Chelverton UK Dividend Trust plc (SDV)
Chelverton UK Dividend Trust plc: Annual Financial Report
11-Jul-2019 / 07:00 GMT/BST
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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 (GBP'000) 62,032 66,386 (6.56)
Total net assets (GBP'000) 44,659 51,794 (13.78)
Net asset value per Ordinary 214.19p 249.61p (14.19)
share
Mid-market price per Ordinary 173.50p 251.00p (30.88)
share
Premium/(discount) (19.00%) 0.56%
Net asset value per Zero Dividend 105.48p 101.41p 4.02
Preference share 2025
Mid-market price per Zero 110.00p 105.50p 4.27
Dividend Preference share 2025
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 8.97p 8.46p 6.03
share
Special dividends declared per 2.50p 0.66p 278.79
Ordinary share
Total return
Total return on Group gross (3.53%) 25.96%
assets
Total return on Group's net (6.39%) 25.95%
assets* (total return as
proportion of net
assets after the provision for
the Zero Dividend Preference
shares)
Total return on Group's net (9.90%) 28.59%
assets*
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 GBP62.032m (2018: GBP66.386m) and the total net assets
were GBP44.659m (2018: GBP51.794m).
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 GBP4,000,000 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
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