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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Chelverton Growth Trust Plc | LSE:CGW | London | Ordinary Share | GB0002621349 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 26.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMCGW
RNS Number : 3307S
Chelverton Growth Trust PLC
05 November 2019
CHELVERTON GROWTH TRUST PLC
LEI: 213800I86P8BAE6UVI83
FINAL RESULTS FOR THE YEARED 31 AUGUST 2019
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).
Shareholders will be asked to vote on an amendment to the Investment Policy at the forthcoming Annual General Meeting as detailed on page 11 of the Annual Report.
Company summary
Hot Features
Premium
Benchmark MSCI Small Cap UK Index
Investment Manager Chelverton Asset Management Limited
Total net assets GBP2,446,000 as at 31 August 2019
Market capitalisation GBP2,211,000 as at 31 August 2019
Capital structure 5,460,301 Ordinary 1p shares carrying one
vote each
Performance statistics
Year ended Year ended
31 August 31 August
2019 2018 % Change
Net assets GBP2,446,000 GBP3,303,000 (25.94)
Net asset value per share
(NAV) 44.79p 60.48p (25.94)
MSCI Small Cap UK Index 400.00 442.32 (9.57)
Share price 40.50p 56.50p (28.32)
Discount to net asset value (9.58)% (6.58)%
Revenue loss after taxation GBP(125,000) GBP(136,000)
Revenue loss per share (2.29)p (2.45)p
Capital loss per share (13.41)p (23.40)p
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
Strategy
Over the last twelve months, the Board has looked at the strategic options available to the Company; the objective of this review is to maximise returns and provide an effective exit to all Shareholders.
Driven by the very successful policy of returning cash to Shareholders over recent years, via a succession of well subscribed share tender offers, the number of shares in issue has been reduced by 71% from 18.9 million to 5.5 million. This policy to reduce the size of the business has, as we anticipated, reached a point at which it is now in Shareholders' best interests to examine alternatives to continuing as an independent company.
The Board is now actively putting in place a roadmap to achieve the strategic objectives mentioned in my opening remarks. Once finalised, we will put this roadmap to Shareholders for consideration and approval.
The objective is to secure a tax efficient, low cost and simple method of returning value to Shareholders. To this end, we have entered into a discussion with a third party. These discussions are at an early stage and it is far from certain if they will reach a conclusion. This is currently our preferred route but we are also exploring other options open to us. Until we have reached a conclusion, we will be putting on hold further tender offers to Shareholders.
The current timescale we are working to is that by 2022 we will be in a position to present to Shareholders a clear, reasoned and certain exit strategy.
We will not rush to sell remaining assets unless it makes sense to our Shareholders, and it could be more appropriate that some investments are transferred to a new structure rather than realised at under value for cash.
Performance
The past year has been disappointing, with a decline in the fund's net asset value per share from 60.48p to 44.79p, a decrease of 25.94%. In the same period, the Company's benchmark index, the MSCI Small Cap UK Index fell by 9.57%.
The Company is now sub scale which means investments are concentrated in a small number of companies which results in a high volatility in investment returns compared to more balanced benchmarks.
We believe that a significant proportion of investee companies hold the potential for capital appreciation, with their value currently not adequately reflected by the stock market.
As a nation, we are living through a very unusual and difficult time. We all hope that in the future the macro political issues causing such paralysing uncertainty, will be cleared up and we can get on with addressing the multitude of matters relating to the economy. I hesitate to forecast the length of this period, as numerous deadlines have already come and gone.
As detailed in the Manager's Report, the underlying companies are, in the main, making progress, but within such an uncertain macroeconomic environment, the size of the investee companies renders them particularly vulnerable to the impact of illiquidity and consequent sharp price reductions on very modest selling.
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 does not itself head into recession, which most experts consider unlikely, the marketplace for our investee companies should remain favourable.
In the period under review, the economy has grown, albeit at a slightly lower rate than in the recent past. Continued growth in employment, and more importantly full-time employment, has finally been evidenced with real wage growth. Full employment and real wage growth have historically led to rising inflation, however, at this time, inflation is marginally reducing and this trend is expected to continue.
Outlook
Hopefully the political stalemate will finally be resolved, in the next three months. It is important to point out that "The negotiated Brexit Deal" is merely the first stage of a lengthy process that will take several years to complete. It is widely reported that UK and Overseas investors are "underweight" in UK equities and it is to be hoped, that once there is some certainty and clarity in the UK, investors will begin to realise how underrated UK companies actually are. In time, the Board believe this should lead to a meaningful increase in the net asset value per share.
Despite the continuing uncertain political background, the investee companies within the portfolio have generally continued to make progress over the past year. We hope, and expect, that the investment and development that has taken place during the past few years will begin to bear fruit over the future period.
Kevin Allen
Chairman
5 November 2019
Investment Manager's overview
In the past year the impact of the uncertainty resulting from the grinding "Brexit" process has finally begun to impact on our companies. The significant reduction in share prices, seen across the entire market, has been amplified in the small company "value" segment, the area of the market in which this Company is largely invested.
In the past year the UK economy has grown, albeit slowly, and employment has continued to rise. We have finally started to observe some real wage increases. The tortuous Brexit impasse has created a very negative, indeed toxic, atmosphere which has adversely affected both business and consumer confidence.
However, when meeting up with companies in the portfolio, or indeed other investee companies across the funds managed by Chelverton Asset Management, one does not get any sense of the doom and gloom that one sees in the media. Generally, people are getting on with making their businesses more efficient, more profitable and more resilient.
Hopefully, when we finally see a resolution of the Brexit process, the Country and the companies we are invested in can get on with managing within a much more certain and predictable environment. There is a feeling within the investment community that once Brexit is resolved, or more precisely the high profile and public aspect of the first phase is resolved, then there will be a release of pent-up demand that has been held up waiting for something to happen.
The portfolio is invested in small AIM traded or unquoted companies whose business is largely conducted in the UK and therefore the strength and growth of the UK economy is by far and away the most important determinant of our underlying companies' success.
Across the larger funds managed by Chelverton, investing in companies outside of the FTSE 100, the "low point" was probably reached about three months ago. Since then, as the likelihood that "no-deal" receded and that a "deal" of some form is probable, there has been a strong rally in share prices and investor sentiment. As ever, it is the larger companies, valued in excess of say GBP1bn, that react first, then over time this ripples down the market.
One factor that endorses our view of value has been the very significant increase this year in the number of takeovers of UK companies by overseas businesses at healthy premiums. Whilst this is unlikely to impact the type of company in our portfolio, it is, on one level, encouraging confirmation of the deep value that we believe currently exists.
It is a well-documented view that UK and Overseas investors are very "underweight" in UK equities, all waiting for a resolution of the "Brexit" impasse. In addition, analysts say that the relative ratings between "Growth" companies and "Value" companies are as wide as they have ever been. History shows that these extremes of valuation do not last forever.
Portfolio review
CEPS owns majority shareholdings in five different stand-alone subsidiaries, which are all operating in unrelated niche markets. The minority shareholding in each company is largely owned by the "business drivers" who are, as a result, incentivised to increase profits, generate cash and pay down any acquisition debt; by achieving this, their personal holdings will increase significantly in value.
Whilst three of the subsidiaries are producing record profits, a further one has moved from a large loss-making position to breakeven. The fifth company, which acquired another business twice its size for an initial GBP1, is still significantly loss making. Considerable effort is being spent to get this business back on track.
The holding in CEPS is now the largest in the Company and is considered by the Board, because it is made up of five separate businesses, to be a diversified holding.
Following the sharp fall in the share price of Universe, it has now stabilised operationally and has made what looks to be a highly sensible strategic acquisition. We therefore expect to see share price progress in the next year to reflect its underlying progress.
Touchstar has continued to develop its focused and streamlined business. As reported in its recent interim results, sales were up an encouraging 16%, but with a comment, echoed by many businesses, that buyers are holding back from ordering until there is clarity on Brexit!
Petards, having geared up to meet anticipated demand for its sophisticated products to the rail industry, discovered that while orders were agreed, they were not being called off. This year will be one of retrenchment and it is expected that next year will be one of recovery.
Plutus Powergen share price has declined further from 0.95p at the beginning of the year to 0.18p today. The Company is focused on the development and operation of flexible energy generation projects in the UK. The last year has seen the impact of the removal of Capacity Mechanism (CM), the system that the Government uses to assist companies to provide standby power to the National Grid. However, in the last few days the EC has approved, under the EU State Aid Rules, the British CM scheme, which can now be reinstated.
Plutus Powergen raised further funds at 0.6p almost a year ago; this Company did not participate. The untimely death, over a year ago, of the CEO and the recent resignation of the Operations Director, has given rise to public concern about the management of the company. This, coupled with the serving of a notice to terminate the use of Plutus Powergen's services by Rockpool, causes further concern. The company has had no operational developments to report in the last period as it has been seeking the finance necessary to develop its projects.
The holding in Chelverton Asset Management Holdings, the Investment Manager of this fund, was again revalued upwards reflecting the continued success of its funds, which has led to an overall growth in its funds under management. The Employee Share Option Trust ("ESOT") of Chelverton Asset Management tendered last year for 5,500 shares, (5.5%) of the share capital, at a price of GBP160 per share, compared to a cost price of GBP1. The ESOT intends to tender for another 5% of the shares, but is waiting for a Brexit resolution, as any action taken now will almost certainly disadvantage either the Shareholders who tender or those that do not. The fund retains 1,000 shares revalued upwards to GBP220 per share.
La Salle Education has continued to show excellent progress and its sales have increased by 70% and gross profit by 80%. While it is still loss making, at the EBITDA level, this is a business that, once it reaches critical mass, should become very profitable.
Spa Dental Partners was sold on the 26 October 2018, 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, and 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 an increase in the asset value and, we believe, will enable us to report a much better performance in a year's time.
David Horner
Chelverton Asset Management Limited
5 November 2019
Portfolio Review
as at 31 August 2019
Valuation % of
Investment Sector GBP'000 total portfolio
--------------------------------------- ---------------------------------- --------- ----------------
AIM traded
CEPS Support Services 1,214 43.3
Trading holding company for a number of companies
supplying services and products
MTI Wireless Edge Technology Hardware & Equipment 176 6.3
Developer and manufacturer of sophisticated
antennas and antenna systems
Petards Group Support Services 380 13.5
Development, provision and maintenance of advanced
security systems and related services
Plutus Powergen Flexible Energy Supply 93 3.3
Providers of management infrastructure and
expertise to operate power plants and provide
flexible electricity generation
Technology Hardware and
Touchstar Equipment 298 10.6
Software systems for warehousing and distribution
Universe Group Support Services 34 1.2
Provision of credit fraud prevention, loyalty
and retail systems
Fully listed
Zenith Energy Oil & Gas Producers 63 2.2
International energy production and exploration
company
Nasdaq Traded
One Horizon Group * Support Services - -
Media and digital technology holding company
--------- ----------------
2,258 80.4
* Name changed to Touchpoint Group Holdings
on 26 September 2019
Unquoted
Anaxsys Technology Healthcare Equipment &
Services - -
A medical device company for patient monitoring
and screening
Chelverton Asset Management
Holdings Support Services 220 7.9
Investment management, including providing
services to Chelverton Growth Trust Plc
La Salle Education Support Services 130 4.6
A UK based company dedicated to improving mathematics
education
Pedalling Forth General Retailers 200 7.1
Internet retailer of cycling clothing for women
Portfolio Valuation 2,808 100.0
--------- ----------------
Portfolio holdings
as at 31 August 2019
31 August 2019 31 August 2018
Valuation % of total Valuation % of total
Investment GBP'000 portfolio GBP'000 portfolio
---------------------------- --------- ---------- --------- ----------
CEPS 1,214 43.3 1,417 40.6
Petards Group 380 13.5 460 13.2
Touchstar 298 10.6 374 10.7
Chelverton Asset Management
Holdings 220 7.9 210 6.0
Pedalling Forth 200 7.1 250 7.2
MTI Wireless Edge 176 6.3 171 4.9
La Salle Education 130 4.6 80 2.3
Plutus Powergen 93 3.3 317 9.1
Zenith Energy 63 2.2 37 1.1
Universe Group 34 1.2 31 0.9
One Horizon Group * - - - -
Anaxsys Technology - - - -
Spa Dental (formerly
Main Dental) - see
note 9 - - 138 4.0
Total 2,808 100.0 3,485 100.0
--------- ---------- --------- ----------
* Name changed to Touchpoint Group Holdings on 26 September 2019
Portfolio breakdown by sector and by index
Percentage of portfolio by sector
Support Services 70.5% Technology Hardware & Equipment 16.9% General Retailers 7.1% Flexible Energy Supply 3.3% Oil & Gas Producers 2.2%
Percentage of portfolio by index
AIM 78.2% Unquoted 19.6% Fully Listed 2.2%
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.
Given the comments in the Chairman's statement the Directors feel it is appropriate to amend the Investment Policy to state the Company:
1. may participate in another CEPS placing (if it were to have one), 2. will liquidate its various other investments when it is felt appropriate to do so, 3. will repay the outstanding Jarvis Loan, 4. will pay all outstanding liabilities
Resolution 7 as shown in the Notice of Annual General Meeting in the Annual Report will give Shareholders the opportunity to vote on this amendment.
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 ("CAM"), 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 CAM 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 at 31 August 2019 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 on pages 17 to 24 of the Annual Report, 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 24 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 2019 was 44.79p (2018: 60.48p), a decrease of 25.94%. By comparison the benchmark fell by 9.57%.
The Company's share price at the year-end was 40.50p (2018: 56.50p).
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.
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
5 November 2019
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 2019 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. With effect from 1 November 2019, the annual fee will be reduced to 0.5% per annum of gross assets.
The amount payable to CAM for the year ending 31 August 2019 was GBP35,000 (2018: GBP44,000). At the year-end GBP2,600 (2018: 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
5 November 2019
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
5 November 2019
NON- STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 August 2019 and 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 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 2019
2019 2018
Note Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments
at fair value 7 - (682) (682) - (1,263) (1,263)
Income 2 22 - 22 9 - 9
Investment management
fee 3 (9) (26) (35) (11) (33) (44)
Other expenses 4 (138) (24) (162) (134) (6) (140)
Net loss on ordinary
activities before
taxation (125) (732) (857) (136) (1,302) (1,438)
Taxation on ordinary
activities 5 - - - - - -
Net loss on ordinary
activities after
taxation (125) (732) (857) (136) (1,302) (1,438)
Revenue Capital Total Revenue Capital Total
Loss per Ordinary
share 6 (2.29)p (13.41)p (15.70)p (2.45)p (23.40)p (25.85)p
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All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with applicable Financial Reporting Standards ("FRS"). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice ("AIC SORP") issued in November 2014 and updated in February 2018 with consequential amendments by the Association of Investment Companies.
The notes form part of these accounts.
Statement of changes in equity
for the year ended 31 August 2019
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 2019
1 September
2018 55 787 1,843 134 484 3,303
Net loss after
taxation for
the year - - (732) - (125) (857)
31 August 2019 55 787 1,111 134 359 2,446
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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
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 2019
2019 2018
Notes GBP'000 GBP'000
Fixed assets
Investments at fair value 7 2,808 3,485
Current assets
Debtors 9 145 9
Cash at bank and cash
equivalents 125 439
270 448
Creditors - amounts falling
due within one year 10 (632) (630)
Net current liabilities (362) (182)
Net assets 2,446 3,303
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Share capital and reserves
Called up share capital 11 55 55
Special reserve 787 787
Capital reserve 1,111 1,843
Capital redemption reserve 134 134
Revenue reserve 359 484
Equity shareholders' funds 2,446 3,303
Net asset value per Ordinary
share 12 44.79p 60.48p
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 5 November 2019. They were signed on its behalf by
Kevin Allen
Chairman
Statement of cash flows
For the year ended 31 August 2019
2019 2018
GBP'000 GBP'000
Cash flows (used in)/from operating
activities
Net loss on ordinary activities (857) (1,438)
Adjustment for:
Net capital loss 732 1,302
Expenses charged to capital (50) (39)
Interest paid 32 10
Increase/(decrease) in creditors 2 (3)
(Increase)/decrease in debtors (136) 674
Cash (used in)/from operations (277) 506
Cash flows (used in)/from investing
activities
Purchase of investments (146) (1,271)
Proceeds from sales of investments 141 736
Net cash used in investing activities (5) (535)
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Cash flows (used in)/from 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 (32) (10)
Net cash used in financing activities (32) (379)
Net decrease in cash (314) (408)
Cash at the beginning of the year 439 847
Cash at the end of the year 125 439
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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"), Financial Statements of Investment Trust Companies and Venture Capital Trusts issued in November 2014 and updated in February 2018 with consequential amendments. 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'.
Cash at bank and cash equivalents
Cash at bank and cash equivalents includes funds held by the custodian on behalf of the Company.
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, net asset value or funds under management, 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.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.
2 INCOME
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income from investments
UK net dividend
income 17 - 17 9 - 9
Loan stock interest 5 - 5 - - -
Total income 22 - 22 9 - 9
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3 INVESTMENT MANAGEMENT FEE
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fee 9 26 35 11 33 44
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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 2019 there was GBP2,600 outstanding (2018: GBP3,300). With effect from 1 November 2019, the investment management fee will be reduced to 0.5% per annum of gross assets.
4 OTHER EXPENSES 2019 2018
GBP'000 GBP'000
Administrative and secretarial services 40 40
Directors' remuneration 34 34
Auditors' remuneration
* audit services 17 17
* non-audit services: tax compliance 2 2
Finance costs 32 9
Other expenses 37 38
162 140
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5 TAXATION 2019 2018
Revenue Capital Total Revenue Capital Total
Analysis of charge GBP'000 GBP'000 GBP'000 '000 GBP'000 GBP'000
in period
Current tax - - - - - -
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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:
2019 2018
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% (2018:
19%)
Corporation tax (24) (139) (163) (26) (247) (273)
Investment income
not taxable (3) - (3) (2) - (2)
Non-taxable investment
losses - 130 130 - 240 240
Excess expenses for
the period 27 9 36 28 7 35
Current tax charge - - - - - -
for the period
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At 31 August 2019 the Company had surplus management expenses of GBP4,527,000 (2018: GBP4,337,000) 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
2019 2018
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Basic (2.29) (13.41) (15.70) (2.45) (23.40) (25.85)
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Revenue return per Ordinary share is based on the net revenue loss on ordinary activities after taxation attributable of GBP125,000 (2018: GBP136,000) and on 5,460,301 (2018: 5,563,242) 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 of GBP732,000 (2018: GBP1,302,000) and on 5,460,301 (2018: 5,563,242) 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 of GBP857,000 (2018: GBP1,438,000) and on 5,460,301 (2018: 5,563,242) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
INVESTMENTS 2019 2018
7
GBP'000 GBP'000
Fully Listed 63 37
Traded on
AIM 2,195 2,770
Unquoted 550 678
NASDAQ - -
2,808 3,485
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Fully Traded
on
Listed AIM Unquoted* NASDAQ Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening book cost 72 4,236 998 166 5,472
Opening investment holding
losses (35) (1,466) (320) (166) (1,987)
37 2,770 678 - 3,485
Movements in the year:
Purchases at cost 46 - 100 - 146
Sales - proceeds - - (141) - (141)
- losses on sales - - (184) - (184)
Movement in investment
holding losses (20) (575) 97 - (498)
Closing valuation 63 2,195 550 - 2,808
Closing book cost 118 4,236 773 166 5,293
Closing investment holding
losses (55) (2,041) (223) (166) (2,485)
Closing valuation 63 2,195 550 - 2,808
2019 2018
GBP'000 GBP'000
Realised losses on sales (184) (16)
Movement in fair value of investments (498) (1,247)
Net losses on investments (682) (1,263)
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.
Transaction costs
During the year, the Company incurred transaction costs of GBPnil (2018: GBP696) and GBPnil (2018: GBP887) on purchases and sales of investments, respectively. These amounts are included in 'Losses on investments at fair value' as disclosed in the Income statement.
Analysis of movements in unquoted investments
Cost Cost Valuation Valuation
at 31 at 31 Movement at 31 at 31
August August Realised in unrealised August August
2018 Additions Disposals 2019 (loss)/gain gain/(loss) 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment
Anaxsys
Technology 292 - - 292 - - - -
Airways
Engineering
*
Loan stock 45 - (45) - (45) 45 - -
Ordinary
B shares 30 - (30) - (30) 30 - -
Chelverton
Asset Management
Holdings 1 - - 1 - 10 220 210
La Salle
Education 130 50 - 180 - - 130 80
Spa Dental
(Formerly
Main Dental) 250 - (250) - (112) 112 - 138
Pedalling
Forth 250 50 - 300 - (100) 200 250
Security
Research
Group ** - - - - 3 - - -
998 100 (325) 773 (184) 97 550 678
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* Dissolved on 18 December 2018.
** Final liquidation proceeds received.
Details of material holdings in unquoted investments
Cost Valuation Cost Valuation Equity Last
at 31 at 31 at 31 at 31 Held accounts Net
August August August August % period assets/ Pre-tax
2019 2019 2018 2018 end (liabilities) Turnover profit
Investment GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Anaxsys Technology 292 - 292 - 4.2 31/01/19 (204) - -
Chelverton
Asset Management
Holdings * 1 220 1 210 1.0 31/03/19 4,497 7,873 2,682
La Salle Education 180 130 130 80 7.0 31/12/18 414 - -
Pedalling
Forth 300 200 250 250 19.9 31/12/18 30 - -
* Consolidated figures
A full listing of portfolio holdings is included in the portfolio review above.
8 SIGNIFICANT INTERESTS
At 31 August 2019, 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
Security shares capital share capital
CEPS 5,060,000 29.76 17,000,000
Pedalling Forth 40,000 19.94 200,560
Touchstar 850,000 10.03 8,475,077
La Salle Education 260,000 7.02 3,705,186
Plutus Powergen 33,333,334 3.82 872,534,994
Petards 2,000,000 3.48 57,468,229
9 DEBTORS 2019 2018
GBP'000 GBP'000
Amounts falling due within one year
Prepayments and other debtors 7 9
Amounts due from investment proceeds
* 138 -
145 9
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* Represents the amount due from Spa Dental (formerly
Main Dental) in the form of deferred consideration from
a Share Purchase Agreement and an Assignment of Loan.
From the date of completion, interest accrues on the
balance outstanding of the purchase price at the rate
of 3.5% above the base rate of Lloyds Bank, payable six
monthly in arrears.
10 CREDITORS - amounts falling due within
one year
2019 2018
GBP'000 GBP'000
Accruals and other creditors 32 30
Short term loan 600 600
632 630
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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 on demand.
11 CALLED UP SHARE CAPITAL 2019 2018
GBP'000 GBP'000
Allotted, called up and fully paid:
5,460,301 (2018: 5,460,301) Ordinary shares
of 1p each 55 55
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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 of 44.79p (2018:60.48p) is based on net assets of GBP2,446,000 (2018: GBP3,303,000) and on 5,460,301 (2018: 5,460,301) Ordinary shares, being the number of shares in issue at the year end.
13 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
At 31 August 2019, there were no capital commitments or contingent liabilities (2018: 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 2019 on its investments is as follows:
2019 2018
GBP'000 GBP'000
Fair value through profit or loss investments 2,808 3,485
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A 20% decrease in the market value of investments at 31 August 2019 would have decreased net assets attributable to Shareholders by 10 pence per share (2018: 13 pence per share). An increase of the same percentage would have an equal but opposite effect on net assets available to Shareholders.
(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:
2019 2018
GBP'000 GBP'000
Cash at bank and cash equivalents 125 439
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Short term loan (600) (600)
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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 (2018: GBP6,000). If there was a decrease in interest rates of 0.5% net revenue before taxation would increase by GBP3,000 (2018: GBP3,000). These calculations are based on balances as at 31 August 2019 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 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 twenty 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
Other than the loan from Jarvis which is shown at amortised cost, all 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 2019 GBP'000 GBP'000 GBP'000 GBP'000
Assets as per the Statement
of Financial Position
Investments - - 2,808 2,808
Debtors - 145 - 145
Cash at bank and cash
equivalents 125 - - 125
Total 125 145 2,808 3,078
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Liabilities as per the
Statement of Financial
Position
Creditors 32 600 - 632
Total 32 600 - 632
----------- ----------- ----------- -------
Assets at
At fair value
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 and cash
equivalents 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
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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 2019 GBP'000 GBP'000 GBP'000 GBP'000
Equity investments 2,258 - 550 2,808
Total 2,258 - 550 2,808
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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
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The following table presents the movement in the Level 3 investments for the period ended 31 August 2019:
Investments
GBP'000
Opening balance 678
Purchases 100
Sales at cost (325)
Total gains on investments in the Income Statement 97
Closing balance 550
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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 has a significant investment. Mr Martin is the chairman of Touchstar plc, in which the Company holds an investment.
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 Directors' holdings are detailed below:
Percentage Ordinary
of holding shares
in shares held
% GBP'000
K J Allen 1 1
D A Horner* 56 56
I P Martin 2 2
* Directors and connected persons
total holdings
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 2019. 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 12 December 2019.
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.morningstar.co.uk/uk/nsm
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 FSAFFIFUSEFF
(END) Dow Jones Newswires
November 05, 2019 06:39 ET (11:39 GMT)
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