SVM Svm Uk Emerging Fund Plc

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

* 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

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 £500 and representing 0.17% of the issued share capital were bought back and placed in treasury for an aggregate consideration of £8,650 (2018 – nil shares, £nil).

            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 £85,000 (2018 – gain of £980,000). Capital return per share is based on the capital gain for the period of £47,000 (2018 – gain of £950,000). Revenue return per share is based on the revenue gain after taxation for the period of £38,000 (2018 - gain of £30,000).

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:

            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)

        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