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Chelverton Growth Trust PLC

LEI: 213800I86P8BAE6UVI83

Half Yearly Report

For the six months ended 28 February 2018

The Directors announce the unaudited Half Yearly Report for the period 1 September 2017 to 28 February 2018.

Investment objective and policy

The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market ("AIM") with a market capitalisation at the time of investment of up to £50 million, which the Manager believes to be at a "point of change". The Company will invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on AIM or the investee company being sold. Its investment objective is to increase the net asset value per share at a higher rate than other quoted smaller company trusts and the MCSI Small Cap UK Index.

It is the Company's policy not to invest in any listed investment companies (including listed investment trusts).

Investment strategy

Investments are selected for the portfolio only after extensive research which the Investment Manager believes to be key. The whole process through which equity must pass in order to be included in the portfolio is very rigorous. Only a security where the Investment Manager believes that the price will be significantly higher in the future will pass the selection process. The Investment Manager believes the key to successful stock selection is to identify the long-term value of a company's shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of a company's earnings prospects over a five-year time horizon.

The Company's Investment Manager is Chelverton Asset Management Limited, an investment manager focusing exclusively on achieving returns for investors based on UK investment analysis of the highest quality. The founder and employee owners of Chelverton include experienced investment professionals with strong investment performance records who believe rigorous fundamental research allied to patience is the basis of long-term investment success.

Chairman's Report

Your Company has seen a decline in the net asset value per share for the first time in many years. In the first six months of the current year the net asset value per share fell from 85.63p to 80.82p, a decrease of 5.6%.

Over the same period, the AIM All-share index rose by 2.7% whilst the Company's comparative index, the MSCI Small Cap UK index rose by 1.1%. Over the same period the share price has increased marginally from 63p to 63.5p and the shares were therefore trading at a discount of some 21.4% at the period end.

Whilst the Brexit negotiations loom large in the UK political orbit, the reality is that there are many other areas of great concern in the World. These would include the proposed tariffs which might be introduced by the United States and any subsequent retaliatory actions by China and the European Union. The imminent curtailment and then ending of Quantitative Easing by the ECB is anticipated to cause severe problems in some European countries, particularly in Italy. The ongoing conflict in Syria and the actions of Russia around the World and of course close at home in the UK are causing great concern.

In the past six months the fund received a recommended cash offer of 13p per share for Lombard Risk Management which produced a very healthy profit. No other shares have been sold in any other companies during the period.

Part of these cash proceeds were used to re-acquire shares in Petards, taking the shareholding back to the level we had previously held. These purchases were however at much lower prices than the previous shares had been sold at. The company has just produced a very positive statement and the future prospects look good and the share price has started to recover strongly.

Touchstar raised £1m of new equity capital for its development and the fund took up its share of the issue. These funds will be used to increase and accelerate the marketing efforts of the company.

A large investment has been made in CEPS plc which, is a diversified holding company for a number of niche, cash generative businesses. The development of this business is such that once sufficient scale has been reached its growth will become self-funded and consequently equity issuance will then be limited, which with expected future profits growth should logically lead to gains in its share price.

Plutus Powergen and MTI Wireless Edge both made good progress with little change in their share prices. Holders of the fund will be aware that very often the companies that we invest in make strong advances on an operational basis and that this is only recognised in the share prices some time later.

A very modest investment of £72,000 was made via a small fundraising for Zenith Energy. This business has existing onshore oilfields in Azerbaijan and the funds will be used to enhance the output from existing wells. The recent increase in the oil price will of course produce a highly operationally geared result.

On the unquoted side Chelverton Asset Management, the manager of this fund, had a very good six months and has tendered to buy back shares from investors. The fund has tendered its holding of 2,000 shares in an oversubscribed tender at £160 per share after the period end.

An additional £100,000 was invested in Pedalling Forth to provide working capital to develop its own branded range.

The members' voluntary liquidation of Security Research took place on the sale of all but one of the subsidiary companies and 63p was received in cash. An additional small sum will be received at some point in the future.

Whilst Shareholders are aware that it is the Board's ongoing intention to return funds to Shareholders by way of annual tenders these can only be carried out in a meaningful and cost-effective manner when the fund has significant cash resources. At the present time, the Company is largely fully invested and therefore the ninth tender offer will be delayed until significant sums have been realised from one or more investments.

Looking to the second half of the year, and onwards, the economic and political agenda is going to be dominated by the daily reporting of the negotiations to leave the European Union. For investors in this fund, the state of the UK economy is in fact far more relevant. All of the "experts" believe that the UK economy will continue to grow steadily into the future and, as the European Union itself continues to exhibit signs of growth this will only go to help. The Board therefore feel that the portfolio will continue to make good progress.

In the future, the Board anticipates investing further sums in those companies in the portfolio that the Board feels are significantly undervalued.

Kevin Allen

Chairman

1 May 2018

Interim management report

The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Report. The Board considers that the principal risks and uncertainties facing the Company remain the same as those disclosed in the Annual Report for the year ended 31 August 2017 on pages 11 and 12 and pages 49 to 51. These risks include, but are not limited to, market risk, discount volatility risk, regulatory risk, financial risk and liquidity risk.

Responsibility statement

The Directors are responsible for preparing the unaudited Half Yearly Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

The condensed set of financial statements for the six months to 28 February 2018, has been prepared in accordance with FRS 104 "Interim Financial Reporting", gives a fair view of the assets, liabilities, financial position and (loss)/profit of the Company; and

this Half Yearly Report includes a fair review of the information required by;

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

rule 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so.

This Half Yearly Report was approved by the Board of Directors on 1 May 2018 and the above responsibility statement was signed on its behalf by Kevin Allen, Chairman.

Portfolio review

as at 28 February 2018

The Company's portfolio is set out below.

Portfolio holdings

Portfolio breakdown by sector and by index

Income statement (unaudited) for the six months to 28 February 2018

The total column of this statement is the profit and loss account of the Company prepared in accordance with Financial Reporting Standards ("FRS"). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated in February 2018 with consequential amendments by the Association of Investment Companies ("AIC SORP").

All revenue and capital items in the above statement derive from continuing operations.

A separate Statement of Other Comprehensive Income has not been prepared as all such gains and losses are included in the Income Statement.

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and 75% of the management fee and finance costs charged to capital.

* The return per Ordinary share is based on 5,667,890 (31 August 2017: 6,377,088; 28 February 2017: 6,377,088) shares, being the weighted average number of shares in issue during the period.

Statement of changes in equity (unaudited) 

for the six months to 28 February 2018

On 4 October 2017, the Company purchased 749,765 Ordinary shares as part of a tender offer for a total consideration of £606,000 including tender offer costs.

On 26 October 2017, the Company purchased 73,969 Ordinary shares and on 9 November 2017 a further 93,053 Ordinary shares for cancellation for a total consideration of £119,000.

Statement of financial position (unaudited)

as at 28 February 2018

Statement of cash flows (unaudited)

for the six months to 28 February 2018

1 Accounting Policies

Statement of compliance

The Company's Financial Statements for the period ended 28 February 2018 have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and the 2014 Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in February 2018 with consequential amendments ('the SORP') issued by the Association of Investment Companies.

The financial statements have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 August 2017.

Financial information

The financial information contained in this report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the period ended 28 February 2018 and 28 February 2017 have not been audited or reviewed by the Company's Auditor pursuant to the Auditing Practices Board guidance on such reviews. The information for the year to 31 August 2017 has been extracted from the latest published Annual Report and Financial Statements, which have been lodged with the Registrar of Companies, contained an unqualified auditors' report and did not contain a statement required under Section 498 (2) or (3) of the Companies Act 2006.

Going concern

The Company's assets consist mainly of equity shares in companies which, in most circumstances are realisable within a short timescale. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

2 Income

3 Taxation

The tax charge for the six months to 28 February 2018 is nil (year to 31 August 2017: nil; six months to 28 February 2017: nil).

The Company has an effective tax rate of 0% for the year ending 31 August 2018. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company's status as an Investment Trust and there is expected to be an excess of management expenses over taxable income.

4 Investments

Fair value hierarchy

In accordance with FRS 102 and FRS 104 the Company must disclose the fair value hierarchy of financial instruments.

The fair value hierarchy consists of the following three classifications:

Level 1 - Valued using quoted prices in active markets for identical assets or liabilities. This is usually the bid price.

Level 2 - Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1.

Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data.

Details of the Company's financial instruments are shown in the Portfolio Review including financial instruments which fall into Level 3 shown under the section heading "Unquoted". A summary reconciliation of the fair value movements of Level 3 investments is shown in the table above.

Financial assets at fair value through profit or loss;

5 Short term loans

On 17 June 2016 the Company entered in to a £250,000 loan agreement with Jarvis Investment Management Limited. Interest was payable monthly in arrears at the rate of 4.5% above the Bank of England base rate.

The loan was repaid in full on 25 October 2017. As at the date of this report there are no borrowings outstanding.

6 Net asset value

The basic net asset value per Ordinary share is based on net assets of £4,413,000 (31 August 2017: £5,460,000; 28 February 2017: £4,776,000) and on 5,460,301 Ordinary shares (31 August 2017: 6,377,088; 28 February 2017: 6,377,088) being the number of Ordinary shares in issue at the period end. No shares are held in Treasury.

7 Related party transactions

Under the terms of the agreement dated 28 June 2001, the Company has appointed Chelverton Asset Management Limited to be the Investment Manager. Mr Horner, a Director of the Company, is also a director of Chelverton Asset Management Limited and chairman of CEPS PLC, in which the Company holds an investment as set out above. Mr Martin is the Chairman of Touchstar in which the Company holds an investment as set out above.

At 28 February 2018 there was £3,700 (31 August 2017: £4,800; 28 February 2017: £4,200) payable to the Investment Manager.

The three Directors also have individual holdings in Chelverton Asset Management Holdings, a company which has Mr Horner as a director and which the Company also has a direct holding. The Directors' holdings are detailed below.

Information about the Company can be obtained at the Investment Manager's website at www.chelvertonam.com. Neither the contents of the manager's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website incorporated into, or forms part of this announcement.

An investment company as defined under Section 833 of the Companies Act 2006.

REGISTERED IN ENGLAND No 2989519