SVM UK EMERGING FUND PLC
(the “Fund”)
HALF YEARLY REPORT
(FOR THE SIX MONTHS TO 30 SEPTEMBER
2022)
A copy of the Half Yearly Report will be available to download
from the Manager’s website at www.svmonline.co.uk and a copy will
shortly be available for inspection at the National Storage
Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
in due course. Copies are also available at 7 Castle Street,
Edinburgh EH2 3AH, the registered
office of the Fund.
HIGHLIGHTS
Net asset value return of -27.1% compared to a -12.8% return in
the IA UK All Companies Sector Average Index.
Over the five years to 30 September
2022, net asset value fell -23.8% and the share price
-14.9%, against the IA UK All Companies Sector Average Index return
of 3.2%.
Positive contributions from 4Imprint Group, Beazley, Ideagen and
Aveva Group.
Portfolio emphasises exposure to cash generating, scalable
businesses with a competitive edge that can protect margins and
deliver growth.
“Long term capital growth from
investments in smaller UK companies. Its aim is to outperform the
IA UK All Companies Sector Average Index on a total return
basis”
Financial Highlights
Total Return
Performance to 30 September 2022 |
6 months |
3 years |
5 Years |
10 Years |
Net Asset Value |
-27.1% |
-26.3% |
-23.8% |
71.5% |
Share Price |
-21.7% |
-21.3% |
-14.9% |
71.3% |
Comparator Index* |
-12.8% |
-2.4% |
3.2% |
60.5% |
* The comparator index for the Fund was changed to the IA UK All
Companies Sector Average Index from 1
October 2013 prior to which the FTSE AIM Index was used.
CHAIRMAN’S STATEMENT
Over the six months to 30 September
2022, the Company’s net asset value fell 27.1% to 82.0p per
share, compared to a return of -12.8% in the IA UK All Companies
Sector Average Index. Over the six months, the share price
returned -21.7%. In the five years to 30 September 2022, net asset value returned
-23.8% and the share price -14.9%, against the IA UK All Companies
Sector Average return of 3.2%. The Company’s net asset value
increased slightly since the period under review to 86.2p at 31
October 2022.
Over the period, UK equities fell sharply, with much of that
move coming in September. The share prices of smaller and
medium sized companies fared worse than shares of the largest
global businesses. The portfolio emphasises growth strategies
and has low exposure to some of the areas in favour in the period
such as energy, mining and the major pharmaceutical
groups.
The strongest contributions to performance over the period were
4Imprint Group, Ideagen, Beazley, Aveva Group and AB
Dynamics. In July, compliance software group, Ideagen, agreed
a takeover by a private equity firm. In September, industrial
software business, Aveva, agreed a takeover by Schneider Electric,
subject to shareholder approval. Merger and acquisition
activity may point to recognition that share prices of some
successful British businesses have become attractive as
acquisitions, particularly when the weakness of sterling is taken
into account. Negatives included Hilton Food Group, Dechra
Pharmaceuticals, XP Power, Watches of Switzerland, FDM Group and Alpha FX
Group. Additional investment was made in Dechra
Pharmaceuticals. To fund this and reduce the effective market
exposure of the portfolio, Impax Asset Management, Volex, ASOS, ITM
Power and Seeing Machines were sold in part or whole.
During the period, in contrast with share price weakness, most
portfolio company trading updates were encouraging. Smaller
and medium sized companies typically have more flexibility to adapt
and the portfolio emphasises businesses generating cash. This
should reduce risks of unforeseen fundraising or profits
disappointments. The Managers favour businesses that are
leaders in their area or which can defend margins through
innovation.
On a range of measures, the fall has brought UK equities down to
a significant valuation gap with many other world markets, a
relative valuation last reached in 1989. It does appear that
the UK economy will move into recession over the next few months
but the disparity is extreme.
The portfolio focuses on resilient growing businesses, with low
exposure to commodities, oil and banks. Portfolio investments are
typically scalable businesses with a competitive edge. The Fund
remains fully invested with minimal gearing.
Peter Dicks
Chairman
4 November 2022
INVESTMENT OBJECTIVE and POLICY
The investment objective of SVM UK Emerging Fund plc (the “Fund”
or the “Company”) is long term capital growth from investments in
medium-sized and smaller UK companies. Its aim is to outperform the
IA UK All Companies Sector Average Index on a total return
basis
The Fund aims to achieve its objective and to diversify risk by
investing in shares and related instruments, controlled by a number
of limits on exposures. Appropriate guidelines for the management
of the investments, gearing and financial instruments have been
established by the Board. This is an abridged version of the Fund’s
investment policy. The full investment policy can be found in
the Strategic Report within the Fund’s latest Annual Report &
Accounts.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Half Yearly
Report in accordance with applicable law and
regulations.
The Directors confirm that to the best of their knowledge:
the condensed set of financial statements have been prepared in
accordance with the Financial Reporting Council Statement 104
“Interim Financial Reporting” on a going concern basis, taking in
to account guidance on Covid-19, and give a true and fair view of
the assets, liabilities, financial position and gain or loss of the
Fund;
(ii)
the Half Yearly Report includes a fair review of the information
required by the Disclosure and Transparency Rules DTR 4.2.7R (an
indication of important events that have occurred during the first
six months of the financial year, and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the
financial year); and DTR 4.2.8R (disclosure of related party
transactions and changes therein that could have a material effect
on the financial position or performance of the Fund during the
first six months of the current financial year).
(iii) No
related party transactions have taken place during the first six
months of the year that have materially affected the financial
position of the Fund during the period and there have been no
changes in the related party transactions as described in the
Annual Report & Accounts for the year end 31 March 2022 that could do so.
The Directors consider that the Half Yearly Report, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Fund’s
performance and strategy,
The Half Yearly Report has not been audited or reviewed by the
Fund’s auditors.
By Order of the Board
Peter Dicks
Chairman
4 November 2022
UNAUDITED ACCOUNTS
Income Statement |
|
|
Six months to 30 September
2022 |
Six months to 30 September 2021 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
Net (loss)/gain on
investments at fair value |
- |
(1,787) |
(1,787) |
- |
1,283 |
1,283 |
Income |
61 |
- |
61 |
56 |
- |
56 |
Investment management fees |
- |
(22) |
(22) |
- |
(32) |
(32) |
Other expenses |
(72) |
- |
(72) |
(61) |
- |
(61) |
(Loss)/gain before
finance costs and taxation |
(11) |
(1,809) |
(1,820) |
(5) |
1,251 |
1,246 |
Finance costs |
(9) |
- |
(9) |
(7) |
- |
(7) |
(Loss)/gain on ordinary activities
before taxation |
(20) |
(1,809) |
(1,829) |
(12) |
1,251 |
1,239 |
Taxation |
- |
- |
- |
- |
- |
- |
(Loss)/gain
attributable to ordinary shareholders |
(20) |
(1,809) |
(1,829) |
(12) |
1,251 |
1,239 |
(Loss)/gain per
Ordinary Share |
(0.33)p |
(30.18)p |
(30.51)p |
(0.20)p |
20.87p |
20.67p |
|
|
|
The Total column of this statement is the profit and loss account
of the Fund. All revenue and capital items are derived from
continuing operations. No operations were acquired or
discontinued in the year. A Statement of Comprehensive Income
is not required as all gains and losses of the Fund have been
reflected in the above statement. |
|
Year ended
31 March 2022
(audited) |
|
|
Revenue |
Capital |
Total |
|
|
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
Net loss on investments at fair
value |
- |
(641) |
(641) |
|
Income |
94 |
- |
94 |
|
Investment management fees |
- |
(61) |
(61) |
|
Other expenses |
(127) |
- |
(127) |
|
Loss before finance costs and
taxation |
(33) |
(702) |
(735) |
|
Finance costs |
(14) |
- |
(14) |
|
Loss on ordinary activities before
taxation |
(47) |
(702) |
(749) |
|
Taxation |
- |
- |
- |
|
Loss attributable to ordinary
shareholders |
(47) |
(702) |
(749) |
|
Loss per Ordinary
Share |
(0.78)p |
(11.71)p |
(12.49)p |
|
UNAUDITED ACCOUNTS
Balance Sheet |
|
|
|
|
As at
30 September
2022
(unaudited) |
As at
31 March
2022
(audited) |
As at
30 September
2021
(unaudited) |
|
£’000 |
£’000 |
£’000 |
Fixed Assets |
|
|
|
Investments at fair value through
profit or loss |
4,318 |
6,408 |
8,416 |
|
|
|
|
Total current
assets |
1,264 |
773 |
433 |
Creditors:
amounts falling due within one year |
(666) |
(436) |
(116) |
Net current
assets |
598 |
337 |
317 |
|
|
|
|
Total assets less
current liabilities |
4,916 |
6,745 |
8,733 |
|
|
|
|
Capital and
Reserves |
4,916 |
6,745 |
8,733 |
Equity shareholders’
funds |
4,916 |
6,745 |
8,733 |
|
|
|
|
Net asset value per
Ordinary Share |
82.00p |
112.51p |
145.67p |
UNAUDITED ACCOUNTS
Statement of Changes in
Equity |
|
For the period to 30 September 2022 |
|
|
Share
capital |
Share
premium |
Special reserve |
Capital
redemption
reserve |
Capital reserve |
Revenue reserve |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
As at 1 April 2022 |
300 |
314 |
5,136 |
27 |
1,501 |
(533) |
6,745 |
Loss attributable to
shareholders |
- |
- |
- |
- |
(1,809) |
(20) |
(1,829) |
As at 30 September
2022 |
300 |
314 |
5,136 |
27 |
(308) |
(553) |
4,916 |
For the year to 31 March 2022 |
|
|
Share
capital |
Share
premium |
Special reserve |
Capital
redemption
reserve |
Capital reserve |
Revenue reserve |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
|
As at 1 April 2021 |
300 |
314 |
5,136 |
27 |
2,203 |
(486) |
7,494 |
Loss attributable to
shareholders |
- |
- |
- |
- |
(702) |
(47) |
(749) |
As at 31 March
2022 |
300 |
314 |
5,136 |
27 |
1,501 |
(533) |
6,745 |
For the period to 30 September 2021 |
|
|
Share
capital |
Share
premium |
Special reserve |
Capital
redemption
reserve |
Capital reserve |
Revenue reserve |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
|
As at 1 April 2021 |
300 |
314 |
5,136 |
27 |
2,203 |
(486) |
7,494 |
Gain/(loss)
attributable to shareholders |
- |
- |
- |
- |
1,251 |
(12) |
1,239 |
As at 30 September
2021 |
300 |
314 |
5,136 |
27 |
3,454 |
(498) |
8,733 |
UNAUDITED ACCOUNTS
Investment Portfolio as at 30 September 2022 |
|
Stock |
Market Exposure 2022
£000 |
% of Net Assets |
|
Sector analysis as at 30 September 2022
Sector |
% of Gross Exposure |
|
1 |
4Imprint Group |
321 |
6.5 |
|
Consumer Discretionary |
23.3 |
|
2 |
Alpha FX Group |
283 |
5.8 |
|
Industrials |
20.8 |
|
3 |
Watches Of Switzerland Group* |
189 |
3.8 |
|
Consumer Discretionary |
16.1 |
|
4 |
Beazley Group |
176 |
3.6 |
|
Financials |
11.2 |
|
5 |
Unite Group |
173 |
3.5 |
|
Communication Services |
11.0 |
|
6 |
Dechra Pharmaceuticals |
165 |
3.4 |
|
Healthcare |
8.1 |
|
7 |
Kape Technologies |
140 |
2.8 |
|
Real Estate |
6.0 |
|
8 |
Experian |
133 |
2.7 |
|
Consumer Staples |
2.7 |
|
9 |
Rentokil Initial |
132 |
2.7 |
|
Materials |
0.8 |
|
10 |
Kin And Carta* |
111 |
2.3 |
|
Total |
100.0 |
|
Ten largest
investments |
1,823 |
37.1 |
|
|
|
|
11 |
Kainos Group |
111 |
2.3 |
|
|
|
|
12 |
Keystone Law Group |
110 |
2.2 |
|
|
|
|
13 |
FDM Group Holdings |
103 |
2.2 |
|
|
|
|
14 |
Flutter Entertainment* |
99 |
2.0 |
|
|
|
|
15 |
Marlowe |
98 |
2.0 |
|
|
|
|
16 |
JD Sports Fashion* |
94 |
1.9 |
|
|
|
|
17 |
Oxford Instruments |
89 |
1.8 |
|
|
|
|
18 |
Games Workshop Group |
84 |
1.7 |
|
|
|
|
19 |
Ashtead Group |
84 |
1.7 |
|
|
|
|
20 |
Computacenter |
80 |
1.6 |
|
|
|
|
Twenty largest
investments |
4.327 |
49.5 |
|
|
|
|
|
21 |
Renishaw* |
80 |
1.6 |
|
|
|
|
22 |
Instem |
80 |
1.6 |
|
|
|
|
23 |
Jet2 |
79 |
1.6 |
|
|
|
|
24 |
Hilton Food Group |
78 |
1.6 |
|
|
|
|
25 |
Aveva Group |
78 |
1.6 |
|
|
|
|
26 |
Microlise Group |
73 |
1.5 |
|
|
|
27 |
Impax Asset Management Group |
73 |
1.5 |
|
|
|
|
28 |
Renew |
72 |
1.5 |
|
*Includes Contract for Difference (“CFDs”)
Market exposure for equity investments held is the same as fair
value and for CFDs held is the market value of the underlying
shares to which the portfolio is exposed via the contract.
The investment portfolio is grossed up to include CFDs and the net
CFD position is then deducted in arriving at the net asset
total. |
|
29 |
Londonmteric Property |
70 |
1.4 |
|
|
30 |
Entain* |
68 |
1.4 |
|
|
Thirty largest
investments |
3,526 |
71.7 |
|
|
|
Other investments (36
holdings) |
1,547 |
31.5 |
|
|
|
Total investments |
5,073 |
103.2 |
|
|
|
CFD positions |
(755) |
(15.4) |
|
|
CFD unrealised
gains |
- |
- |
|
|
Net current assets |
598 |
12.2 |
|
|
Net assets |
4,916 |
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED ACCOUNTS
Risks and Uncertainties
The major risks inherent within the Fund are market risk,
liquidity risk, credit risk and interest rate risk. It has an
established environment for the management of these risks which are
continually monitored by the Manager. Appropriate guidelines
for the management of its financial instruments and gearing have
been established by the Board of Directors. It has no foreign
currency assets and therefore does not use currency hedging.
It does not use derivatives within the portfolio with the exception
of CFDs. An explanation of these risks and how they are
mitigated is explained in the 2022 Annual Report, which is
available on the Manager’s website: www.svmonline.co.uk.
These principal risks and uncertainties have not changed from those
disclosed in the 2022 Annual Report.
Going Concern
The Board, having made appropriate enquiries has a reasonable
expectation that the Fund has adequate resources and sufficient
liquidity to continue in operational existence for the foreseeable
future, a period of not less than 12 months from the date of this
report. This conclusion takes in to account the Directors’
assessment of the continuing risks and impacts from the COVID-19
pandemic, the geopolitical risks relating to the conflict between
Russia and Ukraine and economic factors that are
influencing the current market volatility, such as rising
inflation, interest rates and supply chains. Accordingly, it
continues to adopt the going concern basis in preparing the
financial statements.
Notes
1.
The Financial Statements have been prepared on a going concern
basis in accordance with FRS 102 “Financial Reporting Standard
applicable in the UK and Republic of Ireland”, FRS 104 “Interim
Financial Reporting” and under the Association of Investment
Companies Statement of Recommended Practice “Financial Statements
of Investment Trust Companies and Venture Capital Trusts” (“SORP”)
issued in April 2021. The Company is exempt from presenting a
Cash Flow Statement as a Statement of Changes in Equity is
presented and substantially all of the Company’s investments are
highly liquid and are carried at market value. These financial
statements have been prepared in accordance with the accounting
policies used for the financial year ended 31 March 2022.
2.
During the period no shares were bought back (2021: no shares were
bought back during the period).
The number of shares in issue at 30
September 2022 was 6,005,000 (2021: 6,005,000).
Returns per share are based on a weighted average of 5,995,000
(2021: 5,995,000) ordinary shares, being the number of shares
in issue during the period excluding the 10,000 shares held in
Treasury.
Total return per share is based on the total loss for the period
of £1,829,000 (2021: gain of £1,239,000). Capital return per
share is based on the capital loss for the period of £1,809,000
(2021: gain of £1,251,000,000). Revenue return per share is
based on the revenue loss after taxation for the period of £20,000
(2021: loss of £12,000).
UNAUDITED ACCOUNTS
3.
All investments are held at fair value. At 30 September 2022 no unlisted investments were
held with value attributed (31 March
2022: same; 30 September 2021:
same).
Investments have been classified using the fair value
hierarchy:
|
September
2022
£000
£000 |
March
2022
£000
£000 |
Classification of financial
instruments |
Assets |
Liabilities |
Assets |
Liabilities |
Level 1 |
4,318 |
|
6,408 |
- |
Level 2 |
|
621 |
|
375 |
Level 3 – 2 investments (March
2022: 2) |
|
- |
- |
- |
Level 1 reflects financial instruments quoted in an active
market.
Level 2 reflects financial instruments whose fair value is
evidenced by comparison with other observable current market
transactions in the same instrument or based on a valuation
technique whose variables include only data from observable
markets. The CFD positions are the sole Level 2 investments
at 30 September 2022 and 31 March 2022.
Level 3 reflects financial instruments whose fair value is
determined in whole or in part using a valuation technique based on
assumptions that are not supported by prices from observable market
transactions in the same instrument and not based on available
observable market data.
4.
The Board has granted the Manager a limited authority to invest in
CFDs to achieve some degree of gearing and/or hedging without
incurring the gross cost of the investment. The Board requires the
Manager to operate within certain risk limits, as detailed in the
Annual Report. The following table details the CFD positions:
Number of CFD holdings at 30 September
2022: 9 (31 March 2022:
11)
CFD positions |
September 2022 |
March 2022 |
|
£000 |
£000 |
Gross exposure |
755 |
1,136 |
Net exposure |
755 |
1,136 |
Unrealised gains |
- |
- |
Unrealised losses |
621 |
375 |
The gearing ratio is 7.9% at 30 September
2022 (31 March 2022:
16.1%). The gearing ratio indicates the extra amount by which
the shareholders’ funds would change if total assets (including
CFDs’ position exposure and netting off cash and cash equivalents)
were to rise or fall. A figure of zero per cent means that
the Company has a nil geared position.
5.
SVM Asset Management Limited provides investment management and
secretarial services to the Fund. The Manager is entitled to
a fee for these services, payable quarterly in arrears, equivalent
to 0.75% per annum of the total assets of the Fund, less current
liabilities.
UNAUDITED ACCOUNTS
6.
The above figures do not constitute full or statutory accounts in
terms of Sections 434 and 435 of the Companies Act 2006. All
information shown for the six months to 30
September 2022 is unaudited. The accounts for the year to
31 March 2022, on which the auditors
issued an unqualified report, have been lodged with the Registrar
of Companies and did not contain a statement required under Section
498 of the Companies Act 2006.
For further information, please contact:
Colin
McLean
SVM Asset Management 0131 226 6699
Sally
Moore
Four Communications
020 3697 4200