SVM UK EMERGING FUND PLC
(the “Fund”)
ANNUAL FINANCIAL RESULTS
FOR THE YEAR ENDED 31 MARCH 2017
The Board is pleased to announce the Annual Financial Results
for the year ended 31 March 2017. The
full Annual Report and Financial Statements, Notice of Annual
General Meeting and Form of Proxy will be posted to shareholders
and be available shortly on the Manager's website at
www.svmonline.co.uk
Copies of the Annual Report have been submitted to the National
Storage Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/nsm
HIGHLIGHTS
- Over the 12 months, net asset value increased to 94.25p and the
share price gained 8.0% compared to a return of 18.3% in the
benchmark.
- Since the current investment managers took on responsibility
for the portfolio in September 2012,
net asset value has gained 97.0%, against a benchmark return of
48.3%.
- Portfolio emphasises exposure to healthcare, technology and
business services.
- The portfolio is focused on medium-sized and smaller
businesses, with a competitive edge that can protect margins and
deliver growth.
Financial
Highlights |
Year
to 31 March
2017 |
Year to
31 March
2016 |
Total Return
performance: |
|
|
Net Asset Value total return |
+15.7% |
+8.1% |
Share Price total return |
+8.0% |
+5.9% |
Benchmark Index (IMA UK All
Companies Sector Average Index since 1 October 2013*) |
+18.3% |
-2.5% |
|
31 March
2017 |
31 March
2016 |
% Change |
Capital Return
performance: |
|
|
|
Net asset value (p) |
94.25 |
81.47 |
+15.7% |
Share price (p) |
67.50 |
62.50 |
+8.0% |
FTSE All-Share Index |
3,990 |
3,395 |
+17.5% |
|
|
|
|
Discount |
28.4% |
23.3% |
|
Gearing*** |
23.8% |
25.2% |
|
Ongoing Charges ratio: |
|
|
|
Investment management fees** |
– |
– |
|
Other operating expenses |
1.3% |
1.2% |
|
Total
Return to
31 March 2017 (%) |
1
Year |
3
Years |
5
Years |
10
Years |
Launch
(2000) |
Net Asset Value |
+15.7 |
+47.6 |
+31.9 |
+37.5 |
-2.8 |
Benchmark Index* |
+18.3 |
+30.9 |
+32.3 |
+51.8 |
-28.8 |
*The benchmark index for the Fund was changed to the IMA UK All
Companies Sector Average Index from 1
October 2013 prior to which the FTSE AIM Index was used.
**The Manager has waived its management fees for the year to
31 March 2017 and 2016.
***The gearing figure indicates the extra amount by which
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.
INVESTMENT OBJECTIVE
The investment objective of the Fund is long term capital growth
from investments in smaller UK companies. Its aim is to outperform
the IMA UK All Companies Sector Average Index on a total return
basis.
CHAIRMAN’S STATEMENT
Over the 12 months to 31 March
2017, the share price gained 8.0%. Since the current
joint managers were appointed in September
2012, net asset value has risen 97.0%, versus a benchmark
return of 48.3% (total return). The Company’s share price and
net asset value continued to progress in the two months since the
year end and were 74.50p and 103.52p, respectively at 31 May 2017.
Review of the year
Political and economic change created a challenging backdrop to
the year under review. In June
2016, the Brexit vote triggered a fall in the Pound and
weakness in shares of many domestically-oriented businesses.
As the portfolio tends to be more exposed to UK earnings than the
FTSE 100 or FTSE All-Share indices, this did not help
performance. Then, in the closing months of 2016, inflation
began to pick-up, focusing investor interest in mining, oil and
banks. As your Company focuses on investing in growing medium
sized and smaller companies, it has little exposure to these
cyclical global businesses. In more recent months, however,
this market pattern has changed, with political and macro-economic
headwinds easing. Most companies in the portfolio are
reporting good earnings progress, and investor interest has
returned to recognise their inherent business strengths.
The most significant contributions to performance came from
Fevertree Drinks, Burford Capital, 4Imprint Group, ASOS and
Hutchison China Meditech. The Fund has above average
investment in healthcare, technology, business services, travel and
gaming.
During the year, new investments were made in specialist
property developer, Watkin Jones,
and in radiology group, Medica. Additional investments were
made in Clinigen, Melrose and Mattioli Woods. To fund these,
Shire Pharmaceuticals, Sage, Compass and Imperial Brands were sold.
This cut in FTSE 100 exposure in favour of growing mid cap
businesses recognises the opportunities a number of medium sized
companies currently have, and follows encouraging recent meetings
with management.
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 pricing improvement and volume
recovery, such as Polypipe and construction engineering group,
Severfield.
Annual General Meeting
The Annual General Meeting will be held on 15 September 2017 at SVM’s offices in
Edinburgh. At the last General Meeting, shareholders approved
powers for the Company to issue shares and to buy back for
cancellation, or to hold in treasury. Your Board has directed
the Manager to implement this arrangement, operating within Board
guidelines and approvals. This aims to improve liquidity in
our shares, and your Board ensure that this overall is not dilutive
to shareholders.
Outlook
Although Brexit has created some uncertainty in the short term
for the UK, the economy is proving resilient. The fall in the
Pound has assisted exporters and boosted tourism, with the Bank of
England continuing to assist bank
lending and housing. There are signs that the Eurozone is
returning to growth, which will help many portfolio
companies.
Despite the uptick in global growth, debt has been increasing in
many nations. This will bring disinflationary pressures in
the medium term despite the current respite. With technology
maintaining pressure on margins, there remain longer term headwinds
for some cyclical sectors. The environment favours businesses
with genuine organic growth and some pricing power.
While the UK economy is not growing as fast as the US or
Eurozone, it is surprisingly robust and offers a good environment
for many portfolio companies. For most, the outlook is also
helped by the strengthening global economy. The portfolio
emphasises scalable businesses operating in niches where they have
an edge that can protect margins and deliver above average growth.
Your Company remains fully invested.
Peter Dicks
Chairman
30 June 2017
MANAGER’S REVIEW
Summary
The Fund continued its strong recovery since 2012 in the 12
months to 31 March 2017. Net asset value increased by 15.7%,
versus 18.3% in the benchmark, the IA UK All Companies Sector
Average. Since the current investment managers, Margaret Lawson (lead manager) and Colin McLean, assumed portfolio responsibility,
net asset value has risen 97.0%, versus a benchmark return of 48.3%
(total return). The Company’s share price and net asset value
continued to progress in the two months since the year end.
Contributors to performance
Performance over the year was broadly based across a range of
medium sized growth businesses. Many of the successful
portfolio companies operate scalable business models, making use of
outsourcing and external capital. Fevertree Drinks has
emerged as a major provider of premium mixers in the UK, but
focuses on branding and distribution, delegating manufacturing to
others. Fevertree is broadening its range beyond gin mixers,
and its strategy is also to expand internationally. Online
retailer, ASOS, has built strengths in its website offering and
delivery, and has potential to grow its market share at the expense
of high street retailers. Hutchison China Meditech (Chi-Med)
has a research opportunity in China to develop cancer treatments, in
association with major global pharmaceutical groups. Chi-Med
has used the profitability of its consumer pharmaceutical division
to finance this to date, but it has added a US listing to its UK
AIM listing, to expand its potential to raise finance for drug
development in future. These three companies are amongst the
largest listed on London’s Alternative Investment Market, but have
been able to grow significantly without a full listing.
Another portfolio theme is the potential for self-help in
companies – where management can restructure, acquire or cut costs
to add shareholder value. Johnson Service Group sold its dry
cleaning division, allowing it to focus on restaurant, hotel and
workwear services, which have attractive profit margins and growth
potential. GVC Holdings acquired competitor, Bwin, in 2016
and should be able to enhance growth as well as make some cost
savings as the businesses are merged. A number of other
businesses in the portfolio, such as Rentokil and wealth manager,
Mattioli Woods, have similar potential for adding to their organic
growth via selective acquisitions.
There were relatively few disappointments during the year, but
the higher oil price and terrorist attacks and terrorism in
France adversely impacted
Easyjet. ITV and Restaurant Group fell after the Brexit vote
raised concerns about UK consumer confidence.
Watkin Jones develops and manages
student accommodation. However, it sells the developed
properties on to institutional investors, allowing it to recover
capital and separately to win attractive management
contracts. We believe its growth outlook is strong, and it
has the potential to return some capital to investors.
Eve Sleep, which was bought in
May 2017, serves consumer markets
online, disrupting high street operators. The portfolio also
holds online businesses; Hostelworld, FreeAgent, Moneysupermarket,
dotDigital Group and Learning Technologies Group.
Portfolio changes
New investments were made in a number of smaller and medium
sized businesses during the year, funded by sales of larger
companies. This recognised the resilience of the British
economy, and potential for some companies to benefit from the lower
level of the Pound. Sales included Reckitt & Benckiser,
Glanbia, Imperial Brands, Sage Holdings, Compass and Travis Perkins. New investments included
litigation finance specialist, Burford Capital, media
consultant, Ascential, and Vectura Medical. Additions were
made to Hutchison China Meditech, radiology services provider,
Medica Group, Melrose and Clinigen. Although the portfolio is
spread across a range of sectors, the emphasis is on healthcare,
technology, business services, travel and gaming. There are
no portfolio investments in banks, oil & gas or mining.
Those sectors are dominated by large global businesses, more
subject to competition and impact of the economic cycle.
Outlook
Last year, investor attention focused on inflation prospects,
and sectors that might benefit such as banks, oil and miners.
But in 2017, it is clearer that much of the global inflation boost
came from the oil price alone, boosted by OPEC production
cuts. Inflation has not yet become embedded in wages and may
not spiral to higher levels. Bond markets still reflect a belief
that inflation will be subdued in the longer term.
Disinflationary forces of technology and low productivity growth
continue to constrain real wage growth globally.
New business models are emerging that are disrupting some
traditional sectors and large established companies. Scale
and brands may not be sufficient to protect some older businesses
in sectors such as retailing, banking and finance. The
portfolio includes a number of the newer disruptive businesses with
significant growth potential. There is a spread of holdings
to recognise risks that individual companies may face in creating
these new strategies. To date, this approach has been
rewarding for the Company.
Meetings with company managements continue to be encouraging,
and portfolio companies are making good progress. We see
considerable investment opportunity and accordingly the Fund is
fully invested.
Sector analysis* |
% |
|
Listing* |
% |
|
Market Capitalisation* |
% |
Consumer Services
Consumer Goods
Financials
Industrials
Healthcare
Technology |
36.7
18.2
14.3
12.7
12.2
5.9 |
|
Main Market
AIM
Other |
65.9
27.6
6.5 |
|
Small
Mid
Large |
42.9
37.6
19.5 |
*Analysis is of gross
exposure |
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.
Further information is given in note 5 to the financial
statements. A full portfolio listing as at 31 March
INVESTMENT PORTFOLIO
as at 31 March
2017
Stock |
Market
Exposure
2017
£000 |
% of
Net Assets |
Market
Exposure
2016
£000 |
4Imprint Group |
272 |
4.8 |
196 |
Fevertree Drinks |
259 |
4.6 |
114 |
Johnson Service
Group |
244 |
4.3 |
223 |
GVC Holdings |
197 |
3.5 |
135 |
Burford Capital |
190 |
3.4 |
- |
Paddy Power
Betfair |
166 |
2.9 |
251 |
ASOS |
162 |
2.9 |
87 |
Hutchison China
Meditech |
158 |
2.8 |
139 |
Hikma
Pharmaceuticals |
152 |
2.7 |
200 |
Unite Group |
149 |
2.6 |
193 |
Ten largest
investments |
1,949 |
34.5 |
|
Redrow |
143 |
2.5 |
112 |
Supergroup |
141 |
2.5 |
135 |
Beazley Group |
134 |
2.4 |
113 |
Kerry Group |
131 |
2.3 |
99 |
Workspace Group |
130 |
2.3 |
130 |
JD Sports |
122 |
2.2 |
71 |
ITV Television |
122 |
2.2 |
275 |
Ryanair |
120 |
2.1 |
66 |
FDM Group |
118 |
2.0 |
95 |
UDG Healthcare |
115 |
2.0 |
- |
Twenty largest
investments |
3,225 |
57.0 |
|
Hill & Smith |
114 |
2.0 |
- |
Ted Baker |
110 |
1.9 |
142 |
Dotdigital Group |
103 |
1.8 |
- |
Melrose |
94 |
1.7 |
- |
Restaurant Group |
93 |
1.6 |
- |
GB Group |
91 |
1.6 |
- |
Dechra
Pharmaceuticals |
90 |
1.6 |
- |
Watkin Jones |
90 |
1.6 |
- |
Rentokil |
89 |
1.6 |
- |
Eco Animal Health
Group |
89 |
1.6 |
- |
Thirty largest
investments |
4,188 |
74.0 |
|
Other investments (50
holdings) |
2,626 |
46.4 |
|
Total
investments |
6,814 |
120.4 |
|
CFD positions
exposure |
(1,342) |
(23.7) |
|
CFD unrealised
gains |
111 |
2.0 |
|
Net current
assets |
77 |
1.3 |
|
Net assets |
5,660 |
100.0 |
|
2017 is detailed on the website.
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors review policies for identifying and managing the
principal risks faced by the Fund.
Many of the Fund’s investments are in small companies and may be
seen as carrying a higher degree of risk than their larger
counterparts. These risks are mitigated through portfolio
diversification, in-depth analysis, the experience of the Manager
and a rigorous internal control culture. Further information
on the internal controls operated for the Fund is detailed in the
Report of the Directors.
The principal risks facing the Fund relate to the investment in
financial instruments and include market, liquidity, credit and
interest rate risk. An explanation of these risks and how
they are mitigated is explained in note 9 to the financial
statements. Additional risks faced by the Fund are summarised
below:
Investment strategy – The risk that an inappropriate investment
strategy may lead to the Fund underperforming its benchmark, for
example in terms of stock selection, asset allocation or gearing.
The Board have given the Manager a clearly defined investment
mandate which incorporates various risk limits regarding levels of
borrowing and the use of derivatives. The Manager invests in
a diversified portfolio of holdings and monitors performance with
respect to the benchmark. The Board regularly reviews the
Fund’s investment mandate and long term strategy.
Discount – The risk that a disproportionate widening of discount
in comparison to the Fund’s peers may result in loss of value for
shareholders. The discount varies depending upon performance,
market sentiment and investor appetite. The Board regularly reviews
the discount and the Fund operates a share buy-back programme.
Accounting, Legal and Regulatory – Failure to comply with
applicable legal and regulatory requirements could lead to a
suspension of the Fund’s shares, fines or a qualified audit report.
In order to qualify as an investment trust the Fund must comply
with section 1158 of the Corporation Tax Act 2010 (“CTA”).
Failure to do so may result in the Fund losing investment trust
status and being subject to Corporation Tax on realised gains
within the Fund’s portfolio. The Manager monitors movements
in investments, income and expenditure to ensure compliance with
the provisions contained in section 1158. Breaches of other
regulations, including the Companies Act 2006, the Listing Rules of
the UK Listing Authority or the Disclosure and Transparency Rules
of the UK Listing Authority, could lead to regulatory and
reputational damage. The Board relies on the Manager and its
professional advisers to ensure compliance with section 1158 CTA,
Companies Act 2006 and UKLA Rules.
Operational – The risk of loss resulting from inadequate or
failed internal processes, people and systems or from external
events. Like most other Investment Trusts, the Fund has no
employees and relies upon the services provided by third
parties. The Manager has comprehensive internal controls and
processes in place to mitigate operational risks. These are
regularly monitored and are reviewed to give assurance regarding
the effective operation of the controls.
Corporate Governance and Shareholder Relations – Details of the
Fund’s compliance with corporate governance best practice,
including information on relations with shareholders, are set out
in the Directors’ Statement on Corporate Governance.
Financial – The Fund’s investment activities expose it to a
variety of financial risks including market, credit and interest
rate risk. These risks are explained in note 9 to the financial
statements. 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 Manager and third party service providers
addressing these risks. The Board believes the Fund has a
relatively low risk profile as it has a simple capital structure;
invests principally in UK quoted companies; does not use
derivatives other than CFDs and uses well established and
creditworthy counterparties.
The capital structure comprises only ordinary shares that rank
equally. Each share carries one vote at general meetings.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Fund’s performance, business model and strategy.
The Directors each confirm to the best of their knowledge
that:
•
the financial statements, prepared in accordance with the
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and gain or loss of the
Fund and;
•
the Strategic Report includes a fair review of the development and
performance of the business and the position of the Fund together
with a description of the principal risks and uncertainties that it
faces.
By Order of the Board
Peter Dicks
Chairman
30 June 2017
Income statement
for the year to 31 March 2017
|
Notes |
Revenue
£000 |
Capital
£000 |
Total
£000 |
Net gain on investments at fair
value |
5 |
- |
717 |
717 |
Income |
1 |
138 |
- |
138 |
Investment management fees |
|
- |
- |
- |
Other expenses |
2 |
(64) |
(7) |
(71) |
Gain before finance costs and
taxation |
|
74 |
710 |
784 |
Finance costs |
|
(17) |
- |
(17) |
Gain on ordinary activities
before taxation |
|
57 |
710 |
767 |
Taxation |
3 |
1 |
- |
1 |
Gain attributable to ordinary
shareholders |
|
58 |
710 |
768 |
Gain per Ordinary Share |
4 |
0.96p |
11.82p |
12.78p |
for the year to 31 March 2016
|
Notes |
Revenue
£000 |
Capital
£000 |
Total
£000 |
Net gain on investments at fair
value |
5 |
- |
317 |
317 |
Income |
1 |
137 |
- |
137 |
Investment management fees |
|
- |
- |
- |
Other expenses |
2 |
(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 |
3 |
- |
- |
- |
Gain attributable to ordinary
shareholders |
|
58 |
308 |
366 |
Gain per Ordinary Share |
4 |
0.97p |
5.13p |
6.09p |
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.
Balance sheet
as at 31 March 2017
|
Notes |
2017
£000 |
2016
£000 |
Fixed Assets |
|
|
|
Investments at fair value through
profit or loss |
5 |
5,583 |
4,628 |
|
|
|
|
Current Assets |
|
|
|
Debtors |
6 |
238 |
299 |
Cash at bank and on deposit |
|
16 |
102 |
Total current assets |
|
254 |
401 |
Creditors: amounts falling due
within one year |
7 |
(177) |
(137) |
Net current assets |
|
77 |
264 |
|
|
|
|
Total assets less current
liabilities |
|
5,660 |
4,892 |
|
|
|
|
Capital and Reserves |
|
|
|
Share capital |
8 |
300 |
300 |
Share premium |
|
314 |
314 |
Special reserve |
|
5,144 |
5,144 |
Capital redemption reserve |
|
27 |
27 |
Capital reserve |
|
311 |
(399) |
Revenue reserve |
|
(436) |
(494) |
Equity shareholders’
funds |
|
5,660 |
4,892 |
|
|
|
|
Net asset value per Ordinary
Share |
4 |
94.25p |
81.47p |
Statement of Changes in Equity
for the year to 31 March 2017
|
Share
capital
£000 |
Share
premium
£000 |
Special
reserve
£000 |
Capital
redemption
reserve
£000 |
Capital
reserve
£000 |
Revenue
reserve
£000 |
As at 1 April 2016 |
300 |
314 |
5,144 |
27 |
(399) |
(494) |
Gain attributable to
shareholders |
- |
- |
- |
- |
710 |
58 |
As at 31 March 2017 |
300 |
314 |
5,144 |
27 |
311 |
(436) |
for the year to 31 March 2016
|
Share
capital
£000 |
Share
premium
£000 |
Special
reserve
£000 |
Capital
redemption
reserve
£000 |
Capital
reserve
£000 |
Revenue
reserve
£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) |
Cash flow statement
for the year to 31 March 2017
|
2017
£000 |
2016
£000 |
Operating Activities |
|
|
Gain before finance costs and
taxation |
784 |
386 |
Adjusted for: |
|
|
(Gains) on investments |
(717) |
(317) |
Transaction costs |
7 |
9 |
Taxation recovered |
1 |
- |
Movement in debtors |
61 |
(279) |
Movement in creditors |
1 |
(2) |
Cash flow from operating
activities |
137 |
(203) |
|
|
|
Financing activities |
|
|
Finance costs |
(17) |
(20) |
Cash flow from financing
activities |
(17) |
(20) |
|
|
|
Investment Activities |
|
|
Purchases of fixed asset
investments |
(2,110) |
(2,702) |
Sales of fixed asset
investments |
1,881 |
2,896 |
Cash flow from investing
activities |
(229) |
194 |
|
|
|
Movement in cash, cash equivalent
and bank overdraft |
(109) |
(29) |
Cash and cash equivalent as at start
of the year |
102 |
131 |
Cash, cash equivalent and bank
overdraft as at end of the year |
(7) |
102 |
Accounting policies
Basis of preparation
The Financial Statements have been prepared on a going concern
basis in accordance with FRS 102, the “Financial Reporting
Standards applicable in the UK and Republic of Ireland” and under
the AIC’s Statement of Recommended Practice “Financial Statements
of Investment Trust Companies and Venture Capital Trusts” (SORP)
issued in 2014.
Significant Judgements and
estimates
Preparation of financial statements can require management to
make significant judgements and estimates. There are no significant
judgements or sources of estimation uncertainty the Board considers
need to be disclosed.
Income
Income is included in the Income Statement on an ex-dividend
basis. Income on fixed interest securities is included on an
effective interest rate basis. Deposit interest is included on an
accruals basis.
Expenses and interest
Expenses and interest payable are dealt with on an accruals
basis.
Investment management fees
Investment management fees, if any, are allocated 100 per cent
to capital. The allocation is in line with the Board’s expected
long-term return from the investment portfolio. Due to the
size of the Fund, the Manager has waived its management fee. The
terms of the investment management agreement are detailed in the
Report of the Directors.
Taxation
Current tax is provided at the amounts expected to be paid or
received. Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the balance
sheet date where transactions or events that result in an
obligation to pay more or a right to pay less tax in the future
have occurred at the balance sheet date measured on an undiscounted
basis and based on enacted tax rates. This is subject to deferred
tax assets only being recognised if it is considered more likely
than not that there will be suitable profits from which the future
reversal of the underlying timing differences can be deducted.
Timing differences are differences arising between the taxable
profits and the results as stated in the financial statements which
are capable of reversal in one or more subsequent periods.
Investments
The investments have been categorised as ‘‘fair value through
profit or loss’’. All investments are held at fair value. For
listed investments this is deemed to be at bid prices. Contracts
for Differences are synthetic equities and are valued with
reference to the investment’s underlying bid prices. Unlisted
investments are valued at fair value based on the latest available
information and with reference to International Private Equity and
Venture Capital Valuation Guidelines. All changes in fair value and
transaction costs on the acquisition and disposal of portfolio
investments are included in the Income Statement as a capital item.
Purchases and sales of investments are accounted for on trade
date.
Financial Instruments
In addition to the investment transactions described above,
basic financial instruments are entered into that result in
recognition of other financial assets and liabilities, such as
investment income due but not received, other debtors and other
creditors. These financial instruments are receivable and payable
within one year and are stated at cost less impairment.
Foreign currency translation
Transactions involving foreign currencies are converted at the
rate ruling as at the date of the transaction. Foreign currency
monetary assets and liabilities are retranslated into sterling at
the rate ruling on the financial reporting date.
Capital reserve
Gains and losses on realisations of fixed asset investments, and
transactions costs, together with appropriate exchange differences,
are dealt with in this reserve. All incentive fees and investment
management fees, together with any tax relief, is also taken to
this reserve. Increases and decreases in the valuation of fixed
asset investments are dealt with in this reserve.
Notes to the financial statements
1. Income
Income from shares and
securities
|
2017
£000 |
2016
£000 |
– dividends |
138 |
137 |
– interest |
- |
- |
|
138 |
137 |
2. Other expenses
Revenue
General expenses |
32 |
28 |
Directors’ fees |
18 |
18 |
Auditor’s remuneration - audit
services |
13 |
12 |
- taxation services |
1 |
1 |
|
64 |
59 |
Capital
Transaction costs |
|
|
– acquisitions |
4 |
4 |
– disposals |
3 |
5 |
|
7 |
9 |
3. Taxation
Current taxation |
(1) |
– |
Deferred taxation |
– |
– |
Total taxation charge for the
year |
(1) |
– |
The tax assessed for the year is different from the standard
small company rate of corporation tax in the UK. The differences
are noted below:
Gain on ordinary activities before
taxation |
767 |
366 |
Corporation tax (20%, 2016 –
20%) |
153 |
73 |
Non taxable UK dividends |
(25) |
(25) |
Non taxable investment
(gains)/losses in capital |
(142) |
(61) |
Movement in unutilised management
expenses and NTLR deficits |
13 |
13 |
Total taxation charge for the
year |
(1) |
– |
At 31 March 2017, the Fund had
unutilised management expenses and non trade loan relationship
(“NTLR”) deficits of £957,000 (2016 – £927000).
A deferred tax asset of £191,000 (2016 - £185,000) has not been
recognised on the unutilised management expenses as it is unlikely
that there would be suitable taxable profits from which the future
reversal of the deferred tax asset could be deducted.
4. Returns per share
Returns per share are based on a weighted average of 6,005,000
(2016 – 6,005,000) ordinary shares in issue during the year.
Total return per share is based on the total gain for the year
of £768,000 (2016 – gain of £366,000).
Capital return per share is based on the net capital gain for
the year of £710,000 (2016 – gain of £308,000).
Revenue return per share is based on the revenue gain after
taxation for the year of £58,000 (2016 – gain of £58,000).
The net asset value per share is based on the net assets of the
Fund of £5,660,000 (2016 – £4,892,000) divided by the number of
shares in issue at the year end as shown in note 8.
5. Investments at fair value
through profit or loss
|
|
|
2017
£000 |
2016
£000 |
Listed investments |
|
|
5,583 |
4,628 |
Unlisted investments |
|
|
- |
- |
Valuation as at end of year |
|
|
5,583 |
4,628 |
|
Listed
£000 |
Unlisted
£000 |
Total
£000 |
|
Valuation as at start of year |
4,628 |
- |
4,628 |
4,571 |
Investment holding (gains)/losses as
at start of year |
1,121 |
(185) |
936 |
(1,070) |
Cost as at start of year |
3,507 |
185 |
3,692 |
3,501 |
Purchases of investments at
cost |
2,106 |
- |
2,106 |
2,547 |
Proceeds from sale of
investments |
(1,884) |
- |
(1,884) |
(2,901) |
Transfers |
- |
- |
- |
- |
Net gain/(loss) on sale of
investments |
113 |
(50) |
63 |
545 |
Cost as at end of year |
3,842 |
135 |
3,977 |
3,692 |
Investment holding gains/(losses) as
at end of year |
1,741 |
(135) |
1,606 |
936 |
Valuation as at end of year |
5,583 |
- |
5,583 |
4,628 |
Net gain/(loss) on sale of
investments |
113 |
(50) |
63 |
545 |
Movement in investment holding
gains |
654 |
- |
654 |
(228) |
Total gain/(loss) on
investments |
767 |
(50) |
717 |
317 |
6. Debtors
|
2017
£000 |
2016
£000 |
Investment income due but not
received |
9 |
9 |
Amounts receivable relating to
CFDs |
229 |
290 |
Taxation |
- |
- |
|
238 |
299 |
7. Creditors: amounts falling due
within one year
|
2017
£000 |
2016
£000 |
Bank overdraft |
23 |
- |
Amounts due relating to CFDs |
132 |
116 |
Other creditors |
22 |
21 |
|
177 |
137 |
8. Share capital
Allotted, issued and fully
paid |
|
|
6,005,000 ordinary 5p shares (2016 –
same) |
300 |
300 |
As at the date of publication of this document, there was no
change in the issued share capital and each ordinary share carries
one vote.
9. Financial instruments
Risk Management
The Fund’s investment policy is to hold investments, CFDs and
cash balances with gearing being provided by a bank overdraft. All
investments are denominated in Sterling and are carried at fair
value. Where appropriate, gearing can be utilised in order to
enhance net asset value. It does not invest in short dated fixed
rate securities other than where it has substantial cash resources.
Fixed rate securities held at 31 March
2017 were valued at £nil (2016 – £nil). Investments, which
comprise principally equity investments, are valued as detailed in
the accounting policies.
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.
Market risk
The risk that the Fund may suffer a loss arising from adverse
movements in the fair value or future cash flows of an
investment. Market risks include changes to market prices,
interest rates and currency movements. The Fund invests in a
diversified portfolio of holdings covering a range of
sectors. The Manager conducts continuing analysis of holdings
and their market prices with an objective of maximising returns to
shareholders. Asset allocation, stock selection and market
movements are reported to the Board on a regular basis.
Liquidity risk
The risk that the Fund may encounter difficultly in meeting
obligations associated with financial liabilities. The Fund
is permitted to invest in shares traded on AIM or similar markets;
these tend to be in companies that are smaller in size and by their
nature less liquid than larger companies. The Manager
conducts continuing analysis of the liquidity profile of the
portfolio and the Fund maintains an overdraft facility to ensure
that it is not a forced seller of investments.
Credit risk
The risk that the counterparty to a transaction fails to
discharge its obligation or commitment to the transaction resulting
in a loss to the Fund. Investment transactions are entered into
using brokers that are on the Manager’s approved list, the credit
ratings of which are reviewed periodically in addition to an annual
review by the Manager’s board of directors. The Fund’s
principal bankers are State Street Bank & Trust Company, the
main broker for CFDs is UBS and other approved execution broker
organisations authorised by the Financial Conduct Authority.
Interest rate risk
The risk that interest rate movements may affect the level of
income receivable on cash deposits. At most times the Fund
operates with relatively low levels of bank gearing, this has and
will only be increased where an opportunity exists to substantially
add to the net asset value performance.
10. The financial information contained within
this announcement does not constitute statutory accounts as defined
in sections 434 and 435 of the Companies Act 2006. The
results for the years ended 31 March
2017 and 2016 are an abridged version of the statutory
accounts for those years. The Auditor has reported on the 2017 and
2016 accounts, their reports for both years were unqualified and
did not contain a statement under section 498 of the Companies Act
2006. Statutory accounts for 2016 have been filed with the
Registrar of Companies and those for 2017 will be delivered in due
course.
11. The Annual Report
and Accounts for the year ended 31 March
2017 will be mailed to shareholders shortly and copies will
be available from the Manager’s website www.svmonline.co.uk and the
Fund’s registered office at 7 Castle Street, Edinburgh, EH2 3AH.
The Annual General Meeting of the Fund will be held at 9.30am on Friday 15
September 2017 at 7 Castle Street, Edinburgh, EH2 3AH.
For further information, please contact:
Colin
McLean
SVM Asset
Management
0131 226 6699
Roland
Cross
Broadgate
Mainland
0207 726 6111
30 June 2017