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Chelverton UK Dividend Trust plc: Final Results

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Chelverton UK Dividend Trust plc (SDVP)
Chelverton UK Dividend Trust plc: Final Results
30-Jun-2022 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.

Chelverton UK Dividend Trust PLC

 

Annual Results for the year to 30 April 2022

 

Printed copies of the Annual Report will be sent to shareholders shortly. Additional copies may be obtained from the Corporate Secretary - Maitland Administration Services Limited, Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY.

 

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 April 2022.  The financial information for 2022 is derived from the statutory accounts for that year.  The auditors, Hazlewoods LLP, have reported on the 2022 accounts. Their report was unqualified and did not include a reference to any matters to which the auditors draw attention by way of emphasis without qualifying their report.  The financial information for 2021 is derived from the statutory accounts for that year. The following text is copied from the Annual Report & Accounts.

 

Strategic Report

 

Financial Highlights

 

 

30 April

30 April

 

Capital 

2022

2021

% change

Total gross assets (£’000)

58,805

64,013

(8.14)

Total net assets (£’000) 

41,382

47,345

(12.60)

Net asset value per Ordinary share 

198.47p

227.07p

(12.60)

Mid-market price per Ordinary share 

192.50p

220.00p

(12.50)

Discount 

(3.01%)

(3.11%)

 

Net asset value per Zero Dividend Preference share 2025 

118.52p

114.01p

3.96

Mid-market price per Zero Dividend Preference share 2025 

118.50p

116.00p

2.16

(Discount)/premium 

(0.02%)

1.75%

 

 

Year ended

Year ended

 

 

30 April

30 April

 

Revenue 

2022

2021

% change

Return per Ordinary share 

10.00p

6.12p

63.40

Dividends declared per Ordinary share 

11.00p

10.00p

10.00

Special dividends declared per Ordinary share 

0.272p

(100.00)

Total return

 

 

 

Total return on Group’s gross assets 

(4.92%)

57.18%

 

Total return on Group’s net assets* (total return as proportion of net

assets after the provision for the Zero Dividend Preference shares) 

(4.71%)

57.24%

 

Total return on Group’s net assets* 

(7.74%)

89.79%

 

Ongoing charges** 

2.03%

2.33%

 

Ongoing charges*** 

1.48%

1.56%

 

 

* Adding back dividends paid in the year.

** Calculated in accordance with the Association of Investment Companies (‘AIC’) guidelines. Based

 on total expenses, excluding finance costs, for the year and average net asset value.

***  Based on gross assets.

 

Chairman’s Statement

It gives me great pleasure to introduce this Annual Report, my final one, for the financial year to 30 April 2022 to shareholders.

 

The last 12 months have been extremely challenging. Although it seems a very long time ago, the first few months of the Company’s year were still subject to lockdown regulations. An easing commenced from July 2021; however, the sudden emergence of the Omicron Covid variant towards the end of the calendar year recreated the problems arising from the global Covid-19 pandemic and caused considerable economic uncertainty for an important period. Nevertheless, your Company continued to recover, benefitting from a strong recovery in the performance of its investee companies and, at that time, an improving business and economic outlook in the UK.

 

However, the invasion of Ukraine by Russia on the 24 February has exacerbated all of the uncertainty in the global economy and has led to a sharp downward movement in the shares held by your company.

 

With a highly UK centric portfolio, only invested in smaller UK AIM traded and Listed companies, in a “risk-off” environment the shares tend to fall rather more than constituents of the FTSE 100, notwithstanding the fact that the underlying trading performance of the companies is very satisfactory. However, history, and indeed empirical studies, have shown a recovery will take place, in time, leading to longer term outperformance

 

Results

The Company’s net asset value per ordinary share as of 30 April 2022 was 198.47p (2021: 227.07p), a decrease over the year of 12.60% with an ordinary share price of 192.50p per share (2021: 220.00p). Total assets, including audited revenue reserves, were £58.805m (2021: £64.013m), a decrease over the year of 8.14%, and the total net assets were £41.382m (2021: £47.345m). During the same period the MSCI Small Cap Index decreased by 15.22%.

 

The Company was launched on 12 May 1999, and over this time the net asset value per Ordinary share has risen by 106.7% and in addition a total of 217.12p has been paid in this period in dividends, including the fourth interim dividend announced with this report.

 

In the year total dividends of 11.00p per Ordinary share were paid and proposed, including the fourth interim dividend of 2.75p. The total dividend in 2022 represents an increase of 7.1% year on year (2021: 10.272p). The Company has partially used its revenue reserves, built over many years, to declare the core dividend.

 

The underlying portfolio yield has increased this year as our investee companies have continued to grow their dividends. As a result of the policy over the past twelve years of growing the annual dividend and retaining to revenue reserves the maximum permitted under the legislation, the Company is in a strong position and can continue to pay its dividend for some time from accumulated reserves should it be required. The Board is confident that the Company is well positioned to grow further the annual dividend, assuming more favourable macro-economic conditions over the medium term.

 

The Company’s portfolio is currently invested in 74 companies spread across 17 sectors. This spread creates a well-diversified portfolio which should, in the future, lead to a strong return of dividend income and, subsequently, steady revenue growth and, in time, capital growth.

 

Capital structure

There was no change to the number of shares in issue during the year. We have been regularly asked to issue new shares to meet market demand. However, the Board’s policy is that it will only consider issuing new shares if it can do so at a premium to NAV which is sufficient not only to cover all the costs of issuance but also to recognise the value of the revenue reserves that have been built up over many years by retaining profits which would otherwise have been distributed to holders of the existing share capital. Provided these criteria are met, the issue of new shares will enhance net asset value per share, and the increase in the size of the Company should improve liquidity in the market for its shares while making it more attractive to potential new investors.

 

If the issue of new shares is considered in the future, the Board will consider the two factors discussed above, and the potential to improve the underlying performance and returns of the company for the benefit of all shareholders.

 

Dividend

As briefly discussed in the Results section, the Board has declared a fourth interim dividend of 2.75p per Ordinary share (2021: 2.50p) which, when added to the three quarterly interim dividends of 2.75p per Ordinary share, brings the total paid and declared to 11.0p (2021: 10.0p) for the year ended 30 April 2022, an increase of 10.0% over the previous year.

Under the dividend distribution policy, the Board has not declared a special dividend (2021: 0.272p) to be paid with the fourth interim dividend. The Company has revenue reserves which after payment of the fourth interim dividend represent some 81.7% of the current annual dividend or some 9.0p per Ordinary share.

 

The Board is committed to progressively improving the Company’s dividend for investors and as such has decided that the four interim dividends paid in respect of the financial year ending 30 April 2023 will very likely exceed, but in any event will not be less than, that paid in respect of the financial year ended 30 April 2022.

 

Board Changes

I would like to thank William van Heesewijk who retired from the Board after 17 years of long and valued service. In his place we welcome Denise Hadgill who has extensive experience of investment management and will be a strong addition to the Board. I also welcome Howard Myles as my successor as Chairman. Howard has been a member of the Board since 2011 and became Chairman of the Audit Committee in 2016.

 

Outlook

There is ongoing uncertainty in the world’s economies and in their recovery across all sectors, from the recent impact of the Covid-19 instigated lockdowns and the more recent impact of the war in Ukraine. The well documented increase in the price of energy, raw materials and foodstuffs is also a great concern.

 

Chelverton, the investment managers of the Company, meet and discuss these issues with all the companies in the portfolio, and they tell us that, generally, the investee companies are managing the current tricky situation. The companies’ management teams are redoubling their efforts to improve efficiencies and to reduce the labour required in their businesses. This will be very important, with a reported 500,000 people having taken themselves out of employment, compounded by up to a further one million European workers who have chosen not to return, yet, to the UK.

 

Inflation, about which people have been too complacent, will in all probability continue to rise this year but will moderate somewhat next year as the rises in the first half of this year fall out of the annual calculation. Future inflation will depend on the Bank of England and whether inflation becomes embedded.

 

I have very much enjoyed being Chairman of your Company over the past tumultuous period, seeing the companies and the portfolio recovering from one upset and then another. The managers of the companies are always striving to improve their businesses and to make them more resilient. I am sure that the evidence of these efforts will be seen in the future.

 

Lord Lamont of Lerwick

Chairman

29 June 2022

 

Investment Manager’s Report

In the year to 30 April 2022 there was a 12.60% decline in the Company’s net asset value per share from 227.07p to 198.47p. During the same period the MSCI Small Cap Index decreased by 15.22%. At the same time the core dividend increased 10% to 11.0p, in line with the intentions outlined in September 2021. The Company has not paid a special dividend in respect of the 2021/2022 financial year, in line with the dividend policy announced in March 2019.

 

It should be noted that prior to the Covid-19 pandemic it had been the Manager’s intention to deliver a 7% increase in the core dividend for the year to April 2021. However, given the unprecedented reduction in dividends and uncertainty across the market at the time of the first interim dividend decision, we prudently took a more conservative approach to dividend growth, delivering a 4.2% increase in the core dividend in the year. By the time of the full year results in June 2021 we had the confidence to boost the core dividend to the level originally planned via a special dividend of 0.272p. The 11.0p dividend for the year to April 2022 represents a 7.1% increase on the total dividends paid in the year to April 2021.

 

The year to April 2022 has been a challenging one. After a strong recovery from the depths of the pandemic, companies have had to deal with new strains of the virus and associated restrictions, supply chain challenges, rising inflation, a shortage of skilled workers and now the impact of the appalling war in Ukraine. The stock market tends to react poorly to uncertainty so, in the face of continuing shocks to the system, it is not surprising that share prices have suffered. Our investee companies have, on the whole, navigated these challenges well. The recent reporting season saw the majority of companies report an in-line set of results which, in many cases, could have been even better were it not for supply chain challenges constraining revenues. Despite the solid underlying trading performance, the market has been de-rated, resulting in the 12.6% decline in Company NAV, almost all of which came in the second half of the year. While this is slightly better than the fall in the MSCI Small Cap Index, it is nevertheless disappointing to see a reduction in NAV, particularly when we believe the improvements made during the pandemic mean that our companies are in better shape now than they were in 2019.

 

On a more positive note, the underlying performance of our companies was reflected in good cash generation and dividends which were generally in-line or ahead of expectations. This has allowed us to continue rebuilding the income account after the pandemic shock, while also building positions in companies which we believe will deliver strong capital growth in the coming years. Dividend income grew 51% in the year to £2.58m (2021: £1.71m), reflecting the strong recovery in dividend payments. We continued to utilise the revenue reserves built up prior to the pandemic in the year in order to maintain our desired dividend trajectory for the Company, however the rebound in dividend payments saw our reliance on revenue reserves reduce. We expect this trend to continue into the current year.

 

It is our fundamental belief that strong operational management, good cash generation and growing dividends result in rising share prices over the medium term. Now that the majority of companies have returned to paying dividends, we expect an element of yield support to protect ratings during turbulent times. Many of the positives we have previously talked about coming out of the pandemic have yet to be appreciated given the uncertain macro environment. This gives us confidence that our portfolio of companies is well placed to deliver over the coming years.

 

Portfolio review

The general de-rating of UK equities has resulted in a pickup in corporate activity across the market. Within our portfolio, Brewin Dolphin received a recommended bid from RBC at an attractive premium and we took the opportunity to exit our position at close to the offer price so we could reinvest the cash. Randall & Quilter also received an opportunistic approach from its largest shareholder, although this has since been rejected by the wider shareholder base. Just after the period end we also saw a recommended bid by KKR for ContourGlobal. While the offer price represents a reasonable premium over the previous market price, we will be sorry to lose a solid cash generator which paid a very attractive dividend. In addition to the takeovers, we have sold six positions in their entirety (2021: 8): Babcock, DX, Flowtech, Go Ahead, ShoeZone and Strix Group. We have however started a new position in Strix Group more recently as the shares had de-rated significantly and offered an attractive yield again.

 

Shareholdings were reduced in those companies that outperformed during the period including: Bloomsbury Publishing, Braemar Shipping Services, Epwin Group, Jarvis Securities, Redde Northgate, Clarke (T.), TheWorks.co.uk, Tyman and Vertu Motors, all after strong share price performance.

 

Eight new shareholdings were added to the Company’s portfolio in the year (2021: 8), including: DSW Capital – a challenger mid-market professional services business; Kitwave Group – an independent impulse product wholesaler; Spectra Systems – an IP led business focussing on secure transaction technology; Springfield Properties – a Scottish housebuilder; and speciality chemicals business, Synthomer. Shareholdings were also increased in 20 companies (2021: 33) which were in the portfolio at the start of the year, including Bakkavor, ContourGlobal, Duke Royalty, Hargreaves Services, iEnergizer, MP Evans and Palace Capital.

 

Outlook

The market is currently coming to terms with a phenomenon which it has not experienced for quite some time, namely inflation. In times of uncertainty there is usually a “flight to liquidity”, and we have seen this occur this time around, to the detriment of the small and mid-cap stocks in which we invest. As noted above however, the solid underlying performance and low valuations in our part of the market have sparked an increase in corporate activity, a sure sign that there is value in the market.

 

We have also seen a marked increase in the number of companies undertaking share buy-backs, another consequence of current valuations combined with good cash generation and strong balance sheets. As long as buy-backs are instigated alongside an appropriate dividend policy, and the shares are subsequently cancelled, buy-backs are a positive for our stocks, as they should ultimately result in faster dividend growth in future years.

 

Supply chain challenges are likely to remain in the short to medium term, however good management teams are finding ways to adapt to the current climate. One consequence of this is higher levels of inventory throughout the system, something we will need to keep an eye on as this should unwind to some degree as and when supply chains become more predictable. We are unlikely to see a return to the positive earnings forecast momentum seen at the beginning of last year until management teams feel they are able to predict macro conditions more accurately; however, we take comfort from the fact that our companies have kept forecasts on the conservative side coming out of the pandemic. This, combined with the operational improvements made over the last few years at our investee companies and the attractive dividend yields currently available, gives us a significant degree of confidence looking into the medium term.

 

David Horner

Chelverton Asset Management Limited

29 June 2022

 

 

Breakdown of Portfolio by Industry

 

at 30 April 2022

Market value

Bid

% of

Market sector

£’000

portfolio

Banks

555

1.0

Basic Resources

1,326

2.3

Chemicals

610

1.0

Construction & Materials

5,014

8.8

Consumer Products and Services

4,242

7.4

Energy

1,694

2.9

Financial Services

10,466

17.9

Food, Beverage & Tobacco

2,824

4.9

Industrial Goods & Services

9,464

16.5

Insurance

4,144

7.2

Media

4,148

7.2

Personal Care, Drugs & Grocery Stores

975

1.7

Real Estate

4,678

8.1

Retail

3,459

6.0

Telecommunications

1,622

2.8

Travel & Leisure

1,862

3.2

Utilities

668

1.1

 

57,751

100.0

 

Portfolio Statement

 

at 30 April 2022

 

Market
value

% of

Security

Sector

£’000

portfolio

Belvoir Lettings

Real Estate

2,400

4.2

 

Diversified Energy

Energy

1,694

2.9

 

iEnergizer

Industrial Goods & Services

1,445

2.5

 

Alumasc Group

Construction & Materials

1,440

2.5

 

UP Global Sourcing Holdings

Consumer Products and Services

1,283

2.2

 

MP Evans

Food, Beverage & Tobacco

1,175

2.0

 

STV

Media

1,142

2.0

 

Jarvis Securities

Financial Services

1,067

1.8

 

MTI Wireless Edge

Telecommunications

1,062

1.8

 

Coral Products

Industrial Goods & Services

1,050

1.8

 

Devro

Food, Beverage & Tobacco

1,038

1.8

 

Hargreaves Services

Industrial Goods & Services

1,022

1.8

 

Chesnara

Insurance

1,003

1.7

 

Redde Northgate

Industrial Goods & Services

991

1.7

 

Kitwave Group

Personal Care, Drugs & Grocery Stores

975

1.7

 

Ramsdens Holdings

Financial Services

975

1.7

 

Vector Capital

Financial Services

951

1.6

 

Personal Group Holdings

Insurance

915

1.6

 

Anglo Pacific

Basic Resources

903

1.6

 

Randall & Quilter

Insurance

901

1.6

 

Clarke (T.)

Construction & Materials

891

1.5

 

Curtis Banks Group

Financial Services

875

1.5

 

Regional REIT

Real Estate

847

1.5

 

Severfield

Construction & Materials

845

1.5

 

Premier Miton Group

Financial Services

840

1.4

 

DFS Furniture

Retail

839

1.4

 

Smiths News

Industrial Goods & Services

837

1.4

 

Vistry Group

Media

836

1.4

 

Palace Capital

Real Estate

831

1.4

 

Duke Royalty

Financial Services

820

1.4

 

Finncap Group

Financial Services

813

1.4

 

Wilmington Group

Media

813

1.4

 

Bloomsbury Publishing

Media

794

1.4

 

TP ICAP

Financial Services

791

1.4

 

Castings

Industrial Goods & Services

790

1.4

 

Essentra

Industrial Goods & Services

786

1.4

 

Braemar Shipping Services

Industrial Goods & Services

780

1.4

 

Vertu Motors

Retail

777

1.3

 

Appreciate Group

Financial Services

753

1.3

 

Marston's

Travel & Leisure

750

1.3

 

Sabre Insurance

Insurance

735

1.3

 

Epwin Group

Construction & Materials

731

1.3

 

Photo-me International

Consumer Products and Services

708

1.2

 

Polar Capital Holdings

Financial Services

695

1.2

 

ContourGlobal

Utilities

668

1.1

 

Headlam Group

Consumer Products and Services

635

1.1

 

Strix Group

Industrial Goods & Services

633

1.1

 

TheWorks.co.uk

Retail

630

1.1

 

Numis Corporation

Financial Services

626

1.1

 

Orchard Funding Group

Financial Services

625

1.1

 

Bakkavor

Food, Beverage & Tobacco

611

1.1

 

Synthomer

Chemicals

610

1.0

 

Town Centre Securities

Real Estate

600

1.0

 

Hansard Global

Insurance

590

1.0

 

Centaur Media

Media

563

1.0

 

Aferian

Telecommunications

560

1.0

 

Springfield Properties

Consumer Products and Services

560

1.0

 

Close Brothers Group

Banks

555

1.0

 

Kier Group

Construction & Materials

555

1.0

 

Tyman

Construction & Materials

552

1.0

 

Portmeirion Group

Consumer Products and Services

550

1.0

 

Topps Tiles

Retail

550

1.0

 

RPS Group

Industrial Goods & Services

517

0.9

 

Crest Nicholson

Consumer Products and Services

506

0.9

 

DSW Capital

Financial Services

500

0.8

 

Brown (N) Group

Retail

438

0.8

 

Chamberlin

Basic Resources

423

0.7

 

Saga

Travel & Leisure

394

0.7

 

Restaurant Group

Travel & Leisure

373

0.6

 

Revolution Bars Group

Travel & Leisure

345

0.6

 

RTC Group

Industrial Goods & Services

337

0.6

 

Gattaca

Industrial Goods & Services

276

0.5

 

Spectra Systems

Retail

225

0.4

 

Sancus Lending Group

Financial Services

135

0.2

 

Total Portfolio

 

57,751

100.0

 

 

 

 

 

 

 

 

 

 

 

Investment Objective and Policy

The investment objective of the Company is to provide Ordinary shareholders with a high income and the opportunity for capital growth, having provided a capital return sufficient to repay the full final capital entitlement of the Zero Dividend Preference shares issued by the wholly-owned subsidiary company SDVP.

 

The Company’s investment policy is that:

 

  • The Company will invest in equities in order to achieve its investment objectives, which are to provide both income and capital growth, predominantly through investment in mid and smaller capitalised UK companies admitted to the Official List of the UK Listing Authority and traded on the London Stock Exchange Main Market, or traded on AIM.

  • The Company will not invest in preference shares, loan stock or notes, convertible securities or fixed interest securities or any similar securities convertible into shares; nor will it invest in the securities of other investment trusts or in unquoted companies.

 

Performance Analysis using Key Performance Indicators

At each quarterly Board meeting, the Directors consider a number of key performance indicators (‘KPIs’) to assess the Group’s success in achieving its objectives, including the net asset value (‘NAV’), the dividend per share and the total ongoing charges.

 

  • The Group’s Consolidated Statement of Comprehensive Income is set out on page 48 of the Annual Report.

  • A total dividend for the year to 30 April 2022 of 11.00p (2021: 10.272p) per Ordinary share has been declared to shareholders by way of three payments totalling 8.25p per Ordinary share plus a planned fourth interim dividend payment of 2.75p per Ordinary share.

  • The NAV per Ordinary share at 30 April 2022 was 198.47p (2021: 227.07p).

  • The ongoing charges (including investment management fees and other expenses but excluding exceptional items) for the year ended 30 April 2022 were 2.03% (2021: 2.33%). The decrease in the annualised ongoing charges during the year is primarily due to the increase in net asset value during the first half of the year.

 

Principal Risks

The Directors confirm that they have carried out a robust annual assessment of the principal risks facing the Company, including those that would threaten its objectives, business model, future performance, solvency or liquidity. The Board regularly monitors the principal risks facing the Company, the likelihood of any risk crystallising, the potential implications for the Company and its performance, and any additional mitigation that might be introduced. Mitigation of these risks is primarily sought and achieved in a number of ways as set out below:

 

Market risk

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

The Investment Manager actively monitors economic performance of investee companies and reports regularly to the Board on a formal and informal basis. The Board meets formally with the Investment Manager on a quarterly basis when the portfolio transactions and performance are discussed and reviewed.

 

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 potential gains as a result of maintaining such liquidity, during negative market movements this may provide downside protection.

 

Discount volatility

The Board recognises that, as a closed-ended company, 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 is pleased to report that discount volatility improved with the Company’s stronger net asset value position and share price during the year. However, the Board, with its advisers, continues to monitor the Company’s discount levels and shares may be bought back in future should it be considered appropriate to do so by the Board.

 

Regulatory risks

A breach of Companies Act provisions or Financial Conduct Authority (‘FCA’) rules may result in the Group’s companies being liable to fines or the suspension of either of the Group companies from listing and from trading on the London Stock Exchange. The Board, with its advisers, monitors the Group and SDVP’s regulatory obligations both on an ongoing basis and at quarterly Board meetings.

 

Financial risk

The financial position of the Group is reviewed via detailed management accounts at each Board meeting

and both financial position and controls are monitored by the Audit Committee.

 

Political risk

The Board recognises that changes in the political landscape may substantially affect the Company’s prospects and the value of its portfolio companies. Potential future changes to the UK’s policies and regulatory landscape in light of the UK’s departure from the EU could impact the Company and its portfolio companies. Potential consequences for the Company are regularly monitored and assessed by the Board.

 

Climate change risk

The Board and Investment Manager consider and discuss how climate change could affect the Company’s portfolio companies and shareholder returns. Environmental, social and governance factors increasingly form a part of the dialogue between the Investment Manager and the management teams of portfolio companies and also contribute to portfolio investment decisions.

 

The coronavirus pandemic

The intensive vaccine rollouts, combined with the arrival of less potent strains of the virus, have resulted in a return to more normalised social, travel and work patterns, albeit with hybrid working arrangements remaining in place for a large number of organisations. The fiscal stimulus provided by governments around the world served to limit the impact on many economies. The Board and Investment Manager continue to monitor the effects of the social and economic changes arising from the pandemic, together with their impact on the market, the Company’s key service providers and the future prospects of the portfolio companies.

 

Accounting policies

New developments in accounting standards and industry-related issues are actively reported to and monitored by the Audit Committee, the Board where applicable and the Company’s advisers, ensuring that all appropriate accounting policies are adhered to.

 

A more detailed explanation of the financial risks facing the Group is given in note 21 to the financial statements on pages 66 to 71 of the Annual Report.

 

Gearing

The Company’s shares are geared by the Zero Dividend Preference shares and should be regarded as carrying above average risk, since a positive NAV for the Company’s shareholders will be dependent upon the Company’s assets being sufficient to meet those prior final entitlements of the holders of Zero Dividend Preference shares. As a consequence of the gearing, a decline in the value of the Company’s investment portfolio will result in a greater percentage decline in the NAV of the Ordinary shares and vice versa.

 

Section 172 Statement

The Directors are mindful of their duties to promote the success of the Company in accordance with Section 172 of the Companies Act 2006, for the benefit of the shareholders, giving careful consideration to wider stakeholders’ interests and the environment in which the Company operates. The Board recognises that its decisions are material, not only to the Company and its future performance, but also to the Company’s key stakeholders, as identified below. In making decisions, the Board considered the outcome from its stakeholder engagement exercises as well as the need to act fairly as between the members of the Company.

 

Key stakeholders

Investors – The Company’s shareholders have a significant role in monitoring and safeguarding the governance of the Company and can exercise their voting rights to do so at general meetings of the Company. Shareholders also benefit from improving performance and returns.

 

All shareholders have access to the Board via the Company Secretary and the Investment Manager at key company events, such as the annual general meeting, and throughout the year if appropriate. These regular communications help the Board make informed decisions when considering how to promote the success of the Company for the benefit of shareholders. This year’s Annual General Meeting is to be held on 8 September 2022 and will be held at the new offices of the Investment Manager, Basildon House, 7 Moorgate, London EC2. Shareholders are strongly encouraged to vote by proxy and to appoint the Chairman as their proxy. Shareholders are also encouraged to put forward any questions to the Company Secretary in advance of the Annual General Meeting.

 

The Board received enhanced Investor Relations themed reporting from its broker Shore Capital during the year to ensure continuing awareness of key shareholder concerns.

 

Investment Manager – The Board recognises the critical role of the Investment Manager in delivering the Company’s future success. The Investment Manager attends Board and Audit Committee meetings, to participate in transparent discussions, where constructive and collegiate challenge is encouraged. The Board and Investment Manager communicate regularly outside of these meetings with the aim of maintaining an open relationship and momentum in the Company’s performance and prospects. The Investment Manager’s performance is evaluated informally on a regular basis, with a formal review carried out on an annual basis by the Board when performing the functions of a management engagement committee. The Investment Management Agreement is reviewed as part of this process as further discussed on page 21 of the Annual Report.

 

Key service providers – The Company employs a collaborative approach and looks to build long term partnerships with its key service providers. These are required to report to the Board on a regular basis and their performance and the terms on which they are engaged, are evaluated and considered annually, as detailed on pages 29 and 30 of the Annual Report.

 

Portfolio companies – The Investment Manager regularly liaises with the management teams of companies within the Investment Portfolio and reports on findings and the performance of investee companies to the Board on at least a quarterly basis.

 

Regulators – The Board regularly reviews the regulatory landscape and ensures compliance with rules and regulations relevant to the Company via reporting at quarterly Board meeting from the Company Secretary. Compliance with relevant rules and regulations is formally assessed on at least an annual basis.

 

Viability Statement

The Board and Investment Manager continuously consider the performance, progress and future prospects of the Company over a variety of future timescales. These assessments, including regular investment performance updates from the Investment Manager, and a continuing programme of risk monitoring and analysis, form the foundations of the Board’s assessment of the future viability of the Company. The Directors are mindful of the Company’s commitments to shareholders of the subsidiary SDVP in 2025 in forming their viability opinion for the Company each year.

 

The Directors consider that a period of three years is currently the most appropriate time horizon to consider the Company’s future viability. After careful analysis, taking into account the potential impact of the current risks and uncertainties to which the Company is exposed, the Directors confirm that in their opinion:

 

  • it is appropriate to adopt the going concern basis for this Annual Report & Accounts; and

  • the Company continues to be viable for a period of at least three years from the date of signing of this Annual Report and Accounts. Three years is considered by the Board to be the maximum period over which it is currently feasible to make a viability forecast based on known risks and macro­economic trends.

 

The following facts, which have not materially changed in the last financial year, support the Directors’ view:

 

  • the Company has a liquid investment portfolio invested predominantly in readily realisable smaller capitalised UK-listed and AIM traded securities and has some short-term cash on deposit; and

  • revenue expenses of the Company are covered multiple times by investment income, even in the event that lower income levels as a result of the Covid-19 pandemic continue for some considerable time.

 

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 assurances from its independent service providers, to whom all management and administrative functions are delegated, 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 the assessment.

 

Other Statutory Information

Company status and business model

The Company was incorporated on 6 April 1999 and commenced trading on 12 May 1999. The Company is a closed-ended investment trust with registered number 03749536. Its capital structure consists of Ordinary shares of 25p each, which are listed and traded on the main market of the London Stock Exchange.

 

The principal activity of the Company is to carry on business as an investment trust. The Company has been granted approval from HMRC as an investment trust under Sections 1158/1159 of the Corporation Tax Act 2010 on an ongoing basis. The Company will be treated as an investment trust company subject to there being no serious breaches of the conditions for approval. The Company is also an investment company as defined in Section 833 of the Companies Act 2006. The current portfolio of the Company is such that its shares are eligible for inclusion in Individual Savings Accounts (‘ISAs’) up to the maximum annual subscription limit and the Directors expect this eligibility to be maintained.

 

The Group financial statements consolidate the audited annual report and financial statements of the Company and SDVP, its subsidiary undertaking, for the year ended 30 April 2022. The Company owns 100% of the issued ordinary share capital and voting rights of SDVP, which was incorporated on 25 October 2017.

 

Further information on the capital structure of the Company and SDVP can be found on pages 74 to 75 of the Annual Report.

 

AIFM

The Board is compliant with the directive and the Company is registered as a Small Registered Alternative

Investment Fund Manager (‘AIFM’) with the FCA and all required returns have been completed and filed.

 

Employees, environmental, human rights and community issues

The Board recognises the requirement under Section 414C of the Companies Act to detail information about employees, environmental, human rights and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements and the requirements of the Modern Slavery Act 2015 do not directly apply to the Company as it has no employees and no physical assets, all the Directors are non-executive and it has outsourced all its management and administrative functions to third-party service providers. The Company has therefore not reported further in respect of these provisions. However, in carrying out its activities and in relationships with service providers, the Company aims to conduct itself responsibly, ethically and fairly at all times.

 

Environmental, Social, Governance (‘ESG’)

ESG matters continue to have an increasing prominence in financial and regulatory reporting. In company meetings, the Investment Manager routinely questions the corporate management on a variety of topics, such as safety records, environmental footprint and the key areas of focus of their board papers, to ensure that portfolio companies and prospective investments are adhering to best practice and emerging market trends at all times.

 

The way companies respond to ESG issues can affect their business performance, both directly and indirectly. ESG factors are considered by Chelverton Asset Management (‘Chelverton’) investment teams and increasingly contribute to investment decision making; however investment decisions also continue to balance ESG performance in the context of overall investment potential

.

The Investment Manager is successfully integrating responsible investing considerations more closely into investment processes for the Company and the other investment vehicles it operates on behalf of investors, a process that began in 2018. The appointment and integration in 2018 of a Corporate Governance Manager within the investment team at Chelverton has been supported by the appointment of an experienced ESG professional to the position of Responsible Investing Manager in October 2020. This renewed commitment is strengthening the Chelverton team’s focus on ESG priorities within all Chelverton’s investment processes. Misjudgements on ESG matters can increasingly incur major additional costs to portfolio holdings, as well as undermining their equity returns through reputational damage.

 

Global greenhouse gas emissions

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emission-producing sources under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

 

Streamlined energy and carbon reporting

The Company is categorised as a lower energy user under the HMRC Environmental Reporting Guidelines March 2019 and is therefore not required to make the detailed disclosures of energy and carbon information set out within the guidelines. The Company has therefore not reported further in respect of these guidelines.

 

Culture and values

The Company’s values are to act responsibly, ethically and fairly at all times. The Company’s culture is driven by its values and is focused on providing Ordinary shareholders with a high income and opportunity for capital growth, as set out on page 11. As the Company has no employees, its culture is represented by the values, conduct and performance of the Board, the Investment Manager and its key service providers, all of whom work collaboratively to support delivery of the Company’s strategy.

 

Current and future developments

A review of the main features of the year and the outlook for the Company is contained in the Chairman’s

Statement on pages 2 to 4 and the Investment Manager’s Report on pages 5 and 6.

Dividends declared/paid

 

Payment date

30 April 2022

p

30 April 2021

p

First interim

1 October 2021

2.75

2.50

Second interim

4 January 2022

2.75

2.50

Third interim

19 April 2022

2.75

2.50

Fourth interim

15 July 2022

2.75

2.50

 

 

11.00

10.00

Special dividend

 

0.272

 

 

11.00

10.272

 

The Directors do not declare a final dividend.

 

Ten year dividend history

 

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

 

p

p

p

p

p

p

p

p

p

p

1st Quarter

2.75

2.50

2.40

2.19

2.02

1.85

1.70

1.575

1.475

1.40

2nd Quarter

2.75

2.50

2.40

2.19

2.02

1.85

1.70

1.575

1.475

1.40

3rd Quarter

2.75

2.50

2.40

2.19

2.02

1.85

1.70

1.575

1.475

1.40

 

8.25

7.50

7.20

6.57

6.06

5.55

5.10

4.725

4.425

4.20

4th Quarter

2.75

2.50

2.40

2.40

2.40

2.40

2.40

2.40

2.40

2.40

 

11.00

10.00

9.60

8.97

8.46

7.95

7.50

7.125

6.825

6.60

% increase of core dividend

10.00

4.17

7.02

6.03

6.47

6.00

5.26

4.40

3.41

3.12

Special dividend

0.272

2.50

0.66

1.86

1.60

0.30

2.75

Total dividend

11.00

10.272

9.60

11.47

9.12

9.81

9.10

7.425

9.575

6.60

 

Diversity and succession planning

Throughout the year to 30 April 2022 the Board comprised four male Directors. On 30 April 2022, Mr van Heesewijk retired as a Director. In order to draw upon as diverse a pool of candidates as possible, the Board engaged the services of a third-party recruitment consultant in its search for an additional director. On 1 May 2022, Ms Hadgill was appointed to the Board. The Board recognises the need to consider the benefits of diversity when considering new appointments to the Board. All appointments are made on the basis of merit against objective criteria; however, the Board seeks to consider a wide range of candidates with due regard to diversity, spanning gender, ethnicity, background and experience. As all appointments are based on merit, and in view of the small size of the Board, the Board does not consider it appropriate to set diversity targets. The Board will continue to consider succession planning on an annual basis.

 

The Strategic Report is signed on behalf of the Board by

 

Lord Lamont of Lerwick

Chairman

29 June 2022

 

Statement of Directors’ Responsibilities

in respect of the Annual Report and the financial statements

 

The Directors are responsible for preparing the Annual Report and the financial statements. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with UK adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under international accounting standards.

 

Under company law the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group and the Company for that period.

 

In preparing each of the Group and the Company’s 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;

  • state that the Group and the Company have complied with UK adopted international accounting standards subject to any material departures disclosed and explained in the financial statements;

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

  • provide additional disclosures when compliance with specific requirements in UK adopted international accounting standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and the Company’s financial position and financial performance; and

  • make an assessment of the Group’s ability to continue as a going concern.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group’s financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group 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 Strategic Report, a Directors’ Report, Directors’ Remuneration Report and Statement on Corporate Governance that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules of the FCA.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information relating to the Company on the Investment Manager’s website. Legislation in the UK governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.

 

The Directors confirm that, to the best of their knowledge and belief:

 

  • the financial statements, prepared in accordance with the relevant financial framework, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

  • the Annual Report includes a fair review of the development and performance of the Group and the position of the Group, together with a description of the principal risks and uncertainties faced;

  • the Annual Report is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy; and

  • the Investment Managers’ Report includes a fair review of the development and performance of the business and the Group and its undertakings included in the consolidation taken as a whole and adequately describes the principal risks and uncertainties they face.

 

On behalf of the Board of Directors

Lord Lamont of Lerwick

Chairman

29 June 2022

 

Consolidated Statement of Comprehensive Income

for the year ended 30 April 2022

 

 

 

Note

 

Revenue

£’000

2022

Capital

£’000

 

Total

£’000

 

Revenue

£’000

2021

Capital

£’000

 

Total

£’000

(Losses)/gains on investments at fair value through profit or loss

10

(4,610)

(4,610)

23,110

23,110

Investment income

2

2,576

2,576

1,708

1,708

Investment management fee

3

(158)

(473)

(631)

(124)

(372)

(496)

Other expenses

4

(302)

(12)

(314)

(280)

(10)

(290)

Net (deficit)/surplus before finance costs and taxation

 

2,116

(5,095)

(2,979)

1,304

22,728

24,032

Finance costs

6

(654)

(654)

(630)

(630)

Net (deficit)/surplus before taxation

 

2,116

(5,749)

(3,633)

1,304

22,098

23,402

Taxation

7

(32)

(32)

(27)

(27)

Total comprehensive (expense)/ income for the year

 

2,084

(5,749)

(3,665)

1,277

22,098

23,375

 

 

Revenue

Capital

Total

Revenue

Capital

 Total

 

 

pence

pence

pence

pence

pence

pence

Net return per:

 

 

 

 

 

 

 

Ordinary share

8

10.00

(27.57)

(17.57)

6.12

105.99

 112.11

Zero Dividend Preference share 2025

8

4.51

4.51

4.34

4.34

 

The total column of this statement is the Statement of Comprehensive Income of the Group prepared in accordance with UK adopted IFRS and with the requirements of the Companies Act 2006. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All of the net return for the period and the total comprehensive income for the period is attributable to the shareholders of the Group. The supplementary revenue and capital return columns are presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.

The accompanying notes form part of these financial statements.

 

Consolidated and Parent Company Statement of Changes in Net Equity

for the year ended 30 April 2022

 

 

Share capital

Share premium account

Capital redemption reserve

Capital reserve

Revenue
reserve

Total

 

Note

£’000

£’000

£’000

£’000

£’000

£’000

Year ended 30 April 2022 30 April 2021

 

5,213

17,517

5,004

16,950

2,661

47,345

Total comprehensive (expense)/ income for the year

 

(5,749)

2,084

(3,665)

Dividends paid

9

(2,298)

(2,298)

30 April 2022

 

5,213

17,517

5,004

11,201

2,447

41,382

Year ended 30 April 2021 30 April 2020

 

5,213

17,517

5,004

(5,148)

3,448

26,034

Total comprehensive income for the year

 

22,098

1,277

23,375

Dividends paid

9

(2,064)

(2,064)

30 April 2021

 

5,213

17,517

5,004

16,950

2,661

47,345

 

The accompanying notes form part of these financial statements.

 

Consolidated and Parent Company Balance Sheets

as at 30 April 2022

 

Note

Group

2022

£’000

Group

2021

£’000

Company

2022

£’000

Company

2021

£’000

Non-current assets

 

 

 

 

 

Investments at fair value through profit or loss

10

57,751

62,768

57,751

62,768

Investments in subsidiary

12

13

13

 

 

57,751

62,768

57,764

62,781

Current assets

 

 

 

 

 

Trade and other receivables

13

520

757

520

757

Cash and cash equivalents

 

534

488

534

488

 

 

1,054

1,245

1,054

1,245

Total assets

 

58,805

64,013

58,818

64,026

Current liabilities

 

 

 

 

 

Trade and other payables

14

(237)

(136)

(250)

(149)

 

 

(237)

(136)

(250)

(149)

Total assets less current liabilities

 

58,568

63,877

58,568

63,877

Non-current liabilities

 

 

 

 

 

Zero Dividend Preference shares

15

(17,186)

...

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