SVM UK EMERGING
FUND PLC
(the “Fund”)
HALF YEARLY
REPORT
(FOR THE SIX
MONTHS TO 30 SEPTEMBER 2020)
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 www.morningstar.co.uk/uk/nsm. Copies are also
available at 7 Castle Street, Edinburgh EH2 3AH, the registered office of
the Fund.
HIGHLIGHTS
-
Net asset value return of 28.4% compared to a 12.8% return in
the IA UK All Companies Sector Average Index and 7% return in the
FTSE All-Share Index.The share price rose 1.4%.
-
Over the five years to 30 September
2020, net asset value gained 31.4% and the share price
17.4%, against a benchmark return of 17.0%.
- At 31 October 2020, net asset
value per share was 104.71p
- Positive contributions from Ocado, 4Imprint Group, Games
Workshop and Gamma Communications
- Portfolio emphasises exposure to 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 2020 |
6 months |
3 years |
5 Years |
10
Years |
Net Asset Value |
+28.4% |
-2.5% |
+31.4% |
+51.7% |
Share Price |
+1.4% |
-11.8% |
+17.4% |
+44.9% |
Benchmark Index * |
+12.8% |
-8.2% |
+17.0% |
+31.0% |
* 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.
CHAIRMAN’S STATEMENT
Over the six months to 30 September
2020, the Company’s net asset value gained 28.4% to 105.0p
per share, compared to a return of 12.8% in the benchmark, the IA
UK All Companies Sector Average Index. Over the six
months, the share price rose 1.4%. Over the five years to
30 September 2020, net asset value
has gained 31.4% and the share price 17.4%, against a benchmark
return of 17.0%. The Company’s net asset value was 104.71p]
at 31 October 2020 (total return,
Lipper data).
The period under review began after a sharp stockmarket fall,
resulting from the disruption caused by COVID-19, but over the six
months many shares rebounded. Most portfolio investments rose
following government and Bank of England support for the worst hit sectors.
Higher unemployment remains a risk for the UK economy; lower
inflation and interest rates are now likely. More recently,
market concerns with regard to a successful Brexit have
resurfaced.
The strongest contributions to performance over the period were
from Ocado, 4Imprint Group, Rentokil Initial, Games Workshop and
Gamma Communications. Laggards included Workspace Group,
Beazley and Creo Medical Group. During the six months, travel and
property sector exposure was reduced; EasyJet, Trainline,
Workspace, IWG and WH Smith were sold. New investments were made in
manufacturing and industrial services; Avon Rubber, Aveva, and
DiscoverIE Group. We expect many businesses to increase focus on
resilience and sustainability; shortening supply chains and
strengthening their online capability.
The investment strategy of the Company involves focusing on
growing businesses benefiting from structural change in the
economy. Typically, these have pricing power within their chosen
niche. Companies that were already well invested in technology and
able to make good use of customer data have seen an acceleration of
change this year. Businesses are demanding more enterprise support
services, assisting cloud data, mobile services and virtual
operations. Suppliers of these technologies were typically already
disrupters in their sectors and have proven their agility in
offering differentiated services in scalable ways.
The crisis has heightened the contrast between legacy businesses
and well-adapted agile disruptors. Changes in tastes are often slow
to evolve, but persistent once set. At the centre of this trend is
a shift in sentiment to the home environment and wellbeing.
This investment theme could shape the economy for some time and the
portfolio includes a number of businesses expected to benefit from
these trends.
The portfolio focuses on resilient growing businesses, with low
exposure to commodities, oil and banks. These are typically
scalable businesses with a competitive edge. The Fund remains fully
invested with some additional gearing.
Peter Dicks
Chairman
6 November 2020
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
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 profit 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 (indication of
important events during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year); and DTR 4.2.8R (disclosure of related party transactions
and changes therein).
(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 described in the Annual Report &
Accounts for the year end 31 March
2020 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
6 November 2020
UNAUDITED ACCOUNTS
Income Statement |
|
|
Six months to 30 September
2020 |
Six months to 30 September 2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
Net gain on
investments at fair value |
- |
1,464 |
1,464 |
- |
73 |
73 |
Income |
20 |
- |
20 |
94 |
- |
94 |
Investment management fees |
- |
(22) |
(22) |
- |
(26) |
(26) |
Other expenses |
(73) |
- |
(73) |
(45) |
- |
(45) |
(Loss)/gain before
finance costs and taxation |
(53) |
1,442 |
1,389 |
49 |
47 |
96 |
Finance costs |
(5) |
- |
(5) |
(11) |
- |
(11) |
(Loss)/gain on ordinary
activities before taxation |
(58) |
1,442 |
1,384 |
38 |
47 |
85 |
Taxation |
- |
- |
- |
- |
- |
- |
(Loss)/Gain
attributable to ordinary shareholders |
(58) |
1,442 |
1,384 |
38 |
47 |
85 |
(Loss)/Gain per
Ordinary Share |
(0.96)p |
24.05p |
23.09p |
0.63p |
0.78p |
1.41p |
|
|
|
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 2020
(audited) |
|
|
Revenue |
Capital |
Total |
|
|
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
Net loss on investments at fair
value |
- |
(1,633) |
(1,633) |
|
Income |
137 |
- |
137 |
|
Investment management fees |
- |
(52) |
(52) |
|
Other expenses |
(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 |
- |
- |
- |
|
Loss attributable to ordinary
shareholders |
(7) |
(1,685) |
(1,692) |
|
Loss per Ordinary
Share |
(0.12)p |
(28.08)p |
(28.20)p |
|
Balance Sheet |
|
|
|
|
As at
30 September
2020
(unaudited) |
As at
31 March
2020
(audited) |
As at
30 September
2019
(unaudited) |
|
£’000 |
£’000 |
£’000 |
Fixed Assets |
|
|
|
Investments at fair value through
profit or loss |
6,278 |
4,463 |
6,668 |
|
|
|
|
Total Current
Assets |
227 |
745 |
138 |
Creditors:
amounts falling due within one year |
(212) |
(299) |
(121) |
Net current
assets |
15 |
(446) |
17 |
|
|
|
|
Total assets less
current liabilities |
6,293 |
4,909 |
6,685 |
|
|
|
|
Capital and
Reserves |
6,293 |
4,909 |
6,685 |
Equity
shareholders’ funds |
6,293 |
4,909 |
6,685 |
|
|
|
|
Net asset value per
Ordinary Share |
104.97p |
81.88p |
111.51p |
Statement of Changes
in Equity |
|
For the period to 30 September 2020 |
|
|
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 2020 |
300 |
314 |
5,136 |
27 |
(492) |
(376) |
(4,909) |
Gain/(Loss) attributable to
shareholders |
- |
- |
- |
- |
1,442 |
(58) |
1,384 |
As at 30 September
2020 |
300 |
314 |
5,136 |
27 |
950 |
(434) |
6,293 |
For the year to 31 March 2020 |
|
|
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 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 period to 30 September 2019 |
|
|
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 2019 |
300 |
314 |
5,144 |
27 |
1,193 |
(369) |
6,609 |
Ordinary shares
repurchased |
- |
- |
(9) |
- |
- |
- |
(9) |
Gain attributable to
shareholders |
- |
- |
- |
- |
47 |
38 |
85 |
As at 30 September
2019 |
300 |
314 |
5,135 |
27 |
1,240 |
(331) |
6,685 |
Investment Portfolio as at 30 September 2020 |
|
Stock |
Market Exposure 2020
£000 |
% of Net Assets |
|
Sector analysis as at 30 September 2020
Sector |
% of Gross Exposure |
|
1 |
Ocado Group |
343 |
5.5 |
|
Industrials |
20.4 |
|
2 |
Hilton Food Group |
261 |
4.1 |
|
Consumer Discretionary |
19.1 |
|
3 |
Rentokil Initial |
241 |
3.8 |
|
Technology |
15.3 |
|
4 |
Unite Group |
231 |
3.6 |
|
Consumer Staples |
11.8 |
|
5 |
Alpha Financial Markets |
211 |
3.4 |
|
Financials |
9.6 |
|
6 |
Knights Group |
208 |
3.3 |
|
Real Estate |
6.5 |
|
7 |
Dechra Pharmaceuticals |
192 |
3.1 |
|
Healthcare |
5.8 |
|
8 |
Gamma Communications |
179 |
2.8 |
|
Consumer Services |
4.7 |
|
9 |
4Imprint Group |
177 |
2.8 |
|
Telecommunications |
3.6 |
|
10 |
FDM Group Holdings |
168 |
2.7 |
|
Energy |
2.4 |
|
Ten largest
investments |
2,211 |
35.1 |
|
Consumer
Goods
0.8 |
|
11 |
JD Sports Fashion * |
152 |
2.4 |
|
Total |
100.0 |
|
12 |
Games Workshop Group |
148 |
2.4 |
|
|
|
|
13 |
Experian |
146 |
2.3 |
|
|
|
|
14 |
Renishaw * |
128 |
2.0 |
|
|
|
|
15 |
Codemasters |
127 |
2.0 |
|
|
|
|
16 |
Learning Technologies Group |
126 |
2.0 |
|
|
|
|
17 |
Just Eat Takeaway * |
123 |
2.0 |
|
|
|
|
18 |
Keystone Law Group |
120 |
1.9 |
|
|
|
|
19 |
Ceres Power Holdings |
117 |
1.9 |
|
|
|
|
20 |
Draper Espirit |
116 |
1.8 |
|
|
|
|
Twenty largest
investments |
3,514 |
55.8 |
|
|
|
|
|
21 |
Flutter Entertainment * |
116 |
1.8 |
|
|
|
|
22 |
XP Power |
111 |
1.8 |
|
|
|
|
23 |
Globaldata |
107 |
1.7 |
|
|
|
|
24 |
Johnson Service Group |
103 |
1.6 |
|
|
|
|
25 |
Computacenter |
98 |
1.6 |
|
|
|
|
26 |
Manolete Partners |
98 |
1.6 |
|
|
|
27 |
Dunelm Group |
98 |
1.6 |
|
|
|
|
28 |
Asos * |
97 |
1.5 |
|
*Includes Contract for Difference (“CFD”)
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 |
Beazley Group |
96 |
1.5 |
|
|
30 |
Team17 Group |
92 |
1.5 |
|
|
Thirty largest
investments |
4,530 |
72.0 |
|
|
|
Other investments (38
holdings) |
2,351 |
37.4 |
|
|
|
Total
investments |
6,881 |
109.4 |
|
|
|
CFD positions
exposure |
(750) |
(11.9) |
|
|
CFD unrealised
gains |
147 |
2.3 |
|
|
Net current
assets |
15 |
0.2 |
|
|
Net assets |
6,293 |
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Risks and Uncertainties
The principal risks facing the Fund relate to the investment in
financial instruments and include market, liquidity, credit and
interest rate risk. Additional risks faced by the Fund are
investment strategy, share price discount, accounting, legal and
regulatory, operational, corporate governance and shareholder
relations, and financial. 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 Managers and third party
service providers addressing these risks. An explanation of
these risks and how they are mitigated is explained in the 2020
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 2020 Annual
Report.
Going Concern
The Board, having made appropriate enquiries, has a reasonable
expectation that the Fund has adequate resources to continue in
operational existence for the foreseeable future, a period of not
less than 12 months from the date of this report. 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 2019 (the interim financial statements for the period to
30 September 2019 were prepared under
the SORP issued in 2014). The requirements have been met to
qualify for the exemption to prepare a Cash Flow Statement. These
financial statements have been prepared in accordance with the
accounting policies used for the financial year ended 31 March 2020.
2. During the
period no shares were bought back (2019 - 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).
The number of shares in issue at 30
September 2020 was 5,995,000 (2019 – 5,995,000).
Return per share is based on a weighted average of 5,995,000 (2019
– 6,004,672) ordinary shares in issue during the period.
Total return per share is based on the total gain for the period
of £1,384,000 (2019 – gain of £85,000). Capital return per share is
based on the capital gain for the period of £1,442,000 (2019 – gain
of £47,000). Revenue return per share is based on the revenue loss
after taxation for the period of £58,000 (2019 - gain of
£38,000).
3. All
investments are held at fair value. At 30 September 2020 no unlisted investments were
held with value attributed (31 March
2020: same; 30 September 2019:
same).
Investments have been classified using the fair value
hierarchy:
|
September
2020
£000 |
March 2020
£000 |
Classification of financial
instruments |
|
|
Level 1 |
6,131 |
4,455 |
Level 2 |
147 |
8 |
Level 3 – 2 investments (March 2020
– 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 2020 and 31 March 2020.
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
2020: 9 (31 March 2020: 9)
CFD positions |
September
2020 |
March 2020 |
|
£000 |
£000 |
Gross exposure |
750 |
514 |
Net exposure |
750 |
514 |
Unrealised gains |
147 |
8 |
Unrealised losses |
92 |
224 |
The gearing ratio is 11.4% at 30
September 2020 (31 March 2020:
16.5%). The gearing figure indicates the extra amount by
which the 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.
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.
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
2020 is
unaudited. The accounts for the year to 31
March 2020, 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