Half Yearly Report

RNS Number : 4980D

Chelverton Growth Trust PLC

30 April 2013

 



Investment objective

The Company's objective is to provide capital growth through investment in companies listed on the Official List and tradedon the Alternative Investment Market ("AIM") with a market capitalisation at the time of investmentof up to

£50 million, which are believed to be at a "point of change".The Company will also invest in unquotedinvestments 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 investmentobjective 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 investsprincipally in securities of publicly quoted UK companies, though it may invest in unquoted securities. The concentrated UK portfoliocomprises between 20 to 35 securities. The performance of the Company's investments is compared to the MSCI Small Cap UK index.

The Company will also invest in unquoted investments where it is believed that there is a likelihoodof 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 investmentcompanies or listed investment trusts.

It is intendedfrom time to time, when deemed appropriate, that the Companywill borrow for investment purposes. The Company, however, does not currentlyhave any borrowing facilities.

Investment strategy

Investments are selectedfor 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 Company's 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 patienceto hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of a company's earning prospects over a five year time horizon.

The Company's InvestmentManager 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 founders 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-terminvestment success.

Interim management report

The Company's net asset value per share has increased in the last six months from 35.74p to 42.04p, an increase of 17.6%.  In the same period the Company's benchmark index, the MSCI Small Cap UK index increased by 18.3 %.

In the last few months the Euro sovereign debt problems have re-emerged with the position of Cyprus causing great concern through Europe and even affecting Russia, and this contagion is focusing attention again on Portugal, Greece, Italy and France.  Only when the European debt position is demonstrably resolved, in the distant future, will companies and stock markets begin to perform as history has shown they can.   

The continued "rebalancing" of the British Economy away from Oil and Gas production and Financial services to modest growth in almost every other sector, and from public spending to private sector growth is taking its toll.  The net effect of this slow, but necessary, change, manifests itself in the overall economy as very weak, or at times, no GDP growth.  This process, politics allowing, needs to continue for many more years to achieve the right balance between the private sector - wealth creating, and the public sector - service provider. 

In the past six months a gradual rebalancing of the portfolio has taken place with the large holding in IDOX being steadily sold as the share price continued to rise strongly.  The cash proceeds were partially used to fund the tender offer for 10% of the share capital, and to invest in Main Dental Partners, a buy and build dental group and Airways International, a start-up company providing services to the Repair, Maintenance and Overhaul of jet planes.  Longer term shareholders will recall the significant profits that were made in the past in Oasis Healthcare, a buy and build dental group.

Significant increases in value were recognised by the Board, prior to the tender offer, in Parmenion Capital Partners, One Horizon Group and Closed Loop Recycling.  Significant growth has taken place in these three companies since the valuation date and we would expect further valuation uplifts by the year end. 

Transflex, a vehicle hire company, which was a start-up when we invested a year ago is performing extremely well and the fund has invested an additional £100,000 for development capital, taking the investment to £200,000 being 10% of the company.  It is likely that further funding will be required to finance the continued growth. 

On the other side of the ledger we are disappointed to report that Metalrax went into Administration in early April and this was our first total casualty for several years.  In addition the shares in Belgravium have declined sharply over the past six months as the trading performance has disappointed.   

Elsewhere in the fund the shares in Sanderson have risen strongly recognising improved prospects and Datong having announced they had received a takeover approach went up some 50%.   

The tender offer proceeded smoothly and an additional 1,188,423 shares were cancelled.  In the absence of any unexpected events it will be the Board's intention to repeat the process again this year.

Looking through to the second half of the year the global macro outlook is improving, led by the US, and most forecasters believe that the UK will produce more encouraging growth over the second half of the year.

Chelverton Asset ManagementLimited

29 April 2013

Principal risks and uncertainties

The Board considers that the principal risks and uncertainties facing the Company for the remaining six months of the financial year remain the same as those disclosedin the interim management report on page 2 and also on pages 11 and 12 of the Report of the Directors in the Annual Report for the year ended 31 August 2012. These risks include market risk, discount volatility, regulatoryrisks, financial risk and liquidityrisks.

Responsibility statement

The Directors confirm that to the best of their knowledge:

•         the condensedset of financial statements for the six months to 28 February2013, prepared in accordance with the Statement on Half Yearly Financial Reports issued by the UK Accounting Standards Board, gives a true and fair view of the assets, liabilities, financial position and net return of the Company; and

•         the interim management report together with the notes to the Half Yearly Report include a fair review of the

information required by;

(a)     DTR 4.2.7Rof the Disclosure and Transparency Rules,being an indication of important eventsthat have occurred during the first six months of the financial year and their impact on the condensedset of financial statements; and a description of the principalrisks and uncertainties for the remainingsix months of the year; and

(b)     DTR 4.2.8R of the Disclosure and Transparency Rules, being relatedparty transactions that have taken place in thefirst six monthsof the current financial year and that have materially affected the financial positionor performance of the Company during that period;and any changes in the related party transactions describedin

the last Annual Report that could do so.

This Half Yearly Reportwas approved by the Board of Directorson 29April2013 and the above responsibility statementwas signed on its behalf by George Stevens, Chairman.

Going concern

The Directors believe,bearing in mind the nature of the Company's business and assets, that the Companyhas adequate resources to continue in operational existencefor the foreseeable future. For this reason they continueto adopt the going concern basis in preparingthe accounts.

Portfolio review

as at 28 February2013

The Company's portfolio as at 28 February 2013 is set out below.

Investment	Sector	Valuation	% of
		£'000	total
AIM traded
Alliance Pharma	Pharmaceuticals & Biotechnology
Acquisition of the manufacturing, sales and distribution rights to pharmaceutical products		276	6.33
Belgravium Technologies	Technology Hardware & Equipment distribution
Software systems for warehousing and distribution		188	4.29
CEPS	Support Services
Production and supply of components for the footwear industry; personal protection equipment; production of printed lycra fabric; and services to the direct mail industry		245	5.61
Datong Electronics	Electronic & Electrical Equipment
Develops, manages and supplies covert tracking and surveillance systems		94	2.15
IDOX	Software & Computer Services
Software company specialising in the development of products for document and information management		603	13.81
Lombard Risk Management	Software & Computer Services
Lombard Risk is one of the world's leading providers of collateral management, liquidity analysis and regulatory compliance software to financial organisations		185	4.24
LPA Group	Electronic & Electrical Equipment
Design, manufacture and marketing of industrial electrical accessories		165	3.78
Metalrax Group *	Industrial Engineering
Specialist engineered products and consumer durables		67	1.55
MTI Wireless Edge	Technology Hardware & Equipment
Developer and manufacturer of sophisticated antennas and antenna systems		46	1.04
Northbridge Industrial Services	Industrial Engineering
Consolidation vehicle for specialist industrial hire services		150	3.44
Petards International Group	Support Services
Development, provision and maintenance of advanced security systems and related services		100	2.29
Richoux Group	Travel & Leisure
Owner and operator of Richoux Restaurants		61	1.40
Sanderson Group	Software & Computer Services
Provides software and IT services		159	3.64

Portfolio review (continued)

as at 28 February 2013

Investment	Sector	Valuation	% of
		£'000	total
Security Research Group	Support Services
Leading provider of Local Authority residential property searches; provision of packaging solutions and technical surveillance countermeasures components		104	2.38
Titan International Inc	Industrial Engineering
Manufacture of big wheels for construction, mining and agricultural vehicles		156	3.58
Tristel	Health Care Equipment & Services
Healthcare business specialising in infection control in hospitals		88	2.02
Universe Group	Support Services
Provision of credit card fraud prevention system, loyalty systems and retail systems		24	0.55
Delisted
One Horizon Group	Mobile Telecommunications
Provider of software and associated equipment in VoIP and bandwidth optimisation		318	7.30
Unquoted
Airways International	Support Services
Ordinary shares		5	0.11
Loanstock		45	1.03
Commercial aviation maintenance
Closed Loop Recycling	Support Services
Ordinary B shares		0	0
Loanstock		84	1.92
Operation of a plastic (PET and HDPE) recycling plant
Parmenion Capital Partners	Support Services
Provides fund-based discretionary fund management services to Independent Financial Advisors		553	12.65
Anaxsys Technology	Health Care Equipment & Services
A medical device company for patient monitoring and screening		200	4.58
Main Dental Partners	Support Services
Ordinary  shares		175	1.72
Loanstock		75	4.01
Operator of dental surgeries
Transflex Vehicle Rental	Support Services
Light commercial vehicle rental		200	4.58
Portfolio valuation		4,366	100.00

* In administration

Portfolio of investments

	28 February 2013			31 August 2012
Investment	Valuation	% holding		Valuation	% holding
IDOX	603	13.8		1,057	27.3
Parmenion Capital Partners	553	12.7		398	10.3
One Horizon Group	276	7.3		59	1.5
Alliance Pharma	318	6.3		223	5.7
Main Dental Partners	250	5.7		0	0.0
CEPS	245	5.6		227	5.8
Anaxsys Technology	200	4.6		200	5.2
Transflex Vehicle Rental	200	4.6		100	2.6
Belgravium Technologies	188	4.3		350	9.0
Lombard Risk Management	185	4.2		116	3.0
LPA Group	165	3.8		214	5.5
Sanderson Group	159	3.6		105	2.7
Titan Europe	156	3.5		118	3.0
Northbridge Industrial Services	150	3.4		131	3.4
Security Research	104	2.4		149	3.8
Petards International Group	100	2.3		14	0.4
Datong Electronics	94	2.1		64	1.6
Tristel	88	2.0		124	3.2
Closed Loop Recycling	84	1.9		0	0.0
Metalrax Group	67	1.6		130	3.4
Richoux Group	61	1.5		47	1.2
MTI Wireless Edge	46	1.1		37	1.0
Airways International	50	1.2		0	0.0
Universe Group	24	0.5		14	0.4
Total	4,366	100.0		3,877	100.0

Percentage of portfolio by sector

 

Sector                                                                                                Percentage

 

Software & Computer Services                                                            22.29

Support Services                                                                                     36.41

Technology Hardware & Equipment                                                   5.50

Industrial engineering                                                                            8.78

Pharmaceuticals & Biotechnology                                                      6.49

Electronic & electrical equipment                                                       6.10

Health Care Equipment & Services                                                      6.77

Mobile Telecommunications                                                               6.23

Travel & Leisure                                                                                     1.43

 

 

Percentage of portfolio by index

 

 

AIM                                      63.78

Unquoted                            29.99

Delisted                                 6.23

 

 

 

 

 

Income statement (unaudited)

forthe six months to 28 February 2013

                                                   Six months to                                   Year to                                              Six months to

                                                28 February 2013                             31 August2012                                   29 February 2012

	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Gains on investments at fair value	-	773	773		-	647	647		-	352	352
Income	14	-	14		77	-	77		38	-	38
Investment management fee*	(6)	(17)	(23)		(10)	(31)	(41)		(5)	(15)	(20)
Refund of VAT on administration and secretarial fees	-	-	-		40	-	40		-	-	-
Other expenses	(61)	-	(61)		(128)	-	(128)		(28)	-	(28)
Net return on ordinary activities before taxation	(53)	756	703		(21)	616	595		5	337	342
Taxation on ordinary activities	-	-	-		-	-	-		-	-	-
Net return on ordinary activities after taxation	(53)	756	703		(21)	616	595		5	337	342
	Revenue	Capital	Total		Revenue	Capital	Total		Revenue Total	Capital	Total
	pence	pence	pence		pence pence	pence	pence		pence	pence	pence
Return per Ordinary share#	(0.5)	7.15	6.65		(0.17)	4.97	4.80		0.04	2.60	2.64

Notes

*    75% of the managementfee and finance costs have been charged to capital reserve.

#    The returnper Ordinary shareis based on 10,570,998 (31 August 2012: 12,389,652; 29 February 2012: 12,951,672) shares, being the weighted average number of shares in issue during the period.

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

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

A separate statement of total recognised gains and losseshas not been prepared as all such gains and losses are included in the income statement.

Reconciliation of movements in shareholders'funds (unaudited)

for the six months to 28 February 2013

	Share capital £'000	Share premium account £'000	Capital reserve £'000	Capital redemption reserve £'000	Revenue reserve £'000	Total £'000
Six months to 28 February 2013 1 September 2012	119	2,674	(1,241)	70	2,590	4,212
Cost of shares purchased for cancellation under tender offer and buyback offer	(13)	-	-	13	(503)	(503)
Net return after taxation for the period	-	-	756	-	(53)	703
28 February 2013	106	2,674	(485)	83	2,034	4,412
Year to 31 August 2012 1 September 2011	132	2,674	(1,857)	57	3,043	4,049
Cost of shares purchased for cancellation under tender offer	(13)	-	-	13	(406)	(406)
Cost of shares purchased for Treasury	_	-	-	_	(26)	(26)
Net return after taxation for the year	-	-	616	-	(21)	595
31 August 2012	119	2,674	(1,241)	70	2,590	4,212
Six months to 29 February 2012 1 September 2011	132	2,674	(1,857)	57	3,043	4,049
Cost of shares purchased for cancellation under tender offer	(13)	-	-	13	(406)	(406)
Net return after taxation for the period	-	-	337	-	5	342
29 February 2012	119	2,674	(1,520)	70	2,642	3,985

Balancesheet (unaudited)

as at 28 February 2013

As at	As at	As at
28 February 2013	31 August 2012	29 February 2012
£'000	£'000	£'000

Fixed Assets
Investments at fair value			4,366				3,877				3,994
Current Assets
Debtors			4				9				7
Cash at bank			102				364				32
			106				373				39
Creditors -amounts falling due within one year
Creditors			60				38				48
Net current (liabilities)/assets			46				335				(9)
Net assets			4,412				4,212				3,985

Share capital and reserves

Share capital	106		119		119
Share premium account	2,674		2,674		2,674
Capital reserve	(485)		(1,241)		(1,520)
Capital redemption reserve	83		70		70
Revenue reserve	2,034		2,590		2,642
Equity shareholders funds	4,412		4,212		3,985
Net asset value per Ordinary share (note 1)	42.04p		35.74p		33.53p

Statement of cash flows (unaudited)

for the six months to 28 February 2013

	Six months to 28 February 2013 £'000		Year to 31 August 2012 £'000		Six months to 29 February 2012 £'000
Operating activities Investment income received	14		71		32
Interest income received	-		6		6
Investment management fees paid	(22)		(41)		(20)
Secretarial fees paid	(22)		(49)		(20)
Other cash payments	(23)		(86)		(14)
Net cash outflow from operating activities (note 3)	(53)		(59)		(16)
Investing activities Purchases of investments	(447)		(714)		(100)
Sales of investments	740		1,539		513
Net cash inflow from investing activities	293		825		413

Financing
Cost of shares purchased for Treasury			(26)
Cost of shares purchased for cancellation under tender offer and buyback offer	(502)		(406)		(395)
Net cash outflow from financing activities	(502)		(432)		(395)
Increase/(decrease) in cash	(262)		334		2

Notes to the half yearly report

The unaudited interim financial information does not constitutestatutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the year to 31 August 2012, which contained an unqualified auditors' report, have been lodged with the Registrar of Companies and did not contain a statement required under Section 498

(2) or (3) of the Companies Act 2006. The financial information for the period ended 28 February 2013 and 29 February 2012 has not been audited or reviewed by the Company'sAuditor pursuant to the AuditingPractices Board guidance on such reviews.

This information has been preparedon the basis of accounting policies set out in the statutory accountsof the Company for the year to 31 August 2012.

1    Net asset value

Thebasic net asset value per Ordinary share is based on net assets of £4,412,000 (31 August 2012: £4,212,000; 29 February2012: £3,985,000) and on 10,495,860 Ordinary shares (31 August 2012: 11,784,283; 28 February 2012: 11,884,283) being the number of Ordinary shares in issue at the period end.

2    Taxation

Thetax charge for the six months to 28 February 2013 is nil (year to 31 August 2012: nil; six months to 29 February 2012: nil).

TheCompany has an effectivetax rate of 0% for the year ending 31 August 2012. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company'sstatus as an Investment Trust and there is expected to be an excess of management expenses over taxable income.

3    Reconciliation of net return before finance costs and taxation to net cash outflow from operatingactivities

	Six months to 28 February 2013 £'000		Year to 31 August 2012 £'000		Six months to 29 February  2012 £'000
Net return before finance costs and taxation	703		595		342
Net capital return before finance costs	(756)		(616)		(337)
Expenses charged to capital	(17)		(31)		(15)
Increase in creditors and accruals Decrease/(increase) in prepayments and accrued income	22 (5)		(7) -		(8) 2
Net cash outflow from operating activities	(53)		(59)		(16)

4    Called up share capital

Pursuant to the Tender Offer, 1,188,423 Ordinaryshares were repurchased for cancellation on 6 February 2013. Followingthe Tender Offer and buybackoffer there are 10,495,860 Ordinary shares in issue (31 August 2012:11,784,283: 29 February 2012: 11,884,283).

5    Related party transactions

Chelverton Asset Management Limited acts as the Investment Manager. Mr Horner, a Director of the Company, is alsoa director of Chelverton AssetManagement Limited. He is also a directorof CEPS PLC, in whichthe Company has an investment. At 28 February2013 there was £3,000 (31 August 2012: £3,000; 29 February2012:

£3,000) payable to the InvestmentManager.

6    Status of Company

It is the intentionof the Directors to conduct the affairs of the Company so that they satisfy the conditions for approval as aninvestment trust company as set out in Sections 1158/1159 of the Corporation Tax Act 2010.

Directorsand advisers

   Directors

George Stevens (Chairman) Kevin Allen

David Horner

Investment Manager

Chelverton Asset ManagementLimited 12b George Street

Bath BA1 2EH Tel: [phone]

Secretary and Registered Office John Girdlestone

Chartered Accountant

Waterside Court

Falmouth Road

Penryn

Cornwall

TR10 8AW

Tel: [phone]

Registrar and TransferOffice

Share Registrars Limited Suite E

First Floor

9 Lion and Lamb Yard Farnham

Surrey GU9 7LL Tel: [phone]

www.shareregistrars.uk.com

Auditors Hazlewoods LLP Windsor House Bayshill Road

Cheltenham GL50 3AT

Custodian and Banker Jarvis Investment Managers

78 Mount Ephraim

Royal Tunbridge Wells

TN4 8BS

Tel: [phone]

Information about the Company can be obtained at the Investment Manager's website at www.chelvertonam.com.

An investment company as defined under Section 833 of the Companies Act 2006.

REGISTERED IN ENGLAND No. 298951

 

END

 

 

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