TIDMCGW
RNS Number : 3706H
Chelverton Growth Trust PLC
14 November 2018
CHELVERTON GROWTH TRUST PLC
LEI: 213800I86P8BAE6UVI83
FINAL RESULTS FOR THE YEARED 31 AUGUST 2018
The full Annual Report and Accounts can be accessed via the
Company's website at www.chelvertonam.com or by contacting the
Company Secretary on 01392 487056.
Investment objective
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 GBP50 million,
which are believed to be at a "point of change". The Company will
also 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 net asset value per share at a higher rate than other
quoted smaller company trusts and the MSCI Small Cap UK Index.
It is the Company's policy not to invest in any listed
investment companies (including listed investment trusts).
Company summary
Benchmark MSCI Small Cap UK Index
Investment Manager Chelverton Asset Management Limited
Total net assets GBP3,303,000 as at 31 August 2018
Market capitalisation GBP3,085,000 as at 31 August 2018
Capital structure 5,460,301 Ordinary 1p shares carrying one
vote each
Performance statistics
Year ended Year ended
31 August 31 August
2018 2017 % Change
Net assets GBP3,303,000 GBP5,460,000 (39.51)
Net asset value per share
(NAV) 60.48p 85.63p (29.37)
MSCI Small Cap UK Index 442.32 412.80 7.15
Share price 56.50p 63.00p (10.32)
Discount to net asset value (6.58)% (26.43)%
Revenue loss after taxation GBP(136,000) GBP(136,000)
Revenue loss per share (2.45)p (2.13)p
Capital (loss)/gain per
share (23.40)p 25.23p
Strategic Report
The Strategic Report has been prepared in accordance with
section 414A of the Companies Act 2006 (the"Act"). Its purpose is
to inform the Members of the Company and help them understand how
the Directors have performed their duty under section 172 of the
Act to promote the success of the Company.
Chairman's statement
It is very disappointing to present results which show a
significant decline in the Company's net asset value per share from
85.63p to 60.48p (a decrease of 29.37%) reversing the gains made
last year. In the same period, the Company's benchmark index, the
MSCI Small Cap UK Index rose by 7.15%.
What is particularly galling is that the bulk of this decline
has occurred since the interim results in February, with every
month since then showing a decline apart from a very small recovery
in September. As detailed in the Manager's Report, the main
underlying companies are making progress. However, due to the
uncertainty of macroeconomic environment, our investments are
particularly vulnerable to the impact of illiquidity and consequent
sharp price reductions which result from even modest selling.
Quite enough has already been written about the whole Brexit
process over the past 12 months and the resulting uncertainty. The
commercial sector is desperate to see some form of certainty, be
that a defined deal or a no-deal exit. The latest idea to postpone
the outcome, effectively for up to another 12 months, seems the
most short-sighted proposal of all that have so far been made. This
would merely prolong the whole process and the prevailing
uncertainty.
On a positive note, the companies in the portfolio are highly
UK-centric in their business dealings and therefore the prosperity
and growth of the UK economy is the biggest single driver of their
future success. If the UK itself does not head into recession,
which most experts consider very unlikely, the marketplace for our
companies should remain favourable.
In the period under review the economy has grown, albeit at a
slightly lower rate than in the recent past. The continued growth
in employment, and more importantly full-time employment, has
finally resulted in real wage growth. Full employment and real wage
growth has historically led to rising inflation, however at this
time inflation is marginally reducing and this welcome trend is
expected to continue.
The move towards a normalised economy continues, with the
Government deficit reducing and interest rates very gradually being
increased. The long process of unwinding the Government's
Quantitative Easing programme has not yet commenced but will need
to be addressed at some point.
Tender Offers
The last tender offer took place at the beginning of this
reporting period in September 2017. In October and November 2017,
further small buy-backs took place, with a total of 167,022 shares
being acquired for prices between 68.8p and 73.5p. It is worth
pointing out that the effect of the tender offers to date and the
periodic buy-back of shares has reduced the share capital from 18.9
million shares to the current 5.5 million, a reduction of 71%.
Whilst the Board remains committed to the tender process as a
means of offering Shareholders the ability to realise some of their
shareholding at a modest discount to net asset value, it is not
prepared to sanction a tender offer at this time as it feels that
the current share valuation does not represent anything like the
real value of the underlying assets.
Corporate Governance
The Board has noted the process undertaken by the Financial
Reporting Council ('FRC') to review and update the UK Corporate
Governance Code. These changes will be applicable to the Company
from 1 September 2019 and the Board will review the requirements
over the coming months.
The Future
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 outline 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.
The Outlook
There are currently significant macroeconomic headwinds
including the tortuous path to a Brexit deal, resolution of what
will become the "Italian Debt Crisis", the continued escalation in
the "trade war" between the United States and China and the debt
concerns in emerging markets.
However, the companies in the portfolio have generally made
progress over the past year and we hope, and expect, that the
investment and development that has taken place in the past few
years within the investee companies will bear fruit over the
forthcoming period.
Kevin Allen
Chairman
14 November 2018
Investment Manager's overview
In the past year the UK economy has grown slowly and at a
somewhat slower rate than in recent periods. However, when meeting
up with companies in the portfolio or indeed other companies
invested in funds managed by Chelverton Asset Management Limited
one does not get any sense of the doom and gloom that we hear about
every day in media reports. Generally, managers are getting on with
making their companies more efficient, more profitable and more
resilient.
One concern that is becoming more widespread is the increasing
problem of being able to recruit personnel with the necessary
skills and application. As a general observation, having enjoyed
unfettered highly skilled immigration over the past 20 years,
British companies will need to invest much more in training and
development of skills and in plant and equipment to remove or
reduce the labour content within their businesses. Whilst this
might appear on the face of it to be a negative consequence of
Brexit, it is more the impact of a generational change in
demographics.
Hopefully when we finally see resolution of the Brexit process,
the country and specifically the companies we are invested in, can
get on with managing with what will then be "known-knowns". The
current position is both frustrating and exhausting as the day to
day uncertainty means that it is difficult to make even medium-term
plans and it is too easy to assume that everything is going to be
disastrous, whereas the reality is probably a long way from
this.
The portfolio is invested in small AIM traded and smaller
unquoted UK companies whose business is largely conducted in the
UK. Therefore, the strength and growth of the UK economy is by far
and away the most important determinant of the success of our
underlying companies. A review of the sales of all our investments
shows that 84% of sales are made in the UK while only 9% are made
to countries in the EU. For information and completeness 2% are
made to North America and 5% to the rest of the world.
Portfolio review
The biggest change to the portfolio in the period was the
takeover of Lombard Risk Management via a recommended cash offer at
13p per share. Whilst this produced a very healthy profit, our
feeling was that if the management team had been given more time to
develop the business, returns could have been much greater than
this.
A further investment was made as part of a placing by CEPS. This
takes the Company's investment to 29.76% of the CEPS share capital.
CEPS itself owns majority shareholdings in five different
stand-alone subsidiaries which are all operating in unrelated niche
markets. The strategy of the company is to buy profitable, cash
generative, niche businesses at modest prices. Over time they will
produce profits and cash and repay the cost of purchase back to
CEPS, which can be reapplied to acquire other companies. In the
year under review, one of the loss-making subsidiaries went into
administration. This had the effect of eliminating the losses
produced by this company and had a broadly neutral effect on the
CEPS balance sheet. Considerable work has been going in to the
turnaround of two of the other subsidiaries and CEPS is hopeful
that next year these businesses will be positive contributors. The
holding in CEPS is now the largest part of the Company and is
considered by the Board, because it is made up of five separate
businesses, to be a diversified holding.
Universe has seen its shares fall from some 9.5p to 3.85p over
the past year. The company has now stabilised after a very
disappointing result last year caused, in part, by the
administration of a potential new client - Conviviality plc. In the
latest interim results for the six months to June 2018, the
Chairman spoke of the expectation of growth in 2019 and beyond.
Touchstar had a small fundraising to raise GBP921,000 at 60p per
share and the Company took up its share being 170,000 shares.
Subsequent to the fundraising, an additional 30,000 shares were
acquired to take the Company's shareholding up to 10% of the
investee company. The funding has been used to accelerate the
development of the business and it is hoped that progress will be
evidenced next year.
The holding in Petards Group was added to at the beginning of
the year. Petards supplies sophisticated products to the rail
industry and is building a very large order book to be delivered
over the next two to three years. The company recently reported
interim results that were up on the previous year and showed a very
strong balance sheet with net cash of GBP1 million after paying for
an acquisition. The order book is such that 2018 is full and 2019
is already half full. Notwithstanding this, the shares have fallen
from 29.3p to 21.5p over the past year.
The Plutus Powergen share price has declined from 2.15p at the
beginning of the year to 0.75p today. The company is focused on the
development and operation of flexible energy generation projects in
the UK. The last year has seen the completion and operation of six
diesel sites. Having had to revise its plan, because of the OFGEM
review, the company is now intending to build one gas site in
partnership with Rockpool and has a pipeline of a further 300MW of
gas generation. The company has had very little to report in the
last period as it has been seeking to raise finance to develop
these projects. It is trying to achieve this with as little
dilution to shareholders as possible.
The holding in Chelverton Asset Management Holdings Limited, the
Investment Manager of this Company, was again revalued upwards
reflecting the continued success of its funds, which has led to a
growth in funds under management. The Employee Benefit Trust of
Chelverton Asset Management Limited tendered for 5,500 shares
(5.5%) of the share capital at a price of GBP160 per share compared
to a cost price of GBP1. This was done to provide investors with
the opportunity of exiting, four years after having made the
investment. The fund sold half its holding and retains 1,000 shares
which have been revalued upwards to GBP210 per share.
A very small new investment of GBP72,000 was made in Zenith
Energy, an on-shore low cost producer of oil in Azerbaijan, as part
of a fundraising of some GBP670,000. The plan is to refurbish the
oil field and to access the oil reserves in an efficient manner
with modern equipment and techniques.
Having in the past reduced the value of La Salle Education to
nil there has been some encouraging progress over the past year and
the company has just raised an additional GBP250,000 to continue
the development of the business to a cash breakeven point and
further into profitability. The Company has restored the value of
the holding to 50p per share and in October 2018 took up an
additional 100,000 shares at 50p.
Main Dental Partners was sold on the 26 October for loan stock
which is payable once a conditional liability claim is resolved.
Because of the conditionality of the consideration, the value at
which the investment is held has not been increased.
Outlook
In time, once the macroeconomic outlook is more settled and more
favourable, we believe that the real value of our companies will
begin to be evidenced by increases in their share prices. Expected
recovery and growth in the share prices of the AIM holdings will
contribute to this increase in the asset value and we anticipate
being able to report a much better performance in a year's
time.
David Horner
Chelverton Asset Management Limited
14 November 2018
Portfolio Review
as at 31 August 2018
Valuation % of
Investment Sector GBP'000 total portfolio
--------------------------------------- ---------------------------------- --------- ----------------
AIM traded
CEPS Support Services 1,417 40.6
Trading holding company for a number of companies
supplying services and products
MTI Wireless Edge Technology Hardware & Equipment 171 4.9
Developer and manufacturer of sophisticated
antennas and antenna systems
Petards Group Support Services 460 13.2
Development, provision and maintenance of advanced
security systems and related services
Plutus Powergen Flexible Energy Supply 317 9.1
Providers of management infrastructure and
expertise to operate power plants and provide
flexible electricity generation
Technology Hardware and
Touchstar Equipment 374 10.7
Software systems for warehousing and distribution
Universe Group Support Services 31 0.9
Provision of credit fraud prevention, loyalty
and retail systems
Fully listed
Zenith Energy Oil & Gas Producers 37 1.1
International energy production and exploration
company
Nasdaq Traded
One Horizon Group Support Services - -
Provider of mobile satellite communications
equipment and airtime
--------- ----------------
2,807 80.5
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 6.0
Investment management, including providing
services to Chelverton Growth Trust Plc
La Salle Education Support Services 80 2.3
A UK based company dedicated to improving mathematics
education
Main Dental Partners Support Services
Ordinary B Shares 138 4.0
Loan stock - -
Operator of dental
surgeries
Pedalling Forth General Retailers 250 7.2
Internet retailer of cycling clothing for women
Portfolio Valuation 3,485 100.0
--------- ----------------
Portfolio holdings
as at 31 August 2018
31 August 2018 31 August 2017
Valuation % of total Valuation % of total
Investment GBP'000 portfolio GBP'000 portfolio
---------------------------- --------- ---------- --------- ----------
CEPS 1,417 40.6 1,292 30.7
Petards Group 460 13.2 434 10.3
Touchstar 374 10.7 621 14.7
Plutus Powergen 317 9.1 700 16.6
Pedalling Forth 250 7.2 150 3.6
Chelverton Asset Management
Holdings 210 6.0 200 4.7
MTI Wireless Edge 171 4.9 210 5.0
Main Dental Partners 138 4.0 138 3.3
La Salle Education 80 2.3 - -
Zenith Energy 37 1.1 - -
Universe Group 31 0.9 61 1.4
Security Research Group* - - 62 1.5
One Horizon Group - - 22 0.5
Anaxsys Technology - - - -
Airways Engineering - - - -
Lombard Risk Management* - - 323 7.7
Total 3,485 100.0 4,213 100.0
--------- ---------- --------- ----------
* Sold during the year
Portfolio breakdown by sector and by index
Percentage of portfolio by sector
Support Services 67.0%
Technology Hardware & Equipment 15.6%
Flexible Energy Supply 9.1%
General Retailers 7.2%
Oil & Gas Producers 1.1%
Percentage of portfolio by index
AIM 79.4%
Unquoted 19.5%
Fully Listed 1.1%
Directors (all non-executive)
Kevin Allen (Chairman)
David Horner
Ian Martin
Independent
Extracts from the Strategic Report
As explained within the Report of the Directors, the Company
carries on business as an investment trust. Investment trusts are
collective closed-ended public limited companies.
Chelverton Growth Trust plc is a public limited company
incorporated in England and Wales (registration number 02989519)
with its registered office being Suite 8, Bridge House, Courtenay
Street, Newton Abbot TQ12 2QS.
The Company is an investment company under section 833 of the
Companies Act.
The Company's shares are listed on the London Stock Exchange
main market under the code CGW (sedol 0262134) and L.E.I.
213800I86P8BAE6UVI83.
Board
The Board of Directors is responsible for the overall
stewardship of the Company, including investment and dividend
policies, corporate and gearing strategy, corporate governance
procedures and risk management.
Investment Objective
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 GBP50 million,
which are believed to be at a "point of change". The Company will
also 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 net asset value per share at a higher rate than other
quoted smaller company trusts and the MSCI Small Cap UK Index.
Investment Policy
The Company invests principally in securities of publicly quoted
UK companies, though it may invest in unquoted securities. The
performance of the Company's investments is compared to the MSCI
Small Cap UK Index.
The Company may also 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.
It is the Company's policy not to invest in any listed
investment companies or listed investment trusts.
To comply with Listing Rules the Company's investment policy is
detailed above and should be read in conjunction with the
subsequent sections entitled investment strategy and the
performance analysis.
It is intended from time to time, when deemed appropriate, that
the Company will borrow for investment purposes.
The Investment Objective and Policy stated are intended to
distinguish the Company from other investment vehicles which have
relatively narrow investment objectives and which are constrained
in their decision making and asset allocation. The Investment
Objective and Policy allow the Company to be constrained in its
investment selection only by valuation and to be pragmatic in
portfolio construction by only investing in securities which the
Investment Manager considers to be undervalued on an absolute
basis. Portfolio risk is managed by investing in a diversified
spread of investments.
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 independent 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.
Note 15 gives details of the Directors' interests in the
Investment Manager.
The Chairman's statement and the Investment Manager's overview
give details of the Company's activities during the year under
review.
Investment of Assets
At each Board meeting, the Board considers compliance with the
Company's investment policy and other investment restrictions
during the reporting period. An analysis of the portfolio on 31
August 2018 can be found above.
Environment Emissions
All of the Company's activities are outsourced to third parties.
As such it does not have any physical assets, property, or
operations of its own and does not generate any greenhouse gas or
other emissions.
Review of Performance and Outlook
Reviews of the Company's returns during the financial year, the
position of the Company at the year end, and the outlook for the
coming year are contained in the Chairman's statement and the
Investment Manager's overview.
Principal risks and uncertainties and risk management
As stated within the Corporate Governance Statement, the Board
applies the principles detailed in the internal control guidance
issued by the Financial Reporting Council, and has established a
continuing process designed to meet the particular needs of the
Company in managing the risks and uncertainties to which it is
exposed.
The principal risks and uncertainties faced by the Company are
described below and in note 14 which provides detailed explanations
of the risks associated with the Company's financial
instruments.
Market risk
The Company is exposed to market risk due to fluctuations in the
market prices of its investments.
The Investment Manager actively monitors economic and company
performance and reports regularly to the Board on a formal and
informal basis. The Board formally meets with the Investment
Manager quarterly when portfolio transactions and performance are
reviewed. The Board acting as the Management Engagement Committee
meets as required to review the performance of the Investment
Manager.
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 notional
gains, during negative market movements this may provide
protection.
Discount volatility
As with many investment trust companies, discounts can
significantly fluctuate.
The Board recognises that 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 does not intend to adopt a precise discount target at which
shares will be bought back. However, Ordinary shares will not be
bought back for cancellation or into Treasury at a discount to NAV
of less than 7.5%.
Regulatory risks
Relevant legislation and regulations which apply to the Company
include the Companies Act 2006, the Corporation Tax Act 2010
("CTA"), the Alternative Investment Fund Manager's Directive
("AIFMD") and the Listing Rules of the Financial Conduct Authority
("FCA"). The Company has noted the recommendations of the UK
Corporate Governance Code and its statement of compliance appears
on pages17 to 23 of the Annual Report. A breach of the CTA could
result in the Company losing its status as an investment company
and becoming subject to capital gains tax, whilst a breach of the
Listing Rules might result in censure by the FCA. At each Board
meeting the status of the Company is considered and discussed, so
as to ensure that all regulations are being adhered to by the
Company and its service providers.
The Board is not aware of any breaches of laws or regulations
during the period under review and up to the date of this
report.
Financial risk
The financial situation of the Company is reviewed in detail at
each Board meeting. The content of the Company's Annual Report and
financial statements is monitored and approved both by the Board
and the Audit Committee.
Inappropriate accounting policies or failure to comply with
current or new accounting standards may lead to a breach of
regulations.
Liquidity risk
The Board monitors the liquidity of the portfolio at each Board
meeting and regularly reviews the investments with the Investment
Manager.
A more detailed explanation of the investment management risks
facing the Company is given in note 14 to the financial
statements.
Financial instruments
As part of its normal operations, the Company holds financial
assets and financial liabilities. Full details of the role of
financial instruments in the Company's operations are set out in
note 14 to the financial statements.
The Board seeks to mitigate and manage these risks through
continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Company's investment portfolio.
Investment risk is spread through holding a wide range of
securities in different industrial sectors.
Statement regarding annual report and accounts
Following a detailed review of the Annual Report and Accounts by
the Audit Committee, the Directors consider that taken as a whole
it is fair, balanced and understandable and provides the
information necessary for Shareholders to assess the Company's
performance, business model and strategy.
Performance analysis using key performance indicators
At each Board meeting, the Directors consider a number of
performance measures to assess the Company's success in achieving
its objectives, for example: the NAV, the movement in the Company's
share price and the premium/discount of the share price in relation
to the NAV.
The Company's Income statement is set out below.
The movement of the NAV is compared to the MSCI Small Cap UK
Index, the Company's benchmark.
The NAV per Ordinary share at 31 August 2018 was 60.48p (2017:
85.63p), a decrease of 29.37%. By comparison the benchmark rose by
7.15%.
The Company's share price at the year-end was 56.50p (2017:
63.00p).
Viability Statement
The Board reviews the performance and progress of the Company
over various time periods and uses these assessments, regular
investment performance updates from the Investment Manager and a
continuing programme of monitoring risk, to assess the future
viability of the Company. The Directors consider that a period of
two years is the most appropriate time horizon to consider the
Company's viability and after careful analysis and consideration of
the future prospects as discussed in the Chairman's statement
above, the Directors believe that the Company is viable over a
two-year period. The Directors are of the opinion that the Company
has sufficient liquidity in the portfolio in readily realisable
smaller capitalised AIM traded securities.
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
reassurance from suppliers 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 assessment.
Current and future developments
A review of the main features of the year is contained in the
Chairman's statement and the Investment Manager's overview.
The marketing and promotion of the Company will continue to
involve the Board, led by the Investment Manager, with a proactive
communications programme either directly or through its website,
with existing and potential new Shareholders and other external
parties.
Tender offer
On 4 September 2017, the Company announced details of a Tender
Offer to purchase up to 15% of the Company's share capital. On 21
September 2017, the Company announced the results of the Tender
Offer. A total of 749,765 shares (representing 11.76% of the
Company's issued share capital at that date) were purchased at a
price of 76.73p per Ordinary share. These shares have now been
cancelled.
The Directors are seeking to renew the appropriate powers at the
next Annual General Meeting to enable the purchase of the Company's
own shares, when it is in the interests of Shareholders as a
whole.
Social, environmental and employee issues
The Company does not have any employees and the Board consists
entirely of non-executive directors. As the Company is an
investment trust, which invests in other companies, it has no
direct impact on the community or the environment, and as such has
no policies in this area.
Alternative Investment Fund Manager's Directive ("AIFMD")
The Board has registered itself as the AIFM with the FCA under
the Directive and confirm that all required returns have been
completed and filed.
By Order of the Board
Kevin Allen
Chairman
14 November 2018
Extract from the Report of the Directors
Status, objective and review
The principal activity of the Company is to carry on business as
an investment trust. The Company has been granted approval from HM
Revenue & Customs ('HMRC') as an authorised investment trust
under Section 1158 of the Corporation Tax Act 2010. The Company
will be treated as an investment trust company for each subsequent
accounting period, subject to there being no serious breaches of
the conditions. The Directors are of the opinion that the Company
has conducted its affairs for the year ended 31 August 2018 so as
to be able to continue to qualify as an authorised investment
trust. The Company is an investment company as defined in Section
833 of the Companies Act 2006.
Management and administration agreements
The Company's investments are managed by Chelverton Asset
Management Limited ("CAM") under an agreement dated 28 June 2001.
Mr Horner is a director of CAM.
The Company pays CAM, in respect of its services as Investment
Manager, an annual fee of 1% of gross assets, payable monthly in
arrears.
The amount payable to CAM for the year ending 31 August 2018 was
GBP44,000. At the year-end GBP3,300 was outstanding to CAM.
The appointment of CAM as Investment Manager may be terminated
by either party giving to the other not less than twelve months'
notice of such termination. There are no specific provisions
contained within the Investment Management Agreement relating to
the compensation payable in the event of termination of the
agreement other than entitlement to fees, which would be payable
within any notice period.
Under an agreement dated 21 December 2015, company secretarial
services and the general administration of the Company are
undertaken by ISCA Administration Services Limited for an annual
fee of GBP40,000.
Appointment of Chelverton Asset Management ("CAM") as the
Investment Manager
The Board, excluding Mr Horner, continually reviews the
performance of the Investment Manager. In the opinion of the
independent Directors the continuing appointment of CAM, as
Investment Manager, on the terms outlined in the Investment
Management Agreement dated 28 June 2001 and amended on 1 December
2006, is in the best interests of the Shareholders as a whole.
Further, the Board is satisfied that CAM has the required skill and
expertise to continue to manage the Company's portfolio and charges
fees that are reasonable when compared with those of similar
investment trusts.
Going concern
In assessing the going concern basis of accounting, the
Directors have had regard to the guidance issued by the Financial
Reporting Council. They have considered the current cash position
of the Company, and forecast revenues for the current financial
year. The Directors have also taken into account the Company's
Investment Policy, which is subject to regular Board monitoring
processes, and is designed to ensure the Company holds sufficient
liquid securities to meet possible cash flow needs.
The Company retains title to all assets held by its custodian.
Note 14 to the financial statements sets out the financial risk
profile of the Company and indicates the effect on its assets and
liabilities of falls and rises in the value of securities, market
rates of interest and changes in exchange rates.
The Directors believe, in the light of the controls and review
processes noted above and bearing in mind the nature of the
Company's business and assets, 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.
On behalf of the Board
Kevin Allen
Chairman
14 November 2018
Statement of Directors' responsibilities in respect of the
financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements and have elected to prepare them in
accordance with applicable United Kingdom law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting
Practice). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
its profit or loss for that period.
In preparing the 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;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company and to enable them to ensure
that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company 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 Report of the Directors, Directors
Remuneration Report and Corporate Governance Statement.
The Directors, to the best of their knowledge, state that:
-- the financial statements, prepared in accordance with UK
Generally Accepted Accounting Practice, give a true and fair view
of the assets, liabilities, financial position and net return of
the Company; and
-- the Strategic Report incorporating the Chairman's statement
and Investment Manager's overview together with the Report of the
Directors include a fair review of the development and performance
of the business and the position of the Company together with a
description of the principal risks and uncertainties that it
faces.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information related to the Company
including on the website of the Investment Manager
www.chelvertonam.com.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
On behalf of the Board
Kevin Allen
Chairman
14 November 2018
NON- STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 31 August 2018 and
2017 but is derived from those accounts. Statutory accounts for
2017 have been delivered to the Registrar of Companies, and those
for 2018 will be delivered in due course. The auditors have
reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006. The text of the Auditor's report can be
found in the Company's full Annual Report and Accounts on the
Investment Manager's website: www.chelvertonam.com.
Income statement
for the year ended 31 August 2018
2018 2017
Note Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains
on investments
at fair value 7 - (1,263) (1,263) - 1,086 1,086
Income 2 9 - 9 5 574 579
Investment management
fee 3 (11) (33) (44) (12) (38) (50)
Other expenses 4 (134) (6) (140) (129) (13) (142)
Net (loss)/return
on ordinary activities
before taxation (136) (1,302) (1,438) (136) 1,609 1,473
Taxation on ordinary
activities 5 - - - - - -
Net (loss)/return
on ordinary activities
after taxation (136) (1,302) (1,438) (136) 1,609 1,473
Revenue Capital Total Revenue Capital Total
(Loss)/return
per Ordinary share 6 (2.45)p (23.40)p (25.85)p (2.13)p 25.23p 23.10p
------- -------- -------- ------- ------- -------
The total column of this statement is the profit and loss
account of the Company.
All revenue and capital items in the above statement derive from
continuing operations.
No operations were acquired or discontinued during the year.
A separate Statement of Other Comprehensive Income has not been
prepared as all such gains and losses are included in the Income
statement.
The notes form part of these accounts.
Statement of changes in equity
for the year ended 31 August 2018
Called Capital
up Share Special Capital Redemption Revenue
Capital Reserve Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 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
--------- --------- -------- ----------- -------- -------
Year ended 31
August 2017
1 September
2016 64 1,506 1,536 125 756 3,987
Net return/(loss)
after taxation
for the year - - 1,609 - (136) 1,473
31 August 2017 64 1,506 3,145 125 620 5,460
The Special Reserve and Revenue Reserve are distributable and
may be used for the repurchase of the Company's own shares.
The notes form part of these accounts.
Statement of financial position
as at 31 August 2018
2018 2017
Notes GBP'000 GBP'000
Fixed assets
Investments at fair value 7 3,485 4,213
Current assets
Debtors 9 9 683
Cash at bank 439 847
448 1,530
Creditors - amounts falling
due within one year 10 (630) (283)
Net current (liabilities)/
assets (182) 1,247
Net assets 3,303 5,460
------- -------
Share capital and reserves
Called up share capital 11 55 64
Special reserve 787 1,506
Capital reserve 1,843 3,145
Capital redemption reserve 134 125
Revenue reserve 484 620
Equity shareholders' funds 3,303 5,460
Net asset value per Ordinary
share 12 60.48p 85.63p
The notes form part of these accounts.
These accounts were approved by the Board of Directors of
Chelverton Growth Trust PLC and authorised for issue on 14 November
2018. They were signed on its behalf by
Kevin Allen
Chairman
Statement of cash flows
For the year ended 31 August 2018
2018 2017
GBP'000 GBP'000
Cash flows from/(used in) operating
activities
Net (loss)/return on ordinary
activities (1,438) 1,473
Adjustment for:
Net capital loss/(return) 1,302 (1,609)
Income credited to capital - 574
Expenses charged to capital (39) (51)
Interest paid 10 11
Decrease in creditors (3) (22)
Decrease/(increase) in debtors 674 (577)
Cash from/(used in) operations 506 (201)
Cash flows (used in)/from investing
activities
Purchase of investments (1,271) (535)
Proceeds from sales of investments 736 1,333
Net cash (used in)/from investing
activities (535) 798
------- -------
Cash flows used in financing activities
Cost of shares purchased for cancellation
under tender offer and buybacks (719) -
New loan advanced 600 -
Capital repayment of loan (250) -
Interest paid (10) (11)
Net cash used in financing activities (379) (11)
Net (decrease)/increase in cash (408) 586
Cash at the beginning of the year 847 261
Cash at the end of the year 439 847
------- -------
The notes form part of these accounts.
1 ACCOUNTING POLICIES
Accounting convention
The financial statements are prepared in accordance with
applicable United Kingdom accounting standards, including Financial
Reporting Standard 102 ("FRS 102"), the Companies Act 2006 and with
the AIC Statement of Recommended Practice ("SORP") issued in
November 2014, regarding the Financial Statements of Investment
Trust Companies and Venture Capital Trusts. All the Company's
activities are continuing.
Income recognition
Dividends receivable on quoted equity shares are included as
revenue when the investments concerned are quoted 'ex-dividend'.
Dividends receivable on equity and non-equity shares where no
ex-dividend date is quoted are brought into account when the
Company's right to receive payment is established. All other income
is included on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis and charged
through the revenue account in the Income statement except as
follows:
- expenses which are incidental to the acquisition or disposal
of an investment are treated as capital and separately identified
and disclosed (see note 7):
- management fees, bank interest and loan interest have been
allocated 75% to capital reserve and 25% to revenue reserve in the
Income statement, being in line with the Board's expected long-term
split of returns, in the form of capital gains and income
respectively, from the investment portfolio of the Company.
Investments
All investments held by the Company are classified as 'fair
value through profit or loss'. Investments are initially recognised
at cost, being the fair value of the consideration given. After
initial recognition, investments are measured at fair value, with
changes in the fair value of investments and impairment of
investments recognised in the Income statement and allocated to
capital. Realised gains and losses on investments sold are
calculated as the difference between sales proceeds and cost.
Investments are recognised and derecognised on the trade date
where a purchase or sale is under a contract whose terms require
delivery within the time-frame established by the market concerned
and are initially measured at fair value.
For investments actively traded in organised financial markets,
fair value is generally determined by reference to Stock Exchange
quoted market bid prices at the close of business on the balance
sheet date, without adjustment for transaction costs necessary to
realise the asset. For investments traded on other financial
markets such as the OTCQB, fair value is generally determined by
reference to the share price at close of business on the balance
sheet date, discounted to reflect the best estimate of the discount
that may need to be applied for the shares to be sold as a single
investment.
For investments that are not actively traded in organised
financial markets, fair value is determined as set out below under
the heading 'significant judgements and estimation
uncertainty'.
Significant judgements and estimation uncertainty
Preparation of the financial statements requires the Investment
Manager to make significant judgements. The items in the financial
statements where these judgements have been made are:
Investments that are not actively traded in organised financial
markets, are valued at the Directors' estimate of the investment's
net realisable value being their estimate of fair value. Generally,
fair value will be at cost or, where applicable, at the most recent
transaction price. In the case of direct investments in unquoted
companies the following valuation technique is applied. Initial
valuation is based on the transaction price. Where better
indications of fair value become available, such as through
subsequent issues of capital or dealings between third parties, the
valuation is adjusted to reflect the new evidence. This represents
the Directors' view of the amount for which an asset could be
exchanged between knowledgeable willing parties in an arm's length
transaction.
Capital reserve
The following are accounted for in this reserve:
-- gains and losses on the realisation of investments;
-- net movement arising from changes in the fair value of
investments that can be readily converted to cash without accepting
adverse terms;
-- realised exchange differences of a capital nature;
-- expenses, together with related taxation effect, charged to
this account in accordance with the above policies; and
-- net movement arising from the changes in the fair value of
investments that cannot be readily converted to cash without
accepting adverse terms, held at the year end.
Special reserve
The Special reserve was created by the cancellation of the Share
Premium account by order of the High Court on 13 January 2016. It
can be used for the repurchase of the Company's own shares.
Taxation
The charge for taxation, where relevant, is based on the revenue
before taxation for the year. Tax deferred or accelerated can arise
due to timing differences between the treatment of certain items
for accounting and taxation purposes.
Full provision is made for deferred taxation under the liability
method, on all timing differences not reversed by the balance sheet
date, in accordance with FRS 102.
The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue on the
same basis as the particular item to which it relates, using the
Company's effective rate of tax for the accounting period.
2 INCOME
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income from investments
Income from LLP
investments - - - - 574 574
UK net dividend
income 9 - 9 5 - 5
Total income 9 - 9 5 574 579
------- ------- ------- ------- ------- -------
3 INVESTMENT MANAGEMENT FEE
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fee 11 33 44 12 38 50
------- ------- ------- ------- ------- -------
The investment management fee is calculated at the rate of
0.0833% per month, equating to 1% per annum, of the gross value of
funds under management and is payable monthly in arrears. At 31
August 2018 there was GBP3,300 outstanding (2017: GBP4,800).
4 OTHER EXPENSES 2018 2017
GBP'000 GBP'000
Administrative and secretarial services 40 40
Directors' remuneration 34 34
Auditors' remuneration
* audit services 17 17
* non-audit services 2 2
Finance costs 9 12
Other expenses 38 37
140 142
------- -------
5 TAXATION 2018 2017
Revenue Capital Total Revenue Capital Total
Analysis of charge GBP'000 GBP'000 GBP'000 '000 GBP'000 GBP'000
in period
Current tax - - - - - -
------- ------- -------- ------- ------- --------
Factors affecting current tax charge for the period
The tax assessed for the period is lower than the standard rate
of corporation tax in the UK of 19%. The differences are explained
below:
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Theoretical tax at
UK corporation tax
rate of 19% (2017:
19.58%)
Corporation tax (26) (247) (273) (27) 315 288
Investment income
not taxable (2) - (2) (1) (112) (113)
Non-taxable investment
losses/(gains) - 240 240 - (213) (213)
Excess expenses for
the period 28 7 35 28 10 38
Current tax charge - - - - - -
for the period
------- ------- ------- ------- ------- -------
At 31 August 2018 the Company had surplus management expenses of
GBP4,377,000 (2017: GBP4,193,000) which have not been recognised as
a deferred tax asset. This is because the Company is not expected
to generate taxable income in a future period in excess of the
deductible expenses of that future period and, accordingly, it is
unlikely that the Company will be able to reduce future tax
liabilities through the use of existing surplus expenses. Due to
the Company's status as an investment trust and the intention to
continue meeting the conditions required to obtain approval as an
investment trust in the foreseeable future, the Company has not
provided for deferred tax on any gains and losses arising on the
revaluation or disposal of investments.
6 RETURN PER ORDINARY SHARE
2018 2017
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Basic (2.45)p (23.40)p (25.85)p (2.13)p 25.23p 23.10p
------- -------- -------- ------- ------- ------
Revenue return per Ordinary share is based on the net revenue
loss on ordinary activities after taxation attributable of
GBP136,000 (2017: GBP136,000) and on 5,563,242 (2017: 6,377,088)
Ordinary shares, being the weighted average number of Ordinary
shares in issue during the year.
Capital return per Ordinary share is based on the net capital
(loss)/gain of (GBP1,302,000) (2017: GBP1,609,000) and on 5,563,242
(2017: 6,377,088) Ordinary shares, being the weighted average
number of Ordinary shares in issue during the year.
Total return per Ordinary share is based on the total
(loss)/gain of (GBP1,438,000) (2017: GBP1,473,000) and on 5,563,242
(2017: 6,377,088) Ordinary shares, being the weighted average
number of Ordinary shares in issue during the year.
INVESTMENTS 2018 2017
7
GBP'000 GBP'000
Fully Listed 37 -
AIM 2,770 3,641
Unquoted 678 550
NASDAQ - 22
3,485 4,213
--------- ------- -------
Fully
Listed AIM Unquoted* NASDAQ Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening book cost - 3,500 1,287 166 4,953
Opening investment holding
gains/(losses) - 141 (737) (144) (740)
- 3,641 550 22 4,213
Movements in the year:
Purchases at cost 72 1,099 100 - 1,271
Sales - proceeds - (505) (231) - (736)
- gains/(losses) on sales - 142 (158) - (16)
Movement in investment
holding (losses)/gains (35) (1,607) 417 (22) (1,247)
Closing valuation 37 2,770 678 - 3,485
Closing book cost 72 4,236 998 166 5,472
Closing investment holding
losses (35) (1,466) (320) (166) (1,987)
Closing valuation 37 2,770 678 - 3,485
2018 2017
GBP'000 GBP'000
Realised (losses)/gains on sales (16) 818
Movement in fair value of investments (1,247) 268
Net (losses)/gains on investments (1,263) 1,086
All quoted investments are made up
of equity shares.
* Unquoted investments are valued at the Directors' estimate of
their net realisable value, being their estimate of fair value.
Analysis of movements in unquoted investments
Cost Cost Valuation Valuation
at 31 at 31 at 31 at 31
August August Realised Holding August August
2017 Additions Disposals 2018 gain/(loss) gain/(loss) 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment
Anaxys Technology 292 - - 292 - - - -
Airways
Engineering
Loan stock 45 - - 45 - - - -
Ordinary
B shares 30 - - 30 - - - -
Chelverton
Asset Management
Holdings 2 - (1) 1 159 11 210 200
Closed Loop
Recycling
*
Loan stock 252 - (252) - (252) 252 - -
Ordinary
B shares 84 - (84) - (84) 84 - -
La Salle
Education 130 - - 130 - 80 80 -
Main Dental
Loan stock 75 - - 75 - - - -
Ordinary
B shares 175 - - 175 - - 138 138
Pedalling
Forth 150 100 - 250 - - 250 150
Security
Research
Group 52 - (52) - 19 (10) - 62
1,287 100 (389) 998 (158) 417 678 550
------- --------- --------- ------- ------------ ------------ --------- ---------
* Dissolved on 25 August 2018
Transaction costs
During the year, the Company incurred transaction costs of
GBP696 (2017: GBPnil) and GBP887 (2017: GBP1,079) on purchases and
sales of investments, respectively. These amounts are included in
'(Losses)/gains on investments at fair value' as disclosed in the
Income statement.
Details of material holdings in unquoted investments
Cost Valuation Cost Valuation Last
at 31 at 31 at 31 at 31 accounts Pre-tax
August August August August year (loss)/
2018 2018 2017 2017 end Net assets Turnover profit
Investment GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Anaxsys Technology 292 - 292 - 31/01/18 (230) - -
Airways Engineering 31/10/16 (65) - -
Loan Stock 45 - 45 -
Ordinary B
shares 30 - 30 -
Chelverton
Asset Management
Holdings * 1 210 2 200 31/03/17 2,509 4,203 1,116
Closed Loop
Recycling
** 30/06/13 (10,534) 15,424 (5,666)
Loan stock - - 252 -
Ordinary B
shares - - 84 -
La Salle Education 130 80 130 - 31/12/17 349 - -
Main Dental 31/03/18 524 - -
Loan stock 75 - 75 -
Ordinary B
shares 175 138 175 138
Pedalling
Forth 250 250 150 150 31/12/17 14 - -
Security Research
Group*** - - 52 62
* Consolidated figures
** Dissolved on 25 August 2018
***Sold during the year
8 SIGNIFICANT INTERESTS
At 31 August 2018, the Company had a holding of 3% or more of
the issued class of share that is material in the context of the
accounts in the following investments:
Percentage
Number of of issued share Issued share
Security shares held capital capital
CEPS 5,060,000 29.76 17,000,000
Main Dental 23,000 24.08 95,500
Pedalling Forth 30,000 18.01 166,560
Touchstar 850,000 10.03 8,475,077
La Salle Education 160,000 5.04 3,174,300
Plutus Powergen 33,333,334 4.60 723,928,935
Anaxsys Technology 39,525 3.95 1,000,000
Petards 2,000,000 3.48 57,468,229
9 DEBTORS 2018 2017
GBP'000 GBP'000
Amounts falling due within one year
Prepayments and other debtors 9 683
10 CREDITORS - amounts falling due within
one year
2018 2017
GBP'000 GBP'000
Accruals and other creditors 30 33
Short term loan 600 250
630 283
------- -------
On 25 October 2017, the Company repaid the previous loan of
GBP250,000 to Jarvis Investment Management Limited.
On 4 June 2018, the Company entered in to a GBP600,000 loan
agreement with Jarvis Securities plc. Interest is payable monthly
in arrears at the rate of 4.5% plus the Bank of England base
rate.
The loan was drawn down on 4 June 2018 and at the year-end
GBP600,000 was outstanding. The loan is secured on the assets of
the Company and is repayable within six months of the drawdown
date.
11 CALLED UP SHARE CAPITAL 2018 2017
GBP'000 GBP'000
Allotted, called up and fully paid:
5,460,301 (2017: 6,377,088) Ordinary shares
of 1p each 55 64
------- -------
Details of the Tender Offer and share buy backs are given in the
Report of the Directors on page 25 of the Annual Report.
Duration of Company
At the Annual General Meeting of the Company falling in the
calendar year 2020 and, if the Company has not then been
liquidated, unitised or reconstructed, at each fifth annual general
meeting of the Company convened by the Board thereafter, the Board
shall propose an ordinary resolution that the Company should
continue as an investment trust for a further five-year period.
12 NET ASSET VALUE PER ORDINARY SHARE
The basic net asset value per Ordinary share is based on net
assets of GBP3,303,000 (2017: GBP5,460,000) and on 5,460,301 (2017:
6,377,088) Ordinary shares, being the number of shares in issue at
the year end.
13 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
At 31 August 2018 there were no capital commitments or
contingent liabilities (2017: GBPnil).
14 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES
The Company's financial instruments comprise securities and
other investments, cash balances and debtors and creditors that
arise from its operations, for example, in respect of sales and
purchases awaiting settlement and debtors for accrued income.
The Company primarily invests in companies traded on AIM with a
market capitalisation at the time of investment of up to GBP50
million. The Company finances its operations through its issued
capital, existing reserves and the loan from its custodian as
detailed in note 10.
In following its investment objective, the Company is exposed to
a variety of risks that could result in a reduction in the
Company's net assets. These risks are market risk (comprising
exchange rate risk, interest rate risk and other price risk),
credit risk and liquidity risk. The Board reviews and agrees
policies for managing each of these risks and they are summarised
below:
i) Market risk - market price risk
Market price risk arises mainly from uncertainty about future
prices of financial investments used in the Company's business. It
represents the potential loss the Company might suffer through
holding market positions by way of price movements other than
movements in exchange rates and interest rates.
The Company's investment portfolio is exposed to market price
fluctuations which are monitored by the Investment Manager who
gives timely reports of relevant information to the Directors.
Investment performance is also reviewed at each Board meeting.
The Directors are conscious of the fact that the nature of AIM
investments is such that prices can be volatile. Investors should
be aware that the Company is exposed to a higher rate of risk than
exists within a fund which holds traditional blue-chip
securities.
Adherence to the investment objectives and the internal control
limits on investments set by the Company mitigates the risk of
excessive exposure to any one particular type of security or
issuer.
The Company's exposure to other changes in market prices at 31
August 2018 on its investments is as follows:
A 20% decrease in the market value of investments at 31 August
2018 would have decreased net assets attributable to Shareholders
by 13 pence per share (2017: 13 pence per share). An increase of
the same percentage would have an equal but opposite effect on net
assets available to Shareholders.
2018 2017
GBP'000 GBP'000
Fair value through profit or loss investments 3,485 4,213
------- -------
(ii) Market risk - exchange rate risk
All of the Company's assets are in sterling and accordingly the
only currency exposure the Company has is through the trading
activities of its investee companies.
(iii) Market risk - interest rate risk
Changes in interest rates may cause fluctuations in the income
and expenses of the Company.
The majority of the Company's financial assets are non-interest
bearing. As a result, the Company's financial assets are not
subject to significant amounts of risk due to fluctuations in the
prevailing levels of market interest rates.
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment decisions.
The exposure at 31 August of financial assets and financial
liabilities to interest rate risk is as follows:
2018 2017
GBP'000 GBP'000
Cash at bank 439 847
------- -------
Short Term Loan (600) (250)
------- -------
As the Company receives no interest on its bank balances and
pays interest on its loan then the effect of an interest rate
increase of 1% would decrease net revenue before taxation on an
annualised basis by GBP6,000 (2017: GBP2,500). If there was a
decrease in interest rates of 0.5% net revenue before taxation
would increase by GBP3,000 (2017: GBP1,250). These calculations are
based on balances as at 31 August 2018 and may not be
representative of the year as a whole.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the balance sheet date. Bankruptcy
or insolvency of the custodian may cause the Company's rights with
respect to securities held with the custodian to be delayed.
(v) Liquidity risk
Eighty one percent of the Company's portfolio is fully listed on
the London Stock Exchange or AIM quoted securities which under
normal conditions can be sold to meet funding commitments if
necessary. These may however be difficult to realise in adverse
market conditions. The Company's unquoted investments, representing
the remaining nineteen percent of the portfolio, could be more
difficult to realise as they are not tradable instruments.
(vi) Maturity Analysis of Financial Liabilities
The Company's financial liabilities comprise of creditors as
disclosed in note 10. All items are due within one year.
(vii) Managing Capital
The Company's capital management objectives are to increase net
asset value per share at a higher rate than other quoted smaller
company trusts and the MSCI Small Cap UK Index.
Primarily the Company finances its operations through its issued
capital and existing reserves. However, to help fund further
investment the Company borrowed on a short-term loan GBP600,000
from Jarvis Securities plc. At the year-end an amount of GBP600,000
was outstanding. Further details are given in note 10.
(viii) Fair values of financial assets and financial
liabilities
All of the financial assets and liabilities of the Company are
held at fair value.
(ix) Financial instruments by category
The financial instruments of the Company fall into the following
categories
Assets at
fair value
At amortised Loans and through
profit or
cost receivables loss Total
31 August 2018 GBP'000 GBP'000 GBP'000 GBP'000
Assets as per the Statement
of Financial Position
Investments - - 3,485 3,485
Debtors - 9 - 9
Cash at bank 439 - - 439
Total 439 9 3,485 3,933
------------ ----------- ----------- -------
Liabilities as per the
Statement of Financial
Position
Creditors 30 600 - 630
Total 30 600 - 630
----------- ----------- ----------- -------
Assets at
At fair value
amortised Loans and through
profit or
cost receivables loss Total
31 August 2017 GBP'000 GBP'000 GBP'000 GBP'000
Assets as per the Statement
of Financial Position
Investments - - 4,213 4,213
Debtors - 683 - 683
Cash at bank 847 - - 847
Total 847 683 4,213 5,743
----------- ----------- ----------- -------
Liabilities as per the
Statement of Financial
Position
Creditors 33 250 -283
Total 33 250 -283
--- ---
Fair value hierarchy
In accordance with FRS 102, the Company must disclose the fair
value hierarchy of financial instruments.
The fair value hierarchy consists of the following three
classifications:
Level 1 - Quoted prices in active markets for identical assets
or liabilities.
Quoted in an active market in this context means quoted prices
are readily and regularly available and those prices represent
actual and regularly occurring market transactions on an arm's
length basis.
Level 2 - The price of a recent transaction for an identical
asset, where quoted prices are unavailable.
The price of a recent transaction for an identical asset
provides evidence of fair value as long as there has not been a
significant change in economic circumstances or a significant lapse
of time since the transaction took place. If it can be demonstrated
that the last transaction price is not a good estimate of fair
value (e.g. because it reflects the amount that an entity would
receive or pay in a forced transaction, involuntary liquidation or
distress sale), that price is adjusted.
Level 3 - Inputs for the asset or liability that are based on
observable market data and unobservable market data, to estimate
what the transaction price would have been on the measurement data
in an arm's length exchange motivated by normal business
considerations.
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. For this purpose, the
significance of an input is assessed against 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.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be investments actively traded in organised
financial markets, fair value is generally determined by reference
to Stock Exchange quoted market bid prices or last traded in
respect of SETS at the close of business on the balance sheet date,
without adjustment for transaction costs necessary to realise the
asset.
Investments, whose values are based on quoted market prices in
active markets, and therefore classified within Level 1, include
active listed equities. The Company does not adjust the quoted
price for these instruments.
Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified as Level 2.
Investments classified within Level 3 have significant
unobservable inputs. Level 3 instruments include unquoted holdings.
As observable prices are not available for these securities, the
Company has used valuation techniques to derive the fair value. The
Company has no Level 2 investments, and Level 3 investments consist
only of unquoted holdings.
Financial assets at fair value through profit
or loss
Level 1 Level 2 Level 3 Total
At 31 August 2018 GBP'000 GBP'000 GBP'000 GBP'000
Equity investments 2,807 - 678 3,485
Total 2,807 - 678 3,485
---------- ---------- ------- -------
Level 1 Level 2 Level 3 Total
At 31 August 2017 GBP'000 GBP'000 GBP'000 GBP'000
Equity investments 3,663 - 550 4,213
Total 3,663 - 550 4,213
------- ------- ------- -------
The following table presents the movement in the Level 3
investments for the period ended 31 August 2018:
Equity Investments
GBP'000
Opening balance 550
Purchases 100
Sales at cost (389)
Total gains on investments in the Income Statement 417
Closing balance 678
------------------
15 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. The fee arrangements for these services and
fees payable are set out in the Report of the Directors on page 26
of the Annual Report and in note 3 to the accounts. Mr Horner, a
Director of the Company, is also a director of Chelverton Asset
Management Limited and chairman of CEPS PLC in which the Company
holds an investment. Mr Martin is the chairman of Touchstar plc, in
which the Company holds an investment. During the year the Company
made investments totalling GBP128,000 in Touchstar plc and
GBP766,000 in CEPS plc.
The three Directors also have individual holdings in Chelverton
Asset Management Holdings, a company which has Mr Horner as a
director and in which the Company also has a direct holding. The
Company sold half of its holding in Chelverton Asset Management
Holdings for GBP160,000 during the year realising a gain of
GBP159,000. The Directors' holdings are detailed below:
Percentage Ordinary Percentage
of holding shares of Loan Loan stock
in shares held stock holding held
% GBP'000 % GBP'000
K J Allen 1 1 - -
D A Horner 56 56 - -
I P Martin 2 2 - -
16 CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The Company's capital management objectives are:
-- to ensure the Company's ability to continue as a going concern;
-- to provide an adequate return to Shareholders;
-- to support the Company's stability and growth;
-- to provide capital for the purpose of further investments.
The Company actively and regularly reviews and manages its
capital structure to ensure an optimal capital structure, taking
into consideration the future capital requirements of the Company
and capital efficiency, projected operating cash flows and
projected strategic investments opportunities. The management
regards capital as total equity and reserves, for capital
management purposes.
ANNUAL REPORT AND AGM
The foregoing represents extracts from the full text of the
Annual Report and Accounts for the year ended 31 August 2018. The
full Report will shortly be available for download from the
following website: www.chelvertonam.com
Copies will be posted to Shareholders shortly.
The AGM will be held at the offices of Chelverton Asset
Management Limited, 11 Laura Place, Bath, BA2 4BL at 12.00 p.m. on
Thursday 13 December 2018.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be
submitted shortly to the National Storage Mechanism ("NSM") and
will be available for inspection at the NSM, which is situated at:
www.hemscott.com/nsm.do.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FFDFLLFASEEF
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