SVM UK Emerging Fund Plc - Annual Financial Report
SVM UK EMERGING FUND PLC
(the “Fund”)
ANNUAL FINANCIAL RESULTS
FOR THE YEAR ENDED 31 MARCH 2024
The Board is pleased to announce the Annual Financial Results for the year ended
Copies of the Annual Report will be submitted to the
Highlights
-- Over the 12 months to31 March 2024 , net asset value per share gained 4.0% to 96.73p compared to a return of 7.5% in the chosen comparator, the IAUK Companies Sector Average. Over the same period the share price fell 6.1% -- Over the five years to31 March 2024 , net asset value has fallen 12.1% and the share price 26.8%, against the comparator return of +24.0% -- There was a strong rebound in the market in general fromOctober 2023 lows, with takeovers of a number of mid cap companies -- Smaller companies again lagged the broader market averages -- Portfolio position numbers were reduced, emphasising liquidity -- At28 June 2024 net asset value was 96.99p
Financial Highlights
Year to Year to 31 March 31 March 2024 2023 Total Return performance: Net asset value total return * 4.0% -17.3% Share price total return * -6.1% -25.1% Comparator (IA UK All Companies Sector Average) ** 7.5% -1.9%
31 March 31 March % Change 2024 2023 Net asset value per share (p) 96.73 93.03 4.0% Share price (p) 61.50 65.50 -6.1% MSCI UK Investable Market Index*** 2,277.47 2,093.18 8.8% Discount* 36.4% 29.6% Gearing* 0.7% 9.3% Ongoing charges ratio:* Investment management fees**** 0.30% 0.68% Other operating expenses 2.51% 2.32% Total 2.81% 3.00%
Total Return to 1 3 5 10 31 March 2024 (%) Year Years Year Years Net Asset Value 4.0% -22.6% -12.1% 30.8% Comparator ** 7.5% 11.2% 24.0% 59.6%
*For a definition of terms see the Glossary of Terms and Alternative Performance Measures.
**The comparator for the Fund is the IA
*** The MSCI
****Further information regarding investment management fees is included in Note 11 to the accounts.
Investment Objective
The investment objective of
Chairmans Statement
Over the year to
The Company’s net asset value increased in the two months since the year end to 96.99p at
Review of the year
The year under review saw smaller companies fall to their worst underperformance relative to the broader market indices in over 20 years, before a rebound began in
The strongest contributions to performance over the year were
Negatives included Watches of
Over the 12 months the number of positions in the portfolio was reduced from 62 to 45 and gearing was gradually unwound from 109.3% to an almost ungeared position of 100.7% market exposure at the end of the period. New purchases included Integrafin, Tesco, IMI, Conduit and Marks & Spencer, and significant additions were made to existing investments in Howdens, Boku, Segro and Serco. Complete sales were made of Dianomi, Rentokil, Oxford Instruments, Spectris,
Reducing the number of holdings has made little change to sector weightings or the concentration in the largest ten positions. Representation of banks, commodities and pharmaceuticals amongst smaller and medium sized companies is low and accordingly the Fund has little investment in these areas.
Annual General Meeting
The Annual General Meeting will be held on Friday
The Board and Manager are committed to investing in a responsible manner and the Manager embeds Environmental, Social and Governance considerations into the research and analysis undertaken as part of the investment process.
Outlook
The evidence suggests that the
The portfolio focuses on resilient growing businesses, typically with a competitive edge in their sector or niche that helps growth and assists in protecting profit margins. The Fund is positioned to benefit from an improving
Chairman
Manager’s Review
Summary
The twelve months under review saw
The
Portfolio review and investment strategy
The Fund emphasises businesses assessed by the Manager as having a credible growth strategy that management can deliver. Typically, this involves a competitive edge in their sector or niche that helps growth and assists in protecting profit margins. Recognising the medium to longer term potential of these businesses, portfolio turnover is lower than the industry average. The aim is to follow smaller and medium sized companies as they grow to a size that attracts more institutional investment and research coverage, with the potential to improve valuation and liquidity. Some larger companies are included in the portfolio to assist overall liquidity and participate in some favourable trends and business characteristics not readily available in smaller companies.
Repositioning of the portfolio has recognised stewardship and sustainability. The Manager’s approach to investing integrates environmental, social and governance analysis into its day-to-day investment activities, and this combined with an active engagement approach seeks to influence change and better practices from the companies in which it invests. Companies with successful business models are usually transparent in their accounting and reporting and communicate their strategy.
During the 12 months under review, all resolutions of portfolio companies were reviewed in terms of corporate sustainability and governance. All voting on behalf of the Fund is recorded, along with independent governance advice. On several occasions voting was against or withheld despite recommendations from the company boards involved. The contentious issues involved remuneration, financial statements and pre- emption rights. Sadly, governance concerns were often greatest within very small ‘microcap’ companies that should be even more focused on engaging with shareholders in order to secure growth capital. As a result, several microcap holdings were sold during the year with the result that overall portfolio liquidity has been improved. Good stewardship of shareholders’ capital is key to longer term growth;
Ten new holdings were added during the twelve months. The portfolio includes two non-life insurers, Beazley and Conduit, together representing just under 7% of the total portfolio value. Conduit was a new investment during the year. It is capitalised at £870m and is benefitting from higher underwriting income helped by a favourable industry background. It has reported that it is seeing good opportunity to deploy capital. Beazley is capitalised at £4.5bn and in early 2024 it reported record earnings and favourable underwriting conditions.
During the year additional investment was made in digital payments business, Boku. Capitalised at £550m and
The sole investment in healthcare is Kooth, a provider of digital services assisting youth mental well-being. Although a
Top 5 Contributors to Absolute Performance (%)
Company name ContributionDECHRA PHARMACEUTICALS 1.30 4IMPRINT GROUP 1.17 CRH 1.15 HOWDEN JOINERY GROUP 0.95 INTERCONTINENTAL HOTELS GROUP 0.81
Bottom 5 Contributors to Absolute Performance (%)
Company name ContributionMICROLISE GROUP -0.59 KAINOS GROUP -0.58 RENTOKIL INITIAL -0.57 ENTAIN -0.54 TEAM17 GROUP -0.48
Outlook
Consumer and business confidence are improving in the
There is the prospect of the
Investment Manager
Analysis of Investment Portfolio
Sector analysis*** % Listing* % Market Capitalisation* % Industrials 28.4 Financials 17.9 Consumer Discretionary 17.2 Consumer Staples 10.1 Main Market 87.5 Mid 46.8 Communication Services 8.3 AIM 12.5 Small 36.2 Real Estate 8.0 Other - Large 17.0 Information Technology 5.7 Materials 2.9 Healthcare 1.5 *Analysis is of gross exposure ** Sector analysis categories are per the Industry Classification Benchmark
Investment Portfolio
As at
Market Exposure Market Exposure 2024 % of Net 2023 Name £000 Assets £000 1 4Imprint Group 301 5.2 335 2 Howden Joinery Group 217 3.7 154 3 Beazley 208 3.6 187 4 Unite Group 197 3.4 192 5 Boku 182 3.2 67 6 Serco Group 179 3.1 110 7 Ashtead Group 176 3.0 155 8 Games Workshop Group 175 3.0 140 9 Experian 173 3.0 133 10 CRH 169 2.9 – Ten largest Investments 1,977 34.1 11 Conduit 165 2.8 – 12 Jet2 164 2.8 150 13 Compass Group 163 2.8 – 14 Alpha Group International 161 2.8 321 15 Cranswick 160 2.8 66 16 IMI 158 2.7 – 17 Computacenter 156 2.7 8918 Marks & Spencer Group 154 2.7 – 19 Intercontinental Hotels Group 152 2.6 – 20 Tesco 151 2.6 – Twenty largest investments 3,561 61.4 21 Whitbread * 150 2.6 66 22 Keystone Law Group 148 2.6 115 23 Londonmetric Property 144 2.5 70 24 JTC 134 2.3 – 25 Man Group 134 2.3 59 26 Segro 124 2.1 53 27 Hilton Food Group 124 2.1 102 28 Greggs 121 2.1 – 29 Renew 118 2.1 86 30 Flutter Entertainment * 113 1.9 145 Thirty largest investments 4,871 84.0 Other investments (15 holdings)*** 954 16.5 CFD positions (389) (6.7) CFD unrealised gains 49 0.8 Total investments 5,485 94.6 CFD unrealised losses (9) (0.2) Net current assets ** 323 5.6 Net assets 5,799 100.0
*Investment held as Contract for Difference ("CFD").
** Net current assets per this table do not include CFD unrealised losses as these are disclosed separately for clarity. These losses are included in creditors in the balance sheet and are therefore included within net current assets in the balance sheet.
*** Includes CFDs.
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. The investment portfolio is grossed up to include CFDs and the net CFD position is then deducted in arriving at the net asset total. Further information is given in note 6 to the Financial Statements.
A full portfolio listing as at
Strategic Report
The Directors are pleased to submit the Strategic Report for the year to
Investment Objective
The investment objective of the Fund is long term capital growth from investments in medium-sized and smaller
Investment Policy and Gearing Policy
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. Limits are expressed as percentages of shareholders’ funds, measured at market value.
Although the comparator is the IA
No individual investment will exceed 10% of the portfolio on acquisition. Total exposure to unlisted shares is also limited to a maximum of 25% of the portfolio and, historically, has been considerably less. The Board has instructed the Manager not to make any new investments into unlisted shares. The two unlisted shares held in the portfolio during the year were valued at nil.
The Fund has the ability to borrow money to enhance returns. This gearing can enhance benefits to shareholders but, if the market falls, losses may be greater. The level of gearing, including the use of derivatives, is closely monitored by the Manager and the Board has set an upper limit of a total of 30% of net assets. It may also sell parts of the share portfolio and hold cash or other securities when there may be a greater risk of falling stock markets.
The Board has granted the Manager a limited authority to invest in Contracts for Difference (“CFDs”) (long positions) and similar instruments as an alternative to holding actual shares. This means that the gross cost of investment is not incurred. The total effect of such gearing (bank borrowings plus the gross exposure of long positions less any hedging) is limited to a total of 30% of the Fund’s net asset value. Additional limits have also been set on individual hedging to assist risk control. The use of CFDs involves counterparty credit risk.
The Fund may also make use of hedging as an additional investment tool. To help reduce the potential for stock market weakness to adversely impact the portfolio, the Board has granted the Manager limited authority to hedge risks, within specified limits and to a maximum of 15% of the total portfolio. Such hedging (short positions) may be conducted through CFDs or other index instruments.
Hedging can be used to facilitate adjustment of the portfolio at a time of economic uncertainty or increased risk. It is only used occasionally and aids flexibility and can allow exposure to a sector to be reduced with less disruption to the underlying long term portfolio. However, in a rising stockmarket, this may adversely impact performance.
The Fund does not normally invest in fixed rate securities other than securities that are convertible into equity. The Fund may, however, invest in short dated
Strategy and Business Model
The Fund is an investment trust which invests in accordance with its objective and investment policy as set out above. It has no employees and outsources the management of its investment portfolio to the Manager.
The Fund is required to comply with the Companies Act, the
Key Performance Indicators
The Directors consider a number of key performance indicators (“KPIs”) to measure the Fund’s success in achieving its objectives. The KPIs used to measure the performance and development of the Fund are the Net Asset Value per share (“NAV”), share price performance and the discount. The Board assesses these on a regular basis. Further information on these indicators is detailed in the Highlights page, Chairman’s Statement, the Manager’s website www.river.global and quarterly factsheets. The Board also reviews the performance of the Fund against its peers.
NAV Historical record Year to 31 Share Price Total Return March per Share Rating Discount (p) (p) (p) 2010 68.53 50.00 23.80 27.0% 2011 87.36 63.00 18.83 27.9% 2012 71.47 55.00 (15.89) 23.0% 2013 53.90 43.00 (17.57) 20.2% 2014 73.93 57.75 20.03 21.9% 2015 75.38 59.00 1.45 21.7% 2016 81.47 62.50 6.09 23.3% 2017 94.25 67.50 12.78 28.4% 2018 112.05 90.00 17.80 19.7% 2019 110.06 84.00 (1.99) 23.7% 2020 81.88 70.00 (28.20) 14.5% 2021 125.00 99.50 43.12 20.4% 2022 112.51 87.50 (12.49) 22.2% 2023 93.03 65.50 (19.48) 29.6% 2024 96.73 61.50 3.70 36.4%
Results
The total profit for the year of £222,000 (2023: loss of £1,168,000) has been transferred to reserves. No dividend has been declared. The net asset value total return was 4.0% for the year. At
Portfolio Analysis
An analysis of the Fund’s portfolio is provided on the page entitled ‘Investment Portfolio’ and in the Manager’s Review.
Principal Risks and Uncertainties
The Directors carry out a robust assessment of the Company's emerging and principal risks including reviewing the policies implemented for identifying and managing the principal risks faced by the Company.
Many of the Company’s investments are in small companies and may be seen as carrying a higher degree of risk than their larger counterparts. These risks are, where practical, mitigated through portfolio diversification, in- depth company analysis, the experience of the Manager and a rigorous internal control culture. Further information on the internal controls operated for the Company is detailed in the Report of the Directors.
The principal risks facing the Company 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 further under “Financial”. Additional risks faced by the Fund are summarised below.
Emerging risks – are risks that could have a future impact on the Company. The Board considers that emerging risks exacerbate existing identified risks e.g. market risk, rather than themselves being new risks. The Managers subscribe to a range of daily investment research, including macro issues. The investment team digest this and assess whether any developments represent new or growing risks. The directors bring their own intelligence into board meetings as context for the manager. Whilst there were no new specific emerging risks added to the risk register during the year, certain other risks have continued to develop or recede, with the conflict between
Investment strategy – The risk that an inappropriate investment strategy may lead to the Fund underperforming its comparator, for example in terms of share selection, asset allocation or gearing. The Board has 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 comparator. The Board regularly reviews the Fund’s investment mandate and long term strategy. This is a stable risk.
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. The Board acknowledge the discount rate has widened and, by virtue of that in isolation, assess that the associated risk has increased during the year.
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
Operational – The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. 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. Risk controls are monitored by their assigned owner with oversight from the Manager’s risk and compliance function as part of the Manager’s risk and control framework, which is reviewed at least annually. This is a stable risk.
Corporate Governance and Shareholder Relation s – The risk that the Company fails to meet legal, regulatory or best practice requirements in respect of corporate governance, resulting in a legal or regulatory breach or censure with the potential for being held to not having had due regard to the interests of shareholders. 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. This is a stable risk.
Financial – The Fund’s investment activities expose it to a variety of financial risks including:
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, share selection and market movements are reported to the Board on a regular basis. This risk is variable, which is assessed by the Board and the Manager throughout the year and is considered as broadly stable.
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. This risk is variable, depending on the liquidity of the underlying investments and is assessed by the Board and the Manager throughout the year and is considered as broadly stable.
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
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 gearing, this has and will only be increased where an opportunity exists to substantially add to the net asset value performance. The Board note the increase in interest rates but assess the risk as stable.
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
Statement of Directors’ Responsibilities in Respect of the Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Fund and of its gain or loss for that period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether applicable
• prepare the financial statements on the going concern basis, unless it is inappropriate to presume the Fund will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Fund’s transactions and disclose with reasonable accuracy at any time the financial position of the Fund and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Fund’s corporate and financial information included on the Manager’s website. The work carried out by the Auditor does not involve consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the
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
Chairman
Income Statement
for the year to
Revenue Capital Total Notes £000 £000 £000 Net gain on investments at fair value 6 – 272 272 Income 1 140 – 140 Investment management fees 2 – (17) (17) Other expenses 3 (143) – (143) (Loss)/Gain before finance costs and taxation (3) 255 252 Finance costs (30) – (30) (Loss)/Gain on ordinary activities before taxation (33) 255 222 Taxation 4 – – – (Loss)/Gain attributable to ordinary shareholders (33) 255 222 (Loss)/Gain per Ordinary Share 5 (0.55)p 4.25p 3.70p for the year to31 March 2023 Revenue Capital Total Notes £000 £000 £000 Net loss on investments at fair value 6 – (1,065) (1,065) Income 1 104 – 104 Investment management fees 2 – (42) (42) Other expenses 3 (143) – (143) Loss before finance costs and taxation (39) (1,107) (1,146) Finance costs (22) – (22) Loss on ordinary activities before taxation (61) (1,107) (1,168) Taxation 4 – – – Loss attributable to ordinary shareholders (61) (1,107) (1,168) Loss per Ordinary Share 5 (1.02)p (18.46)p (19.48)p
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 at31 March 2024 2024 2023 Notes £000 £000 Fixed Assets Investments at fair value through profit or loss 6 5,485 4,882 Current Assets Debtors 7 174 897 Cash at bank and on deposit 348 375 Total current assets 522 1,272 Creditors: amounts falling due within one year 8 (208) (577) Net current assets 314 695 Total assets less current liabilities 5,799 5,577 Capital and Reserves Share capital 9 300 300 Share premium 314 314 Special reserve 5,136 5,136 Capital redemption reserve 27 27 Capital reserve 649 394 Revenue reserve (627) (594) Equity shareholders’ funds 5,799 5,577 Net asset value per Ordinary Share 5 96.73p 93.03p
Approved and authorised for issue by the Board of Directors on
Statement of Changes in Equity
for the year to
Share Special Capital Capital Revenue capital Share premium reserve* redemption reserve** reserve* Total reserve** £000 £000 £000 £000 £000 £000 £000 As at 1 300 314 5,136 27 394 (594) 5,577 April 2023 Gain/(loss) attributable – – – – 255 (33) 222 to shareholders As at 31 300 314 5,136 27 649 (627) 5,799 March 2024
for the year to
Share Share Special Capital Capital Revenue capital premium reserve* redemption reserve** reserve* Total reserve** £000 £000 £000 £000 £000 £000 £000 As at 1 300 314 5,136 27 1,501 (533) 6,745 April 2022 Loss attributable – – – – (1,107) (61) (1,168) to shareholders As at 31 300 314 5,136 27 394 (594) 5,577 March 2023
*Distributable reserves comprise of the Special Reserve and the Revenue Reserve and were £4,509,000 at
**Non-distributable reserves comprise the Capital Redemption Reserve and Capital Reserve and were £676,000 at
Accounting Policies
Basis of preparation
The Financial Statements are prepared under the historical cost convention, modified to include the revaluation of fixed asset investments which are recorded at fair value, in accordance with FRS 102, the “Financial Reporting Standard applicable in the
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
Dividend income is included in the Income Statement on an ex-dividend basis and includes dividends on both direct equity investments and synthetic equity holdings via Contracts for Differences. Special dividends are recorded on an ex-dividend basis and allocated to revenue or capital in line with the underlying commercial circumstances of the dividend payment. Interest receivable on bank balances is included in the Income Statement on an accruals basis.
Expenses and interest
Expenses and interest payable are recognised on an accruals basis. All expenses other than investment management fees are charged to revenue.
Investment management fees
Investment management fees are allocated 100 per cent to capital. The allocation is in line with the Board’s expected long-term return from the investment portfolio. 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 or substantively enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered probable 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. A Contract for Difference (CFD) is a synthetic equity comprising of a future contract to either purchase or sell a specific asset at a specified future date for a specified price. The Company can hold long and short positions in CFDs which are held at fair value, based on the bid prices of the underlying securities in respect of long positions, and the offer prices of the underlying securities in respect of short positions. Profits and losses on CFDs are recognised in the Income Statement as capital gains or losses on investments at fair value. Dividends and interest on CFDs are included in revenue income. The year end fair value of CFD positions which are assets is included in fixed asset investments, whilst the year end fair value of CFD positions which are liabilities is included within current liabilites in Note 8. Balances with brokers in respect of margin calls are included within debtors in Note 7. 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. Sterling is the functional currency of the Fund and all 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 accounted for within this reserve. All investment management fees, together with any tax relief, are also taken to this reserve. Increases and decreases in the valuation of fixed asset investments are recognised in this reserve.
Special reserve
On
Capital redemption reserve
This reserve represents the nominal value of own shares bought back.
Revenue reserve
Retained revenue profits and losses, are accounted for in this fully distributable reserve.
Share capital
This account represents, allotted, issued and fully paid up shares of 5p each.
Share premium
This account represents the value received for issuing shares in excess of the nominal value of 5p per share.
Notes to the Financial Statements
2024 2023 £000 £000 1. Income Income from shares and securities – dividends 138 103 – interest 2 1 140 104 2. Investment management fees Investment management fees 17 42 3. Other expenses Revenue General expenses 75 79 Directors’ fees 25 25 Auditor’s remuneration 43 39 143 143 4. Taxation Current taxation – – Deferred taxation – – Total taxation charge for the year – –
The tax assessed for the year is different from the standard small company rate of corporation tax in the
2024 2023 £000 £000 Gain/(loss) on ordinary activities before taxation 222 (1,168) Corporation tax (25%, 2023 – 19%) 56 (222) Effects of: (25) (15) Non taxableUK dividends (Gains)/losses on CFD (125) 25 Non taxable investment losses on CFD 57 177 Non taxable overseas dividends (4) (1) Movement in deferred tax rate on excess management charges – (11) Movement in unutilised management expenses and NTLR deficits 41 47 Total taxation charge for the year – –
At
A deferred tax asset of £497,000 (2023 – £456,000) 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.
5. Returns per share
Returns per share are based on a weighted average of 5,995,000 (2023 - 5,995,000) ordinary shares in issue during the year, not held in
Total return per share is based on the total gain for the year of £222,000 (2023 - loss of £1,168,000). Capital return per share is based on the net capital gain for the year of £255,000 (2023 - loss of
£1,107,000).
Revenue return per share is based on the revenue loss after taxation for the year of £33,000 (2023 - loss of £61,000).
The net asset value per share is based on the net assets of the Fund of £5,799,000 (2023 - £5,577,000) divided by the number of shares in issue at the year end as shown in note 9.
2024 2023 £000 £000 6. Investments at fair value through profit or loss Listed investments and CFDs 5,485 4,882 Unlisted investments – – Valuation as at end of year 5,485 4,882 Listed Unlisted Total £000 £000 £000 Opening book cost 3,944 159 4,103 5,093 Opening investment holding gains/(losses) 938 (159) 779 1,315 Opening fair value* 4,882 – 4,882 6,408 Analysis of transactions made during the year 1,994 – 1,994 513 Purchases at cost Sales proceeds received** (1,147) (18) (1,165) (1,106) (Losses)/gains on investments*** (244) 18 (226) (933) Closing fair value 5,485 – 5,485 4,882 Closing book cost 4,005 (141) 4,146 4,103 Closing investment holding gains/(losses) 1,480 (141) 1,339 779 Closing fair value**** 5,485 – 5,485 4,882 (Losses)/gains on investments (244) 18 (226) (933) Movement in CFD current liability 498 – 498 (132) Net gains/(losses) on investments at fair value 254 18 272 (1,065)
The transaction costs in acquiring investments during the year were £9,000 (2023: £3,000). For disposals, transaction costs were £2,000 (2023: £2,000).
The company received £1,165,000 (2023: £1,106,000) from investments sold in the year. The book cost of these investments when they were purchased was £1,951,000 (2023: £1,503,000). These investments have been revalued over time and, until they were sold, any unrealised gains/losses were included in the fair value of the investments.
*Opening fair value of £4,882,000 includes £22,000 of CFD gains.
**Sale proceeds received of £1,165,000 includes a negative balance of £712,000 in relation to losses on CFDs.
***Losses on investments of £226,000 includes a balance of £712,000 in relation to losses on CFDs, £75,000 in relation to losses on sales and £561,000 in relation to unrealised gains on investment holdings.
****Closing fair value of £5,485,000 includes £49,000 of CFD gains.
2024 2023 £000 £000 7. Debtors Investment income receivable 19 13 Amounts receivable relating to CFDs – being cash held at broker 135 868 Prepayments 15 13 Taxation 5 3 174 897 8. Creditors: amounts falling due within one year Amounts due to broker relating to CFDs 9 507 Due to the Manager 32 10 Other creditors 167 60 208 577 9. Share capital Allotted, issued and fully paid 300 300 6,005,000 ordinary 5p shares (2023 - 6,005,000)
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, other than the 10,000 shares held in treasury which carry no voting rights.
During current and prior year there were no Ordinary Shares bought back.
10. Financial instruments
Risk Management
The Fund’s investment policy is to hold investments, CFDs and cash balances with gearing being provided by the use of CFDs and a bank overdraft arranged with
£nil). Investments, which comprise principally equity investments, are valued as detailed in the accounting policies.
The Fund only operates short term gearing, which is limited to 30 per cent of gross assets, and is undertaken through an unsecured variable rate bank overdraft and the use of CFDs. The comparator rate which determines the interest received on Sterling cash balances or paid on bank overdrafts is the bank base rate which was 5.25% as at
The Fund does not hold any (2023: nil) of the total net asset value in investments with direct foreign currency exposure and is consequently not currency hedged. Financial information on the investment portfolio is detailed in note 6.
Assets Liabilities Assets Liabilities 2024 2024 2023 2023 £000 £000 £000 £000 Classification of financial instruments 5,436 – 4,860 – Level 1 Level 2 49 9 22 507 Level 3 - 2 investments (2023 - 3) – – – –
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 variable include only data from observable markets. The CFD positions are the sole Level 2 investments at
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. The Board has instructed the Manager not to make any new investments in unlisted shares.
There are 2 (2023-3) investments in the Fund which have values of £nil where the respective share prices have been suspended, or are stale.
The Board has established guidelines to grant the Manager a limited authority to invest in CFDs to achieve some degree of gearing and/or hedging without incurring the gross cost of investment. The Board requires the Manager to operate within certain risk limits, as detailed in the Report of the Directors. The following table details the CFD positions:
2024 2023 £000 £000 Number of CFD holdings (2024 - 4; 2023 - 9) Gross exposure 389 892 Net exposure 389 892 Unrealised gains 49 22 Unrealised losses 9 507
The major risks inherent within the Fund are market risk, liquidity risk, credit risk and interest rate risk. The Fund 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 significant exposure to 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 of the underlying shares held in the Fund, 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, share 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
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.
Sensitivity analysis
The following table details the impact on net asset value and return per share of the Fund to changes in, what can be, the two principal drivers of performance, namely investment returns, in relation to market risk, and interest rates. The calculations are based on the balances at the respective balance sheet dates and are not representative of the year as a whole.
2024 2023 £000 £000 Investment portfolio Investment returns 5% increase +4.6p +4.1p Investment returns 5% decrease -4.6p -4.1p Other assets/liabilities Interest rate 0.5% increase – – Interest rate 0.5% decrease – – Maximum credit risk analysis As at the year end, the Fund’s maximum credit risk exposure was as follows: Bank 348 375 Amounts receivable relating to CFDs 135 868 Investment income due but not received 19 13 Taxation 5 3 507 1,259 Contractual maturity analysis Due not Due Due between 1 and between 3 and 2024 later than 1 month 3 months 12 months Total £000 £000 £000 £000 Bank 348 – – 348 Debtors 39 – 135 174 Creditors (208) – – (208) Net liquidity 179 – 135 314 Due not Due Due between 1 and between 3 and 2023 later than 1 month 3 months 12 months Total £000 £000 £000 £000 Bank 375 – – 375 Debtors 29 – 868 897 Creditors (577) – – (577) Net liquidity (173) – 868 695
Cash flows payable under financial liabilities by remaining contractual liabilities are as stated above.
Capital management policies
The Fund’s management objectives are to provide shareholders with long term capital growth.
2024 2023 £000 £000 Capital and reserves: Share capital 300 300 Share premium 314 314 Special reserve 5,136 5,136 Capital redemption reserve 27 27 Capital reserve 649 394 Revenue reserve (627) (594) Total shareholders’ funds 5,799 5,577
The Fund’s objectives for managing capital are detailed in the Strategic Report and have been complied with throughout the year. It normally restricts gearing to 30% of net assets, maintaining a minimum share capital of £50,000 (as a public company) and adheres to the capital restrictions imposed by relevant company and tax legislation.
The revenue reserve is distributable and, to the extent it is positive, dividends can be funded from it. The special reserve is distributable and the cost of purchasing own shares has been accounted for in this reserve. The Company’s Articles of Association prohibit the distribution of capital profits by way of dividend.
11. Transactions with the Manager and SVM Asset Management Limited
The Management section of the Report of the Directors sets out the services provided by the Manager to the Fund and fees earned. The share interests of the Manager in the Fund are set out in the Substantial Shareholdings section of the Report of the Directors. C W McLean is the Investment Manager at
There are no transactions with Directors other than aggregated remuneration for services as Directors as disclosed in the Directors’ Remuneration Report and note 3. Shareholdings of Directors are also set out in the Directors’ Remuneration Report.
The agreements for the provision of investment management and secretarial services were novated from
Amounts paid to the Manager in respect of Investment Management fees are disclosed in note 2, with £nil (2023: £10,498) due at the year end.
During the year,
12. Notices
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
The Annual Report and Accounts for the year ended
The Annual General Meeting of the Fund will be held at
For further information, please contact:
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