13 Apr 2011 10:22
CHELVERTON GROWTH TRUST PLC
Half Yearly Reportfor the six months ended 28 February 2011
Investment objective
The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market ("AIM") with a market capitalisation at the time of investment of up to £50 million, which are believed to be at a "point of change". The Company will also invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on AIM or the investee company being sold. Its investment objective is to increase net asset value per share at a higher rate than other quoted smaller company trusts and the FTSE All-Share Index.
Investment policy
The Company invests principally in securities of publicly quoted UK companies, though it may invest in unquoted securities. The concentrated UK portfolio comprises between 20 to 35 securities. The performance of the Company's investments is compared to the FTSE All-Share Index.
The Company will also invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on AIM or the investee company being sold.
It is the Company's policy not to invest in any listed investment companies or 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 Company's 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 earning prospects over a five year time horizon.
The Company's Investment Manager is Chelverton Asset Management Limited, an independent investment manager focusing exclusively on achieving returns for investors based on UK investment analysis of the highest quality. The founders 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.
Interim management report
The Company's net asset value per share has increased in the last six months from 24.66p to 29.95p, an increase of 21.5%. In the same period the Company's benchmark index, the FTSE All-Share, increased by some 15.2 %.
The improving market sentiment through the latter part of last year has been undermined recently by the growing number of headwinds that appear to be facing the domestic economy. The recent increases in VAT, rising inflation and lower than expected GDP growth have all served to undermine investor confidence. At the same time the troubles in North Africa and the Middle East and the rising oil price have contributed to a heightened sense of caution towards equity markets generally.
Against such a downbeat background it is reassuring to note that the recent results season proved that Corporate UK is continuing to perform well. On balance companies met or exceeded expectations and outlook statements remained cautiously optimistic. We believe that this is broadly supportive of equity valuations at current levels despite the global uncertainty.
In the portfolio there was a notable positive contribution from the largest holding, IDOX, after results exceeded market expectations. IDOX also made two accretive acquisitions and announced a substantial share buyback programme. Additions were made to the holding in AI Claims, which also produced a good set of results and has recently bought shares into treasury. Another positive contributor was Belgravium which has started to recover from an oversold position. An acceptable cash offer was made for the operating business of Forest Support Services leading to this company being wound up and cash returned to its shareholders. The progress of Parmenion over the past year has been excellent and as announced at the end of January a review of the carrying value was undertaken and has been revalued upwards.
The earnings forecasts for the UK equity market remain positive and, interestingly, UK small companies are the only subset of the market forecast to grow earnings faster in 2012 than 2011. This is unsurprising given that small companies are more geared to the domestic economy than the market as a whole and we will hopefully soon be able to look forward to the UK economy providing a positive reason to support these small companies, when domestic growth is in excess of the long-term average. In the meantime the positive earnings momentum of the underlying companies remains the key to relative performance.
It is with regret that I must advise Shareholders that Mr Bryan Lenygon, a Director of the Company since its launch in 1998, passed away on 25 November 2010. Bryan is sadly missed by all and we were fortunate to benefit from his experience for so many years.
Chelverton Asset Management Limited
13 April 2011
Principal risks and uncertainties
The Board considers that the principal risks and uncertainties facing the Company for the remaining six months of the financial year remain the same as those disclosed in the Report of the Directors in the Annual Report for the year ended 31 August 2010. These risks include market risk, discount volatility, credit risk, regulatory risks, financial risk and liquidity risks.
Responsibility statement
The Directors confirm that to the best of their knowledge:
â— the condensed set of financial statements for the six months to 28 February 2011, prepared in accordance with the Statement on Half Yearly Financial Reports issued by the UK Accounting Standards Board, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and
â— the interim management report together with the notes to the Half Yearly Report includes a fair review of the information required by;
a) DTR 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
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the 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 13 April 2011 and the above responsibility statement was signed on its behalf by George Stevens, Chairman.
Going Concern
The Directors believe, bearing in mind the nature of the Company's business and assets, that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts.
Portfolio review
as at 28 February 2011
The Company's portfolio as at 28 February 2011 is set out below.
Investment Sector Valuation £ % of '000 total AIM traded AI Claims Solutions Travel & Leisure 585 15.0 The provision of non-fault accident management services Alliance Pharma Pharmaceuticals & 294 7.5 Biotechnology Acquisition of the manufacturing, sales and distribution rights to pharmaceutical products Belgravium Technologies Technology Hardware & 225 5.8 Equipment Software systems for warehousing and distribution CEPS Support Services 100 2.6 Production and supply of components for the footwear industry; personal protection equipment; production of printed lycra fabric; and services to the direct mail industry Datong Electronics Electronic & 124 3.2 Electrical Equipment Develops, manages and supplies covert tracking and surveillance systems IDOX Software & 928 23.8 Computer Services Software company specialising in the development of products for document and information management LPA Group Electronic & 73 1.9 Electrical Equipment Design, manufacture and marketing of industrial electrical accessories MTI Wireless Edge Technology Hardware & 84 2.2 Equipment Developer and manufacturer of sophisticated antennas and antenna systems Northbridge Industrial Services Industrial Engineering 97 2.5 Consolidation vehicle for specialist industrial services in the UK Pennant International Group Software & 95 2.4 Computer Services Supplier of technology solutions to the defence and industrial sectors Petards Group Support Services 30 0.8 Development, provision and maintenance of advanced security systems and related services PSG Solutions Support Services 36 0.9 Leading provider of Local Authority residential property searches; provision of packaging solutions Richoux Group Travel & Leisure 83 2.1 Owner and operator of Richoux Restaurants Sanderson Group Software & 84 2.1 Computer Services Provides software and IT services Titan Europe Industrial Engineering 80 2.1 Manufacture of big wheels and undercarriage components for construction, mining and agricultural vehicles Tristel Health Care Equipment 232 5.9 & Services Healthcare business specialising in infection control in hospitals Universe Group Support Services 17 0.4 Provision of credit card fraud prevention system, loyalty systems and retail systems Delisted Bakabo (previously Forest Industrial 11 0.3Support Services) Transportation Supply of traffic management services One Horizon (previously Satcom Mobile 32 0.8Group) Telecommunications Provider of mobile satellite communications equipments and airtime Unquoted Closed Loop Recycling Support Services Loanstock 252 6.5 Ordinary B shares 0 0.0 Operation of a plastic recycling plant Parmenion Capital Partners LLP Support Services 436 11.2 Provides fund-based discretionary fund management services to Independent Financial Advisors Portfolio valuation 3,898 100.0Top twenty investments 28 February 31 August 2010 2011 Valuation % of Valuation % of Investment £'000 total £'000 total IDOX 928 23.8 596 16.6 AI Claims Solutions 585 15.0 479 13.3 Parmenion Capital 436 11.2 291 8.1Partners LLP Alliance Pharma 294 7.5 345 9.6 Closed Loop 252 6.5 252 7.0Recycling Tristel 232 5.9 188 5.3 Belgravium 225 5.8 113 3.2Technologies Datong Electronics 124 3.2 76 2.1 CEPS 100 2.6 175 4.9 Northbridge 97 2.5 85 2.4Industrial Services Pennant 95 2.4 59 1.7International Group MTI Wireless Edge 84 2.2 84 2.4 Sanderson Group 84 2.1 66 1.8 Richoux Group 83 2.1 33 0.9 Titan Europe 80 2.1 68 1.9 LPA Group 73 1.9 73 2.0 PSG Solutions 36 0.9 44 1.2 One Horizon Group 32 0.8 31 0.9 Petards Group 30 0.8 27 0.8 Universe Group 17 0.4 17 0.5 Total 3,887 99.7 3,102 86.6
Portfolio breakdown by sector and by index
Percentage of portfolio by sector
Sector Percentage Software & Computer 28.3Services Support Services 22.4 Travel & Leisure 17.1 Technology Hardware & 8.0Equipment Pharmaceuticals & 7.5Biotechnology Heath Care Equipment & 5.9Services Electronic & Electrical 5.1Equipment Industrial Engineering 4.6 Mobile Telecommunications 0.8 Industrial Transportation 0.3
Percentage of portfolio by index
Index Percentage AIM 82.3 Unquoted 17.7Income statement (unaudited)
for the six months to 28 February 2011
Six months to Year to Six months to 28 February 2011 31 August 2010 28 February 2010 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £ £'000 £'000 £ £'000 £'000 £ '000 '000 '000 Gains on - 798 798 - 862 862 - 516 516 investments at fair value Income 20 - 20 79 - 79 54 - 54 Investment (5) (15) (20) (9) (27) (36) (4) (13) (17)management fee* Other expenses (71) - (71) (145) - (145) (74) - (74) Net return on (56) 783 727 (75) 835 760 (24) 503 479 ordinary activities before finance costs and taxation Interest payable - - - - - - - - - and similar charges* Net return on (56) 783 727 (75) 835 760 (24) 503 479 ordinary activities before taxation Taxation on - - - - - - - - - ordinary activities Net return on (56) 783 727 (75) 835 760 (24) 503 479 ordinary activities after taxation Revenue Capital Total Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence pence pence pence
Return per (0.39) 5.46 5.07 (0.50) 5.62 5.12 (0.16) 3.38 3.22 Ordinary share#
Notes
* 75% of the management fee and finance costs have been charged to capital reserve.
# The return per Ordinary share is based on 14,325,621 (31 August 2010: 14,843,882; 28 February 2010: 14,864,827) shares, being the weighted average
number of shares in issue during the period.
The total column of this statement is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
A separate statement of total recognised gains and losses has not been prepared as all such gains and losses are included in the income statement.
Reconciliation of movements in shareholders' funds (unaudited)
for the six months to 28 February 2011
Share Share Capital Capital Revenue Total Capital Premium reserve Redemption Reserve £'000 £'000 account £'000 reserve £'000 £'000 £'000 Six months to 28 February 2011 1 September 149 2,674 (2,739) 40 3,506 3,630 2010 Tender offer (15) - - 15 (394) (394)of shares Net return - - 783 - (56) 727 after taxation for the period 28 February 134 2,674 (1,956) 55 3,056 3,963 2011 Year to 31 August 2010 1 September 149 2,674 (3,574) 40 3,606 2,895 2009 Cost of shares - - - - (25) (25)purchased for Treasury Net return - - 835 - (75) 760 after taxation for the year 31 August 2010 149 2,674 (2,739) 40 3,506 3,630 Six months to 28 February 2010 1 September 149 2,674 (3,574) 40 3,606 2,895 2009 Net return - - 503 - (24) 479 after taxation for the period 28 February 149 2,674 (3,071) 40 3,582 3,374 2010 Balance sheet (unaudited)as at 28 February 2011 As at As at As at 28 February 31 August 28 February 2011 2010 2010 £'000 £'000 £'000 Fixed assets Investments at fair value 3,898 3,583 3,374 Current assets Debtors 5 6 14 Cash at bank 94 86 21 99 92 35 Creditors - amounts falling due within one year Creditors 34 45 35 34 45 35 Net current assets 65 47 - Net assets 3,963 3,630 3,374 Share capital and reserves Share capital 134 149 149 Share premium account 2,674 2,674 2,674 Capital reserve (1,956) (2,739) (3,071) Capital redemption reserve 40 40 40 Revenue reserve 3,056 3,506 3,582 Equity shareholders' funds 3,963 3,630 3,374
Net asset value per Ordinary share 29.95p 24.66p 22.70p (note 1)
Statement of cash flows (unaudited)for the six months to 28 February 2011 Six months to Year to Six months 28 February 31 August to 2011 2010 28 February 2011 2010 £'000 £'000 £'000 Operating activities Investment income received 20 60 25 Interest received on VAT refund - 19 19 Investment management fees paid (20) (35) (17) Secretarial fees paid (23) (49) (26) Other cash payments (58) (115) (74) Net cash outflow from operating (81) (120) (73)activities (note 3) Investing activities Purchases of investments (21) - - Sales of investments 504 187 50 Net cash inflow from investing 483 187 50 activities Financing Cost of shares purchased for Treasury - (25) - Cost of tender offer (394) - - Net cash outflow from financing (394) (25) - Increase/(decrease) in cash 8 42 (23)
Notes to the half yearly report
The unaudited interim financial information does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the year to 31 August 2010, which contained an unqualified auditors' report, have been lodged with the Registrar of Companies and did not contain a statement required under Section 498 (2) or (3) of the Companies Act 2006. The financial information for the period ended 28 February 2011 and 28 February 2010 has not been audited or reviewed by the Company's Auditor pursuant to the Auditing Practices Board guidance on such reviews.
This information has been prepared on the basis of accounting policies set out in the statutory accounts of the Company for the year to 31 August 2010.
1 Net asset value
The basic net asset value per Ordinary share is based on net assets of £ 3,963,000 (31 August 2010: £3,630,000; 28 February 2010: £3,374,000) and on 13,233,344 Ordinary shares (31 August 2010: 14,719,827; 28 February 2010: 14,864,827) being the number of Ordinary shares in issue at the period end (excluding shares held in Treasury).
2 Taxation
The tax charge for the six months to 28 February 2011 is nil (year to 31 August 2010: nil; six months to 28 February 2010: nil).
The Company has an effective tax rate of 0% for the year ending 31 August 2011. 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.
3 Reconciliation of net return before finance costs and taxation to net cash outflow from operating activities
Six months Year to Six months to 31 August to 28 February 2010 28 February 2011 2010 £'000 £'000 £'000 Net return before finance costs and 727 760 479 taxation
Net capital return before finance costs (783) (835) (503)
Expenses charged to capital (15) (27) (13) Decrease in creditors and accruals (11) (18) (28) Decrease/(increase) in prepayments and 1 - (8)accrued income Net cash outflow from operating (81) (120) (73)activities
4 Related party transactions
Chelverton Asset Management Limited acts as the Investment Manager. Mr Horner, a Director of the Company, is also a director of Chelverton Asset Management Limited. He is also a director of CEPS PLC, in which the Company has an investment. At 28 February 2011 there was £3,000 (31 August 2010: £3,000, 28 February 2010: £3,000) payable to the Investment Manager.
Mr Allen, a Director of the Company, was a director and employee of Bakabo (formerly Forest Support Services PLC) in which the Company has an investment.
5 Status of Company
It is the intention of the Directors to conduct the affairs of the Company so that they satisfy the conditions for approval as an investment trust company as set out in Sections 1158/1159 of the Corporation Tax Act 2010.
Directors and advisorsDirectorsGeorge Stevens (Chairman)Kevin Allen
Bryan Lenygon (deceased 25 November 2010)
David Horner
Investment Manager
Chelverton Asset Management Limited
12b George Street,Bath BA1 2EHTel: 01225 483 030
Secretary and Registered Office
Capita Sinclair Henderson Limited
(trading as Capita Financial Group -Specialist Fund Services)Beaufort House51 New North RoadExeter EX4 4EPTel: 01392 412 122Registrar and Transfer OfficeShare Registrars LimitedSuite EFirst Floor9 Lion and Lamb YardFarnhamSurrey GU9 7LLTel: 01252 821 390www.shareregistrars.uk.comBankersLloyds TSB Bank Plc25 Gresham StreetLondon EC2V 7HNAuditorsHazlewoods LLPWindsor HouseBayshill RoadCheltenham GL50 3ATCustodianHSBC Investment Bank plcLevel 298 Canada SquareLondon E14 5HQ
The Company's shares are quoted daily in the Financial Times under `Investment Companies'. Information about the Company can be obtained at the Investment Manager's website at www.chelvertonam.com.
An investment company as defined under Section 833 of the Companies Act 2006.
REGISTERED IN ENGLAND No. 2989519
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
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