Chelverton UK Dividend Trust plc (SDVP)
Chelverton UK Dividend Trust plc: ACS-Annual Financial Report
29-Jun-2023 / 15:29 GMT/BST
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Chelverton UK Dividend Trust PLC
Annual Results for the year to 30 April 2023
Printed copies of the Annual Report will be sent to shareholders shortly. Additional copies may be obtained from the
Company Secretary - Apex Fund Administration Services (UK) Limited (formerly Maitland Administration Services Limited),
Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY.
The financial information set out below does not constitute the Company's statutory accounts for the year ended 30
April 2023. The financial information for 2023 is derived from the statutory accounts for that year. The auditors,
Hazlewoods LLP, have reported on the 2023 accounts. Their report was unqualified and did not include a reference to any
matters to which the auditors draw attention by way of emphasis without qualifying their report. The financial
information for 2022 is derived from the statutory accounts for that year. The following text is copied from the Annual
Report and Accounts.
Strategic Report
Financial Highlights
30 April 30 April
Capital 2023 2022 % change
Total gross assets (GBP'000) 53,674 58,805 (8.73)
Total net assets (GBP'000) 35,563 41,382 (14.07)
Net asset value per Ordinary share 168.15p 198.47p (15.28)
Mid-market price per Ordinary share 174.50p 192.50p (9.35)
Premium/(discount) 3.78% (3.01%)
Net asset value per Zero Dividend Preference share 2025 123.21p 118.52p 3.97
Mid-market price per Zero Dividend Preference share 2025 117.50p 118.50p (0.84)
Discount (4.64%) (0.02%)
Year ended Year
ended
30 April 30 April
Revenue 2023 2022 % change
Return per Ordinary share 12.94p 10.00p 29.40
Dividends declared per Ordinary share 11.77p 11.00p 7.00
Total return
Total return on Group's gross assets (4.78%) (4.92%)
Total return on Group's net assets* (total return as proportion of net
(4.64%) (4.71%)
assets after the provision for the Zero Dividend Preference shares)
Total return on Group's net assets* (8.21%) (7.74%)
Ongoing charges** 2.44% 2.03%
Ongoing charges*** 1.62% 1.48%
* Adding back dividends paid in the year.
** Calculated in accordance with the Association of Investment
Companies ('AIC') guidelines. Based
on total expenses, excluding finance costs, for the year and
average net asset value.
*** Based on gross assets.
Chairman's Statement
It gives me great pleasure to present this Annual Report, my
first one as Chairman, for the financial year to 30 April 2023.
I start by repeating what my predecessor Lord Lamont wrote in
this report last year. The last 12 months have undoubtedly
continued to be challenging. Although the Covid-19 pandemic and the
associated lockdowns are now well in the past, the impact is still
being felt, not only in the UK but also in Europe. In addition, the
war in Ukraine started by Russia in February 2022 continues and
there are no signs of an end to it this year.
Whilst we all recall the turmoil in the markets in the autumn,
caused by a febrile political situation in addition to the events
around the 'mini-budget' and the more recent market volatility
caused by the collapse of the Silicon Valley Bank and the
distressed emergency takeover of Credit Suisse, the UK appears to
be gradually recovering from these low points.
At this time in the UK, we are living with elevated inflation
and interest rates at multi-year highs which, since December 2021,
have risen multiple times from 0.1% to the current 5%. The Bank of
England has been forecasting for some time that the UK economy
would move into recession, which we are very pleased to see has, to
date, proven to be wrong. Recently the International Monetary Fund
('IMF') announced that the UK will be the worst performing economy
in the G20 with a decline in GDP of 0.3% in the next year. However,
and true to form, where it should also be noted that of the last 26
forecasts by the IMF, 24 have proven to be too pessimistic and they
have now upgraded their forecast of the UK economy to grow by
0.4%!
In addition to an economy that has been stagnating, combined
with a major uptick in industrial action and a shortage of labour,
there have been significant rises in energy prices, industry-wide
increases in costs and supply chain issues. However, there has been
recent evidence that these issues are easing as time passes and the
economies of the world move away from the period of Covid-19
lockdowns.
In the last few months, a debate has begun in respect of the
reduced interest in investing in UK equities, in particular those
shares outside the FTSE 100. The Government and the Treasury are
consulting on the introduction of new policies aimed at encouraging
all parties to increase their weighting in UK equities. With a
highly UK-centric portfolio, invested only in smaller and mid-cap
companies traded on UK markets, the shares this Company is invested
in are very underrated on an historical basis notwithstanding the
fact that the underlying trading performance of the companies is
very satisfactory. However, history suggests that a recovery will
take place in time, leading to longer term outperformance.
Results
The Company's net asset value per ordinary share as at 30 April
2023 was 168.15p (2022: 198.47p), a decrease over the year of
15.3%, with an ordinary share price of 174.50p per share (2022:
192.50p). Total assets, including audited revenue reserves, were
GBP53.674m (2022: GBP58.805m), a decrease over the year of 8.7%,
and the total net assets were GBP35.563m (2021: GBP41.382m). During
the same period the MSCI Small Cap Index decreased by 5.2%.
The Company was launched on 12 May 1999, and since that time the
net asset value per Ordinary share has risen by 70.35% while in
addition a total of 228.89p has been paid to shareholders in the
form of dividends, including the fourth interim dividend announced
with this report. In the year under review, total dividends of
11.77p per Ordinary share were paid and proposed, including the
fourth interim dividend of 2.9425p. The total dividend in 2023
represents an increase of 7% year-on-year. The Company has now
returned to a position where the dividend is being paid entirely
from the current year revenue surplus after costs. The balance of
the surplus of GBP280,000, after the payment of the dividend, has
been taken to bolster revenue reserves. The intention in the future
is to increase dividends by 7% per annum and to take any surplus to
replenish the revenue reserves that have been used over the past
two years to ensure the dividend is not only being maintained but
can be increased.
The underlying portfolio yield has increased this year as our
investee companies have continued to grow their dividends, whilst
at the same time there has been a continued general derating of
shares. The portfolio yield is currently 5.6%, which is
significantly higher than the normal range of 4% to 4.5% for this
Company over its 24-year life. It is also worth pointing out that
6.5% of the portfolio is currently not paying a dividend as the
Investment Manager manages the balance between revenue and capital
growth.
The Company has increased its dividend each year for the last 13
years. Because of the strength of the revenue reserves, and the
intention to add to them in the future, the Company is in a strong
position and the Board is confident in the Company's ability to
further grow the annual dividend, assuming the current
macro-economic conditions continue to improve.
The Company is currently invested in 81 positions across 17
sectors. This spread creates a well-diversified portfolio which
should, in the future, lead to a strong return of dividend income
and subsequently steady growth in revenue and, in time,
capital.
Capital structure
Over the year the Board has approved the modest issuance of
shares at a small premium to the prevailing
net asset value. The number of ordinary shares has increased by
510,000 to 21,360,000 shares.
In the past, the Company has been regularly asked to issue new
shares to meet market demand. However, the Board's policy is that
it will only consider issuing new shares if it can do so at a
premium to NAV which is sufficient not only to cover all the costs
of issuance but also to recognise the value of the revenue reserves
that have been built up over many years and where there are
attractive opportunities for investment.
Currently the Investment Manager considers that there are
sufficient undervalued high yielding shares in the market for the
recycling of existing funds and also for the proceeds of new share
issuance to be invested. The issue of new shares at a premium
enhances net asset value per share, and the increase in the size of
the Company should improve liquidity in the market for its shares
while making it more attractive to potential new investors.
Dividend
As briefly discussed in the Results Section, the Board has
declared a fourth interim dividend of 2.9425p per Ordinary share
(2022: 2.75p) which, when added to the three quarterly interim
dividends of 2.9425p per Ordinary share, brings the total paid and
declared to 11.77p (2022: 11.00p) for the year ended 30 April 2023,
an increase of 7% over the previous year.
Under the dividend distribution policy, the Board has not
declared a special dividend (2022: nil) to be paid with the fourth
interim dividend. The Company has revenue reserves which, after
payment of the fourth interim dividend, represent 83.7% of the
current annual dividend of 11.77p, or some 9.85p per Ordinary
share. The Board is committed to progressively improving the
Company's dividend for investors and expects that the four interim
dividends paid in respect of the financial year ending 30 April
2024 will very likely exceed, but in any event will not be less
than, that paid in respect of the financial year ended 30 April
2023.
Outlook
As mentioned above, there is currently a great deal of
uncertainty across Europe and in the UK. Sadly, the war in Ukraine
is continuing and at this time there appears to be no end in sight.
However, European countries have rebalanced their economies and
have achieved major savings in energy costs which it is to be hoped
will become embedded.
With the global impact of the draconian lockdown in China and
after seeing the effect of the blocking of the Suez Canal by the
"Ever Given" container vessel, it has become clear to European
investors that they had been under-pricing the risk of sourcing
products from China; as a result we are likely to see a major
rebalancing of production to much closer to home.
The UK economy is expected to flat-line in 2023 but to recover
to near long-term trend growth in 2024. Inflation is expected to
decline by the end of the year, and it might well be that interest
rates are therefore close to a peak. As the countries of Europe and
the world return to 'normal' we can hope for a period of steady
growth in the UK economy.
Howard Myles
Chairman
29 June 2023
Investment Manager's Report
The year to April 2023 has been another challenging one, with
the global economy feeling the effects of the war in Ukraine,
supply chain challenges, inflation, rising interest rates and a
banking crisis. In the UK, these combined forces were exacerbated
by political turmoil, culminating in multiple leadership changes
and the mini-budget in September, which severely dented both
corporate and consumer confidence. With this as the backdrop, it is
not surprising that share prices have suffered, with the small and
midcap companies in which we invest particularly affected. It
should also be noted that the large open-ended funds which invest
in small and midcap UK equities have seen significant redemptions
over the past year, which has put further pressure on stock market
valuations in our part of the market. In the year to 30 April 2023,
there was a 15.28% decline in the Company's net asset value per
share from 198.47p to 168.15p. During the same period the MSCI
Small Cap Index decreased by 5.18%. At the same time the core
dividend increased 7% to 11.77p, as explained in the half-year
report in October 2022. The Company has not paid a special dividend
in respect of the 2022/2023 financial year, in line with the
dividend policy announced in March 2019.
It is encouraging that the underlying performance of the
companies in the portfolio continues to be resilient with the
majority of businesses reporting results in line with market
expectations during the recent reporting season. The more efficient
processes developed during the pandemic have helped our investee
companies to navigate the difficult trading conditions over the
past year and have left them well prepared to take advantage when
the macro environment improves. Despite the resilient underlying
trading, the small and midcap market has de-rated, resulting in the
decline in the Company's NAV. This was something of a year of two
halves, however, with the above conditions resulting in a 22.92%
reduction in the Company's NAV to 152.99p in the first six months
of the year, before it rebounded to 168.15p at the end of the year.
The stock market is a forward-looking instrument and we believe the
rebound in the second half of the year is a signal that investors
are starting to look forward towards the end of interest rate rises
and generally more stable macro conditions.
Equally encouragingly, the resilient underlying performance of
our portfolio companies was reflected in good cash generation and
dividends which were generally in line with or ahead of
expectations. This has allowed us to continue rebuilding the income
account after the pandemic shock, while also building positions in
companies which we believe will deliver strong capital growth in
the coming years. We are pleased to have delivered an annual 7%
rise in the dividend and, after three years of utilising reserves
to pay the increasing dividends, the Company has a covered dividend
and we are now able to pay the increased dividend from current
revenue.
Portfolio review
We reported last year that the de-rating of UK equities had
resulted in a pickup in corporate activity across the market. This
trend continued into the year to April 2023, with six bids received
for our portfolio companies in the year. At the beginning of the
year we saw a recommend bid by KKR for ContourGlobal. As the year
progressed and uncertainty over interest rates resulted in private
equity deals drying up, corporates took up the baton. Over the
course of the year Appreciate, Curtis Banks, Devro, Numis and RPS
all received bids from trade buyers. While the takeout prices
generally represented attractive premiums to the prevailing share
prices at the time, it is fair to say that, overall, we feel the
buyers have managed to purchase these assets at advantageous
prices. Including five of the six bid situations (the Numis bid was
announced on 28 April 2023), we exited seven positions in their
entirety with Braemar Shipping and Centaur Media exited on yield
grounds. Shareholdings were reduced in ten companies including
Belvoir Lettings, Bloomsbury Publishing, Conduit, Kitwave Group, ME
Group, Ramsdens Holdings, TP ICAP and Wilmington Group.
Twelve new shareholdings were added to the Company's portfolio
in the year including private and commercial banking group
Arbuthnot Banking Group, Conduit - pure-play reinsurance business,
Fonix Mobile - mobile payments, Hilton Foods - meat and fish
processing, Liontrust - asset management, Marshalls - building
materials, OSB Group - specialist mortgage lending, One Health -
outsourced NHS Surgery, RWS - content and IP translation and Somero
- concrete levelling equipment. Shareholdings were also increased
in 17 companies including Bakkavor, Chesnara, Close Brothers Group,
Crest Nicholson, Headlam Group, Personal Group Holdings, Regional
REIT, Spectra Systems, UP Global Sourcing Holdings and Vector
Capital.
Outlook
After several years of significant negative events affecting
markets, there are some positive signs on the horizon for equity
investors. Expectations are starting to shift towards interest
rates peaking and inflation falling to more manageable levels,
while the spectre of a lasting UK recession appears to be receding.
If this is the case, we would expect investor sentiment to
gradually improve over the coming year, which would benefit our
small and mid-cap universe.
We also continue to see an elevated number of companies
undertaking share buy-backs, another consequence of current
valuations combined with good cash generation and strong balance
sheets. As we have previously said, buy-backs are a positive for
our stocks, as long as they are instigated alongside an appropriate
dividend policy.
We continue to have confidence in our investee companies and
believe we are yet to benefit from the positive steps taken to
improve the underlying operating efficiency of the businesses
through the pandemic. Having traded through the challenges of the
last twelve months, our companies are generally entering the next
phase of the cycle as more lean, nimble enterprises. It will take a
positive shift in investor sentiment for our companies to receive
the ratings they deserve, but we are confident that the small and
midcap universe in which we invest will return to outperformance
over the medium term.
David Horner
Chelverton Asset Management Limited
29 June 2023
Breakdown of Portfolio by Industry
Market value
at 30 April 2023 % of
Bid
Market sector GBP'000 portfolio
Banks 1,149 2.2
Basic Resources 922 1.7
Chemicals 239 0.5
Construction & Materials 5,954 11.3
Consumer Products and Services 5,778 10.9
Energy 1,325 2.5
Financial Services 7,907 14.9
Food, Beverage & Tobacco 2,518 4.8
Health Care 623 1.2
Industrial Goods & Services 9,161 17.3
Insurance 4,426 8.4
Media 2,864 5.4
Personal Care, Drugs & Grocery Stores 1,197 2.3
Real Estate 3,441 6.5
Retail 3,251 6.2
Telecommunications 1,131 2.1
Travel & Leisure 939 1.8
52,825 100.0
Portfolio Statement
at 30 April 2023 Market % of
value
Security Sector GBP'000 portfolio
Real Estate 1,624 3.1
Belvoir Lettings
Consumer Products and Services 1,375 2.6
UP Global Sourcing Holdings
Energy 1,325 2.5
Diversified Energy
Industrial Goods & Services 1,270 2.4
Smiths News
Construction & Materials 1,256 2.3
Alumasc Group
Consumer Products and Services 1,143 2.3
ME Group
Personal Care, Drugs & Grocery Stores 1,197 2.2
Kitwave Group
Industrial Goods & Services 1,120 2.1
Coral Products
Insurance 1,110 2.1
Chesnara
Food, Beverage & Tobacco 1,055 2.0
MP Evans Group
Financial Services 990 1.9
Ramsdens Holdings
Industrial Goods & Services 939 1.8
Redde Northgate
Industrial Goods & Services 920 1.7
Castings
Telecommunications 918 1.7
MTI Wireless Edge
Construction & Materials 881 1.7
Clarke (T.)
Media 866 1.6
STV
Financial Services 853 1.6
Duke Royalty
Financial Services 851 1.6
Numis Corporation
Insurance 847 1.6
Conduit
Food, Beverage & Tobacco 845 1.6
Hilton
Consumer Products and Services 805 1.5
Crest Nicholson
Consumer Products and Services 805 1.5
Portmeirion Group
Industrial Goods & Services 800 1.5
Somero
Media 783 1.5
Vistry Group
Industrial Goods & Services 780 1.5
Fonix Mobile
Construction & Materials 753 1.4
Severfield
Construction & Materials 740 1.4
Epwin Group
Construction & Materials 738 1.4
Tyman
Insurance 735 1.4
Personal Group Holdings
Banks 726 1.4
Close Brothers Group
Industrial Goods & Services 709 1.3
Hargreaves Services
Financial Services 700 1.3
Jarvis Securities
Real Estate 693 1.3
Regional REIT
Media 671 1.3
Bloomsbury Publishing
Real Estate 654 1.2
Palace Capital
Retail 630 1.2
DFS Furniture
Financial Services 630 1.2
Vector Capital
Insurance 628 1.2
Hansard Global
Health Care 623 1.2
One Health Group
Food, Beverage & Tobacco 618 1.2
Bakkavor
Retail 615 1.2
Spectra Systems
Financial Services 611 1.2
Polar Capital Holdings
Insurance 610 1.2
R & Q Insurance
Construction & Materials 600 1.1
Genuit Group
Basic Resources 598 1.1
Ecora Resources
Financial Services 595 1.1
TP ICAP
Watkin Jones Consumer Products and Services 578 1.1
Vertu Motors Retail 577 1.1
Strix Group Industrial Goods & Services 549 1.0
Premier Miton Group Financial Services 546 1.0
Wilmington Group Media 544 1.0
TheWorks.co.uk Retail 542 1.0
Kier Group Construction & Materials 536 1.0
Orchard Funding Group Financial Services 525 1.0
Essentra Industrial Goods & Services 515 1.0
RWS Industrial Goods & Services 510 1.0
Sabre Insurance Insurance 496 0.9
Springfield Properties Consumer Products and Services 492 0.9
Topps Tiles Retail 480 0.9
Town Centre Securities Real Estate 470 0.9
Marshalls Construction & Materials 450 0.9
Gattaca Industrial Goods & Services 448 0.9
Liontrust Asset Management Financial Services 430 0.8
Arbuthnot Banking Group Banks 423 0.8
Brown (N) Group Retail 407 0.8
Marston's Travel & Leisure 348 0.7
DSW Capital Financial Services 345 0.7
Finncap Group Financial Services 341 0.6
Chamberlin Basic Resources 324 0.6
OSB Group Financial Services 298 0.6
Restaurant Group Travel & Leisure 243 0.5
iEnergizer Industrial Goods & Services 242 0.5
Synthomer Chemicals 239 0.5
RTC Group Industrial Goods & Services 234 0.4
Saga Travel & Leisure 228 0.4
Aferian Telecommunications 213 0.4
Paypoint Industrial Goods & Services 125 0.2
Arbuthnot Banking - Placing Financial Services 120 0.2
Revolution Bars Group Travel & Leisure 120 0.2
Sancus Lending Group Financial Services 72 0.1
Total Portfolio 52,825 100.0
Investment Objective and Policy
The investment objective of the Company is to provide Ordinary
shareholders with a high income and the opportunity for capital
growth, having provided a capital return sufficient to repay the
full final capital entitlement of the Zero Dividend Preference
shares issued by the wholly-owned subsidiary company, SDVP.
The Company's investment policy is that:
-- The Company will invest in equities in order to achieve its
investment objectives, which are to provideboth income and capital
growth, predominantly through investment in mid and smaller
capitalised UK companiesadmitted to the Official List of the UK
Listing Authority and traded on the London Stock Exchange Main
Market, AIM,or other qualifying UK marketplaces.
-- The Company will not invest in preference shares, loan stock
or notes, convertible securities or fixedinterest securities or any
similar securities convertible into shares; nor will it invest in
the securities ofother investment trusts or in unquoted
companies.
Performance Analysis using Key Performance Indicators
At each quarterly Board meeting, the Directors consider a number
of key performance indicators ('KPIs') to assess the Group's
success in achieving its objectives, including the net asset value
('NAV'), the dividend per share and the total ongoing charges.
-- The Group's Consolidated Statement of Comprehensive Income is
set out on page 57 of the Annual Report.
-- A total dividend for the year to 30 April 2023 of 11.77p
(2022: 11.00p) per Ordinary share has beendeclared to shareholders
by way of three payments totalling 8.8275p per Ordinary share plus
a planned fourthinterim dividend payment of 2.9425p per Ordinary
share.
-- The NAV per Ordinary share at 30 April 2023 was 168.15p
(2022: 198.47p).
-- The ongoing charges (including investment management fees and
other expenses but excluding exceptionalitems) for the year ended
30 April 2023 were 2.44% (2022: 2.03%). The increase in the
annualised ongoing charges isprimarily due to the decrease in net
asset value during the year.
Principal Risks
The Directors confirm that they have carried out a robust annual
assessment of the principal risks facing the Company, including
those that would threaten its objectives, business model, future
performance, solvency or liquidity. The Board regularly monitors
the principal risks facing the Company, the likelihood of any risk
crystallising, the potential implications for the Company and its
performance, and any additional mitigation that might be
introduced. Mitigation of these risks is primarily sought and
achieved in a number of ways as set out below:
Market risk
The Company is exposed to UK market risk due to fluctuations in
the market prices of its investments.
The Investment Manager actively monitors economic performance of
investee companies and reports regularly to the Board on a formal
and informal basis. The Board meets formally with the Investment
Manager on a quarterly basis when the portfolio transactions and
performance are discussed and reviewed to ensure that the
Investment Manager is managing the portfolio within the scope of
the investment policy.
The Company is substantially dependent on the services of the
Investment Manager's investment team for the implementation of its
investment policy.
The Company may hold a proportion of the portfolio in cash or
cash equivalent investments from time to time. Whilst during
positive stock market movements the portfolio may forego potential
gains as a result of maintaining such liquidity, during negative
market movements this may provide downside protection.
Discount volatility
The Board recognises that, as a closed-ended company, it is in
the long-term interests of shareholders to reduce discount
volatility and believes that the prime driver of discounts over the
longer term is performance. The Board is pleased to report that
discount volatility improved with the Company's stronger net asset
value position and share price during the second half of the year.
However, the Board, with its advisers, continues to monitor the
Company's discount levels and shares may be bought back in future
should it be considered appropriate to do so by the Board.
Regulatory risk
A breach of Companies Act provisions or Financial Conduct
Authority ('FCA') rules may result in the Group's companies being
liable to fines or the suspension of either of the Group companies
from listing and from trading on the London Stock Exchange.
Furthermore, the Company must comply with the requirements of
section 1158 of the Corporation Tax Act 2010 to maintain its
investment trust status. The Board, with its advisers, monitors the
Group's regulatory obligations both on an ongoing basis and at
quarterly Board meetings.
Financial risk
The financial position of the Group is reviewed via detailed
management accounts at each Board meeting
and both financial position and controls are monitored by the
Audit Committee.
Political risk
The Board recognises that changes in the political landscape may
substantially affect the Company's prospects and the value of its
portfolio companies. The Board and Investment Manager continue to
monitor the impact of sanctions imposed on Russia as a result of
the war in Ukraine. The Company has no exposure to Russian stocks
within its investment portfolio, hence there was no requirement to
amend the Company's investment policy. Potential future changes to
the UK's policies and regulatory landscape in light of the UK's
departure from the EU could impact the Company and its portfolio
companies. Potential political consequences for the Company are
regularly monitored and assessed by the Board.
Loss of key personnel
The Board recognises the crucial part the Investment Manager
plays in the ongoing success of the Company's performance. The
departure of the Investment Manager or a key individual at
Chelverton Asset Management Limited ('Chelverton') may therefore
affect the Company's performance.
As set out in the Investment Management Agreement, Chelverton is
required to provide one or more dedicated fund managers to the
Company, who provides the Board with regular updates on
developments at Chelverton, such as succession planning and
business continuity plans. Chelverton currently provides two fund
managers to the Company, therefore lowering the impact of the
potential loss of key personnel.
Pandemic risk
The Board and Investment Manager continue to monitor the effects
of the social and economic changes arising from the Covid-19
pandemic, together with its impact on the market. The Investment
Manager seeks to mitigate exposure to any future pandemics or
health crises by continuously monitoring the performance and
adaptability of portfolio companies, diversifying investments and
seeking to learn valuable lessons from the Covid-19 pandemic.
Accounting policies
New developments in accounting standards and industry-related
issues are actively reported to and monitored by the Audit
Committee, the Board where applicable and the Company's advisers,
ensuring that all appropriate accounting policies are adhered
to.
A more detailed explanation of the financial risks facing the
Group is given in note 21 to the financial statements on pages 74
to 79 of the Annual Report.
Gearing
The Company's shares are geared by the Zero Dividend Preference
shares and should be regarded as carrying above average risk, since
a positive NAV for the Company's shareholders will be dependent
upon the Company's assets being sufficient to meet those prior
final entitlements of the holders of Zero Dividend Preference
shares. As a consequence of the gearing, a decline in the value of
the Company's investment portfolio will result in a greater
percentage decline in the NAV of the Ordinary shares and vice
versa.
Section 172 Statement
The Directors are mindful of their duties to promote the success
of the Company in accordance with Section 172 of the Companies Act
2006, for the benefit of the shareholders, giving careful
consideration to wider stakeholders' interests and the environment
in which the Company operates. The Board recognises that its
decisions are material, not only to the Company and its future
performance, but also to the Company's key stakeholders, as
identified below. In making decisions, the Board considered the
outcome from its stakeholder engagement exercises as well as the
need to act fairly as between the members of the Company.
Investors
The Company's shareholders have a significant role in monitoring
and safeguarding the governance of the Company and can exercise
their voting rights to do so at general meetings of the Company.
Shareholders also benefit from improving performance and
returns.
All shareholders have access to the Board via the Company
Secretary and the Investment Manager at key company events, such as
the Annual General Meeting, and throughout the year by contacting
the Company Secretary or the Chairman. These regular communications
help the Board make informed decisions when considering how to
promote the success of the Company for the benefit of shareholders.
Furthermore, the Investment Manager prepares and publishes a
monthly factsheet on their website.
This year's Annual General Meeting is to be held on 7 September
2023 at the offices of Chelverton Asset Management, Basildon House,
7 Moorgate, London EC2R 6EA. Shareholders are strongly encouraged
to vote by proxy and to appoint the Chairman as their proxy.
Shareholders are also encouraged to put forward any questions to
the Company Secretary in advance of the Annual General Meeting.
The Board received enhanced Investor Relations themed reporting
from its broker, Shore Capital, during the year, including
quarterly shareholder analysis, to ensure continuing awareness of
key shareholder groups.
Investment Manager
The Board recognises the critical role of the Investment Manager
in delivering the Company's future success. The Investment Manager
attends Board and Audit Committee meetings, to participate in
transparent discussions, where constructive challenge is
encouraged. The Board and Investment Manager communicate regularly
outside of these meetings with the aim of maintaining an open
relationship and momentum in the Company's performance and
prospects. The Investment Manager's performance is evaluated
informally on a regular basis, with a formal review carried out on
an annual basis by the Board when performing the functions of a
management engagement committee. The Investment Management
Agreement is reviewed as part of this process as further discussed
on page 27 of the Annual Report.
Key service providers
The Board relies on a number of advisors for support in the
successful operation of the Company and in order to meet its
obligations. The Board therefore considers the Investment Manager,
Company Secretary/Administrator, Broker, Registrar and Custodian to
be stakeholders.
The Company employs a collaborative approach and looks to build
long term partnerships with these key service providers. They are
required to report to the Board on a regular basis and their
performance and the terms on which they are engaged are evaluated
and considered annually, as detailed on page 35 of the Annual
Report.
Portfolio companies
The Investment Manager regularly liaises with the management
teams of companies within the Investment Portfolio and reports on
findings and the performance of investee companies to the Board on
at least a quarterly basis.
Regulators
The Board regularly reviews the regulatory landscape and ensures
compliance with rules and regulations relevant to the Company via
reporting at quarterly Board meeting from the Company Secretary.
Compliance with relevant rules and regulations is regularly
formally assessed.
Community and environment
The Board believes that consideration of environmental, social
and governance ('ESG') factors as part of the investment process
when pursuing the Company's objectives is key. The Board therefore
discusses this with the Investment Manager on a regular basis.
Principal Decisions
The Board defines principal decisions as those that are material
to the Company as well as those that are significant to any of the
Company's key stakeholders as identified in the table above. In
making the principal decisions set out below, the Board considered
the outcome from its engagement with stakeholders as well as the
need to maintain a reputation for high standards of business
conduct and the need to act fairly as between the members of the
Company.
Principal decision 1 - Issue of shares
Strong NAV performance for the first half of the financial year
to 30 April 2023 enabled the Board to approve the issuing of new
shares in response to demand, as set out in more detail on page 28
of the Annual Report. Since the beginning of the calendar year, the
Company issued 510,000 shares at a premium to NAV.
Principal decision 2 - Block listing facility
As detailed further on page 28 of the Annual Report, the Board
approved an application to the Financial Conduct Authority for a
Block Listing Facility of 2,750,000 Ordinary shares to be admitted
to the Official List and to the London Stock Exchange.
Principal decision 3 - Monthly factsheets
In order to enhance communications with the Company's
shareholders, the Investment Manager prepares
and publishes a monthly factsheet, which is available on the
Chelverton website.
The Board decided that a notification of the publication of the
monthly factsheet should be made to the London Stock Exchange,
which has happened every month since July 2022.
Principal decision 4 - Dividend policy
In accordance with the Company's dividend policy, the Board
approved four quarterly dividends of 2.9425p
per Ordinary share (totalling 11.77p for the year).
In the financial year to 30 April 2022, the Company increased
the quarterly dividend rate by 7% from that of the previous year.
For the current financial year, the Board took the decision to once
again increase the quarterly dividend rate by 7%.
Viability Statement
The Board and Investment Manager continuously consider the
performance, progress and future prospects of the Company over a
variety of future timescales. These assessments, including regular
investment performance updates from the Investment Manager, and a
continuing programme of risk monitoring and analysis, form the
foundations of the Board's assessment of the future viability of
the Company. The Directors are mindful of the Company's commitments
to shareholders of the Subsidiary in 2025 in forming their
viability opinion for the Company each year.
With this in mind, the Directors currently believe that future
demand from investors will enable the Group's subsidiary to issue
new zero dividend preference shares (ZDPs) upon repayment of the
existing ZDPs in 2025. The Directors remain of the view, therefore,
that three years is a wholly realistic and the most appropriate
period over which to assess the viability of the Company. After
careful analysis, taking into account the potential impact of the
current risks and uncertainties to which the Company is exposed,
the Directors confirm that in their opinion:
-- it is appropriate to adopt the going concern basis for this
Annual Report and Accounts; and
-- the Company continues to be viable for a period of at least
three years from the date of signing of thisAnnual Report and
Accounts. Three years is considered by the Board to be the maximum
period over which it iscurrently feasible to make a viability
forecast based on known risks and macroeconomic trends.
The following facts, which have not materially changed in the
last financial year, support the Directors' view:
-- the Company has a liquid investment portfolio invested
predominantly in readily realisable smallercapitalised UK-listed
and AIM traded securities and has a small amount of short-term cash
on deposit; and
-- revenue expenses of the Company are covered multiple times by
investment income.
In order to maintain viability, the Company has a robust risk
control framework for the identification and mitigation of risk,
which is reviewed regularly by the Board. The Directors also seek
assurances from its independent service providers, to whom all
management and administrative functions are delegated, that their
operations are well managed and they are taking appropriate action
to monitor and mitigate risk. The Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of the
assessment.
Other Statutory Information
Company status and business model
The Company was incorporated on 6 April 1999 and commenced
trading on 12 May 1999. The Company is a closed-ended investment
trust with registered number 03749536. Its capital structure
consists of Ordinary shares of 25p each, which are listed and
traded on the main market of the London Stock Exchange.
The principal activity of the Company is to carry on business as
an investment trust. The Company has been granted approval from
HMRC as an investment trust under Sections 1158/1159 of the
Corporation Tax Act 2010 on an ongoing basis. The Company will be
treated as an investment trust company subject to there being no
serious breaches of the conditions for approval. The Company is
also an investment company as defined in Section 833 of the
Companies Act 2006. The current portfolio of the Company is such
that its shares are eligible for inclusion in Individual Savings
Accounts ('ISAs') up to the maximum annual subscription limit and
the Directors expect this eligibility to be maintained.
The Group financial statements consolidate the audited annual
report and financial statements of the Company and SDVP for the
year ended 30 April 2023. The Company owns 100% of the issued
ordinary share capital and voting rights of SDVP, which was
incorporated on 25 October 2017.
Further information on the capital structure of the Company and
SDVP can be found on pages 77 to 78 of the Annual Report.
Alternative Investment Fund Manager ('AIFM')
The Board is compliant with the directive and the Company is
registered as a Small Registered AIFM with
the FCA and all required returns have been completed and
filed.
Employees, environmental, human rights and community issues
The Board recognises the requirement under Section 414C of the
Companies Act to detail information about employees, environmental,
human rights and community issues, including information about any
policies it has in relation to these matters and the effectiveness
of these policies. These requirements and the requirements of the
Modern Slavery Act 2015 do not directly apply to the Company as it
has no employees and no physical assets, all the Directors are
non-executive and it has outsourced all its management and
administrative functions to third-party service providers. The
Company has therefore not reported further in respect of these
provisions. However, in carrying out its activities and in
relationships with service providers, the Company aims to conduct
itself responsibly, ethically and fairly at all times.
Environmental, Social, Governance ('ESG')
The Investment Manager is committed to delivering the long-term
investment objectives of the Company. This long-term lens involves
careful consideration of systemic issues that can present investing
opportunities and challenges for investors, such as those relating
to climate change and more sustainable business practice.
Responsible investing and active stewardship lie at the heart of
the investing approach and the Investment Manager is signatory to
the United-Nations backed Principles of Responsible Investing
('PRI') and the revised UK Stewardship Code 2020.
As signatory to these best-practice principles the Investment
Manager systematically incorporates relevant ESG issues within
their investment analysis and decision making and adhere to
policies and processes designed to ensure the responsible
allocation, management, and oversight of capital with the aim of
protecting and enhancing value for investors, leading to benefits
for the economy, the environment and society.
The Responsible Investing policies, plans, and risk controls
that guide the Investment Manager's investing activities are
detailed in a Responsible Investing Policies Pack, available to
view on the Chelverton website alongside an annual UK Stewardship
Code Report and quarterly Engagement and Voting reports.
The Responsible Investing Pack includes:
-- An ESG Policy detailing how E, S, and G issues are
incorporated within the investment process and how ESGrisk is
monitored and controlled.
-- A Shareholder Engagement and Voting Policy detailing the
principles that guide the Investment Manager'sengagement and voting
behaviour.
-- An annual Engagement Plan, designed to ensure ESG issues are
appropriately incorporated within companyengagements and detailing
how the Investment manager engages to support. improvements in
company ESG management andreporting and the control of systemic
risk.
The internal roles, governance structures, and resources that
support the responsible investing and active stewardship activities
of the Investment Manager include:
-- A Head of Responsible Investing who leads an ESG Team that
work alongside the Investment Managersupporting E, S, and G
analysis and engagement and voting activities.
-- A regular cycle of ESG meetings that input to Board oversight
of ESG risk.
-- Proprietary ESG data collection and third-party ESG data
services
ESG in a UK Small and Mid-cap Context
Small and medium-sized companies are neither immune from the
impact of systemic risk, nor without a significant role to play in
the delivery of required change. However, small and mid-sized
companies are typically poorly researched by external ESG ratings
agencies and assessments show a recognised large-cap bias.
Consequently, the Investment Manager does not rely on external ESG
ratings, considering these for contextual purposes only. The
Investment Manager prefers in-house analysis supported by
proprietary ESG data collection, considering this more appropriate
for the small and mid-cap universe.
Corporate Governance Issues
The Investment Manager pays particular attention to corporate
governance, believing purpose driven companies, demonstrating
strong and effective governance and a healthy corporate culture,
are best placed to succeed.
The Investment Manager has the support of the ESG Team in this
assessment and access to information and analysis gathered from
proprietary ESG questionnaires.
The assessment is sensitive to company size, level of maturity,
and specific circumstances of each company.
The Investment Manager is supportive of the general principles
expressed by the UK Corporate Governance Code and Quoted Companies
Alliance CQCA) Code for small and medium sized companies and
expects companies to adhere to these standards or explain why they
have not done so.
The Investment Manager considers the following, engaging to
understand individual circumstances and to influence change where
this is deemed to be of value.
-- Board Size and Composition
The Investment Manager considers the boards of small and
medium-sized companies should not become too large for cost and
efficiency reasons and that the Board should be well-balanced in
terms of executive and non-executive directors, with a majority of
non-executive directors.
Non-executive directors are scrutinised for their independence
and good historic behaviour.
The tenure of directors should ideally not exceed 10 years.
However, this is always considered within the company context.
The Investment Manager prefers non-executives to be on fewer
rather than multiple boards whilst acknowledging good
non-executives are in short supply.
The Investment Manager looks for an appropriate mixture of
abilities and knowledge on the Board and consider the experience of
an independent Chair to be particularly important.
Diversity and inclusion at board level is considered an
indicator of an inclusive company culture and important in relation
to the quality of decision-making. Whilst encouraging boards to
ensure their composition is reflective of society, the Investment
Manager accepts this can take time to achieve. However, the
Investment Manager will engage to ensure board diversity is a
consideration in the nomination process, where appropriate.
-- Remuneration
Executive remuneration proposals are reviewed annually using the
company Report and Accounts and the Investment Manager will engage
with the Chair or Chair of the Remuneration Committee where
proposals do not meet the following broad criteria:
Remuneration should encourage long-term value creation and the
alignment of management and shareholder interests, including claw
back mechanisms in the event of misconduct.
Basic pay awards above inflation should be justified by
performance. Performance thresholds should be challenging and
linked to clear targets.
The Investment Manager favours the inclusion of material ESG
management targets alongside financial targets and that awards
should be sensitive to the constraints on awards to the wider
workforce during periods of difficult trading.
Long term incentive schemes should be simple and share-based
with minimum holding periods, and the manager favours the inclusion
of total shareholder return metrics in long term incentive
schemes.
Shareholder dilution resulting from the issuance of options or
new shares in remuneration packages should not be excessive.
One-off recruitment awards to secure the right candidate should
not become part of ongoing remuneration.
Executive pension contributions should progressively align with
the pension contributions of the wider workforce.
Capital Allocation, Dividend Policy and Capital Structure
Capital allocation, dividend policy and capital structure are
regularly and openly discussed at company engagement meetings,
allowing a two-way dialogue.
The Investment Manager seeks to invest in companies that
recognise their responsibilities to existing shareholders and
expect to be consulted regarding any changes in capital allocation
or dividend policy.
The Investment Manager is not opposed to the retention of
cashflow within a business to fund opportunities at attractive
rates of return but favour excess cashflow to be paid out in line
with a clear policy.
Dividend policies should be appropriate for the current and
future cash flows of the business, while recognising the need to
deliver returns to shareholders.
Where dividend policies are expressed as a payout ratio, the
Investment Manager typically favours a target range rather than an
explicit ratio. If there is excess capital to distribute, the
preferred method is a gradual increase in the ordinary dividend.
The Investment Manager is not opposed to special dividends or share
buy-backs in line with policy, but expects any shares bought back
to be cancelled.
The Investment Manager does not favour unnecessary equity
issuance, or the dilution of existing shareholder returns through
aggrandising corporate activity. However, all proposals for new
equity are considered on a case-by -case basis.
Environmental Issues
The Investment Manager considers each company's approach to the
identification, management and reporting of material environmental
issues, asking targeted questions via ESG questionnaire and relying
on the support of the ESG Team for additional insight where
appropriate.
A review of company policies, standards, and commitments in
relation to environmental responsibilities is undertaken.
In addition, the Investment Manager writes annually to committed
holdings outlining expectations regarding issues considered so
pervasive that they have become the responsibility of all system
participants to manage regardless of materiality.
Climate
The Investment Manager accepts that limiting global warming to
1.5 degrees above pre-industrials, in line with the Paris Agreement
and national commitments to net zero, is a central consideration
for a responsible investor.
The Investment Manager is committed to using shareholder
influence to ensure all investee companies are working towards the
adoption of a Net Zero strategy.
Biodiversity
The Investment Manager is mindful of the depletion in the
natural capital upon which we all depend and the urgency to reverse
biodiversity loss and is committed to engaging with investee
companies to ensure focus on natural resource efficiency, the
control of negative impacts, and the adoption of policies and
practices that can support nature restoration.
Social Issues
The Investment Manager considers each company's approach to the
identification, management and reporting of material social issues,
asking targeted questions via ESG questionnaire and relying on the
support of the ESG Team for additional insight where
appropriate.
A review of company policies, standards, and commitments in
relation to social issues is undertaken.
In addition, the Investment Manager writes annually to committed
holdings outlining expectations regarding issues considered so
pervasive that they have become the responsibility of all system
participants to manage regardless of materiality.
Human Rights
The Investment Manager follows a process to understand each
company's focus on the effective management of human rights issues,
including within supply chains. Questions are asked via an ESG
questionnaire and a review company policies, standards, and
commitments in relation to human rights is undertaken with the
support of the ESG Team.
Human Capital
Competition for talent across all sectors of the economy has
rarely been so fierce and the employment expectations and training
and support needs of the workforce have rapidly evolved in recent
years. Therefore, the Investment Manager considers company focus on
recruitment, employee satisfaction, and retention to be central to
ingredients of company success.
Questions are asked via the ESG questionnaire and a review of
company policies, standards, and commitments in relation to human
capital management is undertaken with the support of the ESG
Team.
In addition, the Investment Manager is committed to using
shareholder influence to ensure all investee companies are focussed
on improving diversity, equity and inclusion within leadership and
the wider workforce.
Health and Safety
As a part of understanding company culture and the Company's
focus on human capital, the Investment Manager reviews company
policies, including performance statistics where relevant, relating
the occupational Health and Safety, asking questions via the ESG
questionnaire and reviewing the approach with the support of the
ESG Team where relevant.
Engagement
Engagement lies at the heart of the Investment Manager's
approach to managing ESG risk and significant
time and resources are devoted to company engagement.
The Investment Manager fosters constructive relationships with
the executive and non-executive management teams, and increasingly
with sustainability and other professionals such as investor
relations, seeking purposeful dialogue on ESG issues.
Engagement activity is reported on an annual basis in the
Investment Manager UK Stewardship Code Report and is guided by the
Chelverton Shareholder Engagement and Voting Policy.
The Investment Manager considers their skill and expertise when
engaging with companies to be value enhancing and follow a
structured approach, relying on the support of the ESG Team to
ensure the appropriate inclusion of ESG issues and progress in
relation to active engagement objectives.
The Investment Manager writes to all committed holdings on an
annual basis outlining ESG management and reporting expectations
and asking for focus on systemic issues, including climate change,
diversity equity and inclusion, ESG targets within executive
remuneration packages, and more recently natural resource usage and
nature restoration.
Collaborative engagement aims to support the needs of small and
mid-sized companies within the financial system and promote their
participation in more sustainable business practice and the
Investment Manager targets collaborative engagements that address
the market-wide and systemic risks identified through the
investment process as important.
The desired outcome of active engagement is to reduce investment
risk and enhance the prospects of investee companies through
dialogue and support. However, the Investment Manager is not a
'forever' investor and may look to sell holdings where the
investment case is considered at risk due to inadequate management
focus on material ESG risk.
Proxy Voting
The Investment Manager considers voting an important shareholder
right and seek to vote every eligible vote in line with the
principles laid out in the Chelverton Asset Management Shareholder
Engagement and Voting Policy and active engagement objectives laid
out in the annual Engagement Plan. However, in principle, having
satisfied themselves regarding the integrity of the investment
case, the Investment Manager is likely to be supportive of company
management.
The Investment Manager does not rely on the services of a
third-party proxy voting advisor, believing in-house governance
analysis by the ESG Team's Corporate Governance Manager, considered
alongside the contextual knowledge of the Investment Manager, is
more pertinent for small and mid-sized companies.
Voting behaviour, including the rationale for any vote that is
not supportive of a management resolution, is reported on a
quarterly basis on the Chelverton website and summarised annually
in the UK Stewardship Code Report.
Data Science and Third-party Data Resources
The Chelverton ESG Team have built a proprietary ESG data base
using company ESG questionnaire responses supplemented by
desk-based research. The Investment Manager also maintains a shared
Corporate Engagement Log recording relevant company engagements and
progress in relation to engagement objectives.
The Investment Manager has access to several external ESG data
services that provide contextual insight in relation to ESG risk
factors, including MSCI ESG data, Bloomberg ESG Data that includes
summary ESG ratings from Sustainalytics, ISS and RobecoSam,
signatory CDP data (Carbon Disclosure Project) relating to climate,
water and deforestation, and ASR Macro ESG research.
Screening
The Investment Manager does not currently set limits or apply
exclusion or inclusion criteria in relation to sustainability
objectives, except where required by law or in relation to banned
activities under international conventions. The Investment Manager
relies on MSCI ESG data to provide data regarding involvement in
controversial business exposures or banned weaponry.
However, the Investment Manager's investment focus on quality
characteristics will tend to exclude companies assessed as managing
ESG risks badly and/or without a credible strategy. For example, if
a company operating in a high ESG risk sector is identified as
managing ESG risk poorly, the company will tend to be excluded from
consideration by our selection criteria, as paid out in the
Investment Manager's ESG Policy.
Global greenhouse gas emissions
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other
emission-producing sources under the Companies Act 2006 (Strategic
Report and Directors' Report) Regulations 2013.
Streamlined energy and carbon reporting
The Company is categorised as a lower energy user under the HMRC
Environmental Reporting Guidelines March 2019 and is therefore not
required to make the detailed disclosures of energy and carbon
information set out within the guidelines. The Company has
therefore not reported further in respect of these guidelines.
Culture and values
The Company's values are to act responsibly, ethically and
fairly at all times. The Company's culture is driven by its values
and is focused on providing Ordinary shareholders with a high
income and opportunity for capital growth, as set out on page 11 of
the Annual Report. As the Company has no employees, its culture is
represented by the values, conduct and performance of the Board,
the Investment Manager and its key service providers, all of whom
work collaboratively to support delivery of the Company's
strategy.
Current and future developments
A review of the main features of the year and the outlook for
the Company is contained in the Chairman's
Statement on pages 2 to 4 of the Annual Report and the
Investment Manager's Report on pages 5 and 6 of the Annual
Report.
Dividends declared/paid
30 April 2023 30 April 2022
Payment date
p p
First interim 14 October 2022 2.9425 2.75
Second interim 9 January 2023 2.9425 2.75
Third interim 14 April 2023 2.9425 2.75
Fourth interim 14 July 2023 2.9425 2.75
11.77 11.00
The Directors do not declare a final dividend.
Ten year dividend history
2023 2022 2021 2020 2019 2018 2017 2016 2015 2014
p p p p p p p p p p
1st Quarter 2.9425 2.75 2.50 2.40 2.19 2.02 1.85 1.70 1.575 1.475
2nd Quarter 2.9425 2.75 2.50 2.40 2.19 2.02 1.85 1.70 1.575 1.475
3rd Quarter 2.9425 2.75 2.50 2.40 2.19 2.02 1.85 1.70 1.575 1.475
8.8275 8.25 7.50 7.20 6.57 6.06 5.55 5.10 4.725 4.425
4th Quarter 2.9425 2.75 2.50 2.40 2.40 2.40 2.40 2.40 2.40 2.40
11.77 11.00 10.00 9.60 8.97 8.46 7.95 7.50 7.125 6.825
% increase of core dividend 7.00 7.087 4.17 7.02 6.03 6.47 6.00 5.26 4.40 3.41
Special dividend - - 0.272 - 2.50 0.66 1.86 1.60 0.30 2.75
Total dividend 11.77 11.00 10.272 9.60 11.47 9.12 9.81 9.10 7.425 9.575
Diversity and succession planning
As at 30 April 2023 the Board comprised three Directors, two
male and one female.
The Company did not meet the FCA Listing Rules target on
diversity which requires 40% of the individuals on the board to be
women and for at least one senior board position to be held by a
woman. Furthermore, one director should come from an ethnic
minority background. As at 30 April 2023, the Company did not meet
this gender diversity requirement as only one out of three
directors (33%) is female. The Board also does not have a director
from an ethnic minority background. The Board recognises the need
to consider the benefits of diversity when considering new
appointments to the Board. All appointments are made on the basis
of merit against objective criteria; however, the Board seeks to
consider a wide range of candidates with due regard to diversity,
spanning gender, ethnicity, background and experience. As all
appointments are based on merit, and in view of the small size of
the Board, the Board does not consider it appropriate to set
diversity targets. The Board will continue to consider succession
planning on an annual basis.
The Strategic Report is signed on behalf of the Board by
Howard Myles
Chairman
29 June 2023
Statement of Directors' Responsibilities
in respect of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements. Company law requires the Directors to
prepare financial statements for each financial year. Under that
law the Directors have elected to prepare financial statements in
accordance with UK adopted international accounting standards and
with the requirements of the Companies Act 2006 as applicable to
companies reporting under international accounting standards.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they present fairly the
financial position, financial performance and cash flows of the
Group and the Company for that period.
In preparing each of the Group and the Company's financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state that the Group and the Company have complied with UK
adopted international accounting standardssubject to any material
departures disclosed and explained in the financial statements;
-- present information, including accounting policies, in a
manner that provides relevant, reliable,comparable and
understandable information;
-- provide additional disclosures when compliance with specific
requirements in UK adopted internationalaccounting standards is
insufficient to enable users to understand the impact of particular
transactions, otherevents and conditions on the Group and the
Company's financial position and financial performance; and
-- make an assessment of the Group's ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
Group's financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors' Report,
Directors' Remuneration Report and Statement on Corporate
Governance that comply with that law and those regulations, and for
ensuring that the Annual Report includes information required by
the Listing Rules of the FCA.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information relating to the Company
on the Investment Manager's website. Legislation in the UK
governing the preparation and dissemination of financial statements
differs from legislation in other jurisdictions.
The Directors confirm that, to the best of their knowledge and
belief:
-- the financial statements, prepared in accordance with the
relevant financial framework, give a true andfair view of the
assets, liabilities, financial position and profit of the
Group;
-- the Annual Report includes a fair review of the development
and performance of the Group and the positionof the Group, together
with a description of the principal risks and uncertainties
faced;
-- the Annual Report is fair, balanced and understandable and
provides the information necessary forshareholders to assess the
Company's performance, business model and strategy; and
-- the Investment Managers' Report includes a fair review of the
development and performance of the businessand the Group and its
undertakings included in the consolidation taken as a whole and
adequately describes theprincipal risks and uncertainties they
face.
On behalf of the Board of Directors
Howard Myles
Chairman
29 June 2023
Consolidated Statement of Comprehensive Income
for the year ended 30 April 2023
2023 2022
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments at fair value through profit or loss 10 - (5,543) (5,543) - (4,610) (4,610)
Investment income 2 3,202 - 3,202 2,576 - 2,576
Investment management fee 3 (133) (400) (533) (158) (473) (631)
Other expenses 4 (333) (14) (347) (302) (12) (314)
Net deficit before finance costs and taxation 2,736 (5,957) (3,221) 2,116 (5,095) (2,979)
Finance costs 6 - (680) (680) - (654) (654)
Net deficit before taxation 2,736 (6,637) (3,901) 2,116 (5,749) (3,633)
Taxation 7 (32) - (32) (32) - (32)
Total comprehensive expense for the year 2,704 (6,637) (3,933) 2,084 (5,749) (3,665)
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Net return per:
Ordinary share 8 12.94 (31.77) (18.83) 10.00 (27.57) (17.57)
Zero Dividend Preference share 2025 8 - 4.69 4.69 - 4.51 4.51
The total column of this statement is the Statement of
Comprehensive Income of the Group prepared in accordance with UK
adopted IFRS and with the requirements of the Companies Act 2006.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year. All of the net return for the period and the total
comprehensive income for the period is attributable to the
shareholders of the Group. The supplementary revenue and capital
return columns are presented for information purposes as
recommended by the Statement of Recommended Practice issued by the
AIC.
The accompanying notes form part of these financial
statements.
Consolidated and Parent Company Statement of Changes in Net
Equity
for the year ended 30 April 2023
Share Capital
Revenue
Share capital premium redemption Capital reserve reserve Total
account reserve
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30 April 2023
30 April 2022 5,213 17,517 5,004 11,201 2,447 41,382
Total comprehensive expense for the year - - - (6,637) 2,704 (3,933)
Ordinary shares issued 75 466 - - - 541
Expenses of Ordinary share issue - (3) - - - (3)
Dividends paid 9 - - - - (2,424) (2,424)
30 April 2023 5,288 17,980 5,004 4,564 2,727 35,563
Year ended 30 April 2022
30 April 2021 5,213 17,517 5,004 16,950 2,661 47,345
Total comprehensive expense for the year - - - (5,749) 2,084 (3,665)
Dividends paid 9 - - - - (2,298) (2,298)
30 April 2022 5,213 17,517 5,004 11,201 2,447 41,382
The accompanying notes form part of these financial
statements.
Consolidated and Parent Company Balance Sheets
as at 30 April 2023
Group Group Company Company
Note 2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Investments at fair value through profit or loss 10 52,825 57,751 52,825 57,751
Investments in Subsidiary 12 - - 13 13
52,825 57,751 52,838 57,764
Current assets
Trade and other receivables 13 469 520 469 520
Cash and cash equivalents 380 534 380 534
849 1,054 849 1,054
Total assets 53,674 58,805 53,687 58,818
Current liabilities
Trade and other payables 14 (245) (237) (258) (250)
(245) (237) (258) (250)
Total assets less current liabilities 53,429 58,568 53,429 58,568
Non-current liabilities
Zero Dividend Preference shares 15 (17,866) (17,186) - -
Loan from Subsidiary 16 - - (17,866) (17,186)
(17,866) (17,186) (17,866) (17,186)
Total liabilities (18,111) (17,423) (18,124) (17,436)
Net assets 35,563 41,382 35,563 41,382
Represented by:
Share capital 17 5,288 5,213 5,288 5,213
Share premium account 18 17,980 17,517 17,980 17,517
Capital redemption reserve 18 5,004 5,004 5,004 5,004
Capital reserve 18 4,564 11,201 4,564 11,201
Revenue reserve 2,727 2,447 2,727 2,447
Equity shareholders' funds 35,563 41,382 35,563 41,382
The accompanying notes form part of these financial
statements.
These financial statements were approved by the Board of
Chelverton UK Dividend Trust PLC and authorised for issue on 29
June 2023.
Howard Myles Chairman
Company Registered Number: 03749536
Consolidated and Parent Company Statement of Cash Flows
for the year ended 30 April 2023
2023 2022
Note
GBP'000 GBP'000
Operating activities
Investment income received 3,170 2,370
Investment management fee paid (546) (643)
Administration and secretarial fees paid (64) (67)
Other cash payments (273) (236)
Cash generated from operations 19 2,287 1,424
Purchases of investments (12,624) (8,795)
Sales of investments 12,069 9,715
Net cash (outflow)/inflow from operating activities (555) 2,344
Financing activities
Issue of Ordinary shares 541 -
Expenses of Ordinary share issue (3) -
Dividends paid 9 (2,424) (2,298)
Net cash outflow from financing activities (1,886) (2,298)
Change in cash and cash equivalents 20 (154) 46
Cash and cash equivalents at start of year 20 534 488
Cash and cash equivalents at end of year 20 380 534
The accompanying notes form part of these financial
statements.
Notes to the Financial Statements
as at 30 April 2023
1 ACCOUNTING POLICIES
Chelverton UK Dividend Trust PLC is a public company, limited by
shares, domiciled and registered in the UK. The consolidated
financial statements for the year ended 30 April 2023 comprise the
financial statements of the Company and its subsidiary SDV 2025 ZDP
PLC.
Basis of preparation
The consolidated financial statements of the Group and the
financial statements of the Company have been prepared in
accordance with UK adopted International Financial Reporting
Standards ('UK adopted IFRS') and with the Companies Act 2006 as
applicable to companies reporting under international accounting
standards, and reflect the following policies which have been
adopted and applied consistently.
New standards, interpretations and amendments adopted by the
Group
There are no amendments to standards effective this year, being
relevant and applicable to the Group.
Critical accounting judgements and uses of estimation
The preparation of financial statements in conformity with UK
adopted IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and the amounts
reported in the Balance Sheet and the Statement of Comprehensive
Income. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
period if the revision affects both current and future periods.
There were no significant accounting estimates or significant
judgements in the current period.
Basis of consolidation
The Group financial statements consolidate (under IFRS10), the
financial statements of the Company and its wholly-owned subsidiary
undertaking, SDVP, drawn up to the same accounting date. The
disclosure basis of recognition is at cost.
The Subsidiary is consolidated from the date of its
incorporation, being the date on which the Company obtained
control, and will continue to be consolidated until the date that
such control ceases. Control comprises the power to govern the
financial and operating policies of the investee so as to obtain
benefit from its activities and is achieved through direct or
indirect ownership of voting rights. The financial statements of
the Subsidiary are prepared for the same reporting year as the
Company, using consistent accounting policies. All inter-company
balances and transactions, including unrealised profits arising
from them, are eliminated.
As permitted by Section 408 of the Companies Act 2006, the
Company has not presented its own Statement of Comprehensive
Income. The amount of the Company's return for the financial period
dealt with in the financial statements of the Group is a loss of
GBP3,933,000 (2022: loss of GBP3,665,000).
Convention
The financial statements are presented in Sterling rounded to
the nearest thousand. The financial statements have been prepared
on a going concern basis under the historical cost convention,
except for the measurement at fair value of investments classified
as fair value through profit or loss. Where presentational guidance
set out in the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' ('SORP'), issued by the Association of Investment Companies
(dated June 2022) is consistent with the requirements of UK adopted
IFRS, the Directors have sought to prepare the financial statements
on a consistent basis compliant with the recommendations of the
SORP.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being
investment business. The Group only invests in companies listed
in the UK.
Investments
All investments held by the Group are recorded at '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 unrealised gains and losses on investments and
impairment of investments recognised in the Consolidated Statement
of Comprehensive Income and allocated to capital. Realised gains
and losses on investments sold are calculated as the difference
between sales proceeds and cost.
For investments actively traded in organised financial markets,
fair value is generally determined by reference to quoted market
bid prices at the close of business on the Balance Sheet date,
without adjustment for transaction costs necessary to realise the
asset.
Trade date accounting
All 'regular way' purchases and sales of financial assets are
recognised on the 'trade date', i.e. the day that the Group commits
to purchase or sell the asset. Regular way purchases, or sales, are
purchases or sales of financial assets that require delivery of the
asset within a time frame generally established by regulation or
convention in the market place.
Income
Dividends receivable on quoted equity shares are taken into
account on the ex-dividend date. Where no ex-dividend date is
quoted, they are brought into account when the Group's right to
receive payment is established. Other investment income and
interest receivable are included in the financial statements on an
accruals basis. Overseas dividends received from UK Companies are
stated gross of any withholding tax.
Expenses
All expenses are accounted for on an accruals basis. All
expenses are charged through the revenue
account in the Consolidated Statement of Comprehensive Income
except as follows:
-- expenses which are incidental to the acquisition of an
investment are included within the costs of theinvestment;
-- expenses which are incidental to the disposal of an
investment are deducted from the disposal proceeds ofthe
investment;
-- expenses are charged to capital reserve where a connection
with the maintenance or enhancement of thevalue of the investments
can be demonstrated; and
-- operating expenses of the Subsidiary are borne by the Company
and taken 100% to capital.
All other expenses are allocated to revenue with the exception
of 75% (2022: 75%) of the Investment Manager's fee which is
allocated to capital. This is in line with the Board's expected
long-term split of returns from the investment portfolio, in the
form of capital and income gains respectively.
Cash and cash equivalents
Cash in hand and in banks including where held by custodians and
short-term deposits which are held to maturity are carried at cost.
Cash and cash equivalents are defined as cash in hand, demand
deposits and short-term, highly liquid investments readily
convertible to known amounts of cash and subject to insignificant
risk of changes in value.
Loans and borrowings
All loans and borrowings are initially recognised at cost, being
the fair value of the consideration received, less issue costs,
where applicable. After initial recognition, all interest-bearing
loans and borrowings are subsequently measured at amortised cost.
Any difference between cost and redemption value is recognised in
the Consolidated Statement of Comprehensive Income over the period
of the borrowings on an effective interest basis.
Zero Dividend Preference shares
Shares issued by the Subsidiary are treated as a liability of
the Group, and are shown in the Balance Sheet at their redemption
value at the Balance Sheet date. The appropriations in respect of
the Zero Dividend Preference shares necessary to increase the
Subsidiary's liabilities to the redemption values are allocated to
capital in the Consolidated Statement of Comprehensive Income. This
treatment reflects the Board's long-term expectations that the
entitlements of the Zero Dividend Preference shareholders will be
satisfied out of gains arising on investments held primarily for
capital growth.
Share issue costs
Costs incurred directly in relation to the issue of shares in
the Subsidiary are borne by the Company and taken 100% to capital.
Share issue costs relating to Ordinary share issues by the Company
are taken 100% to the share premium account in respect of premiums
on issue of such shares. Where there is no premium on issue, costs
are taken directly to equity against revenue reserves.
Capital reserve
Capital reserve (other) includes:
-- gains and losses on the disposal of investments;
-- exchange differences of a capital nature; and
-- expenses, together with the related taxation effect,
allocated to this reserve in accordance with theabove policies.
Capital reserve (investment holding gains) includes increase and
decrease in the valuation of investments held at the year end. This
reserve is distributable to the extent that gains have been
realised.
Revenue reserve
This reserve includes net revenue recognised in the revenue
column of the Statement of Comprehensive
Income. This reserve is distributable.
Capital redemption reserve
This reserve represents the cancellation of the C shares when
they were converted into Ordinary shares
and deferred shares. This reserve is not distributable.
Taxation
There is no charge to UK income tax as the Group's allowable
expenses exceed its taxable income. 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.
Dividends payable to shareholders
Dividends to shareholders are recognised as a liability in the
period in which they are paid or approved in general meetings and
are taken to the Statement of Changes in Net Equity. Dividends
declared and approved by the Group after the Balance Sheet date
have not been recognised as a liability of the Group at the Balance
Sheet date.
2 INCOME
2023 2022
GBP'000 GBP'000
Income from listed investments
2,179
UK dividend income 2,651 2,179
Overseas dividend income 437 290
Property income distributions 114 107
Total income 3,202 2,576
Total income is comprised entirely of dividends.
3 INVESTMENT MANAGEMENT FEE
2023
Revenue Total Revenue 2022 Capital Total
Capital
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 133 400 533 158 473 631
At 30 April 2023 there were amounts outstanding of GBP61,000
(2022: GBP73,000).
4 OTHER EXPENSES
2023 2022
GBP'000 GBP'000
Administration and secretarial fees 64 66
Directors' remuneration (note 5) 89 58
Auditor's remuneration:
audit services* 25 23
Insurance 4 3
Other expenses* 165 164
347 314
Subsidiary operating costs (14) (12)
333 280
* The above amounts include irrecoverable VAT where
applicable.
5 DIRECTORS' REMUNERATION
2023 2022
GBP GBP
Directors' fees 84,942 57,500
Social security costs 4,213 275
89,156 57,775
Remuneration to Directors
Lord Lamont* 10,692 20,000
H Myles 28,276 20,000
A Watkins 23,974 17,500
D Hadgill 22,000 -
84,942 57,500
* Retired 8 September 2022.
6 FINANCE COSTS
2023
Total Revenue 2022 Capital Total
Revenue Capital
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Appropriations in respect of
- 680 680 - 654 654
Zero Dividend Preference shares
- 680 680 - 654 654
7 TAXATION
2023 2022
GBP'000 GBP'000
Based on the revenue return for the year
Overseas tax 32 32
32 32
The current tax charge for the year is lower than the standard
rate of corporation tax in the UK of 19.5% to 30 April 2023 and 19%
to 30 April 2022. The differences are explained below:
Total Revenue Total
2023 2022
Capital Capital
Revenue
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Return on ordinary activities before taxation (6,637) (3,901) 2,116 (5,749) (3,633)
2,736
Theoretical corporation tax at 19.5% (2022: 19%) 534 (1,294) (760) 402 (1,092) (690)
Effects of:
Capital items not taxable - 1,213 1,213 - 1,000 1,000
UK and overseas dividends which are not liable to UK corporation
tax - (602) (469) - (469)
(602)
Excess expenses in the year 68 81 149 67 92 159
Overseas tax 32 - 32 32 - 32
Actual current tax charged to the revenue account - 32 32 - 32
32
The Group has unrelieved excess expenses of GBP24,871,884 (2022:
GBP24,105,280). It is unlikely that the Group will generate
sufficient taxable profits in the future to utilise these expenses
and therefore no deferred tax asset has been recognised.
Changes in tax rates
The main rate of corporation tax in the United Kingdom has
increased from 19% to 25% from 1 April 2023. The theoretical
corporation tax rate for the year ended is therefore 19.5% as
disclosed above.
8 RETURN PER SHARE
Ordinary shares
Revenue return per Ordinary share is based on revenue on
ordinary activities after taxation of GBP2,704,000 (2022:
GBP2,084,000) and on 20,889,726 (2022: 20,850,000) Ordinary shares,
being the weighted average number of Ordinary shares in issue
during the year.
Capital return per Ordinary share is based on the capital loss
of GBP6,637,000 (2022: loss of GBP5,749,000) and on 20,889,726
(2022: 20,850,000) Ordinary shares, being the weighted average
number of Ordinary shares in issue during the year.
Zero Dividend Preference shares
Capital return per Zero Dividend Preference share 2025 is based
on allocations from the Company of GBP680,000 (2022: GBP654,000)
and on 14,500,000 (2022: 14,500,000) Zero Dividend Preference
shares 2025, being the weighted average number of Zero Dividend
Preference shares in issue during the year.
9 DIVIDS
2023 2022
GBP'000 GBP'000
Declared and paid per Ordinary share Fourth interim dividend for the year ended 30 April 2022 of 2.75p 574 521
(2021: 2.50p)
Special dividend for the year ended - 57
30 April 2022 of nil (2021: 0.272p)
First interim dividend of 2.9425p (2022: 2.75p) 614 573
Second interim dividend of 2.9425p (2022: 2.75p) 614 573
Third interim dividend of 2.9425p (2022: 2.75p) 622 574
2,424 2,298
Declared per Ordinary share*
Fourth interim dividend for the year ended 623 574
30 April 2023 of 2.9425p (2022: 2.75p)
All dividends are paid from Revenue Reserve.
* Dividend paid subsequent to the year end.
10 INVESTMENTS - Group and Company
Listed AIM 2023
Total
GBP'000 GBP'000
GBP'000
Year ended 30 April 2023
Opening book cost 35,194 27,518 62,712
Opening investment holding (losses)/gains (5,359) 398 (4,961)
Opening valuation 29,835 27,916 57,751
Movements in the year:
Purchases at cost 6,562 6,078 12,640
Disposals:
Proceeds (7,633) (4,390) (12,023)
Net realised gains on disposals 1,443 1,063 2,506
Increase in investment holding losses (2,047) (6,002) (8,049)
Closing valuation 28,160 24,665 52,825
Closing book cost 35,566 30,269 65,835
Closing investment holding losses (7,406) (5,604) (13,010)
28,160 24,665 52,825
Realised gains on disposals 1,443 1,063 2,506
Increase in investment holding losses (2,047) (6,002) (8,049)
Losses on investments (604) (4,939) (5,543)
Listed AIM 2022
Total
GBP'000 GBP'000
GBP'000
Year ended 30 April 2022
Opening book cost 37,344 27,884 65,228
Opening investment holding (losses)/gains (3,571) 1,111 (2,460)
Opening valuation 33,773 28,995 62,768
Movements in the year:
Purchases at cost 3,975 4,924 8,899
Disposals:
Proceeds (5,285) (4,021) (9,306)
Net realised losses on disposals (840) (1,269) (2,109)
Increase in investment holding losses (1,788) (713) (2,501)
Closing valuation 29,835 27,916 57,751
Closing book cost 35,194 27,518 62,712
Closing investment holding (losses)/gains (5,359) 398 (4,961)
29,835 27,916 57,751
Realised losses on disposals (840) (1,269) (2,109)
Increase in investment holding losses (1,788) (713) (2,501)
Losses on investments (2,628) (1,982) (4,610)
Transaction costs
During the year the Group incurred transaction costs of
GBP33,000 (2022: GBP20,000) and GBP11,000 (2022: GBP12,000) on
purchases and sales of investments respectively. These amounts are
included in gains on investments, as disclosed in the Consolidated
Statement of Comprehensive Income.
11 SIGNIFICANT INTERESTS
The Company has provided notifications of holdings of 3% or more
in relevant issuers. The following issuer notifications remain
effective as at 30 April 2023:
Name of issuer Class of share % held
Chamberlin plc Ordinary 10.00
Coral Products plc Ordinary 7.75
One Health Group plc Ordinary 7.15
Orchard Funding Group plc Ordinary 5.85
RTC Group plc Ordinary 3.87
Vector Capital plc Ordinary 3.49
12 INVESTMENT IN SUBSIDIARY
Company Company
2023 2022
GBP'000 GBP'000
Cost as at 1 May and 30 April 13 13
The Company owns the whole of the issued ordinary share capital
of SDVP, especially formed for the issuing of Zero Dividend
Preference shares, which is incorporated and registered in England
and Wales, under company number: 11031268.
13 TRADE AND OTHER RECEIVABLES
Group Group Company Company
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
Amounts due from brokers - 46 - 46
Dividends receivable 464 464 464 464
Prepayments and accrued income 5 10 5 10
469 520 469 520
14 TRADE AND OTHER PAYABLES
Group Group Company Company
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
Amounts due to brokers 120 104 120 104
Trade and other payables 125 133 125 133
Loan from subsidiary undertaking - - 13 13
245 237 258 250
15 ZERO DIVID PREFERENCE SHARES
On 8 January 2018, SDVP issued 10,977,747 Zero Dividend
Preference shares at 100p per share from the conversion of Zero
Dividend Preference shares of SCZ, the 2018 ZDP subsidiary. On 8
January 2018, 1,802,336 Zero Dividend Preference shares were also
issued at 100p per share by a placing with net proceeds of GBP1.8
million. The expenses of the placing were borne by the Company and
the Investment Manager. On 11 April 2018, SDVP issued a further
1,419,917 Zero Dividend Preference shares at 103p per share (a
premium of 3p per share), and net proceeds of GBP1.5 million. On
the 10 May 2018 and 15 May 2018, SDVP issued a further 100,000 and
200,000 Zero Dividend Preference shares at 104p per share (a
premium of 4p per share), and net proceeds of GBP313,000. The Zero
Dividend Preference shares each have an initial capital entitlement
of 100p per share, growing by an annual rate of 4% compounded daily
to 133.18p on 30 April 2025, a total of GBP19,311,000. The accrued
entitlement as per the Articles of Association of SDVP at 30 April
2023 was 123.22p (2022: 118.52p) per share, being GBP17,186,000 in
total, and the total amount accrued for the year of GBP680,000
(2022: GBP654,000) has been charged as a finance cost to
capital.
16 SECURED LOAN
Pursuant to a loan agreement between SDVP and the Company, SDVP
has lent the gross proceeds of the following Zero Dividend
Preference transactions to the Company:
-- Gross proceeds of GBP10,978,000 raised from the conversion of
10,977,747 Zero Dividend Preference shares at100p on 8 January
2018
-- Gross proceeds of GBP10,978,000 raised from the placing of
1,802,336 Zero Dividend Preference share at 100pon 8 January
2018
-- Gross proceeds of GBP1,463,000 raised from the placing of
1,419,917 Zero Dividend Preference shares at apremium of 103p on 11
April 2018
-- Gross proceeds of GBP313,000 raised from the placings of
300,000 Zero Dividend Preference shares at apremium of 104p on the
10 and 15 May 2018
The loan is non-interest bearing and is repayable three business
days before the Zero Dividend Preference share redemption date of
30 April 2025 or, if required by SDVP, at any time prior to that
date in order to repay the Zero Dividend Preference share
entitlement. The funds are to be managed in accordance with the
investment policy of the Company.
The loan is secured by way of a floating charge on the Company's
assets under a loan agreement entered into between the Company and
SDVP dated 27 November 2017.
A contribution agreement between the Company and SDVP has also
been made whereby the Company will undertake to contribute such
funds as would ensure that SDVP will have in aggregate sufficient
assets on 30 April 2025 to satisfy the final capital entitlement of
the Zero Dividend Preference shares. The contribution accrued by
the Company to cover the entitlement for the year was GBP680,000
(2021: GBP654,000).
2023 2022
GBP'000 GBP'000
Value at 1 May 17,186 16,532
Contribution to accrued capital entitlement of Zero Dividend Preference shares 2025 680 654
17,866 17,186
17 SHARE CAPITAL
2023 2022
Number GBP'000 Number GBP'000
Issued, allotted and fully paid:
Ordinary shares of 25p each
Opening balance 20,850,000 5,213 20,850,000 5,213
Issue of Ordinary shares 300,000 75 - -
21,150,000 5,288 20,850,000 5,213
During the year, the Company announced the following issuances
of new Ordinary Shares of 25p each:
Date Shares Price GBP'000
08/02/2023 50,000 1.90 13
07/03/2023 50,000 1.85 13
15/03/2023 50,000 1.80 13
23/03/2023 50,000 1.76 12
24/03/2023 50,000 1.75 12
27/03/2023 50,000 1.75 12
300.000 75
The rights attaching to the Ordinary shares are:
As to dividends each year
Ordinary shares are entitled to all the revenue profits of the
Company available for distribution, including
all undistributed income.
As to capital on winding up
On a winding up, holders of Zero Dividend Preference shares
issued by SDVP are entitled to a payment of an amount equal to 100p
per share, increased daily from 8 January 2018 at such a compound
rate, equivalent to 4%, as will give a final entitlement to 133.18p
for each Zero Dividend Preference share at 30 April 2025,
GBP19,311,000 in total.
The holders of Ordinary shares will receive all the remaining
Group assets available for distribution to shareholders after
payment of all debts and satisfaction of all liabilities of the
Company rateably according to the amounts paid or credited as paid
up on the Ordinary shares held by them respectively.
Voting
Each holder of Ordinary shares on a show of hands will have one
vote and, on a poll, will have one vote for each Ordinary share
held. Each holder of Zero Dividend Preference shares on a show of
hands will have one vote at meetings where Zero Dividend Preference
shareholders are entitled to vote and, on a poll, will have one
vote for every Zero Dividend Preference share held.
Duration
Under the Parent Company's Articles of Association, the
Directors are required to convene a General Meeting of the Company
to be held in April 2025 so as to align the vote with any timetable
for a further issue of Zero Dividend Preference shares or to save
costs by proposing the Continuation Resolution (as defined below)
at the Annual General Meeting or some other General Meeting of the
Company ('the First GM'), at which an Ordinary Resolution will be
proposed to the effect that the Company continues in existence
('the Continuation Resolution'). In the event that such Resolution
is not passed, the Directors shall, subject to the Statutes, put
forward further proposals to shareholders regarding the future of
the Company (which may include voluntary liquidation, unitisation
or other reorganisation of the Company) ('the Restructuring
Resolution') at a General Meeting of the Company to be convened not
more than four months after the date of the First GM (or such
adjournment).
The Restructuring Resolution shall be proposed as a Special
Resolution. If the Restructuring Resolution is either not proposed
or not passed then the Directors shall convene a General Meeting
not more than four months after the date of the First GM (or such
adjournment). If the Restructuring Resolution is not proposed or
four months after the date the Restructuring Resolution is not
passed, an Ordinary Resolution pursuant to Section 84 of the
Insolvency Act 1986 to voluntarily wind up the Company shall be put
to shareholders and the votes taken on such Resolution shall be on
a poll.
18 NET ASSET VALUE PER SHARE
The net asset value per share and the net assets attributable to
the Ordinary shareholders and Zero Dividend Preference shareholders
are as follows:
Net assets Net assets
Net asset attributable to Net asset attributable to
value per share shareholders value per share shareholders
2023 2023 2022 2022
pence GBP'000 pence GBP'000
Ordinary shares 168.15 35,563 198.47 41,382
Zero Dividend Preference shares 123.21 17,866 118.52 17,186
The net asset value per Ordinary share is calculated on
21,150,000 (2022: 20,850,000) Ordinary shares, being the number of
Ordinary shares in issue at the year end.
The net asset value per Zero Dividend Preference share is
calculated on 14,500,000 (2022: 14,500,000) Zero Dividend
Preference shares, being the number of Zero Dividend Preference
shares in issue at the year end.
19 RECONCILIATION OF NET RETURN BEFORE AND AFTER TAXATION TO
CASH GENERATED FROM OPERATIONS - Group and Company
2023 2022
GBP'000 GBP'000
Net deficit before taxation (3,901) (3,633)
Taxation (32) (32)
Net deficit after taxation (3,933) (3,665)
Net capital deficit 6,637 5,749
Decrease/(increase) in receivables 5 (172)
Decrease in payables (8) (3)
Interest and expenses charged to the capital reserve (414) (485)
Net cash inflow from operating activities 2,287 1,424
20 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH - Group and Company 2023 2022
GBP'000 GBP'000
(Decrease)/increase in cash in year (154) 46
Net cash at 1 May 534 488
Net cash at 30 April 380 534
21 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES
Objectives, policies and strategies
The Group primarily invests in mid and small capitalised
companies. All of the Group's investments
comprise ordinary shares in companies listed on the Official
List and companies admitted to AIM.
The Group finances its operations through Zero Dividend
Preference shares issued by SDVP and equity. Cash, liquid resources
and short-term debtors and creditors arise from the Group's
day-to-day operations.
It is, and has been throughout the year under review, the
Group's policy that no trading in financial instruments shall be
undertaken.
Objectives, policies and strategies
In pursuing its investment objective, the Group is exposed to a
variety of risks that could result in either a reduction in the
Group's net assets or a reduction of the profits available for
distribution. These risks are market risk (comprising currency
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.
As required by IFRS 7: Financial Instruments: Disclosures, an
analysis of financial assets and liabilities, which identifies the
risk to the Group of holding such items, is given below.
Market risk
Market risk arises mainly from uncertainty about future prices
of financial instruments used in the Group's business. It
represents the potential loss the Group might suffer through
holding market positions by way of price movements and movements in
exchange rates and interest rates. The Investment Manager assesses
the exposure to market risk when making each investment decision
and these risks are monitored by the Investment Manager on a
regular basis and the Board at quarterly meetings with the
Investment Manager.
Market price risk
Market price risks (i.e. changes in market prices other than
those arising from currency risk or interest
rate risk) may affect the value of investments.
The Board manages the risks inherent in the investment
portfolios by ensuring full and timely reporting of relevant
information from the Investment Manager. Investment performance is
reviewed at each Board meeting.
The Group's exposure to changes in market prices at 30 April on
its investments is as follows:
2023 2022
GBP'000 GBP'000
Fair value through profit or loss investments 52,825 57,751
Sensitivity analysis
A 10% increase in the market value of investments at 30 April
2023 would have increased net assets by GBP5,283,000 (2022:
GBP5,775,000). An equal change in the opposite direction would have
decreased the net assets available to shareholders by an equal but
opposite amount.
Foreign currency risk
All the Group's assets are denominated in Sterling and
accordingly the only currency exposure the
Group has is through the trading activities of its investee
companies.
Interest rate risk
Interest rate movements may affect the level of income
receivable on cash deposits. The Group does
not currently receive interest on its cash deposits.
The majority of the Group's financial assets are non-interest
bearing. As a result the Group's financial assets are not subject
to significant amounts of risk due to fluctuations in the
prevailing levels of market interest rates.
Interest rate risk
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 30 April 2023 of financial assets and financial
liabilities to interest rate risk is limited to cash and cash
equivalents of GBP380,000 (2022: GBP534,000). Cash and cash
equivalents are all due within one year.
Credit risk
Credit risk is the risk of financial loss to the Group if the
contractual party to a financial instrument fails
to meet its contractual obligations.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the Balance Sheet date.
Listed investments are held by Jarvis Investment Management
Limited acting as the Company's custodian. Bankruptcy or insolvency
of the custodian may cause the Company's rights with respect to
securities held by the custodian to be delayed. The Board monitors
the Group's risk by reviewing the custodian's internal controls
reports.
Investment transactions are carried out with a number of brokers
whose creditworthiness is reviewed by the Investment Manager.
Transactions are ordinarily undertaken on a delivery versus payment
basis whereby the Company's custodian bank ensures that the
counterparty to any transaction entered into by the Group has
delivered in its obligations before any transfer of cash or
securities away from the Group is completed.
Cash is only held at banks that have been identified by the
Board as reputable and of high credit quality. The maximum exposure
to credit risk as at 30 April 2023 was GBP53,764,000 (2022:
GBP58,805,000). The calculation is based on the Group's credit risk
exposure as at 30 April 2023 and this may not be representative of
the year as a whole.
None of the Group's assets are past due or impaired.
Liquidity risk
The majority of the Group's assets are listed securities in
small companies, which can under normal conditions be sold to meet
funding commitments if necessary. They may, however, be difficult
to realise in adverse market conditions.
Please see notes 15 and 16 for details of liabilities that fall
due for payment in more than one year. All other payables are due
in less than one year.
Financial instruments by category
The financial instruments of the Group fall into the following
categories:
30 April 2023 Assets at
fair value through
At Loans and profit
cost receivables or loss Total
GBP'000 GBP'000 GBP'000 GBP'000
Assets as per Balance Sheet
Investments - - 52,825 52,825
Trade and other receivables - 469 - 469
Cash and cash equivalents 380 - - 380
Total 380 469 52,825 53,674
Liabilities as per Balance Sheet
Trade and other payables 245 - - 245
Zero Dividend Preference shares - 17,866 - 17,866
Total 245 17,866 - 18,111
At Loans and
30 April 2022 Assets at fair value through profit or loss Total
cost receivables
GBP'000 GBP'000 GBP'000 GBP'000
Assets as per Balance Sheet
Investments - - 57,751 57,751
Trade and other receivables - 520 - 520
Cash and cash equivalents 534 - - 534
Total 534 520 57,751 58,805
Liabilities as per Balance Sheet
Trade and other payables 237 - - 237
Zero Dividend Preference shares - 17,186 - 17,186
Total 237 17,186 - 17,423
IFRS 7 hierarchy
As required by IFRS 7 the Company is required to classify fair
value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The
fair value hierarchy consists of the following three levels:
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 yieldcurves observable at
commonly quoted intervals).
-- Inputs that are derived principally from, or corroborated by,
observable market data by correlation orother 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.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to 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.
IFRS 7 hierarchy
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 investments.
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 within Level 2.
Investments classified within Level 3 have significant
unobservable inputs. Level 3 instruments include private equity and
corporate debt securities. 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 or Level 3 investments (2022:
same).
22 CAPITAL MANAGEMENT POLICIES AND PROCEDURES The Group's
capital management objectives are:
-- to ensure the Group's ability to continue as a going
concern;
-- to provide an adequate return to shareholders;
-- to support the Group's stability and growth;
-- to provide capital for the purpose of further
investments.
The Group actively and regularly reviews and manages its capital
structure to ensure an optimal capital structure and to maximise
equity holder returns, taking into consideration the future capital
requirements of the Group and capital efficiency, prevailing and
projected profitability, projected operating cash flows and
projected strategic investment opportunities. The management
regards capital as total equity and reserves, for capital
management purposes. The Group currently do not have any loans and
the Directors do not intend to have any loans or borrowings.
23 CAPITAL MANAGEMENT POLICIES AND PROCEDURES
Between the year end and 28 June 2023, the latest practicable
date before the publication of these financial statements, the
Company has issued 210,000 Ordinary shares for a consideration of
GBP355,400.
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Dissemination of a Regulatory Announcement, transmitted by EQS
Group. The issuer is solely responsible for the content of this
announcement.
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ISIN: GB0006615826, GB00BZ7MQD81
Category Code: ACS
TIDM: SDVP
LEI Code: 213800DAF47EJ2HT4P78
Sequence No.: 254486
EQS News ID: 1669285
End of Announcement EQS News Service
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June 29, 2023 10:29 ET (14:29 GMT)
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