SVM UK EMERGING
FUND PLC
(the “Fund”)
ANNUAL FINANCIAL
RESULTS
FOR THE YEAR ENDED
31 MARCH 2016
The Board is pleased to announce the Annual Financial Results
for the year ended 31 March 2016. 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 by 8.1% and the
share price gained 5.9% compared to a return of -2.5% in the
benchmark.
- Since the current investment managers took on responsibility
for the portfolio in September 2012,
net asset value has gained 70.3% against a benchmark return of
25.4%.
- Portfolio emphasises exposure to growth in the UK economy, and
improving consumer confidence.
- The portfolio is focused on medium sized and smaller growing
businesses, where management can deliver growth via self-help.
Financial
Highlights |
Year
to 31 March
2016 |
Year to
31 March
2015 |
Total Return
performance: |
|
|
Net Asset Value total return |
+8.1% |
+2.0% |
Share Price total return |
+5.9% |
+2.2% |
Benchmark Index (IMA UK All
Companies Sector Average Index since 1 October 2013*) |
-2.5% |
+5.6% |
|
31 March
2016 |
31 March
2015 |
% Change |
Capital Return
performance: |
|
|
|
Net asset value (p) |
81.47 |
75.38 |
+8.1% |
Share price (p) |
62.50 |
59.00 |
+5.9% |
FTSE All-Share Index |
3,395 |
3,664 |
-7.3% |
|
|
|
|
Discount |
23.3% |
21.7% |
|
Gearing**** |
25.2% |
27.4% |
|
Ongoing Charges ratio: |
|
|
|
Investment management fees** |
– |
– |
|
Other operating expenses*** |
1.2% |
0.9% |
|
Total
Return to
31 March 2016 (%) |
1
Year |
3
Years |
5
Years |
10
Years |
Launch
(2000) |
Net Asset Value |
+8.1 |
+51.2 |
-6.7 |
+64.7 |
-16.0 |
Benchmark Index* |
-2.5 |
+20.6 |
-0.6 |
-20.8 |
-39.8 |
*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 2016 and 2015.
***2015 figure reduced by an accrual in respect of a
prior year; without this reduction, the ongoing charges ratio for
2015 would be 1.4%.
**** 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
2016, the Company’s net asset value increased by 8.1% to
81.47p per share, compared to a fall of 2.5% in the benchmark, the
IMA UK All Companies Sector Average Index. Over the 12
months, the share price gained 5.9%. Since the current joint
managers were appointed in September
2012, net asset value has risen 70.3%, versus a benchmark
return of 25.4%. Since the period end, the EU Referendum result has
created stock market volatility and the Company’s net asset value
has been reduced.
Review of the year
Global stockmarkets drifted in the 12 months under review, and
the UK was no exception. In the first part of the period, a
rise in US interest rates drove weakness in mining, oils and
banks. Fortunately, your Company has very low exposure to
these areas. In the first quarter of 2016, however, domestic
UK sectors experienced profit-taking, as fears about the EU
Referendum weighed on sentiment. Sterling and consumer sectors
underperformed, and resources recovered. There was concern about
the trend of real earnings in the UK and disinflationary pressures.
Since the year end, however, in April and May, there has been a
sharp rebound in the over-sold areas. Fortunately, economic
data is now more supportive of the UK economy, and the sectors on
which the portfolio is focused are recovering. These include UK
consumer and business services, healthcare and property. The EU
Referendum has created some economic and political uncertainty, but
the implications are as yet unclear.
The most significant contributions to performance came from
Paddy Power, Betfair, Dart Group,
SuperGroup, Ryanair and Johnson Service Group. Paddy Power and Betfair gained as they completed
their merger, which took the combined group into the FTSE
100. The main disappointment was Hutchison China Meditech
(HCM), which saw its shares weaken as it raised new capital when
listing on the US Nasdaq market. HCM has a strong pipeline of
drug research, and has subsequently announced new trials. The
investment in Claremont Partners, representing 0.7% of the
portfolio, was written-off at the year end recognising uncertainty
over its prospects and valuation. The portfolio now consists solely
of listed companies.
During the period, the Company added to its investments in RPC
Group, Imperial Brands, Kerry Group and Sage Holdings. New
investments were made in Palace Capital, Fevertree Drinks and
Autotrader. New investments emphasise businesses with potential to
grow against a background of low inflation. To fund these,
some profit was taken in Unite Group, ITV and SSP Group, and Kainos
was sold.
The portfolio includes businesses where there are good self-help
opportunities or potential for acquisition, such as Kerry Group,
RPC, Micro Focus and DCC. Companies are held where there are
good prospects for pricing improvement and volume recovery, such as
Imperial Brands. The Company has a balance between cyclical
exposure and investments in more defensive sectors.
The portfolio also has above average exposure to medium sized
and smaller companies which are typically growing more rapidly than
the largest FTSE 100 groups. Over the longer term, medium sized
companies have significantly outperformed large ones. The current
environment of low cost finance is encouraging businesses to
restructure, facilitating acquisitions and disposals. In
contrast, the largest groups tend to be more exposed to mature
markets and lower growth prospects.
Against a background of low economic growth, the Managers focus
on identifying companies that generate growing cash flow, with a
good management record of delivering shareholder value. This
emphasis is core to the Company’s investment strategy. Good
examples of these company characteristics include Johnson Services
Group, GVC, UDG Healthcare and RPC Group.
Annual General Meeting
The Annual General Meeting will be held on 9 September 2016 at SVM’s offices in Edinburgh. In the interim report, I said your
Board is considering measures to improve ease of dealing,
recognising that liquidity in our shares is currently low. At
previous General Meetings, the Company has sought from shareholders
powers both to issue shares and to buy back for cancellation, or to
hold in treasury. We now seek shareholders’ approval 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 monitor the operation of share purchase and
re-issuance very carefully and report on this to shareholders each
year.
Outlook
The Managers report that meetings with management of companies
in the portfolio continue to be predominantly favourable.
While the mixed economic background has an impact, there is good
potential for organic growth in many portfolio companies.
They would benefit from further economic recovery in the UK and
Europe.
The Company emphasises exposure to the UK, and businesses with
operations in the US and Europe.
Returns on cash deposits and bonds will remain very low, and so
equities that offer growth and attractive dividend yields are being
sought by investors.
The Company remains fully invested, reflecting the potential for
dividend growth, share re-ratings, and for self-help in many
portfolio companies. Many may also benefit from the lower level of
sterling and lower interest rates. Over the coming months,
uncertainty on political issues may dissipate.
Peter Dicks
Chairman
1 July 2016
MANAGER’S REVIEW
Summary
The Fund continued its strong recovery since 2012 with a
positive absolute and relative performance in the 12 months to 31
March, 2016. Net asset value increased by 8.1%, despite a
fall in the benchmark. Since the current investment managers,
Margaret Lawson and Colin McLean, assumed portfolio responsibility,
net asset value has risen 70.3%, versus a benchmark return of
25.4%.
The first six months saw weak stockmarkets globally, reacting to
falls in commodity and energy prices. Economic data pointed to a
marked slowdown in the Chinese economy, and deflationary pressures
persisted around the world. This background encouraged
profit-taking in many medium-sized and smaller companies. However,
it was the major mining and oil groups that were hit hardest, and
the Fund has low exposure to these sectors. Although the UK
moved briefly into deflation, the consumer sectors in which the
Fund is invested were helped by some improvement in real wages. The
Fund primarily generated its absolute performance over the last
three months of 2015 as it became clearer that there was potential
for further stimulation in the Eurozone and China, with only gradual US rate rises
likely.
The financing background for business remains favourable, with
extremely low interest rates, and we expect more restructuring and
merger activity. The Fund emphasises smaller and medium sized
growth businesses that are typically less well researched, giving
opportunity to identify value through company meetings and
fundamental analysis.
The Managers believe that the biggest risk to investment
performance is poor underlying long term returns in a
business. This is often created by bad management or
governance, or simply by being in an area that is likely to be
disrupted by new entrants. Businesses that collapse typically
show high levels of borrowing, poor governance, weak business
models or questionable accounting. These can be value traps –
few are good at pricing inherently risky businesses.
Contributors to performance
During the year, the strongest contributions to performance were
from Paddy Power Betfair, Dart Group, Supergroup, Ryanair, Johnson
Service Group and 4Imprint Group. Betfair and Paddy Power gained as they completed their
merger, creating a £6bn betting business. This joined the FTSE 100
in March 2016. The main
disappointment was in Restaurant Group, which reported a
challenging trading environment.
Other portfolio investments in consumer services include Domino
Pizza, Autotrader and Cineworld. Consumer goods and services
represent 56% of the total portfolio. The gaming sector is
undergoing restructuring internationally, as regulations
change. It is a growing industry, and apart from Paddy Power
Betfair, the portfolio includes investments in GVC Holdings and
Playtech. There are also investments in more disruptive business
models where new entrants have an advantage in technology or
business strategy. The lower oil cost and improving consumer
confidence should benefit travel businesses, many of which have
also proved able to manage costs aggressively. This is an area of
focus for the Fund, and includes Ryanair, SSP, Dart Group and
Easyjet.
Some 17% of the portfolio is invested in the financial sector,
with all of this in non-bank financials. The largest single
group within this are Real Estate Investment Trusts and other
property companies. These investments – Helical Bar, St Modwen
Properties, Workspace Group, Londonmetric Property and Unite Group
- focus on effective management teams, typically with a
specialisation. Workspace provides tailored business premises for
early stage businesses in London,
and Unite specialises in student residential accommodation
throughout the UK. Londonmetric invests across the UK, with
an emphasis on logistics and distribution properties.
Portfolio changes
The Fund added to its investments in RPC Group, Sage Holdings,
GVC, Dalata Hotel Group, Kerry Group and Imperial Brands. Additions
and new investments emphasise businesses with potential to grow
against a background of low inflation. To fund these, some profit
was taken in Unite Group and Workspace Group.
Themes in the purchases include exposure to global recovery and
potential for restructuring or self-help. Each new investment has
at least one of these characteristics, and all have growth
potential. Portfolio exposure to unquoted investments has been
steadily reduced over the past three years and is now zero. The
Managers do not plan to make any new unquoted investments in the
current year.
Outlook
Signals remain mixed, and above average cash levels show
investor uncertainty. When cash is consensus, it often ends up
being reinvested at higher market levels. Recovery in the US,
Eurozone and UK continues to exceed most forecasts. Many UK-listed
international companies are also benefiting from the recovery in
the global economy.
Your Fund remains fully invested, reflecting the potential for
dividend growth and share re-ratings in many portfolio companies.
The portfolio emphasises consumer sectors, property, healthcare and
business services.
Sector analysis* |
% |
|
Listing* |
% |
|
Market Capitalisation* |
% |
Consumer Services
Industrials
Financials
Consumer Goods
Technology
Health Care
Basic Materials |
38.6
12.5
16.6
17.7
4.4
9.2
1.0 |
|
AIM
Other
Main Market |
18.9
5.9
75.2 |
|
Small
Mid
Large |
31.1
41.0
27.9 |
*Analysis is of gross
exposure |
INVESTMENT PORTFOLIO
as at 31 March
2016
Stock |
Market
Exposure
2016
£000 |
% of
Net Assets |
Market
Exposure
2015
£000 |
ITV Television |
275 |
5.6 |
351 |
Paddy Power Betfair |
251 |
5.1 |
- |
Johnson Service Group |
223 |
4.6 |
166 |
Hikma Pharmaceuticals |
200 |
4.1 |
163 |
4imprint Group |
196 |
4.0 |
160 |
Unite Group |
193 |
3.9 |
240 |
Dart Group |
191 |
3.9 |
61 |
Ryanair |
191 |
3.9 |
98 |
Ted Baker |
142 |
2.9 |
130 |
Hutchison China Meditech |
139 |
2.8 |
87 |
Ten largest investments |
2,001 |
40.8 |
|
GVC Holdings |
135 |
2.8 |
125 |
Supergroup |
135 |
2.8 |
91 |
Workspace Group |
130 |
2.7 |
209 |
Fevertree Drinks |
114 |
2.3 |
- |
Beazley Group |
113 |
2.3 |
41 |
Redrow |
112 |
2.3 |
101 |
St James Place |
110 |
2.2 |
112 |
Henderson Group |
108 |
2.2 |
118 |
Imperial Brands |
102 |
2.1 |
63 |
Shire Pharmaceuticals |
100 |
2.0 |
135 |
Twenty largest investments |
3,160 |
64.5 |
|
Travis Perkins |
100 |
2.0 |
106 |
Kerry Group |
99 |
2.0 |
- |
FDM Group |
95 |
1.9 |
31 |
Tui Travel |
89 |
1.8 |
98 |
M&C Saatchi |
89 |
1.8 |
93 |
Crest Nicholson |
88 |
1.8 |
66 |
Whitbread |
87 |
1.8 |
115 |
Greggs |
87 |
1.8 |
- |
ASOS |
87 |
1.8 |
78 |
DS Smith |
79 |
1.6 |
- |
Thirty largest investments |
4,060 |
82.8 |
|
Other investments (39 holdings) |
1,869 |
38.3 |
|
Total investments |
5,929 |
121.1 |
|
CFD positions exposure |
(1,335) |
(27.2) |
|
CFD unrealised gains |
34 |
0.7 |
|
Net current assets/(liabilities) |
264 |
5.4 |
|
Net Assets |
4,892 |
100.0 |
|
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.
Further information is given in note 5 to the financial
statements. A full portfolio listing as at 31 March 2016 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, is fair, balanced and understandable
and provides 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, on a going concern basis, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Fund and;
• the
Annual Report and Financial Statements 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.
• the
Annual Report and Financial Statements includes details of related
party transactions, if any.
By Order of the Board
Peter Dicks
Chairman
1 July 2016
Income statement
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 |
for the year to 31 March 2015
|
Notes |
Revenue
£000 |
Capital
£000 |
Total
£000 |
Net gain on investments at fair
value |
5 |
- |
35 |
35 |
Income |
1 |
109 |
- |
109 |
Investment management fees |
|
- |
- |
- |
Other expenses |
2 |
(37) |
(9) |
(46) |
Gain before finance costs and
taxation |
|
72 |
26 |
98 |
Finance costs |
|
(11) |
- |
(11) |
Gain on ordinary activities
before taxation |
|
61 |
26 |
87 |
Taxation |
3 |
- |
- |
- |
Gain attributable to ordinary
shareholders |
|
61 |
26 |
87 |
Gain per Ordinary Share |
4 |
1.02p |
0.43p |
1.45p |
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 2016
|
Notes |
2016
£000 |
2015
£000 |
Fixed Assets |
|
|
|
Investments at fair value through
profit or loss |
5 |
4,628 |
4,571 |
|
|
|
|
Current Assets |
|
|
|
Debtors |
6 |
299 |
20 |
Cash at bank and on deposit |
|
102 |
131 |
Total current assets |
|
401 |
151 |
Creditors: amounts falling due
within one year |
7 |
(137) |
(196) |
Net current
assets/(liabilities) |
|
264 |
(45) |
|
|
|
|
Total assets less current
liabilities |
|
4,892 |
4,526 |
|
|
|
|
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 |
|
(399) |
(707) |
Revenue reserve |
|
(494) |
(552) |
Equity shareholders’
funds |
|
4,892 |
4,526 |
|
|
|
|
Net asset value per Ordinary
Share |
4 |
81.47p |
75.38p |
Statement of Changes in Equity
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) |
for the year to 31 March 2015
|
Share
capital
£000 |
Share
premium
£000 |
Special
reserve
£000 |
Capital
redemption
reserve
£000 |
Capital
reserve
£000 |
Revenue
reserve
£000 |
As at 1 April 2014 |
300 |
314 |
5,144 |
27 |
(733) |
(613) |
Gain attributable to
shareholders |
- |
- |
- |
- |
26 |
61 |
As at 31 March 2015 |
300 |
314 |
5,144 |
27 |
(707) |
(552) |
Cash flow statement
for the year to 31 March 2016
|
2016
£000 |
2015
£000 |
Operating Activities |
|
|
Gain before finance costs and
taxation |
386 |
98 |
Adjusted for: |
|
|
(Gains) on investments |
(317) |
(35) |
Transaction costs |
9 |
9 |
Taxation recovered |
- |
7 |
Movement in debtors |
(279) |
21 |
Movement in creditors |
(2) |
(39) |
Cash flow from operating
activities |
(203) |
61 |
|
|
|
Financing activities |
|
|
Finance costs |
(20) |
(11) |
Cash flow from financing
activities |
(20) |
(11) |
|
|
|
Investment Activities |
|
|
Purchases of fixed asset
investments |
(2,702) |
(2,686) |
Sales of fixed asset
investments |
2,896 |
2,709 |
Cash flow from investing
activities |
194 |
23 |
|
|
|
Movement in cash and cash
equivalent |
(29) |
73 |
Cash and cash equivalent as at start
of the year |
131 |
58 |
Cash and cash equivalent as at
end of the year |
102 |
131 |
Accounting policies
Basis of preparation
This is the first year that the Company has presented its
financial statements under Financial Reporting Standard 102 (FRS
102) issued by the Financial Reporting Council and under the AIC’s
Statement of Recommended Practice “Financial Statements of
Investment Trust Companies and Venture Capital Trusts” (SORP)
issued in 2014. The last financial statements under previous UK
GAAP were for the year ended 31 March
2015 and the date of transition to FRS 102 was therefore
1 April 2015. There have been no
changes in accounting policies as a consequence of adopting FRS
102. There was no adjustment to the Company’s Income Statement for
the year to 31 March 2015 and the
Balance Sheet as at 31 March 2015.
The Cash Flow Statement for the year to 31
March 2015 has been restated to reflect presentational
changes to be consistent with the format of FRS 102. The financial
statements have been prepared on a going concern basis. The
functional and presentation currency is pounds sterling, which is
the currency of the environment in which the Company operates.
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
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.
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
|
2016
£000 |
2015
£000 |
– dividends |
137 |
109 |
– interest |
- |
- |
|
137 |
109 |
2. Other expenses
Revenue
General expenses |
28 |
6† |
Directors’ fees |
18 |
18 |
Auditor’s remuneration audit
services |
12 |
12 |
taxation services |
1 |
1 |
|
59 |
37 |
† The figure for 2015 has been reduced by an
accrual for Auditor’s fees in respect of a prior year of
£20,000.
Capital
Transaction costs |
|
|
– acquisitions |
4 |
4 |
– disposals |
5 |
5 |
|
9 |
9 |
3. Taxation
Current taxation |
– |
– |
Deferred taxation |
– |
– |
Total taxation for the year |
– |
– |
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 |
366 |
87 |
Corporation tax (20%, 2015 –
20%) |
73 |
17 |
Non taxable UK dividends |
(25) |
(18) |
Non taxable investment
(gains)/losses in capital |
(61) |
(5) |
Movement in unutilised management
expenses and NTLR deficits |
13 |
6 |
Total taxation charge for the
year |
– |
– |
At 31 March 2016, the Fund had
unutilised management expenses and non trade loan relationship
(“NTLR”) deficits of £927,000 (2015 – £910,000).
A deferred tax asset of £185,000 (2015 - £182,000) 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
(2015 – 6,005,000) ordinary shares in issue during the year.
Total return per share is based on the total gain for the year
of £366,000 (2015 – gain of £87,000).
Capital return per share is based on the net capital gain for
the year of £308,000 (2015 – gain of £26,000).
Revenue return per share is based on the revenue gain after
taxation for the year of £58,000 (2015 – gain of £61,000).
The net asset value per share is based on the net assets of the
Fund of £4,892,000 (2015 – £4,526,000) 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
|
|
|
2016
£000 |
2015
£000 |
Listed investments |
|
|
4,628 |
4,541 |
Unlisted investments |
|
|
- |
30 |
Valuation as at end of year |
|
|
4,628 |
4,571 |
|
Listed
£000 |
Unlisted
£000 |
Total
£000 |
|
Valuation as at start of year |
4,541 |
30 |
4,571 |
4,421 |
Investment holding (gains)/losses as
at start of year |
(1,225) |
(155) |
(1,070) |
(896) |
Cost as at start of year |
3,316 |
185 |
3,501 |
3,525 |
Purchases of investments at
cost |
2,547 |
- |
2,547 |
2,816 |
Proceeds from sale of
investments |
(2,901) |
- |
(2,901) |
(2,715) |
Transfers |
- |
- |
- |
- |
Net gain/(loss) on sale of
investments |
545 |
- |
545 |
(125) |
Cost as at end of year |
3,507 |
185 |
3,692 |
3,501 |
Investment holding gains/(losses) as
at end of year |
1,121 |
(185) |
936 |
1,070 |
Valuation as at end of year |
4,628 |
- |
4,628 |
4,571 |
Net gain/(loss) on sale of
investments |
545 |
- |
545 |
(125) |
Movement in investment holding
gains |
(198) |
(30) |
(228) |
160 |
Total gain/(loss) on
investments |
347 |
(30) |
317 |
35 |
6. Debtors
|
2016
£000 |
2015
£000 |
Investment income due but not
received |
9 |
12 |
Amounts receivable relating to
CFDs |
290 |
8 |
Taxation |
- |
- |
|
299 |
20 |
7. Creditors: amounts falling due
within one year
|
2016
£000 |
2015
£000 |
Amounts due relating to CFDs |
116 |
23 |
Other creditors |
21 |
173 |
|
137 |
196 |
8. Share capital
Allotted, issued and fully
paid |
|
|
6,005,000 ordinary 5p shares (2015 –
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
financial instruments are denominated in sterling and are carried
at fair value. The fair value is the same as the carrying value of
all financial assets and liabilities. 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 2016 were valued at £nil
(2015 – £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
2016 and 2015 are an abridged version of the statutory
accounts for those years. The Auditor has reported on the 2016 and
2015 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 2015 have been filed with the
Registrar of Companies and those for 2016 will be delivered in due
course.
11. The Annual Report
and Accounts for the year ended 31 March
2016 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 9
September 2016 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
1 July 2016