SVM UK Emerging Fund Plc - Half-year Report
SVM UK EMERGING FUND PLC
HALF YEARLY REPORT
(FOR THE SIX MONTHS TO )
A copy of the Half Yearly Report will be available to download from the Manager’s website at and a copy will shortly be available for inspection at the National Storage Mechanism at . Copies are also available at , EH2 3AH, the registered office of the Fund.www.svmonline.co.ukwww.morningstar.co.uk/uk/nsm
“Long term capital growth from investments in smaller companies. Its aim is to outperform the IA All Companies Sector Average Index on a total return basis”
* The benchmark index for the Fund was changed to the IA All Companies Sector Average Index
from prior to which the FTSE AIM Index was used.
Over the six months to , 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 All Companies Sector Average Index. Over the six months, the share price rose 1.4%. Over the five years to , 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 (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 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.
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 companies. Its aim is to outperform the IA 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 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
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: . These principal risks and uncertainties have not changed from those disclosed in the 2020 Annual Report.www.svmonline.co.uk
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.
1. The Financial Statements have been prepared on a going concern basis in accordance with FRS 102 “Financial Reporting Standard applicable in the 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 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 .
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 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 no unlisted investments were held with value attributed (: same; : same).
Investments have been classified using the fair value hierarchy:
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 and .
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 : 9 (: 9)
The gearing ratio is 11.4% at (: 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 is
unaudited. The accounts for the year to , 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
-- Net asset value return of 28.4% compared to a 12.8% return in the IA 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 , net asset value gained 31.4% and the share price 17.4%, against a benchmark return of 17.0%.
UK 30 September 2020
-- At , net asset value per share was 104.71p -- Positive contributions from Ocado, 4Imprint Group, Games Workshop and Gamma Communications
31 October 2020
-- Portfolio emphasises exposure to scalable businesses with a competitive edge that can protect margins and deliver growth.
Total Return Performance to 30 September 2020 10 Years 6 months 3 years 5 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%
Income Statement Six months to 30 Six months to 30 September September 2019 2020 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Net gain on investments at fair - 1,464 1,464 - 73 73 value Income 20 - 20 94 - 94 Investment management fees - (22) (22) - (26) (26) Other expenses (73) - (73) (45) - (45) (Loss)/gain before finance costs (53) 1,442 1,389 and taxation 49 47 96 Finance costs (5) - (5) (11) - (11) (Loss)/gain on ordinary activities (58) 1,442 1,384 before taxation 38 47 85 Taxation - - - - - - (Loss)/Gain attributable to (58) 1,442 1,384 ordinary shareholders 38 47 85 (Loss)/Gain per Ordinary Share (0.96)p 24.05p 23.09p 0.63p 0.78p 1.41p
Year ended 31 March 2020 (audited) Revenue Capital Total £’000 £’000 £’000 he Total column of this Net loss on investments at - (1,633) (1,633) statement is the profit fair value and loss account of the Fund. All revenue and Income 137 - 137 capital items are derived from continuing Investment management fees - (52) (52) operations. No operations were acquired or Other expenses (120) - (120) discontinued in the year. A Statement of Gain/(loss) before finance 17 (1,685) (1,668) Comprehensive Income is costs and taxation not required as all gains and losses of the Fund Finance costs (24) - (24) have been reflected in the above statement. Loss on ordinary (7) (1,685) (1,692) activities before taxation Taxation - - - Loss attributable to (7) (1,685) (1,692) ordinary shareholders Loss per Ordinary Share (0.12)p (28.08)p (28.20)p
Balance Sheet As at As at As at 30 September 31 March 30 September 2020 2020 (audited) 2019 (unaudited) (unaudited) £’000 £’000 £’000 Fixed Assets Investments at fair value through profit or 6,278 4,463 6,668 loss Total Current Assets 227 745 138 Creditors: amounts falling due within one (212) (299) (121) year 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 Share Share Special Capital Capital Revenue capital premium reserve redemption reserve reserve Total reserve £’000 £’000 £’000 £’000 £’000 £’000 £’000 As at 1 April 300 314 5,136 27 (492) (376) (4,909) 2020 Gain/(Loss) - - - - 1,442 (58) 1,384 attributable to shareholders As at 30 300 314 5,136 27 950 (434) 6,293 September 2020 For the year to Share Share Special Capital Capital Revenue capital premium reserve redemption reserve reserve reserve Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 As at 1 April 300 314 5,144 27 1,193 (369) 6,609 2019 Ordinary shares - - (8) - - - (8) repurchased Loss - - - - attributable (1,685) (7) (1,692) to shareholders As at 31 March 300 314 5,136 27 (492) (376) 4,909 2020 For the period to Share Share Special Capital Capital Revenue capital premium reserve redemption reserve reserve reserve Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 As at 1 April 300 314 5,144 27 1,193 (369) 6,609 2019 Ordinary - - (9) - - - shares (9) repurchased Gain - - - - 47 38 85 attributable to shareholders As at 30 300 314 5,135 27 1,240 (331) 6,685 September 2019
30 September 2020 31 March 2020 30 September 2019
Investment Portfolio as at Market % of Net Sector analysis as % of Gross Exposure Assets at 30 September Exposure Stock 2020 2020 £000 Sector 1 Ocado Group 343 5.5 Industrials 20.4 2 Hilton Food 261 4.1 Consumer 19.1 Group Discretionary 3 Rentokil 241 3.8 Technology 15.3 Initial 4 Unite Group 231 3.6 Consumer Staples 11.8 5 Alpha Financial 211 3.4 Financials 9.6 Markets 6 Knights Group 208 3.3 Real Estate 6.5 7 Dechra 192 3.1 Healthcare 5.8 Pharmaceuticals 8 Gamma 179 2.8 Consumer Services 4.7 Communications 9 4Imprint Group 177 2.8 Telecommunications 3.6 10 FDM Group 168 2.7 Energy 2.4 Holdings Ten largest 2,211 35.1 Consumer Goods 0.8 investments 11 JD Sports 152 2.4 Total 100.0 Fashion * 12 Games Workshop 148 2.4 Group 13 Experian 146 2.3 14 Renishaw * 128 2.0 15 Codemasters 127 2.0 16 Learning 126 2.0 Technologies Group 17 Just Eat 123 2.0 Takeaway * 18 Keystone Law 120 1.9 Group 19 Ceres Power 117 1.9 Holdings 20 Draper Espirit 116 1.8 Twenty largest 3,514 55.8 investments 21 Flutter 116 1.8 Entertainment * 22 XP Power 111 1.8 23 Globaldata 107 1.7 24 Johnson Service 103 1.6 Group 25 Computacenter 98 1.6 26 Manolete 98 1.6 Partners 27 Dunelm Group 98 1.6 28 Asos * 97 1.5 *Includes Contract for Difference (“CFD”) 29 Beazley Group 96 1.5 30 Team17 Group 92 1.5 Market exposure for equity investments held is the same as Thirty largest 4,530 72.0 fair value and for CFDs held is investments the market value of the underlying shares to which the Other investments 2,351 37.4 portfolio is exposed via the (38 holdings) contract. The investment portfolio is grossed up to Total investments 6,881 109.4 include CFDs and the net CFD position is then deducted in CFD positions (750) (11.9) arriving at the net asset total. exposure CFD unrealised 147 2.3 gains Net current assets 15 0.2 Net assets 6,293 100.0
30 September 2020
September 2020 March 2020 £000 £000 Classification of financial instruments Level 1 6,131 4,455 Level 2 147 8 Level 3 – 2 investments (March 2020 – 2) - -
CFD positions September 2020 March 2020 £000 £000 Gross exposure 750 514 Net exposure 750 514 Unrealised gains 147 8 Unrealised losses 92 224
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