SVM UK EMERGING FUND PLC - Annual Financial Report

SVM UK EMERGING FUND PLC

(the “Fund”)

ANNUAL FINANCIAL RESULTS

FOR THE YEAR ENDED 31 MARCH 2016

The Board is pleased to announce the Annual Financial Results for the year ended 31 March 2016. 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 have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm

HIGHLIGHTS

• Over the 12 months, net asset value increased by 8.1% and the share price gained 5.9% compared to a return of -2.5% in the benchmark.
• Since the current investment managers took on responsibility for the portfolio in September 2012, net asset value has gained 70.3% against a benchmark return of 25.4%.
• Portfolio emphasises exposure to growth in the UK economy, and improving consumer confidence.
• The portfolio is focused on medium sized and smaller growing businesses, where management can deliver growth via self-help.

Financial Highlights	Year to 31 March 2016	Year to 31 March 2015
Total Return performance:
Net Asset Value total return	+8.1%	+2.0%
Share Price total return	+5.9%	+2.2%
Benchmark Index (IMA UK All Companies Sector Average Index since 1 October 2013*)	-2.5%	+5.6%

   

	31 March 2016	31 March 2015	% Change
Capital Return performance:
Net asset value (p)	81.47	75.38	+8.1%
Share price (p)	62.50	59.00	+5.9%
FTSE All-Share Index	3,395	3,664	-7.3%
Discount	23.3%	21.7%
Gearing****	25.2%	27.4%
Ongoing Charges ratio:
Investment management fees**	–	–
Other operating expenses***	1.2%	0.9%

   

Total Return to 31 March 2016 (%)	1 Year	3 Years	5 Years	10       Years	Launch (2000)
Net Asset Value	+8.1	+51.2	-6.7	+64.7	-16.0
Benchmark  Index*	-2.5	+20.6	-0.6	-20.8	-39.8

*The benchmark index for the Fund was changed to the IMA UK All Companies Sector Average Index from 1 October 2013 prior to which the FTSE AIM Index was used.

**The Manager has waived its management fees for the year to 31 March 2016 and 2015.

***2015 figure reduced by an accrual in respect of a prior year; without this reduction, the ongoing charges ratio for 2015 would be 1.4%.

**** The gearing figure indicates the extra amount by which shareholders’ funds would change if total assets (including CFD position exposure and netting off cash and cash equivalents) were to rise or fall. A figure of zero per cent means that the Company has a nil geared position.

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 IMA UK All Companies Sector Average Index on a total return basis.

CHAIRMAN’S STATEMENT

Over the 12 months to 31 March 2016, the Company’s net asset value increased by 8.1% to 81.47p per share, compared to a fall of 2.5% in the benchmark, the IMA UK All Companies Sector Average Index.  Over the 12 months, the share price gained 5.9%.  Since the current joint managers were appointed in September 2012, net asset value has risen 70.3%, versus a benchmark return of 25.4%. Since the period end, the EU Referendum result has created stock market volatility and the Company’s net asset value has been reduced.

Review of the year

Global stockmarkets drifted in the 12 months under review, and the UK was no exception.  In the first part of the period, a rise in US interest rates drove weakness in mining, oils and banks.  Fortunately, your Company has very low exposure to these areas.  In the first quarter of 2016, however, domestic UK sectors experienced profit-taking, as fears about the EU Referendum weighed on sentiment. Sterling and consumer sectors underperformed, and resources recovered. There was concern about the trend of real earnings in the UK and disinflationary pressures. Since the year end, however, in April and May, there has been a sharp rebound in the over-sold areas.  Fortunately, economic data is now more supportive of the UK economy, and the sectors on which the portfolio is focused are recovering. These include UK consumer and business services, healthcare and property. The EU Referendum has created some economic and political uncertainty, but the implications are as yet unclear.

The most significant contributions to performance came from Paddy Power, Betfair, Dart Group, SuperGroup, Ryanair and Johnson Service Group.  Paddy Power and Betfair gained as they completed their merger, which took the combined group into the FTSE 100.  The main disappointment was Hutchison China Meditech (HCM), which saw its shares weaken as it raised new capital when listing on the US Nasdaq market.  HCM has a strong pipeline of drug research, and has subsequently announced new trials.  The investment in Claremont Partners, representing 0.7% of the portfolio, was written-off at the year end recognising uncertainty over its prospects and valuation. The portfolio now consists solely of listed companies.

During the period, the Company added to its investments in RPC Group, Imperial Brands, Kerry Group and Sage Holdings.  New investments were made in Palace Capital, Fevertree Drinks and Autotrader. New investments emphasise businesses with potential to grow against a background of low inflation.  To fund these, some profit was taken in Unite Group, ITV and SSP Group, and Kainos was sold.

The portfolio includes businesses where there are good self-help opportunities or potential for acquisition, such as Kerry Group, RPC, Micro Focus and DCC.  Companies are held where there are good prospects for pricing improvement and volume recovery, such as Imperial Brands. The Company has a balance between cyclical exposure and investments in more defensive sectors.

The portfolio also has above average exposure to medium sized and smaller companies which are typically growing more rapidly than the largest FTSE 100 groups. Over the longer term, medium sized companies have significantly outperformed large ones. The current environment of low cost finance is encouraging businesses to restructure, facilitating acquisitions and disposals.  In contrast, the largest groups tend to be more exposed to mature markets and lower growth prospects.

Against a background of low economic growth, the Managers focus on identifying companies that generate growing cash flow, with a good management record of delivering shareholder value.  This emphasis is core to the Company’s investment strategy.  Good examples of these company characteristics include Johnson Services Group, GVC, UDG Healthcare and RPC Group. 

Annual General Meeting

The Annual General Meeting will be held on 9 September 2016 at SVM’s offices in Edinburgh. In the interim report, I said your Board is considering measures to improve ease of dealing, recognising that liquidity in our shares is currently low.  At previous General Meetings, the Company has sought from shareholders powers both to issue shares and to buy back for cancellation, or to hold in treasury.  We now seek shareholders’ approval to permit shares to be re-issued from treasury at a discount.  Taken together with purchase of shares into treasury at a discount, your Board does not expect this overall to be dilutive to shareholders, but does consider it can improve liquidity.  Your Board will monitor the operation of share purchase and re-issuance very carefully and report on this to shareholders each year. 

Outlook

The Managers report that meetings with management of companies in the portfolio continue to be predominantly favourable.  While the mixed economic background has an impact, there is good potential for organic growth in many portfolio companies.  They would benefit from further economic recovery in the UK and Europe.

The Company emphasises exposure to the UK, and businesses with operations in the US and Europe. Returns on cash deposits and bonds will remain very low, and so equities that offer growth and attractive dividend yields are being sought by investors. 

The Company remains fully invested, reflecting the potential for dividend growth, share re-ratings, and for self-help in many portfolio companies. Many may also benefit from the lower level of sterling and lower interest rates. Over the coming months, uncertainty on political issues may dissipate. 

Peter Dicks

Chairman

1 July 2016

MANAGER’S REVIEW

Summary

The Fund continued its strong recovery since 2012 with a positive absolute and relative performance in the 12 months to 31 March, 2016.  Net asset value increased by 8.1%, despite a fall in the benchmark.  Since the current investment managers, Margaret Lawson and Colin McLean, assumed portfolio responsibility, net asset value has risen 70.3%, versus a benchmark return of 25.4%.

The first six months saw weak stockmarkets globally, reacting to falls in commodity and energy prices. Economic data pointed to a marked slowdown in the Chinese economy, and deflationary pressures persisted around the world. This background encouraged profit-taking in many medium-sized and smaller companies. However, it was the major mining and oil groups that were hit hardest, and the Fund has low exposure to these sectors.  Although the UK moved briefly into deflation, the consumer sectors in which the Fund is invested were helped by some improvement in real wages. The Fund primarily generated its absolute performance over the last three months of 2015 as it became clearer that there was potential for further stimulation in the Eurozone and China, with only gradual US rate rises likely. 

The financing background for business remains favourable, with extremely low interest rates, and we expect more restructuring and merger activity. The Fund emphasises smaller and medium sized growth businesses that are typically less well researched, giving opportunity to identify value through company meetings and fundamental analysis.

The Managers believe that the biggest risk to investment performance is poor underlying long term returns in a business.  This is often created by bad management or governance, or simply by being in an area that is likely to be disrupted by new entrants.  Businesses that collapse typically show high levels of borrowing, poor governance, weak business models or questionable accounting.  These can be value traps – few are good at pricing inherently risky businesses.

Contributors to performance

During the year, the strongest contributions to performance were from Paddy Power Betfair, Dart Group, Supergroup, Ryanair, Johnson Service Group and 4Imprint Group. Betfair and Paddy Power gained as they completed their merger, creating a £6bn betting business. This joined the FTSE 100 in March 2016. The main disappointment was in Restaurant Group, which reported a challenging trading environment.

Other portfolio investments in consumer services include Domino Pizza, Autotrader and Cineworld. Consumer goods and services represent 56% of the total portfolio.  The gaming sector is undergoing restructuring internationally, as regulations change.  It is a growing industry, and apart from Paddy Power Betfair, the portfolio includes investments in GVC Holdings and Playtech. There are also investments in more disruptive business models where new entrants have an advantage in technology or business strategy. The lower oil cost and improving consumer confidence should benefit travel businesses, many of which have also proved able to manage costs aggressively. This is an area of focus for the Fund, and includes Ryanair, SSP, Dart Group and Easyjet. 

Some 17% of the portfolio is invested in the financial sector, with all of this in non-bank financials.  The largest single group within this are Real Estate Investment Trusts and other property companies. These investments – Helical Bar, St Modwen Properties, Workspace Group, Londonmetric Property and Unite Group - focus on effective management teams, typically with a specialisation. Workspace provides tailored business premises for early stage businesses in London, and Unite specialises in student residential accommodation throughout the UK.  Londonmetric invests across the UK, with an emphasis on logistics and distribution properties. 

Portfolio changes

The Fund added to its investments in RPC Group, Sage Holdings, GVC, Dalata Hotel Group, Kerry Group and Imperial Brands. Additions and new investments emphasise businesses with potential to grow against a background of low inflation. To fund these, some profit was taken in Unite Group and Workspace Group.

Themes in the purchases include exposure to global recovery and potential for restructuring or self-help. Each new investment has at least one of these characteristics, and all have growth potential. Portfolio exposure to unquoted investments has been steadily reduced over the past three years and is now zero. The Managers do not plan to make any new unquoted investments in the current year.

Outlook

Signals remain mixed, and above average cash levels show investor uncertainty. When cash is consensus, it often ends up being reinvested at higher market levels. Recovery in the US, Eurozone and UK continues to exceed most forecasts. Many UK-listed international companies are also benefiting from the recovery in the global economy. 

Your Fund remains fully invested, reflecting the potential for dividend growth and share re-ratings in many portfolio companies. The portfolio emphasises consumer sectors, property, healthcare and business services.

Sector analysis*	%		Listing*	%		Market Capitalisation*	%
Consumer Services Industrials Financials Consumer Goods Technology Health Care Basic Materials	38.6 12.5 16.6 17.7 4.4 9.2 1.0		AIM Other Main Market	18.9 5.9 75.2		Small Mid Large	31.1 41.0 27.9
*Analysis is of gross exposure

INVESTMENT PORTFOLIO

as at 31 March 2016

Stock	Market  Exposure 2016 £000	% of Net Assets	Market Exposure 2015 £000
ITV Television	275	5.6	351
Paddy Power Betfair	251	5.1	-
Johnson Service Group	223	4.6	166
Hikma Pharmaceuticals	200	4.1	163
4imprint Group	196	4.0	160
Unite Group	193	3.9	240
Dart Group	191	3.9	61
Ryanair	191	3.9	98
Ted Baker	142	2.9	130
Hutchison China Meditech	139	2.8	87
Ten largest investments	2,001	40.8
GVC Holdings	135	2.8	125
Supergroup	135	2.8	91
Workspace Group	130	2.7	209
Fevertree Drinks	114	2.3	-
Beazley Group	113	2.3	41
Redrow	112	2.3	101
St James Place	110	2.2	112
Henderson Group	108	2.2	118
Imperial Brands	102	2.1	63
Shire Pharmaceuticals	100	2.0	135
Twenty largest investments	3,160	64.5
Travis Perkins	100	2.0	106
Kerry Group	99	2.0	-
FDM Group	95	1.9	31
Tui Travel	89	1.8	98
M&C Saatchi	89	1.8	93
Crest Nicholson	88	1.8	66
Whitbread	87	1.8	115
Greggs	87	1.8	-
ASOS	87	1.8	78
DS Smith	79	1.6	-
Thirty largest investments	4,060	82.8
Other investments (39 holdings)	1,869	38.3
Total investments	5,929	121.1
CFD positions exposure	(1,335)	(27.2)
CFD unrealised gains	34	0.7
Net current assets/(liabilities)	264	5.4
Net Assets	4,892	100.0

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.  Further information is given in note 5 to the financial statements.  A full portfolio listing as at 31 March 2016 is detailed on the website.

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors review policies 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 9 to the financial statements. Additional risks faced by the Fund are summarised below:

Investment strategy – The risk that an inappropriate investment strategy may lead to the Fund underperforming its benchmark, for example in terms of stock selection, asset allocation or gearing. The Board have 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 benchmark.  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 UKLA Rules.

Operational – The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Like 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.  These are regularly monitored and are reviewed to give assurance regarding the effective operation of the controls.

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, credit and interest rate risk. These risks are explained in note 9 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, is fair, balanced and understandable and provides 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, on a going concern basis, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Fund and;

•          the Annual Report and Financial Statements 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.

•          the Annual Report and Financial Statements includes details of related party transactions, if any.

By Order of the Board

Peter Dicks

Chairman

1 July 2016

Income statement

for the year to 31 March 2016

	Notes	Revenue £000	Capital £000	Total £000
Net gain on investments at fair value	5	-	317	317
Income	1	137	-	137
Investment management fees		-	-	-
Other expenses	2	(59)	(9)	(68)
Gain before finance costs and taxation		78	308	386
Finance costs		(20)	-	(20)
Gain on ordinary activities before taxation		58	308	366
Taxation	3	-	-	-
Gain attributable to ordinary shareholders		58	308	366
Gain per Ordinary Share	4	0.97p	5.13p	6.09p

for the year to 31 March 2015

	Notes	Revenue £000	Capital £000	Total £000
Net gain on investments at fair value	5	-	35	35
Income	1	109	-	109
Investment management fees		-	-	-
Other expenses	2	(37)	(9)	(46)
Gain before finance costs and taxation		72	26	98
Finance costs		(11)	-	(11)
Gain on ordinary activities before taxation		61	26	87
Taxation	3	-	-	-
Gain attributable to ordinary shareholders		61	26	87
Gain per Ordinary Share	4	1.02p	0.43p	1.45p

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 2016

	Notes	2016 £000	2015 £000
Fixed Assets
Investments at fair value through profit or loss	5	4,628	4,571
Current Assets
Debtors	6	299	20
Cash at bank and on deposit		102	131
Total current assets		401	151
Creditors: amounts falling due within one year	7	(137)	(196)
Net current assets/(liabilities)		264	(45)
Total assets less current liabilities		4,892	4,526
Capital and Reserves
Share capital	8	300	300
Share premium		314	314
Special reserve		5,144	5,144
Capital redemption reserve		27	27
Capital reserve		(399)	(707)
Revenue reserve		(494)	(552)
Equity shareholders’ funds		4,892	4,526
Net asset value per Ordinary Share	4	81.47p	75.38p

Statement of Changes in Equity

for the year to 31 March 2016

	Share capital £000	Share premium £000	Special reserve £000	Capital redemption reserve £000	Capital reserve £000	Revenue reserve £000
As at 1 April 2015	300	314	5,144	27	(707)	(552)
Gain attributable to shareholders	-	-	-	-	308	58
As at 31 March 2016	300	314	5,144	27	(399)	(494)

for the year to 31 March 2015

	Share capital £000	Share premium £000	Special reserve £000	Capital redemption reserve £000	Capital reserve £000	Revenue reserve £000
As at 1 April 2014	300	314	5,144	27	(733)	(613)
Gain attributable to shareholders	-	-	-	-	26	61
As at 31 March 2015	300	314	5,144	27	(707)	(552)

Cash flow statement

for the year to 31 March 2016

	2016 £000	2015 £000
Operating Activities
Gain before finance costs and taxation	386	98
Adjusted for:
(Gains) on investments	(317)	(35)
Transaction costs	9	9
Taxation recovered	-	7
Movement in debtors	(279)	21
Movement in creditors	(2)	(39)
Cash flow from operating activities	(203)	61
Financing activities
Finance costs	(20)	(11)
Cash flow from financing activities	(20)	(11)
Investment Activities
Purchases of fixed asset investments	(2,702)	(2,686)
Sales of fixed asset investments	2,896	2,709
Cash flow from investing activities	194	23
Movement in cash and cash equivalent	(29)	73
Cash and cash equivalent as at start of the year	131	58
Cash and cash equivalent as at end of the year	102	131

Accounting policies

Basis of preparation

This is the first year that the Company has presented its financial statements under Financial Reporting Standard 102 (FRS 102) issued by the Financial Reporting Council and under the AIC’s Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (SORP) issued in 2014. The last financial statements under previous UK GAAP were for the year ended 31 March 2015 and the date of transition to FRS 102 was therefore 1 April 2015. There have been no changes in accounting policies as a consequence of adopting FRS 102. There was no adjustment to the Company’s Income Statement for the year to 31 March 2015 and the Balance Sheet as at 31 March 2015. The Cash Flow Statement for the year to 31 March 2015 has been restated to reflect presentational changes to be consistent with the format of FRS 102. The financial statements have been prepared on a going concern basis. The functional and presentation currency is pounds sterling, which is the currency of the environment in which the Company operates.

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

Income is included in the Income Statement on an ex-dividend basis. Income on fixed interest securities is included on an effective interest rate basis. Deposit interest is included on an accruals basis.

Expenses and interest

Expenses and interest payable are dealt with on an accruals basis.

Investment management fees

Investment management fees, if any, are allocated 100 per cent to capital. The allocation is in line with the Board’s expected long-term return from the investment portfolio. Due to the size of the Fund, the Manager has waived its management fee. The terms of the investment management agreement are detailed in the Report of the Directors.

Taxation

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 tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not 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. Contracts for Differences are synthetic equities and are valued with reference to the investment’s underlying bid prices. 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.

Foreign currency translation

Transactions involving foreign currencies are converted at the rate ruling as at the date of the transaction. 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 incentive fees and investment management fees, together with any tax relief, is also taken to this reserve. Increases and decreases in the valuation of fixed asset investments are dealt with in this reserve.

Notes to the financial statements

1. Income

Income from shares and securities                     

	2016 £000	2015 £000
– dividends	137	109
– interest	-	-
	137	109

2. Other expenses

Revenue

General expenses	28	6†
Directors’ fees	18	18
Auditor’s remuneration  audit services	12	12
taxation services	1	1
	59	37

^† The figure for 2015 has been reduced by an accrual for Auditor’s fees in respect of a prior year of £20,000.

Capital                                  

Transaction costs
– acquisitions	4	4
– disposals	5	5
	9	9

3. Taxation

Current taxation	–	–
Deferred taxation	–	–
Total taxation 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 on ordinary activities before taxation	366	87
Corporation tax (20%, 2015 – 20%)	73	17
Non taxable UK dividends	(25)	(18)
Non taxable investment (gains)/losses in capital	(61)	(5)
Movement in unutilised management expenses and NTLR deficits	13	6
Total taxation charge for the year	–	–

At 31 March 2016, the Fund had unutilised management expenses and non trade loan relationship (“NTLR”) deficits of £927,000 (2015 – £910,000).

A deferred tax asset of £185,000 (2015 - £182,000) has not been recognised on the 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.

4. Returns per share

Returns per share are based on a weighted average of 6,005,000 (2015 – 6,005,000) ordinary shares in issue during the year.

Total return per share is based on the total gain for the year of £366,000 (2015 – gain of £87,000).

Capital return per share is based on the net capital gain for the year of £308,000 (2015 – gain of £26,000).

Revenue return per share is based on the revenue gain after taxation for the year of £58,000 (2015 – gain of £61,000).

The net asset value per share is based on the net assets of the Fund of £4,892,000 (2015 – £4,526,000) divided by the number of shares in issue at the year end as shown in note 8.

5. Investments at fair value through profit or loss

			2016 £000	2015 £000
Listed investments			4,628	4,541
Unlisted investments			-	30
Valuation as at end of year			4,628	4,571
	Listed £000	Unlisted £000	Total £000
Valuation as at start of year	4,541	30	4,571	4,421
Investment holding (gains)/losses as at start of year	(1,225)	(155)	(1,070)	(896)
Cost as at start of year	3,316	185	3,501	3,525
Purchases of investments at cost	2,547	-	2,547	2,816
Proceeds from sale of investments	(2,901)	-	(2,901)	(2,715)
Transfers	-	-	-	-
Net gain/(loss) on sale of investments	545	-	545	(125)
Cost as at end of year	3,507	185	3,692	3,501
Investment holding gains/(losses) as at end of year	1,121	(185)	936	1,070
Valuation as at end of year	4,628	-	4,628	4,571
Net gain/(loss) on sale of investments	545	-	545	(125)
Movement in investment holding gains	(198)	(30)	(228)	160
Total gain/(loss) on investments	347	(30)	317	35

6. Debtors

	2016 £000	2015 £000
Investment income due but not received	9	12
Amounts receivable relating to CFDs	290	8
Taxation	-	-
	299	20

7. Creditors: amounts falling due within one year

	2016 £000	2015 £000
Amounts due relating to CFDs	116	23
Other creditors	21	173
	137	196

8. Share capital

Allotted, issued and fully paid
6,005,000 ordinary 5p shares (2015 – same)	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.

9. Financial instruments

Risk Management

The Fund’s investment policy is to hold investments, CFDs and cash balances with gearing being provided by a bank overdraft. All financial instruments are denominated in sterling and are carried at fair value. The fair value is the same as the carrying value of all financial assets and liabilities. 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 2016 were valued at £nil (2015 – £nil). Investments, which comprise principally equity investments, are valued as detailed in the accounting policies.

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.

10.   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 2016 and 2015 are an abridged version of the statutory accounts for those years. The Auditor has reported on the 2016 and 2015 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 2015 have been filed with the Registrar of Companies and those for 2016 will be delivered in due course.

11.       The Annual Report and Accounts for the year ended 31 March 2016 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 9.30am on Friday 9 September 2016 at 7 Castle Street, Edinburgh, EH2 3AH.

For further information, please contact:

Colin McLean                                   SVM Asset Management                0131 226 6699

Roland Cross                                   Broadgate Mainland                                    0207 726 6111

1 July 2016

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