TIDMSVM
SVM UK EMERGING FUND PLC
(the "Fund")
HALF YEARLY REPORT
(FOR THE SIX MONTHS TO 30 SEPTEMBER 2019)
A copy of the Half Yearly Report will be available to download from the
Manager's website at www.svmonline.co.uk and a copy will shortly be available
for inspection at the National Storage Mechanism at www.morningstar.co.uk/uk/
nsm. Copies are also available at 7 Castle Street, Edinburgh EH2 3AH, the
registered office of the Fund.
HIGHLIGHTS
* Net asset value return of 1.3% compared to a 5.0% return in the IA UK All
Companies Sector Average Index and 4.6% return in the FTSE All-Share
Index. The share price rose 3.6%.
* Over the five years to 30 September 2019, net asset value gained 71% and
the share price 70.6%, against a benchmark return of 38.8%.
* At 31 October 2019, net asset value per share had risen to 112.5p.
* Positive contributions from JD Sports Fashion, 4Imprint Group, Unite Group
and GVC Holdings. Burford Capital was the main negative in the six months.
* Portfolio emphasises exposure to scalable businesses with a competitive
edge that can protect margins and deliver growth.
"Long term capital growth from investments in smaller UK companies. Its aim is
to outperform the IA UK All Companies Sector Average Index on a total return
basis"
Financial Highlights
Total Return 6 months 3 years 5 Years 10 Years
Performance to
30 September
2019
Net Asset Value +1.3% +30.5% +71.2% +79.4%
Share Price +3.6% +34.9% +70.6% +64.2%
Benchmark Index +5.0% +20.3% +37.1% +84.4%
*
* The benchmark index for the Fund was changed to the IA UK All Companies
Sector Average Index from 1 October 2013 prior to which the FTSE AIM Index was
used.
CHAIRMAN'S STATEMENT
In the period under review, medium sized and smaller companies lagged the FTSE
100 Index, providing a headwind for the portfolio. This pattern appeared to
reflect Brexit uncertainty. Over the six months to 30 September 2019, the
Company's net asset value gained 1.2% to 111.4p per share, compared to a return
of 4.9% in the benchmark, the IA UK All Companies Sector Average Index. Over
the six months, the share price rose 3.6%. Over the five years to 30 September
2019, net asset value has gained 71% and the share price 70.6%, against a
benchmark return of 38.8%. The Company's net asset value progressed since the
period under review to 112.5p at 31 October 2019.
The strongest contributions to performance over the six months were from JD
Sports Fashion, 4Imprint Group, Unite Group and GVC Holdings. The main
disappointment over the period was Burford Capital, which was sold to realise a
gain for the Fund. New investments were made in AJ Bell, Experian and new
issue, Trainline. Trainline has moved in recent years from a purely UK
ticketing platform to expand operations into Europe and the US. To fund these,
sales were made of Hargreaves Lansdown, Tui Travel, UDG Healthcare, ITV and
ASOS.
The six months showed no real progress on Brexit or US/China trade frictions.
International investors continued to reduce UK exposure, and the Pound was
weak. Outside the US and UK, a disinflationary pattern persists. The Woodford
fund liquidity problems and some other UK equity fund realisations have pushed
down a number of shares of medium sized and smaller companies. However, the UK
has seen increased bid activity, particularly from foreign buyers. The weaker
Pound has lifted inflation and also real wage growth. Many domestic service
sectors are helped by this improvement in UK consumer spending power.
The businesses that handle Brexit and trade frictions best are likely to be
those already winning against tough global competition. A number of mid-cap
companies stand out, with high value-added in supplying major global
customers. AB Dynamics, for example, designs and supplies advanced testing
products for the automotive industry, with a number of major manufacturers as
clients. These close relationships with auto groups should represent an entry
barrier. The UK has many listed businesses with global strengths in industrial
technologies. Those focusing on B2B strategies and high value-added services,
may be less exposed to trade friction than direct-to-consumer businesses.
Jeremy Harris joined the Board in August. Jeremy brings financial services,
legal and governance experience to the Board and on behalf of the Directors, I
welcome him. I would like also to thank Richard Bernstein, who has stepped
down as a non-executive Director of the Company, for his invaluable
contribution to the Company since its formation.
The UK stockmarket and the pound are still affected by considerable pessimism.
The Fund remains fully invested with some additional gearing, but has low
exposure to some more economically-sensitive sectors such as mining and
banking.
Peter Dicks
Chairman
8 November 2019
INVESTMENT OBJECTIVE and POLICY
The investment objective of SVM UK Emerging Fund plc (the "Fund" or the
"Company") is long term capital growth from investments in smaller UK
companies. Its aim is to outperform the IA UK All Companies Sector Average
Index on a total return basis
The Fund aims to achieve its objective and to diversify risk by investing in
shares and related instruments, controlled by a number of limits on exposures.
Appropriate guidelines for the management of the investments, gearing and
financial instruments have been established by the Board. This is an abridged
version of the Fund's investment policy. The full investment policy can be
found in the Strategic Report within the Fund's latest Annual Report &
Accounts.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Half Yearly Report in
accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
(i) the condensed set of financial statements have been prepared in
accordance with the Financial Reporting Council Statement 104 "Interim
Financial Reporting" on a going concern basis 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) During the first six months of the year, Peter Dicks, Chairman,
purchased 25,000 shares at a price of 86.5p per share. No other related party
transactions have taken place during the first six months of the year that have
materially affected the financial position of the Fund during the period and
there have been no changes in the related party transactions described in the
Annual Report & Accounts for the year end 31 March 2019 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
8 November 2019
UNAUDITED ACCOUNTS
Income Statement
Six months to 30 September Six months to 30
2019 September 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net gain on investments at - 73 73 - 950 950
fair value
Income 94 - 94 86 - 86
Investment management fees - (26) (26) - - -
Other expenses (45) - (45) (32) - (32)
Gain before finance costs and
taxation 49 47 96 54 950 1,004
Finance costs (11) - (11) (22) - (22)
Gain on ordinary activities
before taxation 38 47 85 32 950 982
Taxation - - - (2) - (2)
Gain attributable to ordinary
shareholders 38 47 85 30 950 980
Gain per Ordinary Share 0.63p 0.78p 1.41p 0.50p 15.82p 16.32p
Year ended 31 March 2019
(audited)
Revenue Capital Total
GBP'000 GBP'000 GBP'000
The Total column of
Net loss on investments at - (106) (106) this statement is the
fair value profit and loss
account of the Fund.
Income 143 - 143 All revenue and
capital items are
Investment management fees - (24) (24) derived from
continuing
Other expenses (104) - (104) operations. No
operations were
Gain/(loss) before finance 39 (130) (91) acquired or
costs and taxation discontinued in the
year. A Statement of
Finance costs (26) - (26) Comprehensive Income
is not required as all
Gain/(loss) on ordinary 13 (130) (117) gains and losses of
activities before taxation the Fund have been
reflected in the above
Taxation (3) - (3) statement.
Gain/(loss) attributable to 10 (130) (120)
ordinary shareholders
Gain per Ordinary Share 0.17p (2.17)p (2.00)p
Balance Sheet
As at As at As at
30 September 31 March 30 September
2019 2019 2018
(unaudited) (audited) (unaudited)
GBP'000 GBP'000 GBP'000
Fixed Assets
Investments at fair value through profit 6,668 6,437 7,435
or loss
Total Current Assets 138 306 376
Creditors: amounts falling due within (121) (134) (102)
one year
Net current assets 17 172 274
Total assets less current liabilities 6,685 6,609 7,709
Capital and Reserves 6,685 6,609 7,709
Equity shareholders' funds 6,685 6,609 7,709
Net asset value per Ordinary Share 111.51p 110.06p 128.38p
Statement of Changes in Equity
For the period to 30 September 2019
Share Share Special Capital Capital Revenue Total
capital premium reserve redemption reserve reserve
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 April 2019 300 314 5,144 27 1,193 (369) 6,609
Ordinary shares
bought back during - - (9) - - -
the period and held (9)
in treasury
Gain attributable - - - - 47 38 85
to shareholders
As at 30 September 300 314 5,135 27 1,240 (331) 6,685
2019
For the year to 31 March 2019
Share Share Special Capital Capital Revenue Total
capital premium reserve redemption reserve reserve
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 April 2018 300 314 5,144 27 1,323 (379) 6,729
(Loss)/gain - - - - (130) 10 (120)
attributable to
shareholders
As at 31 March 2019 300 314 5,144 27 1,193 (369) 6,609
For the period to 30 September 2018
Share Share Special Capital Capital Revenue Total
capital premium reserve redemption reserve reserve
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 April 2018 300 314 5,144 27 1,323 (379) 6,729
Gain attributable - - - - 950 30 980
to shareholders
As at 30 September 300 314 5,144 27 2,273 (349) 7,709
2018
Investment Portfolio as at 30 September 2019
Market % of Net Sector analysis as at % of
Exposure 2019 Assets 30 September 2019 Gross
Stock GBP000 Exposure
Sector
1 4Imprint Group 362 5.4 Consumer Services 26.8
2 Unite Group 345 5.2 Financials 21.6
3 Fevertree Drinks 269 4.0 Technology 17.1
4 Learning Technologies * 248 3.7 Industrials 14.6
5 JD Sports Fashion * 238 3.6 Consumer Goods 11.3
6 Workspace Group 223 3.3 Healthcare 7.2
7 Hilton Food Group 217 3.2 Telecommunications 1.4
8 Rentokil Initial 210 3.1 Total 100.0
9 Johnson Service Group 200 3.0
10 GVC Holdings 199 3.0
Ten largest investments 2,511 37.5
11 Kerry Group 198 3.0
12 Beazley 195 2.9
13 GB Group * 194 2.9
14 DiscoverIE Group * 176 2.7
15 Dechra Pharmaceuticals 158 2.4
16 Manolete Partners 153 2.3
17 Ocado 152 2.3
18 Knights 150 2.2
19 Hutchison China Meditech 137 2.0
20 Experian 130 1.9
Twenty largest investments 4,154 62.1
21 Keystone Law Group 125 1.9
22 Aquis Exchange 125 1.9
23 Applegreen * 124 1.9
24 FDM Group 122 1.8
25 SSP Group 113 1.7
26 Blue Prism Group 110 1.6
27 Gamma Communications 109 1.6
28 Burford Capital 1.6
104
29 Cineworld Group 104 1.6
30 Whitbread * 94 1.4
Thirty largest investments 5,284 79.1 *Includes Contract for
Difference (CFD)
Other investments (41 2.594 38.7
holdings)
Market exposure for equity
Total investments 7,878 117.8 investments held is the same as
fair value and for CFDs held is
CFD positions exposure (1,397) (20.9) the market value of the
underlying shares to which the
CFD unrealised gains 187 2.8 portfolio is exposed via the
contract.
Net current assets 17 0.3
Net assets 6,685 100.0
Risks and Uncertainties
The principal risks facing the Fund relate to the investment in financial
instruments and include market, liquidity, credit and interest rate risk.
Additional risks faced by the Fund are investment strategy, share price
discount, accounting, legal and regulatory, operational, corporate governance
and shareholder relations, and financial. The Board seeks to mitigate and
manage these risks through continuous review, policy setting and enforcement of
contractual obligations. The Board receives both formal and informal reports
from the Managers and third party service providers addressing these risks. An
explanation of these risks and how they are mitigated is explained in the 2019
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 2019 Annual Report.
Going Concern
The Board, having made appropriate enquiries, has a reasonable expectation that
the Fund has adequate resources to continue in operational existence for the
foreseeable future, a period of not less than 12 months from the date of this
report. Accordingly, it continues to adopt the going concern basis in preparing
the financial statements.
Notes
1. The Financial Statements have been prepared on a going concern basis
in accordance with FRS 102 "Financial Reporting Standard applicable in the UK
and Republic of Ireland", FRS 104 "Interim Financial Reporting" and under the
Association of Investment Companies Statement of Recommended Practice
"Financial Statement of Investment Trust Companies and Venture Capital Trusts"
issued in 2014, as were the interim financial statements for the period to 30
September 2018. The requirements have been met to qualify for the exemption to
prepare a Cash Flow Statement, this has therefore been removed. These
financial statements have been prepared in accordance with the accounting
policies used for the financial year ended 31 March 2019.
2. During the period 10,000 Ordinary Shares with a nominal value of GBP
500 and representing 0.17% of the issued share capital were bought back and
placed in treasury for an aggregate consideration of GBP8,650 (2018 - nil shares,
GBPnil).
The number of shares in issue at 30 September 2019 was 5,995,000
(2018 - 6,005,000).
Return per share is based on a weighted average of 6,004,672 (2018
- 6,005,000) ordinary shares in issue during the period.
Total return per share is based on the total gain for the period of
GBP85,000 (2018 - gain of GBP980,000). Capital return per share is based on the
capital gain for the period of GBP47,000 (2018 - gain of GBP950,000). Revenue
return per share is based on the revenue gain after taxation for the period of
GBP38,000 (2018 - gain of GBP30,000).
3. All investments are held at fair value. At 30 September 2019 no
unlisted investments were held with value attributed (31 March 2019: same; 30
September 2018: same).
Investments have been classified using the fair value hierarchy:
September March
2019 2019
GBP000 GBP000
Classification of financial instruments
Level 1 6,481 6,417
Level 2 187 20
Level 3 - 2 investments (March 2019 - 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 2019 and 31 March 2019.
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 2019: 15 (31 March 2019: 17)
CFD positions September March
2019 2019
GBP000 GBP000
Gross exposure 1,397 1,332
Net exposure 1,397 1,332
Unrealised gains 187 20
Unrealised losses 61 58
The gearing ratio is 21.1% at 30 September 2019 (31 March 2019:
20.3%). 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. The Manager waived its
management fees for the six months to 30 September 2018. The Board made the
decision to re-instate the Investment Management Fee Agreement with effect from
1 October 2018.
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 2019 is unaudited. The accounts for the year
to 31 March 2019, 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
Roland Cross Four Broadgate 0207 726
6111
END
(END) Dow Jones Newswires
November 11, 2019 06:26 ET (11:26 GMT)
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