SVM UK
EMERGING FUND PLC
(the
“Fund”)
ANNUAL
FINANCIAL RESULTS
FOR THE
YEAR ENDED 31 MARCH
2023
The
Board is pleased to announce the Annual Financial Results for the
year ended 31 March 2023.
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 2023, net asset value per
share fell 17.3% to 93.03p compared to a return of -1.9% in the
chosen comparator, the IA UK Companies Sector Average
Index.
-
Over the five years
to 31 March 2023, net asset value per
share has fallen 17.0% and the share price 27.2%, against the
comparator index return of +18.6%.
-
Small and medium
sized companies lagged the FTSE 100 over the
period.
-
A number of
portfolio companies attracted takeovers and bid approaches,
indicating share prices have fallen below underlying business
value.
-
At 30 June 2023, net
asset
value
per
share
was
91.82p.
Financial
Highlights
|
Year to
31 March
2023
|
Year to 31
March
2022
|
Total
Return performance:
|
|
|
Net Asset Value
total return*
|
-17.3%
|
-10.0%
|
Share Price
total return*
|
-25.1%
|
-12.1%
|
Comparator
Index (IA UK All Companies Sector Average Index since 1 October
2013**)
|
-1.9%
|
5.4%
|
|
31
March
2023
|
31
March
2022
|
%
Change
|
Capital
Return performance:
|
|
|
|
Net asset value
(p)
|
93.03
|
112.51
|
-17.3%
|
Share price
(p)
|
65.50
|
87.50
|
-25.1%
|
MSCI UK
Investable Market Index***
|
2,093.18
|
2,032.66
|
3.0%
|
Discount*
|
29.6%
|
22.2%
|
|
|
|
|
|
Gearing*
|
9.3%
|
16.1%
|
|
|
|
|
|
Ongoing Charges
ratio:*
|
|
|
|
Investment
management fees
|
0.68%
|
0.86%
|
|
Other operating
expenses
|
2.32%
|
1.78%
|
|
Total
|
3.00%
|
2.64%
|
|
Total
Return to
31
March 2023 (%)
|
1
Year
|
3
Years
|
5
Years
|
10
Years
|
Launch
(2000)
|
Net Asset
Value
|
-17.3%
|
13.6%
|
-17.0%
|
78.6%
|
-4.1%
|
Comparator
Index**
|
-1.9%
|
42.6%
|
18.6%
|
73.8%
|
-13.3%
|
*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.
***
The MSCI UK Investable Market Index is 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 2023, the
Company’s net asset value fell 17.3% to 93.03p per share, compared
to a return of -1.9% in the chosen comparator, the IA UK All
Companies Sector Average Index. Over the 12 months, the share price
fell by 25.1%. Over the five years to 31
March 2023, net asset value has fallen 17.0% and the share
price 27.2%, against the IA UK All Companies Sector Average return
of 18.6%. The Company’s net asset value decreased slightly in the
three months since the year end to 91.82p at 30 June 2023 (total return, FE fundinfo, IA UK
All Companies Sector Average for comparison purposes).
Review
of the year
Over the 12
months under review, inflation remained high due to the impact of
the Ukraine conflict and supply
pressures. Weakness relative to other major stockmarkets has
brought UK equities - on a range of measures – to a significant
valuation gap with the rest of the world. The September 2022 low in the Pound coincided with a
peak in pessimism. Since then, the Pound has rebounded over 10%
versus the US Dollar. A possible improvement in inflation as the
year progresses should restore some confidence. A lessening of
trade frictions, as new agreements are negotiated, should help the
UK in the coming 12 months.
Although there
has been some recovery from the UK’s gilt and currency panic of
September 2022, politics still weigh
on domestic UK shares. Many sound and growing UK businesses were
neglected as investors focused on large companies within the global
sectors.
The
12 months under review saw a significant gap between the
performance of the largest UK listed companies, represented in the
FTSE100, and that of smaller and medium sized businesses typical of
SVM UK Emerging Fund. The FTSE100 Index materially outperformed the
FTSE250 that represents medium sized companies. Over the medium and
longer term, the medium
sized companies,
which tend to be more exposed to the domestic UK economy and the
Pound, have shown more growth and stockmarket performance. However,
2022 was a significant setback to that trend.
The
strongest contributions to performance over the period were from
4Imprint Group, Flutter Entertainment, Beazley, Ideagen and Games
Workshop. Laggards included Kin and Carta, Inspecs Group, Hilton
Food Group, Dechra Pharmaceuticals and Dianomi. New investments
included Grafton Group, Segro and Serco Group. Additional
investment was made in Howden Joinery, Treatt and Dechra
Pharmaceuticals. To fund these purchases Global Data, Gamma
Communications and On The Beach were sold. DiscoverIE announced the
acquisition of Magnasphere, a US designer and manufacturer of
magnetic sensors and switches that has the potential to enhance
earnings. Games Workshop announced a partnership with Amazon to
develop TV and film content with Warhammer IP.
Ideagen was
taken over by HG Capital and Aveva was acquired by Schneider
Electric. Kape Technologies agreed a cash offer from Unikmind and
Dechra Pharmaceuticals has attracted a bid approach from Swedish
private equity firm, EQT. This interest in some smaller and medium
sized British businesses by corporate investors and private equity
may point to share prices having fallen below real business
value.
Annual
General Meeting
The
Annual General Meeting will be held on Friday 8 September 2023 at SVM’s offices in Edinburgh. At the last General Meeting,
shareholders approved powers for the Company to issue shares and to
buy back for cancellation, or to hold in treasury. Your Board has
directed the Manager to implement this arrangement, operating
within Board guidelines and approvals. This aims to improve
liquidity in our shares, and your Board does not expect this
overall to be dilutive to shareholders.
On
31 October 2022, SVM Asset Management
Limited, being the Investment Manager to SVM UK Emerging Investment
Trust plc, was acquired by River and Mercantile Holdings Limited, a
subsidiary of AssetCo plc, a UK listed company.
Outlook
Inflation
should fall over the next 12 months and supply pressures should be
moderate. Consumer sectors in particular appear to be beating
expectations.
The
Board and Manager are committed to investing in a responsible
manner and the Manager
embeds Environmental, Social and Governance (ESG) considerations
into the research and analysis as part of the investment
process.
The
portfolio 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
26 July 2023
MANAGER’S
REVIEW
Whilst there
are currently no operational changes to note, SVM Asset Management
Limited, being the Investment Manager to SVM UK Emerging Investment
Trust plc, was acquired by River and Mercantile Holdings Limited, a
subsidiary of AssetCo plc, a UK listed company on 31 October 2022.
Summary
The
year under review was an extremely difficult period for UK growth
investing, particularly for funds emphasising smaller and medium
sized companies. The index averages conceal just how much of the
returns for the period came from a narrow group of global sectors;
energy, basic materials and healthcare.
UK
equities have rallied from a low point in September 2022. But since March 2023 there has been some weakness in banks
over concern about the health of the banking system. This stemmed
from bank failures in the US and Credit Suisse in Europe. There is no portfolio exposure to
banks. Although the sector is well capitalised, competition for
deposits could adversely impact net interest margins.
In
contrast to 2008, the financial sector does not appear to pose a
systemic risk. Large financial institutions are much better
capitalised than at any point in the last 40 years. Bank share
prices, however, are likely to remain volatile in the near-term and
subject to changes in prevailing sentiment.
Commentary from
portfolio companies continues to be generally positive. Demand is
typically flat, but order books and sentiment are reasonably
robust. Earnings forecasts appear to have been cut to a level where
there is more upside than downside risk to current year
results.
Nevertheless, UK business confidence remains fragile. UK inflation
was expected to peak in early 2023 but has remained stubbornly over
10%.
Bank problems
are just one early sign of a growing liquidity squeeze. This may
see investors put more value on cash generative, profitable
businesses. Easy money has propped-up some poor business models for
a number of years. As losses mount, many early stage growth
businesses have cut back on marketing and other costs to extend
their cash runway. And some older declining businesses, trapped
within a high cost structure, have allowed debt to pile up. The
Fund is focused on well-funded proven business models.
Portfolio
review and investment strategy
Portfolio
changes during the 12 months under review emphasised improving
underlying liquidity. The Fund is closed-end, and accordingly can
take a longer term view on investments which are taking time to
grow to a size that attracts institutional investor interest.
Regulatory change, covering both portfolio risk and the way in
which stockbroking research is conducted, mean that the size at
which companies begin to attract broader research coverage and gain
a wider audience, is now at a higher level of market
capitalisation. Companies that are not included in one of the major
indices lack natural buyers and shares can fall sharply on any
delay or disappointment. This increases the risk profile of some of
the smallest companies outside the FTSE All-Share Index. Portfolio
reinvestment was in medium sized and smaller companies with near
term prospects of moving into the Index or those already
included.
The key for
growth investors is to find cash generative growth businesses where
a strong moat or service differentiation helps to protect profit
margins. Businesses with good cash conversion can reinvest for
further growth. Sustainable long term growth in a business usually
requires consistently good stewardship of capital. This takes time
to evidence, and can often be missed or undervalued by investors.
Those quality businesses should now be better placed for
recovery.
The
weakness of some consumer shares in particular does not reflect the
potential for competition to ease and prospects improve. Some of
that competition represents takeovers by private equity that have
saddled acquired businesses with debt, limiting their ability to
compete. Established businesses benefit from an environment with
less discounting and a slower pace of innovation. Effectively, the
cost of capital for early stage businesses has risen, helping
businesses that are inherently cash generative and able to fund
their own growth.
An
example in the portfolio of a consumer business emerging strongly
from pandemic disruption is Jet2, now the UK’s largest tour
operator. It has benefited from the recovery by refunding customers
promptly and in operating a vertically integrated business,
controlling its own fleet and seat supply. The disappearance of
some capacity from the industry, as competitors cut back, has
reduced competition and favours a model focusing on customer
experience and value for money. Jet2’s balance sheet has given it
the strength to order fleet replacement and is working to improve
sustainability. After a difficult three years, this consumer
business is now growing strongly.
The
Manager’s approach to investing integrates environmental, social
and governance (ESG) analysis into its day-to-day investment
activities, and this, combined with an active engagement approach,
seeks to influence change and encourage better practices from the
companies in which it invests. Companies with successful business
models are usually transparent in their accounting and reporting
policies and communicate their strategy. Resilience in a business
often comes from its strength within a niche. Key to the
opportunity that the Manager sees in investment is an ability to
generate returns greater than cost of capital and to ensure that
stewardship of assets is focused on this aspect.
Top 5
Contributors to Absolute Performance (%)
|
Bottom
Contributors to Absolute Performance (%)
|
Company
name
|
Contribution
|
Company
name
|
Contribution
|
4IMPRINT
GROUP
FLUTTER
ENTER
BEAZLEY
GROUP
IDEAGEN
GAMES WORKSHOP
GROUP
|
3.39
1.07
1.01
0.77
0.69
|
KIN AND
CARTA
INSPECS
GROUP
HILTON FOOD
GROUP
DECHRA
PHARMACEUTICALS
DIANOMI
|
-1.85
-1.43
-1.38
-1.37
-1.30
|
Outlook
We can expect a
rise in real interest costs that accompanies widening credit
spreads and falling inflation. Over the next 12 months the Bank of
England interest rate is likely to
fall, but real borrowing costs of many businesses could rise. This
would negatively expose indebted businesses that have not focused
on strong cashflow.
The global
economy continues to be resilient. Supply chain risks continue,
although labour scarcity may ease as unemployment picks up, but
these risks are more acute in manufacturing sectors. In consumer
sectors, safety probably lies with businesses that are leaders in
their area or which can defend margins through innovation.
Currently, consumer sectors have been significantly derated, in
contrast to technology and industrials.
The portfolio
emphasises exposure to businesses with strong competitive positions
and potential for organic growth.
Sector
analysis*
|
%
|
|
Listing*
|
%
|
|
Market
Capitalisation*
|
%
|
Industrials
Consumer
Discretionary
Information
Technology
Financials
Communication
Services
Healthcare
Real
Estate
Consumer
Staples
Materials
|
24.4
20.0
16.7
13.5
8.8
7.2
5.5
2.9
1.0
|
|
Main
Market
AIM
Other
|
71.8
28.2
-
|
|
Mid
Small
Large
|
40.0
38.7
21.3
|
*Analysis is of
gross exposure
|
Colin McLean
Investment
Director & Chief Investment Officer
SVM
Asset Management
26 July 2023
INVESTMENT
PORTFOLIO
as at
31 March 2023
Stock
|
Market
Exposure
2023
£000
|
%
of
Net
Assets
|
Market
Exposure
2022
£000
|
4Imprint
Group
|
335
|
6.0
|
266
|
Alpha FX
Group
|
321
|
5.8
|
378
|
Watches of
Switzerland Group*
|
229
|
4.1
|
319
|
Unite
Group
|
192
|
3.4
|
233
|
Beazley
Group
|
187
|
3.4
|
132
|
JD Sports
Fashion*
|
167
|
3.0
|
139
|
Dechra
Pharmaceuticals
|
166
|
3.0
|
243
|
Rentokil
Initial
|
164
|
2.9
|
146
|
Ashtead
Group
|
155
|
2.8
|
99
|
Howden Joinery
Group
|
154
|
2.37
|
84
|
Ten
largest investments
|
2,070
|
37.1
|
|
Kape
Technologies
|
150
|
2.7
|
204
|
Jet2
|
150
|
2.7
|
131
|
Flutter
Entertainment*
|
145
|
2.6
|
64
|
Games Workshop
Group
|
140
|
2.5
|
105
|
Experian
|
133
|
2.4
|
148
|
Oxford
Instruments
|
125
|
2.2
|
105
|
FDM Group
Holdings
|
119
|
2.1
|
175
|
Kainos
Group
|
119
|
2.1
|
113
|
Keystone Law
Group
|
115
|
2.1
|
157
|
Impax Asset
Management Group
|
111
|
2.0
|
140
|
Twenty
largest investments
|
3,377
|
60.5
|
|
Serco
Group
|
110
|
2.0
|
-
|
Hilton Food
Group
|
102
|
1.8
|
182
|
Renishaw*
|
93
|
1.7
|
88
|
Computacentre
|
89
|
1.6
|
123
|
Renew
|
86
|
1.5
|
87
|
Instem
|
85
|
1.5
|
99
|
Autotrader
Group
|
81
|
1.5
|
138
|
XP
Power
|
81
|
1.5
|
81
|
DiscoverIE
Group
|
79
|
1.4
|
103
|
Entain*
|
79
|
1.4
|
-
|
Thirty
largest investments
|
4,262
|
76.4
|
|
Other
investments (31 holdings)
|
1,490
|
26.7
|
|
Total
investments
|
5,752
|
103.1
|
|
CFD
positions
|
(892)
|
(16.0)
|
|
CFD
unrealised gains
|
22
|
0.4
|
|
Net
current assets
|
695
|
12.5
|
|
Net
assets
|
5,577
|
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 2023 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 company 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 further under “Financial”. Additional risks
faced by the Fund are summarised below.
Emerging risks
– are risks that could have a future impact on the Fund. The Board
considers that emerging risks exacerbate existing identified risks
e.g. market risk, rather than themselves being new risks. Whilst
there were no new specific emerging risks added to the risk
register during the year, certain other risks have continued to
develop or recede, with the conflict between Russia and the Ukraine and resulting strains of Covid-19
being respective examples which continue to be considered. The
Board recognise the impact of inflationary pressures and rising
interest rates as established risks, rather than emerging risks.
The risks increased during the year.
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. This is a stable risk.
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. The Board acknowledge the
discount rate has widened and, by virtue of that in isolation,
assess that the associated risk has increased during the
year.
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 the United Kingdom Listing
Authority Rules. This is a stable risk.
Operational –
The risk of loss resulting from inadequate or failed internal
processes, people and systems or from external events. 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. This is a
stable risk.
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. This is a stable
risk.
Financial – The
Fund’s investment activities expose it to a variety of financial
risks including:
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. This risk is variable, which is assessed by the
Board and the Manager throughout the year and is considered as
broadly stable.
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. This risk is variable, which is assessed by
the Board and the Manager throughout the year and is considered as
broadly stable.
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. This is a stable risk.
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. The Board note the increase in
interest rates but assess the risk as stable.
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
26 July 2023
Income
statement
for the year to
31 March 2023
|
Notes
|
Revenue
£000
|
Capital
£000
|
Total
£000
|
Net loss on
investments at fair value
|
6
|
-
|
(1,065)
|
(1,065)
|
Income
|
1
|
104
|
-
|
104
|
Investment
management fees
|
2
|
-
|
(42)
|
(42)
|
Other
expenses
|
3
|
(143)
|
-
|
(143)
|
Loss
before finance costs and taxation
|
|
(39)
|
(1,107)
|
(1,146)
|
Finance
costs
|
|
(22)
|
-
|
(22)
|
Loss on
ordinary activities before taxation
|
|
(61)
|
(1,107)
|
(1,168)
|
Taxation
|
4
|
-
|
-
|
-
|
Loss
attributable to ordinary shareholders
|
|
(61)
|
(1,107)
|
(1,168)
|
Loss
per Ordinary Share
|
5
|
(1.02)p
|
(18.46)p
|
(19.48)p
|
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
|
|
(110)
|
2,695
|
2,585
|
Taxation
|
4
|
-
|
-
|
-
|
Loss
attributable to ordinary shareholders
|
|
(47)
|
(702)
|
(749)
|
Loss
per Ordinary Share
|
5
|
(0.78)p
|
(11.71)p
|
(12.49)p
|
The
Total column of this statement is the profit and loss account of
the Fund. All revenue and capital items are derived from continuing
operations. No operations were acquired or discontinued in the
year. A Statement of Comprehensive Income is not required as all
gains and losses of the Fund have been reflected in the above
statement.
Balance
sheet
as at
31 March 2023
|
Notes
|
2023
£000
|
2022
£000
|
Fixed
Assets
|
|
|
|
Investments at
fair value through profit or loss
|
6
|
4,882
|
6,408
|
|
|
|
|
Current
Assets
|
|
|
|
Debtors
|
7
|
897
|
720
|
Cash at bank
and on deposit
|
|
375
|
53
|
Total
current assets
|
|
1,272
|
773
|
Creditors:
amounts falling due within one year
|
8
|
(577)
|
(436)
|
Net
current assets
|
|
695
|
337
|
|
|
|
|
Total
assets less current liabilities
|
|
5,577
|
6,745
|
|
|
|
|
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
|
|
394
|
1,501
|
Revenue
reserve
|
|
(594)
|
(533)
|
Equity
shareholders’ funds
|
|
5,577
|
6,745
|
|
|
|
|
Net
asset value per Ordinary Share
|
5
|
93.03p
|
112.51p
|
Approved and
authorised for issue by the Board of Directors on 26 July 2023 and signed on its behalf
by Peter Dicks, Chairman.
Statement
of Changes in Equity
for
the year to 31 March 2023
|
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
2022
|
300
|
314
|
5,136
|
27
|
1,501
|
(533)
|
6,745
|
Loss
attributable to shareholders
|
-
|
-
|
-
|
-
|
(1,107)
|
(61)
|
(1,168)
|
As at 31 March
2023
|
300
|
314
|
5,136
|
27
|
394
|
(594)
|
5,577
|
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
|
*Distributable
reserves at 31 March 2023 were
£4,542,000 (2022: £4,603,000).
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 July 2022. 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 emerging from the pandemic and
conflict in Ukraine. 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 issued in December 2022.
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
accounted for within 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.
This reserve
represents the nominal value of own shares bought back.
Revenue
reserve
Retained
revenue profits and losses are accounted for in this fully
distributable reserve.
Share
Capital
This account
represents allotted, issued and fully paid up shares of 5p
each.
Share
Premium
This account
represents the value received for issuing shares in excess of the
nominal value of 5p per share.
Notes
to the financial statements
1. Income
|
2023
£000
|
2022
£000
|
Income from
shares and securities
|
|
|
–
dividends
|
103
|
94
|
–
interest
|
1
|
-
|
|
104
|
94
|
2.
Investment Management Fees
Investment
Management Fees
|
42
|
61
|
3. Other
expenses
Revenue
|
|
|
General
expenses
|
79
|
69
|
Directors’
fees
|
25
|
25
|
Auditor’s
remuneration
|
39
|
33
|
|
143
|
127
|
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:
Loss on
ordinary activities before taxation
|
(1,168)
|
(749)
|
Corporation tax
(19%, 2022 – 19%)
|
(222)
|
(142)
|
Effects
of:
|
|
|
Non taxable UK
dividends
|
(15)
|
(14)
|
Losses on
CFD
|
25
|
60
|
Non taxable
investment gains/(losses) in capital
|
177
|
(62)
|
Non taxable
overseas dividends
|
(1)
|
(1)
|
Movement in
deferred tax rate on excess management charges
|
(11)
|
(11)
|
Movement in
unutilised management expenses and NTLR deficits
|
47
|
46
|
Total taxation
charge for the year
|
-
|
-
|
At
31 March 2023, the Fund had
unutilised management expenses and non trade loan relationship
(“NTLR”) deficits of £1,824,000 (2022 – £1,637,000).
A
deferred tax asset of £456,000 (2022 - £409,000) 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 (2022 –
5,995,000) ordinary shares in issue during the year.
Total return
per share is based on the total loss for the year of £1,168,000
(2022 – loss of £749,000).
Capital return
per share is based on the net capital loss for the year of
£1,107,000 (2022 – loss of £702,000).
Revenue return
per share is based on the revenue loss after taxation for the year
of £61,000 (2022 – loss of £47,000).
The
net asset value per share is based on the net assets of the Fund of
£5,577,000 (2022 – £6,745,000) 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
|
|
|
2023
£000
|
2022
£000
|
Listed
investments and CFDs
|
|
|
4,882
|
6,408
|
Unlisted
investments
|
|
|
-
|
-
|
Valuation as at
end of year
|
|
|
4,882
|
6,408
|
|
Listed
£000
|
Unlisted
£000
|
Total
£000
|
Total
£000
|
Opening book
cost
|
4,953
|
140
|
5,093
|
5,068
|
Opening
investment holding gains/(losses)
|
1,455
|
(140)
|
1,315
|
2,530
|
Opening fair
value*
|
6,408
|
-
|
6,408
|
7,598
|
Analysis
of transactions made during the year
|
|
|
|
|
Purchase at
cost
|
494
|
19
|
513
|
1,374
|
Sales proceeds
received**
|
(1,106)
|
-
|
(1,106)
|
(2,237)
|
Losses on
investments***
|
(914)
|
(19)
|
(933)
|
(327)
|
Closing
fair value
|
4,882
|
-
|
4,882
|
6,408
|
Closing book
cost
|
3,944
|
159
|
4,103
|
5,093
|
Closing
investment holding gains/(losses)
|
938
|
(159)
|
779
|
1,315
|
Closing
fair value
|
4,882
|
-
|
4,882
|
6,408
|
Losses on
investments
|
(914)
|
(19)
|
(933)
|
(327)
|
Movement in CFD
current liability
|
(132)
|
-
|
(132)
|
(314)
|
Net
losses on investments at fair value
|
(1,046)
|
(19)
|
(1,065)
|
(641)
|
The transaction
costs in acquiring investments during the year were £3,000 (2022:
£3,000).
For
disposals, transaction costs were £2,000 (2022: £2,000).
The company
received £1,106,000 (2022 £2,237,000) from investments sold in the
year.
The
book cost of these investments when they were purchased was
£1,503,000 (2022 £1,349,000). 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 £6,408,000 includes £0 of CFD gains
** Sale
proceeds received of £1,106,000 includes a negative balance of
£68,000 in relation to CFDs.
*** Losses on
investments of £933,000 includes a balance of £68,000 in relation
to losses on CFDs
7. Debtors
|
2023
£000
|
2022
£000
|
Investment
income receivable
|
13
|
6
|
Amounts
receivable relating to CFDs – being cash held at Broker
|
868
|
699
|
Prepayments
|
13
|
13
|
Taxation
|
3
|
2
|
|
897
|
720
|
8. Creditors:
amounts falling due within one year
|
2023
£000
|
2022
£000
|
Amounts due
relating to CFDs – being losses on CFD contracts
|
507
|
375
|
Due to SVM
Asset Management Limited
|
10
|
13
|
Other
creditors
|
60
|
48
|
|
577
|
436
|
9. Share
capital
Allotted,
issued and fully paid
|
|
|
6,005,000
ordinary 5p shares (2022 – 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% (2022: 100%) 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
2023 were valued at £nil (2022 – £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
4.25% as at 31 March 2023 (2022 –
0.75%). There are no undrawn committed borrowing facilities.
Short-term debtors and creditors are excluded from
disclosure.
The
Fund does not hold any (2022: nil%) 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.
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
2023 and 2022 are an abridged version of the statutory
accounts for those years. The Auditor has reported on the 2023 and
2022 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 2022 have been filed with the Registrar of Companies
and those for 2023 will be delivered in due course.
12. The
Annual Report and Accounts for the year ended 31 March 2023 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 8
September 2023 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
26 July 2023