CHEVERTON UK DIVIDEND TRUST PLC

Annual Financial Report

For the year ended 30 April 2019

 

Strategic Report

 

The Strategic Report has been prepared in accordance with Section 414A of the Companies Act 2006 ('the Act'). Its purpose is to inform shareholders and help them understand how the Directors have performed their duty under Section 172 of the Act to promote the success of the Company.

 

Chelverton UK Dividend Trust PLC ('the Company') and its subsidiary SDV 2025 ZDP PLC ('SDVP') ('the subsidiary') together form 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.

 

Financial Highlights

	30 April	30 April
Capital	2019	2018	% change
Total gross assets (£'000)	62,032	66,386	(6.56)
Total net assets (£'000)	44,659	51,794	(13.78)
Net asset value per Ordinary share	214.19p	249.61p	(14.19)
Mid-market price per Ordinary share	173.50p	251.00p	(30.88)
Premium/(discount)	(19.00%)	0.56%
Net asset value per Zero Dividend Preference share 2025	105.48p	101.41p	4.02
Mid-market price per Zero Dividend Preference share 2025	110.00p	105.50p	4.27
Premium	4.29%	4.02%
	Year ended	Year ended
	30 April	30 April
Revenue	2019	2018	% change
Return per Ordinary share	13.40p	11.49p	16.62
Dividends declared per Ordinary share	8.97p	8.46p	6.03
Special dividends declared per Ordinary share	2.50p	0.66p	278.79
Total return
Total return on Group gross assets	(3.53%)	25.96%
Total return on Group's net assets* (total return as proportion of net assets after the provision for the Zero Dividend Preference shares)	(6.39%)	25.95%
Total return on Group's net assets*	(9.90%)	28.59%
Ongoing charges**	1.95%	1.84%
Ongoing charges***	1.45%	1.44%

 

* 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

 

Results

 

The Company's net asset value per Ordinary share as at 30 April 2019 was 214.19p (2018: 249.61p), a decrease over the year of 14.2% with an Ordinary share price of 173.50p per share (2018: 251.00p). Total assets, including revenue reserves, were £62.032m (2018: £66.386m) and the total net assets were £44.659m (2018: £51.794m).

 

The Company was launched on 12 May 1999 and the net asset value per Ordinary share has risen by 123% and a total of 186.25p has been paid in dividends including the fourth interim and special dividends announced with this report. Since the year end, the net asset value per Ordinary share has decreased to 198.74p as at 28 June 2019; the discount to market NAV is currently some 8.9%.

 

In the year total dividends of 11.47p per Ordinary share were paid and proposed including a special dividend of 2.50p. During the same period the MSCI UK Small Cap Index decreased by 3.12%.

 

The current underlying portfolio dividend growth has again been positive in the past year, with a portfolio yield today of 5%. As a result of the underlying dividend growth in the year, it has been possible to increase the interim dividend paid to shareholders and to pay a special dividend, whilst retaining a very significant amount of revenue to add to the revenue reserves.

 

The Company's portfolio is currently invested in 75 companies spread across 26 sectors. This spread creates a well-diversified portfolio which the manager expects to lead to steady revenue growth and, in time, capital growth.

 

Capital Structure

 

The Zero Dividend Preference Shares issued in 2012 ('ZDP 2012') reached the end of their life on 8 January 2018 and shareholders received their final entitlement in full. In order to maintain the capital structure, a new class of Zero Dividend Preference shares was issued which will mature on 30 April 2025 ('ZDP 2025') with a final capital entitlement of 133.18p. This form of capital gearing has proven to be very important for the fund in enhancing total returns for Ordinary shareholders.

 

The 2025 ZDP has been issued by a wholly owned subsidiary SDV 2025 ZDP PLC. The net asset value per ZDP share at 30 April 2019 was 105.48p per share with a share price of 110.00p per share.

 

Dividend

 

The Board has declared a fourth interim dividend of 2.40p per Ordinary share (2018: 2.40p) which, when added to the three quarterly interim dividends of 2.19p per Ordinary share (2018: 2.02p), brings the total (excluding the special dividend) to 8.97p (2018: 8.46p) in respect of the year ended 30 April 2019, an increase of 6.03% over the previous year. In addition, the Board has declared a special dividend of 2.50p per Ordinary (2018: 0.66p) share to be paid with the fourth interim dividend. Shareholders will effectively receive a fourth dividend of 4.90p per Ordinary share. This equates to a total dividend for the year of 11.47p per Ordinary share.

 

It remains the Board's intention, which has been stated several times over the past few years, to move the dividend payment profile to a position where the fund pays four equal interim dividends on a quarterly basis through the year. This will be achieved in the year ending 30 April 2020 with four payments of 2.40p being a total for the year of 9.60p of core dividend. In that same year there may or may not be a special dividend, the payment of which will be dependent on the level of total dividend revenue received by the Company including any special dividends.

 

The Board announced earlier this year its decision that once the Company's retained revenue reserves are equal to double the historic core dividend, the Company will distribute to shareholders all additional current period revenue as a special dividend. If the current period revenue is insufficient to meet the proposed core dividend target, the Company will use some of the retained revenue reserves with the aim of reinstating its policy as soon as is practical.

 

The Company as at year end of 30th April 2019 had retained revenue reserves of £4,000,000 or 19.19p per share, which represents some 199% of the expected 2020 core annual dividend of 9.60p per Ordinary share.

 

Board Succession

 

As part of the Board's succession planning, Mr David Harris retired as a Director at the Annual General Meeting held in September 2018. The Board would like to express its thanks to Mr Harris for his support to the Board over the years. Mr Andrew Watkins joined the Board after the last Annual General Meeting, as David Harris's successor, Andrew Watkins has brought to the Board a wealth of experience from the investment industry, and is already making a valuable contribution to the Board.

 

Outlook

 

The outlook remains similar to that which we set out last year, namely that uncertainty around the outcome of negotiations with the EU remains, and this will continue to cause uncertainty in markets. We believe, however, that the Company's strategy, of investing in stable, largely ungeared and well-valued businesses, remains a sensible, sustainable model.

 

Lord Lamont of Lerwick

Chairman

10 July 2019

 

Investment Manager's Report

 

In the year to 30 April 2019 there was a decline in Company's net asset value per share from 249.61p to 214.31p. At the same time the core dividend was increased by 6.03% in line with the targeted increase. The Company has also announced a special dividend of 2.50p which, as usual, has been aggregated with the fourth interim dividend.

 

This disappointing performance is a result of the continuing political turmoil and uncertainty caused by the ongoing Brexit process and the additional concerns caused by the trade "discussions" taking place between the United States, China and the European Union. It is interesting to note in the brief period of the Easter Recess when Brexit was not discussed, as much, there was a significant increase in the asset value of the Company.

 

It is generally acknowledged by global analysts that UK equities are lowly rated relative to other world markets and that within the Public Markets, Mid Cap companies, and especially Small Cap companies are even more undervalued. This market has some similarities to the "exuberant" period of 1999/2000 when Telecommunications, Media and Technology ("TMT") shares reached extraordinary values and profitable, cash generating steadily growing companies were overlooked and disregarded. At this time growth companies have enjoyed a very strong run-up in prices whereas the exact opposite could be said about the cash generative, steady growing, dividend paying companies which make up the Company's portfolio. As we did in early 2000 we are using this period to acquire new holdings and increase our existing shareholdings in what appears to be highly undervalued companies.

 

On one hand it is heartening to see an increase in the number of takeovers as third parties recognise this undervalue and take the opportunity to acquire high quality assets. On the other hand, whilst the uplifts in value are very welcome and particularly when funds can be released to buy into other significantly undervalued companies, one can't help feeling that the "real value" should be higher than the price being paid. The takeovers and offers set out below, in the Portfolio Review, have been announced in the first six months of this calendar year, and therefore provide cash resources that can be reinvested to produce a boost to the revenue account, and in time, to the growth of the asset value.

 

Reflecting concern about the UK economy, the UK political position, the periodic instability in Europe and the world trade position it is hardly surprising that private investors have been holding back from buying the Company's shares. The shares now trade in the region of a 10% discount which over the life of the Company is historically very high. In the past the discount has for very brief periods been at this level but has always quickly narrowed. The yield on the shares is now at a healthy level, and with a capital structure in place until April 2025 and with the statement made by the Board on Dividend Policy the dividend pay out should grow steadily into the future.

 

It is also concerning that in the past few weeks we have had several enquiries about the percentage of the portfolio held in unquoted investments. It is important to reiterate here that the Company has never, does not and never will make unquoted investments. When a new company is brought into the portfolio it is either traded on AIM or on the full list (excluding the shares in the FTSE 100) and must yield at least 4%.

 

The Board made a public statement on the 6 March 2019 setting out a clarification of the Dividend Policy. Given the strength of the underlying dividend and the growth of the dividends of a lot of the portfolio it is the Board's intention to pay four interim dividends of 2.40p in 2019/20, an increase of 7%, and to increase the core dividend by the same 7% for the foreseeable future. Obviously further distributions may or may not take place as special dividends depending on the overall revenue account.

 

Portfolio Review

In the last year we have had two takeovers, Produce Investments and Dairy Crest (2018 - 1), and just post the year end we received offers for KCom, Mucklow (A & J) and BCA Marketplace. Including the takeovers of Produce Investments and Dairy Crest, seven holdings from the portfolio were sold in their entirety (2018 - 3), Curtis Banks, Discover IE, Macfarlane, Huntsworth and Hilton Foods.

 

Shareholdings were reduced in sixteen companies including Amino Technologies, BCA Marketplace, Bloomsbury Publishing, T. Clarke, Diversified Gas & Oil, Go-Ahead Group, GVC Holdings, Jarvis Securities, Kin and Carta, Numis Corporation, Polar Capital, Ramsdens, Randall and Quilter, Sanderson, Titon Holdings and UP Global Sourcing, all after strong share price performances.

 

Seven new shareholdings were added to the Company's portfolio in the year including, Babcock International - specialising in managing complex assets and infrastructure, Bakkavor - an international food manufacturing business specialising in fresh prepared foods, Crest Nicholson - a housebuilder, Devro - manufactures products derived from collagen, principally sausage casings, FinnCap - the largest adviser on the Alternative Investment Market ("AIM") advising both public and private companies, Sabre Insurance Group - a specialist car insurer, STV Group - a Scottish media company.

 

The shareholdings were increased in twenty-five companies which were in the portfolio at the beginning of the financial year. Like last year this is a significant part of the portfolio and included a number of holdings that were "top sliced" in the early part of the year and then added to towards the end of the year.

 

Outlook

Until the UK's relationship with the European Union is clarified it is hard to see any reason for a change in the current valuations of our companies.

 

It is however our firm belief that agreement will be reached and that once this is clear that there will be a significant rerating of the portfolio.

 

David Horner

Chelverton Asset Management Limited
10 July 2019

 

Breakdown of Portfolio by Industry

at 30 April 2019	Market value Bid	% of
Market sector	£'000	portfolio
Support Services	8,240	13.70
Financial Services	7,531	12.50
Travel & Leisure	4,244	7.20
General Retailers	4,102	6.90
Household Goods & Home Construction	3,878	6.60
Construction & Materials	3,836	6.40
Industrial Engineering	3,141	5.20
Media	2,952	4.90
Real Estate Investment Trusts	2,874	4.80
Nonlife Insurance	2,840	4.80
Oil & Gas Producers	2,799	4.70
Real Estate Investment & Services	2,514	4.20
Electronic & Electrical Equipment	1,991	3.30
Software & Computer Services	1,943	3.20
Industrial Transportation	1,150	1.90
Life Insurance	1,083	1.80
Food Producers	1,038	1.80
General Industrials	991	1.60
Leisure Goods	911	1.50
Fixed Line Telecommunications	733	1.20
Food & Drug Retailers	658	1.10
Technology Hardware & Equipment	446	0.70
	59,895	100.00

 

Breakdown of Portfolio by Market Capitalisation

at 30 April 2019

Number of Companies

 

<£25m = 8

£25-50m = 7

£50-75m = 9

£75-100m = 4

£100-250m - 15

£250-500m = 12

>£500m = 20

 

Source: Maitland Administration Services Limited

 

Portfolio Statement

at 30 April 2019			Market value		% of
Security		Sector	£'000		portfolio
Diversified Gas & Oil		Oil & Gas Producers	2,223		3.7
Randall & Quilter		Nonlife Insurance	1,558		2.6
Marston's		Travel & Leisure	1,417		2.4
UP Global Sourcing Holdings		Household Goods & Home Construction	1,363		2.3
Mucklow (A&J) Group		Real Estate Investment Trusts	1,350		2.3
Belvoir Lettings		Real Estate Investment & Services	1,344		2.2
DFS Furniture		General Retailers	1,255		2.1
Shoe Zone		General Retailers	1,248		2.1
Strix Group		Electronic & Electrical Equipment	1,190		2.0
De La Rue		Support Services	1,101		1.8
Clarke (T.)		Construction & Materials	1,070		1.8
Bloomsbury Publishing		Media	1,066		1.8
Crest Nicholson		Household Goods & Home Construction	1,059		1.8
Restaurant Group		Travel & Leisure	1,056		1.8
Polar Capital Holdings		Financial Services	1,045		1.7
Park Group		Financial Services	1,028		1.7
Flowtech Fluid Power		Industrial Engineering	1,020		1.7
StatPro Group		Software & Computer Services	1,016		1.7
Castings		Industrial Engineering	968		1.6
Go-Ahead Group		Travel & Leisure	966		1.6
Severfield		Industrial Engineering	953		1.6
Essentra		Support Services	951		1.6
Jarvis Securities		Financial Services	935		1.6
Kier Group		Construction & Materials	935		1.6
Sanderson Group		Software & Computer Services	927		1.5
BCA Marketplace		Support Services	925		1.5
Photo-Me International		Leisure Goods	911		1.5
Personal Group Holdings		Nonlife Insurance	884		1.5
Alumasc Group		Construction & Materials	882		1.5
Murgitroyd Group		Support Services	855		1.4
Ramsdens Holdings		Financial Services	855		1.4
Premier Asset Management Group Financial Services		Financial Services	844		1.4
Centaur Media		Media	836		1.4
Galliford Try		Household Goods & Home Construction	812		1.4
XP Power		Electronic & Electrical Equipment	801		1.3
Epwin Group		Construction & Materials	800		1.3
Regional REIT		Real Estate Investment Trusts	789		1.3
RPS Group		Support Services	772		1.3
Braemar Shipping Services		Industrial Transportation	760		1.3
Brown (N) Group		General Retailers	756		1.3
Brewin Dolphin Holdings		Financial Services	735		1.2
Town Centre Securities		Real Estate Investment Trusts	735		1.2
Northgate		Support Services	734		1.2
Chesnara		Life Insurance	733		1.2
KCom Group		Fixed Line Telecommunications	733		1.2
Kin and Carta		Support Services	705		1.2
Palace Capital		Real Estate Investment & Services	700		1.2
Numis Corporation		Financial Services	686		1.1
McColl's Retail Group		Food & Drug Retailers	658		1.1
Headlam Group		Household Goods & Home Construction	644		1.1
Bakkavor		Food Producers	642		1.1
Orchard Funding Group		Financial Services	638		1.1
RTC Group		Support Services	630		1.0
Low & Bonar		General Industrials	601		1.0
Wilmington Group		Media	600		1.0
Gattaca		Support Services	580		1.0
Anglo African Oil & Gas		Oil & Gas Producers	576		1.0
Finncap Group		Financial Services	540		0.9
Babcock International		Support Services	525		0.9
Foxtons Group		Real Estate Investment & Services	470		0.8
Connect Group		Support Services	462		0.8
GVC Holdings		Travel & Leisure	457		0.8
STV		Media	450		0.7
Amino Technologies		Technology Hardware & Equipment	446		0.7
Saga		General Retailers	441		0.7
Moss Bros Group		General Retailers	402		0.7
Sabre Insurance		Nonlife Insurance	398		0.7
Devro		Food Producers	396		0.7
Coral Products		General Industrials	390		0.6
DX Group		Industrial Transportation	390		0.6
Hansard Global		Life Insurance	350		0.6
Revolution Bars Group		Travel & Leisure	348		0.6
GLI Finance		Financial Services	225		0.4
Chamberlin		Industrial Engineering	200		0.3
Titon Holdings		Construction & Materials	149		0.2
Total Portfolio				59,895		100.0

 

Investment Objective and Policy

 

The investment objective of 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 SDVP.

The Company's investment policy is that:

• The Company will invest in equities in order to achieve its investment objectives, which are to provide both income and capital growth, predominantly through investment in mid and smaller capitalised UK companies admitted to the Official List of the UK Listing Authority and traded on the London Stock Exchange Main Market or traded on AIM.
• The Company will not invest in preference shares, loan stock or notes, convertible securities or fixed interest securities or any similar securities convertible into shares; nor will it invest in the securities of other investment trusts or in unquoted companies.

 

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 42.
• A total dividend for the year to 30 April 2019 of 11.47p (2018: 9.12p) per Ordinary share has been declared to shareholders by way of three payments totalling 6.57p per Ordinary share plus a fourth interim dividend payment of 2.40p per Ordinary share and a special dividend of 2.50p per Ordinary share.
• The NAV per Ordinary share at 30 April 2019 was 214.19p (2018: 249.61p).
• The ongoing charges (including investment management fees and other expenses but excluding exceptional items) for the year ended 30 April 2019 were 1.95% (2018: 1.84%).

 

Principal Risks

 

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its objective, business model, future performance, solvency or liquidity. The Board regularly considers the principal risks facing the Company. Mitigation of these risks is 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 formally meets with the Investment Manager on a quarterly basis when the portfolio transactions and performance are discussed and reviewed.

 

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, during negative market movements this may provide 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, with its advisers, monitors the Company's discount levels and shares may be bought back should it be thought appropriate to do so by the Board.

 

Regulatory risks

A breach of Companies Act provisions and 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. The Board, with its advisers, monitors the Group and SDVP's regulatory obligations both on an ongoing basis and at quarterly Board meetings.

 

Financial risk

The financial position of the Group is reviewed in detail at each Board meeting and monitored by the Audit Committee.

 

New developments in accounting standards and industry-related issues are actively reported to and monitored by the Board and its advisers, ensuring that appropriate accounting policies are adhered to.

 

A more detailed explanation of the financial risks facing the Group is given in note 23 to the financial statements on pages 60 to 65.

 

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.

 

Viability Statement

 

The Board reviews the performance and progress of the Company over various time periods and uses these assessments, regular investment performance updates from the Investment Manager and a continuing programme of monitoring risk, to assess the future viability of the Company. The Directors consider that a period of three years is the most appropriate time horizon to consider the Company's viability and, after careful analysis, the Directors believe that the Company is viable over a three-year period. The following facts support the Directors' view:

• The Company has a liquid investment portfolio invested predominantly in readily realisable smaller capitalised UK-listed and AIM traded securities and has some short-term cash on deposit.
• 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 reassurance from 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 ('1158/1159') 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 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, its subsidiary undertakings, for the year ended 30 April 2019. The Company owns 100% of the issued ordinary share capital of SDVP, which was incorporated on 25 October 2017.

 

Further information on the capital structure of the Company and SDVP can be found below.

 

AIFM

The Board is registered as a Small Registered Alternative Investment Fund Manager ('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 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.

 

Current and future developments

A review of the main features of the year and the outlook for the Company are contained in the Chairman's Statement and the Investment Manager's Report.

 

Dividends declared/paid

 

	Payment date	30 April 2019	30 April 2018
First interim	2 October 2018	2.19	2.02
Second interim	2 January 2019	2.19	2.02
Third interim	3 April 2019	2.19	2.02
Fourth interim	11 July 2019	2.40	2.40
		8.97	8.46
Special dividend	11 July 2019	2.50	0.66
		11.47	9.12

 

The Directors have not recommended a final dividend in respect of the year ended 30 April 2019.

 

Ten year dividend history

 

	2019 p		2018 p		2017 p		2016 p		2015 p	2014 p	2013 p	2012 p	2011 p	2010 p
1st Quarter	2.19		2.02		1.85		1.70		1.575	1.475	1.40	1.35	1.30	1.25
2nd Quarter	2.19		2.02		1.85		1.70		1.575	1.475	1.40	1.35	1.30	1.25
3rd Quarter	2.19	2.02		1.85		1.70		1.575		1.475	1.40	1.35	1.30	1.25
	6.57		6.06		5.55		5.10		4.725	4.425	4.20	4.05	3.90	3.75
4th Quarter	2.40		2.40		2.40		2.40		2.40	2.40	2.40	2.35	2.30	2.25
	8.97		8.46		7.95		7.50		7.125	6.825	6.60	6.40	6.20	6.00
% increase of core dividend	6.03		6.47		6.00		5.26		4.40	3.41	3.12	3.23	3.33	-
Special dividend	2.50		0.66		1.86		1.60		0.300	2.750	-	-	-	-
Total dividend	11.47		9.12		9.81		9.10		7.425	9.575	6.60	6.40	6.20	6.00

 

Diversity

The Board of Directors of the Company comprised four male Directors in the year to 30 April 2019. The Board recognises the benefits of diversity in future appointments to the Board; however, the key criteria for the appointment of new Directors will be the appropriate skills and experience in the interests of shareholder value. The Directors are satisfied that the Board currently contains members with an appropriate breadth of skills and experience.

 

The Strategic Report is signed on behalf of the Board by

 

Lord Lamont of Lerwick

Chairman

10 July 2019

 

Directors

 

The Rt Hon. Lord Lamont of Lerwick*+ (Chairman) was Chancellor of the Exchequer between 1990 and 1993. Prior to that appointment, Lord Lamont was Chief Secretary to the Treasury between 1989 and 1990. Following his retirement as a Member of Parliament in 1997, he has held numerous positions as a director of various organisations and funds, including NM Rothschild and Sons Limited. He is an adviser to Stanhope Capital and a director of Jupiter European Opportunities Trust plc.

 

Lord Lamont was appointed to the Board on 27 February 2006.

 

William van Heesewijk began his career with Lloyds Bank International in 1981, working for both the merchant banking and investment management arms. He has been involved in the investment trust industry since 1987 in various capacities. During his tenure with Fidelity Investments International, Gartmore Investment Management PLC, BFS Investments PLC and Chelverton, he managed several launches of onshore and offshore investment funds, including a number of roll-overs and reconstructions involving complex capital structures and across several geographic regions. His roles involved business development, project management, sales compliance and marketing. He was a member of the Association of Investment Companies Managers forum.

 

Mr van Heesewijk was appointed to the Board on 1 December 2005.

 

Howard Myles*+ was a partner in Ernst & Young from 2001 to 2007 and was responsible for the Investment Funds Corporate Advisory Team. He was previously with UBS Warburg from 1987 to 2001. Mr Myles began his career in stockbroking in 1971 as an equity salesman and in 1975 joined Touche Ross & Co, where he qualified as a chartered accountant. In 1978 he joined W Greenwell & Co in the corporate broking team and in 1987 moved to SG Warburg Securities, where he was involved in a wide range of commercial and industrial transactions in addition to leading Warburg's corporate finance function for investment funds. He is now a non-executive director of Baker Steel Resources Trust Limited, JPMorgan Brazil Investment Trust PLC, The Forest Company Limited and BBGI SICAV S.A.

 

Mr Myles was appointed to the Board on 15 March 2011. He became Chairman of the Audit Committee on 15 June 2016.

 

Andrew Watkins*+ has a wealth of experience in the investment trust industry across many sectors since the early 1990s. He has over 25 years' experience in various senior roles with Invesco Perpetual, Jupiter and Flemings and has served as an NED on the Board of an asset management company and the KI Financials Master Fund, a Hedge Fund-of-Funds. He is currently a non-executive director of F&C UK High Income Trust PLC.

 

Mr Watkins was appointed to the Board on 6 September 2018.

 

* Independent

+ Audit Committee member

 

Investment Manager, Secretary, Custodian and Registrar

 

Investment Manager: Chelverton Asset Management Limited ('Chelverton')

Chelverton was formed in 1998 by David Horner, who has considerable experience of analysing investments and working with smaller companies. Chelverton is predominantly owned by its employees.

 

Chelverton is a specialist fund manager focused on UK mid and small companies and has a successful track record. At 30 April 2019, Chelverton had total funds under management of approximately £1,080 million including two investment trust companies and three OEICs. The fund management team comprises David Horner, David Taylor, Edward Booth and James Baker.

 

Chelverton is authorised and regulated by the FCA.

 

Administrator and Corporate Secretary: Maitland Administration Services Limited

Maitland Administration Services Limited provides company secretarial and administrative services for the Group. The Maitland group provides administration and regulatory oversight solutions for a wide range of investment companies.

 

Custodian: Jarvis Investment Management Limited

Established for over 30 years, Jarvis Investment Management Limited offers a wide range of administration services and solutions, including custody services.

 

Registrar: Share Registrars Limited

Share Registrars Limited is a CREST registrar established in 2004 and provides share registration services to over 220 client companies.

 

Directors' Report

The Directors present their Annual Report and financial statements for the Group and the Company for the year ended 30 April 2019.

 

Directors

The Directors who served during the year ended 30 April 2019 are listed on page 15. None of the Directors nor any persons connected with them had a material interest in any of the Company's transactions, arrangements or agreements during the year, except Mr van Heesewijk, who by virtue of his employment (until March 2019) with Chelverton during the year is interested in the Investment Management Agreement. None of the Directors has or has had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company, and which was effected by the Company during the current financial year. There have been no loans or guarantees from the Company or its subsidiary undertakings, to any Director at any time during the year or thereafter.

 

Corporate Governance

A formal statement on Corporate Governance and the Company compliance with the UK Corporate Governance Code and the AIC on Corporate Governance can be found below.

 

Management agreements

The Company's investments are managed by Chelverton Asset Management Limited under an agreement ('the Investment Management Agreement') dated 30 April 2006 (effective from 1 December 2005). A periodic fee is payable quarterly in arrears at an annual rate of 1% of the value of the gross assets under management of the Company.

 

The Investment Management Agreement may be terminated by 12 months' written notice. There are no additional arrangements in place for compensation beyond the notice period.

 

Under another agreement ('the Administration Agreement') dated 1 January 2016, company secretarial services and the general administration of the Group are undertaken by Maitland Administration Services Limited ('Maitland'). Their fee is subject to review at intervals of not less than three years. The Administration Agreement may be terminated by six months' written notice.

 

It is the Directors' opinion that the continuing appointment of the Investment Manager and the Administrator/Secretary on the terms agreed is in the best interests of the Group and its shareholders. The Directors are satisfied that Chelverton has the required skill and expertise to continue successfully to manage the Group's assets, and is satisfied with the services provided by Maitland.

 

Dividends

Details of the dividends declared and paid by the Board are set out in the Strategic Report.

 

Directors' indemnification and insurance

The Company's Articles of Association provide that, insofar as permitted by law, every Director shall be indemnified by the Company against all costs, charges, expenses, losses or liabilities incurred in the execution and discharge of the Directors' duties, powers or office. The Company has arranged appropriate insurance cover in respect of legal action against its Directors. This cover was in place during the year and also to the date of signing this report.

 

Substantial shareholdings

The Directors have been informed of the following notifiable interests in the voting shares of the Company at 30 April 2019:

 

Ordinary shares	Number of shares	% of voting rights
Integrated Financial Arrangements Limited	1,021,264	5%

 

The Company has not been notified of any changes to the above holdings between 30 April 2019 and the date of this report.

 

Special business at the Annual General Meeting

The Company's AGM will be held at 11.00 am on Thursday 5 September 2019. The Notice of Meeting is set out below.

 

In addition to the ordinary business of the meeting, there are a number of items of special business, as follows:

 

Authority to issue shares and disapply pre-emption rights

 

An Ordinary Resolution was passed at the last AGM held on 6 September 2018 giving Directors authority, pursuant to Section 551 of the Companies Act 2006, to allot Ordinary shares up to an aggregate nominal value equal to £1,445,833 (which figure represented one-third of the issued share capital of the Company). This authority expires at the conclusion of the next AGM. The Directors are seeking renewal, pursuant to Section 551 of the Companies Act 2006, to allot up to an aggregate nominal value equal to £1,737,500, being one-third of the Ordinary shares in issue at the date of this report, as set out in Resolution 7 in the Notice of Meeting. This authority will expire at the AGM to be held in 2020 or 15 months from the passing of the Resolution, whichever is earlier.

 

A Special Resolution was also passed on 6 September 2018 giving the Directors power to issue Ordinary shares for cash notwithstanding the pre-emption provisions of the Companies Act 2006 and permitting the Directors to issue shares without being required to offer them to existing shareholders in proportion to their current holdings. This power expires at the conclusion of the next AGM and the Directors are seeking its renewal, pursuant to Sections 570 and 573 of the Companies Act 2006, to enable the Directors to issue up to 10% of the issued Ordinary share capital, representing 2,085,000 Ordinary shares at the date of this report, as set out in the Notice of Meeting as Resolution 8.

 

This authority will also cover the sale of shares held in Treasury, and will expire at the AGM to be held in 2020 or 15 months from the passing of the Resolution, whichever is earlier. The authorities to issue shares will only be used when it would be in the interests of shareholders as a whole. The Directors do not currently intend to issue or sell shares from Treasury other than above the prevailing NAV.

 

Purchase of own shares

 

At the AGM held on 6 September 2018 the Directors were granted the authority to buy back in the market up to 14.99% of the Company's Ordinary shares in circulation at that date for cancellation or placing into Treasury. No shares have been purchased under this authority, which remains in force. Resolution 9 as set out in the Notice of Meeting will renew this authority for up to 14.99% of the current issued Ordinary share capital in circulation, which represents 3,125,415 Ordinary shares at the date of this report. The Directors do not intend to use the authority to purchase the Company's shares unless to do so would result in an increase in the net asset value per share for the remaining shareholders and would generally be in the interests of all shareholders. The authority, if given, will lapse at the AGM to be held in 2020 or 15 months from the passing of this Resolution, whichever is earlier.

 

Purchases will be made on the open market. The price paid for Ordinary shares will not be less than 25p and not more than the higher of (i) 5% above the average of the middle market quotations (as derived from the Daily Official List of the London Stock Exchange) of the Ordinary shares for the five business days immediately preceding the date on which the Ordinary share is purchased, and (ii) the higher of the price of the last independent trade and the current highest independent bid on the London Stock Exchange. Shares may be cancelled or placed in Treasury.

 

Pursuant to the loan agreement between the Company and SDVP, the Company will not purchase any of its Ordinary shares out of capital reserves unless the cover for the final redemption value of the Zero Dividend Preference shares is at least 1.9 times after the purchase.

 

Notice period for general meetings

 

Resolution 10 is a Special Resolution that will give the Directors the ability to convene general meetings, other than Annual General Meetings, on a minimum of 14 clear days' notice. The minimum notice period for annual general meetings will remain at 21 clear days. The approval will be effective until the Company's Annual General Meeting to be held in 2020, at which it is intended that renewal will be sought. The Company will have to offer facilities for all shareholders to vote by electronic means for any general meeting convened on 14 days' notice. The Directors will only call a general meeting on 14 days' notice where they consider it to be in the interests of shareholders to do so and the relevant matter is required to be dealt with expediently.

 

Recommendation

 

The Board considers that the Resolutions to be proposed at the AGM are in the best interests of shareholders as a whole and the Company and, accordingly, recommends that shareholders vote in favour of each Resolution, as the Directors intend to do in respect of their own beneficial shareholdings representing approximately 0.9% of the issued share capital.

 

Company information

The following information is disclosed in accordance with the Companies Act 2006:

• The Group's capital structure and voting rights are summarised below.
• Details of the substantial shareholders in the Company are listed above.
• The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association.
• The Articles of Association can be amended by the passing of a Special Resolution of the members in a General Meeting.
• Amendment of the Articles of Association and the giving of powers to issue or buy back the Company's shares require the relevant Resolution to be passed by shareholders. The Board's current powers to issue or buy back shares and proposals for their renewal are detailed above.
• There are no restrictions concerning the transfer of securities in the Company; no restrictions on voting rights; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.
• Consideration of likely future developments is detailed in the Strategic Report.

 

SDVP Annual General Meeting

The SDVP's AGM will be held on Thursday 5 September 2019 following the Company's AGM. The Notice of Meeting is set out in the SDVP Annual Report.

 

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position, are described in the Chairman's Statement on pages 2 and 3 and in the Investment Manager's Report on pages 4 to 9. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial statements. In addition, note 23 on pages 60 to 65 to the financial statements sets out the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity risk. The Group has adequate financial resources and, as a consequence, the Directors believe that the Group is well placed to manage its business risks successfully and it is appropriate to adopt the going concern basis.

 

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.

 

Auditor

The Auditor, Hazlewoods LLP, has indicated its willingness to continue in office and Resolution 6 proposing its re-appointment and authorising the Directors to determine its remuneration for the ensuing year will be submitted at the AGM.

 

The Directors who were in office on the date of approval of these financial statements have confirmed, as far as they are each aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor.

 

On behalf of the Board

 

Lord Lamont of Lerwick

Chairman

10 July 2019

 

Statement on Corporate Governance

The Company is committed to maintaining high standards of corporate governance and the Directors are accountable to shareholders for the governance of the Group's affairs.

 

Statement of compliance with the UK Corporate Governance Code ('the Governance Code')

The Directors have reviewed the detailed principles outlined in the Governance Code and confirm that, to the extent that they are relevant to the Company's business, they have complied with the provisions of the Governance Code throughout the year ended 30 April 2019 except as explained in this section as being non-compliant and that the Company's current practice is in all material respects consistent with the principles of the Governance Code.

 

The Board also confirms that, to the best of its knowledge and understanding, procedures were in place to meet the requirements of the Governance Code relating to internal controls throughout the year under review. This statement describes how the principles of the Governance Code have been applied in the affairs of the Company.

 

As an investment trust, the Company has also taken into account the Code of Corporate Governance produced by the Association of Investment Companies ('the AIC Code'), which is intended as a framework of best practice specifically for AIC member companies.

 

The AIC Code, as explained by the AIC Corporate Governance Guide ('the AIC Guide'), addresses all the principles set out in the Governance Code, and there are some areas where the AIC Code is more flexible than the Governance Code. The Board has taken steps to adhere to its principles for investment companies and follow the recommendations in the AIC Code where it believes they are appropriate.

 

A copy of the AIC Code and the AIC Guide can be obtained via the AIC website, www.theaic.co.uk, and a copy of the Governance Code can be obtained at www.frc.org.uk.

 

The Company has not complied with the following provisions of the Governance Code:

• owing to the size of the Board, it is felt inappropriate to appoint a senior independent non-executive Director.
• as the Group has no staff, other than Directors, there are no procedures in place in relation to whistle-blowing. The Board has satisfied itself there are appropriate whistle-blowing procedures in place at its service providers.

 

Board responsibilities and relationship with Investment Manager

The Board is responsible for the investment policy and strategic and operational decisions of the Group and for ensuring that the Group is run in accordance with all regulatory and statutory requirements. These procedures have been formalised in a schedule of matters reserved for decision by the Board. These matters include:

• the maintenance of clear investment objectives and risk management policies, changes to which require Board approval;
• the monitoring of the business activities of the Group, including investment performance and annual budgeting; and
• review of matters delegated to the Investment Manager, Administrator, Custodian or Secretary.

 

The Group's day-to-day functions have been delegated to a number of service providers, each engaged under separate legal agreements. At each Board meeting the Directors follow a formal agenda prepared and circulated in advance of the meeting by the Company Secretary to review the Group's investments and all other important issues, such as asset allocation, gearing policy, corporate strategic issues, cash management, peer group performance, marketing and shareholder relations, investment outlook and revenue forecasts, to ensure that control is maintained over the Group's affairs. The Board regularly considers its overall strategy.

 

The management of the Group's assets is delegated to Chelverton. At each Board meeting, representatives of Chelverton are in attendance to present verbal and written reports covering its activity, portfolio composition and investment performance over the preceding period. Ongoing communication with the Board is maintained between formal meetings. The Investment Manager ensures that Directors have timely access to all relevant management and financial information to enable informed decisions to be made and contacts the Board as required for specific guidance. The Company Secretary and Investment Manager prepare briefing notes for Board consideration on matters of relevance, for example changes to the Group's economic and financial environment, statutory and regulatory changes and corporate governance best practice.

 

Board membership

At the year end the Board consisted of four Directors, all of whom are non-executive. The Group has no employees. The Board seeks to ensure that it has the appropriate balance of skills, experience and length of service amongst its members. The Board's policy on tenure is that Directors can stand for more than nine years. The Board considers that length of service does not necessarily compromise the independence or contribution of directors of investment trust companies where experience and continuity can be a significant strength. The Directors possess a wide range of business and financial expertise relevant to the direction of the Group and Company and consider that they commit sufficient time to the Group and Company's affairs. On appointment to the Board, Directors are fully briefed as to their responsibilities by the Chairman, the Investment Manager and the Company Secretary. Brief biographical details of the Directors can be found above.

 

The Directors meet at regular Board meetings, held at least four times a year, and additional meetings and telephone meetings are arranged as necessary. During the year to 30 April 2019 the Board met six times and all Directors were present at all Board meetings.

 

Board effectiveness

The Board conducts an annual review of the performance of the Board, its Committees and the Directors. The Board is satisfied from the results of its last evaluation that the Board, its Committees and Directors function effectively, collectively and individually and that the Board contains an appropriate balance of skills and experience to effectively manage the Company.

 

Chairman

The Chairman, Lord Lamont, is independent. He has shown himself to have sufficient time to commit to the Group's affairs. The Company does not have a chief executive officer, as it has no executive directors. The Chairman has no relationships that may create a conflict of interest between the Chairman's interest and those of the shareholders. The Chairman does not sit on the Board of any other investment company managed by Chelverton.

 

Directors' independence

In accordance with the Listing Rules for investment entities, the Board has reviewed the status of its individual Directors and the Board as a whole.

 

The Governance Code requires that this report should identify each non-executive Director the Board considers to be independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the Director's judgement, stating its reasons if it determines that a Director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination.

 

Mr Myles and Mr Watkins are deemed to be independent of the Investment Manager. Despite being on the Board for over nine years, the Board believes Lord Lamont is also independent. They all continue to perform their roles effectively. Mr van Heesewijk was not deemed independent during most of the year by virtue of his employment with Chelverton. Following his departure from Chelverton in March 2019 and in accordance with the Listing Rules he is now an independent director. The Board members are therefore now all independent.

 

Under the Articles of Association, one-third of Directors will retire by rotation at each AGM and no Director shall serve a term of more than three years before re-election, in accordance with corporate governance principles. The Board has reviewed the appointment of those Directors retiring at the forthcoming AGM. In accordance with the Governance and AIC Codes, Lord Lamont will offer himself for re-election (and do so on an annual basis), having served on the Board for over nine years. Mr van Heesewijk as a non-independent Director will also stand for re-election. The Board recommends that shareholders vote for the re-election of Lord Lamont, Mr van Heesewijk and Mr Watkins, as it believes their contributions to the Board to be effective, that they demonstrate commitment to their roles as non-executive Directors of the Company and have actively contributed throughout the year.

 

Senior Independent Director

No separate Senior Independent Director has been appointed to the Board as, in the view of the Directors, it is inappropriate to do so given the size and composition of the Board. All the Directors make themselves available to shareholders at general meetings of the Company. The Directors can be contacted at other times via the Company Secretary.

 

Audit Committee

The Audit Committee comprises the independent Directors. The Committee met twice during the year ended 30 April 2019, with Mr Myles as Chairman. All members of the Committee were present at both meetings. The Audit Committee has direct access to the Group's Auditor, Hazlewoods LLP, and representatives of Hazlewoods LLP attend the year end Audit Committee meeting.

 

The primary responsibilities of the Audit Committee are: to review the effectiveness of the internal control environment of the Group and monitor adherence to best practice in corporate governance; to make recommendations to the Board in relation to the re-appointment of the Auditor and to approve their remuneration and terms of engagement; to review and monitor the Auditor's independence and objectivity and the scope and effectiveness of the audit process and to provide a forum through which the Group's Auditor reports to the Board. The Audit Committee also has responsibility for monitoring the integrity of the financial statements and accounting policies of the Group and for reviewing the Group's financial reporting and internal control policies and procedures. Committee members consider that, individually and collectively, they are appropriately experienced in accounting and audit processes to fulfil the role required.

 

Management Engagement Committee

The functions performed by this type of Committee are carried out by the Board of the Company.

 

The Board reviewed the performance of the Investment Manager's obligations under the Investment Management Agreement. Based on this performance, the Board decided that the Investment Manager's appointment should continue. It also reviewed the performance of the Company Secretary, the Custodian and the Registrar and matters concerning their respective agreements with the Company.

 

Nominations Committee

The functions performed by this type of Committee are carried out by the Board of the Company.

 

The Board evaluated the performance of Directors and the Chairman for the year ended 30 April 2019. As a result of the evaluation, the Board remains of the opinion that all Directors contribute effectively and have the skills and experience relevant to the leadership and direction of the Company. The Board also recommended the re-appointment of those Directors standing for re-election at the Annual General Meeting.

 

Remuneration Committee

The functions performed by this type of Committee are carried out by the Board of the Company.

 

The Board assessed the Directors' fees, following proper consideration of the role that individual Directors fulfil in respect of Board and Committee responsibilities, the time committed to the Group's affairs and remuneration levels generally within the investment trust sector.

 

Under the Listing Rules, the Governance Code principles relating to directors' remuneration do not apply to an investment trust company other than to the extent that they relate specifically to non-executive directors. Detailed information on the remuneration arrangements can be found in the Directors' Remuneration Report on pages 30 to 32 and in note 5 to the financial statements.

 

Independent professional advice

The Board has formalised arrangements under which the Directors, in the furtherance of their duties, may take independent professional advice at the Company's expense.

 

Institutional investors - use of voting rights

The Investment Manager, in the absence of explicit instruction from the Board, is empowered to exercise discretion in the use of the Company's voting rights.

 

Conflicts of interest

It is the responsibility of each individual Director to avoid an unauthorised conflict arising. He must notify and request authorisation from the Board as soon as he becomes aware of the possibility of a conflict arising.

 

The Board is responsible for considering Directors' requests for authorisation of conflicts and for deciding whether or not the conflict should be authorised. The factors to be considered will include whether the conflict could prevent the Director from properly performing his duties, whether it has, or could have, any impact on the Group and whether it could be regarded as likely to affect the judgement and/or actions of the Director in question. When the Board is deciding whether to authorise a conflict or potential conflict, only Directors who have no interest in the matter being considered are able to take the relevant decision, and in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Group's success. The Directors are able to impose limits or conditions when giving authorisation if they think this is appropriate in the circumstances.

 

A register of conflicts is maintained by the Company Secretary and is reviewed at Board meetings, to ensure that any authorised conflicts remain appropriate. Directors are required to confirm at these meetings whether there has been any change to their position.

 

Internal control review

The Board is responsible for establishing and maintaining the Group's systems of internal control and for reviewing their effectiveness.

 

An ongoing process, in accordance with the guidance supplied by the Financial Reporting Council, 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting', is in place for identifying, evaluating and managing risks faced by the Company and the Group. The Company's risks are documented and evaluated using a risk register. This register is reviewed regularly by Directors to ensure appropriate risk mitigation actions are in place. This process helps to ensure that the Board maintains a sound system of internal control to safeguard shareholders' investments and the Group's assets. This process also involves a review by Directors of reports on the internal control systems of the service providers who perform all the Company's administrative and managerial functions. As described below, this process, together with key procedures established with a view to providing effective financial control, have been in place for the full financial year and up to the date the financial statements were approved.

 

The risk management process and systems of internal control are designed to manage rather than eliminate the risk of failure to achieve the Company's objectives. It should be recognised that such systems can only provide reasonable, rather than absolute, assurance against material misstatement or loss. No significant failings or weaknesses have been identified.

 

Internal control assessment process

Risk assessment and the review of internal controls is undertaken by the Board in the context of the Group's overall investment objective. The review covers the key business, operational, compliance and financial risks facing the Company. In arriving at its judgement of what risks the Company faces, the Board has considered the Company's operations in the light of the following factors:

• the threat of such risks becoming a reality;
• the Company's ability to reduce the incidence and impact of risk on its performance;
• the cost to the Company and benefits related to the review of risk and associated controls of the Group; and
• the extent to which third parties operate the relevant controls.

Against this background the Board has split the review into four sections reflecting the nature of the risks being addressed. The sections are as follows:

• corporate strategy;
• published information and compliance with laws and regulations;
• relationship with service providers; and
• investment and business activities.

Given the nature of the Company's activities and the fact that most functions are subcontracted, the Group does not have an internal audit function. The Directors have obtained information from key third-party suppliers regarding the controls operated by them. To enable the Board to make an appropriate risk and control assessment, the information and assurances sought from third parties include the following:

• details of the control environment;
• identification and evaluation of risks and control objectives;
• assessment of the communication procedures; and
• assessment of the control procedures.

The key procedures which have been established to provide effective internal financial controls are as follows:

• Investment management is provided by Chelverton. The Board is responsible for the implementation of the overall investment policy and monitors the actions of the Investment Manager at regular Board meetings.
• The provision of administration, accounting and company secretarial duties is the responsibility of Maitland Administration Services Limited.
• Custody of assets is undertaken by Jarvis Investment Management Limited.
• The duties of investment management, accounting and custody of assets are segregated. The procedures of the individual parties are designed to complement one another.* The non-executive Directors of the Group clearly define the duties and responsibilities of their agents and advisers in the terms of their contracts. The appointment of agents and advisers is conducted by the Board after consideration of the quality of the parties involved; the Board, via the Management Engagement Committee, monitors their ongoing performance and contractual arrangements.

• Mandates for authorisation of investment transactions and expense payments are set by the Board.
• The Board reviews detailed financial information provided by the Administrator on a regular basis.

 

Company Secretary

The Board has direct access to the advice and services of the Company Secretary, Maitland Administration Service Limited, which is responsible for ensuring that Board and Committee procedures are followed and that applicable regulations are complied with. The Secretary is also responsible to the Board for ensuring timely delivery of information and reports and that the statutory obligations of the Group are met.

 

Dialogue with shareholders

Communication with shareholders is given a high priority by both the Board and the Investment Manager and all Directors are available to enter into dialogue with shareholders at any time. Major shareholders of the Group have the opportunity to meet with the independent non-executive Directors of the Board in order to ensure that their views are understood. All shareholders are encouraged to attend the AGM, during which the Board and the Investment Manager are available to discuss issues affecting the Group and shareholders have the opportunity to address questions to the Investment Manager, the Board and the Chairmen of the Board's standing committees.

 

There are no significant issues raised by major shareholders to bring to all shareholders' attention, topics of interest are covered in the Strategic Report on pages 1 to 13.

 

Any shareholder who would like to lodge questions in advance of the AGM is invited to do so either on the reverse of the Proxy Form or in writing to the Company Secretary at the address given on page 72. The Company always responds to letters from individual shareholders.

 

The Annual and Half Yearly Reports of the Group are prepared by the Board and its advisers to present a full and readily understandable review of the Group's performance. Copies are available for downloading from the Investment Manager's website www.chelvertonam.com and on request from the Company Secretary on 01245 398950. Copies of the Annual Report are mailed to shareholders.

 

Audit Committee Report

 

Role of the Committee

The Audit Committee ('the Committee') provides a forum through which the Group's Auditor reports to the Board. The Committee is responsible for monitoring the process of production and ensuring the integrity of the Group's financial statements. The other primary responsibilities of the Committee are:

• to monitor adherence to best practice in corporate governance;
• to review the effectiveness of the internal control and risk management environment of the Group;
• to receive compliance reports from the Investment Manager;
• to consider the accounting policies of the Group;
• to make recommendations to the Board in relation to the re-appointment of the Auditor;
• to make recommendations to the Board in relation to the Auditors' remuneration and terms of engagement; and
• to review and monitor the Auditor's independence and objectivity and the effectiveness of the audit process.

 

Matters considered in the year

The Committee met twice during the financial year to consider the financial statements and to review the internal control systems. The principal matters considered by the Committee were the valuation of the Group's assets, proof of ownership of its investments and cash, and the maintenance of its approval as an investment trust.

 

The Manager and Administrator have reported to the Committee to confirm continuing compliance with their individual regulatory requirements and for maintaining the Company's investment trust status. These were also reviewed by the Auditor as part of the audit process.

 

The Committee liaised with the appointed Investment Manager, Chelverton Investment Management Limited, throughout the year, and received reports on their legal compliance. A Risk Assessment and Review of Internal Controls document maintained by the Board was considered in detail and amended as necessary. This document is reviewed by the Committee at each meeting.

 

Internal audit

The Group does not have an internal audit function, as most of its day-to-day operations are delegated to third parties, all of whom have their own internal control procedures. The Committee discussed whether it would be appropriate to establish an internal audit function, and agreed that the existing system of monitoring and reporting by third parties remains appropriate and sufficient. The need for an internal audit function is reviewed annually.

 

External audit

The Audit Committee monitors and reviews the effectiveness of the external third-party service providers, audit process for the publication of the Annual Report and makes recommendations to the Board on the re-appointment, remuneration and terms of engagement of the Auditors.

 

Prior to each Annual Report being published, the Committee considers the appropriateness of the scope of the audit plan, the terms under which the audit is to be conducted, as well as the matter of remuneration, with a view to ensuring the best interests of the Group are promoted.

 

Audit fees are computed on the basis of the time spent on Group affairs by the Audit partners and staff and on the levels of skill and responsibility of those involved.

 

Hazlewoods LLP was first appointed as Auditor to the Group on 2 May 2007. As part of its review of the continuing appointment of the Auditor, the Committee considers the length of tenure of the audit firm, its fees and independence, along with any matters raised during each audit. The Committee has discussed with Hazlewoods LLP its objectivity, independence and experience in the investment trust sector.

 

The Committee has recommended the re-appointment of Hazlewoods LLP on each occasion since their initial appointment. The audit was put out to tender in 2017, and, as a result of that process, the Committee recommended to the Board, and the Board approved, the re-appointment of Hazlewoods LLP. The Senior Statutory Auditor for the Group has been rotated twice since the initial appointment, most recently in respect of the financial year ended 30 April 2018.

 

Hazlewoods LLP has indicated its willingness to continue in office as Auditor of the Group. Following its review, the Committee considers that, individually and collectively, the Auditor is appropriately experienced to fulfil the role required, and have recommended its re-appointment to the Board. A resolution for its re­appointment will be proposed at the forthcoming Annual General Meeting.

 

The Committee has considered the independence and objectivity of the Auditor and it is satisfied in these respects that Hazlewoods LLP has fulfilled its obligations to the Group and its shareholders. During the year, Hazlewoods provided tax compliance services to the Group. These were not provided by the audit team and the fee is not significant (refer to note 4 on page 50). No other non-audit services were provided in the year. The Committee has advised that, based on its assessment of their performance and independence, Hazlewoods LLP has fulfilled its obligations to the Group and its shareholders.

 

I intend to be present at the Annual General Meeting to address any questions from shareholders relating to the financial statements.

 

Howard Myles

Audit Committee

Chairman

10 July 2019

 

Directors' Remuneration Report

 

The Board has prepared this Report in accordance with the requirements of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The law requires the Group's Auditor, Hazlewoods LLP, to audit certain disclosures provided. Where disclosures have been audited, they are indicated as such. The Auditor's opinion is included in their report on pages 35 to 40.

 

Last year, shareholders were asked to approve the Directors' Remuneration Report at the Annual General Meeting ('AGM') through an advisory vote, as has been the case in previous years, and this will again be the case at the next AGM. At the AGM held in 2018 shareholders were also asked to give a binding vote on the Directors' Remuneration Policy. The Remuneration Policy must be approved at least every three years.

 

An Ordinary Resolution to approve the Remuneration Report will be put to shareholders at the forthcoming AGM on 5 September 2019.

 

The Board considers and approves Directors' remuneration. No major decisions on or changes to Directors' remuneration have been made during the year ended 30 April 2019. During the year ended 30 April 2019, the fees were continued at a rate of £20,000 for the Chairman and £17,500 for other Directors, with an additional payment of £2,500 to the Chairman of the Audit Committee.

 

The Company's performance

The graph below compares the total return (assuming all dividends are reinvested) to Ordinary shareholders, compared to the total shareholder return of the MSCI UK Small Cap Index. Although the Company has no formal benchmark, the MSCI UK Small Cap Index has been selected as it is considered to represent a broad equity market index against which the performance of the Company's assets may be adequately assessed.

 

Directors' service contracts

None of the Directors has a contract of service with the Company, nor has there been any contract or arrangement between the Company and any Director at any time during the year. The terms of their appointment provide that a Director shall retire and be subject to re-election at the first Annual General Meeting after their appointment, and at least every three years after that. Directors who have served on the Board for more than nine years must offer themselves for re-election on an annual basis.

 

Directors' entitlements

Directors are only entitled to fees in accordance with the Directors' Remuneration Policy as approved by shareholders. None of the Directors has any entitlement to pensions or pension-related benefits, medical or life insurance, share options, long-term incentive plans, or any form of performance-related pay. Also, no Director has any right to any payment by way of monetary equivalent, or any assets of the Company except in their capacity as shareholders. There is no notice period and no provision for compensation upon loss of office. The Directors' emoluments table below therefore does not include columns for any of these items or their monetary equivalents.

 

Directors' emoluments for the year ended 30 April 2019 (audited)

The Directors who served in the year received the following emoluments wholly in the form of fees:

 

Fees/Total

	Year to 30 April 2019	Year to 30 April 2018
Lord Lamont (Chairman)	20,000	20,000
D Harris - retired 6 September 2018	6,102	17,500
H Myles	20,000	20,000
W van Heesewijk*	-	-
A Watkins - appointed 6 September 2018	11,352	-
	57,454	57,500
* Mr van Heesewijk has waived his entitlement to fees.

 

During the year no Directors received taxable benefits (2018: same).

 

Directors' interests (audited)

The interests of the Directors and any connected persons in the Ordinary shares and Zero Dividend Preference ('ZDP') shares of the subsidiary Company are set out below:

 

	Number of Ordinary shares held at	Number of ZDP shares held at	Number of Ordinary shares held at	Number of ZDP shares held at
Director	30 April 2019	30 April 2019	30 April 2018	30 April 2018
Lord Lamont (Chairman)	75,085	10,000	70,039	10,000
W van Heesewijk	100,000	Nil	90,000	Nil
H Myles	Nil	Nil	Nil	Nil
A Watkins	13,100	Nil	n/a	n/a

Significance of spend on pay

						Change
			2019		2018		%
Dividends paid to Ordinary shareholders in the year			2,008,000		1,857,000		8.13
Total remuneration paid to Directors			57,454		57,500		(0.08)

 

None of the Directors nor any persons connected with them had a material interest in the Company's transactions, arrangements or agreements during the year.

 

The Directors' Remuneration Report for the year ended 30 April 2018 (Resolution 2) was approved by shareholders at the Annual General Meeting held on 6 September 2018. The votes cast by proxy were as follows:

	Number of votes	% of votes cast
For	1,465,634	99.26
Against	11,000	0.74
Total votes cast	1,476,634
Number of votes abstained	16,959

 

Remuneration Policy

The Board's policy is that the remuneration of non-executive Directors should be sufficient to attract and retain directors with suitable skills and experience, and is determined in such a way as to reflect the experience of the Board as a whole, in order to be comparable with other organisations and appointments.

 

The fees of the non-executive Directors are determined within the limits of £250,000, as set out in the Company's Articles of Association. The approval of shareholders would be required to increase the limits set out in the Articles of Association. Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits, as the Board does not consider such arrangements or benefits necessary or appropriate. Fees for any new Director appointed will be made on the same basis.

 

The Directors' Remuneration Policy (Resolution 6) was approved by shareholders at the Annual General Meeting held on 6 September 2018. The votes cast by proxy were as follows:

 

 

	Number of votes	% of votes cast
For	1,465,203	99.23
Against	11,431	0.77
Total votes cast	1,476,634
Number of votes abstained	16,959

 

 

	Expected Fees for Year to 30 April 2020	Fees for Year to 30 April 2019
Chairman basic fee	20,000	20,000
Non-Executive Director basic fee	17,500	17,500
Audit Committee Chairman additional fee	2,500	2,500

 

The Company intends to continue with the Directors' Remuneration Policy over the next financial year. Fees payable in respect of subsequent periods will be determined following an annual review. Any views expressed by shareholders on remuneration being paid to Directors would be taken into consideration by the Board. In accordance with the regulations, an Ordinary Resolution to approve the Directors' Remuneration Policy will be put to shareholders at least once every three years.

 

Approval

The Directors' Remuneration Report was approved by the Board on 10 July 2019.

 

On behalf of the Board

 

Lord Lamont

Chairman

10 July 2019

 

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. The Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the EU. Company law requires the Directors to prepare such financial statements in accordance with IFRSs and the Companies Act 2006.

 

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 in accordance with International Accounting Standard ('IAS') 8: 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently;
• 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 IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and the Company's financial position and financial performance;
• state that the Group and the Company have complied with IFRSs, as adopted by the EU subject to any material departures disclosed and explained in the financial statements; and
• make judgements and estimates that are reasonable and prudent.

 

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 and Article 4 of the IAS Regulation. 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 integrity of the 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 IFRSs as adopted by the EU, give a true and fair 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, together with a description of the principal risks and uncertainties faced;
• the Annual Report is fair, balanced and understandable and provides the information necessary for shareholders 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 business and the Group and its undertakings included in the consolidation taken as a whole and adequately describes the principal risks and uncertainties they face.

 

On behalf of the Board of Directors

 

Lord Lamont of Lerwick

Chairman

10 July 2019

 

Independent Auditor's Report

to the members of Chelverton UK Dividend Trust PLC

 

Opinion

We have audited the financial statements of Chelverton UK Dividend Trust plc (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 30 April 2019, which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statement of Changes in Net Equity, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Statement of Cash Flows and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union.

 

In our opinion, the financial statements:

• give a true and fair view of the state of the Group's and Parent Company's affairs as at 30 April 2019 and of the Group's and the Parent Company's loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

 

Separate opinion in relation to IFRSs as issued by the IASB

As explained in note 1 to the Group financial statements, the Group, in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).

 

In our opinion, the Group financial statements give a true and fair view of the consolidated financial position of the Group as at 30 April 2019 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with IFRSs as issued by the IASB.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ('ISAs (UK)') and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Conclusions relating to principal risks, going concern and viability statement

We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:

• the disclosures in the annual report set out on pages 10 to 11 that describe the principal risks and explain how they are being managed or mitigated;
• the Directors' confirmation set out on page 10 in the annual report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity;
• the Directors' statement set out on page 20 in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the Directors' identification of any material uncertainties to the Group and the Parent Company's ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements;
• whether the Directors' statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or
• the Directors' explanation set out on page 20 in the annual report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

 

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

The key audit matters identified were valuation, ownership and existence of investments and the allocation of capital and revenue items. Revenue recognition and management override of controls are always deemed risks in any audit. This is not a complete list of all risks identified by our audit.

 

Audit Risk	How we responded to the risk
Valuation, ownership and existence of investments
The Group's business is to invest predominantly in small capitalised UK companies, listed on the Official List and admitted to trading on AIM, to achieve a high income and opportunity for capital growth. Accordingly, the investment portfolio is a significant, material balance in the financial statements. We therefore identified the valuation, ownership and existence of the investment portfolio as a risk that requires particular audit attention.	Our audit work included, but was not restricted to: understanding management's process to recognise and measure quoted investments; assessing whether the Group's accounting policy for valuation of quoted investments is in accordance with IAS 39; comparing quoted investment valuations to an independent source of market prices; testing investment additions and disposals to contracts and bank statements; and confirming investment holdings to either third party confirmations, direct investee confirmations or share certificates. The Group's accounting policy on valuation of investments is shown in note 1 to the financial statements and related disclosures are included in note 10. The Audit Committee identified the valuation and ownership of investments as a significant issue in its report on page 28, where the Committee also described the action that it has taken to address this risk.
Allocation of capital and revenue items
The Group is required to apportion its expenses between revenue and capital. This allocation is important as the Group can only pay dividends out of revenue reserves.   The split has to be performed on the basis of 'the Board's expected long-term split of returns'.	Our audit work included, but was not restricted to, examining the historical trends of the Company and assessing whether the allocation of cost between revenue and capital is fair and reasonable.
Management override of controls
Under ISA 240 there is a presumption that the risk of management override of controls is always present.	Our audit work included, but was not restricted to: reviewing material estimates, judgements and decisions made by management; and testing all material manual journal entries. The Group's accounting policies in respect of material estimates and judgements are set out in note 1.
Revenue recognition
Under ISA 240 there is always a presumed risk that revenue may be misstated due to the improper recognition of revenue. In particular we identified completeness and occurrence of investment income as a risk that requires particular audit attention.	Our audit work included, but was not restricted to: assessing whether the Group's accounting policy for revenue recognition is in accordance with IAS 18 'Revenue'; obtaining an understanding of management's process to recognise revenue in accordance with the stated accounting policy; testing income transactions by comparing dividends during the year obtained from an independent source with those recognised by the group; testing gains and losses on investments to third party contracts; performing cut-off testing of dividend income around the year end; and checking the classification of special dividends as either revenue or capital receipts. The accounting policy on income, including its recognition, in shown in note 1 to the financial statements and the components of that income are included in note 2.

Our application of materiality

We apply the concept of materiality in planning and performing our audit, in evaluating the effect of any identified misstatements and in forming our opinion. For the purpose of determining whether the financial statements are free from material misstatement, we define materiality as the magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. We also determine a level of performance materiality, which we use to determine the extent of testing needed, to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.

 

We established materiality for the financial statements as a whole to be £620,000, which is 1% of the value of the Group's net assets. For income and expenditure items we determined that misstatements of lesser amounts than materiality for the financial statements as a whole would make it probable that the economic decisions of the users of the financial statements would have been changed or influenced by the misstatement or omission. Accordingly, we established materiality for revenue items within the income statement to be £155,000, which is 25% of the financial statement materiality, based on long-term expectations of the split of revenue and capital income.

 

An overview of the scope of our audit

Our audit approach was based on a thorough understanding of the Group's business and is risk-based. The day-to-day management of the Group's investment portfolio and the maintenance of the Group's accounting records is managed internally, with the custody of its investments outsourced to third-party service providers. Accordingly, our audit work is focused on obtaining an understanding of, and evaluating, internal controls by the Group and inspecting records and documents held by the third-party service providers. We undertook substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness of controls over individual systems and the management of specific risks.

 

Other information

The other information comprises the information included in the annual report, other than the financial statements and our Auditor's Report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

 

We have nothing to report in this regard.

 

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:

 

* Fair, balanced and understandable, set out on page 33 - the statement given by the Directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

 

* Audit Committee reporting, set out on pages 28 and 29 - the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or

 

• Directors' statement of compliance with the UK Corporate Governance Code, set out on page 21 - the parts of the Directors' statement required under the Listing Rules relating to the Group's compliance with the UK Corporate Governance Code containing provisions specified for review by the Auditors in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the Directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements and those reports have been prepared in accordance with applicable legal requirements;
• the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial Conduct Authority ('the FCA Rules'), is consistent with the financial statements and has been prepared in accordance with applicable legal requirements; and
• information about the Group's corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.

 

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in:

• the Strategic Report or the Directors' Report; or
• the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.

 

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a corporate governance statement has not been prepared by the Parent Company.

 

Responsibilities of Directors

As explained more fully in the Directors' Responsibilities Statement, set out on pages 33 and 34, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditor's Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor's Report.

 

Other matters which we are required to address

Following the recommendation of the Audit Committee, we were appointed by the Board on 13 October 2017 to audit the financial statements for the year ending 30 April 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 13 years.

 

As disclosed in the Corporate Governance Report, tax compliance services were provided in the year as permitted by the FRC's Ethical Standard. Separate teams were engaged to complete the work and the work was performed after the audit was complete and the audit report signed with no reliance placed on the tax compliance work by the audit team. Other than those disclosed in the Corporate Governance Report, we have provided no non-audit services to the Group and Parent Company in the period from 1 May 2018 to 30 April 2019.

 

The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group and Parent Company and we remain independent of the Group and Parent Company in conducting our audit.

 

Our audit opinion is consistent with the additional report to the audit committee.

 

Use of this report

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Ryan Hancock (Senior Statutory Auditor)

For and on behalf of Hazlewoods LLP, Statutory Auditor

Cheltenham

10 July 2019

 

 

Consolidated Statement of Comprehensive Income

for the year ended 30 April 2019

 

		2019			2018
	Note	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments at fair value through profit or loss	10	-	(7,083)	(7,083)	-	999	999
Investment income	2	3,221	-	3,221	2,526	-	2,526
Investment management fee	3	(153)	(459)	(612)	(156)	(469)	(625)
Other expenses	4	(274)	(37)	(311)	(275)	(446)	(721)
Net (defecit)/return before finance costs and taxation		2,794	(7,579)	(4,785)	2,095	84	2,179
Finance costs	6	(1)	(582)	(583)	-	(630)	(630)
Net (defecit)/return before taxation		2,793	(8,161)	(5,368)	2,095	(546)	1,549
Taxation	7	-	-	-	-	-	-
Total comprehensive (expense)/income for the year		2,793	(8,161)	(5,368)	2,095	(546)	1,549
		Revenue pence	Capital pence	Total pence	Revenue pence	Capital pence	Total pence
Net return per:
Ordinary share	8	13.40	(39.15)	(25.75)	11.49	(2.99)	8.50
Zero Dividend Preference share 2025	8	-	4.02	4.02	-	1.21	1.21
Zero Dividend Preference share 2018	8	-	-	-	-	5.50	5.50

 

The total column of this statement is the Statement of Comprehensive Income of the Group prepared in accordance with IFRS as adopted by the EU. 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 notes on pages 46 to 66 form part of these financial statements.

 

Consolidated and Parent Company Statement of Changes in Net Equity

for the year ended 30 April 2019

		Share Capital	Share Premium Account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Year ended 30 April 2019
30 April 2018		5,188	17,301	5,004	21,086	3,215	51,794
Total comprehensive (expense)/ income for the year		-	-	-	(8,161)	2,793	(5,368)
Ordinary shares issued		25	228	-	-	-	253
Expenses of Ordinary share issue		-	(12)	-	-	-	(12)
Dividends paid	9	-	-	-	-	(2,008)	(2,008)
30 April 2019		5,213	17,517	5,004	12,925	4,000	44,659
Year ended 30 April 2018
30 April 2017		4,200	12,915	-	21,632	2,977	41,724
Total comprehensive (expense)/ income for the year		-	-	-	(546)	2,095	1,549
Ordinary shares issued		492	4,543	-	-	-	5,035
Expenses of Ordinary share issue		-	(157)	-	-	-	(157)
C shares issued		5,500	-	-	-	-	5,500
Cancellation of deferred shares		(5,004)	-	5,004	-	-	-
Dividends paid	9	-	-	-	-	(1,857)	(1,857)
30 April 2018		5,188	17,301	5,004	21,086	3,215	51,794

 

The notes form part of these financial statements.

 

Consolidated and Parent Company Balance Sheets

as at 30 April 2019

	Note	Group 2019 £'000	Group 2018 £'000	Company 2019 £'000	Company 2018 £'000
Non-current assets
Investments at fair value through profit or loss	10	59,895	65,412	59,895	65,412
Investments in subsidiary	12	-	-	13	63
		59,895	65,412	59,908	65,475
Current assets
Trade and other receivables	13	447	863	447	863
Cash and cash equivalents		1,690	111	1,690	111
		2,137	974	2,137	974
Total assets		62,032	66,386	62,045	66,449
Current liabilities
Trade and other payables	14	(2,078)	(192)	(2,091)	(255)
		(2,078)	(192)	(2,091)	(255)
Total assets less current liabilities		59,954	66,194	59,954	66,194
Non-current liabilities
Zero Dividend Preference shares	15	(15,295)	(14,400)	-	-
Loan from subsidiary	16	-	-	(15,295)	(14,400)
		(15,295)	(14,400)	(15,295)	(14,400)
Total liabilities		(17,373)	(14,592)	(17,386)	(14,655)
Net assets		44,659	51,794	44,659	51,794
Represented by:
Share capital	17	5,213	5,188	5,213	5,188
Share premium account	18	17,517	17,301	17,517	17,301
Capital redemption reserve	18	5,004	5,004	5,004	5,004
Capital reserve	18	12,925	21,086	12,925	21,086
Revenue reserve	18	4,000	3,215	4,000	3,215
Equity shareholders' funds		44,659	51,794	44,659	51,794

 

The 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 10 July 2019.

 

Lord Lamont of Lerwick

Chairman

Company Registered Number: 03749536

 

Consolidated and Parent Company Statement of Cash Flows

for the year ended 30 April 2019

	Note	2019 £'000	2018 £'000
Operating activities
Investment income received		3,160	2,526
Investment management fee paid		(614)	(536)
Administration and secretarial fees paid		(72)	(66)
Other cash payments		(254)	(204)
Loan interest paid		(1)	-
Cash generated from operations	20	2,219	1,720
Purchases of investments		(9,841)	(20,970)
Sales of investments		10,032	10,399
Net cash inflow/(outflow) from operating activites		2,410	(8,851)
Financing activities
Redemption of Zero Dividend Preference shares		-	(1,802)
Issue of Zero Dividend Preference shares		313	3,265
Expenses for redemption and issue of Zero
Dividend Preference shares		-	(325)
Issue of C shares		-	5,500
Expenses of C shares issue		-	(163)
Issue of Ordinary shares		876	4,412
Expenses of Ordinary share issue		(12)	(157)
Dividends paid	9	(2,008)	(1,857)
Net cash (outflow)/inflow from financing activities		(831)	8,873
Change in cash and cash equivalents	21	1,579	22
Cash and cash equivalents at start of year	22	111	89
Cash and cash equivalents at end of year	22	1,690	111

 

The notes form part of these financial statements.

 

Notes to the Financial Statements

as at 30 April 2019

 

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 2019 comprise the financial statements of the Company and its subsidiary SDVP (together referred to as the 'Group').

 

Basis of preparation

 

The consolidated financial statements of the Group and the financial statements of the Company have been prepared in conformity with IFRSs issued by the International Accounting Standards Board (as adopted by the EU) and Interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC'), and applicable requirements of UK company law, and reflect the following policies which have been adopted and applied consistently.

 

New standards, interpretations and amendments adopted by the Group

 

The following amendments to standards effective this year, being relevant and applicable to the Group, have been adopted, although they have no impact on the financial statements:

• IFRS 7 Financial Instruments: Disclosures - Amendments requiring disclosures about the initial application of IFRS 9 (effective when IFRS 9 is first applied)
• IFRS 9 Financial Instruments - Classification and measurement of financial assets (effective 1 January 2018)
• IFRS 9 Financial Instruments - Classification and measurement of financial liabilities and de-recognition requirements from IAS 39 Financial Instruments Recognition and Measurement (effective 1 January 2018)

 

The revised IFRS 9 Financial Instruments replaces IAS 39 and applies to the classification, measurement and impairment of financial assets and liabilities, and hedge accounting. The adoption of IFRS 9 will have an effect on the classification but not the measurement of the Company's financial assets, but will potentially have no impact on the classification and measurement of financial liabilities. It will also introduce a new expected loss impairment model requiring more timely recognition of expected credit losses and a reformed model for hedge accounting with enhanced disclosure of risk management activity. The Standard is effective for annual period beginning on or after 1 January 2018 (please see note 25 on pages 65 and 66 for further details).

 

The following accounting standards and their amendments were in issue at the period end but will not be in effect until after this financial year end. The following accounting standards will not have any impact on the financial statements.

• IFRS 16 Leases (effective 1 January 2019)

 

Critical accounting judgements and uses of estimation

The preparation of financial statements in conformity with 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 the financial statements of the Company and its wholly-owned subsidiary undertaking, SDVP, drawn up to the same accounting date. SCZ was consolidated to the date that it entered liquidation and the Company ceased to have control.

 

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 £5,368,000 (2018: profit of £1,549,000).

 

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 November 2014 and updated in February 2018 with consequential amendments) is consistent with the requirements of 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.

 

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 the investment;
• expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment;
• expenses are charged to capital reserve where a connection with the maintenance or enhancement of the value 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% (2018: 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 the above 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

	2019	2018
	£'000	£'000
Income from listed investments
UK dividend income	3,077	2,408
Property income distibution	144	118
Total income	3,221	2,526
Total income comprises entirely of dividends

 

3 INVESTMENT MANAGEMENT FEE

 

	2019			2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee	153	459	612	156	469	645

 

At 30 April 2019 there were amounts outstanding of £121,000 (2018: £123,000).

 

4	OTHER EXPENSES
		2019	2018
		£'000	£'000
	Administration and secretarial fees	66	66
	Directors' remuneration (note 5)	57	58
	Auditor's remuneration:
	audit services*	21	20
	non-audit services*	2	5
	Insurance	3	4
	Other expenses*	162	568
		311	721
	Subsidiary operating costs	(37)	(11)
	Redemption and issue of ZDP costs	-	(309)
	Issue of C Share costs	-	(126)
		274	275
	* The above amounts include irrecoverable VAT where applicable.
5	DIRECTORS' REMUNERATION
		2019	2018
		£	£
	Directors' fees	57,454	57,500
	Social security costs	1	3
		57,455	57,503
	Remuneration to Directors
	Lord Lamont (Chairman)	20,000	20,000
	D Harris	6,102	17,500
	H Myles	20,000	20,000
	W van Heesewijk*	-	-
	A Watkins	11,352	-
	* Mr van Heesewijk has waived his entitlement to fees.

 

Note: Mr Harris resigned on 6 September 2018 and Mr Watkins was appointed on the same date.

 

 

6 FINANCE COSTS

		2019 Revenue Capital		Total	Revenue	2018 Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Overdraft interest	1	-	1	-	-	-
	Appropriations in respect of
	Zero Dividend Preference shares	-	582	582	-	630	630
		1	582	583	-	630	630
7	TAXATION
				2019			2018
				£'000			£'000
	Based on the revenue return for the year
	UK tax			-			-

 

The current tax charge for the year is lower than the standard rate of corporation tax in the UK of 19% to 30 April 2019 and 30 April 2018. The differences are explained below:

 

	2019			2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Return on ordinary activities before taxation	2,793	(8,161)	(5,368)	2,095	(546)	1,549
Theoretical corporation tax at 19% (2018: 19%)	531	(1,550)	(1,019)	398	(104)	294
Effects of:
Capital items not taxable	-	1,456	1,456	-	(70)	(70)
UK and overseas dividends which are not liable to UK corporation tax	(585)	-	(585)	(458)	-	(458)
Excess expenses in the year	54	94	148	60	174	234
Actual current tax charged to the revenue account	-	-	-	-	-	-

 

 

The Group has unrelieved excess expenses of £21,855,995 (2018: £21,073,407). 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.

 

8 RETURN PER SHARE

Ordinary shares

Revenue return per Ordinary share is based on revenue on ordinary activities after taxation of £2,780,000 (2018: £2,095,000) and on 20,847,534 (2018: 18,237,864) 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 £8,161,000 (2018: profit of £546,000) and on 20,847,534 (2018: 18,237,864) 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 £582,000 (2018: £157,000) and on 14,489,863 (2018: 13,033,639) Zero Dividend Preference shares 2025, being the weighted average number of Zero Dividend Preference shares in issue during the year.

 

Capital return per Zero Dividend Preference share 2018 is based on allocations from the Company of £nil (2018: £473,000) and on nil (2018: 9,646,150) Zero Dividend Preference shares 2018, being the weighted average number of Zero Dividend Preference shares in issue during the year.

 

9 DIVIDENDS
	2019	2018
	£'000	£'000
Declared and paid per Ordinary share
Fourth interim dividend for the year ended 30 April 2018 of 2.40p (2017: 2.40p)	500	413
Special dividend for the year ended 30 April 2018 of 0.66p (2017: 1.86p)	138	320
First interim dividend of 2.19p (2018: 2.02p)	456	351
Second interim dividend of 2.19p (2018: 2.02p)	457	359
Third interim dividend of 2.19p (2018: 2.02p)	457	414
	2,008	1,857
Declared per Ordinary share*
Fourth interim dividend for the year ended 30 April 2019 of 2.40p (2018: 2.40p)	500	500
Special dividend for the year ended 30 April 2019 of 2.50p (2018: 0.66p)	521	138
	1,021	638
All dividends are paid from Revenue Reserve.
* Dividend paid subsequent to the year end.

 

10 INVESTMENTS - Group and Company

 

	Listed £'000	AIM £'000	2019 Total £'000
Year ended 30 April 2019
Opening book cost	38,133	23,307	61,440
Opening investment holding gains	2,414	1,558	3,972
Opening valuation	40,547	24,865	65,412
Titon holding transferred from listed to A/M on 9 November 2018	(316)	316	-
Movements in the year:
Purchases at cost	10,173	1,568	11,741
Disposals:
Proceeds	(6,885)	(3,290)	(10,175)
Net realised gains on disposals	2,808	1,122	3,930
Movement in investment holding gains	(9,652)	(1,361)	(11,013)
Closing valuation	36,675	23,220	59,895
Closing book cost	43,913	23,023	66,936
Closing investment holding (losses)/gains	(7,238)	197	(7,041)
	36,675	23,220	59,895
Realised gains on disposals	2,808	1,122	3,930
Movement in investment holding gains	(9,652)	(1,361)	(11,013)
Losses on investments	(6,844)	(239)	(7,083)

 

	Listed £'000	AIM £'000	2018 Total £'000
Year ended 30 April 2018
Opening book cost	25,911	20,195	46,106
Opening investment holding gains	5,846	1,875	7,721
Opening valuation	31,757	22,070	53,827
Movements in the year:
Purchases at cost	16,287	4,683	20,970
Disposals:
Proceeds	(7,550)	(2,834)	(10,384)
Net realised gains on disposals	3,485	1,263	4,748
Movement in investment holding gains	(3,432)	(317)	(3,749)
Closing valuation	40,547	24,865	65,412
Closing book cost	38,133	23,307	61,440
Closing investment holding gains	2,414	1,558	3,972
	40,547	24,865	65,412
Realised gains on disposals	3,485	1,263	4,748
Movement in investment holding gains	(3,432)	(317)	(3,749)
Gains on investments	53	946	999

 

Transaction costs

During the year the Group incurred transaction costs of £59,000 (2018: £83,000) and £15,000 (2018: £22,000) 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 2019:

 

Name of issuer	Class of share	30 April 2019 % held
Coral Products Plc	Ordinary	7.3
RTC Group Plc	Ordinary	6.8
Chamberlin Plc	Ordinary	6.3
Orchard Funding Group Plc	Ordinary	3.5
Belvoir Lettings Plc	Ordinary	3.4

 

 

12 INVESTMENT IN SUBSIDIARY

	Company	Company
	2019	2018
	£'000	£'000
Cost as at 1 May	63	13
Additions *	-	50
Disposals *	(50)	-
Cost as at 30 April	13	63

 

* On 8 January 2019, the share capital of 50,000 ordinary shares of SCZ was fully paid up to £50,000. During the year SCZ was liquidated. On 8 January 2019, 50,000 share was capital was issued for SDVP. This has been partially paid up to 25p, amounting to £12,500.

 

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
	2019	2018	2019	2018
	£'000	£'000	£'000	£'000
Amounts due from Brokers	143	-	143	-
Amounts due from Brokers in respect of shares issued by the Group	-	623	-	623
Dividends receivable	293	236	293	236
Tax withheld on dividends received	6	-	6	-
Prepayments and accrued income	5	4	5	4
	447	863	447	863
14 TRADE AND OTHER PAYABLES
	Group	Group	Company	Company
	2019	2018	2019	2018
	£'000	£'000	£'000	£'000
Amounts due to Brokers	1,900	-	1,900	-
Trade and other payables	178	192	178	192
Loan from subsidiary undertaking	-	-	13	63
	2,078	192	2,091	255

 

15 ZERO DIVIDEND PREFERENCE SHARES

On 28 August 2012, SCZ issued 8,500,000 Zero Dividend Preference shares at 100p per share and with net proceeds of £8.3 million. The expenses of the placing were borne by the Company and the Investment Manager. On 24 March 2017, SCZ issued a further 849,000 Zero Dividend Preference shares at 135p per share giving a premium of 35p and net proceeds of £1.1 million. The Zero Dividend Preference shares each had an initial capital entitlement of 100p per share, growing by an annual rate of 6% compounded daily to 136.70p on 8 January 2018, a total of £12,780,000. Further to redemption on 8 January 2018, the accrued entitlement as per the Articles of Association of SCZ at 30 April 2019 was £nil (2018: £nil) per share, being £nil (2018: £nil) in total, and the total amount charged for the year of £nil (2018: £472,000) has been charged as a finance cost to capital.

 

On 8 January 2018, 9,349,000 Zero Dividend Preference Shares were redeemed at a compound value of 136.70p and SCZ was put into Administration. Holders of the Zero Dividend Preference shares were entitled to either roll over their investment into SDVP or receive cash in respect of their investment. Valid elections were received from eligible holders of 8,030,547 Zero Dividend Preference Shares 2018 to be transferred into Zero Dividend Preference Shares 2025. The remaining holders of Zero Dividend Preference Shares 2018 received cash of £1,802,326.

 

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. 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 £1.8 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 £1.5 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 £313,000. 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 £19,311,000. The accrued entitlement as per the Articles of Association of SDVP at 30 April 2019 was 105.48 (2018: 101.41p) per share, being £15,295,000 in total, and the total amount accrued for the year of £582,000 (2018: £157,000) has been charged as a finance cost to capital.

 

16 SECURED LOAN

Pursuant to a loan agreement between SCZ and the Company, SCZ lent the gross proceeds of £8,500,000, raised from the placing on 28 August 2012 of 8,500,000 Zero Dividend Preference shares at 100p, to the Company. On 8 January 2018 the loan was settled in full by the Company.

 

SCZ lent the gross proceeds of £1,146,000 raised from the additional placing on 24 March 2017 of 849,000 Zero Dividend Preference shares at a premium of 135p per share to the Company. The loan was non-interest bearing and was repayable three business days before the Zero Dividend Preference share redemption date of 8 January 2018 or, if required by SCZ, at any time prior to that date in order to repay the Zero Dividend preference share final redemption entitlement. The funds were managed in accordance with the investment policy of the Company.

 

The loan was secured by way of a floating charge on the Company's assets under a loan agreement entered into between the Company and SCZ dated 1 August 2012.

 

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 £10,978,000 raised from the conversion of 10,977,747 Zero Dividend Preference shares at 100p on 8 January 2018
• Gross proceeds of £10,978,000 raised from the placing of 1,802,336 Zero Dividend Preference share at 100p on 8 January 2018
• Gross proceeds of £1,463,000 raised from the placing of 1,419,917 Zero Dividend Preference shares at a premium of 103p on 11 April 2018
• Gross proceeds of £313,000 raised from the placings of 300,000 Zero Dividend Preference shares at a premium of 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. At 30 April 2019 the contribution due from the Company to cover the accrued entitlement was £582,000 (2018: £157,000).

 

				2019 £'000		2018 £'000
Value at 1 May				14,400		-
Loan issued in year for Zero Dividend Preference Shares 2025				313		14,243
Contribution to accrued capital entitlement of Zero Dividend Preference shares 2025				582		157
				15,295		14,400
17 SHARE CAPITAL
	2019				2018
	Number		£'000		Number		£'000
Issued, allotted and fully paid:
Ordinary shares of 25p each
Opening balance	20,750,000		5,188		16,800,000		4,200
Issue of Ordinary shares	100,000		25		1,967,172		492
Conversion of C shares to Ordinary shares	-		-		1,982,828		496
	20,850,000		5,213		20,750,000		5,188

 

During the year, the Company announced the following issuances of new Ordinary Shares of 25p each:

Date	Shares	Price	£'000
10/05/2018	100,000	253p	25

 

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 as will give a final entitlement to 133.18p for each Zero Dividend Preference share at 30 April 2025, £19,311,000 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 asset value per share	Net assets attributable to shareholders	Net asset value per share	Net assets attributable to shareholders
	2019	2019	2018	2018
	pence	£'000	pence	£'000
Ordinary shares	214.19	44,659	249.61	51,794
Zero Dividend Preference shares	105.48	15,295	101.41	14,400

 

The net asset value per Ordinary share is calculated on 20,850,000 (2018: 20,750,000) 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 (2018: 14,200,000) 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

 

	2019 £'000	2018 £'000
Net return before taxation	(5,368)	1,549
Taxation	-	-
Net return after taxation	(5,368)	1,549
Net capital return	8,161	546
(Increase)/decrease in receivables	(64)	6
(Decrease)/increase in payables	(14)	99
Interest and expenses charged to the capital reserve	(496)	(480)
Cash generated from operations	2,219	1,720
20 RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET CASH - Group and Company
	2019	2018
	£'000	£'000
Increase in cash in year	1,579	22
Net cash at 1 May	111	89
Net cash at 30 April	1,690	111

 

21 ANALYSIS OF CHANGES IN NET CASH - Group and Company

 

	At 1 May 2018 £'000	Cash flows £'000	At 30 April 2019 £'000
Cash at bank (including those held by custodians	111	1,579	1,690

 

22 RELATED PARTY TRANSACTIONS

Under the terms of an agreement dated 30 April 2006 (effective from 1 December 2005), the Company appointed Chelverton to be Investment Manager. The fee arrangements for these services and fees payable are set out in the Directors' Report on page 17 and in note 3 to the financial statements.

 

23 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.

 

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:

 

	2019 £'000	2018 £'000
Fair value through profit or loss investments	59,895	65,412

 

Sensitivity analysis

A 10% increase in the market value of investments at 30 April 2019 would have increased net assets by £5,989,000 (2018: £6,541,000). 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.

 

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 2019 of financial assets and financial liabilities to interest rate risk is limited to cash and cash equivalents of £1,690,000 (2018: £111,000). 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 2019 was £62,032,000 (2018: £66,386,000). The calculation is based on the Group's credit risk exposure as at 30 April 2019 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 2019			Assets at fair value through
	At	Loans and	profit
	cost receivables		or loss	Total
	£'000	£'000	£'000	£'000
Assets as per Balance Sheet
Investments	-	-	59,895	59,895
Trade and other receivables	-	447	-	447
Cash and cash equivalents	1,690	-	-	1,690
Total	1,690	447	59,895	62,032
Liabilities as per Balance Sheet
Trade and other payables	2,078	-	-	2,078
Zero Dividend Preference shares	-	15,295	-	15,295
Total	2,078	15,295	-	17,373
30 April 2018			Assets at fair value through
	At	Loans and	profit
	cost receivables		or loss	Total
	£'000	£'000	£'000	£'000
Assets as per Balance Sheet
Investments	-	-	65,412	65,412
Trade and other receivables	-	863	-	863
Cash and cash equivalents	111	-	-	111
Total	111	863	65,412	66,386
Liabilities as per Balance Sheet
Trade and other payables	192	-	-	192
Zero Dividend Preference shares	-	14,400	-	14,400
Total	192	14,400	-	14,592

 

 

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 yield curves observable at commonly quoted intervals).
• Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market-corroborated inputs).

 

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

 

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

 

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.

 

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 (2018: same).

 

24 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.

25 TRANSITION TO IFRS 9 FINANCIAL INSTRUMENTS

IFRS 9 'Financial Instruments' is effective for periods beginning on or after 1 January 2018 and has been adopted by the Company in the year. IFRS 9 sets out requirements for recognising and measuring financial assets and financial liabilities and replaces IAS 39 'Financial Instruments: Recognition and Measurement'. The impact on the consolidated financial statements of the Company is detailed below.

 

Classification of financial assets

IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and the cash flow characteristics of the assets.

 

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income and fair value through profit or loss. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. The new classification requirements do not impact the accounting for the Group's financial assets.

 

Impairment of financial assets

IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking 'expected credit loss' model. The new impairment model will apply to financial assets measured at amortised cost. There is no impact on the values reported in the financial statements from adopting IFRS 9 in respect of expected credit losses.

 

Cash and cash equivalents

Cash and cash equivalents are held at banks with a strong credit rating and are not subject to any period of notice. The Group typically maintains a low value of cash and cash equivalents. There is no impact on the values reported in the financial statements from adopting IFRS 9 in respect of expected credit losses.

 

Classification of financial liabilities

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The classification requirements of IFRS 9 do not impact the financial statements.

 

Transition

There is no impact on the financial statements from the adoption of IFRS 9.

 

Shareholder Information

 

Financial calendar

Group's year end: 30 April

Quarterly interim dividends paid: July, October, January and April

Special dividend paid: July

Annual results announced: July

Annual General Meeting: September

Group's half year: 31 October

Half year results announced: December

 

Share prices and performance information

The Company's Ordinary shares and the Zero Dividend Preference shares issued through SDVP are listed on the London Stock Exchange Main Market.

 

The net asset values are announced weekly to the London Stock Exchange and published monthly via the AIC.

 

Information about the Group can be obtained on the Chelverton website at www.chelvertonam.com. Any enquiries can also be e-mailed to cam@chelvertonam.com.

 

Share register enquiries

The register for the Ordinary shares and the 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.

 

Company Summary

History

The Company was launched on 12 May 1999, raising £21.38 million before expenses, by a placing of 15,000,000 Ordinary shares and, through its former subsidiary company, Small Companies PLC, 6,250,000 Zero Dividend Preference shares and 31,260 Preference shares. A further 750,000 Ordinary shares were issued as a result of a placing for cash on 3 March 2000 and on 26 October 2005 a further 500,000 shares were issued. The subsidiary, Small Companies PLC, was placed into members' voluntary liquidation on 30 April 2007, following which the capital entitlements of the Zero Dividend Preference and Preference shares were repaid.

 

A further subsidiary, Chelverton Small Companies ZDP PLC, was incorporated on 13 July 2012, to issue Zero Dividend Preference shares. A total of 8,500,000 Zero Dividend Preference shares were issued on 24 August 2012, and a further 849,000 on 24 March 2017. This subsidiary was placed into members' voluntary liquidation on 5 January 2018, following which the capital entitlements of the Zero Dividend Preference shares were repaid.

 

Group structure

The Company has in issue one class of Ordinary share. In addition, it has a wholly owned subsidiary, SDVP, through which Zero Dividend Preference shares have been issued. SDVP was incorporated on 25 October 2017 and has a capital structure comprising unlisted Ordinary shares and Zero Dividend Preference shares listed on the Official List and traded on the London Stock Exchange. SDVP was incorporated specifically for the issue of Zero Dividend Preference shares.

 

On 8 March 2018, SDVP issued 12,780,083 Zero Dividend Preference shares at 100p per share. The expenses of the placing were borne by the Company. 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 £1,500,000. On the 10 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 £313,000. Pursuant to a loan agreement between SDVP and the Company, SDVP has lent the proceeds of the placing to the Company. 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.

 

A contribution agreement between the Company and SDVP has also been made whereby the Company will undertake to contribute such funds as will 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.

 

Total net assets and market capitalisation at year end

As at 30 April 2019, the Company had a market capitalisation of £36,175,000 (2018: £52,083,000) and total net assets amounted to £44,646,000 (2018: £51,794,000).

 

Management fee

The fee payable to the Investment Manager is 1% of the combined gross assets of the Group.

 

Capital structure

Details of share structure and entitlements and voting rights of each class can be found above.

 

ISA status

The Company's Ordinary shares are qualifying investments for Individual Savings Accounts ('ISAs'), as are the Zero Dividend Preference shares of SDVP.

 

Registered in England
No. 03749536

A member of the Association of Investment Companies

 

Capital Structure

 

Chelverton UK Dividend Trust PLC ('the Company')

Chelverton UK Dividend Trust PLC was registered on 3 September 2003 with number 03749536. 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 ('Ordinary shares') - 20,850,000 in issue as at 30 April 2019

Share Capital Events

On 10 May 2018, the Company announced the issue of 100,000 Ordinary shares at a price of 253p each, which were to rank pari passu in all respects with the Ordinary shares in issue. Following this admission there were 20,850,000 Ordinary shares in issue. The Company has only one class of share and this figure represents 100% of the Company's share capital and voting rights.

 

Dividends

Holders of Ordinary shares are entitled to dividends.

 

Capital

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 full and final capital entitlement of the Zero Dividend Preference shares.

 

Voting

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 ('ordinary shares') - 50,000 in issue (partly paid up as to 25p each)

The ordinary shares in the subsidiary are owned by the Company. References to Ordinary shares within this Annual Report are to the Ordinary shares of Chelverton UK Dividend Trust PLC.

 

Capital

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.

 

Voting

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 30 April 2019

Share Capital Events

On 10 May 2018, the Company announced the issue of 100,000 Zero Dividend Preference shares at a price of 104.50p each and on 15 May 2018, the Company announced the issue of 200,000 Zero Dividend Preference shares at a price of 104.25p each. Following these admissions, there were 14,500,000 Zero Dividend Preference shares in issue.

 

Dividends

Holders of Zero Dividend Preference shares are not entitled to dividends.

 

Capital

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 share (increased daily from 8 January 2019 at such compound rate as will give an entitlement to 133.18p per share at 30 April 2025).

 

Voting

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.

 

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.

 

Glossary of Terms

 

Net asset value ('NAV')

The NAV is shareholders' funds expressed as an amount per individual share. Shareholders' funds are the total value of all the Company's assets, at current market value, having deducted all prior charges at their par value (or at their asset value).

 

Discount

If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, the shares are said to be trading at a premium.

 

Gearing

Gearing is the process whereby changes in the total assets of a company have an exaggerated effect on the net assets of that company's ordinary shares due to the presence of borrowing or share classes with a prior ranking entitlement to capital.

 

Ongoing charges

The total expenses incurred by a company, including those charged to capital (excluding performance fee and finance costs and exceptional costs) as a percentage of average quarterly net assets.

 

Total return

The combined effect of any dividends paid, together with the rise or fall in the share price or NAV. Total return statistics enable the investor to make performance comparisons between trusts with different dividend policies. Any dividends (after tax) received by a shareholder are assumed to have been reinvested in either additional shares of the trust at the time the shares go ex-dividend (the share price total return) or in the assets of the trust at its NAV per share (the NAV total return).

 

Directors and Advisers

Directors

Lord Lamont of Lerwick (Chairman)

William van Heesewijk

Howard Myles

Andrew Watkins

 

Investment Manager

Chelverton Asset Management Limited

11 Laura Place

Bath BA2 4BL

Tel: 01225 483030

 

Secretary and Registered Office

Maitland Administration Services Limited

Hamilton Centre

Rodney Way, Chelmsford Essex CM1 3BY

Tel: 01245 398950

 

Registrar and Transfer Office

Share Registrars Limited

The Courtyard

17 West Street

Farnham

Surrey GU9 7DR

Tel: 01252 821390

www.shareregistrars.uk.com

 

Auditors

Hazlewoods LLP

Windsor House

Bayshill Road

Cheltenham GL50 3AT

 

Brokers

Shore Capital

100 Wood Street London EC2V 7AN

 

Custodian

Jarvis Investment Management Limited

78 Mount Ephraim Tunbridge Wells

Kent TN4 8BS

 

Notice of Annual General Meeting

This document is important and requires your immediate attention. If you are in any doubt as to what action you should take, you are recommended to seek your own financial advice from your stockbroker or other independent adviser authorised under the Financial Services and Markets Act 2000 immediately.

 

If you have sold or otherwise transferred all of your shares in Chelverton UK Dividend Trust PLC, please forward this document as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

 

NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of the Company will be held at 11.00 am on Thursday 5 September 2019 at the offices of Chelverton Asset Management, 3rd Floor, 20 Ironmonger Lane, London EC2V 8EP for the following purposes:

Ordinary Business - Resolutions 1 to 6 will be proposed as Ordinary Resolutions

1 To receive the Strategic Report, Directors' Report and the audited financial statements for the year ended 30 April 2019.

2 To receive and approve the Directors' Remuneration Report for the year ended 30 April 2019.

3 To re-elect Lord Lamont as a Director.

4 To re-elect Mr van Heesewijk as a Director.

5 To elect Mr Watkins as a Director.

6 To re-appoint Hazlewoods as Auditor and to authorise the Directors to determine their remuneration.

 

Special Business

To consider and, if thought fit, to pass the following Resolutions of which Resolution 7 will be proposed as an Ordinary Resolution and Resolutions 8 to 10 will be proposed as Special Resolutions.

 

7 THAT the Directors be and are hereby generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 ('the Act') (in substitution for any existing allotment authorities, provided that such substitution shall not have retrospective effect) to exercise all the powers of the Company to allot shares and to grant rights to subscribe for, or to convert any security into, shares in the Company ('the Rights') up to an aggregate nominal value equal to £1,737,500, being one-third of the issued Ordinary share capital as at 9 July 2019, during the period commencing on the date of the passing of this Resolution and expiring (unless previously renewed, varied or revoked by the Company in general meeting) at the conclusion of the Annual General Meeting of the Company to be held in 2020, or 15 months from the passing of this Resolution, whichever is earlier (the 'Period of Authority'), but so that the Directors may, at any time prior to the expiry of the Period of Authority, make offers or agreements which would or might require shares to be allotted and/or Rights to be granted after the expiry of the Period of Authority and the Directors may allot shares or grant Rights in pursuance of such offers or agreements as if the authority had not expired.

 

8 THAT, subject to the passing of Resolution 7 above, the Directors of the Company be and they are hereby empowered pursuant to Section 570 and Section 573 of the Act to allot equity securities (within the meaning of Section 560 of the Act) or sell shares held in Treasury (within the meaning of Section 560(3) of the Act) for cash pursuant to the authority conferred by Resolution 7 above as if Section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to:

1. the allotment of equity securities in connection with a rights issue, open offer or any other offer in favour of Ordinary shareholders where the equity securities respectively attributable to the interests of all Ordinary shareholders are proportionate (as nearly as may be) to the respective number of Ordinary shares held by them subject to such exclusions or other arrangements as the Directors may deem fit to deal with fractional entitlements, record dates, legal, regulatory or practical problems arising under the laws of any overseas territory or the requirements of any regulatory authority or any stock exchange; and
2. to the allotment (otherwise than pursuant to paragraph (a) above) of equity securities up to 10% of the issued Ordinary share capital, representing 2,085,000 Ordinary shares at 9 July 2019.

and shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2020, or 15 months from the passing of this Resolution, whichever is earlier, save that the Company may before such expiry make offers, agreements or arrangements which would or might require equity securities to be allotted after such expiry and so that the Directors of the Company may allot equity securities in pursuance of such offers, agreements or arrangements as if the power conferred hereby had not expired.

 

9 THAT the Company is hereby generally and unconditionally authorised in accordance with Section 701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of Ordinary shares of 25p each in the capital of the Company ('Ordinary shares') for cancellation or for placing into Treasury provided that:

1. the maximum aggregate number of Ordinary shares authorised to be acquired is 3,125,415, or if less, 14.99% of the Ordinary shares in issue and in circulation immediately following the passing of this Resolution;
2. the minimum price which may be paid for each Ordinary share is 25p (exclusive of expenses);
3. the maximum price which may be paid for each Ordinary share is, in respect of a share contracted to be purchased on any day, an amount which shall not be more than the higher of (i) 5% above the average of the middle market quotations (as derived from the Daily Official List of the London Stock Exchange) of the Ordinary shares for the five business days immediately preceding the date on which the Ordinary share is purchased, and (ii) the higher of the price of the last independent trade and the highest current independent bid on the London Stock Exchange;
4. this authority will (unless renewed) expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, 15 months from the date on which this Resolution is passed; and
5. any Ordinary shares bought back under the authority hereby granted may, at the discretion of the Directors, be cancelled or held in treasury and if held in treasury may be cancelled at the discretion of the Directors.

 

10 THAT a general meeting other than an annual general meeting may be called on not less than 14 clear days' notice.

 

By order of the Board Registered office:

Maitland Administration Services Limited Hamilton Centre

Secretary Rodney Way

10 July 2019 Chelmsford CM1 3BY

 

Explanatory notes to the notice of meeting

Ordinary shareholders have the right to attend, speak and vote at the forthcoming Annual General Meeting or at any adjournment(s) thereof. In order to exercise all or any of these rights you should read the following explanatory notes to the business of the Annual General Meeting.

 

Notes

1. A member entitled to attend, vote and speak at this meeting may appoint one or more persons as his/her proxy to attend, speak and vote on his/her behalf at the meeting. A proxy need not be a member of the Company. If multiple proxies are appointed they must not be appointed in respect of the same shares. To be effective, the enclosed proxy form, together with any power of attorney or other authority under which it is signed or a certified copy thereof, should be lodged at the office of the Company's Registrar, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR not later than 48 hours before the time of the meeting. The appointment of a proxy will not prevent a member from attending the meeting and voting and speaking in person if he/she so wishes. A member present in person or by proxy shall have one vote on a show of hands and on a poll shall have one vote for every Ordinary share of which he/she is the holder.

 

In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the vote or votes of the other joint holder or holders, and seniority shall be determined by the order in which the names of the holders stand in the register.

 

Any question relevant to the business of the Annual General Meeting may be asked at the meeting by anyone permitted to speak at the meeting. You may alternatively submit your question in advance by letter addressed to the Company Secretary at the registered office.

 

2. A person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a 'Nominated Person') may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.

 

3. The statements of the rights of members in relation to the appointment of proxies in Note 1 above do not apply to a Nominated Person. The rights described in that Note can only be exercised by registered members of the Company.
4. As at 9 July 2019 (being the last business day prior to the publication of this notice) the Company's issued share capital amounted to 20,850,000 Ordinary shares carrying one vote each.

 

5. The Company specifies that only those Ordinary shareholders registered on the Register of Members of the Company as at 11.00 am on 3 September 2019 (or in the event that the meeting is adjourned, only those Ordinary shareholders registered on the Register of Members of the Company as at 11.00 am on the day which is 48 hours prior to the adjourned meeting) shall be entitled to attend in person or by proxy and vote at the Annual General Meeting in respect of the number of Ordinary shares registered in their name at that time. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend or vote at the meeting.

 

6. In accordance with Section 319A of the Companies Act 2006, the Company must cause any question relating to the business being dealt with at the meeting put by a member attending the meeting to be answered. No such answer need be given if:

a) to do so would:

1. interfere unduly with the preparation for the meeting; or

2.   involve the disclosure of confidential information;

b) the answer has already been given on a website in the form of an answer to a question; or

c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.

 

7. A person authorised by a corporation is entitled to exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual member of the Company (provided, in the case of multiple corporate representatives of the same corporate shareholder, they are appointed in respect of different shares owned by the corporate shareholder or, if they are appointed in respect of those same shares, they vote those shares in the same way). To be able to attend and vote at the meeting, corporate representatives will be required to produce prior to their entry to the meeting evidence satisfactory to the Company of their appointment. Corporate shareholders can also appoint one or more proxies in accordance with Note 1. On a vote on a Resolution on a show of hands, each authorised person has the same voting rights to which the corporation would be entitled.

 

On a vote on a Resolution on a poll, if more than one authorised person purports to exercise a power in respect of the same shares:

1.     if they purport to exercise the power in the same way as each other, the power is treated as exercised in that way;
2.     if they do not purport to exercise the power in the same way as each other, the power is treated as not exercised.

 

8. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for this meeting by following the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

 

In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a 'CREST Proxy Instruction') must be properly authenticated in accordance with Euroclear's specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, in order to be valid, must be transmitted so as to be received by the Company's agent (ID 7RA36) by the latest time for receipt of proxy appointments specified in Note 1 above. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the Company's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.

 

CREST members and, where applicable, their CREST sponsors or voting service providers, should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

 

The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

 

9. Shareholders should note that it is possible that, pursuant to requests made by shareholders of the Company under Section 527 of the Companies Act 2006, the Company may be required to publish on a website a statement setting out any matter relating to: (i) the audit of the Company's accounts (including the Auditor's Report and the conduct of the audit) that are to be laid before the Annual General Meeting; or (ii) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with Section 437 of the Companies Act 2006. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with Sections 527 or 528 of the Companies Act 2006.

 

Where the Company is required to place a statement on a website under Section 527 of the Companies Act 2006, it must forward the statement to the Company's auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting includes any statement that the Company has been required under Section 527 of the Companies Act 2006 to publish on a website.

 

10. Members satisfying the thresholds in Section 338 of the Companies Act 2006 may require the Company to give, to members of the Company entitled to receive notice of the Annual General Meeting, notice of a Resolution which those members intend to move (and which may properly be moved) at the Annual General Meeting. A Resolution may properly be moved at the Annual General Meeting unless (i) it would, if passed, be ineffective (whether by reason of any inconsistency with any enactment or the Company's constitution or otherwise); (ii) it is defamatory of any person; or (iii) it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or electronic form, must identify the Resolution of which notice is to be given, must be authenticated by the person(s) making it and must be received by the Company not later than six weeks before the date of the Annual General Meeting.

 

11. Members satisfying the thresholds in Section 338A of the Companies Act 2006 may request the Company to include in the business to be dealt with at the Annual General Meeting any matter (other than a proposed Resolution) which may properly be included in the business at the Annual General Meeting. A matter may properly be included in the business at the Annual General Meeting unless (i) it is defamatory of any person or (ii) it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or electronic form, must identify grounds for the request, must be authenticated by the person(s) making it and must be received by the Company not later than six weeks before the date of the Annual General Meeting.

 

12. The Annual Report incorporating this notice of Annual General Meeting and, if applicable, any members' statements, members' Resolutions or members' matters of business received by the Company after the date of this notice will be available on the Company's website www.chelvertonam.com.

 

13. None of the Directors has a contract of service with the Company.

 

END