Last checked at 
14 Jun 2010 13:03
SVM UK EMERGING FUND PLC ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2010 INVESTMENT OBJECTIVE
The objective of the Fund is to achieve long term capital growth from investments in smaller UK companies with a particular focus on the those listed on the Alternative Investment Market ("AIM").
HIGHLIGHTS
* Net asset value increased by 53.2% compared to a rise of 72.8% in the FTSE AIM Index * Excellent medium and long term outperformance. * The Fund retains its defensive position combining a number of special situations with a high cash weighting. * The Fund retains a concentrated portfolio targeted on absolute performance
CHAIRMAN'S STATEMENT
I am pleased to be able to report a positive year for the Fund's asset value and share price. Over the year to 31 March 2010, the asset value increased by 53.2% to 68.53 pence compared to a surge of 72.8% in the benchmark, FTSE AIM Index. The Fund's share price rose 61.3% to 50 pence as at the end of March and the discount narrowed almost four percentage points to 27%.
It is interesting to note that over the last two years, which encapsulates the collapse and subsequent recovery in stockmarkets and investor sentiment, the Fund's asset value is up 5% against the benchmark which is down 24%. Indeed, this outperformance is sustained over the longer term with the Fund returning 113% against a decline of 19% in the benchmark index since the Fund's remit change in September 2004. Incidentally, the FTSE All Share Index is up just 55% over this period, less than half that generated by the Fund. We believe this amply demonstrates the validity of the investment remit and the ability of the Managers to deliver this. Since the year end, the Fund has resumed both its relative and absolute performance.
Review of the year
Although the year under review showed strong positive stockmarket returns, the environment remained challenging for investors with conflicting economic and company specific information. Undoubtedly, at the start of the financial year, stockmarkets in general and smaller companies in particular had been massively de-rated and were in heavily oversold territory. The subsequent rally, one of the strongest in a generation, has arguably taken markets ahead of the underlying economics. As the risk of financial collapse and prolonged recession has largely been avoided, the unprecedented stimulus provided by central banks globally has decreased and ultimately will have to be reversed. Only then will we know whether the recovery is sustainable and how strong it will be.
As many smaller companies tend to operate with limited financial leverage and in more niche areas, they should have been less impacted by economic collapse. However, smaller companies were perceived as being riskier than their larger counterparts and were treated savagely. In the subsequent rally, this was reversed and smaller companies resumed their outperformance. Barring a major reversal in the global economy, this trend should continue as their high growth potential is more fully recognised.
Portfolio
There are approximately forty companies in the portfolio with 84% invested in AIM listed companies. The balance is spread between selective unquoted investments and a very small number of residual positions quoted on the junior PLUS market. In terms of sectors, the Fund continues to retain an overweight exposure to resources, industrials and consumer services with little in financials and property. Five new companies were introduced into the portfolio in the year financed by the reduction in some of the larger holdings.
The Fund continues to be concentrated on a relatively small number of holdings, many of which are special situations. A number of these holdings offer defensive characteristics which substantially helped in 2008 and early 2009 but has led to the Fund lagging in the past year. In addition, the Fund maintains a healthy cash position which has and will be used opportunistically to take advantage of pricing anomalies. By being benchmark aware rather than attempting to replicate sector weightings, the Fund has demonstrated substantially less volatility than both the AIM Index or indeed the broader market, represented by the FTSE All-Share Index.
The Managers believe that this approach gives the potential of both relative out-performance and absolute gains. Although individual investment risk is higher, this can be mitigated through a diversified portfolio. There is always a trade off between holding a broadly diversified portfolio which will demonstrate benchmark type returns against holding relatively few large positions with the potential of strong performance. The Managers continue to favour the latter approach.
Annual General Meeting
The Annual General Meeting will be held on 16 July 2010 at SVM's offices in Edinburgh. As prescribed by the Articles of Association, an ordinary resolution will be proposed that the Fund should continue for a further five year period.
Outlook
The Fund retains a concentrated portfolio of special situations and companies that exhibit higher than average growth potential but remain modestly valued. These companies should benefit as the global recession ends and economic growth resumes, although many are not reliant on a strong sustained recovery for their growth potential. The Fund retains maximum flexibility with ample cash resources and the facility to borrow and take hedging positions.
The Board and the Managers believe that the Fund is well placed to outperform both relatively and absolutely. Its aim remains to deliver long term capital growth, lower volatility and absolute returns.
Peter DicksChairman11 June 2010INCOME STATEMENT Year to 31 March 2010 Year to 31 March 2009 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Net gains / (losses) on - 1,474 1,474 - (1,202) (1,202)investments Income 23 - 23 40 - 40 Investment management fees - - - - - - VAT recovered on - - - - 7 7management fees Other expenses (63) (2) (65) (64) (2) (66) -------- ------- -------- -------- ------- -------- Return before interest and (40) 1,472 1,432 (24) (1,197) (1,221)taxation Finance costs (3) - (3) (26) - (26) -------- -------- -------- -------- -------- -------- Transfer from reserves (43) 1,472 1,429 (50) (1,197) (1,247) -------- -------- -------- -------- -------- --------
Return per ordinary share (0.72p) 24.52p 23.80p (0.84p) (19.93p) (20.77p)
The total column of this statement is the profit and loss account of the Fund. 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 Fundhave been reflected in the above statement.
BALANCE SHEET As at As at 31 March 31 March 2010 2009 £'000 £'000 Investments at fair value through profit 3,848 2,521or loss --------- --------- Current assets 883 730 Creditors: amounts falling due within one (616) (565)year --------- --------- Net current assets 267 165 --------- --------- Total assets less current liabilities 4,115 2,686 --------- --------- Equity shareholders' funds 4,115 2,686 --------- --------- Net asset value per ordinary share 68.53p 44.73pCASH FLOW STATEMENT Year to Year to 31 March 31 March 2010 2009 £'000 £'000
Net cash outflow from operating activities (40) (22)
Returns on investment and servicing finance (3) (26)
Capital expenditure and financial 191 420investment Taxation paid - (4) --------- --------- Increase in cash 148 368 --------- ---------RECONCILIATION OF MOVEMENT IN SHAREHOLDERS FUNDS For the year to 31 March 2010 Share Share Special Capital Capital Revenue capital premium reserve redemption reserve reserve reserve £'000 £'000 £'000 £'000 £'000 £'000 As at 1 April 2009 300 314 5,144 27 (2,646) (453) Return / (loss) attributable - - - - 1,472 (43)to shareholders ------- ------- ------- ------- ------- ------- As at 31 March 2010 300 314 5,144 27 (1,174) (496) ------- ------- ------- ------- ------- ------- For the year to 31 March 2009 Share Share Special Capital Capital Revenue capital premium reserve redemption reserve reserve reserve £'000 £'000 £'000 £'000 £'000 £'000 As at 1 April 2008 300 314 5,144 27 (1,449) (403) Loss attributable to - - - - (1,197) (50)shareholders ------- ------- ------- ------- ------- ------- As at 31 March 2009 300 314 5,144 27 (2,646) (453) ------- ------- ------- ------- ------- -------
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 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 1985. 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.
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 Fund and a description of the principal risks that it faces.
PRINCIPAL RISKS & UNCERTAINTIES
The Board believes that the Fund has a relatively low risk profile in the context of the investment trust industry. This belief arises from the fact that the Fund has a simple capital structure; invests primarily in UK quoted companies; has limited exposure to derivatives; and outsources all the main operational activities to recognised, well established firms.
The principal risks inherent within the Fund are market related and have been classified as valuation risk, liquidity risk, interest rate risk and credit risk. Additional risks faced by the Fund can be categorised under the following headings; investment policy and strategy, share price discount, regulatory and operational / financial risk. 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. Explanations of these risks and how they are mitigated are detailed in the Annual Report, which will be available on the Manager's website shortly.
NOTES
1. The accounts have been prepared in accordance with applicable accounting standards and the 2009 Statement of Recommended Practice (SORP) issued by the Association of Investment Companies.
2. Returns per share are based on a weighted average of 6,005,000 (2009 - 6,005,000) ordinary shares in issue during the year.
Total return per share is based on the total return for the year of 1,429,000 (2009 - loss of £1,247,000).
Capital return per share is based on net capital return for the year of £ 1,472,000 (2009 - loss of £1,197,000).
Revenue return per share is based on the revenue loss after taxation for the year of £43,000 (2009 - £50,000).
The number of shares in issue at 31 March 2010 was 6,005,000 (2009 - 6,005,000)
3. Due to the size of the Fund, the Investment Managers have waived their fees for the year to 31 March 2009 and 2010.
4. The above unaudited figures do not constitute full accounts in terms of Section 435 of the Companies Act 2006 and are based on the report and accounts for the year to 31 March 2010. The accounts for the year to 31 March 2009, on which the auditors issued an unqualified report have been lodged with the Registrar of Companies and did not contain a statement required under Section 498 of the Companies Act 2006.
5. The annual report and accounts will be available on the Managers website www.svmonline.co.uk from the middle of June 2010. 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 Fund.
For further information, please contact:
Donald Robertson SVM Asset Management 0131 226 6699 Roland Cross Broadgate Mainland 020 7726 6111
vendor