SVM UK EMERGING FUND PLC
(the “Fund”)
HALF YEARLY REPORT
(FOR THE SIX MONTHS TO 30 SEPTEMBER 2016)
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 +4.9% compared to a +9.0% return in
the IA UK All Companies Sector Average Index and +10.6% return in
the FTSE All-Share Index.
- Positive contributions from 4Imprint Group, GVC Holdings,
Fevertree Drinks, Johnson Service Group and ASOS.
- Since the current investment managers took on responsibility
for the portfolio in September 2012,
net asset value has gained 78.6% against a benchmark return of
36.7%
- The portfolio is focused on medium-sized and smaller growing
businesses, where management can deliver growth via self-help.
“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 2016 |
6 months |
3 years |
5 Years |
10
Years |
Net Asset Value |
+4.9% |
+33.9% |
+16.5% |
+68.2% |
Share Price |
+3.2% |
+16.7% |
+24.0% |
+44.9% |
Benchmark Index * |
+9.0% |
+20.7% |
+38.9% |
+1.4% |
* 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.
SVM UK EMERGING FUND plc
Half Yearly Report 2016
CHAIRMAN’S STATEMENT
The UK stockmarket was volatile in the period under review; but
steadily recovered after the initial setback on the Brexit
vote. Over the six months to 30
September 2016, the Company’s net asset value increased by
4.9% to 85.5p per share, compared to a return of 9.0% in the
benchmark index, the IA UK All Companies Sector Average
Index. (total return).
Investors’ appetite for risk returned, and portfolio exposure to
property, and businesses with more stable earnings, was less
helpful during the period. With a significant proportion of
overseas earnings in London-listed
companies, and potential benefits to exporters from a weaker Pound,
the initial impact on UK shares seemed indiscriminate and largely
driven by sentiment and surprise. Portfolio changes before the
Referendum and since, have been intended to reduce economic
sensitivity and increase overseas earnings. New investments
emphasise businesses with potential to grow against a background of
low inflation.
Investments were made in Just Eat and service station operator,
Applegreen. GB Group, which supplies business software and
database management services was also bought. Howden Joinery
was sold to fund this, and some profit was taken in Ted Baker.
A number of companies in the portfolio have overseas earnings,
and company meetings have brought few reports of any significant
adverse impact from Brexit. This may change as UK/EU
negotiations progress, but we expect UK policy to be
stimulative. The UK’s trade deficit and weak foreign earnings
appear the main reason for the lower value of the Pound. This
currency devaluation should help to boost UK growth as well as
rebalance its economy.
The strongest contributions to performance were from 4Imprint
Group, Johnson Services, GVC, Fevertree Drinks and ASOS plc. Hikma
results disappointed. Although it has depressed short term
margins, we believe that the long term strategic investments that
Hikma is making will pay off. 4Imprint supplies promotional
merchandise via the internet, and is delivering strong
growth. The Fund has above average investment in healthcare,
technology, business services, travel and gaming. There is no
portfolio exposure to resources, energy and banks.
The Fund focuses on companies where there are self-help
opportunities or potential for acquisition, such as Kerry Group,
RPC, Micro Focus and DCC. The portfolio also includes businesses
where there are good prospects for growth in market share, such as
ASOS and Fevertree.
There remains little sign that higher UK inflation will become
embedded. Meetings with management of companies in the portfolio
continue to be predominantly favourable. The Fund remains fully
invested.
At the Annual General Meeting on 9
September 2016, shareholders approved a resolution to permit
shares to be re-issued from treasury at a discount. Taken
together with purchase of shares into treasury at a discount, your
Board does not expect this overall to be dilutive to shareholders,
but does consider it can improve liquidity. Your Board will now
implement this, and will monitor the operation of share purchase
and re-issuance very carefully and report on this to shareholders
each year.
SVM UK EMERGING FUND plc
Half Yearly Report 2016
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) 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 described in the Annual Report &
Accounts for the year end 31 March
2016 that could do so.
The Directors consider that the Half Year 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
18 November 2016
SVM UK EMERGING FUND plc
Half Yearly Report 2016
UNAUDITED ACCOUNTS
Income Statement |
|
|
Six months to 30 September
2016 |
Six months to 30 September 2015 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
Net gain on
investments at fair value |
- |
202 |
202 |
- |
234 |
234 |
Income
|
85 |
- |
85 |
81 |
- |
81 |
Investment management fees |
- |
- |
- |
- |
- |
- |
Other expenses |
(32) |
(4) |
(36) |
(29) |
(4) |
(33) |
Gain before finance costs and
taxation |
53 |
198 |
251 |
52 |
230 |
282 |
Finance costs |
(9) |
- |
(9) |
(11) |
- |
(11) |
Gain on ordinary activities
before taxation |
44 |
198 |
242 |
41 |
230 |
271 |
Taxation |
- |
- |
- |
- |
- |
- |
Gain attributable to ordinary
shareholders |
44 |
198 |
242 |
41 |
230 |
271 |
Gain per Ordinary
Share |
0.72p |
3.29p |
4.01p |
0.68p |
3.82p |
4.50p |
|
|
|
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 2016
(audited) |
|
|
Revenue |
Capital |
Total |
|
|
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
Net gain on investments at fair
value |
- |
317 |
317 |
|
Income
|
137 |
- |
137 |
|
Investment management fees |
- |
- |
- |
|
Other expenses |
(59) |
(9) |
(68) |
|
Gain before finance costs and
taxation |
78 |
308 |
386 |
|
Finance costs |
(20) |
- |
(20) |
|
Gain on ordinary activities
before taxation |
58 |
308 |
366 |
|
Taxation |
- |
- |
- |
|
Gain attributable to ordinary
shareholders |
58 |
308 |
366 |
|
Gain per Ordinary
Share |
0.97p |
5.13p |
6.09p |
|
SVM UK EMERGING FUND plc
Half Yearly Report 2016
UNAUDITED ACCOUNTS
Balance Sheet |
|
|
|
|
As at
30 September
2016
(unaudited) |
As at
31 March
2016
(audited) |
As at
30 September
2015
(unaudited) |
|
£’000 |
£’000 |
£’000 |
Fixed Assets |
|
|
|
Investments at fair value through
profit or loss |
5,001 |
4,628 |
4,517 |
|
|
|
|
Total Current
Assets |
333 |
401 |
321 |
Creditors:
amounts falling due within one year |
(200) |
(137) |
(41) |
Net current
assets |
133 |
264 |
280 |
|
|
|
|
Total assets less
current liabilities |
5,134 |
4,892 |
4,797 |
|
|
|
|
Capital and
Reserves |
5,134 |
4,892 |
4,797 |
Equity
shareholders’ funds |
5,134 |
4,892 |
4,797 |
|
|
|
|
Net asset value per
Ordinary Share |
85.48p |
81.47p |
79.88p |
SVM UK EMERGING FUND plc
Half Yearly Report 2016
UNAUDITED ACCOUNTS
Statement of Changes
in Equity |
For the period to 30 September 2016 |
|
Share
capital |
Share
premium |
Special
reserve |
Capital
redemption
reserve |
Capital
reserve |
Revenue
reserve |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
As at 1 April 2016 |
300 |
314 |
5,144 |
27 |
(399) |
(494) |
Gain attributable to
shareholders |
- |
- |
- |
- |
198 |
44 |
As at 30 September
2016 |
300 |
314 |
5,144 |
27 |
(201) |
(450 ) |
For the year to 31 March 2016 |
|
|
Share
capital |
Share
premium |
Special
reserve |
Capital
redemption
reserve |
Capital
reserve |
Revenue
reserve |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
As at 1 April 2015 |
300 |
314 |
5,144 |
27 |
(707) |
(552) |
Gain attributable to
shareholders |
- |
- |
- |
- |
308 |
58 |
As at 31 March
2016 |
300 |
314 |
5,144 |
27 |
(399) |
(494) |
For the period to 30 September 2015 |
|
Share
capital |
Share
premium |
Special
reserve |
Capital
redemption
reserve |
Capital
reserve |
Revenue
reserve |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
As at 1 April 2015 |
300 |
314 |
5,144 |
27 |
(707) |
(552) |
Gain attributable to
shareholders |
- |
- |
- |
- |
230 |
41 |
As at 30 September
2015 |
300 |
314 |
5,144 |
27 |
(477) |
(511) |
|
|
|
|
|
|
|
|
|
|
|
SVM UK EMERGING FUND plc
Half Yearly Report 2016
UNAUDITED ACCOUNTS
Condensed Cash Flow Statement |
|
|
Six months to 30
September
2016 |
Year to 31
March
2016 |
Six months to 30
September
2015 |
|
|
£’000
(unaudited) |
£’000
(audited) |
£’000
(unaudited) |
|
|
|
|
|
|
Operating
Activities
Cash flow from operating activities |
32 |
(203) |
(191) |
Taxation |
- |
- |
- |
|
Investing
Activities
Purchases and sales of fixed asset investments |
(102) |
194 |
141 |
|
Financing
Activities
Finance costs |
(9) |
(20) |
(11) |
|
Movement in cash
and cash equivalents |
(79) |
(29) |
(61) |
|
Cash and cash
equivalents at start of period |
102 |
131 |
131 |
|
Cash and cash
equivalents at end of period |
23 |
102 |
70 |
|
SVM UK EMERGING FUND plc
Half Yearly Report 2016
UNAUDITED ACCOUNTS
Investment Portfolio |
|
Thirty largest investments as at 30 September 2016
Stock |
Market Exposure 2016
£000 |
% of Net Assets |
|
Sector analysis as at 30 September 2016
Sector |
% of Gross Exposure |
1 |
4imprint Group |
272 |
5.3 |
|
Consumer Services |
40.0 |
2 |
Johnson Service Group |
230 |
4.5 |
|
Consumer Goods |
19.1 |
3 |
Paddy Power Betfair |
225 |
4.4 |
|
Industrials |
12.8 |
4 |
GVC Holdings |
199 |
3.9 |
|
Financials |
10.7 |
5 |
Fevertree Drinks |
167 |
3.2 |
|
Healthcare |
10.2 |
6 |
Hikma Pharmaceuticals |
155 |
3.0 |
|
Technology |
7.2 |
7 |
Unite Group |
148 |
2.9 |
|
Total |
100.0 |
8 |
Supergroup |
143 |
2.8 |
|
|
|
9 |
Kerry Group |
132 |
2.6 |
|
|
|
10 |
ASOS |
130 |
2.5 |
|
|
|
Ten largest
investments |
1,801 |
35.1 |
|
|
|
11 |
Shire Pharmaceuticals |
126 |
2.5 |
|
|
|
12 |
Beazley Group |
121 |
2.4 |
|
|
|
13 |
Workspace Group |
116 |
2.3 |
|
|
|
14 |
Redrow |
112 |
2.2 |
|
|
|
15 |
GB Group |
108 |
2.1 |
|
|
|
16 |
Restaurant Group |
108 |
2.1 |
|
|
|
17 |
Imperial Brands |
105 |
2.0 |
|
|
|
18 |
UDG Healthcare |
105 |
2.0 |
|
|
|
19 |
ITV Television |
105 |
2.0 |
|
|
|
20 |
Ryanair |
102 |
2.0 |
|
|
|
Twenty largest
investments |
2,909 |
56.7 |
|
|
|
21 |
Hill & Smith |
101 |
2.0 |
|
|
|
22 |
FDM Group |
101 |
2.0 |
|
|
|
23 |
Sage |
99 |
1.9 |
|
|
|
24 |
Ted Baker |
98 |
1.9 |
|
|
|
25 |
Compass Group |
96 |
1.9 |
|
|
|
26 |
JD Sports |
94 |
1.8 |
|
|
|
27 |
Reckitt & Benckiser |
91 |
1.8 |
|
|
|
28 |
Tui Travel |
90 |
1.8 |
|
|
|
29 |
Whitbread |
86 |
1.6 |
|
|
|
30 |
Ladbrokes |
85 |
1.6 |
|
|
|
Thirty largest
investments |
3,850 |
75.0 |
|
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. |
Other investments (43
holdings) |
2,380 |
46.3 |
|
Total
investments |
6,230 |
121.3 |
|
CFD positions
exposure |
(1,325) |
(25.8) |
|
CFD unrealised
gains |
96 |
1.9 |
|
Net current
assets/(liabilities) |
133 |
2.6 |
|
Net Assets |
5,134 |
100.0 |
|
SVM UK EMERGING FUND plc
Half Yearly Report 2016
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 2016
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 2016 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 and in
accordance with
Financial Reporting Standards 102 and 104 (‘FRS 104’) and the
2014 Statement of Recommended Practice (‘SORP’) issued by the
Association of Investment Companies, as were the interim financial
statements for the period to 30 September 2015. These
financial statements have been prepared in accordance with the
accounting policies used for the financial year ended 31 March 2016.
2. Return per
share is based on a weighted average of 6,005,000 (2015 –
6,005,000) ordinary shares in issue during the period.
Total return per share is based on the total gain for the period
of £242,000 (2015 – gain of £271.000). Capital return per share is
based on the capital gain for the period of £198,000 (2015 – gain
of £230,000). Revenue return per share is based on the revenue gain
after taxation for the period of £44,000 (2015 -gain of
£41,000).
The number of shares in issue at 30
September 2016 was 6,005,000 (2015 – 6,005,000).
3. All
investments are held at fair value. At 30 September 2016 no unlisted investments were
held with value attributed (31 March
2016: same; 30 September 2015:
one investment with value of £19,000).
Investments have been classified using the fair value
hierarchy:
|
September
2016
£000 |
March 2016
£000 |
Classification of financial
instruments |
|
|
Level 1 |
4,905 |
4,594 |
Level 2 |
96 |
34 |
Level 3 – 3 investments (March 2016
– 3) |
- |
- |
Level 1 reflects financial instruments quoted in an active
market.
SVM UK EMERGING FUND plc
Half Yearly Report 2016
UNAUDITED ACCOUNTS
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 includes only data from observable
markets. The CFD positions are the sole Level 2 investments
at 31 March and 30 September
2016.
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
2016: 16 (31 March 2016:
16)
CFD positions |
September
2016 |
March 2016 |
|
£000 |
£000 |
Gross exposure |
1,325 |
1,335 |
Net exposure |
1,325 |
1,335 |
Unrealised gains |
96 |
34 |
Unrealised losses |
189 |
116 |
The gearing ratio is 25.4% at 30
September 2016 (31 March 2016:
25.2%). 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. The
Investment Managers have waived their fees for the periods to
30 September 2016 and 2015.
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
2016 is unaudited. The accounts for the year to 31 March 2016, 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