Chelverton UK Dividend Trust plc (SDV)
CHEVERTON UK DIVIDEND TRUST PLC
Half-Yearly Financial Report
For the six months ended 31 October 2019
Investment Objective and Policy
The investment objective of Chelverton UK Dividend Trust PLC ('the Company') is to provide Ordinary shareholders with a high income and opportunity for capital growth, having provided a capital return sufficient to repay the full final capital entitlement of the Zero Dividend Preference shares issued by the wholly owned subsidiary company, SDV 2025 ZDP PLC ('SDVP').
Chelverton UK Dividend Trust PLC, and its subsidiary SDV 2025 ZDP PLC, together form the Group ('the Group'). The Group's funds are invested principally in mid and smaller capitalised UK companies. The portfolio comprises companies listed on the Official List and companies admitted to trading on AIM. The Group does not invest in other investment trusts or in unquoted companies. No investment is made in preference shares, loan stock or notes, convertible securities or fixed interest securities.
* Dividend per Ordinary share includes the first interim paid and second interim declared for the period to 31 October 2019 and 2018 and will differ from the amounts disclosed within the statement of changes in net equity, owing to the timings of payments.
** Adding back dividends distributed in the period.
Interim Management Report
This half-yearly report covers the six months to 31 October 2019. The net asset value per Ordinary share at 31 October 2019 was 196.3p down from 214.2p at 30 April 2019, a decrease of 8.3% during the period compared to an increase of 0.8% in the MSCI Small Cap Index, and NAV now stands at 202.5p.
Since the beginning of the Company's financial year, the Ordinary share price has increased from 173.5p to 182.5p at 31 October 2019, an increase of 5.19%. Since the period end the shares have increased further to 191.0p, a percentage increase of 4.66% as at 2 December 2019 and the shares now trade on a reduced discount of 4.3%.
Following 11 years of increase in the total annual core dividend paid by the Company, the first interim dividend for the current year of 2.40p (2018: 2.19p) per Ordinary share was paid on 1 October 2019. The Board has declared a second interim dividend of 2.40p per Ordinary share (2018: 2.19p) payable on 2 January 2020 to shareholders on the register on 13 December 2019, making a total for the half year of 4.80p per Ordinary share (2018: 4.38p) an increase of 9.6%. It is anticipated that the Company will maintain this level of dividend for the third quarter and will likewise maintain the same level for the fourth interim of 2.40p making a total core dividend of 9.60p for the year (2018: 8.97p) an increase of 7.0%.
In the last six months we have increased our investment in eighteen of our existing holdings (2018: 18), taking advantage of lower share prices and shares being available in Alumasc Group, Amino Technologies, Badcock International, Brewin Dolphin Holdings, Castings, Chesnara, Crest Nicholson, De La Rue, Devro, Essentra, GVC Holdings, McColls Retail Group, Northgate, Personal Group Holdings, Saga, Shoe Zone, STV and Town Centre Securities.
During the period we added four new names to the portfolio (2018: 3) - Close Brothers Group1, Tyman2, Vertu Motors3 and XPS Pensions4. Funds were raised from the outright sale of four of our holdings (2018: 4); Kcom Group, Mucklow (A&J), Sanderson Group and StatPro were taken over in the period. The following holdings were reduced as they grew to become larger weightings on lower yields: Clarke (T.), Titon Holdings and UP Global Sourcing Holdings.
The shares of the companies in which the fund is invested have experienced a tough 18 months as smaller companies that pay increasing dividends and are labelled "value shares" have fallen further out of favour. In the last few months there has been some improvement as it is hoped that the whole Brexit process will reach resolution. The underlying performance of most of the companies has generally been positive with associated dividend growth. With the recent decline in the general market the number of attractive opportunities available to invest in has increased significantly and the portfolio has been increased to 75 holdings (2018: 73).
UK GDP growth has been very subdued for the past six months, although there are signs that UK Growth will be maintained and might, next year, start to gently accelerate.
As we write this report today the whole Brexit position of course remains unresolved. We are close to the General Election on 12 December 2019 and a great deal depends on the result of that. At this point no one can say what the position will be on 1 January 2020 however it is to be hoped that the "Brexit issue", which has progressively absorbed more and more time and attention, will be resolved in some manner. In the meantime our companies, for whom trading across border with the EU is a very small part of their sales, have been dragged down by this generally negative sentiment.
Reassuringly the dividends of the underlying companies continue to be increased and we believe that this will continue into 2020 with company balance sheets remaining in a strong state.
Chelverton Asset Management
6 December 2019
1 Close Brothers Group - financial services provider
2 Tyman - building materials manufacturer
3 Vertu Motors - automotive retailer
4 XPS Pensions - pensions actuarial, consulting and administration services
The principal risks facing the Group are substantially unchanged since the date of the Annual Report for the year ended 30 April 2019 and continue to be as set out in that report on pages 10 to 11. Risks faced by the Group include, but are not limited to, market risk, discount volatility, regulatory risk, financial risk and risks associated with banking counterparties.
Responsibility Statement of the Directors in respect of the Half-Yearly Report
We confirm that to the best of our knowledge:
This Half-Yearly Report was approved by the Board of Directors on 6 December 2019 and the above responsibility statement was signed on its behalf by Lord Lamont, Chairman.
Condensed Consolidated Statement of Comprehensive Income (unaudited)
for the six months ended 31 October 2019
The total column of this statement is the Statement of Comprehensive Income of the Group prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All of the net return for the period and the total comprehensive income for the period is attributed to the shareholders of the Group. The supplementary revenue and capital return columns are presented for information purposes as recommended by the Statement of Recommended Practice issued by the Association of Investment Companies ('AIC').
Condensed Consolidated Statement of Changes in Net Equity (unaudited)
for the six months ended 31 October 2019
Condensed Consolidated Balance Sheet (unaudited)
as at 31 October 2019
Condensed Consolidated Statement of Cash Flows (unaudited)
for the six months ended 31 October 2019
Notes to the Condensed Half-Yearly Report
for the six months ended 31 October 2019
1 General information
The financial information contained in this Half-Yearly Report does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The statutory financial statements for the year ended 30 April 2019, which contained an unqualified auditors' report, have been lodged with the Registrar of Companies and did not contain a statement required under the Companies Act 2006. These statutory financial statements were prepared under International Financial Reporting Standards ('IFRS') and in accordance with the Statement of Recommended Practice ('SORP'): Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the AIC in October 2019, except to any extent where it conflicts with IFRS.
The Group has considerable financial resources and therefore the Directors believe that the Group is well placed to manage its business risks and also believe that the Group will have sufficient resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this report.
This report has not been reviewed by the Group's Auditors.
This report has been prepared using accounting policies adopted in the audited financial statements for the year ended 30 April 2019. This report has also been prepared in compliance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.
The Company has an effective tax rate of 0%. 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 and thus there is no charge for corporation tax.
Deferred tax assets in respect of unrelieved excess expenses are not recognised as it is unlikely that the Group will generate sufficient taxable income in the future to utilise these expenses. Deferred tax is not provided on capital gains and losses because the Company meets the conditions for approval as an investment trust company.
3 Earnings per share
Revenue earnings per Ordinary share is based on revenue on ordinary activities after taxation of £1,399,000 (30 April 2019: £2,793,000, 31 October 2018: £1,491,000) and on 20,850,000 (30 April 2019: 20,847,534, 31 October 2018: 20,845,109) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period.
Capital earnings per Ordinary share is based on the capital loss of £3,604,000 (30 April 2019: capital loss of £8,161,000, 31 October 2018: capital loss of £8,028,000) and on 20,850,000 (30 April 2019: 20,847,534, 31 October 2018: 20,845,109) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period.
Zero Dividend Preference shares
Capital earnings per Zero Dividend Preference share 2025 is based on allocations from the Company of £302,000 (30 April 2019: £582,000, 31 October 2018: £290,000) and on 14,500,000 (30 April 2019: 14,489,863, 31 October 2018: 14,479,891) Zero Dividend Preference shares 2025 being the weighted average number of Zero Dividend Preference shares in issue during the period.
During the period, a fourth interim dividend of 2.40p per Ordinary share and a special dividend of 2.50p per Ordinary share for the year ended 30 April 2019, together with a first interim dividend of 2.40p per Ordinary share for the year ending 30 April 2020, have been paid to shareholders.
In addition the Board has declared a second interim dividend of 2.40p per Ordinary share payable on 2 January 2020 to shareholders on the register at 13 December 2019 (ex-dividend 12 December 2019).
5 Net asset values
The net asset value per Ordinary share is based on assets attributable of £40,932,000 (30 April 2019: £44,659,000, 31 October 2018: £44,403,000) and on 20,850,000 (30 April 2019: 20,850,000, 31 October 2018: 20,850,000) Ordinary shares being the number of shares in issue at the period end.
Zero Dividend Preference shares
The net asset value per Zero Dividend Preference shares is based on assets attributable of £15,597,000 (30 April 2019: £15,295,000, 31 October 2018: £15,003,000) and on 14,500,000 (30 April 2019: 14,500,000, 31 October 2018: 14,500,000) Zero Dividend Preference shares being the number of shares in issue at the period end.
6 Fair value hierarchy
Financial assets and financial liabilities of the Company are carried in the condensed Consolidated Balance Sheet at their fair value. The fair value is the amount at which the asset could be sold or the liability transferred in a current transaction between market participants, other than a forced or liquidation sale. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices and Stock Exchange Electronic Trading Services ('SETS') at last trade price at the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset.
The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors are included in Level 1, if they reflect actual and regularly occurring market transactions on an arm's length basis.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 2 inputs include the following:
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
As at 31 October 2019, 30 April 2019 and 31 October 2018 all of the Company's investments are classified as Level 1.
7 Reconciliation of net return before and after
taxation to cash generated from operations
8 Related party transactions
The Group's investments are managed by Chelverton Asset Management Limited, a company in which Mr van Heesewijk, a Director of the Company and the subsidiary, has an interest. The amounts paid to the Investment Manager in the period to 31 October 2019 were £285,000 (year ended 30 April 2019: £612,000, six months to 31 October 2018: £315,000).
At 31 October 2019 there were amounts outstanding to be paid to the Investment Manager of £83,000 (year ended 30 April 2019: £121,000, six months to 31 October 2018: £90,000).
as at 31 October 2019
Breakdown of portfolio by industry
Travel & Leisure 8.7%
Technology Hardware & Equipment 1.1%
Support Services 13.9%
Real Estate Investment Trusts 2.8%
Real Estate Investment &
Oil & Gas Producers 3.7% Nonlife Insurance 5.2%
Life Insurance 1.9%
Leisure Goods 1.6
Construction & Materials 5.8%
Electronic & Electrical Equipment 3.6% Financial Services 13.2%
Food & Drug Retailers 1.0% Food Producers 2.1% General Industrials 1.6%
General Retailers 7.8%
Household Goods & Home Construction 7.2%
Industrial Engineering 5.2% Industrial Transportation 2.1%
Share prices and performance information
The Company's Ordinary (SDV.L) and Zero Dividend Preference shares (SDVP.L) are listed on the London Stock Exchange Main Market.
The net asset values are announced daily to the London Stock Exchange and published monthly via the AIC.
Share register enquiries
The register for the Ordinary shares and Zero Dividend Preference shares are maintained by Share Registrars Limited. In the event of queries regarding your holding, please contact the Registrar on 01252 821390. Changes of name and/or address must be notified in writing to the Registrar.
Chelverton UK Dividend Trust PLC ('the Company')
Chelverton UK Dividend Trust PLC was registered on 3 September 2003 with number 0374956. The Company has in issue one class of Ordinary share. In addition, it has a wholly owned subsidiary SDV 2025 ZDP PLC, which was registered on 25 October 2017 with number 11031268, through which Zero Dividend Preference shares have been issued.
Ordinary shares of 25p each (SDV.L) - 20,850,000 in issue as at 31 October 2019
The Company has only one class of share and this figure represents 100% of the Company's share capital and voting rights.
Holders of Ordinary shares are entitled to dividends.
On a winding-up of the Company, Ordinary shareholders will be entitled to all surplus assets of the Company available after payment of the Company's liabilities including the capital entitlement of the Zero Dividend Preference shares.
Each holder, on a show of hands, will have one vote and on a poll will have one vote for each Ordinary share held.
SDV 2025 ZDP PLC ('SDVP')
Ordinary shares of 100p each ( SDVP.L) - 50,000 in issue (partly paid up as to 25p each)
The ordinary shares are wholly owned by the Company. References to Ordinary shares within this Half-Yearly Report are to the Ordinary shares of Chelverton UK Dividend Trust PLC.
Following payment of any liabilities and the capital entitlement to the Zero Dividend Preference shareholders, ordinary shareholders are entitled to any surplus assets of SDVP.
Each holder, on a show of hands, will have one vote and on a poll will have one vote for each ordinary share held.
Zero Dividend Preference shares of 100p each - 14,500,000 in issue as at 31 October 2019
Holders of Zero Dividend Preference shares are not entitled to dividends.
On a winding up of SDVP, after the satisfaction of prior ranking creditors and subject to sufficient assets being available, Zero Dividend Preference shareholders are entitled to an amount equal to 100p per share increased daily from 8 January 2018 at such compound rate as will give an entitlement to 133.18 pence per share at 30 April 2025.
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 each Zero Dividend Preference share held.
Holders of Zero Dividend Preference shares are not entitled to attend, speak or vote at General Meetings unless the business of the meeting includes a resolution to vary, modify or abrogate the rights attached to the Zero Dividend Preference shares.
Directors and Advisers
Registered in England
A member of the Association of Investment Companies
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