DJ Chelverton UK Dividend Trust plc: Annual Report and Accounts for the year to 31 April 2020
Chelverton UK Dividend Trust plc (SDVP)
Chelverton UK Dividend Trust plc: Annual Report and Accounts for the year to
31 April 2020
06-Jul-2020 / 16:18 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
CHEVERTON UK DIVIDEND TRUST PLC
Annual Report and Accounts for the year to 31 April 2020
Printed copies of the Annual Report will be sent to shareholders shortly.
Additional copies may be obtained from the Corporate Secretary - Maitland
Administration Services Limited, Hamilton Centre, Rodney Way, Chelmsford,
Essex CM1 3BY.
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 30 April 2020. The financial
information for 2020 is derived from the statutory accounts for that year.
The auditors, Hazlewoods LLP, have reported on the 2020 accounts. Their
report was unqualified and did not include a reference to any matters to
which the auditors draw attention by way of emphasis without qualifying
their report. The financial information for 2019 is derived from the
statutory accounts for that year.
The following text is copied from the Annual Report & Accounts.
Strategic Report
The Strategic Report comprising pages 1 to 16 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 2020 2019 % change
Total gross assets (GBP'000) 42,040 62,032 (32.23)
Total net assets (GBP'000) 26,034 44,659 (41.70)
Net asset value per Ordinary share 124.86p 214.19p (41.71)
Mid-market price per Ordinary share 127.50p 173.50p (26.51)
Premium/(discount) 2.11% (19.00%)
Net asset value per Zero Dividend Preference 105.48p 3.97
share 2025 109.67p
Mid-market price per Zero Dividend 110.00p (7.27)
Preference share 2025 102.00p
(Discount)/premium (6.99%) 4.29%
Year ended Year ended
30 April 30 April
Revenue 2020 2019 % change
Return per Ordinary share 9.45p 13.40p (29.48)
Dividends declared per Ordinary share 9.60p 8.97p 7.02
Special dividends declared per Ordinary 2.50p (100.00)
share -
Total return
Total return on Group gross assets (28.16%) (3.53%)
Total return on Group's net assets* (total (6.39%)
return as proportion of net
assets after the provision for the Zero
Dividend Preference shares) (25.85%)
Total return on Group's net assets* (36.06%) (9.90%)
Ongoing charges** 2.12% 1.95%
Ongoing charges*** 1.50% 1.45%
* 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
I sincerely hope all of our shareholders and their families are safe and
well as we transition through the current lockdown status to a gradual
return to something like a normal state. Albeit that might be somewhat
different to what we have been used to in the past before the outbreak of
Covid-19.
Results
The Company's net asset value per Ordinary share as at 30 April 2020 was
124.86p (2019: 214.19p), a decrease over the year of 41.7% with an Ordinary
share price of 127.50p per share (2019: 173.50p). Total assets, including
audited revenue reserves, were GBP42.040m (2019: GBP62.032m) and the total net
assets were GBP26.034m (2019: GBP44.659m).
The Company was launched on 12 May 1999, and the net asset value per
Ordinary share has risen by 26.5% and a total of 195.85p has been paid in
dividends, including the fourth interim dividend announced with this report.
Since the year end, the net asset value per Ordinary share has risen to
125.58p as at 29 June 2020 and the discount to market NAV is currently
1.13%.
In the year total dividends of 9.60p per Ordinary share were paid, including
the fourth interim dividend of 2.40p. During the same period the MSCI Small
Cap Index decreased by 17.08%.
At this time the current underlying portfolio yield is very hard to
evaluate, for obvious reasons. However, as a result of the policy over the
past ten years of growing the annual dividend and retaining to revenue
reserves the maximum permitted under the legislation relating to investment
trusts, the Company is in a strong position and can pay its dividend for
some time from accumulated reserves.
The Company's portfolio is currently invested in 76 companies spread across
23 sectors. This spread creates a well diversified portfolio which will, in
the future, lead to a strong return of dividend income and subsequently
steady revenue growth and, in time, capital growth.
Capital structure
Since the collapse in the stock market in March, there have been a number of
requests to issue new ordinary shares at a modest premium to the prevailing
net asset value per share. To date these have been turned down because the
issuing of such shares incurs a one-off cost with the London Stock Exchange
and the Board will not issue shares, when all costs are taken into account,
at a price that is not at least neutral to the existing shareholders.
In addition, at this particular time, the Board feels that the revenue
reserves that have been built up over the past ten years should only be
applied to the shares that existed prior to the lockdown.
If shares are issued in the future, the Board will take into account the two
factors above, along with the undoubted opportunities that there are at this
time to acquire shares in companies at 'the wrong price'.
Dividend
The Board has declared a fourth interim dividend of 2.40p per Ordinary share
(2019: 2.40p) which, when added to the three quarterly interim dividends of
2.40p per Ordinary share, brings the total to 9.60p (2019: 8.97p) in respect
of the year ended 30 April 2020, an increase of 7.02% over the previous
year.
As has been said before, it was the Board's intention, over time, to move
the dividend profile gradually to a position where the four interim
dividends paid are equal. This has now been achieved in the financial year
just completed.
The Company has revenue reserves which after payment of the fourth interim
dividend represent some 172% of the current annual dividend or some 16.50p
per Ordinary share.
As a consequence, the Board has decided that the four interim dividends paid
in respect of the financial year ending 30 April 2021 will not be less than
that paid in respect of the financial year ended 30 April 2020.
Outlook
Many commentators in the UK and around the world are now commentating on the
pace, scale and 'shape'
of the recovery when it arises.
Our view is that in certain sectors there will be a relatively rapid
recovery over the next few months as the lockdown is eased. However, overall
the economy will not return to where it was pre-lockdown. The final part of
the recovery will take longer, as specific sectors such as hospitality and
aerospace will need further time to get back to viability and the inevitable
increase in unemployment will hold back the recovery.
However, after three months we are encouraged by the resilience and strength
of the portfolio companies and believe that, in the medium term, our
companies will survive and prosper.
Lord Lamont of Lerwick
Chairman
6 July 2020
Investment Manager's Report
In the year to 30 April 2020 there was a decline in Company's net asset
value per share from 214.19p to 124.86p. At the same time the core dividend
was increased by 7.02% in line with the targeted increase. The announcement
of the fourth interim dividend is in line with the dividend policy as set
out on 6 March 2019. Further, in line with that policy, the Company has not
paid a special dividend in respect of the 2019/2020 financial year.
It is well worth noting that since the 'Great Panic' the net asset value per
share has recovered a large part of its immediate 'Covid-19 losses' from a
low point of 84.66p on the 19 March and is currently, 29 June, 125.58p an
increase of 48.3%. In the same way, the share price has improved from the 23
March level of 82.5p to its level on 29 June of 127.00p.
As stated in the Chairman's Statement, the Board intends that total core
dividends of not less than 9.60p will be paid in respect of the financial
year ending 30 April 2021, made up of four interim dividends of at least
2.40p.
Given the extraordinary developments of the past four months and the now
almost forgotten events of the second half of last calendar year, I have
decided to split this report into three sections:
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1) The period from the end of last financial year to the appointment of Mr
Johnson as leader of the Conservative Party and of course Prime Minister;
2) The period until the announcement of the lockdown, and;
3) The period since the lockdown.
The first period was dominated by the continuing, and what felt like
continuous, political fighting and wrangling over the whole Brexit issue.
Both sides of the issue would not be reconciled or compromise and the effect
on investor perception was very poor. It continued the same negative
investor view of the prospects for the United Kingdom economy which had
generally been the case since the Referendum in June 2016.
Shareholders I am sure recall 'the process' as being thoroughly exhausting
and distracting. In this period we received a number of offers for our
companies, which are set out below in the portfolio review section. At the
time, it felt like our companies were being acquired at the 'wrong price'.
Whilst the offer premiums were attractive, it was the prevailing share price
the day before the offer that we felt was very wrong. Given the number of
takeovers, it was clear that third parties looking at the UK economy and
prospects were not at all put off as to whether the UK was in, or out, of
the European Union.
Finally, the process came to a head with the change of Prime Minister and
the appointment of Mr Boris Johnson. Immediately, UK equities saw the start
of a correction, as markets hate uncertainty and it was perceived that even
leaving the EU was better than the saga of the prolonged leaving/not leaving
process.
Moving into the second period, investors became much more positive, as the
agenda was moved on very quickly to 'life after Brexit'. This was of course
added to with the very strong election performance by the Conservative Party
winning enough seats to provide a clear majority meaning that at least
decisions could now be made and passed into law. The UK equity markets
enjoyed what has been called the 'Boris Bounce'. There is no doubt that our
investee companies were relieved that they could finally plan for a known
future. As an aside, the portfolio is made up largely of smaller UK public
companies and sales to the EU were, and indeed are, a relatively small part
of total sales and principally arise through the ownership of operating
subsidiaries in countries who are members of the European Union.The
manifesto on which the Conservatives won a large majority was based on
resolving the Brexit issue and, as importantly, investing in new
infrastructure and regions outside the South East of England. Again, this
planned investment will be very positive for our largely UK-centric investee
companies.
Finally, the third period, being the time since the arrival of Covid-19 into
the United Kingdom. The introduction of 'the lockdown', something never
experienced before in the United Kingdom, led to a few days of what we are
calling 'the Great Panic'. Share prices, across the board, collapsed as fear
took over from uncertainty and the apocalyptic projections from Imperial
College of 500,000 people dying were not the backcloth to any economy
prospering.
This trust, has in its 21-year life, been through a number of major market
dislocations. The last major collapse was the Great Financial Crisis. Then,
as shareholders will recall, there was a real fear of a collapse in the
financial system around the world. At the time there was a major concern of
mass insolvencies as access to credit had completely dried. The fund was
then geared by fixed interest term loans from Lloyds Bank. The loans came
with covenants which, whilst never breached, were a constant problem as the
market in small company shares started declining in February 2007 and
continued downwards until March 2009.
At the time, the trust had very limited revenue reserves and as companies
cancelled their dividends these had to be largely utilised.
In this Covid-19 crisis, the trust finds itself in a much stronger position
than in 2008. At this time the financial gearing is provided by the Zero
Dividend Preference shares, which have no covenants and are in place until
April 2025. Over the past ten years, the trust has built up revenue reserves
such that the trust has one of the biggest reserves relative to its core
annual dividend of all investment trusts.
The impact of Covid-19 is all too obvious on our lives and the world and UK
economy. A lesser known impact is the general, across the board, reduction
or elimination of dividends paid by companies. Given the depth of the
revenue reserves which we have built up since the the 'Great Financial
Crisis' your company is able to continue paying dividends in the future.
This stronger position has meant that the trust has been able to review its
portfolio and to take action not driven by a desperate search for dividend
income. We have created a 'Pandemic Portfolio', being those companies in the
portfolio whose shares have fallen to a level probably never seen before and
certainly well below the lowest levels reached in the Great Financial
Crisis. It is our belief that purchases made at this time in what are good,
well run companies will produce strong returns in the future.
Portfolio review
In the last year we have had seven takeovers: KCom Group, Mucklow (A&J)
Group, Sanderson Group, Statpro, BCA Marketplace, Murgitroyd Group and Low &
Bonar (2019: 2), and post the year end the offer for Moss Bros Group was
confirmed. Including the above takeovers, two other holdings from the
portfolio were sold in their entirety (2019: 4), Anglo African Oil and Gas
and De La Rue.
Shareholdings were reduced in 11 companies, including Belvoir Lettings,
Bloomsbury Publishing, Castings, Clarke (T.), DFS Furniture, Jarvis
Securities, Kin and Carta, Moss Bros Group, Strix Group, UP Global Sourcing
Holdings and XP Power, all after strong share price performances.
Eight new shareholdings were added to the Company's portfolio in the year,
including: Close Brothers Group - Merchant Banking Group, Elementis -
Speciality chemicals and personal care products, MTI Wireless Edge -
Antennas and antenna systems, Portmeirion Group - Ceramic tablewear,
giftware, glassware and home fragrance products, TheWorks.co.uk [1] -
Retailer of gifts, arts and crafts, stationary, toys and books, Tyman -
Supplier of engineered fenestration components and access solutions, Vertu
Motors - Car dealership group, XPS Pensions - Pensions consultancy.
The shareholdings were increased in 19 companies which were in the portfolio
at the beginning of the financial year. As ever, this represents a
significant part of the portfolio and again includes 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 at lower prices.
Outlook
Following the disastrous market collapse in the second half of March, it is
pleasing to record a strong
recovery over the past two months.
Having been party to many electronic meetings over the past three months, it
is clear that certain trends are emerging. Firstly, the forecasts developed
at the point of the introduction of the lockdown have largely been beaten,
and some by significant margins. Secondly, through the force of necessity,
plans that had been in place to develop businesses over the next five years
have been put in place now and will provide, in the near future, real
improvements in efficiency and capacity and reduced costs.
There is no doubt that a sharp recovery is taking place and that this will
only increase as the lockdown is eased over the next few weeks. However,
until the furlough scheme comes to an end it is impossible to say exactly
where the economy will end up.
As has been seen after the other major market shocks over the life of this
trust, recovery has always been strong and the companies in the portfolio
have come back stronger and fitter. We expect it to be no different this
time.
David Horner
Chelverton Asset Management Limited
6 July 2020
Breakdown of Portfolio by Industry
at 30 April 2020 Market value % of
Bid
Market sector GBP'000 portfolio
Financial Services 6,286 15.6
Construction & Materials 3,347 8.2
Support Services 3,200 7.9
Household Goods & Home Construction 2,829 7.0
Industrial Engineering 2,591 6.4
General Retailers 2,459 6.1
Travel & Leisure 2,369 5.8
Nonlife Insurance 2,245 5.5
Media 2,180 5.3
Electronic & Electrical Equipment 2,017 5.0
Real Estate Investment & Services 1,950 4.8
Oil & Gas Producers 1,703 4.2
Life Insurance 1,336 3.3
Food Producers 1,301 3.2
Real Estate Investment Trusts 1,113 2.7
Technology Hardware & Equipment 829 2.0
Industrial Transportation 685 1.7
Banks 545 1.3
Food & Drug Retailers 517 1.3
Leisure Goods 468 1.2
General Industrials 387 0.9
Personal Care & Other Household Products 161 0.4
Chemicals 70 0.2
40,588 100.0
Breakdown of Portfolio by Market Capitalisation
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at 30 April 2019 Number of CompaniesGBP500m = 11 Source: Maitland Administration Services Limited Portfolio Statement at 30 April 2020 Market % of value Security Sector GBP'000 portfolio Diversified Gas & Oil Oil & Gas Producers 1,703 4.2 Randall & Quilter Nonlife Insurance 1,179 2.9 Belvoir Lettings Real Estate Investment 1,166 2.9 & Services Strix Group Electronic & 1,104 2.7 Electrical Equipment Chesnara Life Insurance 996 2.5 Devro Food Producers 953 2.3 Severfield Industrial Engineering 862 2.1 Flowtech Fluid Power Industrial Engineering 854 2.1 Amino Technologies Technology Hardware & 829 2.0 Equipment Bloomsbury Publishing Media 820 2.0 Epwin Group Construction & 812 2.0 Materials Castings Industrial Engineering 800 2.0 Jarvis Securities Financial Services 800 2.0 Crest Nicholson Household Goods & Home 770 1.9 Construction Alumasc Group Construction & 770 1.9 Materials UP Global Sourcing Household Goods & Home 768 1.9 Holdings Construction Clarke (T.) Construction & 747 1.8 Materials Polar Capital Holdings Financial Services 721 1.8 Ramsdens Holdings Financial Services 700 1.7 Essentra Support Services 696 1.7 Vistry Group Household Goods & Home 695 1.7 Construction Brewin Dolphin Holdings Financial Services 684 1.7 GVC Holdings Travel & Leisure 678 1.7 DFS Furniture General Retailers 675 1.7 Go-Ahead Group Travel & Leisure 669 1.6 Numis Corporation Financial Services 665 1.6 Personal Group Holdings Nonlife Insurance 644 1.6 XP Power Electronic & 634 1.6 Electrical Equipment Babcock International Support Services 632 1.6 Appreciate Group Financial Services 615 1.5 Headlam Group Household Goods & Home 596 1.5 Construction STV Media 583 1.4 Regional REIT Real Estate Investment 581 1.4 Trusts Shoe Zone General Retailers 563 1.4 Orchard Funding Group Financial Services 563 1.4 XPS Pensions Financial Services 550 1.4 Close Brothers Group Banks 545 1.3 Redde Northgate Support Services 539 1.3 Town Centre Securities Real Estate Investment 532 1.3 Trusts Marston's Travel & Leisure 528 1.3 McColl's Retail Group Food & Drug Retailers 517 1.3 Tyman Construction & 505 1.2 Materials Vertu Motors General Retailers 494 1.2 Palace Capital Real Estate Investment 486 1.2 & Services Photo-me International Leisure Goods 468 1.2 Finncap Group Financial Services 450 1.1 RTC Group Support Services 450 1.1 Sabre Insurance Nonlife Insurance 422 1.0 Centaur Media Media 408 1.0 Braemar Shipping Industrial 400 1.0 Services Transportation Restaurant Group Travel & Leisure 396 1.0 Premier Miton Group Financial Services 388 1.0 Wilmington Group Media 369 0.9 Bakkavor Food Producers 348 0.9 Hansard Global Life Insurance 340 0.8 Coral Products General Industrials 300 0.7 Foxtons Group Real Estate Investment 298 0.7 & Services DX Group Industrial 285 0.7 Transportation MTI Wireless Edge Electronic & 279 0.7 Electrical Equipment Kin & Carta Support Services 270 0.7 Saga General Retailers 243 0.6 Connect Group Support Services 234 0.6 Galliford Try Construction & 226 0.6 Materials RPS Group Support Services 207 0.5 Kier Group Construction & 207 0.5 Materials Moss Bros Group General Retailers 199 0.5 Gattaca Support Services 172 0.4 Brown (N) Group General Retailers 168 0.4 Portmeirion Group Personal Care & Other 161 0.4 Household Products GLI Finance Financial Services 150 0.4 TheWorks.co.uk [1] General Retailers 117 0.3 Revolution Bars Group Travel & Leisure 98 0.2 Low & Bonar General Industrials 87 0.2 Titon Holdings Construction & 80 0.2 Materials Chamberlin Industrial Engineering 75 0.2 Elementis Chemicals 70 0.2 Total Portfolio 40,588 100.0 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 46. · A total dividend for the year to 30 April 2020 of 9.60p (2019: 11.47p) per Ordinary share has been declared to shareholders by way of three payments totalling 7.20p per Ordinary share plus a fourth interim dividend payment of 2.40p per Ordinary share. · The NAV per Ordinary share at 30 April 2020 was 124.86p (2019: 214.19p). · The ongoing charges (including investment management fees and other expenses but excluding exceptional items) for the year ended 30 April 2020 were 2.12% (2019: 1.95%). 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
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meeting and monitored by the Audit
Committee.
Political risk
The Board recognises that changes in the political landscape may
substantially affect the Company's prospects and the value of its portfolio
companies. There are risks associated with the departure of the UK from the
European Union ('EU') and the nature of future trading relationships remains
unclear. Potential changes to the UK's policies and regulatory landscape
following the UK's departure from the EU could also impact the Company.
Potential consequences for the Company are monitored and assessed by the
Board.
Climate change risk
The Board and Investment Manager consider how climate change could affect
the Company's portfolio
companies and shareholder returns.
The coronavirus pandemic
The Board recognises that the pandemic is impacting economies and financial
markets worldwide. It has already resulted in a decrease in value of the
Company's investments and may impact the Company's revenues in the
forthcoming year and into the future. The Board and Investment Manager
continue to monitor the effects of the pandemic on the market.
Accounting policies
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 64 to 68.
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.
Section 172 Statement
The Directors are conscious of their duties to promote the success of the
Company under Section 172 of the Companies Act 2006, for the benefit of the
shareholders, giving careful consideration to wider stakeholders' interests
and the environment in which it operates. The Board recognises that its
decisions are material to the Company but also the Company's key
stakeholders as identified below. In making decisions, the Board considered
the outcome from its stakeholder engagement as well as the need to act
fairly between the members of the Company.
Key stakeholders
Investors - The Company's shareholders have a significant role in monitoring
and safeguarding the governance of the Company. Shareholders have access to
the Board via the Company Secretary and the Investment Manager throughout
the year. These communications help the Board make informed decisions when
considering how to promote the success of the Company for the benefit of
shareholders. This year, the Annual General Meeting to be held on 9
September 2020 is to be closed to shareholders owing to the Covid-19
pandemic and only Directors will attend. Shareholders are therefore strongly
encouraged to vote by proxy, appointing the Chairman as their proxy.
Shareholders are also encouraged to put forward any queries to the Company
Secretary in advance of the Annual General Meeting.
Investment Manager - The Board recognises the critical role of the
Investment Manager in the success of the Company. The Investment Manager
attends Board and Audit Committee meetings, to participate in transparent
discussions where constructive challenge is encouraged. The Board and
Investment Manager communicate regularly outside of these meetings with the
aim of maintaining an open and collegial relationship. The Investment
Manager's performance is evaluated informally on a regular basis, with a
formal review carried out on an annual basis by the Board when performing
the functions of a management engagement committee. The Investment
Management Agreement is reviewed as part of this process as referred to on
page 27.
Key suppliers - The Company employs a collaborative approach and looks to
build long term partnerships with its key suppliers. Key suppliers are
required to report to the Board on a regular basis and their performance and
the terms on which they are engaged, are evaluated and considered annually,
as detailed on page 27.
Portfolio companies - The Investment Manager regularly liaises with the
management teams of companies within the Investment Portfolio and reports on
findings to the Board on at least a quarterly basis.
Regulators - The Board regularly reviews the regulatory landscape and
ensures compliance with rules and regulations relevant to the Company.
Compliance with relevant rules and regulations is assessed on at least an
annual basis.
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, taking into
account the potential impact of the risks and uncertainties it is exposed
to, including the impact of the Covid-19 pandemic, the Directors believe
that the Company is viable over a three-year period. Three years is
considered by the Board to be the maximum period over which it is feasible
to make predictions. 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 undertaking,
for the year ended 30 April 2020. 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 on pages 72 to 73.
AIFM
The Board is compliant with the directive and 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.
Environmental, Social, Governance ('ESG')
ESG matters will have an increasing prominence in future financial and
regulatory reporting. In company meetings, the Investment Manager routinely
questions the corporate management on a variety of topics, such as safety
records and the make-up of their board papers, to ensure companies are
adhering to best practice.
The way companies respond to ESG issues can affect their business
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DJ Chelverton UK Dividend Trust plc: Annual Report -5-
performance, both directly and indirectly. ESG factors are considered by
Chelverton Asset Management investment teams but investments are not
necessarily ruled out on ESG grounds only.
The Investment Manager is working to integrate responsible investing
considerations more closely into investment processes. In 2018 Chelverton
Asset Management hired a Head of Governance within the investment team. This
commitment brings significant experience to support us in the enhancement of
our investing approach and Governance remains central to the investment
process. Misjudgements on ESG matters can incur major additional costs to
the portfolio holdings, as well as undermining their equity return through
reputational damage.
Culture and values
The Company's values are to act responsibly, ethically and fairly at all
times. The Company's culture is driven by its values and is focused on
providing Ordinary shareholders with a high income and opportunity for
capital growth, as set out on page 11. As the Company has no employees, its
culture is represented by the values, conduct and performance of the Board,
the Investment Manager and its key service providers.
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 on pages 2 and 3 and the Investment Manager's Report on pages 4 to
6.
Dividends declared/paid
30 April 2020 30 April 2019
Payment date p p
First interim 2 October 2019 2.40 2.19
Second interim 2 January 2020 2.40 2.19
Third interim 3 April 2020 2.40 2.19
Fourth interim 16 July 2020 2.40 2.40
9.60 8.97
Special dividend - 2.50
9.60 11.47
The Directors have not recommended a final dividend in respect of the year
ended 30 April 2020.
Ten year dividend history
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
p p p p p p p p p p
1st Quarter 2.40 2.19 2.02 1.85 1.70 1.575 1.475 1.40 1.35 1.30
2nd Quarter 2.40 2.19 2.02 1.85 1.70 1.575 1.475 1.40 1.35 1.30
3rd Quarter 2.40 2.19 2.02 1.85 1.70 1.575 1.475 1.40 1.35 1.30
7.20 6.57 6.06 5.55 5.10 4.725 4.25 4.20 4.05 3.90
4th Quarter 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.35 2.30
9.60 8.97 8.46 7.95 7.50 7.125 6.825 6.60 6.40 6.20
% increase 7.02 6.03 6.47 6.00 5.26 4.40 3.41 3.12 3.23 3.33
of core
dividend
Special - 2.50 0.66 1.86 1.60 0.30 2.75 - - -
dividend
Total 9.60 11.47 9.12 9.81 9.10 7.425 9.575 6.60 6.40 6.20
dividend
Diversity and succession planning
The Board of Directors of the Company comprised four male Directors in the
year to 30 April 2020. The key criteria for the appointment of new Directors
will be the skills and experience of candidates having regard also to the
benefits of diversity in the interests of shareholder value. The Directors
are satisfied that the Board currently contains members with an appropriate
breadth of skills and experience and considers succession planning on at
least an annual basis, further details of which are on page 26. In relation
to future appointments the Board will seek to consider a wide range of
candidates with due regard to diversity.
The Strategic Report is signed on behalf of the Board by
Lord Lamont of Lerwick
Chairman
6 July 2020
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
European Opportunities Trust plc and Omfif Foundation Limited.
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 Asset
Management Limited, 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 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 financial services
industry working in senior positions at Kleinwort Benson, Flemings, Jupiter
and most recently as Head of Client Relations, Sales & Marketing for
Investment Trusts at Invesco Perpetual, retiring in 2017. He is currently a
non-executive director and chairman of Ashoka India Equity Investment Trust
plc and a non-executive director of Baillie Gifford European Growth Trust
plc, BMO UK High Income Trust plc and Consistent Unit Trust Management Ltd.
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 2020, Chelverton
had total funds under management of approximately GBP1.1 billion including two
investment trust companies and three OEICs. The fund management team
comprises David Horner, David Taylor, Oliver Knott, James Baker and Edward
Booth.
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 2020.
Directors
The Directors who served during the year ended 30 April 2020 are listed on
page 18. 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. 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 Code of Corporate Governance can be found on
pages 24 to 30.
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.
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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 on page 16.
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 2020:
Number of % of
Ordinary shares shares voting rights
Philip J Milton & Company Plc 694,979 3.33%
Integrated Financial Arrangements Limited 801,748 4.05%
The Company has not been notified of any changes to the above holdings
between 30 April 2020 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 Wednesday 9 September 2020.
The Notice of Meeting
is set out on pages 76 to 80.
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 5 September 2019
giving Directors authority, pursuant to Section 551 of the Companies Act
2006, to allot Ordinary shares up to an aggregate nominal value equal to
GBP1,737,500 (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 authorisation, pursuant to Section 551 of the
Companies Act 2006, to allot up to an aggregate nominal value equal to
GBP781,875, being 15% of the Ordinary shares in issue at the date of this
report, as set out in Resolution 8 in the Notice of Meeting. This authority
will expire at the AGM to be held in 2021 or 15 months from the passing of
the Resolution, whichever is earlier.
A Special Resolution was also passed on 5 September 2019 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 9.
This authority will also cover the sale of shares held in Treasury, and will
expire at the AGM to be held in 2021 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 5 September 2019 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 10 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 2021 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 11 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 2021, 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 1.0% 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 on pages
72 and 73.
· Details of the substantial shareholders in the Company are listed on
page 21.
· 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 on pages 21 and 22.
· 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 on pages 1 to 16.
SDVP Annual General Meeting
SDVP's AGM will be held on Wednesday 9 September 2020 following the
Company's AGM. The Notice of Meeting is set out in the SDVP Annual Report.
This year, SDVP'S AGM will be closed to shareholders and will be attended by
the directors of SDVP only. Shareholders are strongly encouraged to vote by
proxy and to appoint the chairman of SDVP as their proxy.
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 6. 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 64 to 68 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. Notwithstanding the challenges arising from the impact of Covid-19,
the Investment Manager continues to operate and administer the Company in
accordance with relevant accounting standards.
At the time of writing, investment markets are experiencing high levels of
volatility and it is like that this volatility will continue for the
foreseeable future. Nevertheless, the Group has adequate financial resources
and, as a consequence, having assessed the principal risks facing the
Company and the other matters set out in the Viability Statement, the
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