REG-SVM UK Emerging Fund Plc: Half-year Report
07/11/2023 10:30
SVM UK EMERGING FUND PLC
(the “Fund”)
HALF YEARLY REPORT
(FOR THE SIX MONTHS TO 30 SEPTEMBER 2023)
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
• Over the 6 months to 30 September 2023, net asset value per share fell
4.1% to 89.21p, while the share price gained 3.1% compared to a return of 0.1%
in the chosen comparator, the IA UK Companies Sector Average Index.
• Over the five years to 30 September 2023, net asset value per share has
fallen 30.6% and the share price 46.0%, against the comparator index return of
+10.0%.
• Medium sized companies lagged the FTSE 100 and smaller companies over the
period.
• Three portfolio companies attracted takeovers, indicating share prices
have fallen below underlying business value.
“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 2023 6 months 3 years 5 Years 10 Years
Net Asset Value -4.1% -15.0% -30.6% 39.7%
Share Price 3.1% -4.9% -46.0% 22.2%
Comparator Index* 0.1% 26.5% 10.0% 59.5%
* 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.
SVM UK EMERGING FUND plc
Half Yearly Report 2023
CHAIRMAN’S STATEMENT
During the six months to 30 September 2023, net asset value per share fell
4.1% to 89.21p, while the share price gained 3.1% compared to a return of 0.1%
in the chosen comparator, the IA UK Companies Sector Average Index. In the
five years to 30 September 2023, net asset value per share has fallen 30.6%
and the share price 46.0%, against the comparator index return of +10.0%.
During the period under review the UK economy continued to grow despite the
rise in interest rates. There was, however, market concern that the delay in
bringing UK inflation under control would involve a longer period of tight
monetary policy, constraining demand. This led to falls in property shares and
those in consumer sectors. The sectors that performed best reflected mainly
those with global exposure; information technology, energy, financials and
industrials.
The strongest contributions to performance over the period were Dechra
Pharmaceuticals, 4Imprint Group, Instem, Kooth and Computacenter. Three
portfolio holdings were taken over; Dechra, Instem and Kape Technologies.
Merger and acquisition activity may point to recognition that share prices of
a number of successful British businesses have become attractive to corporate
or private equity buyers. Negative performers included Watches of Switzerland,
Impax Asset Management. FDM Group, Jet2 and JD Sports fashion . Sales were
made of Activeops, Revolution Beauty, Frontier Developments, Avon Protection,
Molten Ventures, Maxcyte, Genus, Libertine and Impax. The holding in Watches
of Switzerland was reduced after its prospects were adversely impacted by a
change in strategy of its main supplier. These sales funded new investments in
Melrose Industries, JTC, CRH, Intercontinental Hotels, Greggs, Informa and
Compass Group. Portfolio changes emphasised improved liquidity, growth
prospects and earnings visibility.
The UK economy has held up better in 2023 than feared. Consumer spending has
proved resilient, driven by significant excess savings. Amongst international
investors, the UK continues to be out of favour, with historically low
valuations of smaller and medium-sized companies. Many UK mid-cap and smaller
companies now look inexpensive. There is a risk both in the UK and US of
excessive tightening by central banks, possibly misunderstanding the
supply-side nature of current inflation.
The portfolio focuses on resilient growing businesses, with low exposure to
commodities, oils and banks. Portfolio investments are typically scalable
businesses with a competitive edge. The Fund remains fully invested with
minimal gearing.
During the period under review, the Manager agreed to waive its management
fee, with effect from 1st September 2023, reflecting its assessment of the
implications of Consumer Duty regulation. This will be reviewed if
circumstances change. The lead portfolio manager of the Fund, Margaret Lawson,
retired on 1st October 2023 and is succeeded by Colin McLean, previously
deputy investment manager. The Board thanks Margaret for her enthusiasm and
valuable advice.
Peter Dicks
Chairman
3 November 2023
SVM UK EMERGING FUND plc
Half Yearly Report 2023
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:
(i) 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 2023 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
3 November 2023
SVM UK EMERGING FUND plc
Half Yearly Report 2023
UNAUDITED ACCOUNTS
Income Statement
Six months to 30 September 2023 Six months to 30 September 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net loss on investments at fair value - (214) (214) - (1,787) (1,787)
Income 95 - 95 61 - 61
Investment management fees - (17) (17) - (22) (22)
Other expenses (76) - (76) (72) - (72)
Gain/(loss) before finance costs and taxation 19 (231) (212) (11) (1,809) (1,820)
Finance costs (17) - (17) (9) - (9)
Gain/(loss) on ordinary activities before taxation 2 (231) (229) (20) (1,809) (1,829)
Taxation - - - - - -
Gain/(loss) attributable to ordinary shareholders 2 (231) (229) (20) (1,809) (1,829)
Gain/(loss) per Ordinary Share 0.03p (3.85)p (3.82)p (0.33)p (30.18)p (30.51)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.
Year ended 31 March 2023 (audited)
Revenue Capital Total
£’000 £’000 £’000
Net loss on investments at fair value - (1,065) (1,065)
Income 104 - 104
Investment management fees - (42) (42)
Other expenses (143) - (143)
Loss before finance costs and taxation (39) (1,107) (1,146)
Finance costs (22) - (22)
Loss on ordinary activities before taxation (61) (1,107) (1,168)
Taxation - - -
Loss attributable to ordinary shareholders (61) (1,107) (1,168)
Loss per Ordinary Share (1.02)p (18.46)p (19.48)p
SVM UK EMERGING FUND plc
Half Yearly Report 2023
UNAUDITED ACCOUNTS
Balance Sheet
As at 30 September 2023 (unaudited) As at 31 March 2023 (audited) As at 30 September 2022 (unaudited)
£’000 £’000 £’000
Fixed Assets
Investments at fair value through profit or loss 4,836 4,882 4,318
Total current assets 979 1,272 1,264
Creditors: amounts falling due within one year (467) (577) (666)
Net current assets 512 695 598
Total assets less current liabilities 5,348 5,577 4,916
Capital and Reserves 5,348 5,577 4,916
Equity shareholders’ funds 5,348 5,577 4,916
Net asset value per Ordinary Share 89.21p 93.03p 82.00p
SVM UK EMERGING FUND plc
Half Yearly Report 2023
UNAUDITED ACCOUNTS
Statement of Changes in Equity
For the period to 30 September 2023
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 2023 300 314 5,136 27 394 (594) 5,577
Loss attributable to shareholders - - - - (231) 2 (229)
As at 30 September 2023 300 314 5,136 27 163 (592) 5,348
For the year to 31 March 2023
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 - - - - (1,107) (61) (1,168)
As at 31 March 2023 300 314 5,136 27 394 (594) 5,577
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
Gain/(loss) attributable to shareholders - - - - (1,809) (20) (1,829)
As at 30 September 2022 300 314 5,136 27 (308) (553) 4,916
SVM UK EMERGING FUND plc
Half Yearly Report 2023
UNAUDITED ACCOUNTS
Investment Portfolio as at 30 September 2023
Stock Market Exposure 2022 £000 % of Net Assets Sector analysis as at 30 September 2023 Sector % of Gross Exposure
1 4Imprint Group 364 6.8 Industrials 27.1
2 Alpha FX Group 214 4.0 Consumer Discretionary 24.7
3 Unite Group 181 3.4 Financials 12.3
4 Beazley Group 173 3.2 Information Technology 11.9
5 Rentokil Initial 170 3.2 Communication Services 10.5
6 Howden Joinery Group 162 3.0 Real Estate 5.4
7 Whitbread* 157 2.9 Consumer Staples 3.3
8 Ashtead Group 156 2.9 Materials 3.0
9 Games Workshop Group 153 2.9 Healthcare 1.8
10 JD Sports Fashion* 141 2.6 Total 100.0
Ten largest investments 1,871 34.9
11 Experian 135 2.6
12 Flutter Entertainment* 133 2.5
13 Jet2 123 2.3
14 Keystone Law Group 123 2.3
15 JTC 119 2.2
16 CRH 112 2.1
17 Intercontinental Hotels Group 112 2.1
18 Oxford Instruments 109 2.0
19 Compass Group 108 2.0
20 Serco Group 107 2.0
Twenty largest investments 3,052 57.0
21 Computacenter 105 2.0
22 Hilton Food Group 105 2.0
23 Watches of Switzerland Group* 99 1.9
24 Kainos Group 99 1.9
25 Kooth 98 1.8
26 XP Power 94 1.8
27 Renew 91 1.7
28 FDM Group Holdings 86 1.6 *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 Informa 82 1.5
30 Auto Trader Group 81 1.5
Thirty largest investments 3,992 74.7
Other investments (30 holdings) 1,542 28.8
Total investments 5,534 103.5
CFD positions (721) (13.5)
CFD unrealised gains 23 0.4
Net current assets 512 9.6
Net assets 5,348 100.0
SVM UK EMERGING FUND plc
Half Yearly Report 2023
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
2023 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 2023 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, the conflict in the Middle East, and economic factors that are
influencing the current market volatility, such as 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 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 2023.
2. During the period no shares were bought back (2022: no shares were bought
back during the period).
The number of shares in issue at 30 September 2023 was 6,005,000 (2022:
6,005,000).
Returns per share are based on a weighted average of 5,995,000 (2022:
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 £229,000
(2022: loss of £1,829,000). Capital return per share is based on the
capital loss for the period of £231,000 (2022: loss of £1,809,000).
Revenue return per share is based on the revenue gain after taxation for the
period of £2,000 (2022: loss of £20,000).
SVM UK EMERGING FUND plc
Half Yearly Report 2023
UNAUDITED ACCOUNTS
3. All investments are held at fair value. At 30 September 2023 no unlisted
investments were held with value attributed (31 March 2023: same; 30 September
2022: same).
Investments have been classified using the fair value hierarchy:
September 2023 £000 £000 March 2023 £000 £000
Classification of financial instruments Assets Liabilities Assets Liabilities
Level 1 4,813 - 4,860 -
Level 2 23 418 22 507
Level 3 – 2 investments (March 2022: 3) - - - -
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 2023 and 31 March 2023.
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 2023: 8 (31 March 2023: 9)
CFD positions September 2023 March 2023
£000 £000
Gross exposure 721 892
Net exposure 721 892
Unrealised gains 23 22
Unrealised losses 418 507
The gearing ratio is 9.0% at 30 September 2023 (31 March 2023: 9.3%). 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. The Manager has elected
to waive the investment management fee from 1 September 2023 until further
notice.
SVM UK EMERGING FUND plc
Half Yearly Report 2023
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 2023 is unaudited. The accounts for the year to 31
March 2023, 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
Sally Moore Four Communications
SVM UK EMERGING FUND plc
Half Yearly Report 2023
CORPORATE INFORMATION
Directors
Peter Dicks (Chairman)
Ian Gray
Jeremy Harris
Investment Manager, Secretary and
Registered Office
SVM Asset Management Limited
6th Floor
7 Castle Street
Edinburgh EH2 3AH
Telephone: +44 (0) 0131 226 6699
Facsimile: +44 (0) 131 226 7799
Email: info@svmonline.co.uk
Web: www.svmonline.co.uk
Registrars
Computershare Investor Services plc
Edinburgh House
4 North St Andrew Street
Edinburgh EH2 1HU
Telephone: +44 (0) 370 702 0003
Authorised and regulated by the Financial Conduct Authority
Auditor
Johnston Carmichael LLP
7-11 Melville Street
Edinburgh
EH3 7PE
Custodians
State Street Bank & Trust Company
Registered Office:
20 Churchill Place
Canary Wharf
London EH14 5HJ
Correspondence Address:
Quartermile 3
10 Nightingale Way
Edinburgh EH3 9EG
Authorised and regulated by the Financial Conduct Authority and a member of
the Investment Association
Registered Number
SC211841
Company Website
www.svmonline.co.uk
© SVM Asset Management Limited 2023
UK Emerging Interim 2023 (https://mb.cision.com/Main/22438/3870864/2412805.pdf)
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