Chelverton Growth Trust : Half-Year Report 2021

CHELVERTON GROWTH TRUST PLC

Half Yearly Report

for the six months ended 28 February 2021

Investment Objective and Policy

The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market ("AIM") with a market capitalisation at the time of investment of up to £50 million, which the Manager believes to be at a "point of change". The Company will invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on AIM or the investee company being sold. Its investment objective is to increase the net asset value per share at a higher rate than other quoted smaller company trusts and the MCSI Small Cap UK Index.

It is the Company's policy not to invest in any listed investment companies (including listed investment trusts).

At the Annual General Meeting held on 12 December 2019, Shareholders voted to amend the Company's Investment Policy to state that the Company:

• may participate in a CEPS placing (if it were to have one);
• will liquidate its various other investments when it is felt appropriate to do so;
• will repay the outstanding Jarvis Loan; and
• will pay all outstanding liabilities.

Investment Strategy

Investments are selected for the portfolio only after extensive research which the Investment Manager believes to be key. The whole process through which equity must pass in order to be included in the portfolio is very rigorous. Only a security where the Investment Manager believes that the price will be significantly higher in the future will pass the selection process. The Investment Manager believes the key to successful stock selection is to identify the long-term value of a company's shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of a company's earnings prospects over a five-year time horizon.

The Company's Investment Manager is Chelverton Asset Management Limited ("CAM"), an investment manager focusing exclusively on achieving returns for investors based on UK investment analysis of the highest quality. The founder and employee owners of CAM include experienced investment professionals with strong investment performance records who believe rigorous fundamental research allied to patience is the basis of long-term investment success.

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Chairman's Report

Since my last Chairman's Report, in October last year, there has been a marked upturn in both the fortunes of our Company and, through the vaccine roll-out, in the health and welfare of the Nation.

At the start of the first wave of the Covid-19 pandemic, approximately a year ago, the stock market suffered a disastrous period of what can only be described as a "Great Panic". Since the summer, trading, performance and finally value have gradually returned to the larger UK companies and this recovery has started to "trickle down" the market capitalisation scale. As the Company's portfolio is made up of small AIM traded and unquoted companies this is the last area to see the signs of the improvement.

I previously stated that we would put forward plans in 2022 on how we proposed to return value to Shareholders. Although the last year has effectively been one of "furlough" for the economy, the Board still feels that it will be able to follow this timetable. Our problem has been that following the prolonged Referendum, Brexit Arguments and Free Trade Agreement period ("RBF"), UK Equities and in particular small, UK centric companies, fell deeply out of favour. The Board, aware of the significant improvement potential in the underlying investments, is not prepared to give up this opportunity for the convenience of resolving the immediate future of this Company.

I am grateful to Chelverton Asset Management, the Investment Manager of the Company, who is waiving its management fee in its entirety and to ISCA, the Company Secretary and Administrator of the Company, who has waived part of its fee and who has also assisted at times on the liquidity of the Company. Ian Martin and I have also waived part of our fees. The collective effect of these actions means that the expense ratio, whilst still high due to the very small size of the Company, is much smaller that it would have been.

Financial Performance

I am pleased to report that over the last six months, the Net Asset Value ("NAV") per share of the Company has increased by 22.14% from 40.61p to 49.60p. Whilst in general, the performance of the underlying investments has been encouraging, the sentiment towards UK publicly quoted equites, and in particular the small companies and micro-cap value companies, has by no means recovered to previous historic levels.

Over the same period, the AIM All-share index has risen by 22.74% whilst the Company's comparative index, the MSCI Small Cap UK index has risen by 19.65%. The share price has increased from 30p to 34p and the shares were therefore trading at a discount of 31.45% at the period end.

Since the period end the NAV per share has increased further and continues to confirm the Board's view that over the next period there is potential to see a significant increase in value.

Investments

CEPS is the largest investment in the Company, and is a diversified AIM traded holding company that owns majority shareholdings in three subsidiaries and a significant minority in a fourth. Our Investment Manager and fellow Board member, David Horner is chairman of the company and has a similar sized shareholding as the that of our Company. CEPS is being built up by the organic growth of the underlying companies and by strategic "bolt-on" acquisitions.

In the last period, there has been some significant positive developments. Aford Awards, a trophy, medal and engraving business, has been strengthened by the introduction of a new and ambitious management team. One of the strategic drivers of this business in the future will be the acquisition and consolidation of small businesses operating in the sector from people looking to retire.

The final loss-making subsidiary has been "rightsized" and has been merged with a complementary business approximately twice its size; CEPS has ended up with a 33% shareholding in the enlarged business. Hickton Group, a fast-growing property services group, has announced the acquisition of a complementary business, Millington Lord, from its parent company, which was in administration.

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Chairman's Report (continued)

Whilst all of the CEPS' businesses have been affected by the various lockdown restrictions, they are all looking forward to building back over the next few months as things gradually ease and in so doing, to producing a very strong second six months of the year. This diversified holding group has proved resilient in the past 12 months and, with reduction of costs and improved processes, will drive higher profits once trading returns to normal.

Touchstar has made some positive announcements in the past six months following its period of reorganisation. Petards is some way behind, but should, in the course of the next 12 months, evidence the positive impact of the remedial work it has been undergoing. In both cases, once trading picks up, operational gearing should drive profits forward.

On the unquoted side Chelverton Asset Management (CAM), the manager of this Company, had a strong recovery after the market collapse in March 2020 and has successfully grown funds under management and paid an increased dividend. CAM's Employee Share Option Trust made another tender offer to acquire shares in the company. This Company sold its remaining shareholding, and I am very pleased to report that it received £339,000 for the 1,000 shares owned which originally cost £1,000. On 2 March 2021, the proceeds were partly used to repay £220,000 of the £320,000 loan from Jarvis. It is our intention to repay the remaining balance of the loan over the next year from realisations.

The saga at Main Dental Partners continues with a date for the appeal being brought by the previous managing director, now set for September of this year. It is hoped that the result of the original case is upheld and with all of the surgeries now reopened and operating under new protocols, the performance of the business will begin to improve, such that we can look forward to having the loan stock repaid.

On a continuing brighter note La Salle Education ("La Salle"), a business involved in supplying schools with the modern mathematics teaching via the internet has been deeply involved in providing services to many schools. La Salle raised £910,000 at 70p, having been initially aiming to raise £750,000. This means that it can accelerate its development to take advantage of the opportunities currently available. The share valuation has been moved up from 50p to the latest fundraising valuation of 70p.

Pedalling Forth (trading as Velovixen) an internet retailer of woman's cycling clothing has also enjoyed a continuing uplift in sales, and it is to be hoped that this will be sustained going forward.

Outlook

It is impossible to make any kind of forecast at this time other than to say that gradually the economy and society will move towards a settled outcome. This new situation will resemble what the position was before the arrival of Covid-19, however it will almost certainly not be the same.

The UK economy seems to be poised to "bounce back" once the Covid restrictions are progressively eased and all parts of the economy are able to operate without constraint.

In time, the Free Trade Agreement with the EU will be properly implemented and will be adjusted by agreement, to the benefit of all parties.

It remains the Board's intention to return funds to Shareholders. By the same token, the oft repeated annual tenders can only be carried out in a meaningful and cost-effective manner when the Company has significant cash resources. At this time, as explained above, the Company is fully invested and so the ninth tender offer will be delayed until we believe the share price better reflects the underlying value of the investments and significant sums have been realised from one or more investments.

Kevin Allen

Chairman

29 March 2021

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