Half-yearly Report
SVM UK EMERGING FUND plc
Half Yearly Statement
(for the six months to 30 September 2012)
Investment Objective
The investment objective of the Fund is long term capital growth from
investments in smaller UK companies with a particular focus on the Alternative
Investment Market ("AIM")
Highlights
* Net asset value decreased by 33%, and share price by 27% compared to a fall
of 11% in the FTSE AIM Index.
* New portfolio managers appointed.
* Exposure to less liquid small companies reduced.
* Realignment of portfolio focusing on more liquid, dividend-paying growth
businesses.
For further information, please contact:
Colin McLean SVM Asset Management 0131 226 6699
Mark Knight Broadgate Mainland 020 7726 6111
Chairman's Statement
It is disappointing to report that, over the six months to 30 September 2012,
the net asset value decreased by 33.0% to 47.85p compared to a fall of 10.8% in
the benchmark, FTSE Aim Index. The share price fell 27%. In part, this reflects
a difficult environment for smaller companies, with many facing difficulty in
raising either bank or equity finance. There appears to be little indication
that this difficult environment for the smallest businesses will improve in the
near term.
In September, your Board announced that Colin McLean had assumed responsibility
within SVM Asset Management for the investment management of the Fund. He is
supported by deputy manager, Margaret Lawson. Colin and Margaret are
co-managers of SVM UK Growth Fund, an open ended investment company. Since
their appointment to that fund six years ago it has returned 51%, compared to
an FTSE All-Share Index return of 20%. (Lipper, 6 years to 31.10.2012)
Following the change of Manager of SVM UK Emerging Fund, a thorough review of
the portfolio was made and a re-alignment implemented. New investments focus on
more liquid, larger capitalisation shares within the Fund's investment
objective. Over 60% of the portfolio has been realised over the past two
months, and two investments written-down. By the end of September, some
indications of recovery in the net asset value were seen.
Your Board also reported to shareholders that there are challenges currently in
investing in smaller companies, and that the Directors were undertaking a
review of the Fund's investment mandate. The pressure on banks to recapitalise
and reduce lending has been particularly difficult for smaller companies to
obtain debt financing. At the same time, the attractions of a market quote have
reduced, as institutional investors have become less willing to provide equity
capital for growth. This has resulted in a number of companies deciding to give
up their quote, leaving investors with less liquid private company investments.
After consultation with the Board, your Manager has withdrawn from investing in
unquoted shares or those with PLUS Market quotes, given the increased risks and
lower liquidity. However, amongst more liquid smaller companies and certain
medium sized businesses, including those on AIM, there are attractive lower
risk opportunities in growing businesses. New portfolio investments include oil
and gas exploration business, Salamander Energy, which the Managers believe has
strong drilling prospects. Recent investments in Spirit Pub Company, and
property group, Unite Group, are already showing good portfolio gains.
Your Board is continuing to consult with larger shareholders on the changes
being made. We will also work to improve liquidity in the Fund's shares. We
believe that the improved underlying portfolio liquidity should help to
maintain a lower discount, and that the management change will lead to an
improvement in the performance of the Fund.
Peter Dicks
Chairman
SVM UK Growth Fund
Percentage performance 30 Sep 11 30 Sep 10 30 Sep 09 30 Sep 08 30 Sep 07
to to to to to
30 Sep 12 30 Sep 11 30 Sep 10 30 Sep 09 30 Sep 08
SVM UK Growth Fund A +21.93 -5.33 +17.19 +19.39 -16.38
FTSE All-Share TR +17.25 -4.36 +12.49 +10.80 -22.25
Financial Statements
Income Statement
(unaudited) Six months to 30 September Six months to 30 September
2011
2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Loss)/gain on sale - (990) (990) - 719 719
of investments
Movement in - (412) (412) - (1,541) (1,541)
investment holding
gains
-------- -------- -------- -------- -------- --------
Net (losses) on - (1,402) (1,402) - (822) (822)
investments
Income 15 - 15 15 - 15
Investment - - - - - -
management fees
Other expenses (29) - (29) (29) - (29)
-------- -------- -------- -------- -------- --------
Return before (14) (1,402) (1,416) (14) (822) (836)
interest and
taxation
Bank overdraft (2) - (2) (2) - (2)
interest
-------- -------- -------- -------- -------- --------
Transfer (16) (1,402) (1,418) (16) (822) (838)
attributable to
shareholders
-------- -------- -------- -------- -------- --------
Return per ordinary (0.27p) (23.35p) (23.62p) (0.27p) (13.69p) (13.96p)
share
-------- -------- -------- -------- -------- --------
The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items in this statement derive from continuing
operations.
A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.
Balance Sheet As at As at As at
(unaudited)
30 September 31 March 2012 30 September
2012 2011
£'000 £'000 £'000
Investments at fair value through 1,905 4,064 4,016
profit or loss
Net current assets 968 228 392
--------- --------- ---------
Equity shareholders' funds 2,873 4,292 4,408
--------- --------- ---------
Net asset value per ordinary share 47.85p 71.47p 73.40p
--------- --------- ---------
Summarised Cash Flow Statement Six months to Six months to
(unaudited)
30 September 30 September
2012 2011
£'000 £'000
Net cash flow from operating 373 (32)
activities
Taxation (2) (2)
Capital expenditure and financial 395 169
investment
Servicing of finance (2) (2)
-------- --------
Movements in cash 764 133
-------- --------
Summarised Reconciliation of Movement in Shareholders
' Funds (unaudited)
For the period to 30 September 2012
Share Share Special Capital Capital Revenue
capital premium reserve redemption reserve reserve
reserve
£'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2012 300 314 5,144 27 (924) (569)
Return/(loss) - - - - (1,403) (16)
attributable to
shareholders
------- ------- ------- ------- -------- -------
As at 30 September 300 314 5,144 27 (2,327) (585)
2012
------- ------- ------- ------- -------- -------
For the period to 30 September 2011
Share Share Special Capital Capital Revenue
capital premium reserve redemption reserve reserve
reserve
£'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2011 300 314 5,144 27 (1) (538)
Return/(loss) - - - - (822) (16)
attributable to
shareholders
------- ------- ------- ------- -------- -------
As at 30 September 300 314 5,144 27 (823) (554)
2011
------- ------- ------- ------- -------- -------
Largest investments as at 30 September Sector analysis as at 30 September
2012 2012
% %
1 Hydrodec 8% CULS 8.7% Basic Materials 22.2%
2 Royal Dutch Shell B 5.4% Industrials 23.6%
3 Salamander Energy 5.2% Oil & Gas 20.5%
4 Unite Group 4.7% Consumer Goods 2.4%
5 Manroy 4.4% Consumer Services 19.0%
6 Spirit Pub Company 4.3% Healthcare 0.0%
7 Claremont Partners Ltd 3.7% Telecoms 0.0%
8 Fotolec Technologies 3.1% Technology 0.0%
9 Hurricane Exploration 3.1% Financials 11.1%
10 Sprue Aegis 3.0% Utilities 1.2%
Total 45.6% Total 100.0%
Risks And Uncertainties
The principal risks inherent within the Fund are market related and have been
classified as valuation risk, liquidity risk, exchange rate risk, interest rate
risk and credit risk. Additional risks faced by the Fund can be categorised
under the following headings; investment strategy, share price discount,
regulatory and operational. The Fund has an established environment for the
management of these risks which are continually monitored by the Managers. The
Board regularly considers the risks associated with the Fund and 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 2012 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 2012 Annual Report.
Directors' Responsibility Statement
The Directors are responsible for preparing the financial statements in
accordance with applicable law and regulations. Company law requires the Board
to prepare financial statements for each financial year. Under that law, the
Directors have elected to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (UK Standards and
applicable law).
The financial statements are required by law to give a true and fair view of
the state of affairs of the Fund at the end of the financial year and of the
net return of the Fund for that year. In preparing these financial statements,
the Directors are required to: (a) select suitable accounting policies and then
apply them consistently; (b) make judgments and estimates that are reasonable
and prudent; and (c) state whether applicable accounting standards have been
followed.
The Board is also responsible for the maintenance of proper accounting records
which disclose with reasonable accuracy, at any time, the financial position of
the Fund and to 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 for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors confirm that to the best of their knowledge:
(i) these financial statements have been prepared in accordance with the
Accounting Standards Board's statement `Half-Yearly Financial Reports';
(ii) the Half-Yearly Report includes a fair review of the information required
by Disclosure and Transparency Rules 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(iii) the Half-Yearly Financial Report includes a fair review of the
information required by Disclosure and Transparency Rules 4.2.8R (disclosure of
related party transactions and changes therein).
Notes
1. The results have been prepared in accordance with applicable accounting
standards and the 2009 Statement of Recommended Practice (SORP) issued by the
Association of Investment Companies. These accounts have been prepared in
accordance with prior year accounting policies.
2. Return per share is based on a weighted average of 6,005,000 (2011 -
6,005,000) ordinary shares in issue during the year.
Total return per share is based on the total loss for the period of £1,418,000
(2011 - loss of £838,000).
Capital return per share is based on net loss for the period of £1,402,000
(2011 - loss of £822,000).
Revenue return per share is based on the revenue loss after taxation for the
period of
£16,000 (2011-£16,000).
The number of shares in issue at 30 September 2012 was 6,005,000 (2011 -
6,005,000).
3. Due to the size of the Fund, the Investment Managers have waived their fees
for the periods to 30 September 2012 and 2013.
4. The above figures do not constitute full accounts in terms of Section 435 of
the Companies Act 2006. The accounts for the year to 31 March 2012, on which
the auditors issued an unqualified report under Section 495 of the Companies
Act 2006, have been lodged with the Registrar of Companies and did not contain
a statement required under Section 498 of the Companies Act 2006. The half
yearly report will be available on the Managers' website: www.svmonline.co.uk
towards the end of this week. Copies are also available for inspection at 7
Castle Street, Edinburgh EH2 3AH, the registered office of the Fund.
Friday, 10th January 2025
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