FIDELITY SPECIAL VALUES PLC
Final Results for the year ended 31 August
2023
Financial
Highlights:
-
Fidelity
Special Values PLC reports a +5.9% NAV and a +5.6% share price rise
against a Benchmark return of +5.2%.
-
The Board
recommends a final dividend of 6.27
pence per share which together with the interim dividend
payment of 2.53 pence per share
(totalling 8.80 pence) represents an
increase of 13.5% over the prior year.
-
In an
environment of rising interest rates, the overweight exposure to
banks was the largest contributor to performance.
-
The
Portfolio Manager believes we are potentially in the very early
stages of a long-term rally in value stocks.
Contacts
For further information, please
contact:
Smita Amin
Company Secretary
01737 836347
FIL Investments International
CHAIRMAN’S STATEMENT
The global backdrop for the year under review remains unsettled.
The prolonged Russia/Ukraine war has affected energy prices and
global trade as well as contributing to an increasingly fractious
geopolitical environment. More recently, the developing conflict in
the Middle East has added concerns
about the impact on oil prices and disruption to global supply
chains and commodity markets. In the banking sector, the collapse
of Credit Suisse in Europe and
several regional banks in the US raised fears of systemic contagion
not seen since the Global Financial Crisis of 2008/9. Fortunately,
this did not materialise. The year under review has certainly been
an interesting one for the UK, featuring three Prime Ministers and
as many Chancellors of the Exchequer, seven months of double-digit
CPI inflation and eight consecutive base rate increases. Against
this background, the UK stock market delivered rather dull returns,
with the FTSE All-Share Index (“Benchmark”) delivering a total
return of a little over 5% and the mid-cap and small-cap indices
essentially flat year-on-year.
Your Company marginally outperformed the Benchmark, with a net
asset value (“NAV”) total return of 5.9% and a share price total
return of 5.6% compared with the 5.2% return for the Benchmark.
While this may look unremarkable at face value, it is notable given
the significant differences between the Company’s portfolio and the
Benchmark. More than 80% of the Benchmark is accounted for by the
largest stocks that make up the FTSE 100 Index (total return of
6.3% for the year), whereas your Company only has around a quarter
of its holdings which are in the FTSE 100 Index. Overall, the
weighting in small-cap and mid-cap companies hurt relative returns
in the year under review, while stock selection in banks and
financials, where the portfolio is overweight compared to the
Benchmark, contributed most to the outperformance.
As your Portfolio Manager, Alex
Wright, outlines in his report, while mid-cap and small-cap
exposure detracted from returns relative to the Benchmark, these
under-researched companies currently offer particularly
attractively valued opportunities and have historically been a
strong contributor to the Company’s long-term outperformance. Over
the ten years to 31 August 2023, the
Company’s NAV and share price total returns of 107.1% and 100.0%
respectively are well ahead of the Benchmark total return of 70.6%.
It is pleasing to see that Alex’s long-term, value-focused strategy
is still working well, even as the UK remains out of favour
compared with other developed markets. He is well supported by
Jonathan Winton, the co-Portfolio
Manager, and by Fidelity’s extensive investment research
team.
DIVIDEND
Dividends are an important component of long-term total returns and
the Board’s policy is to pay dividends twice yearly in order to
smooth the dividend payments for the Company’s financial
year.
The Company’s revenue return for the year to 31 August 2023 was 10.67
pence per share (2022: 9.42
pence). An interim dividend of 2.53
pence per share (2022: 2.30
pence) was paid on 21 June
2023. The Board recommends a final dividend of 6.27 pence per share for the year ended
31 August 2023 (2022: 5.45 pence) for approval by Shareholders at the
Annual General Meeting (“AGM”) on 14
December 2023. The interim and final dividends (total of
8.80 pence) represent an increase of
1.05 pence (13.5%) over the
7.75 pence paid for the year ended
31 August 2022. The dividend will be
payable on 10 January 2024 to
Shareholders on the register at close of business on 1 December 2023 (ex-dividend date 30 November 2023).
The interim and final dividends for the year will provide
Shareholders with a 14th consecutive year of sustained annual
dividend growth. While income is not a core objective of your
Company’s investment strategy, we as a Board understand the value
of being ‘paid to wait’ in times of more muted stock market
performance.
GEARING
Gearing has remained relatively low during the year under review,
beginning the period at 10.0% and ending at 6.5%. This reflects
Alex’s caution on the economic environment and, while he can find
value in individual companies, there is a risk that the economic
outlook may undermine their ability to deliver on forecast
earnings. As he explains in his report, the current modest level of
gearing means Alex has plenty of ‘dry powder’ that he can use to
take advantage of any new investment opportunities in the coming
year.
The Board has agreed with the Portfolio Manager that if he is able
to find attractive opportunities in the market, then the Company’s
gearing should be allowed to rise. Combined with Alex’s contrarian
and value-focused investment philosophy, and also making effective
use of the Company’s structural advantages over its open-ended
counterparts, this should continue to add value for Shareholders
over the long-term.
It is the current intention of the Board that, in normal market
conditions, the Portfolio Manager will maintain gearing in the
range of 0% to 25%. The Company remained within these levels
throughout the reporting year. The maximum level of gearing allowed
is 40%.
DISCOUNT
Investment trust discounts have widened significantly in the past
18 months, and at the time of writing, the investment trust sector
average discount was 18.7%. After several years of trading close
to, or at a premium to NAV, your Company has not been immune to
this trend of widening discounts. However, in the year under
review, the discount to NAV remained relatively stable, beginning
the year at 8.5% and ending it at 8.8%. Under the Company’s
discount management policy, the Board seeks to maintain the
discount in single digits in normal market conditions and during
the year it briefly reached the 10% level before quickly reverting
back into single digits. While a number of our peers have elected
to repurchase shares this year because of the pressure of rising
discounts, we have not undertaken any share repurchases, and as at
31 August 2023, your Company remains
the only one in its UK All Companies peer group to be trading at a
single-digit discount to NAV. The average discount for the other
companies in the peer group was 12.3%.
The Board continues to monitor the level of the Company’s discount
closely and will take action when it believes to do so will be
effective and to the benefit of Shareholders.
RAISING OUR PROFILE
While the strength of Alex’s investment performance over many years
will have been a key factor in limiting the rise in the discount,
your Board and Fidelity have also been working hard to raise the
Company’s profile with both retail and institutional investors. You
may have seen Alex’s articles in The Sunday Times or the Daily
Express; his views on investing and the UK stock market attract a
lot of media interest, and he also regularly appears at
professional investor roadshows. A discount to NAV tends to arise
when there are more sellers than buyers in the market, and we
appreciate Alex’s efforts to make the time to ensure that your
Company remains high on investors’ buy lists. External recognition
is always a bonus, and we were delighted that in November 2022, the Company was named as the best
UK All Companies Trust in the Investment Company of the Year awards
from Investment Week magazine.
BOARD OF DIRECTORS
As part of the Board’s succession plan, Andy Irvine retired from the Board at the
conclusion of the AGM on 14 December
2022, having served on the Board as a non-executive Director
since 2010 and as Chairman since 2016, and we thank him for his
significant contribution to the Company during this period. At the
same time, I succeeded him as Chairman of the Board and
Nigel Foster succeeded me as Senior
Independent Director. There have been no other Board changes during
the reporting year.
In accordance with the UK Corporate Governance Code for Directors
of FTSE 350 companies, all Directors are subject to annual
re-election at the AGM on 14 December
2023. The Directors’ biographies can be found in the Annual
Report, and, between them, they have a wide range of appropriate
skills and experience to form a balanced Board for the
Company.
ANNUAL GENERAL MEETING
The Company’s AGM is at 11.00 am on
Thursday, 14 December
2023.
This is a great opportunity for Shareholders to hear Alex’s
thoughts at first hand and also to meet your Company’s Directors.
The Board and I hope to see as many of you as possible on the day.
Details of the Company’s AGM are below.
OUTLOOK
The UK equity market has remained distinctly out of favour in a
global context, particularly when compared with the US. The macro
headwinds are undeniable: inflation has been stubbornly higher than
in other developed economies, interest rates have risen further and
faster, and there is the added uncertainty of a General Election at
some point in the next 15 months. However, there are also reasons
for optimism: both core and headline inflation have begun to trend
downwards, there is an increasing expectation that the Bank of
England base rate is at or close
to a cyclical peak and upward revisions to UK GDP numbers suggest a
greater likelihood of avoiding recession. Added to this, the UK
stock market remains at low valuation levels compared to other
developed markets, reducing downside risk and providing the
potential for significant upside when sentiment becomes more
positive.
Against this backdrop, we are fortunate to have a Portfolio Manager
with an active and contrarian approach to stock picking that allows
him to seek out pockets of opportunity that may be
under-appreciated by investors both at home and
internationally.
As Alex points out in his Portfolio Manager Review, there are many
UK-listed stocks that may be affected by the economic cycle in the
short-term but which have compelling company-specific stories that
can be important drivers of their share price over time. By
favouring attractively valued businesses with lower levels of debt
and the resilience to navigate the climate of uncertainty, we are
confident that Alex’s selections have the potential to deliver
solid longer-term returns, as has been demonstrated in your
Company’s strong performance compared to the Benchmark over many
years.
On a final note, it was very pleasing to see at the Company’s AGM
on 14 December 2022 that the
Company’s three-yearly continuation resolution was passed with
99.89% of votes in favour. We thank our Shareholders for this
overwhelming vote of confidence in Alex’s long-term approach and
look forward to continuing to justify your support of Fidelity
Special Values PLC in the years ahead.
DEAN
BUCKLEY
Chairman
6 November 2023
ANNUAL GENERAL MEETING – THURSDAY, 14 DECEMBER 2023 AT 11.00
AM
The AGM of the Company will be held at 11.00
am on
Thursday, 14 December
2023
at 4 Cannon Street, London EC4M
5AB (nearest tube stations are St Paul’s or Mansion House) and
virtually via the online Lumi AGM meeting platform. Full details of
the meeting are given in the Notice of Meeting
in the Annual Report.
For those shareholders who are unable to attend in person, we will
live-stream the formal business and presentations of the meeting
online.
Alex Wright, the Portfolio Manager,
will be making a presentation to shareholders highlighting the
achievements and challenges of the year past and the prospects for
the year to come. He and the Board will be very happy to answer any
questions that shareholders may have. Copies of his presentation
can be requested by email at
investmenttrusts@fil.com
or in writing to the Secretary at FIL Investments International,
Beech Gate, Millfield Lane,
Lower Kingswood, Tadworth, Surrey
KT20 6RP.
Properly registered Shareholders joining the AGM virtually will be
able to vote on the proposed resolutions. Please see Note 9 to the
Notes to the Notice of Meeting in the Annual Report for details on
how to vote virtually. Investors viewing the AGM online will be
able to submit live written questions to the Board and the
Portfolio Manager and we will answer as many of these as possible
at an appropriate juncture during the meeting.
Further information and links to the Lumi platform may be found on
the Company’s website
www.fidelity.co.uk/specialvalues.
On the day of the AGM, in order to join electronically and ask
questions via the Lumi platform,
shareholders will need to connect to the website
https://web.lumiagm.com.
Please note that investors on platforms such as Fidelity Personal
Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell
Youinvest will need to request attendance at the AGM in accordance
with the policies of your chosen platform. They may request that
you submit electronic votes in advance of the meeting. If you are
unable to obtain a unique IVC and PIN from your nominee or
platform, we will also welcome online participation as a guest.
Once you have accessed
https://web.lumiagm.com
from your web browser on a tablet or computer, you will need to
enter the
Lumi Meeting ID
which is
102-255-614.
You should then select the ‘Guest Access’ option before entering
your name
and who you are representing, if applicable. This will allow you to
view the meeting and ask questions, but you will not be able to
vote.
PORTFOLIO MANAGER’S REVIEW
QUESTION
How has the Company performed in the year to 31 August 2023?
ANSWER
The Company recorded a net asset value (“NAV”) and share price
total return of 5.9% and 5.6% respectively, which was slightly
ahead of the FTSE All-Share Index (Benchmark) return of 5.2%. The
positive returns conceal what proved to be another volatile period
as markets grappled with political uncertainties at home,
culminating in last October’s mini-budget debacle, persistent
weaker economic indicators, stubbornly elevated inflation, and
sharply rising interest rates.
In an environment of rising interest rates, our overweight exposure
to banks was the largest contributor to performance, given the low
starting point for valuations and the meaningful impact of higher
rates on bank profits. The largest individual contributors were AIB
Group, the leading personal bank and mortgage provider in
Ireland, UK-listed TBC Bank Group,
the largest banking group in Georgia, and Kaspi.kz, the dominant consumer
finance, e-commerce and payments platform in Kazakhstan.
Despite the rising cost of living, retailer Marks & Spencer
Group bucked the trend, reporting strong trading in clothing and
food, taking meaningful market share in both areas. Similarly, the
resurgence in travel demand after the COVID pandemic saw the share
prices of low-cost airline Ryanair Holdings and passport photo
booth operator ME Group International (formerly known as Photo-Me
International) recover strongly. Outsourcer Mitie Group reported
record full-year revenues as it posted an increase in operating
profits, boosted by contract wins, renewals and acquisitions. It is
now a much-improved business, with a healthier balance sheet,
simplified structure and huge investments in systems and
technology, allowing it to win more work at better
margins.
We make a concerted effort to look for opportunities across the
market, and our resulting bias to small- and mid-cap companies,
which account for about 60% of the portfolio, hurt relative returns
as they were seen as more vulnerable to economic weakness. However,
this is an under-researched area where we continue to find
particularly attractively valued opportunities.
Sector-wise, our oil and gas positions proved a drag on
performance, with our holding in North Sea producer Ithaca Energy
the largest detractor. The stock was affected by the introduction
of a windfall tax, a policy that will hurt North Sea investments
generally, and largely undermine the UK’s energy security goal. The
Government is now looking to partially reverse this
decision.
Government outsourcer Serco Group was a surprising underperformer
given that it has delivered strong profits and recently upgraded
its full year earnings forecast. It is a well-run business that is
diversified both geographically and services-wise and should be
capable of producing inflation protected organic growth with the
potential for some margin expansion over the medium-term. Its
exposure to defence and immigration contracts is particularly
attractive in the current political environment, and its strong
balance sheet provides mergers and acquisitions (“M&A”) and
buyback optionality.
Drink distributor C&C Group suffered from a slow recovery in
pub demand post-COVID, rising costs and problems with implementing
a new IT system. The market seems to be assuming those issues are
permanent, but we believe that C&C has an unusually dominant
position as one of the only national distributors and should be
able to gradually pass on price increases and overcome its
operational challenges to deliver strong profitability growth over
the medium-term as margins improve towards historical
levels.
QUESTION
High inflation and the cost-of-living crisis persist. How
has this affected the Company’s portfolio this
year?
ANSWER
Overall, we have been pleased by the earnings resilience of the
holdings in the Company’s portfolio. Last year, we materially
reduced our consumer exposure, selling our holdings in domestic
housebuilders and cutting exposure to areas more susceptible to a
demand slowdown, such as big-ticket items and advertising. These
decisions contributed positively to this year’s performance given
the profit warnings in those industries, and with the housing
market experiencing a marked slowdown. However, the profit warnings
have not been as widespread as feared and in general the consumer
has proved relatively resilient, helping Marks & Spencer,
travel companies and airlines to beat earnings expectations. This
reflects economic indicators that have been weak but not
excessively so.
QUESTION
With interest rates at their highest level for 15 years,
how will this affect markets and the Company’s current
portfolio?
ANSWER
Rising interest rates have led to a meaningful de-rating in some
areas of the market where business models are heavily dependent on
debt, such as real estate and infrastructure, and have caused
significant weakness in the UK housing market. These are industries
where we had very low exposure.
Conversely, higher interest rates have benefited sectors such as
banks and life insurers, which we favour, and which had been
shunned since the global financial crisis. More generally, the
combination of higher rates and the weaker economic environment is
likely to remain challenging in the near-term for corporates and
consumers who need to refinance their debts. As a result, we remain
selective and favour companies with lower levels of debt and the
resilience to navigate the uncertainty.
M&A activity has been prevalent over recent years given cheap
financing and attractive valuations on offer in the UK. Holdings
that exited the Company’s portfolio as a result of successful bids
over the past 12 months include international power producer
ContourGlobal, consultancy firm RPS Group and teleradiology
services provider Medica Group. The jump in funding costs may deter
some bids, especially at the larger-cap end of the market, but
smaller-sized deals should be more manageable and valuations in
smaller-cap companies are more appealing.
QUESTION
Value stocks have outperformed growth stocks over the last
three years, do you think this will continue?
ANSWER
Over the past decade, we have experienced a prolonged period of
subdued inflation, low interest rates and modest economic growth.
This has favoured growth companies at the expense of those that we
favour – unloved stocks with lower downside risk. While this trend
began to reverse towards the end of 2020, value stocks still have
significant ground to catch up.
The current market environment of higher and stickier inflation,
rising interest rates and economic volatility is more aligned to
the long-term pattern seen over the last 100 years. History
suggests that over the long-term value tends to outperform, given
generally higher discount rates and a reversion to the mean. We,
therefore, believe that we are in the very early stages of a
long-term rally in value stocks.
QUESTION
How is the UK market valued compared to the rest of the
world? Does the UK still present a good opportunity for
investors?
ANSWER
UK equities are pricing in extreme pessimism and, as a result,
trade at a significant discount to other markets. While the
near-term outlook is uncertain and corporate earnings could still
disappoint in the UK, this is also true of other markets such as
the US, where valuations are meaningfully more
expensive.
To provide some context, at the time of writing (September 2023), our analysts estimate that the
UK equity market (FTSE All-Share Index) trades on 10.9x 2024
earnings; continental European equities (MSCI Europe ex UK Index)
trades on 13.4x earnings and the US (S&P 500 Index) trades on
18.6x earnings. Our portfolio, which trades on only 7.7x earnings,
is at the very bottom of the valuation range seen over my ten year
tenure, despite offering better sales and profit growth prospects,
and carrying significantly less debt. When considering that the
Company’s shares as at 31 August 2023
were available at a discount of 8.8% to the NAV, we believe that
this could be a great investment opportunity on a three to five
year view.
QUESTION
The Company’s portfolio is overweight in banking and life
insurers. Why do you prefer these sectors
currently?
ANSWER
Financials form the biggest part of the Company’s portfolio, with
banks and life insurers comprising 16% and 8% respectively of the
portfolio. Higher interest rates have enabled banks to
significantly improve their profitability at a time when earnings
in many industries are under pressure. Yet many investors continue
to avoid banks because they are scarred from the 2008 global
financial crisis. As a result, banks trade on attractive
valuations. UK and Irish banks have become much higher quality
businesses since the changes to the regulatory environment over the
past decade. They have strengthened their balance sheets, trimmed
bloated cost bases and withdrawn from riskier lending.
Our holdings in the sector are diversified both geographically and
through business models, with idiosyncratic factors driving their
growth. For example, our largest holding is AIB Group which is not
only an interest rate story but also benefits from an improvement
in Ireland’s banking industry, where the number of competing groups
has recently shrunk from five to three. The rising interest rate
environment is also positive for life insurers, which benefit from
an acceleration in pension fund re-risking.
While our holdings in these two sectors remain attractively valued,
we have taken some profits following the strong returns achieved
over the past year. We have redeployed some of the proceeds into
non-life insurance companies, adding to our modest exposure (c. 4%
of the portfolio at the time of writing) given the improving
pricing environment and moderating cost of insurance
claims.
QUESTION
What do you think are the biggest risks and opportunities
for the next 12 months?
ANSWER
The biggest risk is a recession and its impact on corporate
earnings. While there is increasing talk of a soft landing, there
is considerable historical evidence on the impact of monetary
tightening to keep us cautious on company prospects in the
near-term. In this uncertain environment, we favour companies with
lower levels of debt and the resilience to navigate the
uncertainty. We are wary of stocks where fundamentals and margins
have been strong, and a deterioration is not priced in.
While we consider the current macroeconomic backdrop when we
forecast financials for our holdings and potential new ideas, we
feel our time is best spent on researching stocks from a bottom-up
perspective and taking a long-term view of their prospects. Many of
these companies will be affected by the economic cycle but have
compelling company specific stories that can be important drivers
of their share price over time.
Given the nature of the post-pandemic environment, there are
companies that have already exhibited fundamental weakness
resembling a recessionary scenario, and while corporate earnings
have generally performed better than expected, there have been
profit warnings in the small-and mid-cap companies’ space. Many of
these companies have seen their earnings rebased and trade on low
valuations with limited downside and significant upside once the
environment normalises. This is starting to present us with some
interesting opportunities, and we have begun to build positions in
some of these stocks, particularly in smaller companies.
Nonetheless, our caution is reflected in the Company’s modest
gearing. While valuations are attractive and we are finding new
ideas, we are conscious of the near-term uncertainty and want to
retain some dry powder to take advantage of any forced sellers and
new opportunities.
ALEX
WRIGHT
Portfolio Manager
6 November 2023
Strategic Report
Principal Risks and Uncertainties and Risk
Management
As required by provisions 28 and 29 of the 2018 UK Corporate
Governance Code, the Board has a robust ongoing process for
identifying, evaluating and managing the principal risks and
uncertainties faced by the Company, including those that could
threaten its business model, future performance, solvency or
liquidity. The Board, with the assistance of the Alternative
Investment Fund Manager (FIL Investment Services (UK) Limited/the
“Manager”), has developed a risk matrix which, as part of the risk
management and internal controls process, identifies the key
existing and emerging risks and uncertainties that the Company
faces. The Audit Committee continues to identify any new emerging
risks and take any action necessary to mitigate their potential
impact. The risks identified are placed on the Company’s risk
matrix and graded appropriately. This process, together with the
policies and procedures for the mitigation of existing and emerging
risks, is updated and reviewed regularly in the form of
comprehensive reports by the Audit Committee. The Board determines
the nature and extent of any risks it is willing to take in order
to achieve its strategic objectives.
Climate change, which refers to a large scale shift in the planet’s
weather patterns and average temperatures, continues to be a key
emerging as well as a principal risk confronting asset managers and
their investors. The Board notes that the Manager has integrated
ESG considerations, including climate change, into the Company’s
investment process. Further details are in the Annual Report. The
Board will continue to monitor how this may impact the Company as a
risk to investment valuations and potentially Shareholder
returns.
The Manager also has responsibility for risk management for the
Company. It works with the Board to identify and manage the
principal and emerging risks and uncertainties and to ensure that
the Board can continue to meet its UK corporate governance
obligations.
The Board considers the risks listed below as the principal risks
and uncertainties faced by the Company.
Principal Risks
|
Description and Risk Mitigation
|
Market, Economic
and Political Risks
|
The Company may be affected by market and economic risks. The
principal market related risks are market downturn, interest rate
movements, inflation and market shocks, such as the post pandemic
UK economy recovery, volatility from the war in Ukraine and more
recently conflict in the Middle East. The Company may also be
impacted by concerns over global economic growth and major
political events affecting the UK market and economy and the
consequences of this. Inflation remains elevated across most
economies driven by a combination of increased demand following the
pandemic restrictions being lifted, global labour shortages in some
sectors and supply chain shortages, including energy and food
security. Inflation and economic instability are leading to a
prolonged cost-of-living crisis and potentially impacting
investors’ risk appetite.
The Company is exposed to a number of geopolitical risks. The
fast-changing global geopolitical landscape is largely shaped by
the Russia and Ukraine war effects, deglobalisation trends and
significant supply disruption, as well as fears of global recession
amid inflationary pressures and financial distress. Russia and
Ukraine are both significant net exporters of oil, natural gas and
a variety of soft commodities and supply limitations have fuelled
global inflation and economic instability, specifically within
Western nations.
The Company’s portfolio is made up mainly of listed securities. The
Portfolio Manager’s success or failure to protect and increase the
Company’s value against the above background is core to the
Company’s continued success. The investment philosophy of
stock-picking and investing in attractively valued companies should
outperform the Benchmark over time.
The risk from the likely effects of unforeseen economic and market
events is somewhat mitigated by the Company’s investment trust
structure which means no forced sales need to take place to deal
with any redemptions. Therefore, investments can be held over a
longer time horizon.
The Board reviews market, economic and political risks and
legislative changes at each Board meeting.
Risks to which the Company is exposed to in the market risk
category are included in Note 17 to the Financial Statements below
together with summaries of the policies for managing these
risks.
|
Investment
Performance Risk
(including the use
of derivatives and
gearing)
|
The Board relies on the Portfolio Manager’s skills and judgement to
make investment decisions based on research and analysis of
individual stocks and sectors. The Board reviews the performance of
the asset value of the portfolio against the Company’s Benchmark
and its competitors and also considers the outlook for the market
with the Portfolio Manager at each Board meeting. The emphasis is
on long-term investment performance as there is a risk for the
Company of volatility of performance in the
shorter-term.
Derivative instruments are used to protect and enhance investment
returns. There is a risk that the use of derivatives may lead to
higher volatility in the NAV and the share price than might
otherwise be the case. The Board has put in place policies and
limits to control the Company’s use of derivatives and exposures.
These are monitored on a daily basis by the Manager’s Compliance
team and regular reports are provided to the Board. Further detail
on derivative instruments risk is included in Note 17 to the
Financial Statements below.
The Company gears through the use of long CFDs which provide
greater flexibility and are generally cheaper than bank loans as a
form of financing. The principal risk is that the Portfolio Manager
fails to use gearing effectively, resulting in a failure to
outperform in a rising market or increasing underperformance in a
falling market. The Board regularly considers the level of gearing
and gearing risk and sets limits within which the Manager must
operate.
|
Cybercrime and
Information Security
Risks
|
The operational risk from cybercrime is significant. Cybercrime
threats evolve rapidly and consequently the risk is regularly
re-assessed and the Board receives regular updates from the Manager
in respect of the type and possible scale of cyberattacks. The
Manager’s technology team has developed a number of initiatives and
controls in order to provide enhanced mitigating protection to this
ever-increasing threat. The risk is frequently re-assessed by
Fidelity’s information security teams and has resulted in the
implementation of new tools and processes, including improvements
to existing ones. Fidelity has a dedicated cybersecurity team which
provides regular awareness updates and best practice
guidance.
Risks are increased due to the Russia/Ukraine conflict and the
trend to more working from home following the pandemic. These
primarily relate to phishing, remote access threats, extortion and
denial of services attacks. The Manager has dedicated detect and
respond resources specifically to monitor the cyber threats
associated within the workplace and increased cyber activity
following Russia’s invasion of Ukraine. There are a number of
mitigating actions in place including, control strengthening,
geo-blocking and phishing mitigants, combined with enhanced
resilience and recovery options.
The Company’s third-party service providers also provide assurances
and have similar control measures in place to detect and respond to
cuber threats and activity.
|
Environmental, Social
and Governance
(“ESG”) Risk
|
There is a risk that the value of the assets of the Company are
negatively impacted by ESG related risks, including climate change
risk. ESG risks include investor expectations and how the Company
is positioned from a marketing perspective and whether it is
compliant with its ESG disclosure requirements. Fidelity has
embedded ESG factors in its investment decision-making process. ESG
integration is carried out at the fundamental research analyst
level within its investment teams, primarily through Fidelity’s
Proprietary Sustainability Rating which is designed to generate a
forward-looking and holistic assessment of a company’s ESG risks
and opportunities based on sector-specific key performance
indicators across 127 individual and unique sub-sectors. The
Portfolio Manager is also active in analysing the effects of ESG
when making investment decisions. The Board continues to monitor
developments in this area and the positioning of the Company’s
portfolio considering ESG factors.
Further detail on ESG considerations in the investment process and
sustainable investing is in the Annual Report. ESG ratings of the
companies within the Company’s portfolio compared to MSCI ratings
are provided in the Annual Report.
|
Competition Risk
|
Threats facing the Company are loss of Shareholders if the demand
for investment trusts declines, and the demand for passive funds
and active ETFs (Exchange-Traded Funds) continue to increase. ESG
funds offered by competitors may pose competition threats with
funds or companies that may offer higher ESG credentials,
especially for younger investors. The Board reviews the strategic
direction of the Company on an ongoing basis to ensure that it
offers a relevant product to Shareholders. It also regularly
reviews the Shareholder profile of the Company with the Company’s
Broker. ESG factors are embedded into the Portfolio Manager’s
investment decision process.
|
Business Continuity
Risk
|
There continues to be increased focus from financial services
regulators around the world on the contingency plans of regulated
financial firms. The top risks globally are cybersecurity,
geopolitical events and natural disasters. There are also ongoing
risks from the Russia/Ukraine war, specifically regarding the
potential loss of power and/or broadband services. Variants of
COVID continue to evolve and some risks remain.
The Manager continues to take all reasonable steps to meet its
regulatory obligations, assess its ability to continue operating
and the steps it needs to take to support its clients, including
the Board and has an appropriate control environment in place. The
Manager has provided the Board with assurance that the Company has
appropriate business continuity plans and the provision of services
has continued to be supplied without interruption.
Specific risks posed by the pandemic continue to ease with
increasing levels of staff returning to routine office-based
working, albeit under hybrid working arrangements which allows
greater flexibility on remote working as part of the new operating
model.
The Company relies on a number of third-party service providers,
principally the Registrar, Custodian and Depositary. They are all
subject to a risk-based programme of internal audits by the Manager
and their own internal controls reports are received by the Board
on an annual basis and any concerns are investigated. The
third-party service providers have also confirmed the
implementation of appropriate measures to ensure no business
disruption.
Risks associated with these services are generally rated as low,
but the financial consequences could be serious, including
reputational damage to the Company.
|
Key Person and
Operational Support
Risks
|
The loss of the Portfolio Manager or key individuals could lead to
potential performance, operational or regulatory issues. The
Manager identifies key dependencies which are then addressed
through succession plans, particularly for portfolio
managers.
The Portfolio Manager, Alex Wright, has a differentiated style in
relation to his peers. This style is intrinsically linked with the
Company’s investment philosophy and strategy and, therefore, the
Company has a key person dependency on him. Fidelity has succession
plans in place for its portfolio managers which have been discussed
with the Board and provides some assurance in this regard. There is
a Co-Portfolio Manager who works alongside the Portfolio Manager
and has extensive experience in the markets and companies, and
shares a common investment approach and complementary investment
experience with the Portfolio Manager. There is also a risk that
the Manager has inadequate succession plans for other key
operational individuals.
|
Discount Control Risk
|
Due to the nature of investment companies, the price of the
Company’s shares and its discount to NAV are factors which are not
totally within the Company’s control. The Board has a discount
management policy in place and some short-term influence over the
discount may be exercised by the use of share repurchases at
acceptable prices and within the parameters set by the Board. The
demand for shares can be influenced through good performance and an
active investor relations program.
The Company’s share price, NAV and discount volatility are
monitored daily by the Manager with the Company’s Broker and
considered by the Board on a regular basis.
|
Regulatory Risk
|
The Company may be impacted by changes in legislation, taxation,
regulation or other external influence that require changes to the
business. These are monitored regularly by the Board and managed
through active engagement with regulators and trade bodies by the
Manager.
|
Continuation Vote
A continuation vote takes place every three years. There is a risk
that Shareholders do not vote in favour of continuation during
periods when performance of the Company’s NAV and share price is
poor. At the AGM held on 14 December
2022, 99.89% of Shareholders voted in favour of the
continuation of the Company. The next continuation vote will take
place at the AGM in 2025.
Viability Statement
In accordance with provision 31 of the 2018 UK Corporate Governance
Code, the Directors have assessed the prospects of the Company over
a longer period than the twelve month period required by the “Going
Concern” basis. The Company is an investment trust with the
objective of achieving long-term capital growth. The Board
considers long-term to be at least five years, and accordingly, the
Directors believe that five years is an appropriate investment
horizon to assess the viability of the Company, although the life
of the Company is not intended to be limited to this or any other
period.
In making an assessment of the viability of the Company, the Board
has considered the following:
· The
ongoing relevance of the investment objective in prevailing market
conditions;
· The
Company’s level of gearing;
· The
Company’s NAV and share price performance compared to its
Benchmark;
· The
principal and emerging risks and uncertainties facing the Company
and their potential impact, as set out above;
· The
likely future demand for the Company’s shares;
· The
Company’s share price discount to the NAV;
· The
liquidity of the Company’s portfolio;
· The
level of income generated by the Company; and
· Future
income and expenditure forecasts.
The Company’s performance for the five year reporting period to
31 August 2023 was a NAV total return
of +22.6% and a share price total return of +10.3% compared to the
Benchmark total return of +18.4%. The Board regularly reviews the
investment policy and considers whether it remains appropriate. The
Board has concluded that there is a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the next five years based on the
following considerations:
· The
Investment Manager’s compliance with the Company’s investment
objective and policy, its investment strategy and asset
allocation;
· The
fact that the portfolio comprises sufficient readily realisable
securities which can be sold to meet funding requirements if
necessary;
· The
Board’s discount management policy; and
· The
ongoing processes for monitoring operating costs and income which
are considered to be reasonable in comparison to the Company’s
total assets.
In preparing the Financial Statements, the Directors have
considered the impact of climate change as detailed above. The
Board has also considered the impact of regulatory changes,
unforeseen market events and the ongoing implications of the
Russia and Ukraine war and developing conflicts in the
Middle East and how this may
affect the Company.
In addition, the Directors’ assessment of the Company’s ability to
operate in the foreseeable future is included in the Going Concern
Statement below.
GOING CONCERN STATEMENT
The Directors have considered the Company’s investment objective,
risk management policies, liquidity risk, credit risk, capital
management policies and procedures, the nature of its portfolio and
its expenditure and cash flow projections. The Directors, having
considered the liquidity of the Company’s portfolio of investments
(being mainly securities which are readily realisable) and the
projected income and expenditure, are satisfied that the Company is
financially sound and has adequate resources to meet all of its
liabilities and ongoing expenses and continue in operational
existence for the foreseeable future. The Board has, therefore,
concluded that the Company has adequate resources to continue to
adopt the going concern basis for the period to 30 November 2024 which is at least twelve months
from the date of approval of the Financial Statements. This
conclusion also takes into account the Board’s assessment of the
ongoing risks from the war in Ukraine and significant market
events.
Accordingly, the Financial Statements of the Company have been
prepared on a going concern basis.
The prospects of the Company over a period longer than twelve
months can be found in the Viability Statement above.
PROMOTING THE SUCCESS OF THE COMPANY
Under Section 172(1) of the Companies Act 2006, the Directors of a
company must act in a way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit
of its members as a whole, and in doing so have regard (amongst
other matters) to the likely consequences of any decision in the
long-term; the need to foster relationships with the Company’s
suppliers, customers and others; the impact of the Company’s
operations on the community and the environment; the desirability
of the Company maintaining a reputation for high standards of
business conduct; and the need to act fairly as between members of
the company.
As an externally managed Investment Trust, the Company has no
employees or physical assets, and a number of the Company’s
functions are outsourced to third parties. The key outsourced
function is the provision of investment management services by the
Manager, but other professional service providers support the
Company by providing administration, custodial, banking and audit
services. The Board considers the Company’s key stakeholders to be
the existing and potential Shareholders, the external appointed
Manager (FIL Investment Services (UK) Limited) and other
third-party professional service providers. The Board considers
that the interest of these stakeholders is aligned with the
Company’s objective of delivering long-term capital growth to
investors, in line with the Company’s stated objective and
strategy, while providing the highest standards of legal,
regulatory and commercial conduct.
The Board, with the Portfolio Manager, sets the overall investment
strategy and reviews this at an annual strategy day which is
separate from the regular cycle of board meetings. In order to
ensure good governance of the Company, the Board has set various
limits on the investments in the portfolio, whether in the maximum
size of individual holdings, the use of derivatives, the level of
gearing and others. These limits and guidelines are regularly
monitored and reviewed and are set out in the Annual
Report.
The Board places great importance on communication with
Shareholders. The Annual General Meeting (“AGM”) provides the key
forum for the Board and the Portfolio Manager to present to the
Shareholders on the Company’s performance and future plans and the
Board encourages all Shareholders to attend in person or virtually
and raise any questions or concerns. The Chairman and other Board
members are available to meet Shareholders as appropriate.
Shareholders may also communicate with Board members at any time by
writing to them at the Company’s registered office at FIL
Investments International, Beech Gate, Millfield Lane, Tadworth, Surrey KT20 6RP
or via the Company Secretary in writing at the same address or by
email at investmenttrusts@fil.com. The Portfolio Manager meets with
major Shareholders, potential investors, stock market analysts,
journalists and other commentators throughout the year. These
communication opportunities help inform the Board in considering
how best to promote the success of the company over the
long-term.
The Board seeks to engage with the Manager and other service
providers and advisers in a constructive and collaborative way,
promoting a culture of strong governance, while encouraging open
and constructive debate, in order to ensure appropriate and regular
challenge and evaluation. This aims to enhance service levels and
strengthen relationships with service providers, with a view to
ensuring Shareholders’ interests are best served, by maintaining
the highest standards of commercial conduct while keeping cost
levels competitive.
Whilst the Company’s direct operations are limited, the Board
recognises the importance of considering the impact of the
Company’s investment strategy on the wider community and
environment. The Board believes that a proper consideration of
Environmental, Social and Governance (“ESG”) issues aligns with the
investment objective to deliver long-term capital growth, and the
Board’s review of the Manager includes an assessment of their ESG
approach, which is set out in the Annual Report.
In addition to ensuring that the Company’s investment objective was
being pursued, key decisions and actions taken by the Directors
during the reporting year, and up to the date of approval of this
report, have included:
· As
part of the Board’s succession plan, the appointment of
Dean Buckley as Chairman of the
Board when Andy Irvine stepped down
from the Board at the last AGM. As a result of the change in Mr
Buckley’s role, the decision to appoint Nigel Foster as Senior Independent Director,
both appointments with effect from 14
December 2022;
· The
decision to carry out an external Board evaluation using the
services of Lintstock Ltd. in accordance with the UK Corporate
Governance Code;
· The
decision to pay an interim dividend of 2.53
pence per share and to recommend the payment of a final
dividend of 6.27 pence per share (a
total of 8.80 pence per share), to
maintain the 14 year track record of increasing dividends, while
retaining funds for reinvestment, consistent with the objective of
long-term capital growth; and
· The
decision to once again hold a hybrid AGM in 2023 in order to make
it more accessible to those investors who are unable to or prefer
not to attend in person.
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the Annual Report and
Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Financial Statements
for each financial period. Under that law, the Directors have
elected to prepare the Financial Statements in accordance with UK
Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law), including Financial Reporting Standard FRS 102:
The Financial Reporting Standard applicable in the UK and
Republic of Ireland (“FRS 102”).
Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss for the reporting period.
In preparing these Financial Statements the Directors are required
to:
· Select
suitable accounting policies in accordance with Section 10 of FRS
102 and then apply them consistently;
· Make
judgements and estimates that are reasonable and
prudent;
· Present
information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
· State
whether applicable UK Accounting Standards, including FRS 102, have
been followed, subject to any material departures disclosed and
explained in the Financial Statements; and
· Prepare
the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Company and the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors’ Report,
a Corporate Governance Statement and a Directors’ Remuneration
Report which comply with that law and those regulations.
The Directors have delegated the responsibility for the maintenance
and integrity of the corporate and financial information included
on the Company’s pages of the Manager’s website at
www.fidelity.co.uk/specialvalues to the Manager. Visitors to the
website need to be aware that legislation in the UK governing the
preparation and dissemination of the Financial Statements may
differ from legislation in their jurisdictions.
The Directors confirm that to the best of their
knowledge:
· The
Financial Statements, prepared in accordance with UK Generally
Accepted Accounting Practice, including FRS 102, give a true and
fair view of the assets, liabilities, financial position and profit
of the Company;
· The
Annual Report, including the Strategic Report, includes a fair
review of the development and performance of the business and the
position of the Company, together with a description of the
principal risks and uncertainties it faces; and
· 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 Company’s performance, business
model and strategy.
The Statement of Directors’ Responsibility was approved by the
Board on 6 November 2023 and signed
on its behalf by:
DEAN
BUCKLEY
Chairman
Income Statement for the year ended 31 August 2023
|
|
Year ended 31 August 2023
|
Year ended 31 August 2022
|
|
Notes
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Losses on investments
|
10
|
–
|
(12,021)
|
(12,021)
|
–
|
(64,441)
|
(64,441)
|
Gains/(losses) on long CFDs
|
11
|
–
|
35,770
|
35,770
|
–
|
(14,992)
|
(14,992)
|
Investment and derivative income
|
3
|
43,717
|
–
|
43,717
|
37,135
|
–
|
37,135
|
Other interest
|
3
|
2,971
|
–
|
2,971
|
877
|
–
|
877
|
Investment management fees
|
4
|
(5,698)
|
–
|
(5,698)
|
(5,607)
|
–
|
(5,607)
|
Other expenses
|
5
|
(948)
|
–
|
(948)
|
(838)
|
–
|
(838)
|
Foreign exchange (losses)/gains
|
|
–
|
(4,032)
|
(4,032)
|
–
|
5,874
|
5,874
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Net return/(loss) on ordinary activities before finance
costs and taxation
|
|
40,042
|
19,717
|
59,759
|
31,567
|
(73,559)
|
(41,992)
|
Finance costs
|
6
|
(4,774)
|
–
|
(4,774)
|
(1,243)
|
–
|
(1,243)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Net return/(loss) on ordinary activities before
taxation
|
|
35,268
|
19,717
|
54,985
|
30,324
|
(73,559)
|
(43,235)
|
Taxation on return/(loss) on ordinary activities
|
7
|
(672)
|
–
|
(672)
|
(196)
|
–
|
(196)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Net return/(loss) on ordinary activities after taxation for
the year
|
|
34,596
|
19,717
|
54,313
|
30,128
|
(73,559)
|
(43,431)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Return/(loss) per ordinary share
|
8
|
10.67p
|
6.08p
|
16.75p
|
9.42p
|
(23.00p)
|
(13.58p)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The Company does not have any other comprehensive income.
Accordingly, the net return/(loss) on ordinary activities after
taxation for the year is also the total comprehensive income for
the year and no separate Statement of Comprehensive Income has been
presented.
The total column of this statement represents the Income Statement
of the Company. The revenue and capital columns are supplementary
and presented for information purposes as recommended by the
Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the year and all
items in the above statement derive from continuing
operations.
The Notes below form an integral part of these Financial
Statements.
Balance Sheet as at 31 August
2023 Company number 2972628
|
Notes
|
2023
£’000
|
2022
£’000
|
Fixed assets
|
|
|
|
Investments
|
10
|
882,692
|
835,672
|
|
|
---------------
|
---------------
|
Current assets
|
|
|
|
Derivative instruments
|
11
|
1,769
|
28
|
Debtors
|
12
|
8,937
|
10,940
|
Amounts held at futures clearing houses and brokers
|
|
–
|
8,190
|
Cash and cash equivalents
|
|
59,460
|
80,450
|
|
|
---------------
|
---------------
|
|
|
70,166
|
99,608
|
|
|
=========
|
=========
|
Current liabilities
|
|
|
|
Derivative instruments
|
11
|
(949)
|
(9,200)
|
Other creditors
|
13
|
(860)
|
(3,481)
|
|
|
---------------
|
---------------
|
|
|
(1,809)
|
(12,681)
|
|
|
=========
|
=========
|
Net current assets
|
|
68,357
|
86,927
|
|
|
=========
|
=========
|
Net assets
|
|
951,049
|
922,599
|
|
|
=========
|
=========
|
Capital and reserves
|
|
|
|
Share capital
|
14
|
16,205
|
16,205
|
Share premium account
|
15
|
238,442
|
238,442
|
Capital redemption reserve
|
15
|
3,256
|
3,256
|
Other non-distributable reserve
|
15
|
5,152
|
5,152
|
Capital reserve
|
15
|
648,795
|
629,078
|
Revenue reserve
|
15
|
39,199
|
30,466
|
|
|
---------------
|
---------------
|
Total Shareholders’ funds
|
|
951,049
|
922,599
|
|
|
=========
|
=========
|
Net asset value per ordinary share
|
16
|
293.44p
|
284.67p
|
|
|
=========
|
=========
|
The Financial Statements above and below were approved by the Board
of Directors on 6 November 2023 and
were signed on its behalf by:
DEAN
BUCKLEY
Chairman
The Notes below form an integral part of these Financial
Statements.
Statement of Changes in Equity for the year ended
31 August 2023
|
Notes
|
Share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Other
non–
distributable
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
Share–
holders’
funds
£’000
|
Total Shareholders’ funds at 31 August
2022
|
|
16,205
|
238,442
|
3,256
|
5,152
|
629,078
|
30,466
|
922,599
|
Net return on ordinary activities after taxation for the
year
|
|
–
|
–
|
–
|
–
|
19,717
|
34,596
|
54,313
|
Dividends paid to Shareholders
|
9
|
–
|
–
|
–
|
–
|
–
|
(25,863)
|
(25,863)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total Shareholders’ funds at 31 August
2023
|
|
16,205
|
238,442
|
3,256
|
5,152
|
648,795
|
39,199
|
951,049
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Total Shareholders’ funds at 31 August
2021
|
|
15,651
|
205,466
|
3,256
|
5,152
|
702,637
|
21,928
|
954,090
|
New ordinary shares issued
|
14
|
554
|
33,118
|
–
|
–
|
–
|
–
|
33,672
|
Costs associated with the issue of new ordinary shares
|
|
–
|
(142)
|
–
|
–
|
–
|
–
|
(142)
|
Net (loss)/return on ordinary activities after taxation for the
year
|
|
–
|
–
|
–
|
–
|
(73,559)
|
30,128
|
(43,431)
|
Dividends paid to Shareholders
|
9
|
–
|
–
|
–
|
–
|
–
|
(21,590)
|
(21,590)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total Shareholders’ funds at 31 August
2022
|
|
16,205
|
238,442
|
3,256
|
5,152
|
629,078
|
30,466
|
922,599
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The Notes below form an integral part of these Financial
Statements.
Cash Flow Statement for the year ended 31 August 2023
|
Notes
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Operating activities
|
|
|
|
Investment income received
|
|
39,436
|
25,034
|
Net derivative income
|
|
5,934
|
9,133
|
Interest received
|
|
2,971
|
493
|
Investment management fees paid
|
|
(5,699)
|
(5,597)
|
Directors’ fees paid
|
|
(173)
|
(157)
|
Other cash payments
|
|
(777)
|
(618)
|
|
|
---------------
|
---------------
|
Net cash inflow from operating activities before finance
costs and taxation
|
20
|
41,692
|
28,288
|
|
|
=========
|
=========
|
Finance costs paid
|
|
(4,622)
|
(1,186)
|
Overseas taxation suffered
|
|
(1,119)
|
(783)
|
|
|
---------------
|
---------------
|
Net cash inflow from operating
activities
|
|
35,951
|
26,319
|
|
|
=========
|
=========
|
Investing activities
|
|
|
|
Purchases of investments
|
|
(429,178)
|
(359,829)
|
Sales of investments
|
|
368,171
|
347,076
|
Receipts on long CFDs
|
|
70,856
|
73,743
|
Payments on long CFDs
|
|
(45,085)
|
(80,763)
|
Movement on amounts held at futures clearing houses and
brokers
|
|
8,190
|
(8,150)
|
|
|
---------------
|
---------------
|
Net cash outflow from investing
activities
|
|
(27,046)
|
(27,923)
|
|
|
=========
|
=========
|
Net cash inflow/(outflow) before financing
activities
|
|
8,905
|
(1,604)
|
|
|
=========
|
=========
|
Financing activities
|
|
|
|
Dividends paid
|
9
|
(25,863)
|
(21,590)
|
Net proceeds from issue of shares
|
|
–
|
34,132
|
Costs associated with the issue of new ordinary shares
|
|
–
|
(142)
|
|
|
---------------
|
---------------
|
Net cash (outflow)/inflow from financing
activities
|
|
(25,863)
|
12,400
|
|
|
=========
|
=========
|
Net (decrease)/increase in cash and cash
equivalents
|
|
(16,958)
|
10,796
|
Cash and cash equivalents at the beginning of the
year
|
|
80,450
|
63,780
|
Effect of movement in foreign exchange
|
|
(4,032)
|
5,874
|
Cash and cash equivalents at the end of the
year
|
|
59,460
|
80,450
|
|
|
---------------
|
---------------
|
Represented by:
|
|
|
|
Cash at bank
|
|
2,028
|
2,014
|
Amount held in Fidelity Institutional Liquidity Fund
|
|
57,432
|
78,436
|
|
|
---------------
|
---------------
|
|
|
59,460
|
80,450
|
|
|
=========
|
=========
|
The Notes below form an integral part of these Financial
Statements.
Notes to the Financial Statements
1
Principal Activity
Fidelity Special Values PLC is an Investment Company incorporated
in England and Wales with a premium listing on the London
Stock Exchange. The Company’s registration number is 2972628, and
its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth,
Surrey KT20 6RP. The Company has been approved by HM Revenue
& Customs as an Investment Trust under Section 1158 of the
Corporation Tax Act 2010 and intends to conduct its affairs so as
to continue to be approved.
2
Accounting Policies
The Company has prepared its Financial Statements in accordance
with UK Generally Accepted Accounting Practice (“UK GAAP”),
including FRS 102 “The Financial Reporting Standard applicable in
the UK and Republic of Ireland”, issued by the Financial Reporting
Council (“FRC”). The Financial Statements have also been prepared
in accordance with the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital Trusts
(“SORP”) issued by the Association of Investment Companies (“AIC”),
in July 2022.
a) Basis of accounting
– The Financial Statements have been prepared on a going concern
basis and under the historical cost
convention, except for the measurement at fair value of investments
and derivative instruments. The Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence up to 30 November
2024 which is at least twelve months from the date of
approval of these Financial Statements. In making their assessment
the Directors have reviewed income and expense 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 into account the Director’s assessment of the
risks faced by the Company as detailed in the Going Concern
Statement above.
In preparing these Financial Statements the Directors have
considered the impact of climate change risk as an emerging and a
principal risk as set out above, and have concluded that there was
no further impact of climate change to be taken into account as the
investments are valued based on market pricing. In line with FRS
102, investments are valued at fair value, which in active markets
are quoted bid prices at the balance sheet date. Investments which
are unlisted are priced using market-based valuation approaches.
All investments therefore reflect the market participants view of
climate change risk on the investments held by the
Company.
The Company’s Going Concern Statement above takes account of all
events and conditions up to 30 November
2024 which is at least twelve months from the date of
approval of these Financial Statements.
b) Significant accounting estimates and
judgements
– The Directors make judgements and estimates concerning the
future.
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, such as expectations of
future events, and are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The
judgements required in order to determine the appropriate valuation
methodology of level 3 financial instruments have a risk of causing
an adjustment to the carrying amounts of assets. These judgements
include making assessments of the possible valuations in the event
of a listing or other marketability related risks.
c) Segmental reporting
– The Company is engaged in a single segment business and,
therefore, no segmental reporting is provided.
d)
Presentation of the Income Statement
– In order to reflect better the activities of an investment
company and in accordance
with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and
capital nature has been prepared alongside the Income Statement.
The net revenue return after taxation for the year is the measure
the Directors believe appropriate in assessing the Company’s
compliance with certain requirements set out in Section 1159 of the
Corporation Tax Act 2010.
e) Income
– Income from equity investments is accounted for on the date on
which the right to receive the payment is established,
normally the ex-dividend date. Overseas dividends are accounted for
gross of any tax deducted at source. Amounts are credited to the
revenue column of the Income Statement. Where the Company has
elected to receive its dividends in the form of additional shares
rather than cash, the amount of the cash dividend foregone is
recognised in the revenue column of the Income Statement. Any
excess in the value of the shares received over the amount of the
cash dividend is recognised in the capital column of the Income
Statement. Special dividends are treated as a revenue receipt or a
capital receipt depending on the facts and circumstances of each
particular case. Interest for securities is accounted for on an
accruals basis and is credited to the revenue column of the Income
Statement.
Derivative instrument income received from dividends on long
contracts for difference (“CFDs”) is accounted for on the date on
which the right to receive the payment is established, normally the
ex-dividend date. The amount net of tax is credited to the revenue
column of the Income Statement.
Interest received on CFDs, bank deposits, collateral and money
market funds is accounted for on an accruals basis and credited to
the revenue column of the Income Statement. Interest received on
CFDs represents the finance costs calculated by reference to the
notional value of the CFDs.
f) Investment management fees and other
expenses
– Investment management fees and other expenses are accounted for
on an
accruals basis and are charged as follows:
· Investment
management fees are allocated in full to revenue; and
· All
other expenses are allocated in full to revenue with the exception
of those directly attributable to share issues or other capital
events.
g) Functional currency and foreign exchange – The functional and
reporting currency of the Company is UK sterling, which is the
currency of the primary economic environment in which the Company
operates. Transactions denominated in foreign currencies are
reported in UK sterling at the rate of exchange ruling at the date
of the transaction. Assets and liabilities in foreign currencies
are translated at the rates of exchange ruling at the Balance Sheet
date. Foreign exchange gains and losses arising on translation are
recognised in the Income Statement as a revenue or a capital item
depending on the nature of the underlying item to which they
relate.
h) Finance costs – Finance costs comprise interest on bank
overdrafts and collateral and finance costs paid on CFDs, which are
accounted for on an accruals basis. Finance costs are charged in
full to the revenue column of the Income Statement.
i) Taxation – The taxation charge represents the sum of current
taxation and deferred taxation.
Current taxation is taxation suffered at source on overseas income
less amounts recoverable under taxation treaties. Taxation is
charged or credited to the revenue column of the Income Statement,
except where it relates to items of a capital nature, in which case
it is charged or credited to the capital column of the Income
Statement. Where expenses are allocated between revenue and capital
any tax relief in respect of the expenses is allocated between
revenue and capital returns on the marginal basis using the
Company’s effective rate of corporation tax for the accounting
period. The Company is an approved Investment Trust under Section
1158 of the Corporation Tax Act 2010 and is not liable for UK
taxation on capital gains.
Deferred taxation is the taxation expected to be payable or
recoverable on timing differences between the treatment of certain
items for accounting purposes and their treatment for the purposes
of computing taxable profits. Deferred taxation is based on tax
rates that have been enacted or substantively enacted when the
taxation is expected to be payable or recoverable. Deferred tax
assets are only recognised if it is considered more likely than not
that there will be sufficient future taxable profits to utilise
them.
j) Dividend paid – Dividends payable to equity Shareholders are
recognised when the Company’s obligation to make payment is
established.
k) Investments – The Company’s business is investing in financial
instruments with a view to profiting from their total return in the
form of income and capital growth. This portfolio of investments is
managed and its performance evaluated on a fair value basis, in
accordance with a documented investment strategy, and information
about the portfolio is provided on that basis to the Company’s
Board of Directors. Investments are measured at fair value with
changes in fair value recognised in profit or loss, in accordance
with the provisions of both Section 11 and Section 12 of FRS 102.
The fair value of investments is initially taken to be their cost
and is subsequently measured as follows:
· Listed
investments are valued at bid prices, or last market prices,
depending on the convention of the exchange on which they are
listed; and
· Unlisted
investments are not quoted, or are not frequently traded, and are
stated at the best estimate of fair value. The Manager’s Fair Value
Committee (‘FVC’), which is independent of the Portfolio Manager’s
team, meets quarterly to determine the fair value of unlisted
investments.
The FVC provide a recommendation of fair values to the Board using
market-based approaches such as multiples, industry valuation
benchmarks and available market prices. Consideration is given to
the cost of the investment, recent arm’s length transactions in the
same or similar investments and the financial performance of the
investment since purchase. This pricing methodology is subject to a
detailed review and appropriate challenge by the
Directors.
In accordance with the AIC SORP, the Company includes transaction
costs, incidental to the purchase or sale of investments, within
losses on investments in the capital column of the Income Statement
and has disclosed these costs in Note 10 below.
l) Derivative instruments
– When appropriate, permitted transactions in derivative
instruments are used. Derivative transactions
into which the Company may enter include long and short CFDs,
futures, options and warrants. Derivatives are classified as other
financial instruments and are initially accounted for and measured
at fair value on the date the derivative contract is entered into
and subsequently measured at fair value as follows:
· Long
CFDs – the difference between the strike price and the value of the
underlying shares in the contract;
· Futures
– the difference between the contract price and the quoted trade
price; and
· Options
– value based on similar instruments or the quoted trade price for
the contract.
Where transactions are used to protect or enhance income, if the
circumstances support this, the income and expenses derived are
included in net income in the revenue column of the Income
Statement. Where such transactions are used to protect or enhance
capital, if the circumstances support this, the income and expenses
derived are included: for long CFDs, as gains or losses on long
CFDs, and for short CFDs, futures and options as gains or losses on
short CFDs, futures and options in the capital column of the Income
Statement. Any positions on such transactions open at the year end
are reflected on the Balance Sheet at their fair value within
current assets or current liabilities.
m) Debtors
– Debtors include securities sold for future settlement, amounts
receivable on settlement of derivatives, accrued income,
taxation recoverable and other debtors and prepayments incurred in
the ordinary course of business. If collection is expected in one
year or less (or in the normal operating cycle of the business, if
longer) they are classified as current assets. If not, they are
presented as non-current assets. They are recognised initially at
fair value and, where applicable, subsequently measured at
amortised cost using the effective interest rate method.
n) Amounts held at futures clearing houses and
brokers
– These are amounts held in segregated accounts as collateral on
behalf
of brokers and are carried at amortised cost.
o) Cash and cash equivalents
– Cash and cash equivalents may comprise cash at bank and money
market funds which are
short-term, highly liquid and are readily convertible to a known
amount of cash. These are subject to an insignificant risk of
changes in value.
p) Other creditors
– Other creditors include securities purchased for future
settlement, finance costs payable, investment management
fees and other creditors and expenses accrued in the ordinary
course of business. If payment is due within one year or less (or
in the normal operating cycle of the business, if longer) they are
classified as current liabilities. If not, they are presented as
non-current liabilities. They are recognised initially at fair
value and, where applicable, subsequently measured at amortised
cost using the effective interest rate method.
q) Capital reserve
– The following are accounted for in the capital
reserve:
· Gains
and losses on the disposal of investments and derivative
instruments;
· Changes
in the fair value of investments and derivative instruments held at
the year end;
· Foreign
exchange gains and losses of a capital nature;
· Dividends
receivable which are capital in nature; and
· Costs
of repurchasing or issuing ordinary shares.
Technical guidance issued by the Institute of Chartered Accountants
in England and Wales in TECH 02/17BL, guidance on the
determination of realised profits and losses in the context of
distributions under the Companies Act 2006, states that changes in
the fair value of investments which are readily convertible to
cash, without accepting adverse terms at the Balance Sheet date,
can be treated as realised. Capital reserves realised and
unrealised are shown in aggregate as capital reserve in the
Statement of Changes in Equity and the Balance Sheet. At the
Balance Sheet date, the portfolio of the Company consisted of
investments listed on a recognised stock exchange and derivative
instruments contracted with counterparties having an adequate
credit rating, and the portfolio was considered to be readily
convertible to cash, with the exception of the level 3 investments
which had unrealised investment holding losses of £9,684,000 (2022:
losses of £9,389,000).
3 Income
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Investment income
|
|
|
UK dividends
|
29,189
|
20,437
|
UK scrip dividends
|
–
|
85
|
Interest on securities
|
805
|
–
|
Overseas dividends
|
10,543
|
6,684
|
Overseas scrip dividends
|
–
|
23
|
|
---------------
|
---------------
|
|
40,537
|
27,229
|
|
=========
|
=========
|
Derivative income
|
|
|
Dividends received on long CFDs
|
3,180
|
9,906
|
|
---------------
|
---------------
|
Investment and derivative income
|
43,717
|
37,135
|
|
=========
|
=========
|
Other interest
|
|
|
Interest received on bank deposits, collateral and money market
funds
|
2,965
|
493
|
Interest received on tax reclaims
|
6
|
–
|
Interest received on long CFDs*
|
–
|
384
|
|
---------------
|
---------------
|
|
2,971
|
877
|
|
=========
|
=========
|
Total income
|
46,688
|
38,012
|
|
=========
|
=========
|
Special dividends of £1,904,000 (2022: £372,000) have been
recognised in capital during the year.
* Due
to negative interest rates in the prior year, the Company received
interest on some of its long CFDs.
4 Investment Management Fees
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Investment management fees
|
5,698
|
5,607
|
|
=========
|
=========
|
FIL Investment Services (UK) Limited is the Company’s Alternative
Investment Fund Manager and has delegated portfolio management to
FIL Investments International (“FII”). Both companies are Fidelity
group companies.
FII charges investment management fees at an annual rate of 0.60%
of net assets. Fees are accrued on a daily basis and payable
monthly.
5
Other Expenses
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
AIC fees
|
21
|
21
|
Custody fees
|
35
|
42
|
Depositary fees
|
57
|
71
|
Directors’ expenses
|
17
|
6
|
Directors’ fees1
|
172
|
159
|
Legal and professional fees
|
82
|
95
|
Marketing expenses
|
303
|
191
|
Printing and publication expenses
|
116
|
115
|
Registrars’ fees
|
68
|
70
|
Fees payable to the Company’s Independent Auditor for the audit of
the Financial Statements2
|
50
|
46
|
Sundry other expenses
|
27
|
22
|
|
---------------
|
---------------
|
Other expenses
|
948
|
838
|
|
=========
|
=========
|
1 Details
of the breakdown of Directors’ fees are disclosed in the Directors’
Remuneration Report in the Annual Report.
2 The
VAT payable on audit fees is included in sundry other
expenses.
6
Finance Costs
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Interest paid on long CFDs
|
4,761
|
1,231
|
Interest on bank overdrafts and collateral
|
13
|
12
|
|
---------------
|
---------------
|
|
4,774
|
1,243
|
|
=========
|
=========
|
7
Taxation on Return/(Loss) on Ordinary
Activities
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
a) Analysis of the taxation charge for the
year
|
|
|
Overseas taxation
|
672
|
196
|
|
---------------
|
---------------
|
Taxation charge for the year (see Note
7b)
|
672
|
196
|
|
=========
|
=========
|
b) Factors affecting the taxation charge for the
year
The taxation charge for the year is lower than the standard rate of
UK corporation tax for an investment trust company of 25.00% (2022:
19.00%). A reconciliation of the standard rate of UK corporation
tax to the taxation charge for the year is shown below:
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Net return/(loss) on ordinary activities before taxation
|
54,985
|
(43,235)
|
|
---------------
|
---------------
|
Net return/(loss) on ordinary activities before taxation multiplied
by the blended rate of UK corporation tax of 21.52% (2022:
19.00%)
|
11,833
|
(8,215)
|
Effects of:
|
|
|
Capital (gains)/losses not taxable*
|
(4,243)
|
13,976
|
Income not taxable
|
(8,550)
|
(5,173)
|
Excess management expenses
|
960
|
(588)
|
Overseas taxation
|
672
|
196
|
|
---------------
|
---------------
|
Total taxation charge for the year (see Note
7a)
|
672
|
196
|
|
=========
|
=========
|
* The
Company is exempt from UK taxation on capital gains as it meets the
HM Revenue & Customs criteria for an investment company set out
in Section 1159 of the Corporation Tax Act 2010.
c) Deferred taxation
A deferred tax asset of £17,235,000 (2022: £16,119,000), in respect
of excess expenses of £68,940,000 (2022: £64,476,000) available to
be set off against future taxable profits has not been recognised
as it is unlikely that there will be sufficient future taxable
profits to utilise these expenses.
The UK corporation tax rate increased from 19.00% to 25.00% from
1 April 2023. The rate of 25.00% has
been applied to calculate the unrecognised deferred tax asset for
the current year (2022: 25.00%).
8
Return/(Loss) per Ordinary Share
|
Year ended
31.08.23
|
Year ended
31.08.22
|
Revenue return per ordinary share
|
10.67p
|
9.42p
|
Capital return/(loss) per ordinary share
|
6.08p
|
(23.00p)
|
|
---------------
|
---------------
|
Total return/(loss) per ordinary share
|
16.75p
|
(13.58p)
|
|
=========
|
=========
|
The return/(loss) per ordinary share is based on the net
return/(loss) on ordinary activities after taxation for the year
divided by the weighted average number of ordinary shares held
outside of Treasury during the year, as shown below:
|
£’000
|
£’000
|
Net revenue return on ordinary activities after taxation
|
34,596
|
30,128
|
Net capital return/(loss) on ordinary activities after
taxation
|
19,717
|
(73,559)
|
|
---------------
|
---------------
|
Net total return/(loss) on ordinary activities after
taxation
|
54,313
|
(43,431)
|
|
=========
|
=========
|
|
Number
|
Number
|
Weighted average number of ordinary shares held outside of
Treasury
|
324,098,920
|
319,869,879
|
|
=========
|
=========
|
9 Dividends Paid to Shareholders
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Dividends paid
|
|
|
Interim dividend of 2.53 pence per ordinary share paid for the year
ended 31 August 2023
|
8,200
|
–
|
Final dividend of 5.45 pence per ordinary share paid for the year
ended 31 August 2022
|
17,663
|
–
|
Interim dividend of 2.30 pence per ordinary share paid for the year
ended 31 August 2022
|
–
|
7,454
|
Final dividend of 4.50 pence per ordinary share paid for the year
ended 31 August 2021
|
–
|
14,136
|
|
---------------
|
---------------
|
|
25,863
|
21,590
|
|
=========
|
=========
|
Dividends proposed
|
|
|
Final dividend proposed of 6.27 pence per ordinary share for the
year ended 31 August 2023
|
20,321
|
–
|
Final dividend proposed of 5.45 pence per ordinary share for the
year ended 31 August 2022
|
–
|
17,663
|
|
---------------
|
---------------
|
|
20,321
|
17,663
|
|
=========
|
=========
|
The Directors have proposed the payment of a final dividend of
6.27 pence per ordinary share for the
year ended 31 August 2023 which is
subject to approval by Shareholders at the Annual General Meeting
on 14 December 2023 and has not been
included as a liability in these Financial Statements. The dividend
will be paid on 10 January 2024 to
Shareholders on the register at the close of business on
1 December 2023 (ex-dividend date
30 November 2023).
10 Investments
|
2023
£’000
|
2022
£’000
|
Listed investments
|
880,839
|
835,398
|
Unlisted investments
|
1,853
|
274
|
|
---------------
|
---------------
|
Total investments at fair value
|
882,692
|
835,672
|
|
=========
|
=========
|
Opening book cost
|
813,135
|
726,247
|
Opening investment holding gains
|
22,537
|
160,463
|
|
---------------
|
---------------
|
Opening fair value
|
835,672
|
886,710
|
|
=========
|
=========
|
Movements in the year
|
|
|
Purchases at cost
|
426,404
|
361,407
|
Sales – proceeds
|
(367,363)
|
(348,004)
|
Losses on investments
|
(12,021)
|
(64,441)
|
|
---------------
|
---------------
|
Closing fair value
|
882,692
|
835,672
|
|
=========
|
=========
|
Closing book cost
|
914,377
|
813,135
|
Closing investment holding (losses)/gains
|
(31,685)
|
22,537
|
|
---------------
|
---------------
|
Closing fair value
|
882,692
|
835,672
|
|
=========
|
=========
|
The Company received £367,363,000 (2022: £348,004,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £325,162,000 (2022: £274,519,000).
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.
Investment transaction costs
Transaction costs incurred in the acquisition and disposal of
investments, which are included in the losses on investments above,
were as follows:
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Purchases transaction costs
|
1,688
|
1,544
|
Sales transaction costs
|
167
|
195
|
|
---------------
|
---------------
|
|
1,855
|
1,739
|
|
=========
|
=========
|
The portfolio turnover rate for the year was 44.2% (2022:
42.8%).
11 Derivative Instruments
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Gains/(losses) on long CFD positions closed
|
25,778
|
(7,013)
|
Movement in investment holding gains/(losses) on long
CFDs
|
9,992
|
(7,979)
|
|
---------------
|
---------------
|
|
35,770
|
(14,992)
|
|
=========
|
=========
|
|
2023
Fair value
£’000
|
2022
Fair value
£’000
|
Derivative instruments recognised on the Balance
Sheet
|
|
|
Derivative instrument assets
|
1,769
|
28
|
Derivative instrument liabilities
|
(949)
|
(9,200)
|
|
---------------
|
---------------
|
|
820
|
(9,172)
|
|
=========
|
=========
|
|
Fair value
£’000
|
2023
Asset
exposure
£’000
|
Fair value
£’000
|
2022
Asset
exposure
£’000
|
At the year end the Company held the following derivative
instruments
|
|
|
|
|
Long CFDs
|
820
|
130,073
|
(9,172)
|
178,898
|
|
=========
|
=========
|
=========
|
=========
|
12 Debtors
|
2023
£’000
|
2022
£’000
|
Securities sold for future settlement
|
117
|
924
|
Amounts receivable on settlement of derivatives
|
14
|
7
|
Accrued income
|
7,058
|
8,711
|
Overseas taxation recoverable
|
1,720
|
1,273
|
Other debtors and prepayments
|
28
|
25
|
|
---------------
|
---------------
|
|
8,937
|
10,940
|
|
=========
|
=========
|
13 Other Creditors
|
2023
£’000
|
2022
£’000
|
Securities purchased for future settlement
|
–
|
2,774
|
Finance costs payable
|
209
|
57
|
Creditors and accruals
|
651
|
650
|
|
---------------
|
---------------
|
|
860
|
3,481
|
|
=========
|
=========
|
14 Share Capital
|
2023
|
2022
|
|
Number of
shares
|
£’000
|
Number of
shares
|
£’000
|
Issued, allotted and fully paid ordinary shares of 5 pence
each
|
|
|
|
|
Total share capital – Beginning of the
year
|
324,098,920
|
16,205
|
313,028,920
|
15,651
|
New ordinary shares issued
|
–
|
–
|
11,070,000
|
554
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total share capital – End of the year
|
324,098,920
|
16,205
|
324,098,920
|
16,205
|
|
=========
|
=========
|
=========
|
=========
|
During the year, no new ordinary shares were issued (2022:
11,070,000 shares). The premium received on the issue of new
ordinary shares for the prior year ended 31
August 2022 was £33,118,000 and was credited to the share
premium account. At 31 August 2023,
no shares were held in Treasury.
15 Capital and Reserves
|
Share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Other
non–
distributable
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
Share–
holders’
funds
£’000
|
At 1 September 2022
|
16,205
|
238,442
|
3,256
|
5,152
|
629,078
|
30,466
|
922,599
|
Losses on investments (see Note 10)
|
–
|
–
|
–
|
–
|
(12,021)
|
–
|
(12,021)
|
Gains on long CFDs (see Note 11)
|
–
|
–
|
–
|
–
|
35,770
|
–
|
35,770
|
Foreign exchange losses
|
–
|
–
|
–
|
–
|
(4,032)
|
–
|
(4,032)
|
Revenue return on ordinary activities after taxation for the
year
|
–
|
–
|
–
|
–
|
–
|
34,596
|
34,596
|
Dividends paid to Shareholders (see Note 9)
|
–
|
–
|
–
|
–
|
–
|
(25,863)
|
(25,863)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 31 August 2023
|
16,205
|
238,442
|
3,256
|
5,152
|
648,795
|
39,199
|
951,049
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Other
non–
distributable
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
Share–
holders’
funds
£’000
|
At 1 September 2021
|
15,651
|
205,466
|
3,256
|
5,152
|
702,637
|
21,928
|
954,090
|
Losses on investments (see Note 10)
|
–
|
–
|
–
|
–
|
(64,441)
|
–
|
(64,441)
|
Losses on long CFDs (see Note 11)
|
–
|
–
|
–
|
–
|
(14,992)
|
–
|
(14,992)
|
Costs associated with the issue of new ordinary shares
|
–
|
(142)
|
–
|
–
|
–
|
–
|
(142)
|
Foreign exchange gains
|
–
|
–
|
–
|
–
|
5,874
|
–
|
5,874
|
New ordinary shares issued
|
554
|
33,118
|
–
|
–
|
–
|
–
|
33,672
|
Revenue return on ordinary activities after taxation for the
year
|
–
|
–
|
–
|
–
|
–
|
30,128
|
30,128
|
Dividends paid to Shareholders (see Note 9)
|
–
|
–
|
–
|
–
|
–
|
(21,590)
|
(21,590)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 31 August 2022
|
16,205
|
238,442
|
3,256
|
5,152
|
629,078
|
30,466
|
922,599
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The capital reserve balance at 31 August
2023 includes investment holding losses of £31,685,000
(2022: gains of £22,537,000) as detailed in Note 10 above. The
revenue and capital reserves are distributable by way of dividend.
See Note 2 (q) above for further details.
16 Net Asset Value per Ordinary Share
The calculation of the net asset value per ordinary share is based
on the total Shareholders’ funds divided by the number of ordinary
shares held outside of Treasury.
|
2023
|
2022
|
Total Shareholders’ funds
|
£951,049,000
|
£922,599,000
|
Ordinary shares held outside of Treasury at year end
|
324,098,920
|
324,098,920
|
Net asset value per ordinary share
|
293.44p
|
284.67p
|
|
=========
|
=========
|
It is the Company’s policy that shares held in Treasury will only
be reissued at net asset value per ordinary share or at a premium
to net asset value per ordinary share and, therefore, shares held
in Treasury have no dilutive effect.
17 FINANCIAL INSTRUMENTS
Management of risk
The Company’s investing activities in pursuit of its investment
objective involve certain inherent risks. The Board confirms that
there is an ongoing process for identifying, evaluating and
managing the risks faced by the Company. The Board with the
assistance of the Manager, has developed a risk matrix which, as
part of the internal control process, identifies the risks that the
Company faces. Principal risks identified are market, economic and
political, investment performance (including the use of derivatives
and gearing), cybercrime and information security, environmental,
social and governance (“ESG”), competition, business continuity,
key person and operational support, discount control and
regulatory. Risks are identified and graded in this process,
together with steps taken in mitigation, and are updated and
reviewed on an ongoing basis. These risks and how they are
identified, evaluated and managed are shown above.
This note refers to the identification, measurement and management
of risks potentially affecting the value of financial instruments.
The Company’s financial instruments may comprise:
· Equity
shares (listed and unlisted) and bonds held in accordance with the
Company’s investment objective and policies;
· Derivative
instruments which comprise CFDs, futures and options on listed
stocks and equity indices; and
· Cash,
liquid resources and short-term debtors and creditors that arise
from its operations.
The risks identified arising from the Company’s financial
instruments are market price risk (which comprises interest rate
risk, foreign currency risk and other price risk), liquidity risk,
counterparty risk, credit risk and derivative instrument risk. The
Board reviews and agrees policies for managing each of these risks,
which are summarised below. These policies are consistent with
those followed last year.
MARKET PRICE RISK
Interest rate risk
The Company finances its operations through its share capital and
reserves. In addition, the Company has gearing through the use of
derivative instruments. The Board imposes limits to ensure gearing
levels are appropriate. The Company is exposed to a financial risk
arising as a result of any increases in interest rates associated
with the funding of the derivative instruments.
Interest rate risk exposure
The values of the Company’s financial instruments that are exposed
to movements in interest rates are shown below:
|
2023
£’000
|
2022
£’000
|
Exposure to financial instruments that bear
interest
|
|
|
Long CFDs – exposure less fair value
|
129,253
|
188,070
|
|
---------------
|
---------------
|
Exposure to financial instruments that earn
interest
|
|
|
Amounts held at futures clearing houses and brokers
|
–
|
8,190
|
Cash and cash equivalents
|
59,460
|
80,450
|
|
---------------
|
---------------
|
|
59,460
|
88,640
|
|
=========
|
=========
|
Net exposure to financial instruments that bear
interest
|
69,793
|
99,430
|
|
=========
|
=========
|
Due to negative interest rates in the prior year, the Company
received interest on some of its long CFD positions.
Foreign currency risk
The Company does not carry out currency speculation. The Company’s
net return/(loss) on ordinary activities after taxation for the
year and its net assets can be affected by foreign exchange
movements because the Company has income and assets which are
denominated in currencies other than the Company’s functional
currency which is UK sterling. The Company can also be subject to
short-term exposure to exchange rate movements, for example,
between the date when an investment is purchased or sold and the
date when settlement of the transaction occurs.
Three principal areas have been identified where foreign currency
risk could impact the Company:
· Movements
in currency exchange rates affecting the value of investments and
derivative instruments;
· Movements
in currency exchange rates affecting short-term timing differences;
and
· Movements
in currency exchange rates affecting income received.
The portfolio management team monitor foreign currency risk but it
is not the Company’s policy to hedge against currency
risk.
Currency exposure of financial assets
The currency exposure profile of the Company’s financial assets is
shown below:
|
|
|
|
|
2023
|
Currency
|
Investments
held at fair
value
£’000
|
Long
exposure to
derivative
instruments1
£’000
|
Debtors
£’000
|
Cash
and cash
equivalents2
£’000
|
Total
£’000
|
Euro
|
67,412
|
77,457
|
823
|
–
|
145,692
|
US dollar
|
31,515
|
–
|
722
|
36,855
|
69,092
|
Swiss franc
|
36,842
|
–
|
224
|
–
|
37,066
|
Swedish krona
|
14,175
|
–
|
–
|
–
|
14,175
|
Australian dollar
|
7,782
|
–
|
49
|
–
|
7,831
|
Norwegian krone
|
4,841
|
–
|
–
|
–
|
4,841
|
South African rand
|
2,468
|
–
|
–
|
–
|
2,468
|
Canadian dollar
|
1,703
|
–
|
–
|
29
|
1,732
|
UK sterling
|
715,954
|
52,616
|
7,119
|
22,576
|
798,265
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
882,692
|
130,073
|
8,937
|
59,460
|
1,081,162
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
exposure to the market of long CFDs.
2 Cash
and cash equivalents are made up of £2,028,000 cash at bank and
£57,432,000 held in Fidelity Institutional Liquidity
Fund.
|
|
|
|
|
2022
|
Currency
|
Investments
held at fair
value
£’000
|
Long
exposure to
derivative
instruments1
£’000
|
Debtors2
£’000
|
Cash
and cash
equivalents3
£’000
|
Total
£’000
|
Euro
|
69,765
|
71,606
|
316
|
–
|
141,687
|
US dollar
|
6,665
|
–
|
117
|
39,679
|
46,461
|
Swiss franc
|
20,631
|
–
|
376
|
–
|
21,007
|
Swedish krona
|
16,309
|
–
|
–
|
–
|
16,309
|
Australian dollar
|
12,179
|
–
|
–
|
–
|
12,179
|
Norwegian krone
|
6,377
|
–
|
–
|
–
|
6,377
|
Emirati dirham
|
4,780
|
–
|
–
|
–
|
4,780
|
South African rand
|
2,711
|
142
|
–
|
–
|
2,853
|
Danish krone
|
–
|
–
|
71
|
–
|
71
|
Canadian dollar
|
–
|
–
|
–
|
33
|
33
|
UK sterling
|
696,255
|
107,150
|
18,250
|
40,738
|
862,393
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
835,672
|
178,898
|
19,130
|
80,450
|
1,114,150
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
exposure to the market of long CFDs.
2 Debtors
include amounts held at futures clearing houses and
brokers.
3 Cash
and cash equivalents are made up of £2,014,000 cash at bank and
£78,436,000 held in Fidelity Institutional Liquidity
Fund.
Currency exposure of financial
liabilities
The Company finances its investment activities through its ordinary
share capital and reserves. The Company’s financial liabilities
comprise other creditors. The currency profile of these financial
liabilities is shown below:
Currency
|
2023
Other
Creditors
£’000
|
2022
Other
creditors
£’000
|
Euro
|
-
|
6
|
Swiss franc
|
135
|
2,141
|
UK sterling
|
725
|
1,334
|
|
---------------
|
---------------
|
|
860
|
3,481
|
|
=========
|
=========
|
Other price risk
Other price risk arises mainly from uncertainty about future prices
of financial instruments used in the Company’s business. It
represents the potential loss the Company might suffer through
holding market positions in the face of price movements. The Board
meets quarterly to consider the asset allocation of the portfolio
and the risk associated with particular industry sectors within the
parameters of the investment objective. The Portfolio Manager is
responsible for actively monitoring the existing portfolio selected
in accordance with the overall asset allocation parameters
described above and seeks to ensure that individual stocks also
meet an acceptable risk/reward profile. Other price risks arising
from derivative positions, mainly due to the underlying exposures,
are estimated using Value at Risk and Stress Tests as set out in
the Company’s internal Risk Management Process Document.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in meeting obligations associated with financial
liabilities. The Company’s assets mainly comprise readily
realisable securities and derivative instruments which can be sold
easily to meet funding commitments if necessary. Short-term
flexibility is achieved by the use of a bank overdraft, if
required.
Liquidity risk exposure
At 31 August 2023, the undiscounted
gross cash outflows of the financial liabilities were all repayable
within one year and consisted of derivative instrument liabilities
of £949,000 (2022: £9,200,000) and other creditors of £860,000
(2022: £3,481,000).
Counterparty risk
Certain derivative instruments in which the Company may invest are
not traded on an exchange but instead will be traded between
counterparties based on contractual relationships, under the terms
outlined in the International Swaps and Derivatives Association’s
(“ISDA”) market standard derivative legal documentation. These are
known as Over the Counter (“OTC”) trades. As a result, the Company
is subject to the risk that a counterparty may not perform its
obligations under the related contract. In accordance with the risk
management process which the Investment Manager employs, this risk
is minimised by only entering into transactions with counterparties
which are believed to have an adequate credit rating at the time
the transaction is entered into, by ensuring that formal legal
agreements covering the terms of the contract are entered into in
advance, and through adopting a counterparty risk framework which
measures, monitors and manages counterparty risk by the use of
internal and external credit agency ratings and by evaluating
derivative instrument credit risk exposure.
For derivative transactions, collateral is used to reduce the risk
of both parties to the contract. All collateral amounts are held in
UK sterling and are managed on a daily basis for all relevant
transactions. At 31 August 2023,
£580,000 (2022: £nil) was held by the brokers in a segregated
collateral account on behalf of the Company, to reduce the credit
risk exposure of the Company. This collateral comprised: J.P.
Morgan Securities plc £220,000 (2022: £nil) and HSBC Bank plc
£360,000 (2022: £nil). At 31 August
2023, there were no amounts held by the Company at futures
clearing houses and brokers, in a segregated collateral account, on
behalf of the brokers, to reduce the credit risk exposure of the
brokers (2022: £8,190,000). In the year to 31 August 2022, this collateral comprised: J.P.
Morgan Securities plc £5,140,000 in cash and HSBC Bank plc
£3,050,000 in cash.
Credit risk
Financial instruments may be adversely affected if any of the
institutions with which money is deposited suffer insolvency or
other financial difficulties. All transactions are carried out with
brokers that have been approved by the Manager and are settled on a
delivery versus payment basis. Limits are set on the amount that
may be due from any one broker and are kept under review by the
Manager. Exposure to credit risk arises on unsettled security
transactions and derivative instrument contracts and cash at
bank.
Derivative instrument risk
The risks and risk management processes which result from the use
of derivative instruments, are set out in a documented Derivative
Risk Measurement and Management Document. Derivative instruments
are used by the Manager for the following purposes:
· To
gain unfunded long exposure to equity markets, sectors or single
stocks. Unfunded exposure is exposure gained without an initial
flow of capital;
· To
hedge equity market risk using derivatives with the intention of at
least partially mitigating losses in the exposures of the Company’s
portfolio as a result of falls in the equity market; and
· To
position short exposures in the Company’s portfolio. These
uncovered exposures benefit from falls in the prices of shares
which the Portfolio Manager believes to be over-valued. These
positions, therefore, distinguish themselves from other short
exposures held for hedging purposes since they are expected to add
risk to the portfolio.
RISK SENSITIVITY ANALYSIS
Interest rate risk sensitivity analysis
Based on the financial instruments held and interest rates at
31 August 2023, an increase of 1.00%
in interest rates throughout the year, with all other variables
held constant, would have decreased the Company’s net gain on
ordinary activities after taxation for the year and decreased the
net assets of the Company by £698,000 (2022: increased the net loss
and decreased the net assets by £994,000). A decrease of 1.00% in
interest rates throughout the year would have had an equal but
opposite effect.
Foreign currency risk sensitivity
analysis
Based on the financial instruments held and currency exchange rates
at 31 August 2023, a 10%
strengthening of the UK sterling exchange rate against foreign
currencies, with all other variables held constant, would have
decreased the Company’s net gain on ordinary activities after
taxation for the year and decreased the net assets of the Company
by £25,706,000 (2022: increased the net loss and decreased the net
assets by £22,692,000). A 10% weakening of the UK sterling exchange
rate against foreign currencies, with all other variables held
constant, would have increased the Company’s net gain on ordinary
activities after taxation for the year and increased the net assets
of the Company by £31,418,000 (2022: decreased the net loss and
increased the net assets by £27,734,000).
Other price risk – exposure to investments sensitivity
analysis
Based on the listed investments held and share prices at
31 August 2023, an increase of 10% in
share prices, with all other variables held constant, would have
increased the Company’s net return on ordinary activities after
taxation for the year and increased the net assets of the Company
by £88,084,000 (2022: decreased the net loss and increased the net
assets by £83,540,000). A decrease of 10% in share prices would
have had an equal and opposite effect.
An increase of 10% in the valuation of unlisted investments held at
31 August 2023, would have increased
the Company’s net gain on ordinary activities after taxation for
the year and increased the net assets of the Company by £185,300
(2022: decreased the net loss after taxation and increased the net
assets by £27,000). A decrease of 10% in the valuation would have
had an equal and opposite effect.
Other price risk – net exposure to derivative instruments
sensitivity analysis
Based on the derivative instruments held and share prices at
31 August 2023, an increase of 10% in
the share prices underlying the derivative instruments, with all
other variables held constant, would have increased the Company’s
net gain on ordinary activities after taxation for the year and
increased the net assets of the Company by £13,007,000 (2022:
decreased the net loss and increased the net assets by
£17,890,000). A decrease of 10% in share prices would have had an
equal and opposite effect.
Fair Value of Financial Assets and
Liabilities
Financial assets and liabilities are stated in the Balance Sheet at
values which are not materially different to their fair values. As
explained in Notes 2 (k) and (l) above, investments and derivative
instruments are shown at fair value.
Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that
classifies its financial instruments measured at fair value at one
of three levels, according to the relative reliability of the
inputs used to estimate the fair values.
Classification
|
Input
|
Level 1
|
Valued using quoted prices in active markets for identical
assets
|
Level 2
|
Valued by reference to inputs other than quoted prices included in
level 1 that are observable (i.e. developed using market data) for
the asset or liability, either directly or indirectly
|
Level 3
|
Valued by reference to valuation techniques using inputs that are
not based on observable market data
|
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset. The valuation techniques
used by the Company are explained in Notes 2 (l) and (m) above. The
table below sets out the Company’s fair value hierarchy:
Financial assets at fair value through profit or loss
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
2023
Total
£’000
|
Investments
|
857,351
|
23,246
|
2,095
|
882,692
|
Derivative instrument assets
|
–
|
1,769
|
–
|
1,769
|
|
-----------------
|
-----------------
|
-----------------
|
-----------------
|
|
857,351
|
25,015
|
2,095
|
884,461
|
|
==========
|
==========
|
==========
|
==========
|
Financial liabilities at fair value through profit or
loss
|
|
|
|
|
Derivative instrument liabilities
|
–
|
(949)
|
–
|
(949)
|
|
==========
|
==========
|
==========
|
==========
|
Financial assets at fair value through profit or loss
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
2022
Total
£’000
|
Investments
|
835,224
|
–
|
448
|
835,672
|
Derivative instrument assets
|
–
|
28
|
–
|
28
|
|
-----------------
|
-----------------
|
-----------------
|
-----------------
|
|
835,224
|
28
|
448
|
835,700
|
|
==========
|
==========
|
==========
|
==========
|
Financial liabilities at fair value through profit or
loss
|
|
|
|
|
Derivative instrument liabilities
|
–
|
(9,200)
|
–
|
(9,200)
|
|
==========
|
==========
|
==========
|
==========
|
The table below sets out the movements in level 3 financial
instruments during the year:
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Beginning of the year
|
448
|
957
|
Sales – proceeds
|
–
|
(716)
|
Sales – gains
|
–
|
278
|
Transfer into level 3 at cost - Prax Exploration & Production
and Unbound Group*
|
1,942
|
9,499
|
Movement in investment holding losses
|
(295)
|
(9,570)
|
|
-----------------
|
-----------------
|
End of the year
|
2,095
|
448
|
|
==========
|
==========
|
* Financial
instruments are transferred into level 3 on the date they are
suspended, delisted or when they have not traded for thirty
days.
Marwyn Value Investors
Marwyn Value Investors is a closed-ended fund incorporated in the
United Kingdom. The fund is highly
illiquid and the valuation at 31st August
2023 is based on the indicative bid price in the absence of
a last trade price. As at 31 August
2023, its fair value was £242,000 (2022:
£174,000).
TVC Holdings
TVC Holdings is an unlisted investment holding company incorporated
in Ireland. The valuation at
31 August 2023 is based on the NAV
from the 2022 audited company’s financial report. As at
31 August 2023, its fair value was
£254,000 (2022: £274,000).
Studio Retail Group
Studio Retail Group operated as a multi-channel retail company. On
14 February 2022, the company was
suspended from trading on the London Stock Exchange. The company is
now delisted and in administration. As at 31
August 2023, its fair value was £nil (2022:
£nil).
McColl’s Retail Group
McColl’s Retail Group owns and operates convenience and newsagent
stores. The company was suspended from trading on 6 May 2022 after appointing administrators. As at
31 August 2023, its fair value was
£nil (2022: £nil).
Prax Exploration & Production
Hurricane Energy plc, an oil and gas exploration company, delisted
from the London Stock Exchange in June
2023, after it was acquired by Prax Exploration &
Production plc. The valuation at 31 August
2023 of Prax Exploration & Production plc is based on
the last trade of Hurricane Energy less the cash payment received
from the acquisition. As at 31 August
2023, its fair value was £1,599,000 (2022: £nil).
Unbound Group
Unbound Group plc is a UK based company engaged in selling a range
of brands focused on the over 55 age demographics. On 17 July 2023, the company stopped trading and has
subsequently gone into administration. As at 31 August 2023, its fair value was £nil (2022:
£nil).
18 Capital Resources and Gearing
The Company does not have any externally imposed capital
requirements. The financial resources of the Company comprise its
share capital and reserves, as disclosed in the Balance Sheet above
and any gearing, which is managed by the use of derivative
instruments. Financial resources are managed in accordance with the
Company’s investment policy and in pursuit of its investment
objective, both of which are detailed in the Strategic Report in
the Annual Report. The principal risks and their management are
disclosed above and in Note 17 above.
The Company’s gearing at the year end is set out below:
|
2023
Asset exposure
|
2022
Asset exposure
|
|
£’000
|
%1
|
£’000
|
%1
|
Investments
|
882,692
|
92.8
|
835,672
|
90.6
|
Long CFDs
|
130,073
|
13.7
|
178,898
|
19.4
|
|
-----------------
|
-----------------
|
-----------------
|
-----------------
|
Total asset exposures
|
1,012,765
|
106.5
|
1,014,570
|
110.0
|
|
==========
|
==========
|
==========
|
==========
|
Shareholders’ funds
|
951,049
|
|
922,599
|
|
Gearing2
|
|
6.5%
|
|
10.0%
|
|
|
==========
|
|
==========
|
1 Asset
exposure to the market expressed as a percentage of Shareholders’
funds.
2 Gearing
is the amount by which Asset Exposure exceeds Shareholders’ funds
expressed as a percentage of Shareholders’ funds.
19 Transactions with the Manager and Related
Parties
FIL Investment Services (UK) Limited is the Company’s Alternative
Investment Fund Manager and has delegated portfolio management and
the role of company secretary to FIL Investments International
(“FII”). Both companies are Fidelity group companies.
Details of the current fee arrangements are given in the Directors’
Report in the Annual Report and in Note 4 above. During the year,
fees payable to FII for portfolio management services were
£5,698,000 (2022: £5,607,000). At the Balance Sheet date, fees for
portfolio management services of £483,000 (2022: £484,000) were
accrued and included in other creditors. FII also provides the
Company with marketing services. The total amount payable for these
services during the year was £303,000 (2022: £191,000). At the
Balance Sheet date, marketing services of £nil (2022: £13,000) were
accrued and included in other creditors.
Disclosures of the Directors’ interests in the ordinary shares of
the Company and Director’s fees and taxable expenses relating to
reasonable travel expenses payable to the Directors are given in
the Directors’ Remuneration Report in the Annual Report. In
addition to the fees and taxable expenses disclosed in the
Directors’ Remuneration Report, £18,000 (2022: £17,000) of
Employers’ National Insurance contributions were paid by the
Company. At the Balance Sheet date, Directors’ fees of £14,000
(2022: £15,000) were accrued and payable.
20 Reconciliation of Net Return/(Loss) on Ordinary
Activities before Finance Costs and Taxation to Net Cash Inflow
from Operating Activities before Finance Costs and
Taxation
|
Year ended
31.08.23
£’000
|
Year ended
31.08.22
£’000
|
Net total return/(loss) on ordinary activities before finance costs
and taxation
|
59,759
|
(41,992)
|
Net capital (return)/loss on ordinary activities before finance
costs and taxation
|
(19,717)
|
73,559
|
|
-----------------
|
-----------------
|
Net revenue return on ordinary activities before finance
costs and taxation
|
40,042
|
31,567
|
|
==========
|
==========
|
Scrip dividends
|
–
|
(108)
|
Decrease/(increase) in debtors
|
1,650
|
(3,208)
|
Increase in other creditors
|
–
|
37
|
Net cash inflow from operating activities before finance
costs and taxation
|
41,692
|
28,288
|
|
==========
|
==========
|
Alternative Performance Measures
Discount/Premium
The discount/premium is considered to be an Alternative Performance
Measure. It is the difference between the NAV per ordinary share of
the Company and the ordinary share price and is expressed as a
percentage of the NAV per ordinary share. Details of the Company’s
discount/premium are on the Financial Highlights page in the Annual
Report and are both defined in the Glossary of Terms in the Annual
Report.
Gearing
Gearing is considered to be an Alternative Performance Measure. See
Note 18 above for details of the Company’s gearing.
Net Asset Value (“NAV”) per Ordinary
Share
The NAV per ordinary share is considered to be an Alternative
Performance Measure. See the Balance Sheet and Note 16 above for
further details.
Ongoing Charges Ratio
Ongoing charges ratio are considered to be an Alternative
Performance Measure. The ongoing charges ratio has been calculated
in accordance with guidance issued by the AIC as the total of
management fees and other expenses expressed as a percentage of the
average net assets throughout the year.
|
2023
|
2022
|
Investment management fees (£’000)
|
5,698
|
5,607
|
Other expenses (£’000)
|
948
|
838
|
Ongoing charges (£’000)
|
6,646
|
6,445
|
Average net assets (£’000)
|
949,787
|
934,785
|
Ongoing charges ratio
|
0.70%
|
0.69%
|
|
==========
|
==========
|
Revenue, Capital and Total Returns per
Share
Revenue, capital and total returns per share are considered to be
Alternative Performance Measures. See the Income Statement and Note
8 above for further details.
Total Return Performance
Total return performance is considered to be an Alternative
Performance Measure. The NAV per ordinary share total return
includes reinvestment of the dividend in the NAV of the Company on
the ex-dividend date. The ordinary share price total return
includes the reinvestment of the net dividend in the month that the
share price goes ex-dividend.
The tables below provide information relating to the NAV per
ordinary share and the ordinary share price of the Company, the
impact of the dividend reinvestments and the total returns for the
years ended 31 August 2023 and
31 August 2022.
2023
|
Net asset
value per
ordinary
share
|
Share
price
|
31 August 2022
|
284.67p
|
260.50p
|
31 August 2023
|
293.44p
|
267.50p
|
Change in year
|
+3.1%
|
+2.7%
|
Impact of dividend reinvestment
|
+2.8%
|
+2.9%
|
|
-----------------
|
-----------------
|
Total return for the year
|
+5.9%
|
+5.6%
|
|
==========
|
==========
|
2022
|
Net asset
value per
ordinary
share
|
Share
price
|
31 August 2021
|
304.79p
|
308.50p
|
31 August 2022
|
284.67p
|
260.50p
|
Change in year
|
-6.6%
|
-15.6%
|
Impact of dividend reinvestment
|
+2.2%
|
+2.1%
|
|
-----------------
|
-----------------
|
Total return for the year
|
-4.4%
|
-13.5%
|
|
==========
|
==========
|
The Annual Financial Report Announcement is not the Company's
statutory accounts. The above results for the year ended
31 August 2023 are an abridged
version of the Company's full Annual Report and Financial
Statements, which have been approved and audited with an
unqualified report. The 2022 and 2023 statutory accounts received
unqualified reports from the Company's Auditor and did not include
any reference to matters to which the Auditor drew attention by way
of emphasis without qualifying the reports and did not contain a
statement under s.498 of the Companies Act 2006. The financial
information for 2022 is derived from the statutory accounts for
2022 which have been delivered to the Registrar of Companies. The
2023 Financial Statements will be filed with the Registrar of
Companies in due course.
A copy of the Annual Report will shortly be submitted to the
National Storage Mechanism and will be available for inspection at:
www.morningstar.co.uk/uk/NSM
The Annual Report will be posted to Shareholders later this month
and additional copies will be available from the registered office
of the Company and on the Company's website:
www.fidelity.co.uk/specialvalues where up to date information on
the Company, including daily NAV and share prices, factsheets and
other information can also be found.
Neither the contents of the Company's website nor the contents of
any website accessible from hyperlinks on the Company's website (or
any other website) is incorporated into, or forms part of, this
announcement.
ENDS