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Chelverton UK Dividend Trust plc (SDVP)
CHELVERTON UK DIVIDEND TRUST PLC
Half-Yearly Financial Report
For the six months ended 31 October 2021
Investment Objective and Policy
The investment objective of Chelverton UK Dividend Trust PLC (' the Company') is to provide Ordinary Shareholders with a high income and 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, SDV 2025 ZDP PLC ('SDVP').
Chelverton UK Dividend Trust PLC ('the Company'), and its subsidiary SDV 2025 ZDP PLC ('SDVP') ('the Subsidiary'), together form the Group ('the Group').
The Company's investment policy is that:
* Dividend per Ordinary share includes the first interim paid and second interim declared for the period to 31 October 2021 and 2020 and will differ from the amounts disclosed within the statement of changes in net equity, owing to the timings of payments.
** Adding back dividends distributed in the period.
Interim Management Report
This half-yearly report covers the six months to 31 October 2021. The net asset value per Ordinary share at 31 October 2021 was 226.6p down from 227.1p at 30 April 2021, a decrease of 0.2% during the period compared to the MSCI Small Cap Index which also decreased by 0.2%. As at 23 November 2021 the NAV per share had decreased to 224.16p.
From the beginning of the Company's financial year, the Ordinary share price had decreased from 220.0p to 214.0p at 31 October 2021, an decrease of 2.7%. Since the period end the shares have increased to 215.0p and as at 23 November 2021 the shares traded on a discount of 4.1%.
Maintaining its record of increasing the annual core dividend paid by the company for 12 years , and in particular through the Covid-19 pandemic, the first interim dividend for the current year of 2.75p (2020: 2.5p) per Ordinary share was paid on 1 October 2021. The Board has declared a second interim dividend of 2.75p per Ordinary share (2021: 2.5p) payable on 2 January 2022 to Shareholders on the register on 13 December 2021, making a total for the half year of 5.5p per Ordinary share (2020: 5.0p) an increase of 10.0%. It is anticipated that the Company will maintain this level of dividend for the third and fourth quarter at 2.75p making a total core dividend declared of 11.0p for the year (2021: 10.0p) an increase of 10.0%.
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 intended 11.0p dividend for the year to April 2022 will represent a 7% increase on the total dividends paid in the year to April 2021.
In the last six months we have increased our investment in 12 of our existing holdings (2021: 23), taking advantage of lower share prices and shares being available in Appreciate Group, Contour Global, Curtis Banks Group, Duke Royalty, Hansard Global, iEnergizer, McColls Retail Group, Orchard Funding Group, RTC Group, Sabre Insurance, Smiths News and Vector Capital.
During the period we added three new names to the portfolio (2021: 4) - Kitwave Group - an independent food wholesaler which joined the Alternative Investment Market during the period, Topps Tiles - the UK's largest tile specialist, and financial markets intermediary TP ICAP.
Funds were raised from the outright sale of three our holdings, DX Group, Shoe Zone and Strix (2021: 6). The following holdings were reduced as they grew to become larger weightings on lower yields: Braemar Shipping Services, Centaur Media, Clarke (T.), Devro, Flowtech Fluid Power, Redde Northgate, Theworks.co.uk, UP Global Sourcing Holdings and Vertu Motors.
Having recovered strongly from the depths of the pandemic, the market has paused for breath over the past 6 months, with fears over supply chain disruption, availability of skilled labour and rising inflation dampening expectations for the full year. It is important to remember that whilst we are small and mid-cap investors, the companies that we invest in are sophisticated in the industries in which they operate. While they are not immune from the well documented short-term problems, they do have the strength and depth of management and technical resource and ability to deal with the worst effects of the issues.
We continue to see compelling evidence our companies are, in the main, emerging from the pandemic as better companies with more efficient processes. It is likely that companies will need to present a "clean" set of results, unaffected by the pandemic, before they get the credit they deserve for improving their businesses over the course of the downturn, however this gives us confidence over the medium term.
Reassuringly dividends are returning to the boardroom agenda, although there is some way to go to get back to pre-pandemic levels of dividend income across the market. Having benefitted from the capital recovery in our lower-yielding holdings over the past 12 months, we are continuing to rotate the portfolio into higher yielding opportunities as dividends return. We continue to benefit from significant revenue reserves, allowing the company to increase its core dividend while this rotation occurs.
Chelverton Asset Management
Responsibility Statement of the Directors in respect of the Half-Yearly Report
We confirm that to the best of our knowledge:
This Half-Yearly Report was approved by the Board of Directors on 25 November 2021 and the above responsibility statement was signed on its behalf by Lord Lamont, Chairman.
Condensed Consolidated Statement of Comprehensive Income (unaudited)
for the six months ended 31 October 2021
The total column of this statement is the Statement of Comprehensive Income of the Group prepared in accordance with International Accounting Standards ('IAS') and in conformity 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 period. All of the net return for the period and the total comprehensive income for the period is attributed 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 Association of Investment Companies ('AIC').
Condensed Consolidated Statement of Changes in Net Equity (unaudited)
for the six months ended 31 October 2021
Condensed Consolidated Balance Sheet (unaudited)
as at 31 October 2021
Condensed Consolidated Statement of Cash Flows (unaudited)
for the six months ended 31 October 2021
Notes to the Condensed Half-Yearly Report
for the six months ended 31 October 2021
1 General information
The financial information contained in this Half-Yearly Report does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The statutory financial statements for the year ended 30 April 2021, which contained an unqualified auditors' report, have been lodged with the Registrar of Companies and did not contain a statement required under the Companies Act 2006. These statutory financial statements were prepared under International Accounting Standards ('IAS') and in accordance with the Statement of Recommended Practice ('SORP'): Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the AIC in April 2021.
The Group has financial resources which substantially exceed its expense commitments and therefore the Directors believe that the Group is well placed to manage its business risks and also believe that the Group will have sufficient resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this report.
This report has not been reviewed by the Group's Auditors.
This report has been prepared using accounting policies adopted in the audited financial statements for the year ended 30 April 2021. This report has also been prepared in compliance with IAS 34 'Interim Financial Reporting' and the Companies Act 2006.
The Company has an effective tax rate of 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 and thus there is no charge for corporation tax.
Deferred tax assets in respect of unrelieved excess expenses are not recognised as it is unlikely that the Group will generate sufficient taxable income in the future to utilise these expenses. Deferred tax is not provided on capital gains and losses because the Company meets the conditions for approval as an investment trust company.
3 Earnings per share
Revenue earnings per Ordinary share is based on revenue on ordinary activities after taxation of £974,000 (30 April 2021: £1,277,000, 31 October 2020: £584,000) and on 20,850,000 (30 April 2021: 20,850,000, 31 October 2020: 20,850,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period.
Capital earnings per Ordinary share is based on the capital profit of £70,000 (30 April 2021: £22,098.000, 31 October 2020: loss of £391,000) and on 20,850,000 (30 April 2021: 20,850,000, 31 October 2020: 20,850,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period.
Zero Dividend Preference shares
Capital earnings per Zero Dividend Preference share 2025 is based on allocations from the Company of £326,000 (30 April 2021: £630,000, 31 October 2020: £314,000) and on 14,500,000 (30 April 2021: 14,500,000, 31 October 2020: 14,500,000) Zero Dividend Preference shares 2025 being the weighted average number of Zero Dividend Preference shares in issue during the period.
During the period, a fourth interim dividend of 2.50p per Ordinary share and a special dividend of 0.272p per Ordinary share were paid to Shareholders in respect of the financial year ended 30 April 2021, .
In respect of the year ended 30 April 2022, a first interim dividend of 2.75p per ordinary share has been paid to the Shareholders.
In addition, for the year ended 30 April 2022, the Board has declared a second interim dividend of 2.75p per Ordinary share payable on 4 January 2022 to Shareholders on the register at 10 December 2021 (ex-dividend date 9 December 2021).
5 Net asset values
The net asset value per Ordinary share is based on assets attributable of £47,238,000 (30 April 2021:
£47,345,000, 31 October 2020: £25,205,000) and on 20,850,000 (30 April 2021: 20,850,000, 31 October
2020: 20,850,000) Ordinary shares being the number of shares in issue at the period end.
Zero Dividend Preference shares
The net asset value per Zero Dividend Preference shares is based on assets attributable of £16,858,000 (30 April 2021: £16,532,000, 31 October 2020: £16,216,000) and on 14,500,000 (30 April 2021: 14,500,000, 31 October 2020: 14,500,000) Zero Dividend Preference shares being the number of shares in issue at the period end.
6 Fair value hierarchy
Financial assets and financial liabilities of the Company are carried in the condensed Consolidated Balance Sheet at their fair value. The fair value is the amount at which the asset could be sold or the liability transferred in a current transaction between market participants, other than a forced or liquidation sale. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices and Stock Exchange Electronic Trading Services ('SETS') at last trade price at the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset.
The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors are included in Level 1, if they reflect actual and regularly occurring market transactions on an arm's length basis.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 2 inputs include the following:
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
As at 31 October 2021, 30 April 2021 and 31 October 2020 all of the Company's investments are classified as Level 1.
7 Reconciliation of net return before and after
8 Related party transactions
The Group's investments are managed by Chelverton Asset Management Limited. The amounts paid to the Investment Manager in the period to 31 October 2021 were £331,000 (year ended 30 April 2021: £496,000, six months to 31 October 2020: £208,000).
At 31 October 2021 there were amounts outstanding to be paid to the Investment Manager of £92,000 (year ended 30 April 2021: £86,000, six months to 31 October 2020: £105,000).
as at 31 October 2021
Share prices and performance information
The Company's Ordinary (SDV.L) and Zero Dividend Preference shares issued through SDVP (SDVP.L) are
listed on the London Stock Exchange Main Market.
The net asset values are announced daily to the London Stock Exchange and published monthly via the AIC.
Share register enquiries
The register for the Ordinary shares and Zero Dividend Preference shares are maintained by Share Registrars Limited. In the event of queries regarding your holding, please contact the Registrar on 01252 821390. Changes of name and/or address must be notified in writing to the Registrar.
Chelverton UK Dividend Trust PLC ('the Company')
Chelverton UK Dividend Trust PLC was registered on 3 September 2003 with registered number 03749536. The Company has in issue one class of Ordinary share. In addition, it has a wholly owned subsidiary SDV 2025 ZDP PLC, which was registered on 25 October 2017 with number 11031268, through which Zero Dividend Preference shares have been issued.
Ordinary shares of 25p each (SDV.L) - 20,850,000 in issue as at 31 October 2020
The Company has only one class of share and this figure represents 100% of the Company's share capital
and voting rights.
Holders of Ordinary shares are entitled to dividends.
On a winding-up of the Company, Ordinary Shareholders will be entitled to all surplus assets of the Company available after payment of the Company's liabilities including the capital entitlement of the Zero Dividend Preference shares.
Each holder, on a show of hands, will have one vote and on a poll will have one vote for each Ordinary
SDV 2025 ZDP PLC ('SDVP')
Ordinary shares of 100p each ( SDVP.L) - 50,000 in issue (partly paid up as to 25p each)
The ordinary shares are wholly owned by the Company. References to Ordinary shares within this Half-
Yearly Report are to the Ordinary shares of Chelverton UK Dividend Trust PLC.
Following payment of any liabilities and the capital entitlement to the Zero Dividend Preference
Shareholders, ordinary Shareholders are entitled to any surplus assets of SDVP.
Each holder, on a show of hands, will have one vote and on a poll will have one vote for each ordinary share
Zero Dividend Preference shares of 100p each - 14,500,000 in issue as at 31 October 2020
Holders of Zero Dividend Preference shares are not entitled to dividends.
On a winding up of SDVP, after the satisfaction of prior ranking creditors and subject to sufficient assets being available, Zero Dividend Preference Shareholders are entitled to an amount equal to 100p per share increased daily from 8 January 2018 at such compound rate as will give an entitlement to 133.18 pence per share at 30 April 2025.
Each holder of Zero Dividend Preference shares on a show of hands will have one vote at meetings where Zero Dividend Preference Shareholders are entitled to vote and on a poll will have one vote for each Zero Dividend Preference share held.
Holders of Zero Dividend Preference shares are not entitled to attend, speak or vote at General Meetings unless the business of the meeting includes a resolution to vary, modify or abrogate the rights attached to the Zero Dividend Preference shares.
Directors and Advisers
1.2. Half yearly financial reports and audit reports/limited reviews
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