Half-year Report

RNS Number : 7680M
Chelverton Growth Trust PLC
01 May 2018
 

Chelverton Growth Trust PLC

 

LEI: 213800I86P8BAE6UVI83

 

Half Yearly Report

For the six months ended 28 February 2018

 

 

The Directors announce the unaudited Half Yearly Report for the period 1 September 2017 to 28 February 2018.

 

Investment objective and policy

The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market ("AIM") with a market capitalisation at the time of investment of up to £50 million, which the Manager believes to be at a "point of change". The Company will invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on AIM or the investee company being sold. Its investment objective is to increase the net asset value per share at a higher rate than other quoted smaller company trusts and the MCSI Small Cap UK Index.

 

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

 

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 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.

 

Chairman's Report

Your Company has seen a decline in the net asset value per share for the first time in many years.  In the first six months of the current year the net asset value per share fell from 85.63p to 80.82p, a decrease of 5.6%. 

 

Over the same period, the AIM All-share index rose by 2.7% whilst the Company's comparative index, the MSCI Small Cap UK index rose by 1.1%.  Over the same period the share price has increased marginally from 63p to 63.5p and the shares were therefore trading at a discount of some 21.4% at the period end.     

 

Whilst the Brexit negotiations loom large in the UK political orbit, the reality is that there are many other areas of great concern in the World.  These would include the proposed tariffs which might be introduced by the United States and any subsequent retaliatory actions by China and the European Union.  The imminent curtailment and then ending of Quantitative Easing by the ECB is anticipated to cause severe problems in some European countries, particularly in Italy.  The ongoing conflict in Syria and the actions of Russia around the World and of course close at home in the UK are causing great concern. 

 

In the past six months the fund received a recommended cash offer of 13p per share for Lombard Risk Management which produced a very healthy profit.  No other shares have been sold in any other companies during the period.

 

Part of these cash proceeds were used to re-acquire shares in Petards, taking the shareholding back to the level we had previously held.  These purchases were however at much lower prices than the previous shares had been sold at.  The company has just produced a very positive statement and the future prospects look good and the share price has started to recover strongly. 

 

Touchstar raised £1m of new equity capital for its development and the fund took up its share of the issue.  These funds will be used to increase and accelerate the marketing efforts of the company.

 

A large investment has been made in CEPS plc which, is a diversified holding company for a number of niche, cash generative businesses.  The development of this business is such that once sufficient scale has been reached its growth will become self-funded and consequently equity issuance will then be limited, which with expected future profits growth should logically lead to gains in its share price.

 

Plutus Powergen and MTI Wireless Edge both made good progress with little change in their share prices.  Holders of the fund will be aware that very often the companies that we invest in make strong advances on an operational basis and that this is only recognised in the share prices some time later. 

 

A very modest investment of £72,000 was made via a small fundraising for Zenith Energy. This business has existing onshore oilfields in Azerbaijan and the funds will be used to enhance the output from existing wells.  The recent increase in the oil price will of course produce a highly operationally geared result.

 

On the unquoted side Chelverton Asset Management, the manager of this fund, had a very good six months and has tendered to buy back shares from investors.  The fund has tendered its holding of 2,000 shares in an oversubscribed tender at £160 per share after the period end.

 

An additional £100,000 was invested in Pedalling Forth to provide working capital to develop its own branded range.

 

The members' voluntary liquidation of Security Research took place on the sale of all but one of the subsidiary companies and 63p was received in cash.  An additional small sum will be received at some point in the future.

 

Whilst Shareholders are aware that it is the Board's ongoing intention to return funds to Shareholders by way of annual tenders these can only be carried out in a meaningful and cost-effective manner when the fund has significant cash resources.  At the present time, the Company is largely fully invested and therefore the ninth tender offer will be delayed until significant sums have been realised from one or more investments. 

 

Looking to the second half of the year, and onwards, the economic and political agenda is going to be dominated by the daily reporting of the negotiations to leave the European Union.  For investors in this fund, the state of the UK economy is in fact far more relevant.  All of the "experts" believe that the UK economy will continue to grow steadily into the future and, as the European Union itself continues to exhibit signs of growth this will only go to help.   The Board therefore feel that the portfolio will continue to make good progress.

 

In the future, the Board anticipates investing further sums in those companies in the portfolio that the Board feels are significantly undervalued. 

 

Kevin Allen

Chairman

1 May 2018

 

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 2017 on pages 11 and 12 and pages 49 to 51. 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 2018, has been prepared in accordance with FRS 104 "Interim Financial Reporting", gives a fair view of the assets, liabilities, financial position and (loss)/profit of the Company; and

 

this Half Yearly Report includes a fair review of the information required by;

 

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

 

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 1 May 2018 and the above responsibility statement was signed on its behalf by Kevin Allen, Chairman.

 

Portfolio review

as at 28 February 2018

The Company's portfolio is set out below.

 

Investment

Sector

Valuation

% of



£'000

total




portfolio

AIM traded








CEPS

Support Services

1,292

33.1

Trading holding company for a number of companies supplying services and products







MTI Wireless Edge

Technology Hardware & Equipment

219

5.6

Developer and manufacturer of sophisticated antennas and antenna systems







Petards Group

Support Services

460

11.8

Development, provision and maintenance of advance security systems and related services







Plutus Powergen

Flexible Energy Supply

583

15.0

Providers of management infrastructure and expertise to operate power plants and provide flexible electricity generation







Touchstar

Technology Hardware & Equipment

508

13.0

Software systems for warehousing and distribution







Universe Group

Support Services

41

1.1

Provision of credit fraud prevention, loyalty and retail systems







Fully listed








Zenith Energy

Oil & Gas Producers

66

1.7

International energy production and exploration company






Nasdaq Traded








One Horizon Group

Support Services

22

0.6

Provider of mobile satellite communications equipment and airtime







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

320

8.2

Investment management, including providing services to Chelverton Growth Trust Plc







La Salle Education

Support Services

-

-

A UK based company dedicated to improving mathematics education.







Main Dental

Support Services



Ordinary B Shares


138

3.5

Loan Stock


-

-

Operator of dental surgeries







Pedaling Forth

General Retailers

250

6.4

Internet retailer of cycling clothing for women






Security Research Group

Support Services

1

-

Leading provider of Local Authority residential property searches; provision of packaging solutions







Portfolio valuation


3,900

100.0

 

 

Portfolio holdings


28 February 2018

31 August 2017

 


Valuation

% of

 total

Valuation

% of total

Investment

£'000

portfolio

£'000

portfolio











CEPS

1,292

33.1

1,292

30.7

Plutus Powergen

583

15.0

700

16.6

Touchstar

508

13.0

621

14.7

Petards Group

460

11.8

434

10.3

Chelverton Asset Management Holdings

320

8.2

200

4.7

Pedalling Forth

250

6.4

150

3.6

MTI Wireless Edge

219

5.6

210

5.0

Main Dental Partners

138

3.5

138

3.3

Zenith Energy

66

1.7

-

-

Universe Group

41

1.1

61

1.4

One Horizon Group

22

0.6

22

0.5

Security Research Group*

1

-

62

1.5

Anaxsys Technology

-

-

-

-

Airways Engineering

-

-

-

-

La Salle Education

-

-

-

-

Lombard Risk Management**

-

-

323

7.7






 

Total

 

3,900

 

100.0

 

4,213

 

100.0






* Return of capital during the period





** Sold during the period

 

 

Portfolio breakdown by sector and by index

Sector distribution

% of total

Support Services

58.3

Technology Hardware & Equipment

18.6

Flexible Energy Supply

15.0

General Retailers

6.4

Oil & Gas Producers

1.7



Index distribution

% of total

AIM

79.6

Unquoted

18.1

Fully listed

1.7

Nasdaq

0.6

 

 

Income statement (unaudited) for the six months to 28 February 2018


Six months to

Year to

Six months to


28 February 2018

31 August 2017

28 February 2017


Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

(Losses)gains on investments at fair value (note 4)

-

(228)

(228)

- 

1,086

1,086

-

630

630

Income (note 2)

-

-

-

5

574

579

1

250

251

Investment management fee

(6)

(17)

(23)

(12)

(38)

(50)

(6)

(18)

(24)

Other expenses

(70)

(1)

(71)

(129)

(13)

(142)

(64)

(4)

(68)

Net return on ordinary activities before taxation

(76)

(246)

(322)

(136)

1,609

1,473

(69)

858

789

Taxation on ordinary activities

-

-

-

-

-

-

-

-

-

Net return on ordinary activities after taxation

(76)

(246)

(322)

(136)

1,609

1,473

(69)

858

789












Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


pence

pence

pence

pence

pence

pence

pence

pence

pence

Return per Ordinary share*

 

(1.34)

 

(4.34)

 

(5.68)

 

(2.13)

 

25.23

 

23.10

 

(1.08)

 

13.45

 

12.37

 

The total column of this statement is the profit and loss account 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 November 2014 and updated in February 2018 with consequential amendments by the Association of Investment Companies ("AIC SORP").

 

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

 

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

 

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and 75% of the management fee and finance costs charged to capital.

 

* The return per Ordinary share is based on 5,667,890 (31 August 2017: 6,377,088; 28 February 2017: 6,377,088) 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 2018


Called up share capital

£'000

 

Special reserve*

£'000

 

Capital reserve

£'000

Capitalredemption reserve

£'000

 

Revenue reserve

£'000

 

 

Total

£'000

Six months to 28 February 2018

1 September 2017

64 

1,506 

3,145

125 

620

5,460 

Cost of shares purchased for cancellation under tender offer

(7)

(606)

-

7

-

(606)

Cost of shares bought back for cancellation

(2)

(119)

-

2

-

(119)

Net return after taxation for the period

- 

- 

(246)

- 

(76)

(322)

28 February 2018

55

781

2,899

134

544

4,413








Year to 31 August 2017

1 September 2016

64 

1,506 

1,536 

125 

756 

3,987

Net return after taxation for the year

- 

 - 

1,609 

- 

(136)

1,473

31 August 2017

64 

1,506 

3,145 

125 

620

5,460 








Six months to 28 February 2017

1 September 2016

64 

1,506 

1,536 

125 

756 

3,987 

Net return after taxation for the period

- 

- 

858 

- 

(69)

789 

28 February 2017

64 

1,506 

2,394 

125 

687 

4,776 

 

*The special reserve was created by the cancellation of the share premium account by order of the High Court on 20 January 2016.  

The special reserve can be used for the purchase of the Company's Ordinary shares.

 

On 4 October 2017, the Company purchased 749,765 Ordinary shares as part of a tender offer for a total consideration of £606,000 including tender offer costs.

 

On 26 October 2017, the Company purchased 73,969 Ordinary shares and on 9 November 2017 a further 93,053 Ordinary shares for cancellation for a total consideration of £119,000.

 

 

Statement of financial position (unaudited)

as at 28 February 2018


As at 28 February 2018

£'000



As at 31 August 2017

£'000



As at 28 February 2017

£'000

Fixed assets

Investments at fair value (note 4)

3,900



4,213



4,596 

Current assets

Debtors

3



683



353 

Cash at bank

538



847



103 


541



1,530



456 

 

Creditors - amounts falling due within one year

Creditors

(28)



(33)



(26)

Short-term loans (note 5)

-   



(250)



(250)


(28)



(283)



(276)

Net current assets

 

513 



1,247



 

180 









Net assets

4,413 



5,460



4,776 

 

 

Share capital and reserves

Called up share capital

55 



64 



64 

Special reserve

781 



1,506 



1,506 

Capital reserve

2,899 



3,145 



2,394 

Capital redemption reserve

134 



125 



125 

Revenue reserve

544 



620 



687 

Equity shareholders' funds

4,413



5,460



4,776 

 

 

Net asset value per Ordinary share (note 6)

 

 

80.82p



 

 

85.63p



 

 

74.89p

 

Statement of cash flows (unaudited)

for the six months to 28 February 2018


Six months to

 28 February

2018


Year to 31

 August

2017


Six months to

 28 February

 2017


£'000


£'000


£'000

Cash flows from operating activities

Net return on ordinary activities

(322)


1,473 


789 

Adjustment for:






Net capital return

246 


(1,609)


(858)

Income credited to capital

- 


574 


250 

Expenses charged to capital

(18)


(51)


(22)

Interest paid

3 


11 


5 

Decrease in creditors

(11)


(22)


(29)

Decrease/(increase) in debtors

680 


(577)


(247)

Cash from/(used in) operations

578 


(201)


(112)

 

Cash flows from investing activities

Purchase of investments

(486)


(535)


(444)

Sales of investments

571 


1,333 


403 

Net cash from/(used in) investing activities

85 


798 


(41)

 

Cash flows from financing activities

Cost of shares purchased for cancellation under tender offer

 

(600)


-


 

- 

Capital repayment of loans

(250)


-


- 

 

Net cash used in financing activities

 

(972)


 

(11)


 

(5)







 

Net (decrease)/increase in cash

(309)


586 


(158)

Cash at the beginning of the period

847 


261 


261 

Cash at the end of the period

 

538 


 

847 


 

103 

 

 

1 Accounting Policies

 

Statement of compliance

The Company's Financial Statements for the period ended 28 February 2018 have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and the 2014 Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in February 2018 with consequential amendments ('the SORP') issued 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 2017.

 

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 2018 and 28 February 2017 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 2017 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.

 

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.

 

2 Income

 

 

Six months to

Year to

Six months to

 

28 February 2018

31 August 2017

28 February 2017

 

£'000

£'000

£'000

 

 

 

 

Income from investments

 

 

 

Income from LLP investments

-

574

250

UK net dividend income

-

5

1

 




Total income

-

579

251

 

3 Taxation

The tax charge for the six months to 28 February 2018 is nil (year to 31 August 2017: nil; six months to 28 February 2017: nil).

 

The Company has an effective tax rate of 0% for the year ending 31 August 2018. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company's status as an Investment Trust and there is expected to be an excess of management expenses over taxable income.

 

4 Investments

 

 

 

 

 

28 February

31 August

28 February

 

Fully 

AIM 

 

 

2018 

2017 

2017 

 

Listed 

quoted 

Unquoted

NASDAQ 

Total 

Total 

Total 

 

£'000 

£'000 

£'000 

£'000 

£'000 

£'000 

£'000 

Opening book cost

3,500 

1,287 

166 

4,953 

4,933 

4,933 

Opening investment holding gains/(losses)

141 

(737)

(144)

(740)

(1,008)

(1,008)

 

3,641 

550 

22 

4,213 

3,925 

3,925 

 

 

 

 

 

 

 

 

Movements in the period:

 

 

 

 

 

 

 

Purchases at cost

72 

314 

100 

486 

535 

444 

Sales proceeds

(505)

(66)

(571)

(1,333)

(403)

Gains on sales

-

142 

14 

156 

818 

213 

Movement in investment holding gains/(losses)

(6)

(489)

111 

(384)

268 

417 

Closing valuation

66 

3,103 

709 

22 

3,900 

4,213 

4,596 

 

 

 

 

 

 

 

 

Closing book cost

72 

3,451 

1,335 

166 

5,024 

4,953 

5,187 

Closing investment holding losses

(6)

(348)

(626)

(144)

(1,124)

(740)

(591)

Closing valuation

66 

3,103 

709 

22 

3,900 

4,213 

4,596 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of capital gains and losses

 

 

 

 

 

 

Realised gains on sales

142 

14 

156 

818 

213 

Movement in fair value of investments

(6)

(489)

111 

(384)

268 

417 

 

(6)

(347)

125 

(228)

1,086 

630 

      

Fair value hierarchy

 

In accordance with FRS 102 and FRS 104 the Company must disclose the fair value hierarchy of financial instruments.

 

The fair value hierarchy consists of the following three classifications:

 

Level 1 - Valued using quoted prices in active markets for identical assets or liabilities. This is usually the bid price.

 

Level 2 -  Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1.

 

Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data.

Details of the Company's financial instruments are shown in the Portfolio Review including financial instruments which fall into Level 3 shown under the section heading "Unquoted".  A summary reconciliation of the fair value movements of Level 3 investments is shown in the table above.

Financial assets at fair value through profit or loss;


Level 1

Level 2

Level 3

Total


£'000

£'000

£'000

£'000

At 28 February 2018





Equity investments

3,191

-

709

3,900

Total

3,191

-

709

3,900

At 31 August 2017





Equity investments

3,663

-

550

4,213

Total

3,663

-

550

4,213

At 28 February 2017





Equity investments

3,195

-

1,401

4,596

Total

3,195

-

1,401

4,596

 

5 Short term loans

On 17 June 2016 the Company entered in to a £250,000 loan agreement with Jarvis Investment Management Limited. Interest was payable monthly in arrears at the rate of 4.5% above the Bank of England base rate.

 

The loan was repaid in full on 25 October 2017. As at the date of this report there are no borrowings outstanding.

 

6 Net asset value

The basic net asset value per Ordinary share is based on net assets of £4,413,000 (31 August 2017: £5,460,000; 28 February 2017: £4,776,000) and on 5,460,301 Ordinary shares (31 August 2017: 6,377,088; 28 February 2017: 6,377,088) 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 PLC, 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 2018 there was £3,700 (31 August 2017: £4,800; 28 February 2017: £4,200) payable to the Investment Manager.

 

The three Directors also have individual holdings in Chelverton Asset Management Holdings, a company which has Mr Horner as a director and which the Company also has a direct holding. The Directors' holdings are detailed below.

 


 

Loan stock held

Percentage of

Loan stock held

 

Ordinary shares held

Percentage of Ordinary shares held

 


£'000 

%

£'000 

% 

K J Allen

- 

1 

1 

I P Martin

- 

- 

2 

2 

 

 

 

 

Directors and Advisers


Directors

Auditors

Kevin Allen (Chairman)

Hazlewoods LLP

David Horner

Windsor House

Ian Martin

Bayshill Road


Cheltenham

Investment Manager

GL50 3AT

Chelverton Asset Management Limited


11 Laura Place

Custodians

Bath

Jarvis Investment Management Limited

BA2 4BL

78 Mount Ephraim

Tel: 01225 483 030

Royal Tunbridge Wells


TN4 8BS

Secretary and Registered Office

Tel: 01892 510 515

ISCA Administration Services Limited


Suite 8, Bridge House

Bankers

Courtenay Street

HSBC

Newton Abbot

46 Market Street

TQ12 2QS

Falmouth

Tel: 01392 487 056

TR11 3AA

Email: cgw@iscaadmin.co.uk




Registrar and Transfer Office


Share Registrars Limited


The Courtyard


17 West Street


Farnham


GU9 7DR


Tel: 01252 821 390


www.shareregistrars.uk.com


 



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 2989519


 


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END
 
 
IR BDGDUBSGBGIB
UK 100

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