Chelverton UK Dividend Trust PLC

 

Half-Yearly Financial Report

For the Six Months ended 31 October 2022

 

Investment Objective and Policy

The investment objective of Chelverton UK Dividend Trust PLC (‘the Company’) is to provide Ordinary Shareholders with a high income and opportunity for capital growth, having provided a capital return sufficient to repay the full final capital entitlement of the Zero Dividend Preference shares issued by the wholly owned subsidiary company, SDV 2025 ZDP PLC (‘SDVP’).

Chelverton UK Dividend Trust PLC, and its subsidiary SDV 2025 ZDP PLC (‘SDVP’) (‘the Subsidiary’), together form the Group (‘the Group’).

The Company’s investment policy is that:

 

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

 

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

 

Financial Highlights

 

		31 October	30 April
Capital		2022	2022	% change
Total gross assets (£’000)		49,543	58,805	(15.75)
Total net assets (£’000)		31,899	41,382	(22.92)
Net asset value per Ordinary share		152.99p	198.47p	(22.92)
Mid-market price per Ordinary share		162.00p	192.50p	(15.84)
Premium/(discount)		5.89%	(3.01%)
Net asset value per Zero Dividend Preference share		120.87p	118.52p	1.98
Mid-market price per Zero Dividend Preference share		116.50p	118.50p	(1.69)
Premium/(discount)		(3.62%)	(0.02%)
	Six months to		Six months to
		31 October	31 October
Revenue		2022	2021	% change
Return per Ordinary share		6.63p	4.67p	41.97
Dividends declared per Ordinary share*		5.89p	5.50p	7.00
Special dividends declared per Ordinary share		–	–	-
Total return
Total return on Group’s net assets**		(20.05%)	(7.74%)

 

*	Dividend per Ordinary share includes the first interim paid and second interim declared for the period to 31 October 2022 and 2021 and will differ from the amounts disclosed within the statement of changes in net equity.
**	Adding back dividends distributed in the period.

 

Interim Management Report

This half-yearly report covers the six months to 31 October 2022. The net asset value per Ordinary share as at 31 October 2022 was 152.99p down from 198.47p at 30 April 2022, a decrease of 22.92% during the period compared to the MSCI Small Cap Index which also decreased by 15.1%. As at 21 November 2022 the NAV per share has increased to 165.97p.

Since the beginning of the Company’s financial year, the Ordinary share price has decreased from 192.50p to 162.00p as at 31 October 2022, a decrease of 15.84%. Since the period end the shares have increased in price to 166.00p and as at 21 November 2022 the shares traded on a premium of 0.02%.

Dividend

Maintaining its record of increasing the annual core dividend paid by the Company for 13 years, the first interim dividend for the current year of 2.9425p (2021: 2.75p) per Ordinary share was paid on 14 October 2022. The Board has declared a second interim dividend of 2.9425p per Ordinary share (2021: 2.75p) payable on 9 January 2023 to shareholders on the register on 16 December 2022, making a total for the half year of 5.885p per Ordinary share (2021: 5.5p) an increase of 7.0%.

It is anticipated that the Company will maintain the level of dividend for the third and fourth quarter at 2.9425p making a total core dividend declared of 11.77p for the year (2022: 11.0p) an annual increase of 7.0%.

Portfolio

In the last six months we have increased our investment in 13 of our existing holdings, taking advantage of lower share prices and shares being available in Bakkavor Group, Chesnara, Close Brothers, Crest Nicholson, Duke Royalty, Jarvis Securities, R and Q Insurance, Spectra Systems, Springfield Properties, Strix, The Works.co.uk, Tyman and UP Global Sourcing.

During the period we added four new names to the portfolio: Fonix – Mobile Payments, Genuit (formerly Polypipe) – Sustainable Built Environment Products, Liontrust – Asset Management and Marshalls – Building Materials.

Funds were raised from the outright sale of two of our holdings, Contourglobal and RPS, both as a result of bids. The following holdings were reduced as they grew to become larger weightings on lower yields: Belvoir, Bloomsbury Publishing, Centaur Media, Curtis Banks, Town Centre Securities (as a result of a tender offer by the company at a significant premium to the prevailing share price), TP ICAP and Wilmington.

Outlook

Having recovered strongly from the depths of the pandemic, the market has reacted very badly to the ongoing Ukrainian conflict and its impact on energy prices and other commodities. Coupled with this, the UK has exacerbated the general European problems by creating massive self-inflicted political uncertainty. It is hoped that the recent changes within government, will, in time, restore stability and therefore confidence.

However, it is reassuring that the underlying performance of the companies in the portfolio continues to be positive as the companies are reacting rapidly to changing circumstances and the challenges of the current marketplace. We continue to see compelling evidence that our companies are, in the main, emerging from the pandemic episode as better companies with more efficient processes. It is likely that our companies will only receive the ratings they deserve once the World political and economic situation is stable and then improving.

We are pleased to recommend an annual 7% rise in the dividend and, after three years of utilising reserves to pay the increasing dividends, the forecasts for the current year indicate that we will be able to pay the increased dividend from current revenue.

 

Chelverton Asset Management

29 November 2022

 

Principal Risks

 

The principal risks facing the Group are substantially unchanged since the date of the Annual Report for the year ended 30 April 2022 and continue to be as set out in that report on pages 11 to 13. Risks faced by the Group include, but are not limited to, market risk, discount volatility, regulatory risks, financial risk, political risk, climate change risk, global pandemics and risks associated with accounting policies and gearing.

 

Going concern

 

Having assessed the principal risks and the other matters discussed in connection with the viability statement as set out on pages 14 and 15 of the Annual Report for the year ended 30 April 2022, including the additional risks related to the coronavirus pandemic, the Directors believe that the Group is well placed to manage its business risks successfully and it is appropriate to adopt the going concern basis in preparing the accounts.

 

 

Responsibility Statement of the Directors in respect of the Half-Yearly Report

 

We confirm that to the best of our knowledge:

 

• the condensed set of financial statements has been prepared in compliance with the IAS 34 ‘Interim Financial Reporting’ and gives a true and fair view of the assets, liabilities and financial position of the Group; and
• the interim management report and notes to the Half-Yearly Report include a fair view of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

This Half-Yearly Report was approved by the Board of Directors on 29 November 2022 and the above responsibility statement was signed on its behalf by Howard Myles, Chairman.

 

 

Condensed Consolidated Statement of Comprehensive Income (unaudited)

for the six months ended 31 October 2022

	Six months to 31 October 2022			Year to 30 April 2022			Six months to 31 October 2021
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
(Losses)/gains on investments at fair value through profit or loss	–	(9,134)	(9,134)	–	(4,610)	(4,610)	–	649	649
Investment income	1,631	–	1,631	2,576	–	2,576	1,214	–	1,214
Investment management fee	(65)	(195)	(260)	(158)	(473)	(631)	(83)	(248)	(331)
Other expenses	(168)	(8)	(176)	(302)	(12)	(314)	(144)	(5)	(149)
Net (deficit)/surplus before finance costs and taxation	1,398	(9,337)	(7,939)	2,116	(5,095)	(2,979)	987	396	1,383
Finance costs Preference shares
Preference shares	–	(340)	(340)	–	(654)	(654)	–	(326)	(326)
Net (deficit)/surplus before taxation	1,398	(9,677)	(8,279)	2,116	(5,749)	(3,633)	987	70	1,057
Taxation (see note 2)	(16)	–	(16)	(32)	–	(32)	(13)	–	(13)
Total comprehensive (expense)/ income for the period	1,382	(9,677)	(8,295)	2,084	(5,749)	(3,665)	974	70	1,044
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	pence	pence	pence	pence	pence	pence	pence	pence	pence
Net return per:
Ordinary share (see note 3)	6.63	(46.41)	(39.78)	10.00	(27.57)	(17.57)	4.67	0.34	5.01
Zero Dividend Preference share 2025 (see note 3)	–	2.34	2.34	–	4.51	4.51	–	2.25	2.25

 

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

 

Condensed Consolidated Statement of Changes in Net Equity (unaudited)

for the six months ended 31 October 2022

		Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£’000	£’000	£’000	£’000	£’000	£’000
Six months ended 31 October 2022 30 April 2022		5,213	17,517	5,004	11,201	2,447	41,382
Total comprehensive (expense)/ income for the period		–	–	–	(9,677)	1,382	(8,295)
Dividends paid (see note 4)		–	–	–	–	(1,188)	(1,188)
31 October 2022		5,213	17,517	5,004	1,524	2,641	31,899
Year ended 30 April 2022 (audited) 30 April 2021		5,213	17,517	5,004	16,950	2,661	47,345
Total comprehensive (expense)/ income for the year		–	–	–	(5,749)	2,084	(3,665)
Dividends paid (see note 4)		–	–	–	–	(2,298)	(2,298)
30 April 2022		5,213	17,517	5,004	11,201	2,447	41,382
Six months ended 31 October 2021 30 April 2021		5,213	17,517	5,004	16,950	2,661	47,345
Total comprehensive income for the year		–	–	–	70	974	1,044
Dividends paid (see note 4)		–	–	–	–	(1,151)	(1,151)
31 October 2021		5,213	17,517	5,004	17,020	2,484	47,238

 

Condensed Consolidated Balance Sheet

(unaudited)

as at 31 October 2022

	31 October 2022 £’000	30 April 2022 £’000	31 October 2021 £’000
Non-current assets
Investments at fair value through profit or loss	48,919	57,751	63,888
Current assets
Trade and other receivables	289	520	181
Cash and cash equivalents	335	534	187
	624	1,054	368
Total assets	49,543	58,805	64,256
Current liabilities
Trade and other payables	(118)	(237)	(160)
	(118)	(237)	(160)
Total assets less current liabilities	49,425	58,568	64,096
Non-current liabilities
Zero Dividend Preference shares 2025	(17,526)	(17,186)	(16,858)
Total liabilities	(17,644)	(17,423)	(17,018)
Net assets	31,899	41,382	47,238
Represented by:
Share capital	5,213	5,213	5,213
Share premium account	17,517	17,517	17,517
Capital redemption reserve	5,004	5,004	5,004
Capital reserve	1,524	11,201	17,020
Revenue reserve	2,641	2,447	2,484
Equity shareholders’ funds	31,899	41,382	47,238
Net asset value per: (see note 5)	pence	pence	pence
Ordinary share	152.99	198.47	226.56
Zero Dividend Preference share 2025	120.87	118.52	116.26

 

Condensed Consolidated Statement of Cash Flows

(unaudited)

for the six months ended 31 October 2022

	Six months to 31 October  2022   £’000	Year to 30 April 2022   £’000	Six months to 31 October 2021   £’000
Operating activities
Investment income received	1.799	2,370	1,320
Investment management fee paid	(278)	(643)	(324)
Administration and secretarial fees paid	(32)	(67)	(34)
Other cash payments	(187)	(236)	(113)
Cash generated from operations (see note 7)	1,302	1,424	849
Purchases of investments	(4.028)	(8,795)	(5,079)
Sales of investments	3,715	9,715	5,080
Net cash inflow/(outflow) from operating activities	989	2,344	850
Financing activities
Dividends paid	(1,188)	(2,298)	(1,151)
Net cash outflow from financing activities	(1,188)	(2,298)	(1,151)
Change in cash and cash equivalents	(199)	46	(301)
Cash and cash equivalents at start of period	534	488	488
Cash and cash equivalents at end of period	335	534	187

Notes to the Condensed Half-Yearly Report

for the six months ended 31 October 2022

 

1  General information

The financial information contained in this Half-Yearly Report does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The statutory financial statements for the year ended 30 April 2021, which contained an unqualified auditors’ report, have been lodged with the Registrar of Companies and did not contain a statement required under the Companies Act 2006. These statutory financial statements were prepared in accordance with UK adopted International Financial Reporting Standards (‘UK adopted IFRSs’) and in accordance with the Statement of Recommended Practice (‘SORP’): Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the AIC in July 2022.

 

The Group has financial resources which substantially exceed its expense commitments and therefore the Directors believe that the Group is well placed to manage its business risks and also believe that the Group will have sufficient resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this report.

 

This report has not been reviewed by the Group’s Auditors.

 

This report has been prepared using accounting policies adopted in the audited financial statements for the year ended 30 April 2022. This report has also been prepared in compliance with IAS 34 ‘Interim Financial Reporting’ and the Companies Act 2006.

 

2  Taxation

The Company has an effective tax rate of 0% as investment gains are exempt from tax owing to the Company’s status as an Investment Trust and there is expected to be an excess of management expenses over taxable income and thus there is no charge for corporation tax.

 

Deferred tax assets in respect of unrelieved excess expenses are not recognised as it is unlikely that the Group will generate sufficient taxable income in the future to utilise these expenses. Deferred tax is not provided on capital gains and losses because the Company meets the conditions for approval as an investment trust company.

3   Earnings per share

Ordinary shares

Revenue earnings per Ordinary share is based on revenue on ordinary activities after taxation of £1,382,000 (30 April 2022: £2,084,000. 31 October 2021: £974,000) and on 20,850,000 (30 April 2022: 20,850,000, 31 October 2021: 20,850,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period.

Capital earnings per Ordinary share is based on the capital loss of £9,677,(30 April 2022: £5,749,000. 31 October 2021: profit of £70,000) and on 20,850,000 (30 April 2022: 20,850,000, 31 October 2021: 20,850,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

Zero Dividend Preference shares

Capital earnings per Zero Dividend Preference share 2025 is based on allocations from the Company of £340,000 (30 April 2022: £654,000, 31 October 2021: £326,000) and on 14,500,000 (30 April 2022: 14,500,000, 31 October 2021: 14,500,000) Zero Dividend Preference shares 2025, being the weighted average number of Zero Dividend Preference shares in issue during the year.

4   Dividends

During the period, a fourth interim dividend of 2.75p per Ordinary share was paid to Shareholders in respect of the financial year ended 30 April 2022.

In respect of the year ended 30 April 2023, a first interim dividend of 2.9425p per ordinary share has been paid to the Shareholders.

In addition, for the year ended 30 April 2023, the Board has declared a second interim dividend of 2.9425p per Ordinary share payable on 9 January 2023 to Shareholders on the register at 16 December 2022 (ex-dividend date 15 December 2022).

5   Net asset values

Ordinary shares

The net asset value per Ordinary share is based on assets attributable of £31,899,000 (30 April 2022:

£41,382,000, 31 October 2021: £47,238,000) and on 20,850,000 (30 April 2022: 20,850,000, 31 October

2021: 20,850,000) Ordinary shares being the number of shares in issue at the period end.

 

Zero Dividend Preference shares

The net asset value per Zero Dividend Preference shares is based on assets attributable of £17,526,000 (30 April 2022: £17,186,000, 31 October 2021: £16,858,000) and on 14,500,000 (30 April 2022: 14,500,000, 31 October 2021: 14,500,000) Zero Dividend Preference shares being the number of shares in issue at the period end.

6   Fair value hierarchy

Financial assets and financial liabilities of the Company are carried in the condensed Consolidated Balance Sheet at their fair value. The fair value is the amount at which the asset could be sold or the liability transferred in a current transaction between market participants, other than a forced or liquidation sale. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices and Stock Exchange Electronic Trading Services (‘SETS’) at last trade price at the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset.

The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors are included in Level 1, if they reflect actual and regularly occurring market transactions on an arm’s length basis.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 2 inputs include the following:

• quoted prices for similar (i.e. not identical) assets in active markets;

 

• quoted prices for identical or similar assets or liabilities in markets that are not active. Characteristics of an inactive market include a significant decline in the volume and level of trading activity, the available prices vary significantly over time or among market participants or the prices are not current;

 

• inputs other than quoted prices that are observable for the asset (for example, interest rates and yield curves observable at commonly quoted intervals); and

 

• inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market-corroborated inputs).

Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

As at 31 October 2022, 30 April 2022 and 31 October 2021 all of the Company’s investments are classified as Level 1.

 

7 Reconciliation of net return before and after taxation to cash generated from operations

	31 October 2022 £’000	30 April 2022 £’000	31 October 2021 £’000
Net return before taxation	(8,279)	(3,633)	1.057
Taxation	(16)	(32)	(13)
Net return after taxation	(8,295)	(3,665)	1.044
Net capital return	9,677	5,749	(70)
Decrease/(increase) in receivables	184	(172)	119
(Decrease)/increase in payables	(61)	(3)	9
Interest and expenses charged to the capital reserve	(203)	(485)	(253)
Cash generated from operations	1,302	1,424	849

 

8  Related party transactions

The Group’s investments are managed by Chelverton Asset Management Limited. The amounts paid to the Investment Manager in the period to 31 October 2022 were £260,000 (year ended 30 April 2022: £314,000, six months to 31 October 2021: £331,000).

 

At 31 October 2022 there were amounts outstanding to be paid to the Investment Manager of £55,000 (year ended 30 April 2022: £73,000, six months to 31 October 2021: £92,000).

 

 

Portfolio Investments

as at 31 October 2022

		Market value			% of
Security	Sector	£’000			portfolio
Diversified Energy	Energy	1,761		3.6
iEnergizer	Industrial Goods & Services	1,631		3.3
Belvoir Lettings	Real Estate	1,600		3.3
UP Global Sourcing Holdings	Consumer Products and Services	1,190		2.4
Alumasc Group	Construction & Materials	1,152		2.4
Coral Products	Industrial Goods & Services	1,085		2.2
Kitwave Group	Personal Care, Drugs & Grocery Stores	1,060		2.2
MP Evans Group	Food, Beverage & Tobacco	1,015		2.1
Chesnara	Insurance	998		2.0
ME Group	Consumer Products and Services	927		1.9
Bloomsbury Publishing	Media	911		1.9
STV	Media	905		1.9
Smiths News	Industrial Goods & Services	895		1.8
Devro	Food, Beverage & Tobacco	894		1.8
MTI Wireless Edge	Telecommunications	864		1.8
Curtis Banks Group	Financial Services	861		1.8
Wilmington Group	Media	858		1.8
Duke Royalty	Financial Services	853		1.7
Redde Northgate	Industrial Goods & Services	831		1.7
Ramsdens Holdings	Financial Services	830		1.7
Appreciate Group	Financial Services	780		1.6
Jarvis Securities	Financial Services	774		1.6
Castings	Industrial Goods & Services	765		1.6
Ecora Resources	Basic Resources	765		1.6
Braemar Shipping Services	Industrial Goods & Services	730		1.5
R & Q Insurance	Insurance	730		1.5
Clarke (T.)	Construction & Materials	708		1.4
Fonix Mobile	Industrial Goods & Services	700		1.4
Vector Capital	Financial Services	695		1.4
Vertu Motors	Retail	683		1.4
Regional REIT	Real Estate	668		1.4
Hargreaves Services	Industrial Goods & Services	648		1.3
Palace Capital	Real Estate	642		1.3
Epwin Group	Construction & Materials	621		1.3
DFS Furniture	Retail	605		1.2
Vistry Group	Media	603		1.2
Severfield	Construction & Materials	600		1.2
Close Brothers Group	Banks	589		1.2
Orchard Funding Group	Financial Services	588		1.2
Bakkavor	Food, Beverage & Tobacco	585		1.2
TheWorks.co.uk	Retail	579		1.2
Finncap Group	Financial Services	569		1.2
Essentra	Industrial Goods & Services	561		1.1
Personal Group Holdings	Insurance	552		1.1
TP ICAP	Financial Services	552		1.1
DSW Capital	Financial Services	550		1.1
Strix Group	Industrial Goods & Services	538		1.1
Polar Capital Holdings	Financial Services		526	1.1
Premier Miton Group	Financial Services		510	1.0
Crest Nicholson	Consumer Products and Services		505	1.0
Town Centre Securities	Real Estate		504	1.0
Tyman	Construction & Materials		480	1.0
Hansard Global	Insurance		474	1.0
Spectra Systems	Retail		461	0.9
Springfield Properties	Consumer Products and Services		460	0.9
Numis Corporation	Financial Services		450	0.9
Liontrust Asset Management	Financial Services		426	0.9
Headlam Group	Consumer Products and Services		421	0.9
Kier Group	Construction & Materials		418	0.9
Centaur Media	Media		403	0.8
Chamberlin	Basic Resources		396	0.8
Topps Tiles	Retail		383	0.8
Marshalls	Construction & Materials		379	0.8
Aferian	Telecommunications		352	0.7
Marston’s	Travel & Leisure		351	0.7
Sabre Insurance	Insurance		312	0.6
Brown (N) Group	Retail		304	0.6
Portmeirion Group	Consumer Products and Services		300	0.6
Gattaca	Industrial Goods & Services		272	0.6
RTC Group	Industrial Goods & Services		249	0.5
Synthomer	Chemicals		225	0.5
Genuit Group	Construction & Materials		191	0.4
Restaurant Group	Travel & Leisure		191	0.4
Revolution Bars Group	Travel & Leisure		176	0.4
Saga	Travel & Leisure		150	0.3
Sancus Lending Group	Financial Services		149	0.3
Total Portfolio			48,919	100.0