SVM UK Emerging Fund Plc - Half-year Report

SVM UK EMERGING FUND PLC

(the “Fund”)

HALF YEARLY REPORT

(FOR THE SIX MONTHS TO 30 SEPTEMBER 2022)

A copy of the Half Yearly Report will be available to download from the Manager’s website at www.svmonline.co.uk and a copy will shortly be available for inspection at the National Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism in due course. Copies are also available at 7 Castle Street, Edinburgh EH2 3AH, the registered office of the Fund.

HIGHLIGHTS

Net asset value return of -27.1% compared to a -12.8% return in the IA UK All Companies Sector Average Index.

Over the five years to 30 September 2022, net asset value fell -23.8% and the share price -14.9%, against the IA UK All Companies Sector Average Index return of 3.2%.

Positive contributions from 4Imprint Group, Beazley, Ideagen and Aveva Group.

Portfolio emphasises exposure to cash generating, scalable businesses with a competitive edge that can protect margins and deliver growth.

 “Long term capital growth from investments in smaller UK companies. Its aim is to outperform the IA UK All Companies Sector Average Index on a total return basis”

Financial Highlights                                                                                                                          

Total Return Performance to 30 September 2022	6 months	3 years	5 Years	10 Years
Net Asset Value	-27.1%	-26.3%	-23.8%	71.5%
Share Price	-21.7%	-21.3%	-14.9%	71.3%
Comparator Index*	-12.8%	-2.4%	3.2%	60.5%

* The comparator index for the Fund was changed to the IA UK All Companies Sector Average Index from 1 October 2013 prior to which the FTSE AIM Index was used.

CHAIRMAN’S STATEMENT

Over the six months to 30 September 2022, the Company’s net asset value fell 27.1% to 82.0p per share, compared to a return of -12.8% in the IA UK All Companies Sector Average Index.  Over the six months, the share price returned -21.7%.  In the five years to 30 September 2022, net asset value returned -23.8% and the share price -14.9%, against the IA UK All Companies Sector Average return of 3.2%.  The Company’s net asset value increased slightly since the period under review to 86.2p at 31 October 2022. 

Over the period, UK equities fell sharply, with much of that move coming in September.  The share prices of smaller and medium sized companies fared worse than shares of the largest global businesses.  The portfolio emphasises growth strategies and has low exposure to some of the areas in favour in the period such as energy, mining and the major pharmaceutical groups.  

The strongest contributions to performance over the period were 4Imprint Group, Ideagen, Beazley, Aveva Group and AB Dynamics.  In July, compliance software group, Ideagen, agreed a takeover by a private equity firm. In September, industrial software business, Aveva, agreed a takeover by Schneider Electric, subject to shareholder approval.  Merger and acquisition activity may point to recognition that share prices of some successful British businesses have become attractive as acquisitions, particularly when the weakness of sterling is taken into account.  Negatives included Hilton Food Group, Dechra Pharmaceuticals, XP Power, Watches of Switzerland, FDM Group and Alpha FX Group.  Additional investment was made in Dechra Pharmaceuticals.  To fund this and reduce the effective market exposure of the portfolio, Impax Asset Management, Volex, ASOS, ITM Power and Seeing Machines were sold in part or whole. 

During the period, in contrast with share price weakness, most portfolio company trading updates were encouraging.  Smaller and medium sized companies typically have more flexibility to adapt and the portfolio emphasises businesses generating cash.  This should reduce risks of unforeseen fundraising or profits disappointments.  The Managers favour businesses that are leaders in their area or which can defend margins through innovation.

On a range of measures, the fall has brought UK equities down to a significant valuation gap with many other world markets, a relative valuation last reached in 1989.  It does appear that the UK economy will move into recession over the next few months but the disparity is extreme.

The portfolio focuses on resilient growing businesses, with low exposure to commodities, oil and banks. Portfolio investments are typically scalable businesses with a competitive edge. The Fund remains fully invested with minimal gearing.

Peter Dicks

Chairman

4 November 2022

INVESTMENT OBJECTIVE and POLICY

The investment objective of SVM UK Emerging Fund plc (the “Fund” or the “Company”) is long term capital growth from investments in medium-sized and smaller UK companies. Its aim is to outperform the IA UK All Companies Sector Average Index on a total return basis

The Fund aims to achieve its objective and to diversify risk by investing in shares and related instruments, controlled by a number of limits on exposures. Appropriate guidelines for the management of the investments, gearing and financial instruments have been established by the Board. This is an abridged version of the Fund’s investment policy.  The full investment policy can be found in the Strategic Report within the Fund’s latest Annual Report & Accounts.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the Half Yearly Report in accordance with applicable law and regulations.  

The Directors confirm that to the best of their knowledge:

the condensed set of financial statements have been prepared in accordance with the Financial Reporting Council Statement 104 “Interim Financial Reporting” on a going concern basis, taking in to account guidance on Covid-19, and give a true and fair view of the assets, liabilities, financial position and gain or loss of the Fund;

(ii)           the Half Yearly Report includes a fair review of the information required by the Disclosure and Transparency Rules DTR 4.2.7R (an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year); and DTR 4.2.8R (disclosure of related party transactions and changes therein that could have a material effect on the financial position or performance of the Fund during the first six months of the current financial year).

(iii)          No related party transactions have taken place during the first six months of the year that have materially affected the financial position of the Fund during the period and there have been no changes in the related party transactions as described in the Annual Report & Accounts for the year end 31 March 2022 that could do so.

The Directors consider that the Half Yearly Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Fund’s performance and strategy,

The Half Yearly Report has not been audited or reviewed by the Fund’s auditors.

By Order of the Board

Peter Dicks

Chairman

4 November 2022

UNAUDITED ACCOUNTS

Income Statement
	Six months to 30 September 2022			Six months to 30 September 2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Net (loss)/gain on investments at fair value	-	(1,787)	(1,787)	-	1,283	1,283
Income	61	-	61	56	-	56
Investment management fees	-	(22)	(22)	-	(32)	(32)
Other expenses	(72)	-	(72)	(61)	-	(61)
(Loss)/gain before finance costs and taxation	(11)	(1,809)	(1,820)	(5)	1,251	1,246
Finance costs	(9)	-	(9)	(7)	-	(7)
(Loss)/gain on ordinary activities before taxation	(20)	(1,809)	(1,829)	(12)	1,251	1,239
Taxation	-	-	-	-	-	-
(Loss)/gain attributable to ordinary shareholders	(20)	(1,809)	(1,829)	(12)	1,251	1,239
(Loss)/gain per Ordinary Share	(0.33)p	(30.18)p	(30.51)p	(0.20)p	20.87p	20.67p

   

					The Total column of this statement is the profit and loss account of the Fund. All revenue and capital items are derived from continuing operations.  No operations were acquired or discontinued in the year.  A Statement of Comprehensive Income is not required as all gains and losses of the Fund have been reflected in the above statement.
	Year ended 31 March 2022 (audited)
	Revenue	Capital	Total
	£’000	£’000	£’000
Net loss on investments at fair value	-	(641)	(641)
Income	94	-	94
Investment management fees	-	(61)	(61)
Other expenses	(127)	-	(127)
Loss before finance costs and taxation	(33)	(702)	(735)
Finance costs	(14)	-	(14)
Loss on ordinary activities before taxation	(47)	(702)	(749)
Taxation	-	-	-
Loss attributable to ordinary shareholders	(47)	(702)	(749)
Loss per Ordinary Share	(0.78)p	(11.71)p	(12.49)p

UNAUDITED ACCOUNTS

Balance Sheet
	As at 30 September 2022 (unaudited)	As at 31 March 2022 (audited)	As at 30 September 2021 (unaudited)
	£’000	£’000	£’000
Fixed Assets
Investments at fair value through profit or loss	4,318	6,408	8,416
Total current assets	1,264	773	433
Creditors:  amounts falling due within one year	(666)	(436)	(116)
Net current assets	598	337	317
Total assets less current liabilities	4,916	6,745	8,733
Capital and Reserves	4,916	6,745	8,733
Equity shareholders’ funds	4,916	6,745	8,733
Net asset value per Ordinary Share	82.00p	112.51p	145.67p

UNAUDITED ACCOUNTS

Statement of Changes in Equity
For the period to 30 September 2022
	Share capital	Share premium	Special reserve	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 April 2022	300	314	5,136	27	1,501	(533)	6,745
Loss attributable to shareholders	-	-	-	-	(1,809)	(20)	(1,829)
As at 30 September 2022	300	314	5,136	27	(308)	(553)	4,916
For the year to 31 March 2022
	Share capital	Share  premium	Special reserve	Capital redemption  reserve	Capital reserve	Revenue reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 April 2021	300	314	5,136	27	2,203	(486)	7,494
Loss attributable to shareholders	-	-	-	-	(702)	(47)	(749)
As at 31 March 2022	300	314	5,136	27	1,501	(533)	6,745
For the period to 30 September 2021
	Share capital	Share  premium	Special reserve	Capital redemption  reserve	Capital reserve	Revenue reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 April 2021	300	314	5,136	27	2,203	(486)	7,494
Gain/(loss) attributable to shareholders	-	-	-	-	1,251	(12)	1,239
As at 30 September 2021	300	314	5,136	27	3,454	(498)	8,733

UNAUDITED ACCOUNTS 

Investment Portfolio as at 30 September 2022
Stock		Market Exposure 2022 £000	% of Net Assets			Sector analysis as at 30 September 2022 Sector	% of Gross Exposure
1	4Imprint Group	321	6.5			Consumer Discretionary	23.3
2	Alpha FX Group	283	5.8			Industrials	20.8
3	Watches Of Switzerland Group*	189	3.8			Consumer Discretionary	16.1
4	Beazley Group	176	3.6			Financials	11.2
5	Unite Group	173	3.5			Communication Services	11.0
6	Dechra Pharmaceuticals	165	3.4			Healthcare	8.1
7	Kape Technologies	140	2.8			Real Estate	6.0
8	Experian	133	2.7			Consumer Staples	2.7
9	Rentokil Initial	132	2.7			Materials	0.8
10	Kin And Carta*	111	2.3			Total	100.0
Ten largest investments		1,823	37.1
11	Kainos Group	111	2.3
12	Keystone Law Group	110	2.2
13	FDM Group Holdings	103	2.2
14	Flutter Entertainment*	99	2.0
15	Marlowe	98	2.0
16	JD Sports Fashion*	94	1.9
17	Oxford Instruments	89	1.8
18	Games Workshop Group	84	1.7
19	Ashtead Group	84	1.7
20	Computacenter	80	1.6
Twenty largest investments		4.327	49.5
21	Renishaw*	80	1.6
22	Instem	80	1.6
23	Jet2	79	1.6
24	Hilton Food Group	78	1.6
25	Aveva Group	78	1.6
26	Microlise Group	73	1.5
27	Impax Asset Management Group	73	1.5
28	Renew	72	1.5			*Includes Contract for Difference (“CFDs”) Market exposure for equity investments held is the same as fair value and for CFDs held is the market value of the underlying shares to which the portfolio is exposed via the contract.  The investment portfolio is grossed up to include CFDs and the net CFD position is then deducted in arriving at the net asset total.
29	Londonmteric Property	70	1.4
30	Entain*	68	1.4
Thirty largest investments		3,526	71.7
Other investments (36 holdings)		1,547	31.5
Total investments		5,073	103.2
CFD positions		(755)	(15.4)
CFD unrealised gains		-	-
Net current assets		598	12.2
Net assets		4,916	100.0

UNAUDITED ACCOUNTS

Risks and Uncertainties

The major risks inherent within the Fund are market risk, liquidity risk, credit risk and interest rate risk.  It has an established environment for the management of these risks which are continually monitored by the Manager.  Appropriate guidelines for the management of its financial instruments and gearing have been established by the Board of Directors. It has no foreign currency assets and therefore does not use currency hedging.  It does not use derivatives within the portfolio with the exception of CFDs.  An explanation of these risks and how they are mitigated is explained in the 2022 Annual Report, which is available on the Manager’s website: www.svmonline.co.uk.  These principal risks and uncertainties have not changed from those disclosed in the 2022 Annual Report.

Going Concern

The Board, having made appropriate enquiries has a reasonable expectation that the Fund has adequate resources and sufficient liquidity to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. This conclusion takes in to account the Directors’ assessment of the continuing risks and impacts from the COVID-19 pandemic, the geopolitical risks relating to the conflict between Russia and Ukraine and economic factors that are influencing the current market volatility, such as rising inflation, interest rates and supply chains.  Accordingly, it continues to adopt the going concern basis in preparing the financial statements. 

Notes

1.             The Financial Statements have been prepared on a going concern basis in accordance with FRS 102 “Financial Reporting Standard applicable in the UK and Republic of Ireland”, FRS 104 “Interim Financial Reporting” and under the Association of Investment Companies Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued in April 2021.  The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investments are highly liquid and are carried at market value. These financial statements have been prepared in accordance with the accounting policies used for the financial year ended 31 March 2022.  

2.             During the period no shares were bought back (2021: no shares were bought back during the period).

                The number of shares in issue at 30 September 2022 was 6,005,000 (2021:  6,005,000).

                Returns per share are based on a weighted average of 5,995,000 (2021:  5,995,000) ordinary shares, being the number of shares in issue during the period excluding the 10,000 shares held in Treasury.

Total return per share is based on the total loss for the period of £1,829,000 (2021:  gain of £1,239,000). Capital return per share is based on the capital loss for the period of £1,809,000 (2021:  gain of £1,251,000,000). Revenue return per share is based on the revenue loss after taxation for the period of £20,000 (2021:  loss of £12,000).

UNAUDITED ACCOUNTS

3.             All investments are held at fair value.  At 30 September 2022 no unlisted investments were held with value attributed (31 March 2022: same; 30 September 2021: same).

                Investments have been classified using the fair value hierarchy:

	September 2022       £000               £000		March 2022      £000              £000
Classification of financial instruments	Assets	Liabilities	Assets	Liabilities
Level 1	4,318		6,408	-
Level 2		621		375
Level 3 – 2 investments (March 2022:  2)		-	-	-

                Level 1 reflects financial instruments quoted in an active market.

                Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets.  The CFD positions are the sole Level 2 investments at 30 September 2022 and 31 March 2022.

                Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.

4.            The Board has granted the Manager a limited authority to invest in CFDs to achieve some degree of gearing and/or hedging without incurring the gross cost of the investment. The Board requires the Manager to operate within certain risk limits, as detailed in the Annual Report. The following table details the CFD positions:

Number of CFD holdings at 30 September 2022: 9 (31 March 2022: 11)

CFD positions	September 2022	March 2022
	£000	£000
Gross exposure	755	1,136
Net exposure	755	1,136
Unrealised gains	-	-
Unrealised losses	621	375

The gearing ratio is 7.9% at 30 September 2022 (31 March 2022: 16.1%).  The gearing ratio indicates the extra amount by which the shareholders’ funds would change if total assets (including CFDs’ position exposure and netting off cash and cash equivalents) were to rise or fall.  A figure of zero per cent means that the Company has a nil geared position.

5.             SVM Asset Management Limited provides investment management and secretarial services to the Fund.  The Manager is entitled to a fee for these services, payable quarterly in arrears, equivalent to 0.75% per annum of the total assets of the Fund, less current liabilities.

UNAUDITED ACCOUNTS

6.             The above figures do not constitute full or statutory accounts in terms of Sections 434 and 435 of the Companies Act 2006. All information shown for the six months to 30 September 2022 is unaudited. The accounts for the year to 31 March 2022, on which the auditors issued an unqualified report, have been lodged with the Registrar of Companies and did not contain a statement required under Section 498 of the Companies Act 2006. 

For further information, please contact:

Colin McLean                      SVM Asset Management  0131 226 6699

Sally Moore                          Four Communications                       020 3697 4200