Chelverton Growth Trust : Half-Year Report 2022

CHELVERTON GROWTH TRUST PLC

Half Yearly Report

for the six months ended 28 February 2022

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.

1

Chairman's Report

In the six months to 28 February 2022, the Net Asset Value per share increased by just under 1% to 58.02p. Although this performance shows only a modest uplift in value since my last report, relative to our benchmark MSCI Small Cap UK Index which declined by 15.42% it represents another period of outperformance.

On the 24 February Russia invaded Ukraine. As far as we are aware, this distressing situation has led to no material change in trading for the businesses we are invested in. Realistically, the combination of geo-political instability, inflationary pressures and higher interest rates will inevitability depress valuations in the short term. The assumption made is that this year will see a subdued level of macro-economic growth and investment.

I had expected that we would now be in a position to put forward plans as to how we proposed to return value to Shareholders. However, with the heightened level of uncertainty, the Board feel that any proposals would severely undervalue the underlying assets of the Company. We continue to review the situation and will produce our proposals when we are confident that the sensible value can be extracted.

The Board believe that there is significant potential for improvement in the underlying investments and do not believe that it is in the Shareholders' interests to forego this upside for the convenience of resolving the future of the Company at this moment.

I remain grateful to Chelverton Asset Management, the Investment Manager of the Company, who are waiving their management fee in its entirety, in addition, 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, a consequence of a very small sized Company, is much lower than it could have been.

Financial Performance

Prior to the Russian invasion of Ukraine, the underlying performance of the investments had been encouraging with strong market sentiment towards UK publicly quoted equites, and in particular the small companies and micro-cap value companies, which were recovering well after the "Covid Period". Almost all this increase was eliminated by the invasion when sentiment turned negative reflecting the higher level of uncertainty.

Over the same period, the AIM All-share index has declined by 19.54% and the share price has decreased from 59.5p to 43.0p. At the period end, the shares were trading at a discount of 25.89%.

Investments

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

• With the new management in place at Aford Awards for some 18 months there has been significant activity. With a "self-help" programme of revamping the warehouse and production areas the business is now much more efficient and more importantly, can deliver more product from the same premises with the same staff. This was important as three bolt-on acquisitions were made last year which have been relocated to the company's premises and integrated. An additional much larger purchase has just been made which will make a significant contribution in the current year.
• Hickton Group, the fast-growing property services group, continues to develop and is highly cash generative and is therefore expected to repay its acquisition loans.

2

Chairman's Report (continued)

• Friedmans and Milano are starting to enjoy a return to normal trading as the economy and society begins to unlock.
• The merger of Davis Odell and Vale Brothers has now been completed with one banking arrangement and a single accounting system.

All the CEPS businesses, in common with all other enterprises in the United Kingdom are experiencing rapidly increasing prices of materials. In addition, a severe shortage, and a consequent rise in labour costs is also proving to be challenging.

Touchstar has made further progress in the past six months with a positive trading statement at the end of January. The company now has a very strong balance sheet with some 40% of its market value represented by cash.

Petards is also expected to shortly produce its 2021 annual accounts showing a return to profitability. A recent large buy- back and cancellation of its own shares demonstrates that the company has a strong balance sheet and that its Board considers the shares to be materially undervalued.

Universe was taken over at 12p per share which represented a very healthy premium of 129%. The purchaser was a business based in the United States.

The saga at Main Dental Partners unfortunately continues with the appeal being brought by the previous managing director, James Main, being postponed until later this year. The appeal relates to a material claim for employment compensation that that was judged in favour of the company.

La Salle Education ("La Salle"), a business involved in supplying schools with the modern mathematics syllabus via the internet has been deeply involved in providing services to many schools. After a slow start, there are signs that market awareness is increasing leading to rising revenue streams.

Outlook

As I mention in the introduction, the trading climate is very uncertain due to the invasion of Ukraine, while China continues to grapple with containing the Coronavirus. The impact of these events is being closely felt all over Europe and the United States due to the globalisation of business over the past 30 years. It might well be that we see a reversal of this trend over the next period which may well lead to price rises as the cost of securing supply chains increases.

We believe that the UK economy will recover once these macro themes become factored into business thinking. The pressure on labour supply will be resolved over the medium term, via a drive towards increased productivity. As part of the resolution of the labour shortage, employing older workers might be mutually beneficial for people struggling with low pensions and companies struggling to recruit.

Kevin Allen

Chairman

14 April 2022

3