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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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.
Streamlined energy and carbon reporting
The Company is categorised as a lower energy user under the HMRC
Environmental Reporting Guidelines March 2019 and is therefore not required
to make the detailed disclosures of energy and carbon information set out
within the guidelines. The Company has therefore not reported further in
respect of these guidelines.
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
6 July 2020
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 2018 ('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 2020
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 2019 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, 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 [2], and a copy of the Governance Code can be
obtained at www.frc.org.uk [3].
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the Governance Code except as set out below:
· owing to the size of the Board, it is felt inappropriate to appoint a
senior independent non-executive Director as further detailed on page 26.
· as the Group has no staff, other than Directors, there are no procedures
in place in relation to raising concerns in confidence and anonymously.
The Board has satisfied itself there are appropriate procedures for the
workforce to raise concerns in place at its service providers.
· the Board has not established a remuneration committee or nomination
committee as the functions of these are performed by the Board.
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
on page 18.
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 2020 the Board met six times and all
Directors were present at all Board meetings.
Board effectiveness
The Board, acting as the Nomination Committee, conducts a formal annual
review of the size, composition and balance of the Board and the performance
of the Board, its Committees and the Directors facilitated by feedback
provided by each Director. The Chairman provides a summary of the findings
which are discussed at the meeting and an action plan is agreed if required.
During the year, no issues were identified requiring an action plan. The
performance of the Chairman of the Board is evaluated by the other
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 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.
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Mr Watkins is deemed to be independent of the Investment Manager. Despite
being on the Board for over nine years, the Board believes Lord Lamont and
Mr Myles are also independent. They all continue to perform their roles
effectively. Mr van Heesewijk was not deemed independent by virtue of his
role as a consultant to Chelverton.
Under the Articles of Association, one-third of Directors is required to
retire by rotation at each AGM and no Director shall serve a term of more
than three years before re-election. The Board has reviewed the appointment
of those Directors retiring at the forthcoming AGM. Lord Lamont, Mr Myles
and Mr van Heesewijk will offer themselves for re-election, having served on
the Board for over nine years. The Board recommends that shareholders vote
for the re-election of Lord Lamont, Mr Myles and Mr van Heesewijk 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. The Chairman's performance is evaluated
annually by the Board when carrying out the functions performed by a
nomination committee as detailed on page 27. 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 2020, 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 and considered whether the terms
and conditions of the Investment Management Agreement remain appropriate.
Based on this performance, the Board decided that the Investment Manager's
appointment should continue and no changes would be made to the Investment
Management Agreement. 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, acting as the Nomination Committee, evaluated the performance of
Directors and the Chairman for the year ended 30 April 2020. No third party
was engaged to carry out an external valuation of the Board. 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 as detailed on page 25. The Board
assessed the time commitment for each Board post and agreed that sufficient
time was being spent by each Director to fulfil their duties. The Board also
recommended the re-appointment of those Directors standing for re-election
at the Annual General Meeting.
During the year, the Board gave consideration to the succession planning of
Directors and the skills and experience required by the Board to face future
opportunities and challenges. As stated on page 25, the Board believes that
currently it has an appropriate balance of skills and experience to
effectively manage the Company and, as a result, no changes to the
composition of the Board are proposed at present. In the process of
recruitment in the past it has not been considered necessary to engage the
services of third-party recruitment consultants, but this will be
reconsidered in relation to future appointments and the Board will seek to
draw upon as diverse a pool of candidates as possible.
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 33 to 35 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
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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, acting as 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 16.
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 75. 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 [4], 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 Audit 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 Senior Statutory Auditor 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
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the audit team and the fee is not significant (refer to note 4 on page 54).
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.
Howard Myles
Audit Committee Chairman
6 July 2020
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 38 to 44.
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 this
year's 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 the subject of a binding vote at least every three years.
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 2020. During the year ended 30 April 2020, the fees were
continued at a rate of GBP20,000 for the Chairman and GBP17,500 for other
Directors, with an additional payment of GBP2,500 to the Chairman of the Audit
Committee.
The Company's performance
The graph on page 33 of the annual report and accounts 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 2020 (audited)
The Directors who served in the year received the following emoluments
wholly in the form of fees:
Fees/Total
Year to Year to
30 April 2020 30 April 2019
GBP GBP
Lord Lamont (Chairman) 20,000 20,000
D Harris* - 6,102
H Myles 20,000 20,000
W van Heesewijk** - -
A Watkins 17,500 11,352
57,500 57,454
* Mr Mr Harris retired as a Director
on 6 September 2018.
** Mr van Heesewijk has waived his
entitlement to fees.
During the year no Directors received taxable benefits (2019: 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 Number Number Number
shares of ZDP of of ZDP
shares Ordina shares
held ry held
at shares at
held at
held
at
Director 30 April 2020 30 30 30
April April April
2020 2019 2019
Lord Lamont 76,415 10,000 75,085 10,000
(Chairman)
W van Heesewijk 110,000 Nil 100,00 Nil
0
H Myles Nil Nil Nil Nil
A Watkins 13,100 Nil 13,100 Nil
Significance of spend
on pay
Change
2020 2019 %
GBP GBP
Dividends paid to Ordinary shareholders in 2,523, 2,008, 25.65
the year 000 000
Total remuneration paid to Directors 57,500 57,454 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 2019
(Resolution 2) was approved by shareholders at the Annual General Meeting
held on 5 September 2019. The votes cast by proxy were as follows:
Number of votes % of votes cast
For 836,623 97.47
Against 12,707 1.48
At Chairman's discrection 0 0.00
Total votes cast 858,325
Number of votes abstained 8,995
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
GBP250,000, 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 Fees for Year to
30 April 2021 30 April 2020
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 on pages 33 to 35 was approved by the
Board on 6 July 2020.
On behalf of the Board
Lord Lamont of Lerwick
Chairman
6 July 2020
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
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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
6 July 2020
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 2020, 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 2020 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 2020 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 11 to 13 that
describe the principal risks and explain how they are being managed or
mitigated;
· the Directors' confirmation set out on page 11 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 23 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 14 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 the impact of Covid-19, 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
Impact of Covid-19 pandemic
At the date of giving our The full impact
audit opinion the UK and of the current
Covid-19
pandemic
global economy is in the is difficult to
midst of the Covid-19 evaluate. In
gaining
assurance that
pandemic. The Covid-19 the going
pandemic creates a concern basis is
fairly applied
in
significant risk that preparing the
preparing the financial financial
statements our
audit work
statements on a going concern included, but
basis may be was not
restricted to:
inappropriate due to the
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current extent of its impact
· reviewing
and
challenging
management's
on the economy and in turn forecasts for a
the impact on a) the period of at
least 12 months
from
value of the Group's the date of
investment portfolio and b) approving the
the expected dividend income financial
stream. statements;
· reviewing
post year end
transactions
in the
investment
portfolio, to
identify any
crystallised
losses;
· reviewing
the post year
end
performance of
the
investment
portfolio and
ensuring that
fair
disclosure is
made of any
significant
changes in the
value of the
investment
portfolio at
the date the
financial
statements are
approved by
the
Board; and
· considering
the ongoing
costs of the
Group and
the ability to
meet the
Group's
liabilities as
they fall due.
Valuation, ownership and Our audit work included, but
existence of investments was not restricted to:
The Group's business is to · understanding management's
invest predominantly in small process to
capitalised UK companies, recognise and measure quoted
listed on the Official List investments;
and admitted to trading on
AIM, to achieve a high income · assessing whether the
and opportunity for capital Group's accounting policy for
growth. Accordingly, the valuation of quoted
investment portfolio is a investments is in accordance
with IAS 39;
· comparing quoted investment
significant, material balance valuations to an independent
in the financial source of market prices;
statements. We therefore
identified the valuation, · testing investment
ownership and existence of additions and disposals to
the investment portfolio as a contracts and bank
risk that requires particular statements; and
audit attention.
· confirming investment
holdings third-party
confirmations.
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 31,
where the Committee also
described the action that it
has taken to address this risk.
Allocation of capital and Our audit work included, but
revenue items was not restricted to,
examining the historical trends
of the Company and assessing
whether the allocation of cost
The Group is required to between revenue and capital is
apportion its expenses fair and reasonable.
between revenue and capital.
This allocation is important
as one of the conditions of
having Investment Trust
status for tax purposes is
the retention of a maximum of
15% of its income (classified
as revenue) for the
accounting period and the
allocation of expenditure has
a direct impact on this.
The split has to be performed
on the basis of 'the Board's
expected long-term split of
returns'.
Management override of Our audit work included, but
controls was not restricted to:
Under ISA 240 there is a · reviewing material
presumption that the risk of estimates, judgements and
management override of decisions made by management;
controls is always present. 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 Our audit work
included, but
was not
restricted to:
Under ISA 240 there is always
a presumed risk that revenue
may be misstated due to the
improper recognition of · assessing
revenue. In particular we whether the
identified completeness and Group's
occurrence of investment accounting
income as a risk that policy for
requires particular audit revenue
attention. 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
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DJ Chelverton UK Dividend Trust plc: Annual Report -13-
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
GBP420,000, 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 GBP105,000, 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 36 - 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 31 and 32 - 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 24 - 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 36 and 37, 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
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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 [5]. 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 14 years.
As disclosed in the Corporate Governance Report, tax compliance services
were provided in the current year in relation to the previous financial year
as permitted by the FRC's Revised Ethical Standard June 2016. 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.
Further to publication of the FRC's Revised Ethical Standard December 2019
we have ceased to provide tax compliance services with effect from the
current financial year.
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 2019 to 30 April 2020.
The non-audit services prohibited by the FRC's Ethical Standard June 2016
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
6 July 2020
Consolidated Statement of Comprehensive Income
for the year ended 30 April 2020
Note 2020 Revenue 2019
Revenue Capital GBP'000 Capital Total
Total
GBP'000 GBP'000
GBP'000 GBP'000
GBP'000
Losses on 10 - (17,046) - (7,083)
investments at fair (17,046) (7,083)
value through
profit or loss
Investment income 2 2,414 - 2,414 3,221 - 3,221
Investment 3 (135) (407) (153) (459) (612)
management fee (542)
Other expenses 4 (270) (13) (274) (37) (311)
(283)
Net 2,009 (17,466) 2,794 (7,579)
surplus/(deficit) (15,457) (4,785)
before finance
costs and taxation
Finance costs 6 - (607) (607) (1) (582) (583)
Net 2,009 (18,073) 2,793 (8,161)
surplus/(deficit) (16,064) (5,368)
before taxation
Taxation 7 (38) - (38) - - -
Total comprehensive 1,971 (18,073) 2,793 (8,161)
(expense)/ income (16,102) (5,368)
for the year
Revenue Capital Revenue Capital Total
Total
pence pence pence pence pence
pence
Net return per:
Ordinary share 8 9.45 (86.68) 13.40 (39.15)
(77.23) (25.75)
Zero Dividend 8 - 4.19 4.19 - 4.02 4.02
Preference share
2025
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 50 to 69 form part of these financial statements.
Consolidated and Parent Company Statement of Changes in Net Equity
for the year ended 30 April 2020
Share Share Capital Capital Revenue Total
capit reserve reserve
al
premium
redemption
account reserve
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year
ended 30
April
2020
30 April 5,213 17,517 5,004 12,925 4,000 44,65
2019 9
Total - - - (18,073 1,971 (16,1
comprehen ) 02)
sive
(expense)
/ income
for the
year
Dividends 9 - - - - (2,523) (2,52
paid 3)
30 April 5,213 17,517 5,004 (5,148) 3,448 26,03
2020 4
Year
ended 30
April
2019
30 April 5,188 17,301 5,004 21,086 3,215 51,79
2018 4
Total - - - (8,161) 2,793 (5,36
comprehen 8)
sive
(expense)
/ income
for the
year
Ordinary 25 228 - - - 253
shares
issued
Expenses - (12) - - - (12)
of
Ordinary
share
issue
Dividends 9 - - - - (2,008) (2,00
paid 8)
30 April 5,213 17,517 5,004 12,925 4,000 44,65
2019 9
The notes on pages 50 to 69 form part of these financial statements.
Consolidated and Parent Company Balance Sheets
as at 30 April 2020
Note Group Group Company Company
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Investments at fair 10 40,588 59,895 40,588 59,895
value through profit or
loss
Investments in 12 - - 13 13
subsidiary
40,588 59,895 40,601 59,908
Current assets
Trade and other 13 186 447 186 447
receivables
Cash and cash 1,266 1,690 1,266 1,690
equivalents
1,452 2,137 1,452 2,137
Total assets 42,040 62,032 42,053 62,045
Current liabilities
Trade and other 14 (104) (2,078) (117) (2,091)
payables
(104) (2,078) (117) (2,091)
Total assets less 41,936 59,954 41,936 59,954
current liabilities
Non-current liabilities
Zero Dividend 15 (15,902) (15,295) - -
Preference shares
Loan from subsidiary 16 - - (15,902) (15,295)
(15,902) (15,295) (15,902) (15,295)
Total liabilities (16,006) (17,373) (16,019) (17,386)
Net assets 26,034 44,659 26,034 44,659
Represented by:
Share capital 17 5,213 5,213 5,213 5,213
Share premium account 18 17,517 17,517 17,517 17,517
Capital redemption 18 5,004 5,004 5,004 5,004
reserve
Capital reserve 18 (5,148) 12,925 (5,148) 12,925
Revenue reserve 18 3,448 4,000 3,448 4,000
Equity shareholders' 26,034 44,659 26,034 44,659
funds
The notes on pages 50 to 69 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 6 July 2020.
Lord Lamont of Lerwick
Chairman
Company Registered Number: 03749536
Consolidated and Parent Company Statement of Cash Flows
for the year ended 30 April 2020
Note 2020 2019
GBP'000 GBP'000
Operating activities
Investment income received 2,618 3,160
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