Interim / Quarterly Report • Sep 30, 2017
Interim / Quarterly Report
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"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"
| Total Return Performance to 30 September 2017 |
6 months | 3 years | 5 Years | 10 Years |
|---|---|---|---|---|
| Net Asset Value | +14.2% | +65.2% | +124.9% | +50.5% |
| Share Price | +15.6% | +52.9% | +95.0% | -1.9% |
| Benchmark Index * | +4.9% | +29.7% | +55.6% | +4.0% |
* 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.
After a weak start in April, the UK stockmarket made progress in the period under review. Medium sized and smaller companies outperformed the FTSE 100 Index. Over the six months to 30 September 2017, the Company's net asset value increased by 14.2% to 107.6p per share, compared to a return of 4.9% in the benchmark index, the IA UK All Companies Sector Average Index (total return). Progress continued in October with the Company's net asset value gaining a further 5.7% to 113.7p.
The strongest contributions to performance in the period under review were from Fevertree Drinks, Burford Capital, Johnson Service Group and Watkin Jones. These are growing businesses that operate with innovative strategies. Each has a business model that is scalable, with limited need for additional external capital. For example, Watkin Jones is a specialist property developer and manager, building student accommodation that it sells on to long term investing institutions. It also operates management contracts for the properties on behalf of insurers and pension funds. The main disappointment over the period was Hikma Pharmaceuticals.
During the six months, some profits were taken on investments in the gaming and property sectors. After strong performance, part of the gains in Fevertree Drinks and Micro Focus were also realised. Reinvestment was made in a number of medium sized growing businesses, including; Oxford Instruments, Gamma Communications, Polypipe Group, Sophos, Blue Prism and Moneysupermarket. New smaller company investments included Animalcare Group, Hotel Chocolat and Quixant, a gaming technology business. These portfolio changes increase the emphasis on specialist medium sized and smaller companies addressing growth markets. These businesses operate in niches, generally less exposed to price competition.
The British economy proved relatively resilient despite Brexit uncertainty. Many domestic companies have significant overseas earnings and were helped by the better economic performance of the global economy and, particularly, Continental Europe. UK inflation is higher, putting pressure on real wages, but the rise in employment numbers is maintaining consumption growth. The portfolio continues to have relatively low exposure to banks, oil and gas, and mining. We remain particularly concerned at the longer term outlook for banks and retailing, where there is the potential for disruption by newer business models.
Although monetary policy is likely to tighten in the UK, we expect this to be measured and gradual. UK services show limited pick-up in inflation and sterling has recently been recovering against the US Dollar. This means that the inflation shock from last year's devaluation may not become embedded in wage expectations. Your Managers meetings with investee companies still indicate favourable trading conditions. The portfolio emphasises exposure to scalable businesses with a competitive edge that can deliver above average growth. The Fund remains fully invested, making use of its ability to apply gearing to increase market exposure.
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 and are regularly reviewed 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.
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:
(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 2017 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 28 November 2017
| Six months to 30 September 2017 |
Six months to 30 September 2016 |
|||||
|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Net gain on investments at fair value | - | 753 | 753 | - | 202 | 202 |
| Income | 95 | - | 95 | 85 | - | 85 |
| Investment management fees | - | - | - | - | - | - |
| Other expenses | (32) | (4) | (36) | (32) | (4) | (36) |
| Gain before finance costs and | ||||||
| taxation | 63 | 749 | 812 | 53 | 198 | 251 |
| Finance costs | (10) | - | (10) | (9) | - | (9) |
| Gain on ordinary activities before | ||||||
| taxation | 53 | 749 | 802 | 44 | 198 | 242 |
| Taxation | - | - | - | - | - | - |
| Gain attributable to ordinary shareholders |
53 | 749 | 802 | 44 | 198 | 242 |
| Gain per Ordinary Share | 0.88p | 12.48p | 13.36p | 0.72p | 3.29p | 4.01p |
| Year ended 31 March 2017 (audited) |
||||||
|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
||||
| Net gain on investments at fair value | - | 717 | 717 | |||
| Income Investment management fees |
138 - |
- - |
138 - |
|||
| Other expenses | (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 | 1 | - | 1 | |||
| Gain attributable to ordinary shareholders |
58 | 710 | 768 | |||
| Gain per Ordinary Share | 0.96p | 11.82p | 12.78p |
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.
| As at 30 September 2017 (unaudited) £'000 |
As at 31 March 2017 (audited) £'000 |
As at 30 September 2016 (unaudited) £'000 |
|
|---|---|---|---|
| Fixed Assets | |||
| Investments at fair value through profit or loss | 6,307 | 5,583 | 5,001 |
| Total Current Assets | 382 | 254 | 333 |
| Creditors: amounts falling due within one year | (227) | (177) | (200) |
| Net current assets | 155 | 77 | 133 |
| Total assets less current liabilities | 6,462 | 5,660 | 5,134 |
| Capital and Reserves | 6,462 | 5,660 | 5,134 |
| Equity shareholders' funds | 6,462 | 5,660 | 5,134 |
| Net asset value per Ordinary Share | 107.61p | 94.25p | 85.48p |
| Capital | ||||||
|---|---|---|---|---|---|---|
| Share | Share | Special | redemption | Capital | Revenue | |
| capital | premium | reserve | reserve | reserve | reserve | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 April 2017 | 300 | 314 | 5,144 | 27 | 311 | (436) |
| Gain attributable to shareholders | - | - | - | - | 749 | 53 |
| As at 30 September 2017 | 300 | 314 | 5,144 | 27 | 1,060 | (383) |
| Share | Capital | |||||
|---|---|---|---|---|---|---|
| capital £'000 |
Share premium £'000 |
Special reserve £'000 |
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) |
| 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 | - | - | - | - | 198 | 44 |
| As at 30 September 2016 | 300 | 314 | 5,144 | 27 | (201) | (450) |
| Six months to 30 September 2017 £'000 (unaudited) |
Year to 31 March 2017 £'000 (audited) |
Six months to 30 September 2016 £'000 (unaudited) |
|
|---|---|---|---|
| Operating Activities | |||
| Cash flow from operating activities | 3 | 137 | 32 |
| Taxation | - | - | - |
| Investing Activities | |||
| Purchases and sales of fixed asset investments | 109 | (229) | (102) |
| Financing Activities | |||
| Finance costs | (10) | (17) | (9) |
| Movement in cash and cash equivalents | 102 | (109) | (79) |
| Cash and cash equivalents at start of period | (7) | 102 | 102 |
| Cash and cash equivalents at end of period | 95 | (7) | 23 |
| Stock | Market Exposure 2017 £000 |
% of Net Assets |
Sector analysis as at 30 September 2017 Sector |
% of Gross Exposure |
|
|---|---|---|---|---|---|
| 1 | Fevertree Drinks | 317 | 4.9 | Consumer Services | 28.8 |
| 2 | Johnson Service Group | 310 | 4.8 | Consumer Goods | 20.1 |
| 3 | 4Imprint Group | 285 | 4.3 | Industrials | 15.2 |
| 4 | Eve Sleep* | 276 | 4.3 | Financials | 12.7 |
| 5 | Burford Capital | 256 | 4.0 | Healthcare | 11.5 |
| 6 | GVC Holdings | 220 | 3.4 | Technology | 10.8 |
| 7 | Hutchison China Meditech | 194 | 3.0 | Telecommunications | 0.9 |
| 8 | Redrow* | 166 | 2.6 | Total | 100.0 |
| 9 | Supergroup* | 161 | 2.5 | ||
| 10 | Unite Group | 161 | 2.5 | ||
| Ten largest investments | 2,346 | 36.3 | |||
| 11 | ASOS | 159 | 2.5 | ||
| 12 | FDM Group | 158 | 2.4 | ||
| 13 | Kerry Group | 150 | 2.3 | ||
| 14 | Beazley Group | 150 | 2.3 | ||
| 15 | Workspace Group | 147 | 2.3 | ||
| 16 | UDG Healthcare | 139 | 2.2 | ||
| 17 | Ryanair | 139 | 2.2 | ||
| 18 | Watkin Jones | 131 | 2.0 | ||
| 19 | GB Group* | 131 | 2.0 | ||
| 20 | JD Sports* | 110 | 1.8 | ||
| Twenty largest investments | 3,760 | 58.3 | |||
| 21 | Eco Animal Health Group | 113 | 1.7 | ||
| 22 | Hill & Smith | 113 | 1.7 | ||
| 23 | Dechra Pharmaceuticals | 110 | 1.7 | ||
| 24 | CVS Group | 110 | 1.7 | ||
| 25 | Blue Prism | 109 | 1.7 | ||
| 26 | Renishaw* | 109 | 1.7 | ||
| 27 | Rentokil | 108 | 1.7 | ||
| 28 | Premier Technical Services | 107 | 1.7 | ||
| 29 | SSP Group | 107 | 1.6 | ||
| 30 | Dotdigital | 106 | 1.6 | ||
| Thirty largest investments | 4,852 | 75.1 | *Includes Contract for Difference (CFD) | ||
| Other investments (47 holdings) | 3,034 | 46.9 | |||
| Total investments | 7,886 | 122.0 | Market exposure for equity investments held | ||
| CFD positions exposure | (1,792) | (27.7) | is the same as fair value and for CFDs held | ||
| CFD unrealised gains | 213 | 3.3 | is the market value of the underlying shares | ||
| Net current assets | 155 | 2.4 | to which the portfolio is exposed via the | ||
| Net assets | 6,462 | 100.0 | contract. |
| Sector analysis as at 30 September 2017 |
% of Gross Exposure |
|---|---|
| Sector | |
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 2017 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 2017 Annual Report.
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.
Total return per share is based on the total gain for the period of £802,000 (2016 – gain of £242,000). Capital return per share is based on the capital gain for the period of £749,000 (2016 – gain of £198,000). Revenue return per share is based on the revenue gain after taxation for the period of £53,000 (2016 -gain of £44,000).
The number of shares in issue at 30 September 2017 was 6,005,000 (2016 – 6,005,000).
September 2017 £000 March 2017 £000 Classification of financial instruments Level 1 6,094 5,472 Level 2 213 111 Level 3 – 2 investments (March 2017 – 2) - -
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 includes only data from observable markets. The CFD positions are the sole Level 2 investments at 30 September 2017 and 31 March 2017
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.
| CFD positions | September | March |
|---|---|---|
| 2017 | 2017 | |
| £000 | £000 | |
| Gross exposure | 1,792 | 1,342 |
| Net exposure | 1,792 | 1,342 |
| Unrealised gains | 213 | 111 |
| Unrealised losses | 216 | 132 |
Number of CFD holdings at 30 September 2017: 21 (31 March 2017: 16)
The gearing ratio is 24.0% at 30 September 2017 (31 March 2017: 23.8%). 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.
Peter Dicks (Chairman) Richard Bernstein Anthony Puckridge
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: [email protected] Web: www.svmonline.co.uk
Computershare Investor Services plc Leven House, 10 Lochside Place Edinburgh Park Edinburgh EH12 9RG Telephone: +44 (0) 370 702 0003
Scott-Moncrieff Exchange Place 3 Semple Street Edinburgh EH3 8BL
Custodians State Street Bank & Trust Company
Registered Number SC211841
Company Website www.svmonline.co.uk
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