SVM UK EMERGING
FUND PLC
(the “Fund”)
ANNUAL FINANCIAL
RESULTS
FOR THE YEAR ENDED
31 MARCH 2022
The Board is pleased to announce the Annual Financial Results
for the year ended 31 March 2022.
The full Annual Report and Financial Statements, Notice of
Annual General Meeting and Form of Proxy will be posted to
shareholders and be available shortly on the Manager's website at
www.svmonline.co.uk
Copies of the Annual Report will be submitted to the FCA's
National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism in due
course.
HIGHLIGHTS
- Over the 12 months to 31 March
2022, net asset value total return fell 10.0% to 112.51p
compared to a return of 5.4% in the chosen comparator, the IA UK
All Companies Sector Average Index.
- Over the five years to 31 March
2022, net asset value has gained 19.4% and the share price
29.6%, against the comparator index return of 24.1%.
- Portfolio emphasises exposure to scalable businesses with a
competitive edge that can protect margins and deliver growth.
- At 30 June 2022, net asset value
per share had fallen to 89.68p
Financial
Highlights |
Year
to 31 March
2022 |
Year to
31 March
2021 |
Total Return
performance: |
|
|
Net Asset Value total return* |
-10.0% |
52.7% |
Share Price total return* |
-12.1% |
42.1% |
Comparator Index (IA UK All
Companies Sector Average Index since 1 October 2013**) |
5.4% |
37.8% |
|
31 March
2022 |
31 March
2021 |
% Change |
Capital Return
performance: |
|
|
|
Net asset value (p) |
112.51 |
125.00 |
-10.0% |
Share price (p) |
87.50 |
99.50 |
-12.1% |
MSCI All-Share Index*** |
2,032.66 |
1,774.53 |
14.5% |
Discount* |
22.2% |
20.4% |
|
|
|
|
|
Gearing* |
16.1% |
16.7% |
|
|
|
|
|
Ongoing Charges ratio:* |
|
|
|
Investment management fees |
0.86% |
0.77% |
|
Other operating expenses |
1.78% |
2.32% |
|
Total
Return to
31 March 2022 (%) |
1
Year |
3
Years |
5
Years |
10
Years |
Launch
(2000) |
Net Asset Value |
-10.0% |
2.2% |
19.4% |
57.4% |
16.0% |
Comparator Index** |
5.4% |
17.5% |
24.1% |
64.2% |
-11.6% |
*Alternative Performance Measures (APM). For a definition of
terms see Glossary of Terms and Alternative Performance Measures in
the AFS
**The comparator index for the Fund is the IA UK All Companies
Sector Average.
*** A representative index of the UK Equity Market
INVESTMENT OBJECTIVE
The investment objective of the Fund is long term capital growth
from investments in smaller UK companies. Its aim is to outperform
the IA UK All Companies Sector Average Index on a total return
basis.
CHAIRMAN’S STATEMENT
Over the 12 months to 31 March
2022, the Company’s net asset value fell 10.0% to 112.51p
per share, compared to a return of 5.4% in the chosen comparator
index, the IA UK All Companies Sector Average Index. Over the five
years to 31 March 2022, net asset
value has gained 19.4% and the share price 29.6%, against the IA UK
All Companies Sector Average return of 24.1%. The portfolio
emphasises exposure to scalable businesses with a competitive edge
that can protect margins and deliver growth. The Company’s
net asset value decreased in the three months since the year end to
89.68p at 30 June 2022. (total
return, FE, IA UK All Companies Sector Average for comparison
purposes).
Review of the year
This has been a painful period for growth investors, with
stockmarket interest focusing on companies perceived as
beneficiaries of inflation. Many growth companies delivered good
results but their shares were de-rated. The invasion of
Ukraine put upward pressure on
the
prices of commodities and energy. These sectors outperformed but
the Company has low exposure to them, many of them being large
businesses. This market pattern was the primary reason for
portfolio underperfomance during the year under review.
Economic overheating seems likely to lead, in the short term, to
higher UK interest rates, but action by the Bank of England and a squeeze on real incomes are
likely in time to cool the economy. In the medium and longer term
disinflationary pressures may reassert. A recession in the UK and
elsewhere is likely to emerge in the coming year but it may be
relatively short.
The Fund is focused on businesses with potential for self-help
and growth, which we believe to be well funded. Even in downturns
there remain growth sectors in the economy and business with
innovative services. The need for resilience, shorter supply
chains, digital transformation and software automation, is driving
growth in businesses with those specialist services. Labour market
tightness works in favour of some business-to-business services
that improve efficiency, as well as those that can help to manage
talent and retain it.
Even amidst a squeeze on incomes, consumers change tastes and
behaviours. The pandemic has also left in its wake a continuing
demand for companies that support health, vaccines
and pets. Share prices for growth businesses have been reset,
offering value to investors.
The strongest contributions to performance over the period were
from Watches of Switzerland, Kape
Technologies, Alpha FX, Kin and Carter and 4 Imprint Group.
Laggards included Ceres Power, JD Sports Fashion, Essensys, Flutter
Entertainment and ASOS.
Additional investment was made in Londonmetric, Kooth, Ideagen,
Kape Technologies and Marlowe. To fund these purchases, Ocado,
Parsley Box, Restaurant Group, The Hut Group,
Just Eat Takeaway, Molten Ventures and Moonpig were sold.
Annual General Meeting
The Annual General Meeting will be held on Friday 9 September 2022 at SVM’s offices in Edinburgh. At the last General Meeting,
shareholders approved powers for the Company to issue shares and to
buy back for cancellation, or to hold in treasury. Your Board has
directed the Manager to implement this arrangement, operating
within Board guidelines and approvals. This aims is to improve
liquidity in our shares, and your Board does not expect this
overall to be dilutive to shareholders.
Following the period under review on 21
June 2022, the Manager advised the Board that they had
accepted a conditional offer to be acquired by Assetco plc, an AIM
listed asset management company. The portfolio managers of the
Company will continue in their current roles at the Managers.
Outlook
The past 12 months have seen a sharp rotation towards cyclical
sectors, combined with very negative sentiment towards growth
businesses. In times of market turmoil investors tend to focus more
on macroeconomic news and headlines, rather than company results.
Yet in the recent reporting season many growth companies reported
good progress, with positive updates on current trading and
prospects. The Manager focuses on resilient growing businesses,
with low exposure to commodities, oil and banks.
The Fund remains fully invested with some additional
gearing.
Peter Dicks
Chairman
20 July 2022
MANAGER’S REVIEW
Summary
Over the 12 months there were a number of challenges to the UK
stockmarket; the Russian Ukraine war, inflation and the possibility
of recession. These developments squeezed supply of energy, food
and key industrial commodities at the same time as high consumer
demand came at the end of the pandemic. Investor interest was very
narrowly focused - on oil, banks and resources while most other
sectors lagged. The Fund strategy is focused on growth in medium
sized and smaller companies, with low exposure to cyclical sectors
such as commodities. Many portfolio companies are currently trading
well despite all the difficulties. There are signs that the UK
economy is adapting to the disruption in supplies, creating
opportunity for new onshore suppliers replacing risky ones
overseas. The world is now much better placed to manage changes to
supply chains and build up resilience. In time, disinflationary
forces could reassert.
Portfolio review and investment
strategy
The Managers investment approach involves sustainability, good
stewardship and culture. Companies with successful business models
are usually transparent in their accounting and reporting, and
communicate their strategy. They have a good sense of their key
value drivers and will share that in one-to-one meetings.
Resilience in a business often comes from its strength within a
niche. Key to the opportunity that the Managers see in investment
is an ability to generate returns greater than cost of capital and
to ensure that stewardship of assets is focused on this.
Some portfolio investments assisting the drive to reduce carbon
emissions are in industrial sectors. Libertine Holdings, for
example, floated on AIM in late 2021, and the Fund participated in
its capital raise. Libertine has technology for heavy duty power
trains used by trucks, and enabling technology for using
fossil-free energy sources. We see opportunity for growth in
applications for clean power from renewable fuels.
Geopolitical shocks tend not to dominate investment thinking for
long; markets usually recover on an easing of tensions rather than
full resolution. Technology is a powerful force for improving
services and productivity and is likely to remain disinflationary
despite some unwinding of globalisation.
The challenge for investors now is stock selection, identifying
the companies best able to deal with inflation. With skill
shortages, higher energy costs, and supply chains impacting
manufacturers, the winners may be distributors, business services
and companies with unique products and services. First to benefit
will be those providing services that enhance business resilience
or sustainability, or which provide logistics support to shorten
supply chains.
Growth businesses, particularly if mid-cap, typically occupy
niches with wide defensive moats. These range from food to legal
services, representing innovation in business models for which
technology may be just one factor. Some of these shares have been
badly hit in the recent sell-off, but as yet have seen little
deterioration in business prospects.
Hilton Food Group, a medium sized company developing
internationally, reported increased revenue, maintaining a trend of
continuous volume growth since its float in 2007. It is growing
organically and by acquisition, and now generates more than
two-thirds of its revenue outside the UK. It has a scalable
business model focused on supplying protein via supermarket chains.
Pork and chicken processor, Cranswick has a highly automated
operating model, which should help it to deal with labour shortage
and wage inflation in the food sector.
Some large cap businesses are burdened by legacy structures and
business models that restrict their ability to adapt. They are also
much more in the political spotlight; exposed to intervention that
restricts ability to adapt and raise prices. Companies best placed
in the current environment may be small and medium sized, flexible
and innovative.
Kainos Group provides IT services, consulting and software
solutions. It has gained from the drive to cloud and resilience. It
is well positioned in the public sector, and healthcare in
particular, supporting digital transformation. Trading this year
shows good growth in sales and bookings. The Government has
steadily increased spending on digital transformation in recent
years and Kainos should participate in this. For the economy as a
whole, productivity is an important driver of GDP per capita
growth, and a key enabler for this is software and digital
services. Kainos is currently a medium sized business but is
dominant in some of the segments it services.
Insurer Beazley reported a rise in gross premiums, helped by
good demand in the cyber insurance market. In cyber, Beazley, is
seeing significant rate improvement and it is continuing to invest
for growth. IT service business, Softcat, saw significant analyst
upgrades as customers continued to invest in technology. It
reported growing demand in software, hardware and services.
Top 5
Contributors to Absolute Performance (%) |
Bottom
Contributors to Absolute Performance (%) |
Company
name |
Contribution |
Company
name |
Contribution |
ALPHA FX GROUP
WATCHES OF SWITZERLAND
KAPE TECHNOLOGIES
KIN AND CARTA
4IMPRINT GROUP |
1.84
1.68
0.64
0.61
0.56 |
JD SPORTS FASHION
CERES POWER
ESSENSYS GROUP
FLUTTER ENTER
ASOS |
-2.26
-1.92
-1.43
-0.84
-0.81 |
A liquidity squeeze is underway; credit is tightening,
challenging lossmaking businesses and questionable operating
models. Risks appear to be in businesses that are not inherently
generating free cash flow or where there is too much reliance on
funding from suppliers or customers. The enemy of genuine growth
has been easy money, allowing ailing incumbent businesses to borrow
and acquire as they face competition from innovative new
entrants.
The Managers' approach to stockpicking emphasises strong market
positions and pricing power. Even as the economy slows, growth
areas include energy efficiency, sustainability and online
security. Some disruptive new business models in traditional
sectors have a long growth runway and are not highly rated. They
are likely to continue to take market share even as the UK economy
faces the prospect of recession.
Outlook
The portfolio emphasises exposure to businesses with strong
competitive positions and potential for organic growth. It also
includes investments with recovery potential.
Your Fund remains fully invested with some additional
gearing.
Sector analysis* |
% |
|
Listing* |
% |
|
Market Capitalisation* |
% |
Industrials
Information Technology
Consumer Discretionary
Communication Services
Financials
Healthcare
Real Estate
Consumer Staples
Materials |
22.8
22.5
15.6
10.7
9.9
8.1
5.7
3.6
1.1 |
|
Main Market
AIM
Other |
60.1
39.9
- |
|
Small
Mid
Large |
54.9
25.5
19.6 |
*Analysis is of gross
exposure |
INVESTMENT PORTFOLIO
as at 31 March
2022
Stock |
Market
Exposure
2022
£000 |
% of
Net Assets |
Market
Exposure
2021
£000 |
Alpha Financial Markets |
378 |
5.6 |
258 |
Watches of Switzerland Group* |
319 |
4.7 |
185 |
4Imprint Group |
266 |
3.9 |
232 |
Dechra Pharmaceuticals |
243 |
3.6 |
205 |
Unite Group |
233 |
3.6 |
214 |
Kape Technologies |
204 |
3.0 |
113 |
Hilton Food Group |
182 |
2.7 |
158 |
FDM Group Holdings |
175 |
2.6 |
166 |
Kin and Carta* |
163 |
2.4 |
114 |
Keystone Law Group |
157 |
2.3 |
153 |
Ten largest investments |
2,320 |
34.4 |
|
Experian |
148 |
2.2 |
125 |
Gamma Communications |
147 |
2.2 |
177 |
Rentokil Initial |
146 |
2.2 |
135 |
Impax Asset Management Group |
140 |
2.1 |
109 |
JD Sports Fashion* |
139 |
2.1 |
155 |
XP Power |
138 |
2.0 |
187 |
Beazley Group |
132 |
1.9 |
110 |
Jet2 |
131 |
1.9 |
144 |
Computacenter |
123 |
1.8 |
99 |
Libertine |
114 |
1.7 |
- |
Twenty largest
investments |
3,678 |
54.5 |
|
Kainos Group |
113 |
1.7 |
128 |
LondonMetric Property |
110 |
1.6 |
79 |
Marlowe |
109 |
1.6 |
- |
Games Workshop Group |
105 |
1.6 |
144 |
Oxford Instruments |
105 |
1.5 |
95 |
Entain* |
103 |
1.5 |
- |
Reach |
101 |
1.5 |
119 |
Instem |
99 |
1.5 |
87 |
Ashtead Group |
99 |
1.5 |
89 |
Molten Ventures |
97 |
1.4 |
- |
Thirty largest
investments |
4,719 |
69.9 |
|
Other investments (47 holdings) |
2,825 |
41.9 |
|
Total investments |
7,544 |
111.8 |
|
CFD positions |
(1,136) |
(16.8) |
|
CFD unrealised gains |
- |
- |
|
Net current assets |
337 |
5 |
|
Net assets |
6,745 |
100.0 |
|
*Includes CFDs.
Market exposure for equity investments held is the same as fair
value and for CFDs held is the market value of the underlying
shares to which the portfolio is exposed via the contract. The
investment portfolio is grossed up to include CFDs and the net CFD
position is then deducted in arriving at the net asset total.
Further information is given in note 6 to the Financial Statements.
A full portfolio listing as at 31 March
2022 is detailed on the website.
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors carry out a robust assessment of the Company’s
emerging and principal risks including reviewing the policies
implemented for identifying and managing the principal risks faced
by the Fund.
Many of the Fund’s investments are in small companies and may be
seen as carrying a higher degree of risk than their larger
counterparts. These risks are mitigated through portfolio
diversification, in-depth analysis, the experience of the Manager
and a rigorous internal control culture. Further information
on the internal controls operated for the Fund is detailed in the
Report of the Directors.
The principal risks facing the Fund relate to the investment in
financial instruments and include market, liquidity, credit and
interest rate risk. An explanation of these risks and how they are
mitigated is explained in note 10 to the financial statements.
Additional risks faced by the Fund are summarised below.
The Board considers the COVID-19 pandemic, the geopolitical
risks associated with the conflict between Russia and Ukraine and rising inflation to be factors
which exacerbate existing risk, rather than new emerging
risks. Their impact is considered within the relevant
risks.
Investment strategy – The risk that an inappropriate
investment strategy may lead to the Fund underperforming its
comparator, for example in terms of stock selection, asset
allocation or gearing. The Board has given the Manager a clearly
defined investment mandate which incorporates various risk limits
regarding levels of borrowing and the use of derivatives. The
Manager invests in a diversified portfolio of holdings and monitors
performance with respect to the comparator. The Board
regularly reviews the Fund’s investment mandate and long term
strategy.
Discount – The risk that a disproportionate widening of
discount in comparison to the Fund’s peers may result in loss of
value for shareholders. The discount varies depending upon
performance, market sentiment and investor appetite. The Board
regularly reviews the discount and the Fund operates a share
buy-back programme.
Accounting, Legal and Regulatory – Failure to comply with
applicable legal and regulatory requirements could lead to a
suspension of the Fund’s shares, fines or a qualified audit report.
In order to qualify as an investment trust the Fund must comply
with section 1158 of the Corporation Tax Act 2010 (“CTA”).
Failure to do so may result in the Fund losing investment trust
status and being subject to Corporation Tax on realised gains
within the Fund’s portfolio. The Manager monitors movements
in investments, income and expenditure to ensure compliance with
the provisions contained in section 1158. Breaches of other
regulations, including the Companies Act 2006, the Listing Rules of
the UK Listing Authority or the Disclosure and Transparency Rules
of the UK Listing Authority, could lead to regulatory and
reputational damage. The Board relies on the Manager and its
professional advisers to ensure compliance with section 1158 CTA,
Companies Act 2006 and United Kingdom Listing Authority Rules.
Operational – The risk of loss resulting from inadequate
or failed internal processes, people and systems or from external
events. In common with most other Investment Trusts, the Fund has
no employees and relies upon the services provided by third
parties. The Manager has comprehensive internal controls and
processes in place to mitigate operational risks. Risk controls are
monitored by their assigned owner with oversight from the Manager’s
risk and compliance function as part of the Manager’s risk &
control framework, which is reviewed at least annually.
Corporate Governance and Shareholder Relations – Details of the
Fund’s compliance with corporate governance best practice,
including information on relations with shareholders, are set out
in the Directors’ Statement on Corporate Governance.
Financial – The Fund’s investment activities expose it to a
variety of financial risks including market, liquidity, credit and
interest rate risk. These risks are explained in note 10 to the
financial statements. The Board seeks to mitigate and manage these
risks through continuous review, policy setting and enforcement of
contractual obligations. The Board receives both formal and
informal reports from the Manager and third party service providers
addressing these risks. The Board believes the Fund has a
relatively low risk profile as it has a simple capital structure;
invests principally in UK quoted companies; does not use
derivatives other than CFDs and uses well established and
creditworthy counterparties.
The capital structure comprises only ordinary shares that rank
equally. Each share carries one vote at general meetings.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Fund’s performance, business model and strategy.
The Directors each confirm to the best of their knowledge
that:
• the
financial statements, prepared in accordance with the applicable
accounting standards, give a true and fair view of the assets,
liabilities, financial position and gain or loss of the Fund
and;
• the
Strategic Report includes a fair review of the development and
performance of the business and the position of the Fund together
with a description of the principal risks and uncertainties that it
faces.
By Order of the Board
Peter Dicks
Chairman
20 July 2022
Income statement
for the year to 31 March 2022
|
Notes |
Revenue
£000 |
Capital
£000 |
Total
£000 |
Net loss on investments at fair
value |
6 |
- |
(641) |
(641) |
Income |
1 |
94 |
- |
94 |
Investment management fees |
2 |
- |
(61) |
(61) |
Other expenses |
3 |
(127) |
- |
(127) |
Loss before finance costs and
taxation |
|
(33) |
(702) |
(735) |
Finance costs |
|
(14) |
- |
(14) |
Loss on ordinary activities
before taxation |
|
(47) |
(702) |
(749) |
Taxation |
4 |
- |
- |
- |
Loss attributable to ordinary
shareholders |
|
(47) |
(702) |
(749) |
Loss per Ordinary Share |
5 |
(0.78)p |
(11.71)p |
(12.49)p |
for the year to 31 March 2021
|
Notes |
Revenue
£000 |
Capital
£000 |
Total
£000 |
Net loss on investments at fair
value |
6 |
- |
2,743 |
2,743 |
Income |
1 |
51 |
- |
51 |
Investment management fees |
2 |
- |
(48) |
(48) |
Other expenses |
3 |
(144) |
- |
(144) |
(Loss)/gain before finance costs
and taxation |
|
(93) |
2,695 |
2,602 |
Finance costs |
|
(17) |
- |
(17) |
(Loss)/gain on ordinary
activities before taxation |
|
(110) |
2,695 |
2,585 |
Taxation |
4 |
- |
- |
- |
(Loss)/gain attributable to
ordinary shareholders |
|
(110) |
2,695 |
2,585 |
(Loss)/gain per Ordinary
Share |
5 |
(1.83)p |
44.95p |
43.12p |
The Total column of this statement is the profit and loss
account of the Fund. All revenue and capital items are derived from
continuing operations. No operations were acquired or discontinued
in the year. A Statement of Comprehensive Income is not required as
all gains and losses of the Fund have been reflected in the above
statement.
Balance sheet
as at 31 March 2022
|
Notes |
2022
£000 |
2021
£000 |
Fixed Assets |
|
|
|
Investments at fair value through
profit or loss |
6 |
6,408 |
7,598 |
|
|
|
|
Current Assets |
|
|
|
Debtors |
7 |
720 |
107 |
Cash at bank and on deposit |
|
53 |
- |
Total current assets |
|
773 |
107 |
Creditors: amounts falling due
within one year |
8 |
(436) |
(211) |
Net current
(liabilities)/assets |
|
337 |
(104) |
|
|
|
|
Total assets less current
liabilities |
|
6,745 |
7,494 |
|
|
|
|
Capital and Reserves |
|
|
|
Share capital |
9 |
300 |
300 |
Share premium |
|
314 |
314 |
Special reserve |
|
5,136 |
5,136 |
Capital redemption reserve |
|
27 |
27 |
Capital reserve |
|
1,501 |
2,203 |
Revenue reserve |
|
(533) |
(486) |
Equity shareholders’
funds |
|
6,745 |
7,494 |
|
|
|
|
Net asset value per Ordinary
Share |
5 |
112.51p |
125.00p |
Approved and authorised for issue by the Board of Directors on
20 July 2022 and signed on its
behalf
by Peter Dicks, Chairman.
Statement of Changes in Equity
for the year to 31 March 2022
|
Share
capital
£000 |
Share
premium
£000 |
Special
reserve
£000* |
Capital
redemption
reserve
£000 |
Capital
reserve
£000 |
Revenue
reserve
£000* |
Total
£000 |
As at 1 April 2021 |
300 |
314 |
5,136 |
27 |
2,203 |
(486) |
7,494 |
Loss attributable to
shareholders |
- |
- |
- |
- |
(702) |
(47) |
(749) |
As at 31 March 2022 |
300 |
314 |
5,136 |
27 |
1,501 |
(533) |
6,745 |
for the year to 31 March 2021
|
Share
capital
£000 |
Share
premium
£000 |
Special
reserve
£000* |
Capital
redemption
reserve
£000 |
Capital
reserve
£000 |
Revenue
reserve
£000* |
Total
£000 |
As at 1 April 2020 |
300 |
314 |
5,136 |
27 |
(492) |
(376) |
4,909 |
Loss attributable to
shareholders |
- |
- |
- |
- |
2,695 |
(110) |
2,585 |
As at 31 March 2021 |
300 |
314 |
5,136 |
27 |
2,203 |
(486) |
7,494 |
*Distributable reserves at 31 March
2022 were £4,603,000 (2021: £4,650,000).
Accounting policies
Basis of preparation
The Financial Statements are prepared under the historical cost
convention, modified to include the revaluation of fixed asset
investments which are recorded at fair value, in accordance with
FRS 102, the “Financial Reporting Standard applicable in the UK and
Republic of Ireland” and under the AIC’s Statement of Recommended
Practice “Financial Statements of Investment Trust Companies and
Venture Capital Trusts” (SORP) issued in April 2021. The Directors have also prepared the
Financial Statements on a going concern
basis and have a reasonable expectation that the Company has
adequate resources to continue in operational existence for at
least twelve months from the date of approval of these Financial
Statements. In making their assessment the Directors have reviewed
income and expenditure projections, reviewed the liquidity of the
investment portfolio and considered the Company's ability to meet
liabilities as they fall due. This conclusion also takes in to
account the Directors' assessment of the continuing risks arising
from COVID-19. The Company is exempt from presenting a Cash Flow
Statement as a Statement of Changes in Equity is presented and
substantially all of the Company’s investment are highly liquid and
are carried at market value.
Significant judgements and
estimates
Preparation of financial statements can require management to
make significant judgements and estimates. There are no significant
judgements or sources of estimation uncertainty the Board considers
need to be disclosed.
Income
Dividend income is included in the Income Statement on an
ex-dividend basis and includes dividends on both direct equity
investments and synthetic equity holdings via Contracts for
Differences. Special dividends are recorded on an ex-dividend basis
and allocated to revenue or capital in line with the underlying
commercial circumstances of the dividend payment. Interest
receivable on bank balances is included in the Income
Statement on an accruals basis.
Expenses and interest
Expenses and interest payable are dealt with on an accruals
basis. All expenses other than investment management fees are
charged to revenue.
Investment management fees
Investment management fees are allocated 100 per cent to
capital. The allocation is in line with the Board’s expected
long-term return from the investment portfolio. The terms of the
investment management agreement are detailed in the Report of the
Directors.
Taxation
Current tax is provided at the amounts expected to be paid or
received. Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the balance
sheet date where transactions or events that result in an
obligation to pay more or a right to pay less tax in the future
have occurred at the balance sheet date measured on an undiscounted
basis and based on enacted or substantively enacted tax rates. This
is subject to deferred tax assets only being recognised if it is
considered probable that there will be suitable profits from which
the future reversal of the underlying timing differences can be
deducted. Timing differences are differences arising between the
taxable profits and the results as stated in the financial
statements which are capable of reversal in one or more subsequent
periods.
Investments
The investments have been categorised as ‘‘fair value through
profit or loss’’. All investments are held at fair value. For
listed investments this is deemed to be at bid prices. A Contract
for Difference (CFD) is a synthetic equity comprising of a future
contract to either purchase or sell a specific asset at a specified
future date for a specified price. The Company can hold long and
short positions in CFDs which are held at fair value, based on the
bid prices of the underlying securities in respect of long
positions, and the offer prices of the underlying securities in
respect of short positions. Profits and losses on CFDs are
recognised in the Income Statement as capital gains or losses on
investments at fair value. Dividends and interest on CFDs are
included in the revenue income. The year end fair value of CFD
positions which are assets is included in fixed asset investments,
whilst the year end fair value of CFD positions which are
liabilities is included within current liabilities in Note 8.
Balances with brokers in respect of margin calls are included
within debtors in Note 7. Unlisted investments are valued at
fair value based on the latest available information and with
reference to International Private Equity and Venture Capital
Valuation Guidelines.
All changes in fair value and transaction costs on the
acquisition and disposal of portfolio investments are included in
the Income Statement as a capital item. Purchases and sales of
investments are accounted for on trade date.
Financial instruments
In addition to the investment transactions described above,
basic financial instruments are entered into that result in
recognition of other financial assets and liabilities, such as
investment income due but not received, other debtors and other
creditors. These financial instruments are receivable and payable
within one year and are stated at cost less impairment.
Foreign currency translation
Transactions involving foreign currencies are converted at the
rate ruling as at the date of the transaction. Sterling is the
functional currency of the Fund and all foreign currency monetary
assets and liabilities are retranslated into Sterling at the rate
ruling on the financial reporting date.
Capital reserve
Gains and losses on realisations of fixed asset investments, and
transactions costs, together with appropriate exchange differences,
are dealt with in this reserve. All investment management fees,
together with any tax relief, are also taken to this reserve.
Increases and decreases in the valuation of fixed asset investments
are recognised in this reserve.
Special reserve
On 29 June 2001, the court
approved the redesignation of the Share Premium Account, at that
date, as a fully distributable Special Reserve.
Capital redemption reserve.
Nominal value of own shares bought back.
Revenue reserve
Retained revenue profits and losses, being a fully distributable
reserve.
Share Capital
Represents, allotted, issued and fully paid up shares of 5p
each.
Share Premium
Value received for issuing shares in excess of the nominal value
of 5p per share.
Notes to the financial statements
1. Income
|
2022
£000 |
2021
£000 |
Income from shares and
securities |
|
|
– dividends |
94 |
43 |
– interest |
- |
8 |
|
94 |
51 |
2. Investment Management Fees
Investment Management Fees |
61 |
48 |
3. Other expenses
Revenue
General expenses |
69 |
82 |
Directors’ fees |
25 |
25 |
Auditor’s remuneration |
33 |
37 |
|
127 |
144 |
4. Taxation
Current taxation |
- |
- |
Deferred taxation |
- |
- |
Total taxation charge for the
year |
- |
- |
The tax assessed for the year is different from the standard
small company rate of corporation tax in the UK. The differences
are noted below:
Gain/(loss) on ordinary activities
before taxation |
(749) |
2,585 |
Corporation tax (19%, 2021 –
19%) |
(142) |
491 |
Effects of: |
|
|
Non taxable UK dividends |
(14) |
(5) |
Gains/Losses on CFD |
60 |
(31) |
Non taxable investment
gains/(losses) in capital |
62 |
(491) |
Non taxable overseas dividends |
(1) |
- |
Movement in deferred tax rate on
excess management charges |
(11) |
- |
Movement in unutilised management
expenses and NTLR deficits |
46 |
36 |
Total taxation charge for the
year |
- |
- |
At 31 March 2021, the Fund had
unutilised management expenses and non trade loan relationship
(“NTLR”) deficits of £1,637,000 (2021 – £1,439,000).
A deferred tax asset of £409,000 (2021 - £275,000) has not been
recognised on unutilised management expenses as it is unlikely that
there would be suitable taxable profits from which the future
reversal of the deferred tax asset could be deducted.
5. Returns per share
Returns per share are based on a weighted average of 5,995,000
(2021 – 5,999,000) ordinary shares in issue during the year.
Total return per share is based on the total loss for the year
of £749,000 (2021 – gain of £2,585,000).
Capital return per share is based on the net capital loss for
the year of £702,000 (2021 – gain of £2,695,000).
Revenue return per share is based on the revenue loss after
taxation for the year of £47,000 (2021 – loss of £110,000).
The net asset value per share is based on the net assets of the
Fund of £6,745,000 (2021 – £7,494,000) divided by the number of
shares in issue at the year end as shown in note 9.
6. Investments at fair value
through profit or loss
|
|
|
2022
£000 |
2021
£000 |
Listed investments and CFDs |
|
|
6,408 |
7,598 |
Unlisted investments |
|
|
- |
- |
Valuation as at end of year |
|
|
6,408 |
7,598 |
|
Listed
£000 |
Unlisted
£000 |
Total
£000 |
Total
£000 |
Opening book cost |
4,928 |
140 |
5,068 |
4,041 |
Opening investment holding
gains/(losses) |
2,670 |
(140) |
2,530 |
422 |
Opening fair value* |
7,598 |
- |
7,598 |
4,463 |
Analysis of transactions made
during the year |
|
|
|
|
Purchase at cost |
1,374 |
- |
1,374 |
3,271 |
Sales proceeds received** |
(2,237) |
- |
(2,237) |
(2,716) |
(Losses)/gain on investments*** |
(327) |
- |
(327) |
2,580 |
Closing fair value |
6,408 |
- |
6,408 |
7,598 |
Closing book cost |
4,953 |
140 |
5,093 |
5,068 |
Closing investment holding
gains/(losses) |
1,455 |
(140) |
1,315 |
2,530 |
Closing fair value |
6,408 |
- |
6,408 |
7,598 |
(Losses)/gains on investments |
(327) |
- |
(327) |
2,580 |
Movement in CFD current
liability |
(314) |
- |
(314) |
163 |
Net gains/(losses) on investments
at fair value |
(641) |
- |
(641) |
2,743 |
The transaction costs in acquiring investments during the year
were £2,000 (2021: £8,000). For disposals, transaction costs
were £2,000 (2021: £3,000).
The company received £2,237,000 (2021 £2,716,000) from
investments sold in the year. The book cost of these
investments when they were purchased was £1,349,000 (2021
£2,244,000). These investments have been revalued over time and,
until they were sold, any unrealised gains/losses were included in
the fair value of the investments.
* Opening fair value of £7,598,000 includes £298,000 of CFD
gains
** Sale proceeds received of £2,237,000 includes a balance of
£586,000 in relation to CFDs.
*** (Losses)/gains on investments of (£327,000) includes a
balance of £586,000 in relation to gains on CFDs
7. Debtors
|
2022
£000 |
2021
£000 |
Investment income due but not
received |
6 |
8 |
Amounts receivable relating to CFDs
– being cash held at Broker |
699 |
1 |
Prepayments |
2 |
11 |
Taxation |
13 |
5 |
Other debtors |
- |
82 |
|
720 |
107 |
8. Creditors: amounts falling due
within one year
|
2022
£000 |
2021
£000 |
Cash balances |
- |
79 |
Amounts due relating to CFDs – being
losses on CFD contracts |
375 |
61 |
Due to SVM Asset Management
Limited |
13 |
14 |
Other creditors |
48 |
57 |
|
436 |
211 |
9. Share capital
Allotted, issued and fully
paid |
|
|
6,005,000 ordinary 5p shares (2021 –
6,005,000) |
300 |
300 |
As at the date of publication of this document, there was no
change in the issued share capital and each ordinary share carries
one vote, other than the 10,000 shares held in treasury which carry
no voting rights.
During the year no Ordinary Shares were brought back.
10. Financial instruments
Risk Management
The Fund’s investment policy is to hold investments, CFDs and
cash balances with gearing being provided by the use of CFDs and a
bank overdraft. 100% (2021: 99.2%) of the Fund's net asset value is
held in investments that are denominated in Sterling and are
carried at fair value. Where appropriate, gearing can be utilised
in order to enhance net asset value. It does not invest in short
dated fixed rate securities other than where it has substantial
cash resources. Fixed rate securities held at 31 March 20221 were
valued at £nil (2021 – £nil). Investments, which comprise
principally equity investments, are valued as detailed in the
accounting policies.
The Fund only operates short term gearing, which is limited to
30 per cent of gross assets and is undertaken through an unsecured
variable rate bank overdraft and the use of CFDs. The comparator
rate which determines the interest received on Sterling cash
balances or paid on bank overdrafts is the bank base rate which was
0.75% as at 31 March 2022 (2021 –
0.1%). There are no undrawn committed borrowing facilities.
Short-term debtors and creditors are excluded from disclosure.
The Fund does not hold any (2021: 0.8%) of the total net asset
value in investments with direct foreign currency exposure and is
consequently not currency hedged. Financial information on the
investment portfolio is detailed in note 6.
The major risks inherent within the Fund are market risk,
liquidity risk, credit risk and interest rate risk. It has an
established environment for the management of these risks which are
continually monitored by the Manager. Appropriate guidelines for
the management of its financial instruments and gearing have been
established by the Board of Directors. It has no foreign currency
assets and therefore does not use currency hedging. It does not use
derivatives within the portfolio with the exception of CFDs.
Market risk
The risk that the Fund may suffer a loss arising from adverse
movements in the fair value or future cash flows of an
investment. Market risks include changes to market prices,
interest rates and currency movements. The Fund invests in a
diversified portfolio of holdings covering a range of
sectors. The Manager conducts continuing analysis of holdings
and their market prices with an objective of maximising returns to
shareholders. Asset allocation, stock selection and market
movements are reported to the Board on a regular basis.
Liquidity risk
The risk that the Fund may encounter difficultly in meeting
obligations associated with financial liabilities. The Fund
is permitted to invest in shares traded on AIM or similar markets;
these tend to be in companies that are smaller in size and by their
nature less liquid than larger companies. The Manager
conducts continuing analysis of the liquidity profile of the
portfolio and the Fund maintains an overdraft facility to ensure
that it is not a forced seller of investments.
Credit risk
The risk that the counterparty to a transaction fails to
discharge its obligation or commitment to the transaction resulting
in a loss to the Fund. Investment transactions are entered into
using brokers that are on the Manager’s approved list, the credit
ratings of which are reviewed periodically in addition to an annual
review by the Manager’s board of directors. The Fund’s
principal bankers are State Street Bank & Trust Company, the
main broker for CFDs is UBS and other approved execution broker
organisations authorised by the Financial Conduct Authority.
Interest rate risk
The risk that interest rate movements may affect the level of
income receivable on cash deposits. At most times the Fund
operates with relatively low levels of bank gearing, this has and
will only be increased where an opportunity exists to substantially
add to the net asset value performance.
11. Post balance sheet events
The Manager advised the Board on 21 June
2022 that they had accepted an offer, conditional on FCA
approval, to be acquired by AssetCo plc, an AIM listed asset
management company. The portfolio managers of the Company will
continue in their current roles at the Managers.
12. The financial information contained within
this announcement does not constitute statutory accounts as defined
in sections 434 and 435 of the Companies Act 2006. The
results for the years ended 31 March
2022 and 2021 are an abridged version of the statutory
accounts for those years. The Auditor has reported on the 2022 and
2021 accounts, their reports for both years were unqualified and
did not contain a statement under section 498 of the Companies Act
2006. Statutory accounts for 2021 have been filed with the
Registrar of Companies and those for 2022 will be delivered in due
course.
13. The Annual Report
and Accounts for the year ended 31 March
2022 will be mailed to shareholders shortly and copies will
be available from the Manager’s website www.svmonline.co.uk and the
Fund’s registered office at 7 Castle Street, Edinburgh, EH2 3AH.
The Annual General Meeting of the Fund will be held at
9.00 a.m. on Friday 9 September 2022 at 7 Castle Street, Edinburgh, EH2 3AH.
For further information, please contact:
Colin
McLean
SVM Asset
Management
0131 226 6699
Roland
Cross
Four
Broadgate
0207 726 6111
20 July 2022