ -------------- ------------- --------------
24 2,631 443 - 3,098 2,395 2,395
Movements in
the period:
Purchases at
cost - 160 - - 160 - -
Sales proceeds (24) (82) - - (106) (339) (339)
(Losses)/gains
on sales (94) (132) - - (226) 338 338
Movement in
investment
holding losses 94 412 (200) - 306 704 204
------------ ----------------------- -------------- ------------ -------------- -------------
Closing
valuation - 2,989 243 - 3,232 3,098 2,598
------------ ----------------------- -------------- ------------ -------------- ------------- --------------
Closing book
cost - 3,642 772 166 4,580 4,752 4,752
Closing
investment
holding losses - (653) (529) (166) (1,348) (1,654) (2,154)
------------ --------------
Closing
valuation - 2,989 243 - 3,232 3,098 2,598
------------ --------------
Analysis of capital gains
and losses
Realised
(losses)/gains
on sales (94) (132) - - (226) 338 338
Movement in
fair value
of investments 94 412 (200) - 306 704 204
------------ ----------------------- -------------- ------------ -------------- ------------- --------------
- 280 (200) - 80 1,042 542
------------ ----------------------- -------------- ------------ -------------- ------------- --------------
Fair value hierarchy
In accordance with FRS 102 and FRS 104 the Company must disclose
the fair value hierarchy of financial instruments.
The fair value hierarchy consists of the following three classifications:
Level 1 - Valued using quoted prices in active markets for
identical assets or liabilities. This is usually the bid price.
Level 2 - Valued by reference to valuation techniques using
observable inputs other than quoted prices included within Level
1.
Level 3 - Valued by reference to valuation techniques using
inputs that are not based on observable market data.
Details of the Company's financial instruments are shown in the
Portfolio Review including financial instruments which fall into
Level 3 shown under the section heading "Unquoted". A summary
reconciliation of the fair value movements of Level 3 investments
is shown in the table above.
Financial assets at fair value through profit or loss
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
At 28 February
2022
Equity investments 2,989 - 243 3,232
-------- -------- -------- --------
Total 2,989 - 243 3,232
-------- -------- -------- --------
At 31 August 2021
Equity investments 2,655 - 443 3,098
-------- -------- -------- --------
Total 2,655 - 443 3,098
-------- -------- -------- --------
At 28 February
2021
Equity investments 2,164 - 434 2,598
-------- -------- -------- --------
Total 2,164 - 434 2,598
-------- -------- -------- --------
5 Short term loans
On 4 June 2018, the Company entered in to a GBP600,000 loan
agreement with Jarvis Securities plc. Interest is payable monthly
in arrears at the rate of 4.5% above the Bank of England base
rate.
The loan was drawn down on 4 June 2018. Partial repayments were
made on 11 May 2020 of GBP280,000, on 2 March 2021 of GBP220,000
and on 7 February 2022 of GBP50,000. At the period end a balance of
GBP50,000 was outstanding. The loan is secured on the assets of the
Company and is repayable on demand.
On 16 September 2021, the Company entered in to a GBP165,000
unsecured interest free loan agreement with Chelverton Asset
Management Limited. At the period end a balance of GBP165,000 was
outstanding.
6 Net asset value
The basic net asset value per Ordinary share is based on net
assets of GBP3,168,000 (31 August 2021: GBP3,146,000; 28 February
2021: GBP2,708,000) and on 5,460,301 Ordinary shares (31 August
2021: 5,460,301; 28 February 2021: 5,460,301) being the number of
Ordinary shares in issue at the period end. No shares are held in
Treasury.
7 Related party transactions
Under the terms of the agreement dated 28 June 2001, the Company
has appointed Chelverton Asset Management Limited to be the
Investment Manager. Mr Horner, a Director of the Company, is also a
director of Chelverton Asset Management Limited and chairman of
CEPS in which the Company holds an investment as set out above. Mr
Martin is the chairman of Touchstar in which the Company holds an
investment as set out above.
At 28 February 2022, there was GBPnil (31 August 2021: GBPnil;
28 February 2021: GBPnil) payable to the Investment Manager.
As stated in note 5, on 16 September 2021, the Company entered
in to a GBP165,000 unsecured interest free loan agreement with
Chelverton Asset Management Limited. At the period end a balance of
GBP165,000 was outstanding.
The three Directors also have individual holdings in Chelverton
Asset Management Holdings, a company which has Mr Horner as a
director. The Directors' holdings are detailed below.
Percentage of
Ordinary shares Ordinary shares
held held
GBP' 000 %
K J Allen 1 1
D A Horner* 55.25 55.25
I P Martin 2 2
* Director and connected persons
total holdings.
Information about the Company can be obtained at the Investment
Manager's website at www.chelvertonam.com. Neither the contents of
the manager's website nor the contents of any website accessible
from hyperlinks on this announcement (or any other website
incorporated into, or forms part of this announcement.
An investment company as defined under Section 833 of the Companies Act 2006.
REGISTERED IN ENGLAND No 02989519
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IR BSGDSIGBDGDS
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