SVM UK Emerging Fund

SVM UK EMERGING FUND PLC

(the “Fund”)

ANNUAL FINANCIAL RESULTS

FOR THE YEAR ENDED 31 MARCH 2022

The Board is pleased to announce the Annual Financial Results for the year ended 31 March 2022.  The full Annual Report and Financial Statements, Notice of Annual General Meeting and Form of Proxy will be posted to shareholders and be available shortly on the Manager's website at www.svmonline.co.uk

Copies of the Annual Report will be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism in due course.

HIGHLIGHTS

• Over the 12 months to 31 March 2022, net asset value total return fell 10.0% to 112.51p compared to a return of 5.4% in the chosen comparator, the IA UK All Companies Sector Average Index.

• Over the five years to 31 March 2022, net asset value has gained 19.4% and the share price 29.6%, against the comparator index return of 24.1%.

• Portfolio emphasises exposure to scalable businesses with a competitive edge that can protect margins and deliver growth.

• At 30 June 2022, net asset value per share had fallen to 89.68p

Financial Highlights	Year to 31 March 2022	Year to 31 March 2021
Total Return performance:
Net Asset Value total return*	-10.0%	52.7%
Share Price total return*	-12.1%	42.1%
Comparator Index (IA UK All Companies Sector Average Index since 1 October 2013**)	5.4%	37.8%

   

	31 March 2022	31 March 2021	% Change
Capital Return performance:
Net asset value (p)	112.51	125.00	-10.0%
Share price (p)	87.50	99.50	-12.1%
MSCI All-Share Index***	2,032.66	1,774.53	14.5%
Discount*	22.2%	20.4%
Gearing*	16.1%	16.7%
Ongoing Charges ratio:*
Investment management fees	0.86%	0.77%
Other operating expenses	1.78%	2.32%

   

Total Return to 31 March 2022 (%)	1 Year	3 Years	5 Years	10      Years	Launch (2000)
Net Asset Value	-10.0%	2.2%	19.4%	57.4%	16.0%
Comparator  Index**	5.4%	17.5%	24.1%	64.2%	-11.6%

*Alternative Performance Measures (APM). For a definition of terms see Glossary of Terms and Alternative Performance Measures in the AFS

**The comparator index for the Fund is the IA UK All Companies Sector Average.

*** A representative index of the UK Equity Market

INVESTMENT OBJECTIVE

The investment objective of the Fund is long term capital growth from investments in smaller UK companies. Its aim is to outperform the IA UK All Companies Sector Average Index on a total return basis.

           
CHAIRMAN’S STATEMENT

Over the 12 months to 31 March 2022, the Company’s net asset value fell 10.0% to 112.51p per share, compared to a return of 5.4% in the chosen comparator index, the IA UK All Companies Sector Average Index. Over the five years to 31 March 2022, net asset value has gained 19.4% and the share price 29.6%, against the IA UK All Companies Sector Average return of 24.1%. The portfolio emphasises exposure to scalable businesses with a competitive edge that can protect margins and deliver growth.  The Company’s net asset value decreased in the three months since the year end to 89.68p at 30 June 2022. (total return, FE, IA UK All Companies Sector Average for comparison purposes). 

Review of the year

This has been a painful period for growth investors, with stockmarket interest focusing on companies perceived as beneficiaries of inflation. Many growth companies delivered good results but their shares were de-rated. The invasion of Ukraine put upward pressure on the

prices of commodities and energy. These sectors outperformed but the Company has low exposure to them, many of them being large businesses. This market pattern was the primary reason for portfolio underperfomance during the year under review.

Economic overheating seems likely to lead, in the short term, to higher UK interest rates, but action by the Bank of England and a squeeze on real incomes are likely in time to cool the economy. In the medium and longer term disinflationary pressures may reassert. A recession in the UK and elsewhere is likely to emerge in the coming year but it may be relatively short.

The Fund is focused on businesses with potential for self-help and growth, which we believe to be well funded. Even in downturns there remain growth sectors in the economy and business with innovative services. The need for resilience, shorter supply chains, digital transformation and software automation, is driving growth in businesses with those specialist services. Labour market tightness works in favour of some business-to-business services that improve efficiency, as well as those that can help to manage talent and retain it.

Even amidst a squeeze on incomes, consumers change tastes and behaviours. The pandemic has also left in its wake a continuing demand for companies that support health, vaccines

and pets. Share prices for growth businesses have been reset, offering value to investors.

The strongest contributions to performance over the period were from Watches of Switzerland, Kape Technologies, Alpha FX, Kin and Carter and 4 Imprint Group. Laggards included Ceres Power, JD Sports Fashion, Essensys, Flutter Entertainment and ASOS.

Additional investment was made in Londonmetric, Kooth, Ideagen, Kape Technologies and Marlowe. To fund these purchases, Ocado, Parsley Box, Restaurant Group, The Hut Group,

Just Eat Takeaway, Molten Ventures and Moonpig were sold.

Annual General Meeting

The Annual General Meeting will be held on Friday 9 September 2022 at SVM’s offices in Edinburgh. At the last General Meeting, shareholders approved powers for the Company to issue shares and to buy back for cancellation, or to hold in treasury. Your Board has directed the Manager to implement this arrangement, operating within Board guidelines and approvals. This aims is to improve liquidity in our shares, and your Board does not expect this overall to be dilutive to shareholders.

Following the period under review on 21 June 2022, the Manager advised the Board that they had accepted a conditional offer to be acquired by Assetco plc, an AIM listed asset management company. The portfolio managers of the Company will continue in their current roles at the Managers.

Outlook

The past 12 months have seen a sharp rotation towards cyclical sectors, combined with very negative sentiment towards growth businesses. In times of market turmoil investors tend to focus more on macroeconomic news and headlines, rather than company results. Yet in the recent reporting season many growth companies reported good progress, with positive updates on current trading and prospects. The Manager focuses on resilient growing businesses, with low exposure to commodities, oil and banks.

The Fund remains fully invested with some additional gearing.

Peter Dicks

Chairman

20 July 2022

MANAGER’S REVIEW

Summary

Over the 12 months there were a number of challenges to the UK stockmarket; the Russian Ukraine war, inflation and the possibility of recession. These developments squeezed supply of energy, food and key industrial commodities at the same time as high consumer demand came at the end of the pandemic. Investor interest was very narrowly focused - on oil, banks and resources while most other sectors lagged. The Fund strategy is focused on growth in medium sized and smaller companies, with low exposure to cyclical sectors such as commodities. Many portfolio companies are currently trading well despite all the difficulties. There are signs that the UK economy is adapting to the disruption in supplies, creating opportunity for new onshore suppliers replacing risky ones overseas. The world is now much better placed to manage changes to supply chains and build up resilience. In time, disinflationary forces could reassert.

Portfolio review and investment strategy

The Managers investment approach involves sustainability, good stewardship and culture. Companies with successful business models are usually transparent in their accounting and reporting, and communicate their strategy. They have a good sense of their key value drivers and will share that in one-to-one meetings. Resilience in a business often comes from its strength within a niche. Key to the opportunity that the Managers see in investment is an ability to generate returns greater than cost of capital and to ensure that stewardship of assets is focused on this.

Some portfolio investments assisting the drive to reduce carbon emissions are in industrial sectors. Libertine Holdings, for example, floated on AIM in late 2021, and the Fund participated in its capital raise. Libertine has technology for heavy duty power trains used by trucks, and enabling technology for using fossil-free energy sources. We see opportunity for growth in applications for clean power from renewable fuels.

Geopolitical shocks tend not to dominate investment thinking for long; markets usually recover on an easing of tensions rather than full resolution. Technology is a powerful force for improving services and productivity and is likely to remain disinflationary despite some unwinding of globalisation.

The challenge for investors now is stock selection, identifying the companies best able to deal with inflation. With skill shortages, higher energy costs, and supply chains impacting manufacturers, the winners may be distributors, business services and companies with unique products and services. First to benefit will be those providing services that enhance business resilience or sustainability, or which provide logistics support to shorten supply chains.

Growth businesses, particularly if mid-cap, typically occupy niches with wide defensive moats. These range from food to legal services, representing innovation in business models for which technology may be just one factor. Some of these shares have been badly hit in the recent sell-off, but as yet have seen little deterioration in business prospects.

Hilton Food Group, a medium sized company developing internationally, reported increased revenue, maintaining a trend of continuous volume growth since its float in 2007. It is growing organically and by acquisition, and now generates more than two-thirds of its revenue outside the UK. It has a scalable business model focused on supplying protein via supermarket chains. Pork and chicken processor, Cranswick has a highly automated operating model, which should help it to deal with labour shortage and wage inflation in the food sector.

Some large cap businesses are burdened by legacy structures and business models that restrict their ability to adapt. They are also much more in the political spotlight; exposed to intervention that restricts ability to adapt and raise prices. Companies best placed in the current environment may be small and medium sized, flexible and innovative.

Kainos Group provides IT services, consulting and software solutions. It has gained from the drive to cloud and resilience. It is well positioned in the public sector, and healthcare in particular, supporting digital transformation. Trading this year shows good growth in sales and bookings. The Government has steadily increased spending on digital transformation in recent years and Kainos should participate in this. For the economy as a whole, productivity is an important driver of GDP per capita growth, and a key enabler for this is software and digital services. Kainos is currently a medium sized business but is dominant in some of the segments it services.

Insurer Beazley reported a rise in gross premiums, helped by good demand in the cyber insurance market. In cyber, Beazley, is seeing significant rate improvement and it is continuing to invest for growth. IT service business, Softcat, saw significant analyst upgrades as customers continued to invest in technology. It reported growing demand in software, hardware and services.

Top 5 Contributors to Absolute Performance (%)		Bottom Contributors to Absolute Performance (%)
Company name	Contribution	Company name	Contribution
ALPHA FX GROUP WATCHES OF SWITZERLAND KAPE TECHNOLOGIES KIN AND CARTA 4IMPRINT GROUP	1.84 1.68 0.64 0.61 0.56	JD SPORTS FASHION CERES POWER ESSENSYS GROUP FLUTTER ENTER ASOS	-2.26 -1.92 -1.43 -0.84 -0.81

A liquidity squeeze is underway; credit is tightening, challenging lossmaking businesses and questionable operating models. Risks appear to be in businesses that are not inherently generating free cash flow or where there is too much reliance on funding from suppliers or customers. The enemy of genuine growth has been easy money, allowing ailing incumbent businesses to borrow and acquire as they face competition from innovative new entrants.

The Managers' approach to stockpicking emphasises strong market positions and pricing power. Even as the economy slows, growth areas include energy efficiency, sustainability and online security. Some disruptive new business models in traditional sectors have a long growth runway and are not highly rated. They are likely to continue to take market share even as the UK economy faces the prospect of recession.

Outlook

The portfolio emphasises exposure to businesses with strong competitive positions and potential for organic growth. It also includes investments with recovery potential.

Your Fund remains fully invested with some additional gearing.

Sector analysis*	%		Listing*	%		Market Capitalisation*	%
Industrials Information Technology Consumer Discretionary Communication Services Financials Healthcare Real Estate Consumer Staples Materials	22.8 22.5 15.6 10.7 9.9 8.1 5.7 3.6 1.1		Main Market AIM Other	60.1 39.9 -		Small Mid Large	54.9 25.5 19.6
*Analysis is of gross exposure

INVESTMENT PORTFOLIO

as at 31 March 2022

Stock	Market  Exposure 2022 £000	% of Net Assets	Market Exposure 2021 £000
Alpha Financial Markets	378	5.6	258
Watches of Switzerland Group*	319	4.7	185
4Imprint Group	266	3.9	232
Dechra Pharmaceuticals	243	3.6	205
Unite Group	233	3.6	214
Kape Technologies	204	3.0	113
Hilton Food Group	182	2.7	158
FDM Group Holdings	175	2.6	166
Kin and Carta*	163	2.4	114
Keystone Law Group	157	2.3	153
Ten largest investments	2,320	34.4
Experian	148	2.2	125
Gamma Communications	147	2.2	177
Rentokil Initial	146	2.2	135
Impax Asset Management Group	140	2.1	109
JD Sports Fashion*	139	2.1	155
XP Power	138	2.0	187
Beazley Group	132	1.9	110
Jet2	131	1.9	144
Computacenter	123	1.8	99
Libertine	114	1.7	-
Twenty largest investments	3,678	54.5
Kainos Group	113	1.7	128
LondonMetric Property	110	1.6	79
Marlowe	109	1.6	-
Games Workshop Group	105	1.6	144
Oxford Instruments	105	1.5	95
Entain*	103	1.5	-
Reach	101	1.5	119
Instem	99	1.5	87
Ashtead Group	99	1.5	89
Molten Ventures	97	1.4	-
Thirty largest investments	4,719	69.9
Other investments (47 holdings)	2,825	41.9
Total investments	7,544	111.8
CFD positions	(1,136)	(16.8)
CFD unrealised gains	-	-
Net current assets	337	5
Net assets	6,745	100.0

*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 31 March 2022 is detailed on the website.

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 Fund.

Many of the Fund’s investments are in small companies and may be seen as carrying a higher degree of risk than their larger counterparts. These risks are mitigated through portfolio diversification, in-depth analysis, the experience of the Manager and a rigorous internal control culture.  Further information on the internal controls operated for the Fund is detailed in the Report of the Directors.

The principal risks facing the Fund 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 in note 10 to the financial statements. Additional risks faced by the Fund are summarised below.

The Board considers the COVID-19 pandemic, the geopolitical risks associated with the conflict between Russia and Ukraine and rising inflation to be factors which exacerbate existing risk, rather than new emerging risks.  Their impact is considered within the relevant risks.

Investment strategy – The risk that an inappropriate investment strategy may lead to the Fund underperforming its comparator, for example in terms of stock 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.

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.

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 UK Listing Authority or the Disclosure and Transparency Rules of the UK Listing Authority, could lead to regulatory and reputational damage. The Board relies on the Manager and its professional advisers to ensure compliance with section 1158 CTA, Companies Act 2006 and United Kingdom Listing Authority Rules.

Operational – The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. In common with most other Investment Trusts, 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 & control framework, which is reviewed at least annually.

Corporate Governance and Shareholder Relations – 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.

Financial – The Fund’s investment activities expose it to a variety of financial risks including market, liquidity, credit and interest rate risk. These risks are explained in note 10 to the financial statements. 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 UK quoted companies; does not use derivatives other than CFDs and uses well established and creditworthy counterparties.

The capital structure comprises only ordinary shares that rank equally. Each share carries one vote at general meetings.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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

Peter Dicks

Chairman

20 July 2022

Income statement

for the year to 31 March 2022

	Notes	Revenue £000	Capital £000	Total £000
Net loss on investments at fair value	6	-	(641)	(641)
Income	1	94	-	94
Investment management fees	2	-	(61)	(61)
Other expenses	3	(127)	-	(127)
Loss before finance costs and taxation		(33)	(702)	(735)
Finance costs		(14)	-	(14)
Loss on ordinary activities before taxation		(47)	(702)	(749)
Taxation	4	-	-	-
Loss attributable to ordinary shareholders		(47)	(702)	(749)
Loss per Ordinary Share	5	(0.78)p	(11.71)p	(12.49)p

for the year to 31 March 2021

	Notes	Revenue £000	Capital £000	Total £000
Net loss on investments at fair value	6	-	2,743	2,743
Income	1	51	-	51
Investment management fees	2	-	(48)	(48)
Other expenses	3	(144)	-	(144)
(Loss)/gain before finance costs and taxation		(93)	2,695	2,602
Finance costs		(17)	-	(17)
(Loss)/gain on ordinary activities before taxation		(110)	2,695	2,585
Taxation	4	-	-	-
(Loss)/gain attributable to ordinary shareholders		(110)	2,695	2,585
(Loss)/gain per Ordinary Share	5	(1.83)p	44.95p	43.12p

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 at 31 March 2022

	Notes	2022 £000	2021 £000
Fixed Assets
Investments at fair value through profit or loss	6	6,408	7,598
Current Assets
Debtors	7	720	107
Cash at bank and on deposit		53	-
Total current assets		773	107
Creditors: amounts falling due within one year	8	(436)	(211)
Net current (liabilities)/assets		337	(104)
Total assets less current liabilities		6,745	7,494
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		1,501	2,203
Revenue reserve		(533)	(486)
Equity shareholders’ funds		6,745	7,494
Net asset value per Ordinary Share	5	112.51p	125.00p

Approved and authorised for issue by the Board of Directors on 20 July 2022 and signed on its behalf

by Peter Dicks, Chairman.

Statement of Changes in Equity

for the year to 31 March 2022

	Share capital £000	Share premium £000	Special reserve £000*	Capital redemption reserve £000	Capital reserve £000	Revenue reserve £000*	Total £000
As at 1 April 2021	300	314	5,136	27	2,203	(486)	7,494
Loss attributable to shareholders	-	-	-	-	(702)	(47)	(749)
As at 31 March 2022	300	314	5,136	27	1,501	(533)	6,745

for the year to 31 March 2021

	Share capital £000	Share premium £000	Special reserve £000*	Capital redemption reserve £000	Capital reserve £000	Revenue reserve £000*	Total £000
As at 1 April 2020	300	314	5,136	27	(492)	(376)	4,909
Loss attributable to shareholders	-	-	-	-	2,695	(110)	2,585
As at 31 March 2021	300	314	5,136	27	2,203	(486)	7,494

*Distributable reserves at 31 March 2022 were £4,603,000 (2021: £4,650,000).

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 UK and Republic of Ireland” and under the AIC’s Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (SORP) issued in April 2021. The Directors have also prepared the Financial Statements on a going concern

basis and have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of these Financial Statements. In making their assessment the Directors have reviewed income and expenditure projections, reviewed the liquidity of the investment portfolio and considered the Company's ability to meet liabilities as they fall due. This conclusion also takes in to account the Directors' assessment of the continuing risks arising from COVID-19. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investment are highly liquid and are carried at market value.

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 dealt with 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 the 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 liabilities 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 dealt with in 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 29 June 2001, the court approved the redesignation of the Share Premium Account, at that date, as a fully distributable Special Reserve.

Capital redemption reserve.

Nominal value of own shares bought back.

Revenue reserve

Retained revenue profits and losses, being a fully distributable reserve.

Share Capital

Represents, allotted, issued and fully paid up shares of 5p each.

Share Premium

Value received for issuing shares in excess of the nominal value of 5p per share.

Notes to the financial statements

1. Income                  

	2022 £000	2021 £000
Income from shares and securities
– dividends	94	43
– interest	-	8
	94	51

2. Investment Management Fees

Investment Management Fees

61

48

3. Other expenses

Revenue

General expenses	69	82
Directors’ fees	25	25
Auditor’s remuneration	33	37
	127	144

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 UK. The differences are noted below:

Gain/(loss) on ordinary activities before taxation	(749)	2,585
Corporation tax (19%, 2021 – 19%)	(142)	491
Effects of:
Non taxable UK dividends	(14)	(5)
Gains/Losses on CFD	60	(31)
Non taxable investment gains/(losses) in capital	62	(491)
Non taxable overseas dividends	(1)	-
Movement in deferred tax rate on excess management charges	(11)	-
Movement in unutilised management expenses and NTLR deficits	46	36
Total taxation charge for the year	-	-

At 31 March 2021, the Fund had unutilised management expenses and non trade loan relationship (“NTLR”) deficits of £1,637,000 (2021 – £1,439,000).

A deferred tax asset of £409,000 (2021 - £275,000) has not been recognised on 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 (2021 – 5,999,000) ordinary shares in issue during the year.

Total return per share is based on the total loss for the year of £749,000 (2021 – gain of £2,585,000).

Capital return per share is based on the net capital loss for the year of £702,000 (2021 – gain of £2,695,000).

Revenue return per share is based on the revenue loss after taxation for the year of £47,000 (2021 – loss of £110,000).

The net asset value per share is based on the net assets of the Fund of £6,745,000 (2021 – £7,494,000) divided by the number of shares in issue at the year end as shown in note 9.

6. Investments at fair value through profit or loss

			2022 £000	2021 £000
Listed investments and CFDs			6,408	7,598
Unlisted investments			-	-
Valuation as at end of year			6,408	7,598
	Listed £000	Unlisted £000	Total £000	Total £000
Opening book cost	4,928	140	5,068	4,041
Opening investment holding gains/(losses)	2,670	(140)	2,530	422
Opening fair value*	7,598	-	7,598	4,463
Analysis of transactions made during the year
Purchase at cost	1,374	-	1,374	3,271
Sales proceeds received**	(2,237)	-	(2,237)	(2,716)
(Losses)/gain on investments***	(327)	-	(327)	2,580
Closing fair value	6,408	-	6,408	7,598
Closing book cost	4,953	140	5,093	5,068
Closing investment holding gains/(losses)	1,455	(140)	1,315	2,530
Closing fair value	6,408	-	6,408	7,598
(Losses)/gains on investments	(327)	-	(327)	2,580
Movement in CFD current liability	(314)	-	(314)	163
Net gains/(losses) on investments at fair value	(641)	-	(641)	2,743

The transaction costs in acquiring investments during the year were £2,000 (2021: £8,000).  For disposals, transaction costs were £2,000 (2021: £3,000).

The company received £2,237,000 (2021 £2,716,000) from investments sold in the year.  The book cost of these investments when they were purchased was £1,349,000 (2021 £2,244,000). 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 £7,598,000 includes £298,000 of CFD gains

** Sale proceeds received of £2,237,000 includes a balance of £586,000 in relation to CFDs.

*** (Losses)/gains on investments of (£327,000) includes a balance of £586,000 in relation to gains on CFDs

7. Debtors

	2022 £000	2021 £000
Investment income due but not received	6	8
Amounts receivable relating to CFDs – being cash held at Broker	699	1
Prepayments	2	11
Taxation	13	5
Other debtors	-	82
	720	107

8. Creditors: amounts falling due within one year

	2022 £000	2021 £000
Cash balances	-	79
Amounts due relating to CFDs – being losses on CFD contracts	375	61
Due to SVM Asset Management Limited	13	14
Other creditors	48	57
	436	211

9. Share capital

Allotted, issued and fully paid
6,005,000 ordinary 5p shares (2021 – 6,005,000)	300	300

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 the year no Ordinary Shares were brought 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. 100% (2021: 99.2%) of the Fund's net asset value is held in investments that are denominated in Sterling and are carried at fair value. Where appropriate, gearing can be utilised in order to enhance net asset value. It does not invest in short dated fixed rate securities other than where it has substantial cash resources. Fixed rate securities held at 31 March 20221 were valued at £nil (2021 – £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 0.75% as at 31 March 2022 (2021 – 0.1%). There are no undrawn committed borrowing facilities. Short-term debtors and creditors are excluded from disclosure.

The Fund does not hold any (2021: 0.8%) 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.

The major risks inherent within the Fund are market risk, liquidity risk, credit risk and interest rate risk.  It 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 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, 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, stock 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 State Street Bank & Trust Company, the main broker for CFDs is UBS and other approved execution broker organisations authorised by the Financial Conduct Authority.

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.

11. Post balance sheet events

The Manager advised the Board on 21 June 2022 that they had accepted an offer, conditional on FCA approval, to be acquired by AssetCo plc, an AIM listed asset management company. The portfolio managers of the Company will continue in their current roles at the Managers.

12.   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 31 March 2022 and 2021 are an abridged version of the statutory accounts for those years. The Auditor has reported on the 2022 and 2021 accounts, their reports for both years were unqualified and did not contain a statement under section 498 of the Companies Act 2006.  Statutory accounts for 2021 have been filed with the Registrar of Companies and those for 2022 will be delivered in due course.

13.       The Annual Report and Accounts for the year ended 31 March 2022 will be mailed to shareholders shortly and copies will be available from the Manager’s website www.svmonline.co.uk and the Fund’s registered office at 7 Castle Street, Edinburgh, EH2 3AH. 

The Annual General Meeting of the Fund will be held at 9.00 a.m. on Friday 9 September 2022 at 7 Castle Street, Edinburgh, EH2 3AH.

For further information, please contact:

Colin McLean                         SVM Asset Management                    0131 226 6699

Roland Cross                           Four Broadgate                                   0207 726 6111

20 July 2022