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