Annual Financial Report
FIDELITY ASIAN VALUES PLC
Final Results for the year ended 31 July 2022
Financial Highlights:
- The Board of Fidelity Asian Values PLC (the “Company”) recommends an annual dividend of 14.00 pence per share, an increase of 59.1% from last year, and the highest since launch.
- The Company’s net asset value (“NAV”) increased by 3.9% for the year ended 31 July 2022.
- The Company’s small-cap value-oriented focus has generated positive absolute returns in a falling market.
- The Company continues to own a portfolio of businesses which are dominant in their industries, earn good returns on capital and have attractive valuations.
Contacts
For further information, please contact:
Anna-Marie Davis
Company Secretary
01737 834798
FIL Investments International
Chairman’s Statement
Investment and Market Review
The year under review has been a turbulent period for Asian and global equity markets. Concerns around the Russia-Ukraine conflict and the resultant surge in commodity and energy prices have dominated investor sentiment. Economies globally have continued to struggle with low growth as well as higher inflationary pressures amid supply-chain constraints. In such an environment, Asian and emerging market equities, which are perceived to be riskier, have been out of vogue.
Given this challenging backdrop, it is especially pleasing to report that the Company’s NAV strongly outperformed its Comparative Index. In the year to 31 July 2022, the NAV increased by 3.9%, compared to the MSCI All Countries Asia ex Japan Small Cap Index (net) total return (in Sterling terms) which returned -5.6% over the same period. Nitin and his team should be commended for their diligence and persistence in sticking to their style in what has been an especially challenging time for value investors and we, as a Board, are delighted that their approach is beginning to pay off. However, it has been disappointing that this strong relative performance has not been reflected in a narrowing of the discount, with the share price still lagging; it returned -3.4% over the period. While it is hard to comment on share price performance as it is largely a function of market sentiment, what can be said is that investors have generally become more risk averse with their capital.
Market Outlook
The long-term outlook for Asia Pacific ex Japan equities remains positive and the region’s relatively higher growth prospects should continue to attract investors. Also, at a time when the world is becoming increasingly protectionist, Asia’s robust domestic demand from an expanding middle class supports the outlook for the region. Nonetheless, the region remains vulnerable to a global slowdown and tightening of global financial conditions.
China’s near-term growth outlook remains skewed to the downside due to sporadic COVID-related lockdowns across the country. Government stimulus has so far prevented a contraction in annual growth, but a weakening external backdrop is weighing on exports, previously a key driver of activity. Elsewhere, most Asian countries have actively eased international border controls, and a significant improvement in vaccination rates has helped to bring local restrictions to a close. As a result, pent-up consumption demand is making its way into their economies.
Persistently high and broadening inflation remains one of the stiffest economic headwinds confronting the US, Europe and several other major economies. But so far, for most of Asia, the picture has been rather different. China is, in fact, in a monetary easing cycle while rates in developed markets are likely to continue rising. Other Asian economies are also close to the end of their tightening cycles and they should have room to cut rates when inflationary pressures ease.
We therefore continue to maintain our positive view on the region. Overall, Asian equities continue to trade at attractive valuations compared to long-term historical averages and developed markets. The Company will continue to focus on finding attractive long-term investment opportunities across the region based on strong fundamental research.
The depth and quality of research provided by Fidelity International is amongst the best in Asia and is currently undertaken by 56 analysts and 39 portfolio managers. Nitin draws extensively on this pool of talent in making his investment decisions. In this, Nitin has been well supported by Ajinkya Dhavale, who has over 14 years of investment experience. He originally joined Fidelity as an analyst in 2013, covering the Auto, Cement, Telecommunications and Property sectors. He became Assistant Portfolio Manager of Fidelity Asian Values PLC on 1 June 2020 and currently specialises in small and mid cap stocks in Korea, Taiwan and Frontier Asia.
Due Diligence 2022
Prior to the pandemic, the Board had visited Asia every other year to observe the Manager and his team in action and to meet the Fidelity analysts, and also to meet some of the companies in which we are invested. This year, we were unable to do that but instead had a virtual visit of three days in March. We used video conferencing facilities to meet members of the Fidelity team, market commentators and some investee companies. In addition, Nitin was able to travel from Singapore and we were pleased to be able to spend some time with him in person.
Among the companies we met was China Overseas Grand Oceans Group Limited (COGO), a subsidiary company of Chinese Overseas Land and Investment. Discussions were focused on the challenges for developers in China’s downward property market and the likelihood of consolidation in the industry. We also heard from the management team of Interojo, a Korean contact lens maker, with a wide variety of good quality products at affordable prices.
The Board was, once again, impressed by the breadth and depth of Fidelity’s team. In addition to the investment team (Nitin and Ajinkya and the analysts), we spent time with the Global Head of Stewardship and Sustainable Investing, the Global Head of Investment Research, the Head of Sales and members of the Environmental, Social and Governance (“ESG”) team.
We can confirm to shareholders that their money is being well cared for by a good and well-resourced team.
Gearing
Nitin and Ajinkya have increased the level of gross gearing from 3.0% reported last year to 4.4% as at 31 July 2022. They continue to believe that the main driver of the Company’s performance will be stock picking. Therefore, the level of gearing is entirely determined by the investment opportunities they see. Put simply, when they have more ideas than money, then the Company will be geared. When they have more money than ideas, then the Company will have a larger cash position.
Discount Management and Share Repurchases
The Board has undertaken active discount management, the primary purpose of which was, and remains, to reduce discount volatility.
Repurchases of ordinary shares are made at the discretion of the Board, within guidelines set by it and in light of prevailing market conditions. Shares will only be repurchased when it results in an enhancement to the NAV of the ordinary shares. In order to assist in managing the discount, the Board has shareholder approval to hold in Treasury any ordinary shares repurchased by the Company, rather than cancelling them. Any shares held in Treasury would only be re-issued at NAV per ordinary share or at a premium to NAV per ordinary share.
There continued to be turmoil in the world’s financial markets in the reporting year and at times the Company’s discount was volatile in reaction to such market conditions. The Board, therefore, approved the repurchase of 780,543 ordinary shares for holding in Treasury during the year ended 31 July 2022. Since then and up to the date of this report, markets have continued to be volatile, and the Company’s discount has, at times, widened into double digits. As a result, the Board has continued to operate its discount management policy to narrow the discount and authorised the purchase of 352,816 ordinary shares into Treasury, since the year end.
Dividend
Subject to shareholders’ approval at the Annual General Meeting (“AGM”) on 23 November 2022, the Directors recommend a dividend of 14.00 pence per ordinary share which represents an increase of 59.1% over the 8.80 pence paid in 2021. This dividend will be payable on 7 December 2022 to shareholders on the register at close of business on 28 October 2022 (ex-dividend date 27 October 2022). Shareholders will know that the Company’s objective is long-term capital growth. In light of the higher income received and the current economic environment, the Board has elected to recommend almost all of the income earned to be paid as a dividend. Shareholders should not assume that such dividends will continue in the future.
Board of Directors and Board Succession
By 2023, I will have served four years as a Director and a further nine years as Chairman and will step down from the Board at the AGM in 2023. We had previously advised you that Clare Brady would succeed Grahame Stott as Chairman of the Audit Committee at the conclusion of this year’s AGM. The Board has now agreed that Clare should succeed me as Chairman next year and we are actively searching for a new Chair of the Audit Committee. We hope to be able to announce this new Board member in time for this year’s AGM.
As reported in last year’s Annual Report, Timothy Scholefield stepped down from the Board after the AGM on 3 December 2021. In anticipation of Timothy and Grahame’s retirements, Sally Macdonald and Matthew Sutherland were appointed to the Board on 1 January 2022. Both Sally and Matthew will be subject to election by shareholders at the AGM on 23 November 2022.
Michael Warren will have reached his nine-year tenure by the AGM in 2023. However, given the recent and ongoing changes to the Board, we are proposing to shareholders that he should remain on the Board for one additional year to ensure that institutional and historical knowledge of the Company is not lost. Accordingly, subject to shareholder approval, he will retire from the Board at the AGM in 2024.
Grahame Stott completed his nine-year tenure in September 2022 and will step down from the Board at the conclusion of the AGM on 23 November 2022. I would like to thank him on behalf of the Board and all of the Company’s stakeholders for his invaluable contribution to the Company, especially his meticulous attention to detail. He takes with him our very best wishes for the future.
All Directors, with the exception of Grahame, are subject to election or re-election at the forthcoming AGM. The Directors’ biographies are in the Annual Report, and between them, they have a wide range of appropriate skills and experience which form a balanced Board for the Company.
Annual General Meeting – Wednesday, 23 November 2022 at 11.00 am
The AGM of the Company will be held at 11.00 am on Wednesday, 23 November 2022 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.
Appropriate social distancing and hygiene measures will be in place for those shareholders attending the AGM in person. For those shareholders who would prefer not to attend in person or for whom travel is not convenient, we will live-stream the formal business and presentations of the meeting online.
Nitin Bajaj, 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 8 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/asianvalues. 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 118-640-628. 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.
Kate Bolsover
Chairman
11 October 2022
Portfolio Manager’s Review
Nitin Bajaj was appointed as the Portfolio Manager of Fidelity Asian Values PLC on 1 April 2015. He is based in Singapore and has over 20 years’ investment experience. He is also the Portfolio Manager for the Fidelity Asian Smaller Companies Fund as well as the Fidelity China Focus Fund. He first joined Fidelity in 2003 as an Investment Analyst and then took over the Fidelity India Special Situations Fund and subsequently started the Fidelity India Value Fund. He managed these funds until November 2012, when Fidelity decided to sell its India business.
Ajinkya Dhavale has over 14 years of investment experience. He originally joined Fidelity as an analyst in 2013, covering the Auto, Cement, Telecommunications and Property sectors. He was promoted to Assistant Portfolio Manager of Fidelity Asian Values PLC on 1 June 2020 and currently specialises in small and mid cap stocks in Korea, Taiwan and Frontier Asia.
Question
How has the Company performed in the year under review?
Answer
In the year to 31 July 2022, the NAV of the company increased by 3.9%. The MSCI All Countries Asia ex Japan Small Cap Index (net) total return (in Sterling terms) returned -5.6% over the same period. The share price total return was -3.4%.
The Company generated positive absolute returns in a falling market primarily because we avoided speculative investments, expensive stocks, and blue-sky business models. Investing in companies on very rich valuations had been the market norm during the pandemic so a pull-back was somewhat expected.
This approach reflects our investment philosophy of investing in good quality businesses which are run by competent and honest management, and only buying them when valuations provide a good margin of safety.
Question
Asian stocks have lost value over the period under review. Has the sell-off been consistent across the market cap spectrum? What have been the drivers for your outperformance?
Answer
The sell-off in Asian equities this year has certainly not been even. Losses have been lower in small cap stocks than their large cap counterparts primarily due to the reversal of the crowded ‘large cap growth’ trading bias that occurred in 2019 and 2020. In addition, small and large cap indices are further skewed by their geographic mix, with the large cap index having a significantly higher weight in China.
Stylistically, Value stocks have done better than Growth stocks during this period. In our opinion, we are in the early stages of a long-term style rotation out of Growth equities as the valuation gap between Growth and Value is still at a twenty-year extreme in favour of Value stocks. Given our significant bias towards small cap Value, we think a period of sustained outperformance is possible over the coming years.
While this market environment provided a positive backdrop for our style, our focus on bottom-up fundamental research meant that stock selection has been the biggest contributor to the Company’s relative performance. During the financial year, our stock selection was particularly positive in China, India, Korea, Australia and Indonesia. From a sector perspective, positive returns were posted in industrials, health care, financials and materials.
In terms of small/mid cap names, Indonesia’s largest yet lowest cost producer of ceramic tiles Arwana Citramulia benefited from a favourable demand-supply environment, while India’s fourth largest cables and wires maker KEI Industries was aided by a recovery in capital expenditure and its increased focus on higher margin retail and exports segments. In China, the Company’s exposure to a large cap state-owned property developer China Overseas Land& Investment added to performance after the company, which is operating in a consolidated industry, gained market share, driven by the flight to quality amongst developers. Companies which can demonstrate more disciplined operations and have both good balance sheets and access to land sales are better able to successfully complete construction projects.
QUESTION
With slightly over 35% of your investments in either China or Hong Kong, are you worried about single country exposure? What do you consider to be the main risks of investing in China?
Answer
From a risk management perspective, while country positions are an outcome of underlying stock selection, we restrict our exposure to any particular country to within Board set guidelines. Of course, the Board can change such limits, should it so decide, to suit market dynamics as well as the opportunity set. Given the macro-economic concerns around China, it comes as no surprise that Chinese stocks have been sold off; but in our view, there are many interesting companies that are now trading significantly below intrinsic value and are being overlooked by the broader investment community. You could almost compare the current Chinese multiples and sentiment to what happened in the Indian market crash in 2012/13 or in the sub-prime credit crisis in the US in 2008/09.
We look at the situation differently. While we are very conscious of the macro risks of investing in China due to geopolitical tensions, regulatory interventions and economic cycles, based on our analysis, the prices of the businesses we own reflect these risks. Furthermore, we believe that these companies are providing products or services that are beneficial to society – either through improving household products or providing essential infrastructure services - both of which are critical to the smooth functioning of the economy.
However, we would like to share some high-level thoughts regarding the two biggest risks that are being flagged when it comes to China – the demise of the property sector and the impact of the country’s zero-COVID policy.
The various lockdowns have taken a heavy toll on industrial activities and consumption given the lack of movement of citizens. Yes, we have seen some tweaks to policy requirements (such as allowing the ongoing operation of manufacturing activities during a city lockdown), but the government still measures its success in overcoming the pandemic as the number of lives saved and keeping fatalities low. We are monitoring any policy changes, or indeed fiscal or monetary support aimed at improving sentiment and underpinning growth. It is critical to note that the country’s zero-COVID policy can impact corporate earnings so it’s something that we consider when assessing a company’s earnings visibility.
The other risk associated with China is the health of the property sector. For years, China had seen a surge in property development, with many developers benefiting from growing demand. However, like any prolonged investment cycle, the property market in China has seen severe misallocation of capital and excessive risk taking by many private sector developers. In our opinion, quite a few of these “aggressive” developers will not survive the downturn. This will have a knock-on impact on the overall economy; but it will also create significant opportunities for well-managed companies to increase market share. We believe that the businesses we own fall in the category of market share gainers in a number of different sectors in China. Given the current macro backdrop and pessimism, we believe these businesses are quite significantly mispriced compared to their long-term potential.
Given this positive risk/return outlook, and importantly, the underlying stock opportunities, our combined exposure to China and Hong Kong is around 35% as at the end of July (see Charts in the Annual Report) – this is close to the highest it’s been during my tenure.
Question
Large cap stocks make up nearly 20% of your portfolio. How do you choose these stocks and why do you hold them?
Answer
Although the Company has a small cap bias, the investment policy is unrestricted, and we are therefore able to consider large companies for the portfolio where we believe they demonstrate the value characteristics that we seek for shareholders’ portfolios.
In order to be considered as investments, these large companies should demonstrate the same returns profile that we expect from any small cap holding in the portfolio. We like to think of them as adding some diversification benefits from the small cap companies in the portfolio and from the Company’s peer group.
Question
How do you approach shorting companies? Where do you see opportunities in this space?
Answer
The approach to shorting companies is the exact opposite of what we do when creating our long positions. Here we are looking for fragile business models, excessive leverage, management with poor reputations and/or stretched valuations.
That said, shorting is a specialised skill where risk/reward metrics can turn against you because your short position increases if the price increases. Theoretically, a stock’s price can increase to an infinite amount, but its lowest value can only ever be zero. We try to keep the short book well diversified and take smaller sized positions.
Question
Last year you invested in a pre-IPO holding – Tuhu Car. Can you provide an update on this company and will we see more investments like this in the future?
Answer
We continue to hold a position in Tuhu Car that we established in June 2021. It remains an attractive business due to its market dominance in the unique online-to-offline auto parts retailing space. In essence, succeeding in making customers shift online to buy spare parts and then collect them from physical stores. The long-term structural growth opportunity is very attractive, and we have seen similar companies in the US and Australia do very well in this space over a long period of time. China is still at an early stage in its development of auto parts retailing and Tuhu Car is the clear market leader.
Unlisted investments are different from our traditional value investments as these companies are in an early stage in their development. We are very careful about such investments, and I do not foresee the Company increasing unlisted holdings in a significant way.
Question
Can you explain to us how you integrate ESG considerations into your portfolio?
Answer
The Company’s primary objective for shareholders is to achieve capital growth. In order to achieve the best possible returns, we have always sought to invest in businesses which respect laws, their employees, customers, the environment and shareholders as well managing their businesses properly. ESG considerations have therefore always been at the heart of our investment thinking.
Investing in smaller companies in Asia using the strength of Fidelity’s research team here has always offered us the opportunity to identify companies ahead of other investors. Regulations are constantly evolving and ESG is no exception to this. We believe this presents us with opportunities. The development of ESG ratings covered the rating agencies (MSCI/Sustainalytics) has not yet evolved to cover many of the smaller companies which we invest in. This provides an exciting opportunity as the ESG credentials of many of the smaller companies (as you will see in the examples in the Annual Report) are best in class. They are in fact ‘double gems’: companies with good prospects, strong management and well-priced alongside their strong ESG credentials.
We have also included a summary of Fidelity’s house approach to ESG in the Annual Report. This is important as Fidelity covers 85% of the portfolio and is therefore able to give us evidence that my approach is working.
Question
What do you view as the biggest risks and opportunities for the next twelve months?
Answer
We believe that the biggest risks are always things we do not know yet or “unknown unknowns”.
Of the things that are known, in our opinion, the biggest risk continues to be the medium-term impact of experimental monetary policy of the last decade. The world has never had free money the way it did in the last ten years and neither has the world lived with this quantum of debt before. Consequently, it is very hard to have a playbook to figure out how things will pan out. This is something that we keep a close eye on and continue to learn about.
Having said that, we believe our strength is stock picking rather than macro analysis. Peter Lynch, the renowned and highly successful US portfolio manager, used to say, “if you spent thirteen minutes a year on economic (macro) analysis, you wasted ten”. We are of the same school of thought.
We are very happy with the current shape of the portfolio comprising businesses that are dominant in their industries, earn good returns on capital and are available at attractive valuations. The current vital statistics of the Company’s portfolio of investee companies are as follows:
· Return on Equity at 15.4% versus 11.2% for the Comparative Index;
· A stronger Balance Sheet than the Comparative Index;
· Price to earnings: 8.5x versus 11.2x for the Comparative Index; and
· Dividend yield at 4.6% versus 2.9% for the Comparative Index.
Our skills lie in business analysis, finding best in class management teams and mispriced stocks. We are known to repeat the phrase below often and it’s fair to say that it has become known as something of a mantra for the Company:
Find good businesses run by good management and buy them at prices with a good margin of safety.
We continue to focus on this.
Nitin Bajaj
Portfolio Manager
Ajinkya Dhavale
Assistant Portfolio Manager
11 October 2022
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 and 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 and assigns a rating to each risk. The risk matrix is reviewed by the Audit Committee at least once annually. The Board has also established associated policies and processes designed to manage, and where possible, mitigate identified risks which are then monitored in the form of comprehensive reports considered 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 and works with the Manager, who also has responsibility for risk management for the Company, to continue to meet its UK corporate governance obligations.
Climate change is one of the most critical emerging issues 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, the main risk being the impact on investment valuations.
The Board considers the risks listed below to be the principal risks and uncertainties faced by the Company.
| Principal Risks | Description and Risk Mitigation |
| Economic, Political and Market Risks | The principal market related risks are market downturns, interest rate movements, deflation/inflation, exchange rate movements and market shocks, such as the ongoing pandemic and military conflict. Inflation continues to trend higher across most economies, driven by a combination of increased demand, as the pandemic restrictions are lifted, global labour shortages in some sectors and supply chain shortages. The Company is exposed to geopolitical risks on a number of fronts. In December 2021, the US issued a further Executive Order prohibiting transactions by US persons in publicly traded securities of certain Chinese companies. Any further restrictions on listings of Chinese companies in the US could negatively impact the demand for such stocks, and consequently, their share price. Although this is not directly relevant to the Company, it may have an indirect impact on the demand for equities in the portfolio. Additionally, the Company may be exposed to the economic impact from the war in Ukraine. Russia and Ukraine are both significant net exporters of oil, natural gas and a variety of soft commodities and supply limitations are fuelling global inflation and economic instability, specifically within western nations. Whilst the direct impact of the war to APAC markets has been less severe than European counterparts, a prolonged cost-of-living crisis risks impacting western shareholder funds and appetite. The fragile relations between US and China risk further deterioration, should China offer any meaningful support to Russia or if tensions escalate in the Taiwan Straits. The first is likely to result in sanctions or a trade war, and the latter, in military conflict. 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. His investment philosophy of stock-picking and investing in attractively valued companies aims to outperform the Comparative Index over time. COVID continues to be a global pandemic with the potential for severe market and economic impacts. The risk of the likely effects of the ongoing pandemic on the markets 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 economic, political and market risks and legislative changes at each Board meeting. Most of the Company’s assets and income are denominated in currencies other than Sterling which is the Company’s functional and presentation currency. As a result, movements in exchange rates may affect the Sterling value of these items. Risks to which the Company is exposed to in the market and currency risk category are included in Note 17 to the Financial Statements below together with summaries of the policies for managing these risks. |
| Discount Management 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 Company’s share price, NAV and discount volatility are monitored daily by the Manager and the Company’s Broker and considered by the Board on a regular basis. The demand for shares can be influenced through good performance and an active investor relations programme. |
| 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 International’s (“Fidelity”) information security teams and has resulted in the implementation of new tools and processes, including improvements to existing ones. Fidelity has established a dedicated cybersecurity team which provides regular awareness updates and best practice guidance. Risks are increased due to the pandemic and from the Russia/Ukraine conflict. 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 with COVID and cyber activity following the Russian invasion of Ukraine. There are a number of mitigating actions in place including, control strengthening, geo-blocking, phishing mitigants combined with enhanced resilience and recovery options. |
| Investment Performance Risk (including the use of Derivatives and Gearing) | The achievement of the Company’s investment performance objective relative to the market requires the taking of risk, such as investment strategy, asset allocation and stock selection, and may lead to NAV and share price underperformance compared to the Comparative Index and/ or peer group companies. Continued underperformance could lead to the Company and its objectives becoming unattractive to investors. The Investment Manager is responsible for actively monitoring the portfolio selected in accordance with the asset allocation parameters and seeks to ensure that individual stocks meet an acceptable risk/reward profile. In order to manage this risk, the Board reviews Fidelity’s compliance with agreed investment restrictions; investment performance and risk; relative performance; the portfolio’s risk profile; and whether appropriate strategies are employed to mitigate any negative impact of substantial changes in the markets. The Board also regularly canvasses major shareholders for their views with respect to company matters. Derivative instruments are used to enable both the protection and enhancement of 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. Further details 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 currently cheaper than bank loans. The principal risk is that the Portfolio Manager fails to use gearing effectively, resulting in a failure to outperform in a rising market or underperform in a falling market. The Board regularly considers the level of gearing and gearing risk and sets limits within which the Manager must operate. |
| Shareholder Relationship Risk | There is a risk that the Board has insufficient access to shareholders or that the Portfolio Manager’s investment style is not appealing for investors. A further risk is that weak investment performance may potentially make the Company less attractive to retail investors and wealth managers. The shareholder register and shareholder activity are reviewed at each Board meeting and regular shareholder meetings are organised by the Broker with the Board and Fidelity, including the Portfolio Manager. Fidelity has an investment trusts website which has dedicated pages for the Company and regular updates are provided for investors. |
| Key Person Risk | The Portfolio Manager, Nitin Bajaj, 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. The Company has an Assistant Portfolio Manager, Ajinka Dhavale, who supports the Portfolio Manager, and has extensive experience in the Asian markets and companies and shares a common investment approach and complementary investment experience with the Portfolio Manager. Fidelity has succession plans in place for its portfolio managers which have been discussed with the Board and provide some assurance in this regard. |
| 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. 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 reviews the positioning of the portfolio considering ESG factors. Further detail on ESG considerations in the investment process in the Annual Report. |
| Business Continuity and Operational Risks | Investment team key activities, including portfolio managers, analysts and trading/support functions, are performing well despite the operational challenges posed when working from home during the pandemic, and more recently, from the rail strikes. With variants of COVID continuing to evolve, it is evident that although the pandemic is being tackled by vaccines, risks remain. There continues to be increased focus from financial services regulators around the world on the contingency plans of regulated financial firms. The risks following Russia’s invasion into Ukraine, specifically regarding the potential loss of power and/or broadband services, are increasingly stable as work transfer recovery options are established for business-critical activities. The Manager carries on reviewing its business continuity plans and operational resilience strategies on an ongoing basis. The Manager continues to take all reasonable steps in meeting its regulatory obligations and to assess operational risks, the ability to continue operating and the steps it needs to take to serve and support its clients, including the Board. There has not been any significant changes to Fidelity’s control environment as a result of the pandemic and 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 during the pandemic. 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’s other third party service providers, principally the Registrar, Custodian and Depositary, have also confirmed the implementation of similar measures to ensure no business disruption and that they continue to manage their operational risk and have appropriate business continuity plans in place. The Registrar, Custodian and Depositary are all subject to a risk-based program of internal audits by the Manager. In addition, service providers’ own internal control reports are received by the Board on an annual basis and any concerns raised are investigated. Risks associated with these services are generally rated as low, although the financial consequences could be serious, including reputational damage to the Company. |
Other risks facing the Company include:
Tax and Regulatory Risks
A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status resulting in the Company being subject to tax on capital gains. The Board monitors tax and regulatory changes at each Board meeting and through active engagement with regulators and trade bodies by the Manager.
Going Concern Statement
The Financial Statements of the Company have been prepared on a going concern basis.
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 31 October 2023 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 evolving variants of COVID, the war in Ukraine and significant market events as set out in the Business Continuity and Operational Risks above. The prospects of the Company over a period longer than twelve months can be found in the Viability Statement below.
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 above. 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 on 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;
· The principal and emerging risks and uncertainties facing the Company and their potential impact as set out above;
· The 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.
For the five year reporting period to 31 July 2022, the Company’s NAV total return performance of +33.5% was ahead of the +30.2% total return of the Comparative Index. In comparison, the share price total return was +30.1%. The Board regularly reviews the investment policy and considers 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 Company’s portfolio mainly comprises 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, particularly in the context of the climate change risk identified within the ESG Risk in the Annual Report. The Board has also considered the impact of regulatory changes and how this may affect the Company.
A continuation vote takes place every five years. There is a risk that shareholders do not vote in favour of the continuation of the Company during periods when performance of the Company’s NAV and share price is poor. The last continuation vote was at the Company’s AGM held on 3 December 2021. The next continuation vote will take place at the AGM in 2026.
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 investment 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 either 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 during 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 detail 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 this report, have included:
· Seeking shareholder approval at the AGM on 3 December 2021 for the continuation of the Company (continuation votes are held every five years);
· Authorising the repurchase of 352,816 ordinary shares up to the date of this Annual Report when the Company’s discount widened, in line with the Board’s discount management policy;
· The decision to recommend a final dividend of 14.00 pence per ordinary share, the highest rate paid since the Company was launched;
· The decision to hold a hybrid AGM in 2022 in order to make it more accessible to those investors who prefer not to attend in person; and
· As part of the Board’s succession plans, the appointments of Sally Macdonald and Matthew Sutherland to the Board with effect from 1 January 2022.
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 they 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 accounting 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 that comply with that law and those regulations.
The Directors have delegated to the Manager 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/asianvalues. 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 own 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’ Responsibilities was approved by the Board on 11 October 2022 and signed on its behalf by:
KATE BOLSOVER
Chairman
FINANCIAL STATEMENTS
INCOME STATEMENT FOR THE YEAR ENDED 31 JULY 2022
|
|
Year ended 31 July 2022 | Year ended 31 July 2021 | ||||||
| Notes |
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
||
| Gains on investments | 10 | – | 2,708 | 2,708 | – | 94,254 | 94,254 | |
| (Losses)/gains on derivative instruments | 11 | – | (1,815) | (1,815) | – | 6,975 | 6,975 | |
| Income | 3 | 15,256 | – | 15,256 | 10,842 | – | 10,842 | |
| Investment management fees | 4 | (2,564) | 732 | (1,832) | (2,272) | 649 | (1,623) | |
| Other expenses | 5 | (905) | – | (905) | (768) | (3) | (771) | |
| Foreign exchange gains/(losses) | – | 2,609 | 2,609 | – | (1,671) | (1,671) | ||
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |||
| Net return on ordinary activities before finance costs and taxation | 11,787 | 4,234 | 16,021 | 7,802 | 100,204 | 108,006 | ||
| Finance costs | 6 | (331) | – | (331) | (287) | – | (287) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |||
| Net return on ordinary activities before taxation | 11,456 | 4,234 | 15,690 | 7,515 | 100,204 | 107,719 | ||
| Taxation on return on ordinary activities | 7 | (1,079) | (1,085) | (2,164) | (774) | (3,380) | (4,154) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |||
| Net return on ordinary activities after taxation for the year | 10,377 | 3,149 | 13,526 | 6,741 | 96,824 | 103,565 | ||
| ========= | ========= | ========= | ========= | ========= | ========= | |||
| Return per ordinary share | 8 | 14.21p | 4.31p | 18.52p | 9.20p | 132.09p | 141.29p | |
| ========= | ========= | ========= | ========= | ========= | ========= | |||
The Company does not have any other comprehensive income. Accordingly, the net return 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.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 JULY 2022
|
|
Notes |
Share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Other non- distributable reserve £000 |
Other reserve £000 |
Capital reserve £000 |
Revenue reserve £000 |
Total shareholders’ funds £000 |
| Total shareholders’ funds at 31 July 2021 | 18,895 | 50,501 | 3,197 | 7,367 | 719 | 273,107 | 10,278 | 364,064 | |
| Net return on ordinary activities after taxation for the year | – | – | – | – | – | 3,149 | 10,377 | 13,526 | |
| Repurchase of ordinary shares | 14 | – | – | – | – | (719) | (2,808) | – | (3,527) |
| Dividend paid to shareholders | 9 | – | – | – | – | – | – | (6,440) | (6,440) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total shareholders’ funds at 31 July 2022 | 18,895 | 50,501 | 3,197 | 7,367 | – | 273,448 | 14,215 | 367,623 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Total shareholders’ funds at 31 July 2020 | 18,895 | 50,501 | 3,197 | 7,367 | 3,379 | 176,283 | 9,778 | 269,400 | |
| Net return on ordinary activities after taxation for the year | – | – | – | – | – | 96,824 | 6,741 | 103,565 | |
| Repurchase of ordinary shares | 14 | – | – | – | – | (2,660) | – | – | (2,660) |
| Dividend paid to shareholders | 9 | – | – | – | – | – | – | (6,241) | (6,241) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total shareholders’ funds at 31 July 2021 | 18,895 | 50,501 | 3,197 | 7,367 | 719 | 273,107 | 10,278 | 364,064 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
The Notes below form an integral part of these Financial Statements.
BALANCE SHEET AS AT 31 JULY 2022 COMPANY NUMBER 3183919
|
|
Notes |
2022 £000 |
2021 £000 |
| Fixed assets | |||
| Investments | 10 | 338,845 | 350,225 |
| --------------- | --------------- | ||
| Current assets | |||
| Derivative instruments | 11 | 972 | 437 |
| Debtors | 12 | 4,568 | 3,489 |
| Amounts held at futures clearing houses and brokers | 2,997 | 2,825 | |
| Cash at bank | 25,368 | 14,128 | |
| --------------- | --------------- | ||
| 33,905 | 20,879 | ||
| --------------- | --------------- | ||
| Current liabilities | |||
| Derivative instruments | 11 | (1,302) | (1,335) |
| Other creditors | 13 | (3,825) | (5,705) |
| --------------- | --------------- | ||
| (5,127) | (7,040) | ||
| --------------- | --------------- | ||
| Net current assets | 28,778 | 13,839 | |
| ========= | ========= | ||
| Net assets | 367,623 | 364,064 | |
| ========= | ========= | ||
| Capital and reserves | |||
| Share capital | 14 | 18,895 | 18,895 |
| Share premium account | 15 | 50,501 | 50,501 |
| Capital redemption reserve | 15 | 3,197 | 3,197 |
| Other non-distributable reserve | 15 | 7,367 | 7,367 |
| Other reserve | 15 | – | 719 |
| Capital reserve | 15 | 273,448 | 273,107 |
| Revenue reserve | 15 | 14,215 | 10,278 |
| --------------- | --------------- | ||
| Total shareholders’ funds | 367,623 | 364,064 | |
| ========= | ========= | ||
| Net asset value per ordinary share | 16 | 507.78p | 497.50p |
| ========= | ========= |
The Financial Statements above and below were approved by the Board of Directors on 11 October 2022 and were signed on its behalf by:
KATE BOLSOVER
Chairman
The Notes below form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1
PRINCIPAL ACTIVITY
Fidelity Asian 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 3183919, 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. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investments are highly liquid and are carried at market value.
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 31 October 2023 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 continuing risks arising from COVID-19.
In preparing these Financial Statements the Directors have considered the impact of climate change risk as a principal and an emerging 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 for the Company are quoted bid prices for investments in active markets 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 31 October 2023 which is at least twelve months from the date of approval of these Financial Statements.
b) Significant accounting estimates and judgements – The preparation of the Financial Statements requires the use of estimates and judgements. These estimates and judgements affect the reported amounts of assets and liabilities at the reporting date. While estimates are based on best judgement using information and financial data available, the actual outcome may differ from these estimates.
The key sources of estimation and uncertainty relate to the fair value of the unlisted investments.
Judgements
The Directors consider whether each fair value is appropriate following detailed review and challenge of the pricing methodology. The judgement applied in the selection of the methodology used (see Note 2 (k) below) for determining the fair value of each unlisted investment can have a significant impact upon the valuation.
Estimates
The key estimate in the Financial Statements is the determination of the fair value of the unlisted investments by the Manager’s Fair Value Committee (“FVC”), with support from the external valuer, for detailed review and appropriate challenge by the Directors. This estimate is key as it significantly impacts the valuation of the unlisted investments at the Balance Sheet date. When no recent primary or secondary transaction in the company’s shares have taken place, the fair valuation process involves estimation using subjective inputs that are unobservable (for which market data is unavailable). The estimates involved in the valuation process may include the following:
(i) the selection of appropriate comparable companies. Comparable companies are chosen on the basis of their business characteristics and growth patterns;
(ii) the selection of a revenue metric (either historical or forecast);
(iii) the selection of an appropriate illiquidity discount factor to reflect the reduced liquidity of unlisted companies versus their listed peers;
(iv) the estimation of the likelihood of a future exit of the position through an initial public offering (“IPO”) or a company sale;
(v) the selection of an appropriate industry benchmark index to assist with the valuation; and
(vi) the calculation of valuation adjustments derived from milestone analysis and future cash flows (i.e. incorporating operational success against the plans/forecasts of the business into the valuation).
As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in Note 17 below to illustrate the effect on the Financial Statements of an over or under estimation of fair value.
The risk of an over or under estimation of fair value is greater when methodologies are applied using more subjective inputs.
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.
Derivative instrument income received from dividends on long contracts for difference (“CFDs”) are 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, collateral and bank deposits are accounted for on an accruals basis and credited to the revenue column of the Income Statement. Interest received on CFDs represent 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:
· The base investment management fee is allocated in full to revenue;
· The variable investment management fee, is charged/credited to capital as it is based on the performance of the net asset value per share relative to the Benchmark Index; 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 in the rates of exchange ruling at the Balance Sheet date. Foreign exchange gains and losses arising on the 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, and dividends paid on short CFDs, which are accounted for on the date on which the obligation to incur the cost is established, normally the ex-dividend date. 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. These are based on the principles outlined in Note 2 (b) above.
The unlisted investments are valued at fair value following a detailed review and appropriate challenge by the Directors of the pricing methodology proposed by the FVC.
The FVC provide a recommendation of fair values to the Directors based on recognised valuation techniques that take account of the cost of the investment, recent arm’s length transactions in the same or similar investments and financial performance of the investment since purchase. Consideration is also given to the input received from the Fidelity International analyst that covers the company and valuation reports from a third party specialist.
In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within gains 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 forward currency contracts. Derivatives are classified as other financial instruments and are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:
· Long and short 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;
· Forward currency contracts – valued at the appropriate quoted forward foreign exchange rate ruling at the Balance Sheet date; and
· Options – 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 in gains on derivative instruments 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, 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) Other creditors – Other creditors include securities purchased for future settlement, amounts payable on share repurchases, capital gains tax payable, investment management fees, secretarial and administration 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.
p) 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;
· Variable investment management fees;
· Dividends receivable which are capital in nature;
· Other expenses which are capital in nature; and
· Taxation charged or credited relating to items which are capital in nature.
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 were considered to be readily convertible to cash, with the exception of the level 3 investments which had unrealised investment holding losses of £188,000 (2021: losses of £57,000). See Note 17 below for further details on the level 3 investments.
3 INCOME
|
|
Year ended 31.07.22 £000 |
Year ended 31.07.21 £000 |
| Investment income | ||
| Overseas dividends | 13,905 | 9,457 |
| Overseas scrip dividends | 114 | 654 |
| --------------- | --------------- | |
| 14,019 | 10,111 | |
| --------------- | --------------- | |
| Derivative income | ||
| Dividends received on long CFDs | 1,200 | 720 |
| Interest received on CFDs | 20 | 9 |
| --------------- | --------------- | |
| 1,220 | 729 | |
| --------------- | --------------- | |
| Other interest | ||
| Interest received on collateral and bank deposits | 17 | 2 |
| --------------- | --------------- | |
| Total income | 15,256 | 10,842 |
| ========= | ========= |
A special dividend of £97,000 has been recognised in capital during the year (2021: £4,103,000).
4 INVESTMENT MANAGEMENT FEES
| Year ended 31 July 2022 | Year ended 31 July 2021 | |||||
|
|
Revenue £000 |
Capital1 £000 |
Total £000 |
Revenue £000 |
Capital1 £000 |
Total £000 |
| Investment management fees | 2,564 | (732) | 1,832 | 2,272 | (649) | 1,623 |
| ========= | ========= | ========= | ========= | ========= | ========= | |
1 For the calculation of the variable management fee element, the Company’s NAV return was compared to the Benchmark Index return on a daily basis. The period used to assess the performance was from 1 August 2018 until a three year history was established. From 1 August 2021 the performance period is on a rolling three year basis. This has resulted in an underperformance of the NAV and a credit to the Company in the current and prior period.
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.
The Company charges base investment management fees to revenue at an annual rate of 0.70% of net assets. In addition, there is +/- 0.20% variation fee based on the Company’s NAV per share performance relative to the Company’s Benchmark Index which is charged to capital. Fees are payable monthly in arrears and are calculated on a daily basis.
5 OTHER EXPENSES
|
|
Year ended 31.07.22 £000 |
Year ended 31.07.21 £000 |
| Allocated to revenue: | ||
| AIC fees | 20 | 16 |
| Custody fees | 148 | 128 |
| Depositary fees | 31 | 29 |
| Directors’ expenses | 23 | 13 |
| Directors’ fees* | 162 | 144 |
| Legal and professional fees | 109 | 99 |
| Marketing expenses | 157 | 124 |
| Printing and publication expenses | 79 | 66 |
| Registrars’ fees | 37 | 31 |
| Secretarial and administration fees payable to the Investment Manager | 75 | 75 |
| Sundry other expenses | 19 | 15 |
| Fees payable to the Company’s Independent Auditor for the audit of the Financial Statements | 45 | 28 |
| --------------- | --------------- | |
| 905 | 768 | |
| ========= | ========= | |
| Allocated to capital: | ||
| Legal and professional fees | – | 3 |
| --------------- | --------------- | |
| Other expenses | 905 | 771 |
| ========= | ========= |
* Details of the breakdown of Directors’ fees are disclosed in the Directors’ Remuneration Report in the Annual Report.
6 FINANCE COSTS
|
|
Year ended 31.07.22 £000 |
Year ended 31.07.21 £000 |
| Interest on bank overdrafts and collateral | 5 | 3 |
| Interest paid on CFDs | 255 | 225 |
| Dividends paid on short CFDs | 71 | 59 |
| --------------- | --------------- | |
| 331 | 287 | |
| ========= | ========= |
7 TAXATION ON RETURN ON ORDINARY ACTIVITIES
| Year ended 31 July 2022 | Year ended 31 July 2021 | |||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| a) Analysis of the taxation charge for the year | ||||||
| Overseas taxation | 1,079 | – | 1,079 | 774 | – | 774 |
| Indian capital gains tax | – | 1,085 | 1,085 | – | 3,380 | 3,380 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Taxation charge for the year (see Note 7b) | 1,079 | 1,085 | 2,164 | 774 | 3,380 | 4,154 |
| ========= | ========= | ========= | ========= | ========= | ========= | |
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 19% (2021: 19%). A reconciliation of the standard rate of UK corporation tax to the taxation charge for the year is shown below:
| Year ended 31 July 2022 | Year ended 31 July 2021 | |||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Net return on ordinary activities before taxation | 11,456 | 4,234 | 15,690 | 7,515 | 100,204 | 107,719 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Net return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 19% (2021: 19%) | 2,177 | 804 | 2,981 | 1,428 | 19,039 | 20,467 |
| Effects of: | ||||||
| Capital gains not taxable* | – | (665) | (665) | – | (18,916) | (18,916) |
| Income not taxable | (2,617) | – | (2,617) | (1,866) | – | (1,866) |
| Excess management expenses | 441 | – | 441 | 438 | – | 438 |
| Excess interest paid | – | (139) | (139) | – | (123) | (123) |
| Expense relief for overseas taxation | (1) | – | (1) | – | – | – |
| Overseas taxation | 1,079 | – | 1,079 | 774 | – | 774 |
| Indian capital gains tax | – | 1,085 | 1,085 | – | 3,380 | 3,380 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Taxation charge for the year (Note 7a) | 1,079 | 1,085 | 2,164 | 774 | 3,380 | 4,154 |
| ========= | ========= | ========= | ========= | ========= | ========= | |
* The Company is exempt from UK corporation tax 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 £7,858,000 (2021: £7,460,000), in respect of excess management expenses of £29,162,000 (2021: £26,837,000) and excess interest paid of £2,271,000 (2021: £3,003,000), has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.
In the Spring Budget of 2021, the UK Government announced that from 1 April 2023 the corporation tax rate will increase to 25%. Although this rate has been substantively enacted at the balance sheet date and has therefore been applied to calculate the unrecognised deferred tax asset for the current year, the Chancellor of the Exchequer subsequently announced on 23 September 2022 that the corporation tax rate will remain at 19% from 1 April 2023. This reversal in the tax rate increase has not been substantively enacted and accordingly has no impact on the tax balances at 31 July 2022. The potential impact of this change on the unrecognised deferred tax asset at 31 July 2022 would be £1,886,000.
8 RETURN PER ORDINARY SHARE
|
|
Year ended 31.07.22 |
Year ended 31.07.21 |
| Revenue return per ordinary share | 14.21p | 9.20p |
| Capital return per ordinary share | 4.31p | 132.09p |
| --------------- | --------------- | |
| Total return per ordinary share | 18.52p | 141.29p |
| ========= | ========= |
The return per ordinary share is based on the net return on ordinary activities after taxation for the year divided by the weighted average number of ordinary shares in issue during the year, as shown below:
| £000 | £000 | |
| Net revenue return on ordinary activities after taxation | 10,377 | 6,741 |
| Net capital return on ordinary activities after taxation | 3,149 | 96,824 |
| --------------- | --------------- | |
| Net total return on ordinary activities after taxation | 13,526 | 103,565 |
| ========= | ========= |
| Number | Number | |
| Weighted average number of ordinary shares held outside Treasury | 73,039,011 | 73,297,971 |
| ========= | ========= |
9 DIVIDENDS PAID TO SHAREHOLDERS
|
|
Year ended 31.07.22 £000 |
Year ended 31.07.21 £000 |
| Dividend paid | ||
| Dividend of 8.80 pence per ordinary share paid for the year ended 31 July 2021 | 6,440 | – |
| Dividend of 8.50 pence per ordinary share paid for the year ended 31 July 2020 | – | 6,241 |
| --------------- | --------------- | |
| 6,440 | 6,241 | |
| ========= | ========= | |
| Dividend proposed | ||
| Dividend proposed of 14.00 pence per ordinary share for the year ended 31 July 2022 | 10,086 | – |
| Dividend proposed of 8.80 pence per ordinary share for the year ended 31 July 2021 | – | 6,440 |
| --------------- | --------------- | |
| 10,086 | 6,440 | |
| ========= | ========= |
The Directors have proposed the payment of a dividend for the year ended 31 July 2022 of 14.00 pence per ordinary share which is subject to approval by shareholders at the Annual General Meeting on 23 November 2022 and has not been included as a liability in these Financial Statements. The dividend will be paid on 7 December 2022 to shareholders on the register at the close of business on 28 October 2022 (ex-dividend date 27 October 2022).
10 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
|
|
2022 £000 |
2021 £000 |
| Listed investments | 337,254 | 348,779 |
| Unlisted investments | 1,591 | 1,446 |
| --------------- | --------------- | |
| Investments at fair value | 338,845 | 350,225 |
| ========= | ========= | |
| Opening book cost | 321,813 | 266,633 |
| Opening investment holding gains/(losses) | 28,412 | (25,362) |
| --------------- | --------------- | |
| Opening fair value | 350,225 | 241,271 |
| ========= | ========= | |
| Movements in the year | ||
| Purchases at cost | 165,463 | 201,449 |
| Sales – proceeds | (179,551) | (186,749) |
| Gains on investments | 2,708 | 94,254 |
| --------------- | --------------- | |
| Closing fair value | 338,845 | 350,225 |
| ========= | ========= | |
| Closing book cost | 336,727 | 321,813 |
| Closing investment holding gains | 2,118 | 28,412 |
| --------------- | --------------- | |
| Closing fair value | 338,845 | 350,225 |
| ========= | ========= |
The Company received £179,551,000 (2021: £186,749,000) from investments sold in the year. The book cost of these investments when they were purchased was £150,549,000 (2021: £146,269,000). 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 gains on the investments above, were as follows:
|
|
Year ended 31.07.22 £000 |
Year ended 31.07.21 £000 |
| Purchases transaction costs | 245 | 265 |
| Sales transaction costs | 390 | 377 |
| --------------- | --------------- | |
| 635 | 642 | |
| ========= | ========= |
The portfolio turnover rate of the year was 49.6% (2021: 66.1%).
11 DERIVATIVE INSTRUMENTS
|
|
Year ended 31.07.22 £000 |
Year ended 31.07.21 £000 |
| (Losses)/gains on derivative instruments | ||
| Realised (losses)/gains on long CFD positions closed | (3,796) | 13,998 |
| Realised gains/(losses) on short CFD positions closed | 2,584 | (910) |
| Realised (losses)/gains on futures contracts closed | (1,222) | 970 |
| Realised gains on options contracts closed | 193 | – |
| Realised gains/(losses) on forward currency contracts | 126 | (35) |
| Movement in investment holding gains/(losses) on long CFDs | 464 | (6,357) |
| Movement in investment holding (losses)/gains on short CFDs | (451) | 71 |
| Movement in investment holding gains/(losses) on futures | 184 | (779) |
| Movement in investment holding gains on options | 49 | – |
| Movement in investment holding gains on forward currency contracts | 54 | 17 |
| --------------- | --------------- | |
| (1,815) | 6,975 | |
| ========= | ========= |
|
|
2022 Fair value £000 |
2021 Fair value £000 |
| Derivative instruments recognised on the Balance Sheet | ||
| Derivative instrument assets | 972 | 437 |
| Derivative instrument liabilities | (1,302) | (1,335) |
| --------------- | --------------- | |
| (330) | (898) | |
| ========= | ========= |
| 2022 | 2021 | |||
|
|
Fair value £000 |
Asset exposure £000 |
Fair value £000 |
Asset exposure £000 |
| At the year end the Company held the following derivative instruments: | ||||
| Long CFDs | (218) | 29,861 | (682) | 13,024 |
| Long future | (88) | 3,997 | (336) | 4,384 |
| Short CFDs | (275) | 7,277 | 176 | 5,942 |
| Short futures | (20) | 682 | 44 | 1,589 |
| Call option | 317 | 3,034 | – | – |
| Forward currency contracts | (46) | – | (100) | – |
| --------------- | --------------- | --------------- | --------------- | |
| (330) | 44,851 | (898) | 24,939 | |
| ========= | ========= | ========= | ========= | |
12 DEBTORS
|
|
2022 £000 |
2021 £000 |
| Securities sold for future settlement | 1,848 | 1,384 |
| Accrued income | 1,991 | 1,595 |
| Taxation recoverable | 640 | 425 |
| Other debtors and prepayments | 89 | 85 |
| --------------- | --------------- | |
| 4,568 | 3,489 | |
| ========= | ========= |
13 OTHER CREDITORS
|
|
2022 £000 |
2021 £000 |
| Securities purchased for future settlement | 948 | 2,402 |
| Amount payable on share repurchases | 276 | – |
| Indian capital gains tax payable | 2,170 | 2,902 |
| Creditors and accruals | 431 | 401 |
| --------------- | --------------- | |
| 3,825 | 5,705 | |
| ========= | ========= |
14 SHARE CAPITAL
| 2022 | 2021 | |||
|
|
Number of shares |
£000 |
Number of shares |
£000 |
| Issued, allotted and fully paid | ||||
| Ordinary shares of 25 pence each held outside Treasury | ||||
| Beginning of the year | 73,178,879 | 18,295 | 73,932,107 | 18,483 |
| Ordinary shares repurchased into Treasury | (780,543) | (195) | (753,228) | (188) |
| --------------- | --------------- | --------------- | --------------- | |
| End of the year | 72,398,336 | 18,100 | 73,178,879 | 18,295 |
| ========= | ========= | ========= | ========= | |
| Ordinary shares of 25 pence each held in Treasury1 | ||||
| Beginning of the year | 2,402,010 | 600 | 1,648,782 | 412 |
| Ordinary shares repurchased into Treasury | 780,543 | 195 | 753,228 | 188 |
| --------------- | --------------- | --------------- | --------------- | |
| End of the year | 3,182,553 | 795 | 2,402,010 | 600 |
| ========= | ========= | ========= | ========= | |
| Total share capital | 18,895 | 18,895 | ||
| ========= | ========= | |||
1 Ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.
The cost of ordinary shares repurchased into Treasury during the year was £3,527,000 (2021: £2,660,000).
15 CAPITAL AND RESERVES
|
|
Share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Other non- distributable reserve £000 |
Other reserve £000 |
Capital reserve £000 |
Revenue reserve £000 |
Total shareholders’ funds £000 |
| At 1 August 2021 | 18,895 | 50,501 | 3,197 | 7,367 | 719 | 273,107 | 10,278 | 364,064 |
| Gains on investments (see Note 10) | – | – | – | – | – | 2,708 | – | 2,708 |
| Losses on derivative instruments (see Note 11) | – | – | – | – | – | (1,815) | – | (1,815) |
| Foreign exchange gains | – | – | – | – | – | 2,609 | – | 2,609 |
| Investment management fees (see Note 4) | – | – | – | – | – | 732 | – | 732 |
| Indian capital gains tax (see Note 7) | – | – | – | – | – | (1,085) | – | (1,085) |
| Revenue return on ordinary activities after taxation for the year | – | – | – | – | – | – | 10,377 | 10,377 |
| Dividend paid to shareholders (see Note 9) | – | – | – | – | – | – | (6,440) | (6,440) |
| Repurchase of ordinary shares (see Note 14) | – | – | – | – | (719) | (2,808) | – | (3,527) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 July 2022 | 18,895 | 50,501 | 3,197 | 7,367 | – | 273,448 | 14,215 | 367,623 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
The capital reserve balance at 31 July 2022 includes investment holding gains of £2,118,000 (2021: gains of £28,412,000) as detailed in Note 10 above. See Note 2 (p) above for further details. The revenue and capital reserves are distributable by way of dividend.
16 NET ASSET VALUE PER ORDINARY SHARE
| 2022 | 2021 | |
| Total shareholders’ funds | £367,623,000 | £364,064,000 |
| Ordinary shares held outside of Treasury at year end | 72,398,336 | 73,178,879 |
| Net asset value per ordinary share | 507.78p | 497.50p |
| =========== | =========== |
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 economic, political and market, discount management, cybercrime and information security, investment performance (including the use of derivatives and gearing), shareholder relationship, key person, environmental, social and governance (“ESG”) and business continuity and operational risks, including third party service providers risks. Other risks identified are tax and regulatory risks. 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 equity linked notes held in accordance with the Company’s investment objective and policies;
· Derivative instruments which comprise CFDs, forward currency contracts, 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 instruments 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 level of gearing is reviewed by the Board and the Portfolio Manager. 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:
|
|
2022 £000 |
2021 £000 |
| Exposure to financial instruments that earn interest | ||
| Cash at bank | 25,368 | 14,128 |
| Short CFDs – exposure plus fair value | 7,002 | 6,118 |
| Amounts held at futures clearing houses and brokers | 2,997 | 2,825 |
| --------------- | --------------- | |
| 35,367 | 23,071 | |
| ========= | ========= | |
| Exposure to financial instruments that bear interest | ||
| Long CFDs – exposure less fair value | 30,079 | 13,706 |
| --------------- | --------------- | |
| Net exposure to financial instruments that earn interest | 5,288 | 9,365 |
| ========= | ========= |
Foreign currency risk
The Company’s net return on ordinary activities after taxation for the year and its net assets can be affected by foreign exchange rate movements because the Company has income, assets and liabilities which are denominated in currencies other than the Company’s functional currency which is UK Sterling. The Portfolio Manager may seek to manage exposure to currency movements by using forward and spot foreign exchange contracts. 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.
Currency exposure of financial assets
The currency exposure profile of the Company’s financial assets is shown below:
| 2022 | |||||
|
Currency |
Investments at fair value £000 |
Long exposure to derivative instruments1 £000 |
Debtors2 £000 |
Cash at bank £000 |
Total £000 |
| Hong Kong dollar | 90,764 | 25,443 | 1,318 | 287 | 117,812 |
| Indian rupee | 87,206 | – | 3,783 | 620 | 91,609 |
| US dollar | 12,367 | 9,783 | 1,063 | 23,801 | 47,014 |
| Indonesian rupiah | 41,649 | – | 4 | – | 41,653 |
| South Korean won | 31,895 | – | 68 | 6 | 31,969 |
| Taiwan dollar | 19,940 | – | 1,059 | 64 | 21,063 |
| Australian dollar | 19,035 | – | – | – | 19,035 |
| Chinese renminbi | 13,063 | – | – | 97 | 13,160 |
| Singapore dollar | 11,149 | 1,666 | – | – | 12,815 |
| Philippine peso | 4,810 | (46) | 33 | – | 4,797 |
| Sri Lankan rupee | 3,109 | – | 148 | – | 3,257 |
| Vietnamese dong | 1,173 | – | – | 493 | 1,666 |
| Other overseas currencies | 2,685 | – | – | – | 2,685 |
| UK Sterling | – | – | 89 | – | 89 |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| 338,845 | 36,846 | 7,565 | 25,368 | 408,624 | |
| ========= | ========= | ========= | ========= | ========= | |
1 The exposure to the market of long CFDs, long futures and call option after the netting of the forward currency contract.
2 Debtors include amounts held at futures clearing houses and brokers.
| 2021 | |||||
|
Currency |
Investments at fair value £000 |
Long exposure to derivative instruments1 £000 |
Debtors2 £000 |
Cash at bank £000 |
Total £000 |
| Hong Kong dollar | 93,093 | 10,693 | 1,104 | 137 | 105,027 |
| Indian rupee | 80,078 | – | 2,524 | 1,979 | 84,581 |
| Taiwan dollar | 37,202 | – | 865 | 28 | 38,095 |
| South Korean won | 35,849 | – | 2 | 6 | 35,857 |
| Indonesian rupiah | 25,135 | – | – | – | 25,135 |
| US dollar | 7,576 | 5,113 | 1,140 | 11,028 | 24,857 |
| Australian dollar | 21,055 | – | – | 24 | 21,079 |
| Chinese renminbi | 14,606 | – | – | 261 | 14,867 |
| Singapore dollar | 8,562 | 1,602 | – | – | 10,164 |
| Philippine peso | 7,330 | (87) | 480 | – | 7,723 |
| Sri Lankan rupee | 6,157 | – | – | – | 6,157 |
| Vietnamese dong | 4,364 | – | 115 | 665 | 5,144 |
| Other overseas currencies | 7,651 | (13) | – | – | 7,638 |
| UK Sterling | 1,567 | – | 84 | – | 1,651 |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| 350,225 | 17,308 | 6,314 | 14,128 | 387,975 | |
| ========= | ========= | ========= | ========= | ========= | |
1 The exposure to the market of long CFDs and long futures after the netting of the forward currency contract.
2 Debtors include amounts held at futures clearing houses and brokers.
Currency exposure of financial liabilities
The Company finances its investment activities through its ordinary share capital and reserves. The Company’s financial liabilities comprise short positions on derivative instruments and other payables. The currency profile of these financial liabilities is shown below:
| 2022 | |||
|
Currency |
Short exposure to derivative instruments1 £000 |
Other creditors £000 |
Total £000 |
| US dollar | 5,091 | 7 | 5,098 |
| Indian rupee | 682 | 2,744 | 3,426 |
| Hong Kong dollar | 2,186 | 311 | 2,497 |
| Philippine peso | – | 27 | 27 |
| Malaysian ringgit | – | 25 | 25 |
| Taiwan dollar | – | 18 | 18 |
| UK Sterling | – | 693 | 693 |
| --------------- | --------------- | --------------- | |
| 7,959 | 3,825 | 11,784 | |
| ========= | ========= | ========= | |
1 The exposure to the market of short CFDs and short futures.
| 2021 | |||
|
Currency |
Short exposure to derivative instruments1 £000 |
Other creditors £000 |
Total £000 |
| Hong Kong dollar | 4,025 | 2,166 | 6,191 |
| Indian rupee | 1,589 | 2,987 | 4,576 |
| US dollar | 1,917 | – | 1,917 |
| Australian dollar | – | 98 | 98 |
| Indonesian rupiah | – | 53 | 53 |
| Taiwan dollar | – | 9 | 9 |
| UK Sterling | – | 392 | 392 |
| --------------- | --------------- | --------------- | |
| 7,531 | 5,705 | 13,236 | |
| ========= | ========= | ========= | |
1 The exposure to the market of short CFDs and short futures.
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, if required, is achieved by the use of a bank overdraft.
Liquidity risk exposure
At 31 July 2022, the undiscounted gross cash outflows of the financial liabilities were all repayable within one year and consisted of derivative instrument liabilities of £1,302,000 (2021: £1,335,000) and other creditors of £3,825,000 (2021: £5,705,000).
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 Manager employs, the Manager will seek to minimise such risk 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 OTC and exchange traded derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At 31 July 2022, £254,000 (2021: £129,000) was held by the brokers in cash denominated in US dollars 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 £213,000 (2021: £129,000) and Morgan Stanley & Co International plc £41,000 (2021: £nil). £2,997,000 (2021: £2,825,000), shown as amounts held at futures clearing houses and brokers on the Balance Sheet, was held by the Company in a segregated collateral account, on behalf of the brokers, to reduce the credit risk exposure of the brokers. This collateral is comprised of: UBS AG £2,574,000 (2021: £2,559,000) in cash and HSBC Bank Plc £423,000 (2021: £266,000) 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 instruments risk
The risks and risk management processes which result from the use of derivative instruments, are set out in a documented Risk Management Process 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 July 2022, an increase of 0.25% in interest rates throughout the year, with all other variables held constant, would have increased the net return on ordinary activities after taxation for the year and increased the net assets of the Company by £13,000 (2021: increased the net return and increased the net assets by £23,000). A decrease of 0.25% 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 as at the Balance Sheet date, a 10% strengthening of the UK Sterling exchange rate against other currencies would have decreased the Company’s net return on ordinary activities after taxation for the year and decreased the net assets (2021: decreased the net return and decreased the net assets) by the following amounts:
|
Currency |
2022 £000 |
2021 £000 |
| Hong Kong dollar | 10,483 | 8,986 |
| Indian rupee | 8,017 | 7,273 |
| Indonesian rupiah | 3,787 | 2,280 |
| US dollar | 3,811 | 2,085 |
| South Korean won | 2,906 | 3,260 |
| Taiwan dollar | 1,913 | 3,462 |
| Australian dollar | 1,730 | 1,907 |
| Chinese renminbi | 1,196 | 1,352 |
| Singapore dollar | 1,165 | 924 |
| Philippine peso | 434 | 702 |
| Sri Lankan rupee | 296 | 560 |
| Vietnamese dong | 151 | 468 |
| Other overseas currencies | 241 | 693 |
| --------------- | --------------- | |
| 36,130 | 33,952 | |
| ========= | ========= |
Based on the financial instruments held and currency exchange rates as at the Balance Sheet date, a 10% weakening of the UK Sterling exchange rate against other currencies would have increased the Company’s net return on ordinary activities after taxation for the year and increased the net assets (2021: increased the net return and increased the net assets) by the following amounts:
|
Currency |
2022 £000 |
2021 £000 |
| Hong Kong dollar | 12,813 | 10,982 |
| Indian rupee | 9,798 | 8,889 |
| Indonesian rupiah | 4,628 | 2,787 |
| US dollar | 4,657 | 2,549 |
| South Korean won | 3,552 | 3,984 |
| Taiwan dollar | 2,338 | 4,232 |
| Australian dollar | 2,115 | 2,331 |
| Chinese renminbi | 1,462 | 1,652 |
| Singapore dollar | 1,424 | 1,129 |
| Philippine peso | 530 | 858 |
| Sri Lankan rupee | 362 | 684 |
| Vietnamese dong | 185 | 572 |
| Other overseas currencies | 296 | 848 |
| --------------- | --------------- | |
| 44,160 | 41,497 | |
| ========= | ========= |
Other price risk – exposure to investments sensitivity analysis
Based on the listed investments held and share prices at 31 July 2022, 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 £33,725,000 (2021: increased the net return and increased the net assets by £34,878,000). 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 July 2022, 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 £159,000 (2021: increased the net return and increased the net assets by £145,000). 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 July 2022, 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 return on ordinary activities after taxation for the year and increased the net assets of the Company by £2,893,000 (2021: increased the net return and increased the net assets by £988,000). 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. In the case of cash at bank, book value approximates to fair value due to the short maturity of the instruments.
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 (k) and (l) above. The table below sets out the Company’s fair value hierarchy:
| 2022 | ||||
|
Financial assets at fair value through profit or loss |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Investments | 330,119 | 7,135 | 1,591 | 338,845 |
| Derivative instrument assets | 317 | 655 | – | 972 |
| --------------- | --------------- | --------------- | --------------- | |
| 330,436 | 7,790 | 1,591 | 339,817 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | (108) | (1,194) | – | (1,302) |
| ========= | ========= | ========= | ========= | |
| 2021 | ||||
|
Financial assets at fair value through profit or loss |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Investments | 346,634 | 1,869 | 1,722 | 350,225 |
| Derivative instrument assets | 44 | 393 | – | 437 |
| --------------- | --------------- | --------------- | --------------- | |
| 346,678 | 2,262 | 1,722 | 350,662 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | (336) | (999) | – | (1,335) |
| ========= | ========= | ========= | ========= | |
The table below sets out the movements in level 3 financial instruments during the year:
|
|
Year ended 31.07.22 £000 |
Year ended 31.07.21 £000 |
| Beginning of the year | 1,722 | 339 |
| Purchases at cost | – | 1,049 |
| Transfer into level 3 at cost – Salt Lake Potash* | – | 323 |
| Movement in investment holding (losses)/gains | (131) | 11 |
| --------------- | --------------- | |
| End of the year | 1,591 | 1,722 |
| ========= | ========= |
* Financial instruments are transferred into level 3 on the date they are suspended, delisted or when they have not traded for thirty days.
Below are details of the four investments which fall into Level 3 of which the first three investments are unlisted and the last investment is suspended from trading.
Eden Biologics
Eden Biologics develops biosimilars and is also engaged in providing process development and contract manufacturing solutions to the biopharmaceutical industry and is an unlisted company. On 26 February 2018, the company voluntarily delisted from the Taipei Exchange. The valuation at 31 July 2022 is based on the company’s financial information, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 July 2022, its fair value was £317,000 (2021: £321,000).
Chime Biologics
Chime Biologics is a China-based Contract Development and Manufacturing Organization (CDMO) that provides a solution supporting customers from early-stage biopharmaceutical development through to late-stage clinical and commercial manufacturing and is an unlisted company. The valuation at 31 July 2022 is based on the company’s financial information, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 July 2022, its fair value was £73,000 (2021: £76,000).
Tuhu Car
Tuhu Car is an online retailer of auto spare parts and is an unlisted company. The valuation at 31 July 2022 is based on the company’s financial information, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 July 2022, its fair value was £1,201,000 (2021: £1,049,000).
Salt Lake Potash
Salt Lake Potash is a mineral exploration company. The company was suspended from trading on the Australian Stock Exchange on 27 July 2021 and in October 2021 it announced that it would be entering voluntary administration. As at 31 July 2022, its fair value was £nil (2021: £276,000).
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:
|
|
2022 Asset exposure £000 |
2021 Asset exposure £000 |
| Long exposure to shares and equity linked notes | 338,845 | 350,225 |
| Long CFDs | 29,861 | 13,024 |
| Long future | 3,997 | 4,384 |
| Call option | 3,034 | – |
| --------------- | --------------- | |
| Total long exposures | 375,737 | 367,633 |
| ========= | ========= | |
| Short CFDs | 7,277 | 5,942 |
| Short futures | 682 | 1,589 |
| --------------- | --------------- | |
| Gross Asset Exposure | 383,696 | 375,164 |
| ========= | ========= | |
| Total Shareholders’ Funds | 367,623 | 364,064 |
| Gross gearing* | 4.4% | 3.0% |
| ========= | ========= |
* Gross Asset Exposure less Total Shareholders’ Funds expressed as a percentage of Total 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. During the year, management fees of £1,832,000 (2021: £1,623,000), and secretarial and administration fees of £75,000 (2021: £75,000) were payable to FII. At the Balance Sheet date, management fees of £156,000 (2021: £156,000), and secretarial and administration fees of £25,000 (2021: £25,000) 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 £157,000 (2021: £124,000). At the Balance Sheet date, marketing services of £20,000 (2021: £25,000) 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 (2021: £14,000) of employers’ National Insurance contributions were paid by the Company. At the Balance Sheet date, Directors’ fees of £15,000 (2021: £12,000) were accrued and payable.
Alternative Performance Measures
Discount/Premium
The discount/premium is considered to be an Alternative Performance Measure. It is the difference between the NAV of the Company and the share price and is expressed as a percentage of the NAV. 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.
Gross Gearing
Gross 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
Ongoing charges 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.
|
|
2022 £000 |
2021 £000 |
| Investment management fees (£000) | 2,564 | 2,272 |
| Other expenses (£000) | 905 | 771 |
| Ongoing charges (£000) | 3,469 | 3,043 |
| Variable management fees (£000) | (732) | (649) |
| Average net assets (£000) | 366,346 | 325,111 |
| Ongoing charges ratio | 0.95% | 0.93% |
| Ongoing charges ratio including variable management fees | 0.75% | 0.73% |
| ========= | ========= |
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. NAV per ordinary share total return includes reinvestment of the dividend in the NAV of the Company on the ex-dividend date. Ordinary share price total return includes the reinvestment of the net dividend in the month that the ordinary 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 and the impact of the dividend reinvestments and the total returns for the years ended 31 July 2022 and 31 July 2021.
|
2022 |
Net asset value per ordinary share |
Ordinary share price |
| 31 July 2021 | 497.50p | 483.00p |
| 31 July 2022 | 507.78p | 458.00p |
| Change in year | +2.1% | -5.2% |
| Impact of dividend reinvestment | +1.8% | +1.8% |
| --------------- | --------------- | |
| Total return for the year | +3.9% | -3.4% |
| ========= | ========= |
|
2021 |
Net asset value per ordinary share |
Ordinary share price |
| 31 July 2020 | 364.39p | 335.00p |
| 31 July 2021 | 497.50p | 483.00p |
| Change in year | +36.5% | +44.2% |
| Impact of dividend reinvestment | +3.0% | +3.4% |
| --------------- | --------------- | |
| Total return for the year | +39.5% | +47.6% |
| ========= | ========= |
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 July 2022 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 2021 and 2022 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 2021 is derived from the statutory accounts for 2021 which have been delivered to the Registrar of Companies. The 2022 Financial Statements will be filed with the Registrar of Companies in due course.
A copy of the above results announcement will be available on the Company's website at www.fidelity.co.uk/asianvalues within two working days.
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/china 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
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