5 Dec 2012 14:13
5 December 2012 SVM GLOBAL FUND PLC PRELIMINARY UNAUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2012
This announcement is not the Company's statutory accounts. The full audited accounts for the year ended 30 Sept 2011, which were unqualified, have been lodged with the Registrar of Companies. The statutory accounts for the year to 30 Sept 2012 (on which the audit report has not been signed) will be delivered to the Registrar of Companies following the Company's AGM which will be held on 11 February 2013.
Investment Objective
The objective of the Company is to achieve long-term growth through a diversified international multi-strategy portfolio and unique access to specialist funds including hedge and private equity. Its aim is to outperform the FTSE World Index on a total return basis.
For further information, please contact:
SVM Global Shane Ross (Chairman) 00 353 8604 76420Panmure Gordon Paul Fincham / Robert Naylor 020 7886 2500
Chairman's Statement
It has been a very disappointing year for SVMGlobal. The net asset value of the shares has declined by 12.2% against a rise in the benchmark of 17.7%. This is in sharp contrast to the previous year's increase of 0.6% against a benchmark fall of 7.0%.
Nevertheless over a five year period the performance has been deteriorating, with the NAV dropping by 32.4% against a 17.7% rise in the benchmark. This year's fall has contributed significantly to the five year underperformance.
Against this background the share price discount has widened to 17.3% at the time of writing, reflecting investors' dissatisfaction with the Fund's medium term record. The main performance weakness during the year occurred in some of the less liquid specialist funds, where the process of extracting value has been delayed.
Despite the 2012 results, the Board believe that there is investor enthusiasm for a fund with SVMGlobal's strategy and policy. Its access to special situations - including hedge and private equity funds - offers investors a rare vehicle to exploit global opportunities for long term growth. We also believe that the current portfolio, if accompanied by diligent management, has the potential to deliver good shareholder returns.
Additional problems in the Fund emerged at the beginning of September.
On 31 August the Managers, SVM Asset Management, informed the independent directors that the Fund's co-manager, Donald Robertson, had resigned. Colin McLean immediately took over as sole investment manager.
As a result of his change in roles the Board determined that it was appropriate for Colin McLean, as sole manager, to step down as a director.
Immediately following this, a review - initiated by SVM - led to a writedown on the less liquid assets where realisation of the underlying value was deemed to be delayed or uncertain. As a result of this review the NAV of the Fund fell by 13%, reflecting a reduction in the adjudged value of specific investments (6.5%), currency adjustments ( 2%) and an overstatement of the value of the portfolio due to an accounting error (4.5%) which arose subsequent to the last external audit.
The independent directors launched an immediate in-depth investigation of the circumstances surrounding both the departure of Donald Robertson and the fall in the NAV. We engaged independent accountants PWC to report to us specifically on the valuation process, the associated control environment and to analyse the writedown in the NAV. Following a review of the process used by management, their conclusions corroborate the integrity of the September 30 valuation, but also raised a number of rectifiable control, process and accounting issues.
Parallel to this investigation, as Chairman I immediately joined with other independent Board members and advisers to meet a large number of investors individually, to hear their views and to insist that we were considering all options. An intensive series of meetings were held over several weeks.
After these soundings and the circumstances referred to above, the Board has concluded that the management of the Company's portfolio should be put out to tender with immediate effect. The Board is inviting indications of interest from managers who:
* can demonstrate an excellent performance record as well as relevant experience in the deep value and more illiquid positions held within the portfolio; * have proven experience in management of investment trusts, including the ability to market the trust and generate third party demand; * bring forward credible proposals for providing liquidity in the Company's shares and for discount management.
Managers tendering may propose changes to the existing investment objective and policy of the Fund, but the key characteristics of the existing objective and policy should be retained.
The Board intends to establish a short list of candidates by no later than 15 December 2012. Indications of interest should be communicated to the Company by close of business on that date. A competitive pitch will be arranged for early in the new year.
The Board has resolved that shareholders will be given an opportunity to endorse the outcome at the Company's Annual General Meeting to be held in the first quarter of 2013.
The Board also reports that in light of PWC's findings and our own soundings the following measures have been put in place:
* We have, by agreement, amended the notice period on the investment management agreement with SVM to three months (instead of a year) starting on 1 August 2013. * We are putting the SVM Global external audit out to tender. This is in line with good corporate governance. * All directors will stand for re-election at the upcoming AGM. * We have required SVM to carry out the recommendations arising from PWC's review of the controls, valuations and procedures.
We discussed with investors - and among ourselves - the option of winding up the Fund. There was little appetite for an early voluntary liquidation, but there was a unanimous demand for better returns. While the directors are convinced that there is demand among investors for a fund with SVM Global's approach and philosophy, we are aware that unless there is an improvement in performance it will not fulfil that role.
Buybacks
A total of 4,694,000 shares were repurchased with a value of £13.0m during the period from 30 September 2011 to 30 September 2012.
The Board is deeply concerned at the wide discount to net asset value of the Company's shares. We will actively repurchase shares in the market where it is in the interests of shareholders.
Dividend
The directors intend to declare a dividend of 2p per share. Our policy is one of continued determination to achieve capital growth. We normally aim to pay the minimum dividend consistent with maintaining our investment trust status. This year's payment is in line with our long term dividend policy.
Outlook
The coming months will be important for SVMGlobal. Your independent Board are committed to ensuring that we make decisions in the best interests of shareholders as a whole. It is our ambition to restore outperformance to investors by appointing a fund manager with the right qualifications and vision to beat the benchmark and narrow the discount. We believe that we have already taken the right steps to set us on the road to achieving this.
Shane RossChairmanIncome Statement Year to 30 September 2012 Year to 30 September 2011 Income Capital Total Income Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Net (losses)/gains on - (20,416) (20,416) - 1,589 1,589investments Investment income 1,474 - 1,474 1,712 - 1,712 Investment management fees (113) (1,011) (1,124) (133) (1,201) (1,334) Other expenses (290) (24) (314) (290) (69) (359) -------- -------- -------- -------- -------- -------- Return/(loss) before 1,071 (21,451) (20,380) 1,289 319 1,608interest and taxation Finance costs - bank (47) (424) (471) (39) (354) (393)overdraft interest -------- -------- -------- -------- -------- -------- Return/(loss) on ordinary 1,024 (21,875) (20,851) 1,250 (35) 1,215activities before taxation Taxation - - - - - - -------- -------- -------- -------- -------- -------- Return/(loss) attributable 1,024 (21,875) (20,851) 1,250 (35) 1,215to ordinary shareholders -------- -------- -------- -------- -------- -------- Return/(loss) per Ordinary 2.01p (42.89p) (40.88p) 2.33p (0.07p) 2.26pShare
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.
Cash Flow Statement Year to Year to 30 September 30 September 2012 2011 £'000 £'000 Net cash (outflow)/inflow from (821) 103operating activities
Returns on investment and servicing (471) (393) of finance
Net capital expenditure and financial 21,657 2,971investment Equity dividends paid (1,036) (537) Financing - share buybacks (12,994) (2,999) ---------- ---------- Increase/(decrease) in cash 6,335 (855) ---------- ----------Balance Sheet As at As at 30 September 30 September 2012 2011 £'000 £'000 Investments at fair value through 126,041 169,442profit or loss ---------- ---------- Current assets 12,290 4,179 Creditors: amounts falling due within (3,130) (3,539)one year ---------- ---------- Net current assets 9,160 640 ----------- -----------
Total assets less current liabilities 135,201 170,082
----------- -----------
Net asset value per ordinary share 279.83p 320.85p
Reconciliation of Movements in Shareholders' Funds For the year 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 October 13,252 10,966 - 5,201 139,370 1,293 2011 Return - - - - (21,875) 1,024 attributable to shareholders Ordinary - - - - - (1,036) dividends Shares buy backs (1,159) - - 1,159 (12,994) - -------- -------- -------- -------- ---------- -------- As at 30 12,093 10,966 - 6,360 104,501 1,281 September 2012 -------- -------- -------- -------- ---------- -------- For the year 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 October 14,274 10,966 139 4,179 142,265 580 2010 Return - - - - (35) 1,250 attributable to shareholders Ordinary - - - - - (537) dividends Shares buy backs (1,022) - (139) 1,022 (2,860) - -------- -------- -------- -------- ---------- -------- As at 30 13,252 10,966 - 5,201 139,370 1,293 September 2011 -------- -------- -------- -------- ---------- --------
Directors' Responsibilities for the Financial Statements
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 Company at the end of the financial year and of the net return of the Company 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 Company 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 Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.
To the best of the knowledge of the Board, the financial statements give a true and fair view of assets, liabilities, financial position and profit/loss and the Report of the Directors includes a fair review of the development and performance of the Company ands a description of the principal risks that it faces.
Principal Risks & Uncertainties
The principal risks facing the Company are market related and include market price, foreign exchange, liquidity, interest rate and credit risks. Additional risks faced by the Company can be categorised under the following headings; investment policy and strategy, share price discount, regulatory, operational and financial risk. The Company 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 Company and receives both formal and informal reports from the Managers and third party service providers addressing these risks. Explanations of these risks and how they are mitigated are detailed the Annual Report, which will be available on the Manager's website shortly.
Notes
1. The accounts have been prepared in accordance with UK Generally Accepted Accounting Practice ("GAAP") and with the 2009 Statement of Recommended Practice "Financial Statements of Investment Trust and Venture Capital Companies" (SORP).
2. Returns per share are based on a weighted average of 51,007,688 (2011 - 53,669,820) ordinary shares in issue during the year.
Total return per share is based on the total loss for the year of £20,851,000 (2011 - gain of £1,215,000).
Capital return per share is based on net capital loss for the year of £ 21,875,000 (2011 - 35,000).
Revenue return per share is based on the revenue after taxation for the year of £1,024,000 (2011 - £1,250,000).
The net asset values per share are based on the net assets of £135,201,000 (2011 - £170,082,000) divided by the number of shares in issues, excluding treasury shares, at the year end 48,315,546 (2011- 53,009,546).
3. Investment management fees and finance interest have been allocated 10% to revenue and 90% to capital (2011 - same). This allocation is in line with the Board's expected long-term split of returns in the form of income and capital gains respectively from the investment portfolio.
4. The above figures do not constitute full accounts in terms of Section 435 of the Companies Act 2006 ("the Act") but are based on the report and accounts for the year to 30 September 2012. The accounts for the year to 30 September 2011, on which the auditors issued an unqualified report under Section 495 of the Act, have been lodged with the Registrar of Companies and did not contain a statement required under Section 498 of the Act.
5. The annual report and accounts will be available on the Managers' website www.svmonline.co.uk from the middle of December 2012. These accounts can be mailed to shareholders on request to the Managers and will be lodged with the Registrar of Companies. Copies are also available for inspection at 7 Castle Street, Edinburgh EH2 3AH, the registered office of the Company
SVM GLOBAL FUND PLC MANAGERS'REVIEW For the year ended 30 September 2012 Strategy
The Fund invests in specialist funds, including an allocation to hedge investing. Specialist funds and deep value investments represent 90% of the portfolio, giving access to investment opportunities globally in a portfolio that is complementary to mainstream strategies; and which would be difficult for many investors to gain access to. The Fund focuses on emerging markets, where historically growth has been greater than in the mature economies. The Fund also emphasises single country funds rather than regional exposure, to allow better targeting of opportunities.
The Managers' current focus is on improving liquidity within the Fund, taking an activist stance to release value. This will give flexibility and the potential to implement robust discount control via share buy backs. The Fund has a long history of investing in and extracting value from funds with wide discounts, and the portfolio includes many investments where catalysts are expected to release value. Realignment of the portfolio should be achieved via higher prices in the deep value investments, without sales at deeply discounted levels.
Overview of the Year
Over the 12 months to 30 September 2012, SVM Global Fund had a very poor year, with a tight credit environment around the world hitting fund liquidations and reducing investor interest in less liquid positions. Funds dependent on flotations, or making realisations of private equity or real estate, were particularly badly impacted. Over the year, the Fund's NAV fell 12.2% against a benchmark return of 17.7%. As 2012 progressed, there was an increasing risk appetite in the market, reflecting hopes of monetary stimulation in the US, Europe and China. However, the optimism did not initially feed through into second-line stocks, particularly in alternative asset classes. It takes time before confidence filters through to smaller companies and funds.
Colin McLean took over responsibilities from the co-manager on 31 August 2012, whilst continuing to manage the investment areas he always covered, which included a day-to-day focus on asset allocation, the hedge fund investments, and some of the exposure to longer standing specialist funds and mature markets. These areas have been helpful to the Fund, but the overall performance weakness has been in the less liquid positions. Some of these investments are specialist funds where the process of extracting value has been much delayed, often due to the background environment of bank deleveraging. This has reduced lending for buyers of property and private equity assets. Liquidity in this type of fund has reduced this year, which is why the Managers have now made some changes to the portfolio.
A number of write-downs were made in less liquid positions where realisation is delayed or uncertain. However despite recent problems the Fund will continue to emphasise specialist funds in emerging markets, focusing on managers operating in niches with value opportunities and where the managers themselves have an edge. The portfolio has many positions with discounts to underlying assets in excess of 20%, and some much greater. A number of the funds such as Northern Investors Company and South African Property Opportunities, now have new management incentivisation that should see value released.
Deep Value opportunities
A key portfolio theme in recent years has been investing in opportunities at a substantial discount to underlying value. This category covers discounts to intrinsic value of 20% and more, with some investments such as Eurovestech at a discount estimated by the Managers to exceed 50%.
Eurovestech returned capital in September 2012, but at the same time de-listed to reduce costs and simplify further capital return. Its sale of 40% in KSS Fuels was at a 38% premium to carrying value. To date, Eurovestech has returned 7.5p per share via capital distributions. Further realisation is expected within the next few months. The de-listing by Eurovestech took the Fund's total exposure to unquoted companies to 21% of the portfolio, over half of which is represented by Eurovestech and Baring Vostok Investments. The Managers are currently working to achieve further realisations from unquoted companies.
Unquoted investment, Zouk Solar Opportunities Fund, is now in realisation mode and is returning capital. Zouk's managers believe that realisation of its solar installations and wind farms have the potential to deliver a total return of 70% or more, and its five year life is scheduled to end in mid 2013. The largest part of this impact will come with the disposal of the UK business, which could see much of your Fund's investment returned early in 2013, with subsequent asset sales by Zouk delivering additional profit.
South African Property Opportunities is continuing to make realisations, but still stands at a wide discount. We believe its management is now incentivised to focus on shareholder value. Ceiba invests in Cuba, and plans to apply for a listing of its shares in Toronto. Northern Investors Company is a private equity investment trust, and is now structured with management incentivisation for an orderly realisation and we believe this will deliver higher returns. 22% of the company's share capital was repurchased for cancellation in December 2011. This was done by tender, and a further return is will be made before the end of 2012. In October 2012, Baker Steel Resources Trust successfully floated its largest investment, Ivanplats, which represents almost 35% of Baker Steel's net asset value. Further flotation and realisations are likely in 2013, which could add significantly to overall asset value at Baker Steel.
There are signs that some deeply discounted investments, such as Cambium Timber, are attracting opportunistic buyers. Other deeply discounted positions include Geiger Counter, Trading Emissions and Low Carbon Accelerator. Exposure to Treasury China Trust was reduced; it did not meet its target of property realisation in the first half of the year.
Specialist Funds
The Fund has above average exposure to emerging markets; it has lower exposure than its benchmark to the mature markets of North America and Europe, where investment trusts tend to be highly rated with little discount narrowing opportunity. In the US and Europe, our emphasis is on identifying specific specialist fund opportunities, such as Century Capital Partners, SW Mitchell Small Cap Fund and Jupiter European Opportunities Trust, which offer well managed exposure in these areas with the potential to add value. Each of these funds has a specific area of market focus or investment style.
Historically, the Fund has been overweight in exposure to Russia and Eastern Europe, benefitting from less efficient markets and an on-going privatisation process. There was generally good progress in the Russian investments. Profits are being taken now in some of these investments, which will involve partial redemptions in Firebird New Russia Fund and Firebird Republic Fund. The position in Prosperity Voskhod Fund was submitted for its annual tender, with just over 10% of the holding realised at a narrow discount in this way.
The Fund's largest individual investment, in Baring Vostok Investments, is now mature and in its liquidation phase. Baring Vostok's largest investment, Russian internet search business, Yandex, which has a listing on Nasdaq, recovered from its year's lows in June. Despite the fact that Yandex has performed strongly and represents a large part of Baring Vostok, there has been no upward revision in valuation to recognise that. Value should emerge as Baring Vostok sells.
The Fund's underweight position in US Dollars versus its benchmark has been reduced over the past year. It has also been helpful over the past year to have relatively low exposure to China, which is moving its economy from emphasising infrastructure investment to greater focus on domestic consumption. There are still problems in China's bank sector. The Fund does not currently have investments in India, but this is kept under active review.
The larger listed investments had mixed performance. Active investor, Oryx, markedly narrowed its discount as it recommenced a buy back. This investment trust focuses on actively managed investment in small and mid-sized quoteds and unquoteds in the UK and US. However, its discount remains high, and we believe that this has potential to narrow further, helped by underlying portfolio performance and the appointment of a new broker. Jupiter European Opportunities Trust performed well and saw its discount narrow significantly. Blackrock World Mining Trust was weak during the year, reflecting market concerns on resources. However, it has an excellent long term record of performance in this sector, with the potential to narrow its current discount. Century Capital Partners IV specialises in private equity investments in the US insurance sector. Century is in its harvesting phase, when the rewards from its early investment should see gains returned to investors.
New investments were made in Eclectica Fund and Eclectica Credit Fund, both managed by Hugh Hendry. Eclectica Credit is closed to new investors, and implements a strategy that will benefit if China's exports slow.
Active Investment
The Fund has a long history of investing in and extracting value from funds with wide discounts. The Managers have moved to a more activist approach to ensure that value is realised for shareholders. The Fund received cash in from a tender in Henderson Private Equity Fund and from liquidation of Hamon Asian iTech Fund, and there were several other capital distributions. A number of investments are in the process of winding-up or liquidating, which will achieve cash returns and capture underlying discounts to value.
Summary
Global growth is low, but does represent a gradual recovery from 2008. Many emerging markets are in a strong position, with sound banking sectors and little indebtedness. In the US, banking sector problems have been largely resolved, with prices re-set in domestic and commercial property. This contrasts with the UK and European position. In the US, there are signs that stimulation is lifting the housing, construction and retail sectors. US stocks exposed to this are at above historic averages, but valuations are less extreme in European listed global businesses.
In the Eurozone, monetary stimulation is likely given the sharp deleveraging in Southern Europe. In Europe, this money printing seems likely to feed into prime assets, including global equities and prime property. There is potential for markets to progress with further stimulation and gradual global recovery. The portfolio includes many investments at large discounts, where catalysts are expected to release value.
XLON