While there is some uncertainty as to the economic recovery in sectors with exposure to global trade, the outlook across the Company's portfolio companies is promising. The Board is con?dent that it is well placed to bene?t from both improving domestic activity and a potential rebound in consumer spending and corporate investment.

The Board accordingly looks forward to continuing to work with David Horner and his Chelverton team to seek out opportunities in the UK smaller companies sector, and to maintaining the Company's strong performance relative to its investment company peers. Lord Lamont of Lerwick

Chairman

24 June 2021 Investment Manager's Report

In the year to 30 April 2021 the Company's net asset value per share rose from 124.86p to 227.07p. At the same time the core dividend was increased 4.2% to 10.0p, in line with the intentions outlined in September 2020. The Company also announced a special dividend of 0.272p, which has been aggregated with the fourth interim dividend.

Including the special dividend the total dividend for the year was 10.272p, a 7.0% increase on the 9.6p paid in 2020. Prior to the Covid-19 pandemic it was the manager's intention to deliver a 7% increase in the core dividend for the year to April 2021, however given the unprecedented reduction in dividends and uncertainty across the market at the time of the ?rst interim dividend decision, we prudently took a more conservative approach to dividend growth. With the trading outlook for our investee companies back on ?rmer footing and dividend payments gradually returning to 'normal' levels, we now have the con?dence to pay a special dividend, in effect boosting the core dividend to the level originally planned. It is the intention to use the total dividend of 10.272p as the base from which to grow the core dividend in the current year.

While the 81.9% increase in NAV in the period is clearly pleasing, it should be taken in the context of the sharp fall in NAV in February and March 2020 during the initial phase of the pandemic. With this in mind, the two-year performance since 30 April 2019 is perhaps a more appropriate measure. During this period the Company's net asset value rose 6.01% from 214.19p to 227.07p. A satisfactory performance over a period of extreme volatility which was delivered alongside increases in the core dividend in both years.

The turning point in the year was the announcement of an effective Covid-19 vaccine in November. Prior to this, uncertainty and fear governed both share prices and management actions at our investee companies, with guidance largely removed from the market and analyst estimates focusing on the "worst case scenario". The impact on dividends across the market has been widely reported and our portfolio was not unaffected, with dividend income versus 2019 (the last year unaffected by Covid-19) reducing 53.0% to GBP1.71m. Given the high level of government support, corporate balance sheets were not, in the main, put under the same pressure as in previous crises. Despite this, due to the ?xation on worst case scenarios, there was a signi?cant uptick in equity issuance. As long-term income focused investors we see dilution as a major headwind against achieving good returns over the medium/long term. As such we believe additional equity should be issued sparingly. Unfortunately, the period saw a number of management teams raise new equity at very low prices, to give their businesses a short-term buffer against potential downside scenarios. While in some instances, particularly in the leisure sector, a capital injection was genuinely required to see them through the pandemic, other businesses raised cash where there simply was no need, and the dilution from these raises is permanent.

The announcement of multiple successful vaccine trials in November brought about a substantial swing in sentiment, with optimism now the order of the day. The market largely shrugged off new waves of the pandemic and additional lockdowns, with the focus now ?rmly on the post pandemic recovery and the expected wave of consumerism, funded by savings built up during the pandemic. Importantly, companies have been very cautious in their return to guidance, largely keeping enough powder dry to weather any re- opening delays.

During this time the much anticipated free trade agreement with the EU was also agreed and signed. The impact on our companies was relatively benign given the extensive preparations which had been taken previously for a "no-deal" scenario, however it removed a signi?cant element of medium-term uncertainty and perceived risk.

The strong NAV performance delivered in 2021 was a direct result of the careful management of the Company's revenue reserves in prior years. Going into this downturn the Company had suf?cient revenue reserves to cover around two years' worth of dividend payments. This level of cover, and the stable ?nancial position of the trust provided by the Zero Dividend Preference shares, allowed us to focus on capital growth during the ?rst phase of the recovery, adding to existing holdings which we felt were materially undervalued despite short term uncertainty over the ability to pay dividends. With the UK vaccination program continuing apace, the outlook for the vast majority of our holdings is more certain, with many currently bene?tting from an element of "pent-up demand". As such we have seen share prices recover strongly since the initial vaccine announcement, with some share prices now materially higher than in February 2020.

We wrote in last year's report that we expected companies to emerge from this downturn stronger and ?tter than before, as had been the case in previous crises. Having now been through several results seasons and been in regular contact with our management teams through the pandemic, we are increasingly convinced that this will be the case. Companies have not been idle through the pandemic, using the period of reduced business activity to accelerate planned improvement programs and speed up the digital transformation process. The pandemic forced us all to adopt new ways of working and interacting with each other. We see multiple examples across the portfolio where this has led to increased acceptance of more ef?cient business models, which would otherwise have taken a number of years to implement. How much of the changes in working practices will be permanent once the economy fully re-opens remains to be seen, but we believe the "hybrid" models which will likely emerge will leave our companies both more ef?cient and more scalable. Portfolio review

In the last year takeover activity in the portfolio signi?cantly reduced from the level seen in 2020 (7 takeovers). Moss Bros Group and Low & Bonar were the only deals completed in the year, although both were originally announced in the prior year. In addition to the takeovers, eight other holdings from the portfolio were sold in their entirety (2020: 2): Elementis, Entain, Foxtons Group, Galliford Try Holdings, Kin & Carter, Titon Holdings, XP Power and XPS Pensions.

Shareholdings were reduced in 21 companies (2020: 11) including Alumasc Group, Amino Technologies, Bloomsbury Publishing, Braemar Shipping Services, Diversi?ed Gas & Oil (now renamed Diversi?ed Energy), DX Group, Headlam Group, Polar Capital Holdings, Randall & Quilter, Strix Group, Tyman and UP Global Sourcing Holdings, all after strong share price performance.

Eight new shareholdings were added to the Company's portfolio in the year (2020: 8), including: Anglo Paci?c - a diversi?ed natural resources royalty company, Contour Global - wholesale power generation, Curtis Banks Group - pension administration services, Duke Royalty - private SME ?nancing, Hargreaves Services - industrial and property services, iEnergizer - business process outsourcing and content delivery services, MP Evans - sustainable palm oil producer and Vector Capital - commercial lending.

Shareholdings were increased in 33 companies (2020: 19) which were in the portfolio at the start of the year. As ever, this represents a signi?cant part of the portfolio and this year includes a number of holdings which were increased at the lows during the ?rst half of the year and were subsequently "top sliced" once the shares had rallied. Outlook

The positive momentum from the second half of last year has continued into the beginning of this year, with the Company's net asset value rising a further 5.3% since 30th April 2021 to 239.16p as at 21 June 2021.

As outlined above, we believe our investee companies are, in the main, emerging as better companies with more ef?cient processes. As the recovery continues, we expect the supply of skilled labour to become increasingly tight. This will make adoption of more ?exible working practices to access new pools of talent increasingly important, with processes which will allow businesses to grow without requiring additional labour also to be encouraged. The market is currently focused on how quickly businesses can return to pre- pandemic levels of activity however, in time, we believe our companies will get the credit they deserve for improving their business models over the course of the downturn.

Finally, while it feels like a long time ago now, the impact of Brexit on this portfolio should not be forgotten. While we now have a free trade agreement in place with the European Union, Covid-19 has focused investor attention elsewhere. We ?rmly believe the "Brexit discount" which our investee companies were suffering from has not yet reversed, a situation which we believe will start to rectify itself over the coming periods. David Horner

Chelverton Asset Management Limited

24 June 2021 Breakdown of Portfolio by Industry

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June 24, 2021 02:04 ET (06:04 GMT)