Chelverton UK Dividend Trust PLC

Half-Yearly Financial Report

For the Six Months ended 31 October 2023

Investment Objective and Policy

The investment objective of Chelverton UK Dividend Trust PLC ('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, SDV 2025 ZDP PLC ('SDVP').

Chelverton UK Dividend Trust PLC, and its subsidiary SDV 2025 ZDP PLC ('the Subsidiary'), together form the Group ('the Group').

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, traded on AIM or traded on other qualifying UK marketplaces.

·  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. The Company may retain investments in companies which cease to be listed after the initial investment was made, so long as the total is non-material in the context of the overall portfolio; however, the Company may not increase its exposure to such investments.

Financial Highlights

Interim Management Report

This Half-Yearly report covers the six months to 31 October 2023. The Net Asset Value (NAV) per Ordinary share as at 31 October 2023 was 129.38p, down from 168.15p at 30 April 2023, a decrease of 23.06% during the period. As at 23 November 2023 the NAV per share had increased to 139.20p.

From the beginning of the Company's financial year until 31 October 2023, the Ordinary share price decreased by 24.93% from 174.50p to 131.00p. Since the period end, the share price has increased to 141.50p as at 23 November 2023, on which date the shares were trading at a premium of 1.65%%.

Dividend

Maintaining its record of increasing the annual core dividend paid by the Company for the 14th year running, the first interim dividend for the current year of 3.15p (2022: 2.9425p) per Ordinary share was paid on 13 October 2023. The Board has declared a second interim dividend of 3.15p per Ordinary share (2022: 2.9425p) payable on 12 January 2024 to shareholders on the register on 15 December 2023, making a total for the half year of 6.30p per Ordinary share (2022: 5.89p), an increase of 7.05%.

It is anticipated that the Company will maintain the level of dividend for the third and fourth quarter at 3.15p making a total core dividend of 12.6p for the year (2023: 11.77p), an annual increase of 7.05%.

Portfolio

In the last six months we have increased our investment in 14 of our existing holdings taking advantage of lower prices and shares being available in Arbuthnot Banking Group, Bakkavor, Hargreaves Services, Liontrust Asset Management, Marshalls, MTI Wireless Edge, OSB Group, Paypoint, Premier Miton Group, RTC Group, Regional REIT, Somero, Spectra Systems and Watkin Jones.

During the period we added six new names to the portfolio: FDM Group - Information Technology, Gateley - Business Services, Lendinvest - Non-bank lender, Stelrad - supplier of central heating radiators, Vanquis Banking - sub-prime lender and Wickes Group - retailer of building materials.

Funds were raised from the outright sale of seven of our holdings: Bloomsbury Publishing, Numis Corporation, Saga, Synthomer, Restaurant Group, Vertu Motors and Vistry Group. The following holdings were reduced as they grew to become larger weightings on lower yields: Belvoir Lettings, Castings, Clarke (T.), Essentra, Fonix Mobile, Gattaca, Hilton, Kier Group, Kitwave Group, ME Group International, Ramsdens Holdings, Sancus Lending Group, Smiths News, Ultimate Products and Wilmington Group.

Outlook

The stock market for the last six months, and in fact the last two years, has been very difficult for small and mid cap companies. It is well-documented that UK shares have been lowly rated over several years and this is particularly so in the area of the market in which the Company invests.

There is no need to recount here the extraordinary events and circumstances that the United Kingdom and indeed the world have experienced over the recent past. Gradually, however, the macro environment is improving. The rate of inflation is now reducing across Europe and, in the UK, has fallen to 4.6% and is on course to trend down to target levels during the next year. There is no expectation of a return to the extraordinarily low interest rates that have prevailed over the past decade, but latest developments suggest that we may be at or near the peak in interest rates. That will take the pressure off central banks to increase rates further and should lead to a gradual reduction from current levels.

Logically this will lead to a reduction in mortgage rates and combined with an expectation that energy prices will decline further in the near future should result in an improvement in household spending power and confidence.

Our portfolio has and is experiencing an unprecedented level of share buy-backs by portfolio companies. This de-equitisation process, whilst rewarding for shareholders, will ultimately be damaging for the London Stock Market. The headlong rush by wealth managers to switch from UK equities to Global equities has been part of the problem leading to the general decline in UK share values. When this trend reverses there will be a sharp upward correction in share prices.

To date there has only been a handful of takeovers in the portfolio but the concern has to be that in the future some of our companies will be acquired at unduly low valuations.

However, it is reassuring that the underlying performance of the companies in the portfolio continues to be positive as managements are reacting rapidly to changing circumstances and the challenges of the current marketplace. We continue to see compelling evidence that our companies are, in the main, managing the current tricky environment. As we said one year ago, "It is likely that our companies will only receive the ratings they deserve once the world political and economic situation is stable and then improving". Nothing has occurred to change our view.

We are pleased to recommend an annual 7.05% rise in the dividend and are heartened by the resilience of the portfolio's revenue stream. Over the life of the Company there have been a number of periods where the asset value has declined sharply only for a very strong recovery to take place soon thereafter. We have been gently repositioning the current portfolio to take full advantage of the potential for similar capital recovery in the future.

Chelverton Asset Management Limited

27 November 2023

Principal Risks

The principal risks facing the Group are substantially unchanged since the date of the Annual Report for the year ended 30 April 2023 and continue to be as set out in that report on pages 11 to 13. Risks faced by the Group include, but are not limited to, market risk, discount volatility, regulatory risks, financial risk, political risk, global pandemics risk and risks associated with accounting policies, gearing and the loss of key personnel.

Going concern

Having assessed the principal risks and the other matters discussed in connection with the viability statement as set out on pages 15 and 16 of the Annual Report for the year ended 30 April 2023, the Directors believe that the Group is well placed to manage its business risks successfully and it is appropriate to adopt the going concern basis in preparing the accounts.

Change of Auditor

The Company's auditor, Hazlewoods LLP, resigned with effect from 31 October 2023 on the grounds that they have taken the decision to no longer continue their registration as an auditor eligible to undertake Public Interest Entity audits.

The Company's Audit Committee carried out a formal, competitive tender process and, after careful consideration, recommended to the Board the appointment of Johnston Carmichael LLP as the Company's new auditors. This appointment was approved by the Board.

Johnston Carmichael LLP will carry out the audit of the Company's annual report and accounts for the year ending 30 April 2024 and their appointment will be put to a vote of the shareholders at the Company's next Annual General Meeting in September 2024.

Responsibility Statement of the Directors in respect of the Half-Yearly Report

We confirm that to the best of our knowledge:

·      the condensed set of financial statements has been prepared in compliance with the IAS 34 'Interim Financial Reporting' and gives a true and fair view of the assets, liabilities and financial position of the Group; and

·      the interim management report and notes to the Half-Yearly Report include a fair view of the information required by:

(a)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)   DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

This Half-Yearly Report was approved by the Board of Directors on 27 November 2023 and the above responsibility statement was signed on its behalf by Howard Myles, Chairman.