Last checked at 
18 Jun 2012 16:00
SVM UK EMERGING FUND PLC ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2012 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 decreased by 18.2% compared to a fall of 11.1% in the FTSE
AIM Index * Strong medium and long term outperformance. * Defensive position combining a number of special situations, no gearing with a modest cash position.
* The Fund retains a concentrated portfolio targeted on absolute performance
CHAIRMAN'S STATEMENTIt is disappointing to have to report a down year both on a relative andabsolute basis. Over the year to 31 March 2012, the net asset value decreasedby 18.2% to 71.47 pence compared to falls of 11.1% and 2.1% in the benchmark,FTSE AIM Index and FTSE All Share Index respectively. The Fund's share pricefell 12.7% to 55 pence as at the end of March with the discount narrowing from27.9% down to 23%. Since the year end, the Fund has demonstrated its defensivecharacteristics and resumed its relative outperformance.Notwithstanding this year's disappointing performance, it retains an impressivelonger term track record. The net asset value and share price has returned 122%and 116% respectively against a decline of 7% in the benchmark since the remitchange in September 2004. The FTSE All Share Index is up just 32% over thisperiod, approximately a quarter of that generated by the Fund. It isinteresting that, while smaller companies have materially underperformed largercompanies over the intervening period, stock picking within smaller companieshas proved to be extremely profitable. We believe that this amply demonstratesthe validity of the investment remit and the ability of the Managers to deliverthis.Review of the year
The year can be divided comfortably in two - a negative first half followed bya recovery in the second. In the first half, investors avoided investments thatwere seen as being risky, preferring the perceived safety of higher yieldinglarge companies and government bonds. Globally, this has led to emergingmarkets relatively underperforming and suffering greater falls than maturemarkets. Domestically, smaller companies underperformed larger ones. The fallsregistered in the September quarter rivalled those experienced in the height ofthe financial crisis in 2008, predominantly caused by the ongoing problems inEurope. The second half of the year saw a rebound although not sufficient toerase earlier losses. The recovery was led by larger companies and smallcompanies continued to lag. This appears perverse given the superior growthprospects and debt dynamics within both smaller companies and emerging markets.In terms of performance drivers, those sectors that outperformed in theprevious year underperformed in this. Principally, resource companies, a largecomponent of the FTSE AIM Index, showed weakness on lower underlying commodityprices. This is likely to be short lived as the supply demand imbalance stillremains with China, notwithstanding its cooling economy, continuing to consumeat a high rate.PortfolioThere are in excess of forty companies in the portfolio with 87% invested inAIM listed companies. The balance is spread between selective unquotedinvestments and a small number of residual positions quoted on the junior PLUSmarket. In terms of sectors, the Fund still retains its focus on basicmaterials (principally precious metals), oil & gas (mainly exploration) and inconsumer services & healthcare. It has little exposure to some of the morechallenged sectors such as banks and retailers.Following on from the previous year, the year under review proved to be moreactive than historically. The opportunity was taken partially to realise threeholdings with the residual positions being retained as further value isexpected. This allowed for the introduction of four new holdings, the majorityof which were acquired through the Manager's preferred investment route -secondary fundraising by existing listed companies. The new investments arecovered in greater detail in the Managers' Review. In addition, furtherallocations were made to six existing investments at attractive levels.The Fund retains a concentrated portfolio, many of which are specialsituations, and a modest cash position. The Managers believe that this approachgives the potential of both relative out-performance and absolute gains. Whileindividual investment risk is higher, this is mitigated through a diversifiedportfolio. The trade off remains between holding a broadly diversifiedportfolio which will demonstrate benchmark type returns against holdingrelatively few large positions with the potential of strong performance. TheManagers continue to favour the latter approach which has served the Fundadmirably over the longer term.
Outlook
While the worst of the global financial and ensuing economic crisis appears tobe behind us, it would be foolish to believe that it is plain sailing from hereon. The root causes of the crisis are still to be addressed and quantitativeeasing, helpful though it is in providing liquidity, simply delays theinevitable. Only when the various stimuli are removed and interest ratesnormalised will we know the true health of the world and in particular thehighly indebted countries. The Managers remain cautious however and continue toadopt a defensive stance.The Fund retains a concentrated portfolio of special situations and highergrowth companies, many of which are modestly valued in comparison to theirlarger equivalents. Its aim remains to deliver long term capital growth, lowervolatility and superior absolute and relative returns. The Board and theManagers believe that it is well placed to continue to deliver on these aims.Peter DicksChairman18 June 2012INCOME STATEMENT Year to 31 March 2012 Year to 31 March 2011 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Net (losses) / gains on - (922) (922) - 1,174 1,174investments Income 39 - 39 26 - 26 Investment management fees - - - - - - Other expenses (67) (1) (68) (66) (1) (67) -------- ------- -------- -------- ------- -------- Return before interest and (28) (923) (951) (40) 1,173 1,133taxation Finance costs (3) - (3) (2) - (2) -------- -------- -------- -------- -------- -------- Transfer from reserves (31) (923) (954) (42) 1,173 1,131 -------- -------- -------- -------- -------- -------- Return per ordinary share (0.52p) (15.37p) (15.89p) (0.70p) 19.53p 18.83p
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 Fund have been reflected in the above statement.
BALANCE SHEET As at As at 31 March 31 March 2012 2011 £'000 £'000
Investments at fair value through profit or loss 4,064 4,973
--------- --------- Current assets 861 859
Creditors: amounts falling due within one year (633) (586)
--------- --------- Net current assets 228 273 --------- ---------
Total assets less current liabilities 4,292 5,246
--------- --------- Equity shareholders' funds 4,292 5,246 --------- ---------
Net asset value per ordinary share 71.47p 87.36p
CASH FLOW STATEMENT Year to Year to 31 March 31 March 2012 2011 £'000 £'000
Net cash outflow from operating activities (27) (38) Loss on investment and servicing finance (3) (2) Capital expenditure and financial investmentr 30 21
Taxation paid (4) - --------- --------- Movement in cash (4) (19) --------- ---------
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS FUNDS For the year to 31 March 2012
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) Loss attributable to - - - - (923) (31)shareholders ------- ------- ------- ------- ------- ------- As at 31 March 2012 300 314 5,144 27 (924) (569) ------- ------- ------- ------- ------- -------
For the year to 31 March 2011
Share Share Special Capital Capital Revenue capital premium reserve redemption reserve reserve reserve £'000 £'000 £'000 £'000 £'000 £'000 As at 1 April 2010 300 314 5,144 27 (1,174) (496) Return / (loss) attributable - - - - 1,173 (42)to shareholders ------- ------- ------- ------- ------- ------- As at 31 March 2011 300 314 5,144 27 (1) (538) ------- ------- ------- ------- ------- -------
DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the financial statements inaccordance with applicable law and regulations. Company law requires the Boardto prepare financial statements for each financial year. Under that law, theDirectors have elected to prepare the financial statements in accordance withUnited Kingdom Generally Accepted Accounting Practice (UK Standards andapplicable law).The financial statements are required by law to give a true and fair view ofthe state of affairs of the Fund at the end of the financial year and of thenet return of the Fund for that year. In preparing these financial statements,the Directors are required to: (a) select suitable accounting policies and thenapply them consistently; (b) make judgments and estimates that are reasonableand prudent; and (c) state whether applicable accounting standards have beenfollowed.The Board is also responsible for the maintenance of proper accounting recordswhich disclose with reasonable accuracy, at any time, the financial position ofthe Fund and to enable them to ensure that the financial statements comply withthe Companies Act 2006. They are also responsible for safeguarding the assetsof the Fund and for taking reasonable steps for the prevention and detection offraud and other irregularities.To the best of the knowledge of the Board, the financial statements give a trueand fair view of assets, liabilities, financial position and profit/loss andthe Report of the Directors includes a fair review of the development andperformance 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 beenclassified as valuation risk, liquidity risk, interest rate risk and creditrisk. Additional risks faced by the Fund can be categorised under the followingheadings; investment policy and strategy, share price discount, regulatory andoperational / financial risk. The Fund has an established environment for themanagement of these risks which are continually monitored by the Managers. TheBoard regularly considers the risks associated with the Fund and receives bothformal and informal reports from the Managers and third party service providersaddressing these risks. Explanations of these risks and how they are mitigatedare detailed in the Annual Report, which will shortly be available on theManager's website.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 (2011 - 6,005,000) ordinary shares in issue during the year.
Total return per share is based on the total loss for the year of £954,000 (2011 - return of £1,131,000).
Capital return per share is based on net capital loss for the year of £923,000 (2011 - return of £1,173,000).
Revenue return per share is based on the revenue loss after taxation for the year of £31,000 (2011 - £42,000).
The number of shares in issue at 31 March 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 year to 31 March 2011 and 2012.
4. The above unaudited figures do not constitute full accounts in terms ofSection 435 of the Companies Act 2006 and are based on the report and accountsfor the year to 31 March 2012. The accounts for the year to 31 March 2011, onwhich the auditors issued an unqualified report have been lodged with theRegistrar of Companies and did not contain a statement required under Section498 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 2012. These accounts can be mailedto shareholders on request to the Managers and will be lodged with theRegistrar of Companies. Copies are also available for inspection at 7 CastleStreet, 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 0207 726 6111
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