CHELVERTON GROWTH TRUST PLC

Interim / Quarterly Report • May 1, 2019

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RNS Number : 7649X

Chelverton Growth Trust PLC

01 May 2019

Chelverton Growth Trust PLC

LEI: 213800I86P8BAE6UVI83

Half Yearly Report

For the six months ended 28 February 2019

The Directors announce the unaudited Half Yearly Report for the period 1 September 2018 to 28 February 2019.

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 six months of the current year.  The net asset value per share fell from 60.48p to 49.59p, a decrease of 18.0%.  Whilst in general the performance of the underlying investments has been as expected the sentiment towards UK publicly quoted equites, and in particular small companies and micro-cap companies, has been very negative.

Over the same period, the AIM All-share index has fallen by 17.6% whilst the Company's comparative index, the MSCI Small Cap UK index has fallen by some 9.9%.  Reflecting this decline, the Company's share price has decreased from 56.5p to 48.5p and the shares were therefore trading at a discount of some 2.2% at the period end.  

Since the period end the net asset value per share has recovered strongly to 55.81p per share whilst the share price has remained static.  

The entire country, and apparently the whole of Europe, have become exasperated and exhausted by the Brexit process.  As I write nothing is resolved and the whole process, which has been ongoing for almost three years has been delayed for either one month, three months or until the end of October.  It is very difficult, to say anything positive about the current position. 

Markets hate uncertainty, and, unfortunately, we are living in very uncertain times, which have borne down on the valuations of UK equities.  By the same token when the current position is resolved, as it will be, then the removal of the current uncertainty should lead to a reappraisal of prospects and valuations.  Ironically, because our portfolio is in small, highly UK-centric businesses, as long as we remain confident that the UK will not sink into recession, then our investments should prosper.

There are of course a whole range of other real concerns in the World.  These include the ongoing trade disputes and introduction of tariffs by the United States and any subsequent retaliatory actions by China and the European Union and the ending of Quantitative Easing by the ECB followed by its possible reintroduction to try and ease the plight of some European countries, particularly Italy. In addition, the ongoing conflicts in Syria and Libya and the actions of Russia around the World continue to cause great concern. 

CEPS is the largest investment held by the Company and just to remind Shareholders this is a diversified AIM traded holding company that owns majority shareholdings in five UK subsidiary businesses.  Your Investment Manager, my fellow Board member, David Horner is chairman of CEPS and has a similar sized shareholding as that of this Company.  CEPS is being built up by the growth of its underlying investee companies and by strategic "bolt-on" acquisitions.  The results have, in common with any developing company, been difficult for shareholders to interpret, however we are confident that there is significant value that in time will become clearer. 

Much the same could be said for Touchstar, Petards and Universe which are all making progress and appear to be undervalued at this time since the share prices have not risen to reflect this progress.  Plutus Powergen has seen a significant reduction in its share price largely because of unexpected changes in the regulated markets in which it operates.  Once the government has got its head out of the Brexit morass then hopefully some attention will be directed towards Britain's energy policy and how sufficient electricity is going to be produced to keep the lights on in the 2020's.  Plutus Powergen has a number of small gas sites that are ready to be built once the regulatory structure becomes clear.      

On the unquoted side, Chelverton Asset Management, the manager contracted by the Company, has had a solid six months growing funds under management and paying a maiden dividend.

Main Dental Partners was conditionally purchased by Spa Dental and it is expected that once some outstanding issues are resolved then the cash proceeds will be received.

A further investment was made in La Salle Education, a business involved in supplying schools with the modern mathematics syllabus via the internet.  We had previously written this holding down to nil value and have been pleasantly surprised by the quiet progress that has been made over the past year.  This is a good example of the need for patience in the development of young companies.  

The members voluntary liquidation of Security Research has been completed and a final sum was received in cash.  This was a very successful investment for the Company; the scale and price of the share buy-backs and the ultimate realisation of all of the assets for cash was unconventional but was conducted in a highly responsible manner by the directors. 

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 pursue 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.

Kevin Allen

Chairman

1 May 2019

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 2018 on pages 12 and 13 and pages 50 and 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 2019, has been prepared in accordance with FRS 104 "Interim Financial Reporting", gives a fair view of the assets, liabilities, financial position and loss 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 2019 and the above responsibility statement was signed on its behalf by Kevin Allen, Chairman.

Portfolio review

as at 28 February 2019

The Company's portfolio is set out below.

Investment	Sector	Valuation	% of
		£'000	total
			portfolio
AIM Traded
CEPS	Support Services	1,164	37.9
Trading holding company for a number of companies supplying services and products
MTI Wireless Edge	Technology Hardware & Equipment	152	4.9
Developer and manufacturer of sophisticated antennas and antenna systems
Petards Group	Support Services	500	16.3
Development, provision and maintenance of advance security systems and related services
Plutus Powergen	Flexible Energy Supply	133	4.3
Providers of management infrastructure and expertise to operate power plants and provide flexible electricity generation
Touchstar	Technology Hardware & Equipment	298	9.7
Software systems for warehousing and distribution
Universe Group	Support Services	30	1.0
Provision of credit fraud prevention, loyalty and retail systems
Fully Listed
Zenith Energy	Oil & Gas Producers	68	2.2
International energy production and exploration company
Nasdaq Traded
One Horizon Group	Support Services	-	-
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	210	6.8
Investment management, including providing services to Chelverton Growth Trust Plc
La Salle Education	Support Services	130	4.2
A UK based company dedicated to improving mathematics education
Main Dental Partners	Support Services	138	4.5
Operator of dental surgeries
Pedalling Forth	General Retailers	250	8.2
Internet retailer of cycling clothing for women
Portfolio valuation		3,073	100.0

Portfolio holdings

	28 February 2019		31 August 2018
	Valuation	% of  total	Valuation	% of total
Investment	£'000	portfolio	£'000	portfolio
CEPS	1,164	37.9	1,417	40.6
Petards Group	500	16.3	460	13.2
Touchstar	298	9.7	374	10.7
Pedalling Forth	250	8.2	250	7.2
Chelverton Asset Management Holdings	210	6.8	210	6.0
MTI Wireless Edge	152	4.9	171	4.9
Main Dental Partners	138	4.5	138	4.0
Plutus Powergen	133	4.3	317	9.1
La Salle Education	130	4.2	80	2.3
Zenith Energy	68	2.2	37	1.1
Universe Group	30	1.0	31	0.9
One Horizon Group	-	-	-	-
Anaxsys Technology	-	-	-	-
Airways Engineering	-	-	-	-
Total	3,073	100.0	3,485	100.0

Portfolio breakdown by sector and by index

Sector distribution	% of total
Support Services	70.7
Technology Hardware & Equipment	14.6
General Retailers	8.2
Flexible Energy Supply	4.3
Oil & Gas Producers	2.2
Index distribution	% of total
AIM	74.1
Unquoted	23.7
Fully listed	2.2

Income statement (unaudited) for the six months to 28 February 2019

	Six months to			Year to			Six months to
	28 February 2019			31 August 2018			28 February 2018
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments at fair value (note 4)	-	(505)	(505)	-	(1,263)	(1,263)	-	(228)	(228)
Income (note 2)	10	-	10	9	-	9	-	-	-
Investment management fee	(4)	(13)	(17)	(11)	(33)	(44)	(6)	(17)	(23)
Other expenses	(71)	(12)	(83)	(134)	(6)	(140)	(70)	(1)	(71)
Net return on ordinary activities before taxation	(65)	(530)	(595)	(136)	(1,302)	(1,438)	(76)	(246)	(322)
Taxation on ordinary activities	-	-	-	-	-	-	-	-	-
Net return on ordinary activities after taxation	(65)	(530)	(595)	(136)	(1,302)	(1,438)	(76)	(246)	(322)
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	pence	pence	pence	pence	pence	pence	pence	pence	pence
Return per Ordinary share*	(1.18)	(9.71)	(10.89)	(2.45)	(23.40)	(25.85)	(1.34)	(4.34)	(5.68)

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 includes 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 5,460,301 (31 August 2018: 5,563,242; 28 February 2018: 5,667,890) 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 2019

	Called up share capital £'000	Special reserve* £'000	Capital reserve £'000	Capital redemption reserve £'000		Revenue reserve £'000	Total £'000
Six months to 28 February 2019
1 September 2018	55	787	1,843	134	484		3,303
Net loss after taxation for the period	-	-	(530)	-	(65)		(595)
28 February 2019	55	787	1,313	134	419		2,708
Year to 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
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 and buybacks	(9)	(725)	-	9	-		(725)
Net loss after taxation for the period	-	-	(246)	-	(76)		(322)
28 February 2018	55	781	2,899	134	544		4,413

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

Distributable reserves: The Special reserve and Revenue reserve can be used for the purchase of the Company's Ordinary shares.

Statement of financial position (unaudited)

as at 28 February 2019

	As at 28 February 2019 £'000			As at 31 August 2018 £'000			As at 28 February 2018 £'000
Fixed assets
Investments at fair value (note 4)	3,073			3,485			3,900
Current assets
Debtors	2			9			3
Cash at bank	255			439			538
	257			448			541
Creditors - amounts falling due within one year
Creditors	(22)			(30)			(28)
Short-term loans (note 5)	(600)			(600)			-
	(622)			(630)			(28)
Net current (liabilities)/assets	(365)			(182)			513
Net assets	2,708			3,303			4,413
Share capital and reserves
Called up share capital	55			55			55
Special reserve	787			787			781
Capital reserve	1,313			1,843			2,899
Capital redemption reserve	134			134			134
Revenue reserve	419			484			544
Equity shareholders' funds	2,708			3,303			4,413
Net asset value per Ordinary share (note 6)	49.59p			60.48p			80.82p

Statement of cash flows (unaudited)

for the six months to 28 February 2019

	Six months to  28 February 2019		Year to 31  August 2018		Six months to  28 February  2018
	£'000		£'000		£'000
Cash flows from operating activities
Net loss on ordinary activities	(595)		(1,438)		(322)
Adjustment for:
Net capital loss	530		1,302		246
Expenses charged to capital	(25)		(39)		(18)
Interest paid	16		10		3
Decrease in creditors	(8)		(3)		(11)
Decrease in debtors	7		674		680
Cash (used in)/from operations	(75)		506		578
Cash flows from investing activities
Purchase of investments	(96)		(1,271)		(486)
Proceeds from sale of investments	3		736		571
Net cash (used in)/from investing activities	(93)		(535)		85
Cash flows from financing activities
Cost of shares purchased for cancellation under tender offer and buybacks	-		(719)		(719)
New loan advanced	-		600		-
Capital repayment of loan	-		(250)		(250)
Interest paid	(16)		(10)		(3)
Net cash used in financing activities	(16)		(379)		(972)
Net decrease in cash	(184)		(408)		(309)
Cash at the beginning of the period	439		847		847
Cash at the end of the period	255		439		538

1 Accounting Policies

a) Statement of compliance

The Company's Financial Statements for the period ended 28 February 2019 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 2018.

b) Financial information

The financial information contained in this report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the period ended 28 February 2019 and 28 February 2018 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 2018 has been extracted from the latest published Annual Report and Financial Statements, which have been lodged with the Registrar of Companies, contained an unqualified auditors' report and did not contain a statement required under Section 498 (2) or (3) of the Companies Act 2006.

c) Going concern

The Company's assets consist mainly of equity shares in companies which, in most circumstances are realisable within a short timescale. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

2 Income

	Six months to	## Year to	## Six months to
	28 February 2019	## 31 August 2018	## 28 February 2018
	£'000	## £'000	## £'000
## Income from investments
## UK net dividend income	10	9	-
## Total income	10	9	-

3 Taxation

The tax charge for the six months to 28 February 2019 is nil (year to 31 August 2018: nil; six months to 28 February 2018: nil).

The Company has an effective tax rate of 0% for the year ending 31 August 2019. 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			## 2019		## 2018		## 2018
	## Listed	## quoted	## Unquoted	## NASDAQ	## Total		## Total		## Total
	£'000	£'000	£'000	£'000	## £'000		## £'000		## £'000
## Opening book cost	## 72	## 4,236	## 998	## 166	## 5,472		## 4,953		## 4,953
## Opening investment holding losses	## (35)	## (1,466)	## (320)	## (166)	## (1,987)		## (740)		## (740)
	## 37	## 2,770	## 678	## -	## 3,485		## 4,213		## 4,213
## Movements in the period:
## Purchases at cost	## 46	## -	## 50	## -	## 96		## 1,271		## 486
## Sales proceeds	## -	## -	## (3)	## -	## (3)		## (736)		## (571)
## Gains/(losses) on sales	## -	## -	## 3	## -	## 3		## (16)		## 156
## Movement in investment holding losses	## (15)	## (493)	## -	## -	## (508)		## (1,247)		## (384)
## Closing valuation	## 68	## 2,277	## 728	## -	## 3,073		## 3,485		## 3,900
## Closing book cost	## 118	## 4,236	## 1,048	## 166	## 5,568		## 5,472		## 5,024
## Closing investment holding losses	## (50)	## (1,959)	## (320)	## (166)	## (2,495)		## (1,987)		## (1,124)
## Closing valuation	## 68	## 2,277	## 728	## -	## 3,073		## 3,485		## 3,900
## Analysis of capital gains and losses
## Realised gains/(losses) on sales	## -	## -	## 3	## -	## 3		## (16)		## 156
## Movement in fair value of investments	## (15)	## (493)	## -	## -	## (508)		## (1,247)		## (384)
	## (15)	## (493)	## 3	## -	## (505)		## (1,263)		## (228)

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 2019
Equity investments	2,345	-	728	3,073
Total	2,345	-	728	3,073
At 31 August 2018
Equity investments	2,807	-	678	3,485
Total	2,807	-	678	3,485
At 28 February 2018
Equity investments	3,191	-	709	3,900
Total	3,191	-	709	3,900

5 Short term loans

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% above the Bank of England base rate.

The loan was drawn down on 4 June 2018 and at the period end £600,000 was outstanding.

6 Net asset value

The basic net asset value per Ordinary share is based on net assets of £2,708,000 (31 August 2018: £3,303,000; 28 February 2018: £4,413,000) and on 5,460,301 Ordinary shares (31 August 2018: 5,460,301; 28 February 2018: 5,460,301) being the number of Ordinary shares in issue at the period end. No shares are held in Treasury.

7 Related party transactions

Under the terms of the agreement dated 28 June 2001, the Company has appointed Chelverton Asset Management Limited to be the Investment Manager. Mr Horner, a Director of the Company, is also a director of Chelverton Asset Management Limited and chairman of CEPS in which the Company holds an investment as set out above. Mr Martin is the chairman of Touchstar in which the Company holds an investment as set out above.

At 28 February 2019 there was £2,800 (31 August 2018: £3,300; 28 February 2018: £3,700) 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.

	Ordinary shares held	Percentage of Ordinary shares held
	£'000	%
K J Allen	1	1
D A Horner	56	56
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 02989519

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