REG-SVM UK Emerg Fund: Annual Financial Report
14/07/2020 13:35
SVM UK EMERGING FUND PLC
(the “Fund”)
ANNUAL FINANCIAL RESULTS
FOR THE YEAR ENDED 31 MARCH 2020
The Board is pleased to announce the Annual Financial Results for the year
ended 31 March 2020. The full Annual Report and Financial Statements, Notice
of Annual General Meeting and Form of Proxy will be posted to shareholders and
be available shortly on the Manager's website at www.svmonline.co.uk
Copies of the Annual Report have been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/nsm
HIGHLIGHTS
* Over the 12 months to 31 March 2020, net asset value fell by 25.6% to 81.9p
compared to a fall of 19.1% in the benchmark.
* Over the five years to 31 March 2020, net asset value has gained 8.6% and
the share price 18.6%, against a benchmark return of minus 1.4%.
* Portfolio emphasises exposure to scalable businesses with a competitive edge
that can protect margins and deliver growth.
* At 30 June 2020, net asset value per share had risen to 99.6p.
Financial Highlights Year to 31 March 2020 Year to 31 March 2019
Total Return performance:
Net Asset Value total return -25.6% -1.8%
Share Price total return -16.7% -6.7%
Benchmark Index (IA UK All Companies Sector Average Index since 1 October 2013*) -19.1% +2.8%
31 March 2020 31 March 2019 % Change
Capital Return performance:
Net asset value (p) 81.88 110.6 -25.6%
Share price (p) 70.00 84.00 -16.7%
FTSE All-Share Index 3,107 3,978 -21.9%
Discount 14.5% 23.7%
Gearing** 16.5% 20.3%
Ongoing Charges ratio:
Investment management fees*** 0.90% 0.36%
Other operating expenses**** 2.08% 1.57%
Total Return to 31 March 2020 (%) 1 Year 3 Years 5 Years 10 Years Launch (2000)
Net Asset Value -25.6 -13.1 +8.6 +19.5 -15.6
Benchmark Index* -19.1 -14.5 -1.4 +29.7 -39.2
*The benchmark index for the Fund was changed to the IA UK All Companies
Sector Average Index from 1 October 2013 prior to which the FTSE AIM Index was
used.
**The gearing figure indicates the extra amount by which shareholders’ funds
would change if total assets (including CFD position exposure and netting off
cash and cash equivalents) were to rise or fall. A figure of zero per cent
means that the Company has a nil geared position
***The Manager waived its management fees up to 30 September 2018.
Management fees have been reintroduced from 1 October 2018.
****Up to 30 September 2018 Directors waived their entitlement to half their
fees. From 1 October 2018 Directors have received their full fees.
INVESTMENT OBJECTIVE
The investment objective of the Fund is long term capital growth from
investments in smaller UK companies. Its aim is to outperform the IA UK All
Companies Sector Average Index on a total return basis.
CHAIRMAN’S STATEMENT
Over the 12 months to 31 March 2020, the Company’s net asset value fell by
25.6% to 81.9p per share, compared to a fall of 19.1% in the benchmark, the IA
UK All Companies Sector Average Index. Over the 12 months, the share price
fell 16.7%. Over the five years to 31 March 2020, net asset value has gained
8.6% and the share price 18.6%, against a benchmark return of minus 1.4%. The
Company’s net asset value progressed in the three months since the year end
to 99.6p at 30 June 2020. (total return, Lipper data).
Review of the year
In late February and during March, the portfolio was impacted by the pandemic
and fears of a sharp setback for the global economy. Stockmarkets and the
portfolio had not fully recovered by 31 March 2020. Many businesses are now
faced with uncertainty over demand and the timescale in which that might
correct. For consumer services, in particular, prospects for this year and
next remain uncertain. But the portfolio emphasises growth and includes
companies with opportunity to benefit from current circumstances and potential
longer term changes to the economy. Some consumer businesses in the portfolio
have an online strategy or can use additional capital to build market share.
The fund also has exposure to growing sectors such as technology and the
digital economy. The Fund’s longer term track record demonstrates the value
of the strategy and the Manager’s process. Following the reporting year end,
April and May saw recovery in many share prices.
During the 12 months under review, there were positive contributions to
performance from Learning Technologies Group, GB Group, Cranswick Foods,
Hilton Food, Kerry Group, Genus, Flutter and Knights Group. The more resilient
businesses tended to be in sectors of more stable demand such as food
producers, or in growth areas providing online services and support for
working from home.
Disappointments in the period included Burford, SSP, Workspace, Fevertree
Drinks and Blue Prism. Typically, companies most affected by the lockdown took
prompt action to cut costs and protect their balance sheets, in some cases
raising additional capital. The travel sector was particularly badly hit in
February and March. This affected portfolio holdings of Cineworld, On The
Beach, Hostelworld, WH Smith and airlines.
New or additional investment was made in AJ Bell, Ceres Power, LondonMetric,
Kerry Group and AB Dynamics. To fund the purchases, sales were made of
Fevertree Drinks, GVC, ITV, Ted Baker and Burford Capital. A factor in some of
these sales was reducing exposure to the economic cycle to reduce portfolio
risk.
The Fund’s investment strategy recognises the pervasiveness of technology
and the economic change it drives. The impact of change in technology and
demographics is accelerating in a number of consumer and business sectors,
particularly retail and finance. The Fund aims to avoid structurally
challenged businesses.
Annual General Meeting
The Annual General Meeting will be held on 11 September 2020 at SVM’s
offices in Edinburgh. At the last General Meeting, shareholders approved
powers for the Company to issue shares and to buy back for cancellation, or to
hold in treasury. Your Board has directed the Manager to implement this
arrangement, operating within Board guidelines and approvals. This aims to
improve liquidity in our shares, and your Board does not expect this overall
to be dilutive to shareholders. The Managers have reassessed prospects for
each of the portfolio investments. In some cases, balance sheets are being
repaired by share placings.
Board Changes
During the 12 months under review, two new Directors were appointed; Jeremy
Harris and Ian Gray. Jeremy is a solicitor and partner in Brian Harris & Co,
and brings financial services, legal and governance experience to the Board.
Ian is a chartered accountant with experience in strategic roles in a range of
public and private companies and government agencies. He is a director of DX
(Group) plc and a number or private companies. Ian brings commercial,
financial and governance experience to the Board. I welcome these two
Directors. Two of the founding Directors stood down during the year; Richard
Bernstein and Tony Puckridge. I would like to thank Richard and Tony for their
valuable contribution to the Company over a number of years.
Outlook
Lockdowns in response to the pandemic drove domestically-focused UK shares and
the Pound itself down to low levels, initially indiscriminately. The crisis
and response by the Government and Bank of England is disinflationary, putting
a premium on companies with growth strategies. The lack of inflation is
typically more of a challenge for global economically- sensitive businesses.
Additionally, global supply chains must change – moving from a lean but
risky model towards structures that are more resilient.
The portfolio emphasises exposure to scalable businesses with a competitive
edge and potential for self-help that can deliver above average growth. It has
low exposure to mining, oil and traditional banks. The Fund remains fully
invested, making use of its ability to apply gearing to increase market
exposure.
Peter Dicks
Chairman
10 July 2020
MANAGER’S REVIEW
Summary
The period under review captured the sharp stockmarket fall of late February
and March, but ended before the recovery of April and May. Portfolio strategy
has been modified to reduce exposure to the economic cycle, but increase
emphasis on businesses with a strong competitive edge or serving the digital
economy. The Fund focuses on growth; companies with better control over their
own destiny. In contrast, many large FTSE 100 businesses have been forced into
dividend cuts, with income having been a key reason for holding the shares
previously. Despite money printing, the background is disinflationary –
typically more of a challenge for global economically-sensitive businesses. In
addition, global supply chains must change – moving from a lean but risky
model towards structures that are more resilient. These trends support the
portfolio strategy.
Portfolio review and investment strategy
A central theme to the portfolio strategy has been a focus on companies we
view as category champions. These businesses typically dominate their field
and would be viewed as best in class. That field may represent a niche or
specific service in which a company has specialised, creating a genuine
competitive edge. Portfolio investments in this class include Rentokil
Initial, Experian, Ocado and Kerry Group. Experian adds value to credit
information and has a strong position in the US.
Ocado is an ecommerce delivery platform supporting a growing number of major
retail groups around the world. Kerry Group specialises in food flavourings,
helping customers to develop unique, higher value- added products. Companies
in this group have a degree of pricing power conferred by their specialist
skills. Typically, they also operate in growth areas – important when the
global economy is challenged, and was growing slowly even before the pandemic.
While most businesses have been hit by the pandemic, some are well-adapted to
this changed economic background. Businesses that focus on business support in
the digital economy, or with strong mobile, data-driven customer offerings,
should emerge stronger from the disruption. Many of these businesses were
already disrupters in their categories and have proven their agility in
offering differentiated services in scalable ways. Portfolio investments in
this group include Codemasters, Team17 and Hilton Foods. For example, Team17
is a leader in premium independent video games, and its low costs have also
allowed it to capitalise successfully in industry growth. It has seen demand
grow during the crisis.
Home
The lockdown and increased remote working have generated renewed interest in
the home. More time is being spent in the home and we expect some part of this
change in work/life balance to continue into the recovery. There has been
increased demand for online entertainment, e-commerce and home delivery.
Companies that should benefit from this include Games Workshop, JD Sports and
LondonMetric. LondonMetric supports delivery logistics, which may involve
shorter supply chains.
Office of the future
Following from this change in office/remote working balance, businesses are
likely to demand more enterprise support services; supporting cloud, data,
information technology and virtual operations. Many firms will move their
existing remote work onto more robust systems, and strengthen cyber security.
Businesses providing solutions for these changes include Softcat and Gamma
Communications. Some businesses in other areas are well placed to compete
using more flexible models, and we expect Keystone Law to benefit.
Sustainability, wellbeing and resilience
History shows that economic shocks often drive long term social change. While
the lockdown has damaged the economy, there have been identifiable benefits to
wellbeing and the environment. More emphasis is likely on sustainability and
health. At the same time, in many companies the governance model has failed to
deliver genuine resilience. Shareholders may encourage boards to do more for
resilience and sustainability. Government intervention in the economy will
create the potential for greater national influence on some businesses and
industries. This may reinforce the pace of change. Companies we expect to
benefit include Ceres Power, Genus and DiscoverIE Group.
Outlook
While the financial crisis was largely a credit problem, some businesses are
now faced with uncertainty over demand and the timescale in which that might
correct. For consumer services and hospitality – pub chains for example -
prospects this year and next are very uncertain. The Fund has low exposure to
this area, although it does include some travel businesses.
Despite all the money being pumped into economies by governments around the
world, even lower inflation and interest rates are now likely. Low inflation
and dividend cuts have a big impact on pension fund liabilities and the
balance sheets of many big companies. Younger growth businesses typically
suffer less from these legacy problems.
Where consumer businesses also have an online strategy, or can use additional
capital to take market share from weaker rivals, the outlook is more positive.
Many growth businesses have had to operate with lean capital-lite business
models. They may be in a position to acquire weaker rivals. We believe that
many portfolio businesses will emerge strongly from the current challenges.
Your Fund remains fully invested, focused on resilient growing businesses,
with low exposure to commodities, oil and banks.
Sector analysis* % Listing* % Market Capitalisation* %
Consumer Services Financials Industrials Consumer Goods Technology Healthcare Telecommunications Oil & Gas 25.1 21.2 19.9 15.0 13.1 2.7 2.0 1.0 Main Market AIM Other 62.9 32.0 5.1 Mid Small Large 43.6 34.8 21.6
*Analysis is of gross exposure
INVESTMENT PORTFOLIO
as at 31 March 2020
Stock Market Exposure 2020 £000 % of Net Assets Market Exposure 2019 £000
Kerry Group 254 5.2 178
Unite Group 254 5.2 261
Hilton Food Group 235 4.8 205
4Imprint Group 233 4.6 297
Rentokil Initial 174 3.5 159
Learning Technologies Group 174 3.5 154
Knights Group 160 3.3 127
JD Sports Fashion 145 3.0 160
Ocado Group 140 2.9 158
Dechra Pharmaceuticals 134 2.7 153
Ten largest investments 1,903 38.7
Beazley Group 122 2.5 161
FDM Group Holdings 122 2.5 148
Johnson Service Group 119 2.4 160
Workspace Group 117 2.4 227
Experian 113 2.3 -
Keystone Law Group 105 2.1 107
Manolete Partners 101 2.1 150
Gamma Communications 98 2.0 97
Tracsis 88 1.8 95
Codemasters 82 1.7 82
Twenty largest investments 2,970 60.5
Cranswick 81 1.7 60
Draper Esprit 75 1.5 108
Essensys 75 1.5 -
Renishaw 72 1.5 84
Pets at Home 71 1.4 -
K3 Capital Group 70 1.4 90
Alpha Financial Markets 67 1.4 107
AJ Bell 67 1.4 -
Whitbread 67 1.4 111
Trainline 66 1.3 -
Thirty largest investments 3,681 75.0
Other investments (29 holdings) 1,288 26.2
Total investments 4,969 101.2
CFD positions (514) (10.5)
CFD unrealised gains 8 0.2
Net current assets/(liabilities) 446 9.1
Net assets 4,909 100.0
Market exposure for equity investments held is the same as fair value and for
contracts of difference (“CFDs”) held is the market value of the
underlying shares to which the portfolio is exposed via the contract. The
investment portfolio is grossed up to include CFDs and the net CFD position is
then deducted in arriving at the net asset total. Further information is given
in note 6 to the Financial Statements. A full portfolio listing as at 31 March
2020 is detailed on the website.
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors review policies for identifying and managing the principal risks
faced by the Fund.
Many of the Fund’s investments are in small companies and may be seen as
carrying a higher degree of risk than their larger counterparts. These risks
are mitigated through portfolio diversification, in-depth analysis, the
experience of the Manager and a rigorous internal control culture. Further
information on the internal controls operated for the Fund is detailed in the
Report of the Directors.
The principal risks facing the Fund relate to the investment in financial
instruments and include market, liquidity, credit and interest rate risk. An
explanation of these risks and how they are mitigated is explained in note 10
to the financial statements. Additional risks faced by the Fund are summarised
below:
Investment strategy – The risk that an inappropriate investment strategy may
lead to the Fund underperforming its benchmark, for example in terms of stock
selection, asset allocation or gearing. The Board has given the Manager a
clearly defined investment mandate which incorporates various risk limits
regarding levels of borrowing and the use of derivatives. The Manager
invests in a diversified portfolio of holdings and monitors performance with
respect to the benchmark. The Board regularly reviews the Fund’s
investment mandate and long term strategy.
Discount – The risk that a disproportionate widening of discount in
comparison to the Fund’s peers may result in loss of value for shareholders.
The discount varies depending upon performance, market sentiment and investor
appetite. The Board regularly reviews the discount and the Fund operates a
share buy-back programme.
Accounting, Legal and Regulatory – Failure to comply with applicable legal
and regulatory requirements could lead to a suspension of the Fund’s shares,
fines or a qualified audit report. In order to qualify as an investment trust
the Fund must comply with section 1158 of the Corporation Tax Act 2010
(“CTA”). Failure to do so may result in the Fund losing investment trust
status and being subject to Corporation Tax on realised gains within the
Fund’s portfolio. The Manager monitors movements in investments, income
and expenditure to ensure compliance with the provisions contained in section
1158. Breaches of other regulations, including the Companies Act 2006, the
Listing Rules of the UK Listing Authority or the Disclosure and Transparency
Rules of the UK Listing Authority, could lead to regulatory and reputational
damage. The Board relies on the Manager and its professional advisers to
ensure compliance with section 1158 CTA, Companies Act 2006 and UKLA Rules.
Operational – The risk of loss resulting from inadequate or failed internal
processes, people and systems or from external events. In common with most
other Investment Trusts, the Fund has no employees and relies upon the
services provided by third parties. The Manager has comprehensive internal
controls and processes in place to mitigate operational risks. These are
regularly monitored and are reviewed to give assurance regarding the effective
operation of the controls.
Corporate Governance and Shareholder Relations – Details of the Fund’s
compliance with corporate governance best practice, including information on
relations with shareholders, are set out in the Directors’ Statement on
Corporate Governance.
Financial – The Fund’s investment activities expose it to a variety of
financial risks including market, credit and interest rate risk. These risks
are explained in Note 10 to the financial statements. The Board seeks to
mitigate and manage these risks through continuous review, policy setting and
enforcement of contractual obligations. The Board receives both formal and
informal reports from the Manager and third party service providers addressing
these risks. The Board believes the Fund has a relatively low risk profile as
it has a simple capital structure; invests principally in UK quoted companies;
does not use derivatives other than CFDs and uses well established and
creditworthy counterparties.
The capital structure comprises only ordinary shares that rank equally. Each
share carries one vote at general meetings.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors consider that the Annual Report and Financial Statements, taken
as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Fund’s performance, business model
and strategy.
The Directors each confirm to the best of their knowledge that:
• the financial statements, prepared in accordance with
the applicable accounting standards, give a true and fair view of the assets,
liabilities, financial position and gain or loss of the Fund and;
• the Strategic Report includes a fair review of the
development and performance of the business and the position of the Fund
together with a description of the principal risks and uncertainties that it
faces.
By Order of the Board
Peter Dicks
Chairman
10 July 2020
Income statement
for the year to 31 March 2020
Notes Revenue £000 Capital £000 Total £000
Net loss on investments at fair value 6 - (1,633) (1,633)
Income 1 137 - 137
Investment management fees 2 - (52) (52)
Other expenses 3 (120) - (120)
Gain/(loss) before finance costs and taxation 17 (1,685) (1,668)
Finance costs (24) - (24)
Loss on ordinary activities before taxation (7) (1,685) (1,692)
Taxation 4 - - -
Loss attributable to ordinary shareholders (7) (1,685) (1,692)
Loss per Ordinary Share 5 (0.12)p (28.08)p (28.20)p
for the year to 31 March 2019
Notes Revenue £000 Capital £000 Total £000
Net loss on investments at fair value 6 - (106) (106)
Income 1 143 - 143
Investment management fees 2 - (24) (24)
Other expenses 3 (104) - (104)
Gain/(loss) before finance costs and taxation 39 (130) (91)
Finance costs (26) - (26)
Gain/(loss) on ordinary activities before taxation 13 (130) (117)
Taxation 4 (3) - (3)
Gain/(loss) attributable to ordinary shareholders 10 (130) (120)
Gain/(loss) per Ordinary Share 5 0.17p (2.17)p (2.00)p
The Total column of this statement is the profit and loss account of the Fund.
All revenue and capital items are derived from continuing operations. No
operations were acquired or discontinued in the year. A Statement of
Comprehensive Income is not required as all gains and losses of the Fund have
been reflected in the above statement.
Balance sheet
as at 31 March 2020
Notes 2020 £000 2019 £000
Fixed Assets
Investments at fair value through profit or loss 6 4463 6,437
Current Assets
Debtors 7 451 300
Cash at bank and on deposit 294 6
Total current assets 745 306
Creditors: amounts falling due within one year 8 (299) (134)
Net current (liabilities)/assets (446) 172
Total assets less current liabilities 4,909 6,609
Capital and Reserves
Share capital 9 300 300
Share premium 314 314
Special reserve 5,136 5,144
Capital redemption reserve 27 27
Capital reserve (492) 1,193
Revenue reserve (376) (369)
Equity shareholders’ funds 4,909 6,609
Net asset value per Ordinary Share 5 81.88p 110.06p
Statement of Changes in Equity
for the year to 31 March 2020
Share capital £000 Share premium £000 Special reserve £000 Capital redemption reserve £000 Capital reserve £000 Revenue reserve £000 Total £000
As at 1 April 2019 300 314 5,144 27 1,193 (369) 6,609
Ordinary shares repurchased - - (8) - - - (8)
Loss attributable to shareholders - - - - (1,685) (7) (1,692)
As at 31 March 2020 300 314 5,136 27 (492) (376) (4,909)
for the year to 31 March 2019
Share capital £000 Share premium £000 Special reserve £000 Capital redemption reserve £000 Capital reserve £000 Revenue reserve £000 Total £000
As at 1 April 2018 300 314 5,144 27 1,323 (379) 6,729
(Loss)/gain attributable to shareholders - - - - (130) 10 (120)
As at 31 March 2019 300 314 5,144 27 1,193 (369) 6,609
Accounting policies
Basis of preparation
The Financial Statements have been prepared on a going concern basis in
accordance with FRS 102, the “Financial Reporting Standard applicable in the
UK and Republic of Ireland” and under the AIC’s Statement of Recommended
Practice “Financial Statements of Investment Trust Companies and Venture
Capital Trusts” (SORP) issued in October 2019. The requirements have been
met to qualify for the exemptions to prepare a Cash Flow Statement, this
therefore has been removed.
Significant judgements and estimates
Preparation of financial statements can require management to make significant
judgements and estimates. There are no significant judgements or sources of
estimation uncertainty the Board considers need to be disclosed.
Income
Income is included in the Income Statement on an ex-dividend basis and
includes dividends on both direct equity investments and synthetic equity
holdings via Contracts for Differences.
Expenses and interest
Expenses and interest payable are dealt with on an accruals basis.
Investment management fees
Investment management fees are allocated 100 per cent to capital. The
allocation is in line with the Board’s expected long-term return from the
investment portfolio. The terms of the investment management agreement are
detailed in the Report of the Directors.
Taxation
Current tax is provided at the amounts expected to be paid or received.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more or a right to pay less tax in
the future have occurred at the balance sheet date measured on an undiscounted
basis and based on enacted or substantively enacted tax rates. This is subject
to deferred tax assets only being recognised if it is considered probable that
there will be suitable profits from which the future reversal of the
underlying timing differences can be deducted. Timing differences are
differences arising between the taxable profits and the results as stated in
the financial statements which are capable of reversal in one or more
subsequent periods.
Investments
The investments have been categorised as ‘‘fair value through profit or
loss’’. All investments are held at fair value. For listed investments
this is deemed to be at bid prices. A Contract for Difference (CFD) is a
synthetic equity comprising of a future contract to either purchase or sell a
specific asset at a specified future date for a specified price. The Company
can hold long and short positions in CFDs which are held at fair value, based
on the bid prices of the underlying securities in respect of long positions,
and the offer prices of the underlying securities in respect of short
positions. Profits and losses on CFDs are recognised in the Income Statement.
Amounts receivable from and payable to brokers re CFDs are disclosed in Note 7
Debtors, being the margin call account and Note 8 Creditors, being the fair
value position of the holdings respectively. Unlisted investments are valued
at fair value based on the latest available information and with reference to
International Private Equity and Venture Capital Valuation Guidelines.
All changes in fair value and transaction costs on the acquisition and
disposal of portfolio investments are included in the Income Statement as a
capital item. Purchases and sales of investments are accounted for on trade
date.
Financial instruments
In addition to the investment transactions described above, basic financial
instruments are entered into that result in recognition of other financial
assets and liabilities, such as investment income due but not received, other
debtors and other creditors. These financial instruments are receivable and
payable within one year and are stated at cost less impairment.
Foreign currency translation
Transanctions involving foreign currencies are converted at the rate ruling as
at the date of the transaction. Foreign currency monetary assets and
liabilities are retranslated into Sterling at the rate ruling on the financial
reporting date.
Capital reserve
Gains and losses on realisations of fixed asset investments, and transactions
costs, together with appropriate exchange differences, are dealt with in this
reserve. All incentive fees and investment management fees, together with any
tax relief, is also taken to this reserve. Increases and decreases in the
valuation of fixed asset investments are dealt with in this reserve.
Special reserve
On 29 June 2001, the court approved the redesignation of the Share Premium
Account, at that date, as a fully distributable Special Reserve.
Notes to the financial statements
1. Income
2020 £000 2019 £000
Income from shares and securities
– dividends 139 143
– interest (2) -
137 143
2. Investment Management Fees
Investment Management Fees 52 24
3. Other expenses
Revenue
General expenses 71 68
Directors’ fees 25 21
Auditor’s remuneration 24 15
120 104
4. Taxation
Current taxation - 3
Deferred taxation - -
Total taxation charge for the year - 3
The tax assessed for the year is different from the standard small company
rate of corporation tax in the UK. The differences are noted below:
Loss on ordinary activities before taxation (1,692) (117)
Corporation tax (19%, 2019 – 19%) (321) (22)
Non taxable UK dividends (15) (13)
Non taxable property revenue from UK REIT - (3)
Irrecoverable overseas tax - 3
Non taxable investment losses in capital 310 20
Non taxable overseas dividends (3) (4)
Expenses not deductible for tax purposes 2 -
Movement in deferred tax rate on excess management charges (22) 2
Movement in unutilised management expenses and NTLR deficits 49 20
Total taxation charge for the year - 3
At 31 March 2020, the Fund had unutilised management expenses and non trade
loan relationship (“NTLR”) deficits of £1,260,000 (2019 – £1,116,000).
A deferred tax asset of £239,000 (2019 - £190,000) has not been recognised
on unutilised management expenses as it is unlikely that there would be
suitable taxable profits from which the future reversal of the deferred tax
asset could be deducted.
5. Returns per share
Returns per share are based on a weighted average of 5,999,836 (2019 –
6,005,000) ordinary shares in issue during the year.
During the year 10,000 Ordinary Shares were bought back and placed in
treasury.
Total return per share is based on the total loss for the year of £1,692,000
(2019 – loss of £120,000).
Capital return per share is based on the net capital loss for the year of
£1,685,000 (2019 – loss of £130,000).
Revenue return per share is based on the revenue loss after taxation for the
year of £7,000 (2019 – gain of £10,000).
The net asset value per share is based on the net assets of the Fund of
£4,909,000 (2019 – £6,609,000) divided by the number of shares in issue at
the year end as shown in note 9.
6. Investments at fair value through profit or loss
2019 £000 2019 £000
Listed investments 4,463 6,437
Unlisted investments - -
Valuation as at end of year 4,463 6,437
Listed £000 Unlisted £000 Total £000 Total £000
Opening book cost 4,089 140 4,229 4,189
Opening investment holding gains/(losses) 2,348 (140) 2,208 2,291
Opening fair value 6,437 - 6,437 6,480
Analyis of transactions made during the year
Purchase at cost 2,404 - 2,404 1,268
Sales proceeds received (2,910) - (2,910) (1,166)
(Losses) on non-CFD investments (1,468) - (1,468) (145)
Closing fair value 4,463 - 4,463 6,437
Closing book cost 3,901 140 4041 4,229
Closing investment holding gains/(losses) 562 (140) 422 2,208
Closing fair value 4,463 - 4,463 6,437
(Losses) on non-CFD investments (1,468) - (1,468) (145)
(Losses)/gains on CFD investments (165) - (165) 39
Net (losses) on investments at fair value (1,633) - (1,633) (106)
The transaction costs in acquiring investments during the year were £10,000
(2019: £2,000). For disposals, transaction costs were £3,000 (2019:
£2,000).
The company received £2,910,000 (2019 £1,166,000) from investments sold in
the year. The book cost of these investments when they were purchased was
£2,592,000 (2019 £1,228,000). These investments have been revalued over time
and, until they were sold, any unrealised gains/losses were included in the
fair value of the investments.
7. Debtors
2020 £000 2019 £000
Investment income due but not received 9 9
Amounts receivable relating to CFDs 432 291
Prepayments 7 -
Taxation 3 -
451 300
8. Creditors: amounts falling due within one year
2020 £000 2019 £000
Amounts due relating to CFDs 224 58
Due to SVM Asset Management Limited 44 12
Other creditors 31 64
299 134
9. Share capital
Allotted, issued and fully paid
5,995,000 ordinary 5p shares (2019 – 6,005,000) 300 300
As at the date of publication of this document, there was no change in the
issued share capital and each ordinary share carries one vote.
During the year 10,000 Ordinary Shares with a nominal value of £500 and
representing 0.17% of the issued share capital were bought back and placed in
treasury for an aggregate consideration of £8,650 (2019 – nil shares,
£nil).
10. Financial instruments
Risk Management
The Fund’s investment policy is to hold investments, CFDs and cash balances
with gearing being provided by the use of CFDs and a bank overdraft. Over
94.8% of the Fund's net asset value is held in investments that are
denominated in Sterling and are carried at fair value. Where appropriate,
gearing can be utilised in order to enhance net asset value. It does not
invest in short dated fixed rate securities other than where it has
substantial cash resources. Fixed rate securities held at 31 March 2020 were
valued at £nil (2019 – £nil). Investments, which comprise principally
equity investments, are valued as detailed in the accounting policies.
The major risks inherent within the Fund are market risk, liquidity risk,
credit risk and interest rate risk. It has an established environment for
the management of these risks which are continually monitored by the Manager.
Appropriate guidelines for the management of its financial instruments and
gearing have been established by the Board of Directors. It has no foreign
currency assets and therefore does not use currency hedging. It does not use
derivatives within the portfolio with the exception of CFDs.
Market risk
The risk that the Fund may suffer a loss arising from adverse movements in the
fair value or future cash flows of an investment. Market risks include
changes to market prices, interest rates and currency movements. The Fund
invests in a diversified portfolio of holdings covering a range of sectors.
The Manager conducts continuing analysis of holdings and their market prices
with an objective of maximising returns to shareholders. Asset allocation,
stock selection and market movements are reported to the Board on a regular
basis.
Liquidity risk
The risk that the Fund may encounter difficultly in meeting obligations
associated with financial liabilities. The Fund is permitted to invest in
shares traded on AIM or similar markets; these tend to be in companies that
are smaller in size and by their nature less liquid than larger companies.
The Manager conducts continuing analysis of the liquidity profile of the
portfolio and the Fund maintains an overdraft facility to ensure that it is
not a forced seller of investments.
Credit risk
The risk that the counterparty to a transaction fails to discharge its
obligation or commitment to the transaction resulting in a loss to the Fund.
Investment transactions are entered into using brokers that are on the
Manager’s approved list, the credit ratings of which are reviewed
periodically in addition to an annual review by the Manager’s board of
directors. The Fund’s principal bankers are State Street Bank & Trust
Company, the main broker for CFDs is UBS and other approved execution broker
organisations authorised by the Financial Conduct Authority.
Interest rate risk
The risk that interest rate movements may affect the level of income
receivable on cash deposits. At most times the Fund operates with relatively
low levels of bank gearing, this has and will only be increased where an
opportunity exists to substantially add to the net asset value performance.
11. The financial information contained within this announcement does not
constitute statutory accounts as defined in sections 434 and 435 of the
Companies Act 2006. The results for the years ended 31 March 2020 and 2019
are an abridged version of the statutory accounts for those years. The Auditor
has reported on the 2020 and 2019 accounts, their reports for both years were
unqualified and did not contain a statement under section 498 of the Companies
Act 2006. Statutory accounts for 2019 have been filed with the Registrar of
Companies and those for 2020 will be delivered in due course.
12. The Annual Report and Accounts for the year ended 31 March
2020 will be mailed to shareholders shortly and copies will be available from
the Manager’s website www.svmonline.co.uk and the Fund’s registered office
at 7 Castle Street, Edinburgh, EH2 3AH.
The Annual General Meeting of the Fund will be held at
9.30am on Friday 11 September 2020 at 7 Castle Street, Edinburgh, EH2 3AH.
For further information, please contact:
Colin McLean SVM Asset Management 0131 226
6699
Roland Cross Four Broadgate 0207
726 6111
10 July 2020
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