REG-SVM UK Emerg Fund: Half-year Report
07/11/2022 15:30
SVM UK EMERGING FUND PLC
(the “Fund”)
HALF YEARLY REPORT
(FOR THE SIX MONTHS TO 30 SEPTEMBER 2022)
A copy of the Half Yearly Report will be available to download from the
Manager’s website at www.svmonline.co.uk and a copy will shortly be
available for inspection at the National Storage Mechanism at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism in due course. Copies
are also available at 7 Castle Street, Edinburgh EH2 3AH, the registered
office of the Fund.
HIGHLIGHTS
Net asset value return of -27.1% compared to a -12.8% return in the IA UK All
Companies Sector Average Index.
Over the five years to 30 September 2022, net asset value fell -23.8% and the
share price -14.9%, against the IA UK All Companies Sector Average Index
return of 3.2%.
Positive contributions from 4Imprint Group, Beazley, Ideagen and Aveva Group.
Portfolio emphasises exposure to cash generating, scalable businesses with a
competitive edge that can protect margins and deliver growth.
“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”
Financial Highlights
Total Return Performance to 30 September 2022 6 months 3 years 5 Years 10 Years
Net Asset Value -27.1% -26.3% -23.8% 71.5%
Share Price -21.7% -21.3% -14.9% 71.3%
Comparator Index* -12.8% -2.4% 3.2% 60.5%
* The comparator 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.
CHAIRMAN’S STATEMENT
Over the six months to 30 September 2022, the Company’s net asset value fell
27.1% to 82.0p per share, compared to a return of -12.8% in the IA UK All
Companies Sector Average Index. Over the six months, the share price
returned -21.7%. In the five years to 30 September 2022, net asset value
returned -23.8% and the share price -14.9%, against the IA UK All Companies
Sector Average return of 3.2%. The Company’s net asset value increased
slightly since the period under review to 86.2p at 31 October 2022.
Over the period, UK equities fell sharply, with much of that move coming in
September. The share prices of smaller and medium sized companies fared
worse than shares of the largest global businesses. The portfolio emphasises
growth strategies and has low exposure to some of the areas in favour in the
period such as energy, mining and the major pharmaceutical groups.
The strongest contributions to performance over the period were 4Imprint
Group, Ideagen, Beazley, Aveva Group and AB Dynamics. In July, compliance
software group, Ideagen, agreed a takeover by a private equity firm. In
September, industrial software business, Aveva, agreed a takeover by Schneider
Electric, subject to shareholder approval. Merger and acquisition activity
may point to recognition that share prices of some successful British
businesses have become attractive as acquisitions, particularly when the
weakness of sterling is taken into account. Negatives included Hilton Food
Group, Dechra Pharmaceuticals, XP Power, Watches of Switzerland, FDM Group and
Alpha FX Group. Additional investment was made in Dechra Pharmaceuticals.
To fund this and reduce the effective market exposure of the portfolio, Impax
Asset Management, Volex, ASOS, ITM Power and Seeing Machines were sold in part
or whole.
During the period, in contrast with share price weakness, most portfolio
company trading updates were encouraging. Smaller and medium sized companies
typically have more flexibility to adapt and the portfolio emphasises
businesses generating cash. This should reduce risks of unforeseen
fundraising or profits disappointments. The Managers favour businesses that
are leaders in their area or which can defend margins through innovation.
On a range of measures, the fall has brought UK equities down to a significant
valuation gap with many other world markets, a relative valuation last reached
in 1989. It does appear that the UK economy will move into recession over
the next few months but the disparity is extreme.
The portfolio focuses on resilient growing businesses, with low exposure to
commodities, oil and banks. Portfolio investments are typically scalable
businesses with a competitive edge. The Fund remains fully invested with
minimal gearing.
Peter Dicks
Chairman
4 November 2022
INVESTMENT OBJECTIVE and POLICY
The investment objective of SVM UK Emerging Fund plc (the “Fund” or the
“Company”) is long term capital growth from investments in medium-sized
and smaller UK companies. Its aim is to outperform the IA UK All Companies
Sector Average Index on a total return basis
The Fund aims to achieve its objective and to diversify risk by investing in
shares and related instruments, controlled by a number of limits on exposures.
Appropriate guidelines for the management of the investments, gearing and
financial instruments have been established by the Board. This is an abridged
version of the Fund’s investment policy. The full investment policy can be
found in the Strategic Report within the Fund’s latest Annual Report &
Accounts.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Half Yearly Report in
accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
the condensed set of financial statements have been prepared in accordance
with the Financial Reporting Council Statement 104 “Interim Financial
Reporting” on a going concern basis, taking in to account guidance on
Covid-19, and give a true and fair view of the assets, liabilities, financial
position and gain or loss of the Fund;
(ii) the Half Yearly Report includes a fair review of the
information required by the Disclosure and Transparency Rules DTR 4.2.7R (an
indication of 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 financial year); and DTR 4.2.8R (disclosure of
related party transactions and changes therein that could have a material
effect on the financial position or performance of the Fund during the first
six months of the current financial year).
(iii) No related party transactions have taken place during
the first six months of the year that have materially affected the financial
position of the Fund during the period and there have been no changes in the
related party transactions as described in the Annual Report & Accounts for
the year end 31 March 2022 that could do so.
The Directors consider that the Half Yearly Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Fund’s performance and strategy,
The Half Yearly Report has not been audited or reviewed by the Fund’s
auditors.
By Order of the Board
Peter Dicks
Chairman
4 November 2022
UNAUDITED ACCOUNTS
Income Statement
Six months to 30 September 2022 Six months to 30 September 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net (loss)/gain on investments at fair value - (1,787) (1,787) - 1,283 1,283
Income 61 - 61 56 - 56
Investment management fees - (22) (22) - (32) (32)
Other expenses (72) - (72) (61) - (61)
(Loss)/gain before finance costs and taxation (11) (1,809) (1,820) (5) 1,251 1,246
Finance costs (9) - (9) (7) - (7)
(Loss)/gain on ordinary activities before taxation (20) (1,809) (1,829) (12) 1,251 1,239
Taxation - - - - - -
(Loss)/gain attributable to ordinary shareholders (20) (1,809) (1,829) (12) 1,251 1,239
(Loss)/gain per Ordinary Share (0.33)p (30.18)p (30.51)p (0.20)p 20.87p 20.67p
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.
Year ended 31 March 2022 (audited)
Revenue Capital Total
£’000 £’000 £’000
Net loss on investments at fair value - (641) (641)
Income 94 - 94
Investment management fees - (61) (61)
Other expenses (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 - - -
Loss attributable to ordinary shareholders (47) (702) (749)
Loss per Ordinary Share (0.78)p (11.71)p (12.49)p
UNAUDITED ACCOUNTS
Balance Sheet
As at 30 September 2022 (unaudited) As at 31 March 2022 (audited) As at 30 September 2021 (unaudited)
£’000 £’000 £’000
Fixed Assets
Investments at fair value through profit or loss 4,318 6,408 8,416
Total current assets 1,264 773 433
Creditors: amounts falling due within one year (666) (436) (116)
Net current assets 598 337 317
Total assets less current liabilities 4,916 6,745 8,733
Capital and Reserves 4,916 6,745 8,733
Equity shareholders’ funds 4,916 6,745 8,733
Net asset value per Ordinary Share 82.00p 112.51p 145.67p
UNAUDITED ACCOUNTS
Statement of Changes in Equity
For the period to 30 September 2022
Share capital Share premium Special reserve Capital redemption reserve Capital reserve Revenue reserve Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000
As at 1 April 2022 300 314 5,136 27 1,501 (533) 6,745
Loss attributable to shareholders - - - - (1,809) (20) (1,829)
As at 30 September 2022 300 314 5,136 27 (308) (553) 4,916
For the year to 31 March 2022
Share capital Share premium Special reserve Capital redemption reserve Capital reserve Revenue reserve Total
£’000 £’000 £’000 £’000 £’000 £’000 £’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 period to 30 September 2021
Share capital Share premium Special reserve Capital redemption reserve Capital reserve Revenue reserve Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000
As at 1 April 2021 300 314 5,136 27 2,203 (486) 7,494
Gain/(loss) attributable to shareholders - - - - 1,251 (12) 1,239
As at 30 September 2021 300 314 5,136 27 3,454 (498) 8,733
UNAUDITED ACCOUNTS
Investment Portfolio as at 30 September 2022
Stock Market Exposure 2022 £000 % of Net Assets Sector analysis as at 30 September 2022 Sector % of Gross Exposure
1 4Imprint Group 321 6.5 Consumer Discretionary 23.3
2 Alpha FX Group 283 5.8 Industrials 20.8
3 Watches Of Switzerland Group* 189 3.8 Consumer Discretionary 16.1
4 Beazley Group 176 3.6 Financials 11.2
5 Unite Group 173 3.5 Communication Services 11.0
6 Dechra Pharmaceuticals 165 3.4 Healthcare 8.1
7 Kape Technologies 140 2.8 Real Estate 6.0
8 Experian 133 2.7 Consumer Staples 2.7
9 Rentokil Initial 132 2.7 Materials 0.8
10 Kin And Carta* 111 2.3 Total 100.0
Ten largest investments 1,823 37.1
11 Kainos Group 111 2.3
12 Keystone Law Group 110 2.2
13 FDM Group Holdings 103 2.2
14 Flutter Entertainment* 99 2.0
15 Marlowe 98 2.0
16 JD Sports Fashion* 94 1.9
17 Oxford Instruments 89 1.8
18 Games Workshop Group 84 1.7
19 Ashtead Group 84 1.7
20 Computacenter 80 1.6
Twenty largest investments 4.327 49.5
21 Renishaw* 80 1.6
22 Instem 80 1.6
23 Jet2 79 1.6
24 Hilton Food Group 78 1.6
25 Aveva Group 78 1.6
26 Microlise Group 73 1.5
27 Impax Asset Management Group 73 1.5
28 Renew 72 1.5 *Includes Contract for Difference (“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.
29 Londonmteric Property 70 1.4
30 Entain* 68 1.4
Thirty largest investments 3,526 71.7
Other investments (36 holdings) 1,547 31.5
Total investments 5,073 103.2
CFD positions (755) (15.4)
CFD unrealised gains - -
Net current assets 598 12.2
Net assets 4,916 100.0
UNAUDITED ACCOUNTS
Risks and Uncertainties
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.
An explanation of these risks and how they are mitigated is explained in the
2022 Annual Report, which is available on the Manager’s website:
www.svmonline.co.uk. These principal risks and uncertainties have not
changed from those disclosed in the 2022 Annual Report.
Going Concern
The Board, having made appropriate enquiries has a reasonable expectation that
the Fund has adequate resources and sufficient liquidity to continue in
operational existence for the foreseeable future, a period of not less than 12
months from the date of this report. This conclusion takes in to account the
Directors’ assessment of the continuing risks and impacts from the COVID-19
pandemic, the geopolitical risks relating to the conflict between Russia and
Ukraine and economic factors that are influencing the current market
volatility, such as rising inflation, interest rates and supply chains.
Accordingly, it continues to adopt the going concern basis in preparing the
financial statements.
Notes
1. The Financial Statements have been prepared on a
going concern basis in accordance with FRS 102 “Financial Reporting Standard
applicable in the UK and Republic of Ireland”, FRS 104 “Interim Financial
Reporting” and under the Association of Investment Companies Statement of
Recommended Practice “Financial Statements of Investment Trust Companies and
Venture Capital Trusts” (“SORP”) issued in April 2021. 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 investments are
highly liquid and are carried at market value. These financial statements have
been prepared in accordance with the accounting policies used for the
financial year ended 31 March 2022.
2. During the period no shares were bought back (2021:
no shares were bought back during the period).
The number of shares in issue at 30 September
2022 was 6,005,000 (2021: 6,005,000).
Returns per share are based on a weighted
average of 5,995,000 (2021: 5,995,000) ordinary shares, being the number of
shares in issue during the period excluding the 10,000 shares held in
Treasury.
Total return per share is based on the total loss for the period of
£1,829,000 (2021: gain of £1,239,000). Capital return per share is based
on the capital loss for the period of £1,809,000 (2021: gain of
£1,251,000,000). Revenue return per share is based on the revenue loss after
taxation for the period of £20,000 (2021: loss of £12,000).
UNAUDITED ACCOUNTS
3. All investments are held at fair value. At 30
September 2022 no unlisted investments were held with value attributed (31
March 2022: same; 30 September 2021: same).
Investments have been classified using the fair
value hierarchy:
September 2022 £000 £000 March 2022 £000 £000
Classification of financial instruments Assets Liabilities Assets Liabilities
Level 1 4,318 6,408 -
Level 2 621 375
Level 3 – 2 investments (March 2022: 2) - - -
Level 1 reflects financial instruments quoted
in an active market.
Level 2 reflects financial instruments whose
fair value is evidenced by comparison with other observable current market
transactions in the same instrument or based on a valuation technique whose
variables include only data from observable markets. The CFD positions are
the sole Level 2 investments at 30 September 2022 and 31 March 2022.
Level 3 reflects financial instruments whose
fair value is determined in whole or in part using a valuation technique based
on assumptions that are not supported by prices from observable market
transactions in the same instrument and not based on available observable
market data.
4. The Board has granted the Manager a limited authority
to invest in CFDs to achieve some degree of gearing and/or hedging without
incurring the gross cost of the investment. The Board requires the Manager to
operate within certain risk limits, as detailed in the Annual Report. The
following table details the CFD positions:
Number of CFD holdings at 30 September 2022: 9 (31 March 2022: 11)
CFD positions September 2022 March 2022
£000 £000
Gross exposure 755 1,136
Net exposure 755 1,136
Unrealised gains - -
Unrealised losses 621 375
The gearing ratio is 7.9% at 30 September 2022 (31 March 2022: 16.1%). The
gearing ratio indicates the extra amount by which the shareholders’ funds
would change if total assets (including CFDs’ 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.
5. SVM Asset Management Limited provides investment
management and secretarial services to the Fund. The Manager is entitled to
a fee for these services, payable quarterly in arrears, equivalent to 0.75%
per annum of the total assets of the Fund, less current liabilities.
UNAUDITED ACCOUNTS
6. The above figures do not constitute full or
statutory accounts in terms of Sections 434 and 435 of the Companies Act 2006.
All information shown for the six months to 30 September 2022 is unaudited.
The accounts for the year to 31 March 2022, on which the auditors issued an
unqualified report, have been lodged with the Registrar of Companies and did
not contain a statement required under Section 498 of the Companies Act
2006.
For further information, please contact:
Colin McLean SVM Asset Management
0131 226 6699
Sally Moore Four
Communications 020 3697 4200
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