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 2023)

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

• Over the 6 months to 30 September 2023, net asset value per share fell 4.1% to 89.21p, while the share price gained 3.1% compared to a return of 0.1% in the chosen comparator, the IA UK Companies Sector Average Index.

• Over the five years to 30 September 2023, net asset value per share has fallen 30.6% and the share price 46.0%, against the comparator index return of +10.0%.

• Medium sized companies lagged the FTSE 100 and smaller companies over the period.

• Three portfolio companies attracted takeovers, indicating share prices have fallen below underlying business value.

 “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 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.

SVM UK EMERGING FUND plc

Half Yearly Report 2023

CHAIRMAN’S STATEMENT

During the six months to 30 September 2023, net asset value per share fell 4.1% to 89.21p, while the share price gained 3.1% compared to a return of 0.1% in the chosen comparator, the IA UK Companies Sector Average Index. In the five years to 30 September 2023, net asset value per share has fallen 30.6% and the share price 46.0%, against the comparator index return of +10.0%.

During the period under review the UK economy continued to grow despite the rise in interest rates. There was, however, market concern that the delay in bringing UK inflation under control would involve a longer period of tight monetary policy, constraining demand. This led to falls in property shares and those in consumer sectors. The sectors that performed best reflected mainly those with global exposure; information technology, energy, financials and industrials.

The strongest contributions to performance over the period were Dechra Pharmaceuticals, 4Imprint Group, Instem, Kooth and Computacenter. Three portfolio holdings were taken over; Dechra, Instem and Kape Technologies. Merger and acquisition activity may point to recognition that share prices of a number of successful British businesses have become attractive to corporate or private equity buyers. Negative performers included Watches of Switzerland, Impax Asset Management. FDM Group, Jet2 and JD Sports fashion . Sales were made of Activeops, Revolution Beauty, Frontier Developments, Avon Protection, Molten Ventures, Maxcyte, Genus, Libertine and Impax. The holding in Watches of Switzerland was reduced after its prospects were adversely impacted by a change in strategy of its main supplier. These sales funded new investments in Melrose Industries, JTC, CRH, Intercontinental Hotels, Greggs, Informa and Compass Group. Portfolio changes emphasised improved liquidity, growth prospects and earnings visibility.

The UK economy has held up better in 2023 than feared. Consumer spending has proved resilient, driven by significant excess savings. Amongst international investors, the UK continues to be out of favour, with historically low valuations of smaller and medium-sized companies. Many UK mid-cap and smaller companies now look inexpensive. There is a risk both in the UK and US of excessive tightening by central banks, possibly misunderstanding the supply-side nature of current inflation.

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

During the period under review, the Manager agreed to waive its management fee, with effect from 1st September 2023, reflecting its assessment of the implications of Consumer Duty regulation. This will be reviewed if circumstances change. The lead portfolio manager of the Fund, Margaret Lawson, retired on 1st October 2023 and is succeeded by Colin McLean, previously deputy investment manager. The Board thanks Margaret for her enthusiasm and valuable advice.

Peter Dicks

Chairman

3 November 2023

SVM UK EMERGING FUND plc

Half Yearly Report 2023

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:

(i)                  the condensed set of financial statements have been prepared in accordance with the Financial Reporting Council Statement 104 “Interim Financial Reporting” on a going concern basis, taking in to account guidance on Covid-19, and give a true and fair view of the assets, liabilities, financial position and 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 2023 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

3 November 2023

SVM UK EMERGING FUND plc

Half Yearly Report 2023

UNAUDITED ACCOUNTS

SVM UK EMERGING FUND plc

Half Yearly Report 2023

UNAUDITED ACCOUNTS

SVM UK EMERGING FUND plc

Half Yearly Report 2023

UNAUDITED ACCOUNTS

SVM UK EMERGING FUND plc

Half Yearly Report 2023 

UNAUDITED ACCOUNTS 

SVM UK EMERGING FUND plc

   Half Yearly Report 2023

 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 2023 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 2023 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, the conflict in the Middle East, and economic factors that are influencing the current market volatility, such as 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 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 2023.  

2. During the period no shares were bought back (2022: no shares were bought back during the period).

 The number of shares in issue at 30 September 2023 was 6,005,000 (2022:  6,005,000).

 Returns per share are based on a weighted average of 5,995,000 (2022:  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 £229,000 (2022:  loss of £1,829,000). Capital return per share is based on the capital loss for the period of £231,000 (2022:  loss of £1,809,000).  Revenue return per share is based on the revenue gain after taxation for the period of £2,000 (2022:  loss of £20,000).

SVM UK EMERGING FUND plc

   Half Yearly Report 2023

UNAUDITED ACCOUNTS

3. All investments are held at fair value.  At 30 September 2023 no unlisted investments were held with value attributed (31 March 2023: same; 30 September 2022: 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 2023 and 31 March 2023.

 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 2023: 8 (31 March 2023: 9)

The gearing ratio is 9.0% at 30 September 2023 (31 March 2023: 9.3%).  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.  The Manager has elected to waive the investment management fee from 1 September 2023 until further notice.

SVM UK EMERGING FUND plc

   Half Yearly Report 2023

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 2023 is unaudited. The accounts for the year to 31 March 2023, 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

Sally Moore   Four Communications 

SVM UK EMERGING FUND plc

Half Yearly Report 2023

CORPORATE INFORMATION

Directors

Peter Dicks (Chairman)

Ian Gray

Jeremy Harris

Investment Manager, Secretary and  

Registered Office

SVM Asset Management Limited

6th Floor

7 Castle Street

Edinburgh EH2 3AH

Telephone:  +44 (0) 0131 226 6699

Facsimile:  +44 (0) 131 226 7799

Email:  info@svmonline.co.uk

Web:  www.svmonline.co.uk

Registrars

Computershare Investor Services plc

Edinburgh House

4 North St Andrew Street

Edinburgh EH2 1HU

Telephone:  +44 (0) 370 702 0003

Authorised and regulated by the Financial Conduct Authority

Auditor

Johnston Carmichael LLP

7-11 Melville Street

Edinburgh

EH3 7PE

Custodians

State Street Bank & Trust Company

Registered Office:

20 Churchill Place

Canary Wharf

London EH14 5HJ

Correspondence Address:

Quartermile 3

10 Nightingale Way

Edinburgh EH3 9EG

Authorised and regulated by the Financial Conduct Authority and a member of the Investment Association

Registered Number

SC211841

Company Website

www.svmonline.co.uk

© SVM Asset Management Limited 2023