Final Results

RNS Number : 3706H

Chelverton Growth Trust PLC

14 November 2018

 

CHELVERTON GROWTH TRUST PLC

LEI: 213800I86P8BAE6UVI83

FINAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2018

The full Annual Report and Accounts can be accessed via the Company's website at www.chelvertonam.com or by contacting the Company Secretary on 01392 487056.

Investment objective

The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market ("AIM") with a market capitalisation at the time of investment of up to £50 million, which are believed to be at a "point of change". The Company will also 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 net asset value per share at a higher rate than other quoted smaller company trusts and the MSCI Small Cap UK Index.

It is the Company's policy not to invest in any listed investment companies (including listed investment trusts).

Company summary

Benchmark	MSCI Small Cap UK Index
Investment Manager	Chelverton Asset Management Limited
Total net assets	£3,303,000 as at 31 August 2018
Market capitalisation	£3,085,000 as at 31 August 2018
Capital structure	5,460,301 Ordinary 1p shares carrying one vote each

Performance statistics

	Year ended	Year ended
	31 August 2018	31 August 2017	% Change
Net assets	£3,303,000	£5,460,000	(39.51)
Net asset value per share (NAV)	60.48p	85.63p	(29.37)
MSCI Small Cap UK Index	442.32	412.80	7.15
Share price	56.50p	63.00p	(10.32)
Discount to net asset value	(6.58)%	(26.43)%
Revenue loss after taxation	£(136,000)	£(136,000)
Revenue loss per share	(2.45)p	(2.13)p
Capital (loss)/gain per share	(23.40)p	25.23p

Strategic Report

The Strategic Report has been prepared in accordance with section 414A of the Companies Act 2006 (the"Act"). Its purpose is to inform the Members of the Company and help them understand how the Directors have performed their duty under section 172 of the Act to promote the success of the Company.

Chairman's statement

It is very disappointing to present results which show a significant decline in the Company's net asset value per share from 85.63p to 60.48p (a decrease of 29.37%) reversing the gains made last year. In the same period, the Company's benchmark index, the MSCI Small Cap UK Index rose by 7.15%.

What is particularly galling is that the bulk of this decline has occurred since the interim results in February, with every month since then showing a decline apart from a very small recovery in September.  As detailed in the Manager's Report, the main underlying companies are making progress. However, due to the uncertainty of macroeconomic environment, our investments are particularly vulnerable to the impact of illiquidity and consequent sharp price reductions which result from even modest selling.

Quite enough has already been written about the whole Brexit process over the past 12 months and the resulting uncertainty. The commercial sector is desperate to see some form of certainty, be that a defined deal or a no-deal exit. The latest idea to postpone the outcome, effectively for up to another 12 months, seems the most short-sighted proposal of all that have so far been made.  This would merely prolong the whole process and the prevailing uncertainty.

On a positive note, the companies in the portfolio are highly UK-centric in their business dealings and therefore the prosperity and growth of the UK economy is the biggest single driver of their future success. If the UK itself does not head into recession, which most experts consider very unlikely, the marketplace for our companies should remain favourable.   

In the period under review the economy has grown, albeit at a slightly lower rate than in the recent past. The continued growth in employment, and more importantly full-time employment, has finally resulted in real wage growth.  Full employment and real wage growth has historically led to rising inflation, however at this time inflation is marginally reducing and this welcome trend is expected to continue.  

The move towards a normalised economy continues, with the Government deficit reducing and interest rates very gradually being increased. The long process of unwinding the Government's Quantitative Easing programme has not yet commenced but will need to be addressed at some point.          

Tender Offers

The last tender offer took place at the beginning of this reporting period in September 2017.  In October and November 2017, further small buy-backs took place, with a total of 167,022 shares being acquired for prices between 68.8p and 73.5p.  It is worth pointing out that the effect of the tender offers to date and the periodic buy-back of shares has reduced the share capital from 18.9 million shares to the current 5.5 million, a reduction of 71%. 

Whilst the Board remains committed to the tender process as a means of offering Shareholders the ability to realise some of their shareholding at a modest discount to net asset value, it is not prepared to sanction a tender offer at this time as it feels that the current share valuation does not represent anything like the real value of the underlying assets.

Corporate Governance

The Board has noted the process undertaken by the Financial Reporting Council ('FRC') to review and update the UK Corporate Governance Code. These changes will be applicable to the Company from 1 September 2019 and the Board will review the requirements over the coming months.

The Future

Given the decline in the size of the Company (resulting from the program of tender offers and the recent decline in asset values) and the inevitable impact which this has had on the expense ratio, the Board has decided to formally outline a strategy for winding up the Company and maximising the value for Shareholders from the remaining assets.

As and when value and liquidity are restored to the AIM traded shares these will be realised, with the cash proceeds being used firstly to settle all outstanding liabilities at that time and secondly to return value to Shareholders via a further tender offer or buybacks.

Subject to the valuation of any remaining illiquid assets at that time, the Board will examine the most tax efficient manner of returning value to Shareholders. 

We expect this final process to take up to two years, but this estimate will of course be determined by the speed of recovery in the principal investments and their liquidity. It is unlikely that there will be a continuation vote in 2020.

The Outlook

There are currently significant macroeconomic headwinds including the tortuous path to a Brexit deal, resolution of what will become the "Italian Debt Crisis", the continued escalation in the "trade war" between the United States and China and the debt concerns in emerging markets.

However, the companies in the portfolio have generally made progress over the past year and we hope, and expect, that the investment and development that has taken place in the past few years within the investee companies will bear fruit over the forthcoming period.      

Kevin Allen

Chairman

14 November 2018

Investment Manager's overview

In the past year the UK economy has grown slowly and at a somewhat slower rate than in recent periods.  However, when meeting up with companies in the portfolio or indeed other companies invested in funds managed by Chelverton Asset Management Limited one does not get any sense of the doom and gloom that we hear about every day in media reports.  Generally, managers are getting on with making their companies more efficient, more profitable and more resilient.

One concern that is becoming more widespread is the increasing problem of being able to recruit personnel with the necessary skills and application.  As a general observation, having enjoyed unfettered highly skilled immigration over the past 20 years, British companies will need to invest much more in training and development of skills and in plant and equipment to remove or reduce the labour content within their businesses.  Whilst this might appear on the face of it to be a negative consequence of Brexit, it is more the impact of a generational change in demographics.

Hopefully when we finally see resolution of the Brexit process, the country and specifically the companies we are invested in, can get on with managing with what will then be "known-knowns".  The current position is both frustrating and exhausting as the day to day uncertainty means that it is difficult to make even medium-term plans and it is too easy to assume that everything is going to be disastrous, whereas the reality is probably a long way from this.

The portfolio is invested in small AIM traded and smaller unquoted UK companies whose business is largely conducted in the UK. Therefore, the strength and growth of the UK economy is by far and away the most important determinant of the success of our underlying companies.  A review of the sales of all our investments shows that 84% of sales are made in the UK while only 9% are made to countries in the EU. For information and completeness 2% are made to North America and 5% to the rest of the world.

Portfolio review

The biggest change to the portfolio in the period was the takeover of Lombard Risk Management via a recommended cash offer at 13p per share. Whilst this produced a very healthy profit, our feeling was that if the management team had been given more time to develop the business, returns could have been much greater than this.

A further investment was made as part of a placing by CEPS. This takes the Company's investment to 29.76% of the CEPS share capital. CEPS itself owns majority shareholdings in five different stand-alone subsidiaries which are all operating in unrelated niche markets. The strategy of the company is to buy profitable, cash generative, niche businesses at modest prices. Over time they will produce profits and cash and repay the cost of purchase back to CEPS, which can be reapplied to acquire other companies.  In the year under review, one of the loss-making subsidiaries went into administration.  This had the effect of eliminating the losses produced by this company and had a broadly neutral effect on the CEPS balance sheet.  Considerable work has been going in to the turnaround of two of the other subsidiaries and CEPS is hopeful that next year these businesses will be positive contributors.  The holding in CEPS is now the largest part of the Company and is considered by the Board, because it is made up of five separate businesses, to be a diversified holding.

Universe has seen its shares fall from some 9.5p to 3.85p over the past year.  The company has now stabilised after a very disappointing result last year caused, in part, by the administration of a potential new client - Conviviality plc.  In the latest interim results for the six months to June 2018, the Chairman spoke of the expectation of growth in 2019 and beyond.

Touchstar had a small fundraising to raise £921,000 at 60p per share and the Company took up its share being 170,000 shares. Subsequent to the fundraising, an additional 30,000 shares were acquired to take the Company's shareholding up to 10% of the investee company. The funding has been used to accelerate the development of the business and it is hoped that progress will be evidenced next year.

The holding in Petards Group was added to at the beginning of the year. Petards supplies sophisticated products to the rail industry and is building a very large order book to be delivered over the next two to three years. The company recently reported interim results that were up on the previous year and showed a very strong balance sheet with net cash of £1 million after paying for an acquisition.  The order book is such that 2018 is full and 2019 is already half full. Notwithstanding this, the shares have fallen from 29.3p to 21.5p over the past year.

The Plutus Powergen share price has declined from 2.15p at the beginning of the year to 0.75p today. The company is focused on the development and operation of flexible energy generation projects in the UK. The last year has seen the completion and operation of six diesel sites. Having had to revise its plan, because of the OFGEM review, the company is now intending to build one gas site in partnership with Rockpool and has a pipeline of a further 300MW of gas generation. The company has had very little to report in the last period as it has been seeking to raise finance to develop these projects. It is trying to achieve this with as little dilution to shareholders as possible.

The holding in Chelverton Asset Management Holdings Limited, the Investment Manager of this Company, was again revalued upwards reflecting the continued success of its funds, which has led to a growth in funds under management. The Employee Benefit Trust of Chelverton Asset Management Limited tendered for 5,500 shares (5.5%) of the share capital at a price of £160 per share compared to a cost price of £1. This was done to provide investors with the opportunity of exiting, four years after having made the investment. The fund sold half its holding and retains 1,000 shares which have been revalued upwards to £210 per share.

A very small new investment of £72,000 was made in Zenith Energy, an on-shore low cost producer of oil in Azerbaijan, as part of a fundraising of some £670,000. The plan is to refurbish the oil field and to access the oil reserves in an efficient manner with modern equipment and techniques.

Having in the past reduced the value of La Salle Education to nil there has been some encouraging progress over the past year and the company has just raised an additional £250,000 to continue the development of the business to a cash breakeven point and further into profitability. The Company has restored the value of the holding to 50p per share and in October 2018 took up an additional 100,000 shares at 50p.

Main Dental Partners was sold on the 26 October for loan stock which is payable once a conditional liability claim is resolved. Because of the conditionality of the consideration, the value at which the investment is held has not been increased.

Outlook

In time, once the macroeconomic outlook is more settled and more favourable, we believe that the real value of our companies will begin to be evidenced by increases in their share prices. Expected recovery and growth in the share prices of the AIM holdings will contribute to this increase in the asset value and we anticipate being able to report a much better performance in a year's time.

David Horner

Chelverton Asset Management Limited

14 November 2018

Portfolio Review

as at 31 August 2018

Investment	Sector			Valuation £'000				% of  total portfolio
AIM traded
CEPS	Support Services			1,417				40.6
Trading holding company for a number of companies supplying services and products
MTI Wireless Edge	Technology Hardware & Equipment			171				4.9
Developer and manufacturer of sophisticated antennas and antenna systems
Petards Group	Support Services			460				13.2
Development, provision and maintenance of advanced security systems and related services
Plutus Powergen                            Flexible Energy Supply				317				9.1
Providers of management infrastructure and expertise to operate power plants and provide flexible electricity generation
Touchstar	Technology Hardware and Equipment			374				10.7
Software systems for warehousing and distribution
Universe Group	Support Services			31				0.9
Provision of credit fraud prevention, loyalty and retail systems
Fully listed
Zenith Energy	Oil & Gas Producers			37				1.1
International energy production and exploration company
Nasdaq Traded
One Horizon Group	Support Services			-				-
Provider of mobile satellite communications equipment and airtime
				2,807				80.5
Unquoted
Airways Engineering	Support Services
Ordinary B Shares				-				-
Loan Stock				-				-
Commercial aviation maintenance
Anaxsys Technology	Healthcare Equipment & Services			-				-
A medical device company for patient monitoring and screening
Chelverton Asset Management Holdings	Support Services			210				6.0
Investment management, including providing services to Chelverton Growth Trust Plc
La Salle Education	Support Services			80				2.3
A UK based company dedicated to improving mathematics education
Main Dental Partners	Support Services
Ordinary B Shares				138				4.0
Loan stock				-				-
Operator of dental surgeries
Pedalling Forth	General Retailers			250				7.2
Internet retailer of cycling clothing for women
Portfolio Valuation				3,485				100.0

Portfolio holdings

as at 31 August 2018

	31 August 2018		31 August 2017
	Valuation	% of total	Valuation	% of total
Investment	£'000	portfolio	£'000	portfolio
CEPS	1,417	40.6	1,292	30.7
Petards Group	460	13.2	434	10.3
Touchstar	374	10.7	621	14.7
Plutus Powergen	317	9.1	700	16.6
Pedalling Forth	250	7.2	150	3.6
Chelverton Asset Management Holdings	210	6.0	200	4.7
MTI Wireless Edge	171	4.9	210	5.0
Main Dental Partners	138	4.0	138	3.3
La Salle Education	80	2.3	-	-
Zenith Energy	37	1.1	-	-
Universe Group	31	0.9	61	1.4
Security Research Group*	-	-	62	1.5
One Horizon Group	-	-	22	0.5
Anaxsys Technology	-	-	-	-
Airways Engineering	-	-	-	-
Lombard Risk Management*	-	-	323	7.7
Total	3,485	100.0	4,213	100.0

* Sold during the year

Portfolio breakdown by sector and by index

Percentage of portfolio by sector

Support Services	67.0%
Technology Hardware & Equipment	15.6%
Flexible Energy Supply	9.1%
General Retailers	7.2%
Oil & Gas Producers	1.1%

Percentage of portfolio by index

AIM	79.4%
Unquoted	19.5%
Fully Listed	1.1%

Directors (all non-executive)

Kevin Allen (Chairman)⃰

David Horner

Ian Martin⃰

⃰Independent

Extracts from the Strategic Report

As explained within the Report of the Directors, the Company carries on business as an investment trust. Investment trusts are collective closed-ended public limited companies.

Chelverton Growth Trust plc is a public limited company incorporated in England and Wales (registration number 02989519) with its registered office being Suite 8, Bridge House, Courtenay Street, Newton Abbot TQ12 2QS.

The Company is an investment company under section 833 of the Companies Act.

The Company's shares are listed on the London Stock Exchange main market under the code CGW (sedol 0262134) and L.E.I. 213800I86P8BAE6UVI83.

Board

The Board of Directors is responsible for the overall stewardship of the Company, including investment and dividend policies, corporate and gearing strategy, corporate governance procedures and risk management.

Investment Objective

The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market ("AIM") with a market capitalisation at the time of investment of up to £50 million, which are believed to be at a "point of change". The Company will also 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 net asset value per share at a higher rate than other quoted smaller company trusts and the MSCI Small Cap UK Index.

Investment Policy

The Company invests principally in securities of publicly quoted UK companies, though it may invest in unquoted securities. The performance of the Company's investments is compared to the MSCI Small Cap UK Index.

The Company may also 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.

It is the Company's policy not to invest in any listed investment companies or listed investment trusts.

To comply with Listing Rules the Company's investment policy is detailed above and should be read in conjunction with the subsequent sections entitled investment strategy and the performance analysis.

It is intended from time to time, when deemed appropriate, that the Company will borrow for investment purposes.

The Investment Objective and Policy stated are intended to distinguish the Company from other investment vehicles which have relatively narrow investment objectives and which are constrained in their decision making and asset allocation. The Investment Objective and Policy allow the Company to be constrained in its investment selection only by valuation and to be pragmatic in portfolio construction by only investing in securities which the Investment Manager considers to be undervalued on an absolute basis. Portfolio risk is managed by investing in a diversified spread of investments.

Investment Strategy

Investments are selected for the portfolio only after extensive research which the Investment Manager believes to be key. The whole process through which equity must pass in order to be included in the portfolio is very rigorous. Only a security where the Investment Manager believes that the price will be significantly higher in the future will pass the selection process. The Investment Manager believes the key to successful stock selection is to identify the long-term value of a company's shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of a company's earnings prospects over a five-year time horizon.

The Company's Investment Manager is Chelverton Asset Management Limited, an independent investment manager focusing exclusively on achieving returns for investors based on UK investment analysis of the highest quality. The founder and employee owners of Chelverton include experienced investment professionals with strong investment performance records who believe rigorous fundamental research allied to patience is the basis of long-term investment success.

Note 15 gives details of the Directors' interests in the Investment Manager.

The Chairman's statement and the Investment Manager's overview give details of the Company's activities during the year under review.

Investment of Assets

At each Board meeting, the Board considers compliance with the Company's investment policy and other investment restrictions during the reporting period. An analysis of the portfolio on 31 August 2018 can be found above.

Environment Emissions

All of the Company's activities are outsourced to third parties. As such it does not have any physical assets, property, or operations of its own and does not generate any greenhouse gas or other emissions.

Review of Performance and Outlook

Reviews of the Company's returns during the financial year, the position of the Company at the year end, and the outlook for the coming year are contained in the Chairman's statement and the Investment Manager's overview.

Principal risks and uncertainties and risk management

As stated within the Corporate Governance Statement, the Board applies the principles detailed in the internal control guidance issued by the Financial Reporting Council, and has established a continuing process designed to meet the particular needs of the Company in managing the risks and uncertainties to which it is exposed.

The principal risks and uncertainties faced by the Company are described below and in note 14 which provides detailed explanations of the risks associated with the Company's financial instruments.

Market risk

The Company is exposed to market risk due to fluctuations in the market prices of its investments.

The Investment Manager actively monitors economic and company performance and reports regularly to the Board on a formal and informal basis. The Board formally meets with the Investment Manager quarterly when portfolio transactions and performance are reviewed. The Board acting as the Management Engagement Committee meets as required to review the performance of the Investment Manager.

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 notional gains, during negative market movements this may provide protection.

Discount volatility

As with many investment trust companies, discounts can significantly fluctuate.

The Board recognises that 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 does not intend to adopt a precise discount target at which shares will be bought back. However, Ordinary shares will not be bought back for cancellation or into Treasury at a discount to NAV of less than 7.5%.

Regulatory risks

Relevant legislation and regulations which apply to the Company include the Companies Act 2006, the Corporation Tax Act 2010 ("CTA"), the Alternative Investment Fund Manager's Directive ("AIFMD") and the Listing Rules of the Financial Conduct Authority ("FCA"). The Company has noted the recommendations of the UK Corporate Governance Code and its statement of compliance appears on pages17 to 23 of the Annual Report. A breach of the CTA could result in the Company losing its status as an investment company and becoming subject to capital gains tax, whilst a breach of the Listing Rules might result in censure by the FCA. At each Board meeting the status of the Company is considered and discussed, so as to ensure that all regulations are being adhered to by the Company and its service providers.

The Board is not aware of any breaches of laws or regulations during the period under review and up to the date of this report.

Financial risk

The financial situation of the Company is reviewed in detail at each Board meeting. The content of the Company's Annual Report and financial statements is monitored and approved both by the Board and the Audit Committee.

Inappropriate accounting policies or failure to comply with current or new accounting standards may lead to a breach of regulations.

Liquidity risk

The Board monitors the liquidity of the portfolio at each Board meeting and regularly reviews the investments with the Investment Manager.

A more detailed explanation of the investment management risks facing the Company is given in note 14 to the financial statements.

Financial instruments

As part of its normal operations, the Company holds financial assets and financial liabilities. Full details of the role of financial instruments in the Company's operations are set out in note 14 to the financial statements.

The Board seeks to mitigate and manage these risks through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company's investment portfolio. Investment risk is spread through holding a wide range of securities in different industrial sectors.

Statement regarding annual report and accounts

Following a detailed review of the Annual Report and Accounts by the Audit Committee, the Directors consider that taken as a whole it is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

Performance analysis using key performance indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives, for example: the NAV, the movement in the Company's share price and the premium/discount of the share price in relation to the NAV.

The Company's Income statement is set out below.

The movement of the NAV is compared to the MSCI Small Cap UK Index, the Company's benchmark.

The NAV per Ordinary share at 31 August 2018 was 60.48p (2017: 85.63p), a decrease of 29.37%. By comparison the benchmark rose by 7.15%.

The Company's share price at the year-end was 56.50p (2017: 63.00p).

Viability Statement

The Board reviews the performance and progress of the Company over various time periods and uses these assessments, regular investment performance updates from the Investment Manager and a continuing programme of monitoring risk, to assess the future viability of the Company. The Directors consider that a period of two years is the most appropriate time horizon to consider the Company's viability and after careful analysis and consideration of the future prospects as discussed in the Chairman's statement above, the Directors believe that the Company is viable over a two-year period. The Directors are of the opinion that the Company has sufficient liquidity in the portfolio in readily realisable smaller capitalised AIM traded securities.

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 reassurance from suppliers 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 assessment.

Current and future developments

A review of the main features of the year is contained in the Chairman's statement and the Investment Manager's overview.

The marketing and promotion of the Company will continue to involve the Board, led by the Investment Manager, with a proactive communications programme either directly or through its website, with existing and potential new Shareholders and other external parties.

Tender offer

On 4 September 2017, the Company announced details of a Tender Offer to purchase up to 15% of the Company's share capital. On 21 September 2017, the Company announced the results of the Tender Offer. A total of 749,765 shares (representing 11.76% of the Company's issued share capital at that date) were purchased at a price of 76.73p per Ordinary share. These shares have now been cancelled.

The Directors are seeking to renew the appropriate powers at the next Annual General Meeting to enable the purchase of the Company's own shares, when it is in the interests of Shareholders as a whole.

Social, environmental and employee issues

The Company does not have any employees and the Board consists entirely of non-executive directors. As the Company is an investment trust, which invests in other companies, it has no direct impact on the community or the environment, and as such has no policies in this area.

Alternative Investment Fund Manager's Directive ("AIFMD")

The Board has registered itself as the AIFM with the FCA under the Directive and confirm that all required returns have been completed and filed.

By Order of the Board

Kevin Allen

Chairman

14 November 2018

Extract from the Report of the Directors

Status, objective and review

The principal activity of the Company is to carry on business as an investment trust. The Company has been granted approval from HM Revenue & Customs ('HMRC') as an authorised investment trust under Section 1158 of the Corporation Tax Act 2010. The Company will be treated as an investment trust company for each subsequent accounting period, subject to there being no serious breaches of the conditions. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 August 2018 so as to be able to continue to qualify as an authorised investment trust. The Company is an investment company as defined in Section 833 of the Companies Act 2006.

Management and administration agreements

The Company's investments are managed by Chelverton Asset Management Limited ("CAM") under an agreement dated 28 June 2001. Mr Horner is a director of CAM.

The Company pays CAM, in respect of its services as Investment Manager, an annual fee of 1% of gross assets, payable monthly in arrears.

The amount payable to CAM for the year ending 31 August 2018 was £44,000. At the year-end £3,300 was outstanding to CAM.

The appointment of CAM as Investment Manager may be terminated by either party giving to the other not less than twelve months' notice of such termination. There are no specific provisions contained within the Investment Management Agreement relating to the compensation payable in the event of termination of the agreement other than entitlement to fees, which would be payable within any notice period.

Under an agreement dated 21 December 2015, company secretarial services and the general administration of the Company are undertaken by ISCA Administration Services Limited for an annual fee of £40,000.

Appointment of Chelverton Asset Management ("CAM") as the Investment Manager

The Board, excluding Mr Horner, continually reviews the performance of the Investment Manager. In the opinion of the independent Directors the continuing appointment of CAM, as Investment Manager, on the terms outlined in the Investment Management Agreement dated 28 June 2001 and amended on 1 December 2006, is in the best interests of the Shareholders as a whole. Further, the Board is satisfied that CAM has the required skill and expertise to continue to manage the Company's portfolio and charges fees that are reasonable when compared with those of similar investment trusts.

Going concern

In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council. They have considered the current cash position of the Company, and forecast revenues for the current financial year. The Directors have also taken into account the Company's Investment Policy, which is subject to regular Board monitoring processes, and is designed to ensure the Company holds sufficient liquid securities to meet possible cash flow needs.

The Company retains title to all assets held by its custodian. Note 14 to the financial statements sets out the financial risk profile of the Company and indicates the effect on its assets and liabilities of falls and rises in the value of securities, market rates of interest and changes in exchange rates.

The Directors believe, in the light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets, 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.

On behalf of the Board

Kevin Allen

Chairman

14 November 2018

Statement of Directors' responsibilities in respect of the financial statements

The Directors are responsible for preparing the Annual Report and the financial statements and have elected to prepare them in accordance with applicable United Kingdom law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period.

In preparing the 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;

- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company 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 Report of the Directors, Directors Remuneration Report and Corporate Governance Statement.

The Directors, to the best of their knowledge, state that:

·    the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

·    the Strategic Report incorporating the Chairman's statement and Investment Manager's overview together with the Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces.

The Directors are responsible for the maintenance and integrity of the corporate and financial information related to the Company including on the website of the Investment Manager www.chelvertonam.com.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Kevin Allen

Chairman

14 November 2018

NON- STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 August 2018 and 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report and Accounts on the Investment Manager's website: www.chelvertonam.com.

Income statement

for the year ended 31 August 2018

			2018			2017
	Note	Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments at fair value	7	-	(1,263)	(1,263)	-	1,086	1,086
Income	2	9	-	9	5	574	579
Investment management fee	3	(11)	(33)	(44)	(12)	(38)	(50)
Other expenses	4	(134)	(6)	(140)	(129)	(13)	(142)
Net (loss)/return on ordinary activities before taxation		(136)	(1,302)	(1,438)	(136)	1,609	1,473
Taxation on ordinary activities	5	-	-	-	-	-	-
Net (loss)/return on ordinary activities after taxation		(136)	(1,302)	(1,438)	(136)	1,609	1,473
		Revenue	Capital	Total	Revenue	Capital	Total
(Loss)/return per Ordinary share	6	(2.45)p	(23.40)p	(25.85)p	(2.13)p	25.23p	23.10p

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued during the year.

A separate Statement of Other Comprehensive Income has not been prepared as all such gains and losses are included in the Income statement.

The notes form part of these accounts.

Statement of changes in equity

for the year ended 31 August 2018

	Called up Share   Capital	Special Reserve	Capital Reserve	Capital Redemption Reserve	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Year ended 31 August 2018
1 September 2017	64	1,506	3,145	125	620	5,460
Cost of shares purchased for cancellation under tender offer and buybacks	(9)	(719)	-	9	-	(719)
Net loss after taxation for the year	-	-	(1,302)	-	(136)	(1,438)
31 August 2018	55	787	1,843	134	484	3,303
Year ended 31 August 2017
1 September 2016	64	1,506	1,536	125	756	3,987
Net return/(loss) after taxation for the year	-	-	1,609	-	(136)	1,473
31 August 2017	64	1,506	3,145	125	620	5,460

The Special Reserve and Revenue Reserve are distributable and may be used for the repurchase of the Company's own shares.

The notes form part of these accounts.

Statement of financial position 

as at 31 August 2018

			2018		2017
	Notes		£'000		£'000
Fixed assets
Investments at fair value	7		3,485		4,213
Current assets
Debtors	9		9		683
Cash at bank			439		847
			448		1,530
Creditors - amounts falling due within one year	10		(630)		(283)
Net current (liabilities)/ assets			(182)		1,247
Net assets			3,303		5,460
Share capital and reserves
Called up share capital	11		55		64
Special reserve			787		1,506
Capital reserve			1,843		3,145
Capital redemption reserve			134		125
Revenue reserve			484		620
Equity shareholders' funds			3,303		5,460
Net asset value per Ordinary share	12		60.48p		85.63p

The notes form part of these accounts.

These accounts were approved by the Board of Directors of Chelverton Growth Trust PLC and authorised for issue on 14 November 2018. They were signed on its behalf by

Kevin Allen

Chairman

Statement of cash flows

For the year ended 31 August 2018

	2018		2017
	£'000		£'000
Cash flows from/(used in) operating activities
Net (loss)/return on ordinary activities	(1,438)		1,473
Adjustment for:
Net capital loss/(return)	1,302		(1,609)
Income credited to capital	-		574
Expenses charged to capital	(39)		(51)
Interest paid	10		11
Decrease in creditors	(3)		(22)
Decrease/(increase) in debtors	674		(577)
Cash from/(used in) operations	506		(201)
Cash flows (used in)/from investing activities
Purchase of investments	(1,271)		(535)
Proceeds from sales of investments	736		1,333
Net cash (used in)/from investing activities	(535)		798
Cash flows used in financing activities
Cost of shares purchased for cancellation under tender offer and buybacks	(719)		-
New loan advanced	600		-
Capital repayment of loan	(250)		-
Interest paid	(10)		(11)
Net cash used in financing activities	(379)		(11)
Net (decrease)/increase in cash	(408)		586
Cash at the beginning of the year	847		261
Cash at the end of the year	439		847

The notes form part of these accounts.

1 ACCOUNTING POLICIES

Accounting convention

The financial statements are prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 ("FRS 102"), the Companies Act 2006 and with the AIC Statement of Recommended Practice ("SORP") issued in November 2014, regarding the Financial Statements of Investment Trust Companies and Venture Capital Trusts. All the Company's activities are continuing.

Income recognition

Dividends receivable on quoted equity shares are included as revenue when the investments concerned are quoted 'ex-dividend'. Dividends receivable on equity and non-equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. All other income is included on an accruals basis.

Expenses

All expenses are accounted for on an accruals basis and charged through the revenue account in the Income statement except as follows:

- expenses which are incidental to the acquisition or disposal of an investment are treated as capital and separately identified and disclosed (see note 7):

- management fees, bank interest and loan interest have been allocated 75% to capital reserve and 25% to revenue reserve in the Income statement, being in line with the Board's expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio of the Company.

Investments

All investments held by the Company are classified as '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 changes in the fair value of investments and impairment of investments recognised in the Income statement and allocated to capital. Realised gains and losses on investments sold are calculated as the difference between sales proceeds and cost.

Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the time-frame established by the market concerned and are initially measured at fair value.

For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset. For investments traded on other financial markets such as the OTCQB, fair value is generally determined by reference to the share price at close of business on the balance sheet date, discounted to reflect the best estimate of the discount that may need to be applied for the shares to be sold as a single investment.

For investments that are not actively traded in organised financial markets, fair value is determined as set out below under the heading 'significant judgements and estimation uncertainty'.

Significant judgements and estimation uncertainty

Preparation of the financial statements requires the Investment Manager to make significant judgements. The items in the financial statements where these judgements have been made are:

Investments that are not actively traded in organised financial markets, are valued at the Directors' estimate of the investment's net realisable value being their estimate of fair value. Generally, fair value will be at cost or, where applicable, at the most recent transaction price. In the case of direct investments in unquoted companies the following valuation technique is applied. Initial valuation is based on the transaction price. Where better indications of fair value become available, such as through subsequent issues of capital or dealings between third parties, the valuation is adjusted to reflect the new evidence. This represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction.

Capital reserve

The following are accounted for in this reserve:

·    gains and losses on the realisation of investments;

·    net movement arising from changes in the fair value of investments that can be readily converted to cash without accepting adverse terms;

·    realised exchange differences of a capital nature;

·    expenses, together with related taxation effect, charged to this account in accordance with the above policies; and

·    net movement arising from the changes in the fair value of investments that cannot be readily converted to cash without accepting adverse terms, held at the year end.

Special reserve

The Special reserve was created by the cancellation of the Share Premium account by order of the High Court on 13 January 2016. It can be used for the repurchase of the Company's own shares.

Taxation

The charge for taxation, where relevant, is based on the revenue before taxation for the year. Tax deferred or accelerated can arise due to timing differences between the treatment of certain items for accounting and taxation purposes.

Full provision is made for deferred taxation under the liability method, on all timing differences not reversed by the balance sheet date, in accordance with FRS 102.

The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue on the same basis as the particular item to which it relates, using the Company's effective rate of tax for the accounting period.

2	INCOME
			2018					2017
			Revenue		Capital		Total	Revenue	Capital	Total
			£'000		£'000		£'000	£'000	£'000	£'000
	Income from investments
	Income from LLP investments		-		-		-	-	574	574
	UK net dividend income		9		-		9	5	-	5
	Total income		9		-		9	5	574	579
3		INVESTMENT MANAGEMENT FEE
				2018				2017
				Revenue		Capital	Total	Revenue	Capital	Total
				£'000		£'000	£'000	£'000	£'000	£'000
		Investment management fee		11		33	44	12	38	50

The investment management fee is calculated at the rate of 0.0833% per month, equating to 1% per annum, of the gross value of funds under management and is payable monthly in arrears. At 31 August 2018 there was £3,300 outstanding (2017: £4,800).

4	OTHER EXPENSES	2018		2017
		£'000		£'000
	Administrative and secretarial services	40		40
	Directors' remuneration	34		34
	Auditors' remuneration
	-     audit services	17		17
	-     non-audit services	2		2
	Finance costs	9		12
	Other expenses	38		37
		140		142

5	TAXATION	2018			2017
		Revenue	Capital	Total	Revenue	Capital	Total
	Analysis of charge in period	£'000	£'000	£'000	'000	£'000	£'000
	Current tax	-	-	-	-	-	-

Factors affecting current tax charge for the period

The tax assessed for the period is lower than the standard rate of corporation tax in the UK of 19%. The differences are explained below:

	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Theoretical tax at UK corporation tax rate of 19% (2017: 19.58%)
Corporation tax	(26)	(247)	(273)	(27)	315	288
Investment income not taxable	(2)	-	(2)	(1)	(112)	(113)
Non-taxable investment losses/(gains)	-	240	240	-	(213)	(213)
Excess expenses for the period	28	7	35	28	10	38
Current tax charge for the period	-	-	-	-	-	-

At 31 August 2018 the Company had surplus management expenses of £4,377,000 (2017: £4,193,000) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as an investment trust and the intention to continue meeting the conditions required to obtain approval as an investment trust in the foreseeable future, the Company has not provided for deferred tax on any gains and losses arising on the revaluation or disposal of investments.

6	RETURN PER ORDINARY SHARE
		2018			2017
		Revenue	Capital	Total	Revenue	Capital	Total
		pence	pence	pence	pence	pence	pence
	Basic	(2.45)p	(23.40)p	(25.85)p	(2.13)p	25.23p	23.10p

Revenue return per Ordinary share is based on the net revenue loss on ordinary activities after taxation attributable of £136,000 (2017: £136,000) and on 5,563,242 (2017: 6,377,088) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

Capital return per Ordinary share is based on the net capital (loss)/gain of (£1,302,000) (2017: £1,609,000) and on 5,563,242 (2017: 6,377,088) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

Total return per Ordinary share is based on the total (loss)/gain of (£1,438,000) (2017: £1,473,000) and on 5,563,242 (2017: 6,377,088) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

7		INVESTMENTS					2018			2017
							£'000			£'000
		Fully Listed					37			-
		AIM					2,770			3,641
		Unquoted					678			550
		NASDAQ					-			22
							3,485			4,213
				Fully
				Listed	AIM	Unquoted*		NASDAQ		Total
				£'000	£'000	£'000		£'000		£'000
	Opening book cost			-	3,500	1,287		166		4,953
	Opening investment holding gains/(losses)			-	141	(737)		(144)		(740)
				-	3,641	550		22		4,213
	Movements in the year:
	Purchases at cost			72	1,099	100		-		1,271
	Sales - proceeds			-	(505)	(231)		-		(736)
	-  gains/(losses) on sales			-	142	(158)		-		(16)
	Movement in investment holding (losses)/gains			(35)	(1,607)	417		(22)		(1,247)
	Closing valuation			37	2,770	678		-		3,485
	Closing book cost			72	4,236	998		166		5,472
	Closing investment holding losses			(35)	(1,466)	(320)		(166)		(1,987)
	Closing valuation			37	2,770	678		-		3,485

		2018	2017
		£'000	£'000
	Realised (losses)/gains on sales	(16)	818
	Movement in fair value of investments	(1,247)	268
	Net (losses)/gains on investments	(1,263)	1,086
	All quoted investments are made up of equity shares.

* Unquoted investments are valued at the Directors' estimate of their net realisable value, being their estimate of fair value.

Analysis of movements in unquoted investments

	Cost at 31 August 2017	Additions	Disposals	Cost at 31 August 2018	Realised gain/(loss)	Holding  gain/(loss)	Valuation at 31 August 2018	Valuation at 31 August 2017
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment
Anaxys Technology	292	-	-	292	-	-	-	-
Airways Engineering
Loan stock	45	-	-	45	-	-	-	-
Ordinary B shares	30	-	-	30	-	-	-	-
Chelverton Asset Management Holdings	2	-	(1)	1	159	11	210	200
Closed Loop Recycling *
Loan stock	252	-	(252)	-	(252)	252	-	-
Ordinary B shares	84	-	(84)	-	(84)	84	-	-
La Salle Education	130	-	-	130	-	80	80	-
Main Dental
Loan stock	75	-	-	75	-	-	-	-
Ordinary B shares	175	-	-	175	-	-	138	138
Pedalling Forth	150	100	-	250	-	-	250	150
Security Research Group	52	-	(52)	-	19	(10)	-	62
	1,287	100	(389)	998	(158)	417	678	550

* Dissolved on 25 August 2018

Transaction costs

During the year, the Company incurred transaction costs of £696 (2017: £nil) and £887 (2017: £1,079) on purchases and sales of investments, respectively. These amounts are included in '(Losses)/gains on investments at fair value' as disclosed in the Income statement.

Details of material holdings in unquoted investments

	Cost at 31 August 2018	Valuation at 31 August   2018	Cost at 31 August 2017	Valuation at 31 August   2017	Last accounts year end	Net assets	Turnover	Pre-tax (loss)/ profit
Investment	£'000	£'000	£'000	£'000		£'000	£'000	£'000
Anaxsys Technology	292	-	292	-	31/01/18	(230)	-	-
Airways Engineering					31/10/16	(65)	-	-
Loan Stock	45	-	45	-
Ordinary B shares	30	-	30	-
Chelverton Asset Management Holdings *	1	210	2	200	31/03/17	2,509	4,203	1,116
Closed Loop Recycling **					30/06/13	(10,534)	15,424	(5,666)
Loan stock	-	-	252	-
Ordinary B shares	-	-	84	-
La Salle Education	130	80	130	-	31/12/17	349	-	-
Main Dental					31/03/18	524	-	-
Loan stock	75	-	75	-
Ordinary B shares	175	138	175	138
Pedalling Forth	250	250	150	150	31/12/17	14	-	-
Security Research Group***	-	-	52	62

* Consolidated figures

** Dissolved on 25 August 2018

***Sold during the year

8 SIGNIFICANT INTERESTS

At 31 August 2018, the Company had a holding of 3% or more of the issued class of share that is material in the context of the accounts in the following investments:

Security	Number of shares held	Percentage of issued share capital	Issued share capital
CEPS	5,060,000	29.76	17,000,000
Main Dental	23,000	24.08	95,500
Pedalling Forth	30,000	18.01	166,560
Touchstar	850,000	10.03	8,475,077
La Salle Education	160,000	5.04	3,174,300
Plutus Powergen	33,333,334	4.60	723,928,935
Anaxsys Technology	39,525	3.95	1,000,000
Petards	2,000,000	3.48	57,468,229

9	DEBTORS	2018	2017
		£'000	£'000
	Amounts falling due within one year
	Prepayments and other debtors	9	683
10	CREDITORS - amounts falling due within one year
		2018	2017
		£'000	£'000
	Accruals and other creditors	30	33
	Short term loan	600	250
		630	283

On 25 October 2017, the Company repaid the previous loan of £250,000 to Jarvis Investment Management Limited.

On 4 June 2018, the Company entered in to a £600,000 loan agreement with Jarvis Securities plc. Interest is payable monthly in arrears at the rate of 4.5% plus the Bank of England base rate.

The loan was drawn down on 4 June 2018 and at the year-end £600,000 was outstanding. The loan is secured on the assets of the Company and is repayable within six months of the drawdown date.

11 CALLED UP SHARE CAPITAL	2018	2017
	£'000	£'000
Allotted, called up and fully paid:
5,460,301 (2017: 6,377,088) Ordinary shares of 1p each	55	64

Details of the Tender Offer and share buy backs are given in the Report of the Directors on page 25 of the Annual Report.

Duration of Company

At the Annual General Meeting of the Company falling in the calendar year 2020 and, if the Company has not then been liquidated, unitised or reconstructed, at each fifth annual general meeting of the Company convened by the Board thereafter, the Board shall propose an ordinary resolution that the Company should continue as an investment trust for a further five-year period.

12 NET ASSET VALUE PER ORDINARY SHARE

The basic net asset value per Ordinary share is based on net assets of £3,303,000 (2017: £5,460,000) and on 5,460,301 (2017: 6,377,088) Ordinary shares, being the number of shares in issue at the year end.

13 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES

At 31 August 2018 there were no capital commitments or contingent liabilities (2017: £nil).

14 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES

The Company's financial instruments comprise securities and other investments, cash balances and debtors and creditors that arise from its operations, for example, in respect of sales and purchases awaiting settlement and debtors for accrued income.

The Company primarily invests in companies traded on AIM with a market capitalisation at the time of investment of up to £50 million. The Company finances its operations through its issued capital, existing reserves and the loan from its custodian as detailed in note 10.

In following its investment objective, the Company is exposed to a variety of risks that could result in a reduction in the Company's net assets. These risks are market risk (comprising exchange rate 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:

i) Market risk - market price risk

Market price risk arises mainly from uncertainty about future prices of financial investments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements other than movements in exchange rates and interest rates.

The Company's investment portfolio is exposed to market price fluctuations which are monitored by the Investment Manager who gives timely reports of relevant information to the Directors. Investment performance is also reviewed at each Board meeting.

The Directors are conscious of the fact that the nature of AIM investments is such that prices can be volatile. Investors should be aware that the Company is exposed to a higher rate of risk than exists within a fund which holds traditional blue-chip securities.

Adherence to the investment objectives and the internal control limits on investments set by the Company mitigates the risk of excessive exposure to any one particular type of security or issuer.

The Company's exposure to other changes in market prices at 31 August 2018 on its investments is as follows:

A 20% decrease in the market value of investments at 31 August 2018 would have decreased net assets attributable to Shareholders by 13 pence per share (2017: 13 pence per share). An increase of the same percentage would have an equal but opposite effect on net assets available to Shareholders.

		2018	2017
		£'000	£'000
Fair value through profit or loss investments		3,485	4,213

 (ii) Market risk - exchange rate risk

All of the Company's assets are in sterling and accordingly the only currency exposure the Company has is through the trading activities of its investee companies.

 (iii) Market risk - interest rate risk

Changes in interest rates may cause fluctuations in the income and expenses of the Company.

The majority of the Company's financial assets are non-interest bearing. As a result, the Company's financial assets are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates.

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 31 August of financial assets and financial liabilities to interest rate risk is as follows:

	2018	2017
	£'000	£'000
Cash at bank	439	847
Short Term Loan	(600)	(250)

As the Company receives no interest on its bank balances and pays interest on its loan then the effect of an interest rate increase of 1% would decrease net revenue before taxation on an annualised basis by £6,000 (2017: £2,500). If there was a decrease in interest rates of 0.5% net revenue before taxation would increase by £3,000 (2017: £1,250). These calculations are based on balances as at 31 August 2018 and may not be representative of the year as a whole.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held with the custodian to be delayed.

 (v) Liquidity risk

Eighty one percent of the Company's portfolio is fully listed on the London Stock Exchange or AIM quoted securities which under normal conditions can be sold to meet funding commitments if necessary. These may however be difficult to realise in adverse market conditions. The Company's unquoted investments, representing the remaining nineteen percent of the portfolio, could be more difficult to realise as they are not tradable instruments.

 (vi) Maturity Analysis of Financial Liabilities

The Company's financial liabilities comprise of creditors as disclosed in note 10. All items are due within one year.

 (vii) Managing Capital

The Company's capital management objectives are to increase net asset value per share at a higher rate than other quoted smaller company trusts and the MSCI Small Cap UK Index.

Primarily the Company finances its operations through its issued capital and existing reserves. However, to help fund further investment the Company borrowed on a short-term loan £600,000 from Jarvis Securities plc. At the year-end an amount of £600,000 was outstanding. Further details are given in note 10.

(viii) Fair values of financial assets and financial liabilities

All of the financial assets and liabilities of the Company are held at fair value.

(ix) Financial instruments by category

The financial instruments of the Company fall into the following categories

	At amortised	Loans and	Assets at fair value through
	cost	receivables	profit or loss	Total
31 August 2018	£'000	£'000	£'000	£'000
Assets as per the Statement of Financial Position
Investments	-	-	3,485	3,485
Debtors	-	9	-	9
Cash at bank	439	-	-	439
Total	439	9	3,485	3,933

Liabilities as per the Statement of Financial Position
Creditors	30	600		-	630
Total	30	600		-	630
	At amortised		Loans and	Assets at fair value through
	cost		receivables	profit or loss		Total
31 August 2017	£'000		£'000	£'000		£'000
Assets as per the Statement of Financial Position
Investments	-		-	4,213		4,213
Debtors	-		683	-		683
Cash at bank	847		-	-		847
Total	847		683	4,213		5,743

Liabilities as per the Statement of Financial Position
Creditors	33	250	-	283
Total	33	250	-	283

Fair value hierarchy

In accordance with FRS 102, the Company must disclose the fair value hierarchy of financial instruments.

The fair value hierarchy consists of the following three classifications:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Quoted in an active market in this context means quoted prices are readily and regularly available and those prices represent actual and regularly occurring market transactions on an arm's length basis.

Level 2 - The price of a recent transaction for an identical asset, where quoted prices are unavailable.

The price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place. If it can be demonstrated that the last transaction price is not a good estimate of fair value (e.g. because it reflects the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distress sale), that price is adjusted.

Level 3 - Inputs for the asset or liability that are based on observable market data and unobservable market data, to estimate what the transaction price would have been on the measurement data in an arm's length exchange motivated by normal business considerations.

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. For this purpose, the significance of an input is assessed against 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 be 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.

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 instruments.

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 as Level 2.

Investments classified within Level 3 have significant unobservable inputs. Level 3 instruments include unquoted holdings. 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 investments, and Level 3 investments consist only of unquoted holdings.

Financial assets at fair value through profit or loss
	Level 1	Level 2	Level 3			Total
At 31 August 2018	£'000	£'000	£'000			£'000
Equity investments	2,807	-	678			3,485
Total	2,807	-	678			3,485

	Level 1	Level 2	Level 3	Total
At 31 August 2017	£'000	£'000	£'000	£'000
Equity investments	3,663	-	550	4,213
Total	3,663	-	550	4,213

The following table presents the movement in the Level 3 investments for the period ended 31 August 2018:

	Equity Investments
	£'000
Opening balance	550
Purchases	100
Sales at cost	(389)
Total gains on investments in the Income Statement	417
Closing balance	678

15 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. The fee arrangements for these services and fees payable are set out in the Report of the Directors on page 26 of the Annual Report and in note 3 to the accounts. Mr Horner, a Director of the Company, is also a director of Chelverton Asset Management Limited and chairman of CEPS PLC in which the Company holds an investment. Mr Martin is the chairman of Touchstar plc, in which the Company holds an investment. During the year the Company made investments totalling £128,000 in Touchstar plc and £766,000 in CEPS plc.

The three Directors also have individual holdings in Chelverton Asset Management Holdings, a company which has Mr Horner as a director and in which the Company also has a direct holding. The Company sold half of its holding in Chelverton Asset Management Holdings for £160,000 during the year realising a gain of £159,000. The Directors' holdings are detailed below:

	Percentage of holding in shares	Ordinary shares held	Percentage of Loan stock holding	Loan stock held
	%	£'000	%	£'000
K J Allen	1	1	-	-
D A Horner	56	56	-	-
I P Martin	2	2	-	-

16 CAPITAL MANAGEMENT POLICIES AND PROCEDURES

The Company's capital management objectives are:

·    to ensure the Company's ability to continue as a going concern;

·    to provide an adequate return to Shareholders;

·    to support the Company's stability and growth;

·    to provide capital for the purpose of further investments.

The Company actively and regularly reviews and manages its capital structure to ensure an optimal capital structure, taking into consideration the future capital requirements of the Company and capital efficiency, projected operating cash flows and projected strategic investments opportunities. The management regards capital as total equity and reserves, for capital management purposes.

ANNUAL REPORT AND AGM

The foregoing represents extracts from the full text of the Annual Report and Accounts for the year ended 31 August 2018. The full Report will shortly be available for download from the following website: www.chelvertonam.com

Copies will be posted to Shareholders shortly.

The AGM will be held at the offices of Chelverton Asset Management Limited, 11 Laura Place, Bath, BA2 4BL at 12.00 p.m. on Thursday 13 December 2018.

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do.

 

END

 

 

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