REG-SVM UK Emerg Fund: Annual Financial Report
22/07/2022 11:00
SVM UK EMERGING FUND PLC
(the “Fund”)
ANNUAL FINANCIAL RESULTS
FOR THE YEAR ENDED 31 MARCH 2022
The Board is pleased to announce the Annual Financial Results for the year
ended 31 March 2022. 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 will be submitted to the FCA's National Storage
Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism in due course.
HIGHLIGHTS
* Over the 12 months to 31 March 2022, net asset value total return fell 10.0%
to 112.51p compared to a return of 5.4% in the chosen comparator, the IA UK
All Companies Sector Average Index.
* Over the five years to 31 March 2022, net asset value has gained 19.4% and
the share price 29.6%, against the comparator index return of 24.1%.
* Portfolio emphasises exposure to scalable businesses with a competitive edge
that can protect margins and deliver growth.
* At 30 June 2022, net asset value per share had fallen to 89.68p
Financial Highlights Year to 31 March 2022 Year to 31 March 2021
Total Return performance:
Net Asset Value total return* -10.0% 52.7%
Share Price total return* -12.1% 42.1%
Comparator Index (IA UK All Companies Sector Average Index since 1 October 2013**) 5.4% 37.8%
31 March 2022 31 March 2021 % Change
Capital Return performance:
Net asset value (p) 112.51 125.00 -10.0%
Share price (p) 87.50 99.50 -12.1%
MSCI All-Share Index*** 2,032.66 1,774.53 14.5%
Discount* 22.2% 20.4%
Gearing* 16.1% 16.7%
Ongoing Charges ratio:*
Investment management fees 0.86% 0.77%
Other operating expenses 1.78% 2.32%
Total Return to 31 March 2022 (%) 1 Year 3 Years 5 Years 10 Years Launch (2000)
Net Asset Value -10.0% 2.2% 19.4% 57.4% 16.0%
Comparator Index** 5.4% 17.5% 24.1% 64.2% -11.6%
*Alternative Performance Measures (APM). For a definition of terms see
Glossary of Terms and Alternative Performance Measures in the AFS
**The comparator index for the Fund is the IA UK All Companies Sector Average.
*** A representative index of the UK Equity Market
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 2022, the Company’s net asset value fell
10.0% to 112.51p per share, compared to a return of 5.4% in the chosen
comparator index, the IA UK All Companies Sector Average Index. Over the five
years to 31 March 2022, net asset value has gained 19.4% and the share price
29.6%, against the IA UK All Companies Sector Average return of 24.1%. The
portfolio emphasises exposure to scalable businesses with a competitive edge
that can protect margins and deliver growth. The Company’s net asset value
decreased in the three months since the year end to 89.68p at 30 June 2022.
(total return, FE, IA UK All Companies Sector Average for comparison
purposes).
Review of the year
This has been a painful period for growth investors, with stockmarket interest
focusing on companies perceived as beneficiaries of inflation. Many growth
companies delivered good results but their shares were de-rated. The invasion
of Ukraine put upward pressure on the
prices of commodities and energy. These sectors outperformed but the Company
has low exposure to them, many of them being large businesses. This market
pattern was the primary reason for portfolio underperfomance during the year
under review.
Economic overheating seems likely to lead, in the short term, to higher UK
interest rates, but action by the Bank of England and a squeeze on real
incomes are likely in time to cool the economy. In the medium and longer term
disinflationary pressures may reassert. A recession in the UK and elsewhere is
likely to emerge in the coming year but it may be relatively short.
The Fund is focused on businesses with potential for self-help and growth,
which we believe to be well funded. Even in downturns there remain growth
sectors in the economy and business with innovative services. The need for
resilience, shorter supply chains, digital transformation and software
automation, is driving growth in businesses with those specialist services.
Labour market tightness works in favour of some business-to-business services
that improve efficiency, as well as those that can help to manage talent and
retain it.
Even amidst a squeeze on incomes, consumers change tastes and behaviours. The
pandemic has also left in its wake a continuing demand for companies that
support health, vaccines
and pets. Share prices for growth businesses have been reset, offering value
to investors.
The strongest contributions to performance over the period were from Watches
of Switzerland, Kape Technologies, Alpha FX, Kin and Carter and 4 Imprint
Group. Laggards included Ceres Power, JD Sports Fashion, Essensys, Flutter
Entertainment and ASOS.
Additional investment was made in Londonmetric, Kooth, Ideagen, Kape
Technologies and Marlowe. To fund these purchases, Ocado, Parsley Box,
Restaurant Group, The Hut Group,
Just Eat Takeaway, Molten Ventures and Moonpig were sold.
Annual General Meeting
The Annual General Meeting will be held on Friday 9 September 2022 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 is to
improve liquidity in our shares, and your Board does not expect this overall
to be dilutive to shareholders.
Following the period under review on 21 June 2022, the Manager advised the
Board that they had accepted a conditional offer to be acquired by Assetco
plc, an AIM listed asset management company. The portfolio managers of the
Company will continue in their current roles at the Managers.
Outlook
The past 12 months have seen a sharp rotation towards cyclical sectors,
combined with very negative sentiment towards growth businesses. In times of
market turmoil investors tend to focus more on macroeconomic news and
headlines, rather than company results. Yet in the recent reporting season
many growth companies reported good progress, with positive updates on current
trading and prospects. The Manager focuses on resilient growing businesses,
with low exposure to commodities, oil and banks.
The Fund remains fully invested with some additional gearing.
Peter Dicks
Chairman
20 July 2022
MANAGER’S REVIEW
Summary
Over the 12 months there were a number of challenges to the UK stockmarket;
the Russian Ukraine war, inflation and the possibility of recession. These
developments squeezed supply of energy, food and key industrial commodities at
the same time as high consumer demand came at the end of the pandemic.
Investor interest was very narrowly focused - on oil, banks and resources
while most other sectors lagged. The Fund strategy is focused on growth in
medium sized and smaller companies, with low exposure to cyclical sectors such
as commodities. Many portfolio companies are currently trading well despite
all the difficulties. There are signs that the UK economy is adapting to the
disruption in supplies, creating opportunity for new onshore suppliers
replacing risky ones overseas. The world is now much better placed to manage
changes to supply chains and build up resilience. In time, disinflationary
forces could reassert.
Portfolio review and investment strategy
The Managers investment approach involves sustainability, good stewardship and
culture. Companies with successful business models are usually transparent in
their accounting and reporting, and communicate their strategy. They have a
good sense of their key value drivers and will share that in one-to-one
meetings. Resilience in a business often comes from its strength within a
niche. Key to the opportunity that the Managers see in investment is an
ability to generate returns greater than cost of capital and to ensure that
stewardship of assets is focused on this.
Some portfolio investments assisting the drive to reduce carbon emissions are
in industrial sectors. Libertine Holdings, for example, floated on AIM in late
2021, and the Fund participated in its capital raise. Libertine has technology
for heavy duty power trains used by trucks, and enabling technology for using
fossil-free energy sources. We see opportunity for growth in applications for
clean power from renewable fuels.
Geopolitical shocks tend not to dominate investment thinking for long; markets
usually recover on an easing of tensions rather than full resolution.
Technology is a powerful force for improving services and productivity and is
likely to remain disinflationary despite some unwinding of globalisation.
The challenge for investors now is stock selection, identifying the companies
best able to deal with inflation. With skill shortages, higher energy costs,
and supply chains impacting manufacturers, the winners may be distributors,
business services and companies with unique products and services. First to
benefit will be those providing services that enhance business resilience or
sustainability, or which provide logistics support to shorten supply chains.
Growth businesses, particularly if mid-cap, typically occupy niches with wide
defensive moats. These range from food to legal services, representing
innovation in business models for which technology may be just one factor.
Some of these shares have been badly hit in the recent sell-off, but as yet
have seen little deterioration in business prospects.
Hilton Food Group, a medium sized company developing internationally, reported
increased revenue, maintaining a trend of continuous volume growth since its
float in 2007. It is growing organically and by acquisition, and now generates
more than two-thirds of its revenue outside the UK. It has a scalable business
model focused on supplying protein via supermarket chains. Pork and chicken
processor, Cranswick has a highly automated operating model, which should help
it to deal with labour shortage and wage inflation in the food sector.
Some large cap businesses are burdened by legacy structures and business
models that restrict their ability to adapt. They are also much more in the
political spotlight; exposed to intervention that restricts ability to adapt
and raise prices. Companies best placed in the current environment may be
small and medium sized, flexible and innovative.
Kainos Group provides IT services, consulting and software solutions. It has
gained from the drive to cloud and resilience. It is well positioned in the
public sector, and healthcare in particular, supporting digital
transformation. Trading this year shows good growth in sales and bookings. The
Government has steadily increased spending on digital transformation in recent
years and Kainos should participate in this. For the economy as a whole,
productivity is an important driver of GDP per capita growth, and a key
enabler for this is software and digital services. Kainos is currently a
medium sized business but is dominant in some of the segments it services.
Insurer Beazley reported a rise in gross premiums, helped by good demand in
the cyber insurance market. In cyber, Beazley, is seeing significant rate
improvement and it is continuing to invest for growth. IT service business,
Softcat, saw significant analyst upgrades as customers continued to invest in
technology. It reported growing demand in software, hardware and services.
Top 5 Contributors to Absolute Performance (%) Bottom Contributors to Absolute Performance (%)
Company name Contribution Company name Contribution
ALPHA FX GROUP WATCHES OF SWITZERLAND KAPE TECHNOLOGIES KIN AND CARTA 4IMPRINT GROUP 1.84 1.68 0.64 0.61 0.56 JD SPORTS FASHION CERES POWER ESSENSYS GROUP FLUTTER ENTER ASOS -2.26 -1.92 -1.43 -0.84 -0.81
A liquidity squeeze is underway; credit is tightening, challenging lossmaking
businesses and questionable operating models. Risks appear to be in businesses
that are not inherently generating free cash flow or where there is too much
reliance on funding from suppliers or customers. The enemy of genuine growth
has been easy money, allowing ailing incumbent businesses to borrow and
acquire as they face competition from innovative new entrants.
The Managers' approach to stockpicking emphasises strong market positions and
pricing power. Even as the economy slows, growth areas include energy
efficiency, sustainability and online security. Some disruptive new business
models in traditional sectors have a long growth runway and are not highly
rated. They are likely to continue to take market share even as the UK economy
faces the prospect of recession.
Outlook
The portfolio emphasises exposure to businesses with strong competitive
positions and potential for organic growth. It also includes investments with
recovery potential.
Your Fund remains fully invested with some additional gearing.
Sector analysis* % Listing* % Market Capitalisation* %
Industrials Information Technology Consumer Discretionary Communication Services Financials Healthcare Real Estate Consumer Staples Materials 22.8 22.5 15.6 10.7 9.9 8.1 5.7 3.6 1.1 Main Market AIM Other 60.1 39.9 - Small Mid Large 54.9 25.5 19.6
*Analysis is of gross exposure
INVESTMENT PORTFOLIO
as at 31 March 2022
Stock Market Exposure 2022 £000 % of Net Assets Market Exposure 2021 £000
Alpha Financial Markets 378 5.6 258
Watches of Switzerland Group* 319 4.7 185
4Imprint Group 266 3.9 232
Dechra Pharmaceuticals 243 3.6 205
Unite Group 233 3.6 214
Kape Technologies 204 3.0 113
Hilton Food Group 182 2.7 158
FDM Group Holdings 175 2.6 166
Kin and Carta* 163 2.4 114
Keystone Law Group 157 2.3 153
Ten largest investments 2,320 34.4
Experian 148 2.2 125
Gamma Communications 147 2.2 177
Rentokil Initial 146 2.2 135
Impax Asset Management Group 140 2.1 109
JD Sports Fashion* 139 2.1 155
XP Power 138 2.0 187
Beazley Group 132 1.9 110
Jet2 131 1.9 144
Computacenter 123 1.8 99
Libertine 114 1.7 -
Twenty largest investments 3,678 54.5
Kainos Group 113 1.7 128
LondonMetric Property 110 1.6 79
Marlowe 109 1.6 -
Games Workshop Group 105 1.6 144
Oxford Instruments 105 1.5 95
Entain* 103 1.5 -
Reach 101 1.5 119
Instem 99 1.5 87
Ashtead Group 99 1.5 89
Molten Ventures 97 1.4 -
Thirty largest investments 4,719 69.9
Other investments (47 holdings) 2,825 41.9
Total investments 7,544 111.8
CFD positions (1,136) (16.8)
CFD unrealised gains - -
Net current assets 337 5
Net assets 6,745 100.0
*Includes CFDs.
Market exposure for equity investments held is the same as fair value and for
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 2022 is detailed on the website.
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors carry out a robust assessment of the Company’s emerging and
principal risks including reviewing the policies implemented 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.
The Board considers the COVID-19 pandemic, the geopolitical risks associated
with the conflict between Russia and Ukraine and rising inflation to be
factors which exacerbate existing risk, rather than new emerging risks.
Their impact is considered within the relevant risks.
Investment strategy – The risk that an inappropriate investment strategy may
lead to the Fund underperforming its comparator, 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 comparator. 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 United Kingdom
Listing Authority 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. Risk controls
are monitored by their assigned owner with oversight from the Manager’s risk
and compliance function as part of the Manager’s risk & control framework,
which is reviewed at least annually.
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, liquidity, 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
20 July 2022
Income statement
for the year to 31 March 2022
Notes Revenue £000 Capital £000 Total £000
Net loss on investments at fair value 6 - (641) (641)
Income 1 94 - 94
Investment management fees 2 - (61) (61)
Other expenses 3 (127) - (127)
Loss before finance costs and taxation (33) (702) (735)
Finance costs (14) - (14)
Loss on ordinary activities before taxation (47) (702) (749)
Taxation 4 - - -
Loss attributable to ordinary shareholders (47) (702) (749)
Loss per Ordinary Share 5 (0.78)p (11.71)p (12.49)p
for the year to 31 March 2021
Notes Revenue £000 Capital £000 Total £000
Net loss on investments at fair value 6 - 2,743 2,743
Income 1 51 - 51
Investment management fees 2 - (48) (48)
Other expenses 3 (144) - (144)
(Loss)/gain before finance costs and taxation (93) 2,695 2,602
Finance costs (17) - (17)
(Loss)/gain on ordinary activities before taxation (110) 2,695 2,585
Taxation 4 - - -
(Loss)/gain attributable to ordinary shareholders (110) 2,695 2,585
(Loss)/gain per Ordinary Share 5 (1.83)p 44.95p 43.12p
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 2022
Notes 2022 £000 2021 £000
Fixed Assets
Investments at fair value through profit or loss 6 6,408 7,598
Current Assets
Debtors 7 720 107
Cash at bank and on deposit 53 -
Total current assets 773 107
Creditors: amounts falling due within one year 8 (436) (211)
Net current (liabilities)/assets 337 (104)
Total assets less current liabilities 6,745 7,494
Capital and Reserves
Share capital 9 300 300
Share premium 314 314
Special reserve 5,136 5,136
Capital redemption reserve 27 27
Capital reserve 1,501 2,203
Revenue reserve (533) (486)
Equity shareholders’ funds 6,745 7,494
Net asset value per Ordinary Share 5 112.51p 125.00p
Approved and authorised for issue by the Board of Directors on 20 July 2022
and signed on its behalf
by Peter Dicks, Chairman.
Statement of Changes in Equity
for the year to 31 March 2022
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 2021 300 314 5,136 27 2,203 (486) 7,494
Loss attributable to shareholders - - - - (702) (47) (749)
As at 31 March 2022 300 314 5,136 27 1,501 (533) 6,745
for the year to 31 March 2021
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 2020 300 314 5,136 27 (492) (376) 4,909
Loss attributable to shareholders - - - - 2,695 (110) 2,585
As at 31 March 2021 300 314 5,136 27 2,203 (486) 7,494
*Distributable reserves at 31 March 2022 were £4,603,000 (2021: £4,650,000).
Accounting policies
Basis of preparation
The Financial Statements are prepared under the historical cost convention,
modified to include the revaluation of fixed asset investments which are
recorded at fair value, 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 April 2021. The
Directors have also prepared the Financial Statements on a going concern
basis and have a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of approval of these Financial Statements. In making their assessment
the Directors have reviewed income and expenditure projections, reviewed the
liquidity of the investment portfolio and considered the Company's ability to
meet liabilities as they fall due. This conclusion also takes in to account
the Directors' assessment of the continuing risks arising from COVID-19. The
Company is exempt from presenting a Cash Flow Statement as a Statement of
Changes in Equity is presented and substantially all of the Company’s
investment are highly liquid and are carried at market value.
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
Dividend 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. Special dividends are recorded on an
ex-dividend basis and allocated to revenue or capital in line with the
underlying commercial circumstances of the dividend payment. Interest
receivable on bank balances is included in the Income Statement on an
accruals basis.
Expenses and interest
Expenses and interest payable are dealt with on an accruals basis. All
expenses other than investment management fees are charged to revenue.
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
as capital gains or losses on investments at fair value. Dividends and
interest on CFDs are included in the revenue income. The year end fair value
of CFD positions which are assets is included in fixed asset investments,
whilst the year end fair value of CFD positions which are liabilities is
included within current liabilities in Note 8. Balances with brokers in
respect of margin calls are included within debtors in Note 7. 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
Transactions involving foreign currencies are converted at the rate ruling as
at the date of the transaction. Sterling is the functional currency of the
Fund and all 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 investment management fees, together with any tax relief, are
also taken to this reserve. Increases and decreases in the valuation of fixed
asset investments are recognised 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.
Capital redemption reserve.
Nominal value of own shares bought back.
Revenue reserve
Retained revenue profits and losses, being a fully distributable reserve.
Share Capital
Represents, allotted, issued and fully paid up shares of 5p each.
Share Premium
Value received for issuing shares in excess of the nominal value of 5p per
share.
Notes to the financial statements
1. Income
2022 £000 2021 £000
Income from shares and securities
– dividends 94 43
– interest - 8
94 51
2. Investment Management Fees
Investment Management Fees 61 48
3. Other expenses
Revenue
General expenses 69 82
Directors’ fees 25 25
Auditor’s remuneration 33 37
127 144
4. Taxation
Current taxation - -
Deferred taxation - -
Total taxation charge for the year - -
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:
Gain/(loss) on ordinary activities before taxation (749) 2,585
Corporation tax (19%, 2021 – 19%) (142) 491
Effects of:
Non taxable UK dividends (14) (5)
Gains/Losses on CFD 60 (31)
Non taxable investment gains/(losses) in capital 62 (491)
Non taxable overseas dividends (1) -
Movement in deferred tax rate on excess management charges (11) -
Movement in unutilised management expenses and NTLR deficits 46 36
Total taxation charge for the year - -
At 31 March 2021, the Fund had unutilised management expenses and non trade
loan relationship (“NTLR”) deficits of £1,637,000 (2021 – £1,439,000).
A deferred tax asset of £409,000 (2021 - £275,000) 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 5,995,000 (2021 –
5,999,000) ordinary shares in issue during the year.
Total return per share is based on the total loss for the year of £749,000
(2021 – gain of £2,585,000).
Capital return per share is based on the net capital loss for the year of
£702,000 (2021 – gain of £2,695,000).
Revenue return per share is based on the revenue loss after taxation for the
year of £47,000 (2021 – loss of £110,000).
The net asset value per share is based on the net assets of the Fund of
£6,745,000 (2021 – £7,494,000) 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
2022 £000 2021 £000
Listed investments and CFDs 6,408 7,598
Unlisted investments - -
Valuation as at end of year 6,408 7,598
Listed £000 Unlisted £000 Total £000 Total £000
Opening book cost 4,928 140 5,068 4,041
Opening investment holding gains/(losses) 2,670 (140) 2,530 422
Opening fair value* 7,598 - 7,598 4,463
Analysis of transactions made during the year
Purchase at cost 1,374 - 1,374 3,271
Sales proceeds received** (2,237) - (2,237) (2,716)
(Losses)/gain on investments*** (327) - (327) 2,580
Closing fair value 6,408 - 6,408 7,598
Closing book cost 4,953 140 5,093 5,068
Closing investment holding gains/(losses) 1,455 (140) 1,315 2,530
Closing fair value 6,408 - 6,408 7,598
(Losses)/gains on investments (327) - (327) 2,580
Movement in CFD current liability (314) - (314) 163
Net gains/(losses) on investments at fair value (641) - (641) 2,743
The transaction costs in acquiring investments during the year were £2,000
(2021: £8,000). For disposals, transaction costs were £2,000 (2021:
£3,000).
The company received £2,237,000 (2021 £2,716,000) from investments sold in
the year. The book cost of these investments when they were purchased was
£1,349,000 (2021 £2,244,000). 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.
* Opening fair value of £7,598,000 includes £298,000 of CFD gains
** Sale proceeds received of £2,237,000 includes a balance of £586,000 in
relation to CFDs.
*** (Losses)/gains on investments of (£327,000) includes a balance of
£586,000 in relation to gains on CFDs
7. Debtors
2022 £000 2021 £000
Investment income due but not received 6 8
Amounts receivable relating to CFDs – being cash held at Broker 699 1
Prepayments 2 11
Taxation 13 5
Other debtors - 82
720 107
8. Creditors: amounts falling due within one year
2022 £000 2021 £000
Cash balances - 79
Amounts due relating to CFDs – being losses on CFD contracts 375 61
Due to SVM Asset Management Limited 13 14
Other creditors 48 57
436 211
9. Share capital
Allotted, issued and fully paid
6,005,000 ordinary 5p shares (2021 – 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, other than the
10,000 shares held in treasury which carry no voting rights.
During the year no Ordinary Shares were brought back.
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. 100%
(2021: 99.2%) 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 20221 were
valued at £nil (2021 – £nil). Investments, which comprise principally
equity investments, are valued as detailed in the accounting policies.
The Fund only operates short term gearing, which is limited to 30 per cent of
gross assets and is undertaken through an unsecured variable rate bank
overdraft and the use of CFDs. The comparator rate which determines the
interest received on Sterling cash balances or paid on bank overdrafts is the
bank base rate which was 0.75% as at 31 March 2022 (2021 – 0.1%). There are
no undrawn committed borrowing facilities. Short-term debtors and creditors
are excluded from disclosure.
The Fund does not hold any (2021: 0.8%) of the total net asset value in
investments with direct foreign currency exposure and is consequently not
currency hedged. Financial information on the investment portfolio is detailed
in note 6.
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. Post balance sheet events
The Manager advised the Board on 21 June 2022 that they had accepted an offer,
conditional on FCA approval, to be acquired by AssetCo plc, an AIM listed
asset management company. The portfolio managers of the Company will continue
in their current roles at the Managers.
12. 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 2022 and 2021
are an abridged version of the statutory accounts for those years. The Auditor
has reported on the 2022 and 2021 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 2021 have been filed with the Registrar of
Companies and those for 2022 will be delivered in due course.
13. The Annual Report and Accounts for the year ended 31 March
2022 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 9.00 a.m. on Friday 9
September 2022 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
20 July 2022
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