Annual Financial Report
FIDELITY SPECIAL VALUES PLC
Final Results for the year ended 31 August 2022
Financial Highlights:
- The Board of Fidelity Special Values PLC (the “Company”) recommends a final dividend of 5.45 pence which together with the interim dividend payment of 2.30 pence per share (totalling 7.75 pence) represents an increase of 16.2% over the dividend of 6.67 pence paid in the prior year.
- As of 31 August 2022, the net asset value (“NAV”) and the share price performance of the Company remains ahead of the Benchmark Index (FTSE All-Share Index) over three, five and ten years.
- The Portfolio Manager marked his ten-year anniversary of managing the Company on 1 September 2022, producing a share price total return of +208.9% compared to the Benchmark Index of +92.7% throughout his tenure.
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
FIL Investments International
CHAIRMAN’S STATEMENT
The year under review has been overshadowed by Russia’s invasion of Ukraine. The ongoing ramifications of this tragic war are being felt by people, businesses and economies around the world. It has been a particularly challenging environment for investors to navigate with high degrees of volatility and uncertainty. Most notably, high inflation, rising interest rates, the spiralling cost of living and an energy crisis have had significant effects on returns.
While the economic outlook remains challenging and this may persist for some time, there is room for optimism for stock pickers looking to invest in opportunities others have overlooked. Fidelity Special Values PLC is run with a contrarian, value-style approach. It looks for ‘special situations’, predominantly in UK companies, with a well-diversified portfolio across sectors, including small and mid-cap companies. This provides ample opportunity for the many research ideas employed to bear fruit over time as others in the market come to recognise the value of previously unloved stocks.
The Portfolio Manager, Alex Wright, who recently completed ten years at the helm of the Company, explains in his review why he believes UK equities are attractively valued relative to other international markets. He sees great potential in unloved stocks and sectors. Though the environment is uncertain, he believes that these markets will provide attractive investment opportunities. For example, the current environment of higher inflation and interest rates is beneficial for banks and he has been adding to names in the sector where positive earnings have bucked wider trends.
PERFORMANCE
The Company’s performance for the reporting year has lagged the Benchmark Index (FTSE All-Share Index), with a net asset value (“NAV”) return of -4.4% and a share price return of -13.5%. In comparison, the Benchmark Index returned +1.0%. However, both the NAV and share price performance over three, five and ten years remains ahead of the Index as can be seen from the chart on the Financial Highlights page in the Annual Report The year end marked ten years of Alex’s tenure as Portfolio Manager and performance over this period has been very strong with a NAV return of +183.3% and a share price return of +208.9%, compared to a Benchmark Index return of +92.7%. (All performance data on a total return basis). Alex is to be congratulated on achieving this remarkable performance over his tenure.
OUTLOOK
At the time of writing, the UK Government had announced a series of fiscal measures to kick-start UK economic growth. Markets have reacted negatively so far. Gilt yields have risen sharply and sterling has been under pressure against the euro and the dollar. There is significant scepticism as to whether these measures will work as intended. It is against this backdrop that the Company and its investee companies operate. There will doubtless be further periods of heightened volatility in the share price and Shareholders would do well to take a long term view of the investment horizon. The investment strategy of the Company remains resolute.
OTHER MATTERS
DISCOUNT/PREMIUM AND SHARE REPURCHASES/ISSUES
Under the Company’s discount management policy, the Board seeks to maintain the discount in single digits in normal market conditions and will repurchase shares to help stabilise the share price discount.
The Board will approve the issuance of shares if the Company’s shares are trading at a sufficient level of premium to ensure that it adds value for Shareholders and that the issue of shares is not dilutive. Issuing shares increases the size of the Company, making it more liquid and allowing costs to be spread over a larger pool of assets.
Over the reporting year, the Company’s shares traded between a premium of 2.1% and a discount of 10.7% and closed at a discount of 8.5% at the year ended 31 August 2022. The peer group average discount as at that date was 10.4%.
Until April 2022, the Company’s shares mostly traded at a premium and in order to meet demand, the Company issued a total of 11,070,000 ordinary shares from its block listing facilities. In order to ensure that the Company was able to meet demand for shares, it acquired a block listing from the UK Listing Authority for 30,000,000 shares which was effective from 7 February 2022. Since the end of the reporting year and as at the date of this Annual Report, the Company has not issued any further shares.
The Company did not carry out any share repurchases in the reporting year.
The Board continues to monitor the level of the Company’s discount/premium closely and will take action when it believes that it will be effective and to the benefit of Shareholders.
GEARING
The Board has agreed with the Portfolio Manager that if he is able to find attractive opportunities in the market, then the Company’s gearing should be allowed to rise. Combined with Alex’s contrarian and value-focused investment philosophy, and also making good use of the Company’s structural advantages over its open-ended counterparts, this should continue to add value for Shareholders over the long term.
It is the current intention of the Board that, in normal market conditions, the Portfolio Manager will maintain net gearing in the range of 0% to 25%. The Company remained within these levels throughout the reporting year. The maximum level of gross gearing allowed is 40%.
DIVIDEND
The Board’s policy is to pay dividends twice yearly in order to smooth the dividend payments for the Company’s financial year. The Company’s revenue return for the year to 31 August 2022 was 9.42 pence per share (2021: 7.22p), and an interim dividend of 2.30 pence per share was paid on 22 June 2022 (2021: 2.17p).
The Board recommends a final dividend of 5.45 pence per share for the year ended 31 August 2022 (2021: 4.50 pence) for approval by Shareholders at the Annual General Meeting (“AGM”) on 14 December 2022. The interim and final dividends (total of 7.75 pence) represent an increase of 1.08 pence (16.2%) over the 6.67 pence paid for the year ended 31 August 2021. Post the pandemic, the Company returned to paying dividends entirely from the revenue earned in the prior year and is doing the same for this year’s dividend.
The final dividend will be payable on 11 January 2023 to Shareholders on the register at close of business on 2 December 2022 (ex-dividend date 1 December 2022).
BOARD OF DIRECTORS
As part of the Board’s succession plan, I will retire as Chairman of the Board and as a Non-Executive Director at the AGM on 14 December 2022. I am pleased to say that Dean Buckley will succeed me as Chairman of the Board and Nigel Foster will succeed Dean as Senior Independent Director at the same time.
Following a formal recruitment process, I am pleased to welcome Ominder Dhillon to the Board as a Non-Executive Director with effect from 23 June 2022. Ominder is a Non-Executive Director for The City of London Investment Trust plc and a Senior Advisor to IC Research, a fintech institutional market intelligence platform. He is also a Trustee to a UK charity, Facing History & Ourselves. He has more than 29 years’ experience of asset management covering institutional, wholesale and retail channels. Being newly appointed, Ominder will stand for election at the AGM on 14 December 2022.
In accordance with the UK Corporate Governance Code for Directors of FTSE 350 companies, all Directors, with my exception, are subject to annual re-election at the AGM on 14 December 2022. The Directors’ biographies can be found in the Annual Report, and, between them, they have a wide range of appropriate skills and experience to form a balanced Board for the Company.
CONTINUATION VOTE
In accordance with the Company’s Articles of Association, the Company is subject to a continuation vote every three years. The next such vote is at this year’s AGM on 14 December 2022.
The Company’s performance record has been strong since it launched on 17 November 1994. An investment of £1,000 at launch would have returned £21,300 as at 31 August 2022 (with dividends reinvested). Although the one year NAV and share price returns have underperformed the Benchmark Index, performance over three and five years remains strong and well ahead of the Benchmark Index. In addition, the prospects of the Company over a five year investment horizon can be found in the Viability Statement below. Therefore, your Board recommends that Shareholders vote in favour of the continuation. (All performance data is on a total returns basis).
FINAL THOUGHTS
Having served for over six years as Chairman and twelve years as a Non-Executive Director, I shall retire from the Board at the conclusion of the AGM on 14 December 2022. It has been such a privilege to serve on your Board and be part of a great team of Non-Executive Directors and Managers, past and present. As a team, we have all worked together to promote the success of the Company for the benefit of the investors.
I would like to thank all of our loyal Shareholders for investing in the Company, and my fellow Directors and the team at Fidelity for all the outstanding support I have been given. I look forward to seeing the Company going from strength to strength.
Meanwhile, I hope to see some of you at our AGM on 14 December 2022. Details of the Company’s AGM are below.
ANDY IRVINE
Chairman
3 November 2022
ANNUAL GENERAL MEETING – WEDNESDAY, 14 DECEMBER 2022 AT 11.30 AM
The AGM of the Company will be held at 11.00 am on Wednesday, 14 December 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.
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.
Alex Wright, the Portfolio Manager, will be making a presentation to shareholders highlighting the achievements and challenges of the year past and the prospects for the year to come. He and the Board will be very happy to answer any questions that shareholders may have. Copies of his presentation can be requested by email at investmenttrusts@fil.com or in writing to the Secretary at FIL Investments International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP.
Properly registered shareholders joining the AGM virtually will be able to vote on the proposed resolutions. Please see Note 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/specialvalues. On the day of the AGM, in order to join electronically and ask questions via the Lumi platform, shareholders will need to connect to the website https://web.lumiagm.com.
Please note that investors on platforms such as Fidelity Personal Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest will need to request attendance at the AGM in accordance with the policies of your chosen platform. They may request that you submit electronic votes in advance of the meeting. If you are unable to obtain a unique IVC and PIN from your nominee or platform, we will also welcome online participation as a guest. Once you have accessed https://web.lumiagm.com from your web browser on a tablet or computer, you will need to enter the Lumi Meeting ID which is 110-440-023. You should then select the ‘Guest Access’ option before entering your name and who you are representing, if applicable. This will allow you to view the meeting and ask questions but you will not be able to vote.
PORTFOLIO MANAGER’S REVIEW
QUESTION
It has now been 10 years since you took on stewardship of the Company, delivering impressive returns for shareholders. What has stood out to you during that time?
ANSWER
The past decade has been a highly unusual one, both from a political and an economic perspective. Few would have predicted the UK leaving the EU, Donald Trump becoming US president or the COVID-19 pandemic and subsequent lockdowns; all events that had substantial effects on the stock markets in which your Company invests. The past decade has also proved to be historically unusual, in sofaras we have experienced a prolonged period of very subdued inflation, low interest rates and modest and volatile economic growth. This environment has very much favoured growth companies, at the expense of the attractively valued companies with lower downside potential in which we seek to invest. Despite this challenging environment, over the last ten years the Company recorded a NAV total return of +183.3%, and a share price total return of +208.9%, which compares to a total return of +92.7% for the FTSE All Share Index (the Company’s Benchmark Index).
Stock selection rather than any big sector or top-down decisions has been the key driver of performance. By targeting unloved stocks on depressed valuations and leveraging Fidelity International’s (“Fidelity”) research resources, we have managed to unearth investments that have generated outsized gains, while limiting losses when turnarounds have not worked out. Investors tend to dislike companies where something has gone wrong and those going through a period of uncertainty, but things are never quite as black or white as they appear. Our analysts use their sector expertise and wide networks to conduct thorough due diligence and assess the likelihood of a recovery. Even small changes can have a very big positive effect on the share prices of such companies.
Meanwhile, by maintaining a broadly diversified portfolio across sectors and holdings, we have been able to be patient and wait for these recoveries to come through, slowly adding to our positions as our conviction increased, and recycling capital into new investment opportunities as the positive change narrative became more widely recognised. We have also used the Company’s flexible and low-cost gearing to take advantage of what have been surprisingly frequent periods of high volatility, buying when others were selling because of unusual political or economic events. Over time, this contrarian mindset has been handsomely rewarded in the Company’s performance.
QUESTION
How has the Company performed in the period under review?
ANSWER
Despite outperformance in the second half of the period, the Company recorded a NAV total return of -4.4% overall, lagging the Benchmark Index return of +1.0%. The period was marked by increased market volatility, as investors attempted to come to terms with mounting inflationary pressures, interest rate rises and the increased likelihood of a recession, factors that added significant uncertainty to the outlook at both the macro and micro level. The macro economic uncertainty was also reflected in a significant widening in discounts across the Company’s peer group and investment trusts generally, which saw the Company’s shares trade at a discount to its NAV from April onwards and was reflected in a disappointing share price total return of -13.5% for the reporting year.
In an environment of rising living costs, the overweight exposure to the consumer discretionary sector, which we have reduced materially, hurt relative returns. Motoring and cycling specialist Halfords Group featured among the key detractors, as it warned of the effects of rising inflation and declining consumer confidence. Nevertheless, we have been encouraged by the strength of its car servicing business which continues to gain market share and should prove resilient as cash strapped customers opt for cheaper repair and maintenance providers. The small position in Studio Retail Group also hurt returns after the online catalogue company experienced supply chain and working capital issues, and failed to secure an emergency £25 million loan from lenders forcing the company into administration. In an environment of sharply rising oil and gas prices, our underweight exposure to the energy sector detracted. While we remain sceptical that oil prices will remain at these levels longer term, we have a much more positive view on the prospects for gas prices. As a result, we have deliberately skewed our portfolio towards gas producers such as OMV and Energean in preference over BP and Shell whose forays into renewables could result in significantly lower future returns on capital. As defensive stocks performed better against a backdrop of increasing volatility, the underweight stance in large-cap names in consumer staples and health care also held back relative performance.
On a more positive note, our largest holding, outsourcing group Serco Group, upgraded its profit forecasts reflecting robust revenues generation and a healthy contract pipeline supported by stronger demand for immigration services from governments in the UK and Australia. Imperial Brands, whose latest results suggested progress in its repositioning strategy, was another notable contributor. We added to both positions in March 2022 when these defensive holdings had sold-off heavily despite having little or no exposure to the war in Ukraine. These trades show the benefit of an active strategy and an analyst team that can highlight opportunities fast. Merger and acquisition (“M&A”) activity continued to be a major driver of performance, with both power generation company ContourGlobal and consultancy firm RPS Group among the top contributors. The former agreed to be acquired by US private equity group Kohlberg Kravis Roberts (KKR) and the latter recently received a takeover bid from Canadian engineering group WSP Global.
QUESTION
The Company performed exceptionally well last year. Why has this year been more difficult to navigate?
ANSWER
As is well documented, the near-term outlook is very uncertain as economies worldwide grapple with sharply rising prices and slowing growth prospects. At the same time, elevated levels of inflation make it more difficult for central banks to react as they have previously, with many continuing to highlight the need for interest rate rises. This narrative has driven sentiment to depressed levels with many expecting this policy response to lead to a recession, while conversely a few sectors have been boosted by the prevailing constrained supply/demand conditions.
This has caused a huge divergence in performance between different parts of the market. So, in a market that has risen modestly in absolute terms, some companies have lost a lot of value whereas others, such as oil and gas producers, utilities and banks have gained meaningfully. In this risk-off environment, sectors seen as the most at risk such as housebuilders, leisure companies and retailers have seen sharp and often indiscriminate sell-offs. Our bias to small and mid-caps, areas typically less well covered and thus richer in opportunities, has been a meaningful headwind. Whilst a cyclical downturn is likely to result in earnings downgrades, many stocks have already sold-off heavily and reflect very pessimistic scenarios. While the Company has lagged its Benchmark Index, it has proved significantly more resilient than its peer group, thanks to its value bias.
QUESTION
What level of M&A activity are you seeing on the portfolio compared to last year?
ANSWER
Despite the increased volatility, the value in the UK market continues to be recognised by both private equity and trade acquirers. Unlike IPOs which have all but stopped, bids have continued unabated this year. The differential in valuations between UK stocks and global peers, especially US companies, has been a key factor driving this trend. While US valuations have come down of late, so have UK valuations, with sterling’s recent weakness making those valuations even more attractive to overseas acquirers. Against this backdrop, nine of our holdings have been the subject of bids over the past twelve months. The largest holding to be bid for was ContourGlobal, an international power producer, which received an all-cash offer at a 36% premium to the prevailing share price. Three of the bids – aerospace equipment supplier Meggitt, property development company U+I Group and consultancy firm RPS Group – have involved premiums in excess of 70%, highlighting the value on offer. These holdings have either been through temporary difficulties or were not on investors’ radars for various reasons but had good franchises, and medium to long-term growth potential, making them attractive to acquirers.
QUESTION
Inflation continues to soar, both in the UK and globally. How are you positioning the portfolio to protect it from rising inflation?
ANSWER
As we did during the COVID pandemic, when the outlook was highly uncertain, we are continuing to spend a lot of time meeting the companies we invest in to understand how the inflationary environment is affecting them, how flexible they can be with cost, and how resilient their balance sheets are. We are also drawing on the wider Fidelity network, both globally and across industries, to see how some of the wider trends could impact the portfolio. As highlighted, many stocks have sold-off significantly, and our valuation work is helping us to get a sense of how much pessimism is already being priced in. This work has given us the conviction to increase our positions in some stocks, but also sell ones where we see the risk of disappointment.
An area that we have trimmed is our consumer exposure. We reduced our exposure to housebuilders on concerns that momentum in the residential market will slow. We have also cut our exposure to areas more susceptible to demand slowdown such as big-ticket items and advertising. Overall, we are now significantly less overweight consumer discretionary stocks, with a preference for less economically sensitive areas, smaller ticket items and self-help stories.
On the flip side, there are areas that should prove more resilient in an environment of rising inflation and slowing economic growth. Take the Company’s largest holding, outsourcer Serco Group; their work for governments around the world is highly resilient as they proved during the COVID pandemic when they won new contracts. Recent trading upgrades have been strong and highlighted their growing and defensive and inflation protected cashflows.
Sector wise, our largest exposure is to financials, where banks and insurers make up respectively around 14% and 11% of the Company. Over the period, we have meaningfully added to banks, a move partly funded by a small reduction in the life insurance exposure which remains a large overweight position. There has been a small increase in the non-life insurance exposure where the pricing cycle looks very interesting, and stocks were attractively valued. The higher interest rate environment is a boon to the banking sector (and also the insurance sector) and profits from banks are now materially larger than they were in 2019. Take NatWest Group, now a top ten holding; its earnings estimates for 2023 have more than doubled over the last two years and are still being upgraded. This is a compelling story in an environment where markets are seeing earnings downgrades and fears of more to come. While markets are concerned about an increase in provisions, we believe the ability of banks to weather the downturn is much higher and both corporate and consumer balance sheets are stronger than they would be in a typical recession. We also added to AIB Group, which is well-placed to capitalise on the consolidation of the Irish banking industry; Barclays, which was trading at crisis-like levels; and Close Brothers Group, a conservative, well-managed, returns-focused niche lender. While the latter will not benefit from rising rates (as it has no current account business), the stock had underperformed and was trading below book value. Both Barclays and Close Brothers also benefit from some counter-cyclical revenues (i.e., revenues are strongest when there is high volatility) - the former through its investment banking business and the latter through its retail brokerage arm.
Anecdotally, we have also been selectively adding to staples (still a meaningful underweight position) as some key raw materials such as palm oil have started to come off. This should start to alleviate the big margin problem staples have been suffering from. Indeed, more generally, we are looking for companies that have been punished because they have not passed on cost increases, but where we believe they can over time.
QUESTION
Where do you see UK valuations heading compared to the US and Europe?
ANSWER
UK equities are very attractively valued both on a standalone basis and compared to other markets. They trade at meaningful discounts to European, and especially US equities, and these discounts remain particularly wide in an historical context. This has not only been reflected in continually strong M&A activity by private equity and corporate acquirers, but we have also seen more companies buying back their own shares, a reflection that companies themselves believe their shares offer good value and this is a good use of cash. We estimate that a little under half of the portfolio is made up of companies that are either buying back their shares or considering doing so.
While the near term outlook is uncertain, these valuation levels and the large divergence in performance between different parts of the market creates good opportunities to make attractive returns from UK stocks in the next three to five years. In our opinion, the UK market with its higher dividends offers a better prospective return than from many other asset classes, including global equities.
Question
Could the next decade be a better environment for value strategies?
Answer
The last decade has been marked by consistently low interest rates, subdued inflation and moderate growth. With a low cost of capital and low discount rates, some growth companies had reached astronomical valuations compared to where they had historically traded. This backdrop has been a strong headwind for value style investing which focuses on lower rated companies where cash flows and earnings are much shorter dated. The current environment of higher, likely stickier, inflation, rising interest rates and economic volatility is more representative of the longer term pattern seen over the last 100 years. It may feel uncomfortable for many investors who have only really experienced low interest rates, but looking through history, this is what one should expect. In such an environment, investors need to be valuation sensitive, agile and constantly looking for new ideas, which does favour the value style of investing.
Question
Since early September 2022, we have had multiple changes at the top of the UK Government, both in personnel and policy, which has resulted in an extremely volatile UK pound and gilt market. What can Shareholders expect over the next twelve months?
Answer
The September mini-budget underscored the Government’s priority of countering slowing economic activity and rising inflation with increased spending and tax cutting measures designed to boost growth. The initial reaction from markets was sceptical, with concerns about the cost of these latest measures further weighing on bond yields and the pound. With various U-turns and uncertainty in these policies causing further confusion and nervousness among market participants, the emphasis from the Government has shifted to appeasing nervous market participants, given the effects on household mortgage bills, for example. In the meantime, despite the Government’s intervention to limit household fuel bills, the near term economic outlook is uncertain. Many indicators point to a slowdown particularly for the consumer as inflation takes its toll. The unpredictable demand picture combined with continued supply chain pressures are adding to the volatility, and we are starting to see that emerge in company earnings.
Whilst this sounds relatively bleak, many of the most affected areas of the market have sold-off heavily and some stocks are starting to look interesting. After years of being relatively unloved, the UK market started the year looking to be good value, and now looks even cheaper. Meanwhile, portfolio holdings trade on even cheaper valuations for businesses that have healthy balance sheets and can grow and generate good returns. A cyclical downturn would affect some of these businesses, but we think a degree of negativity is being priced in and over time that should lead to attractive returns. Despite the volatility, the value in the UK market continues to be recognised by both private equity and trade acquirers.
When uncertainty is rife, this typically results in more opportunities to pick up very attractively valued stocks. Companies that can hold up well in a recessionary environment should prove to be good investments. In this environment, we need to be agile and constantly look for new ideas, and this certainly plays to Fidelity’s strengths in fundamental research. The Company is well diversified with over 100 holdings spread across different market caps and sectors, with exposure to both cyclical and defensive businesses. While the Company has a larger weight than the Benchmark Index in stocks that earn their revenues in sterling, nearly two-thirds of the portfolio’s earnings are in other currencies, which gives a good hedge against potential further moves in sterling.
While we are on the lookout for such opportunities, we are proceeding cautiously, and the Company’s gearing is relatively low at around 4% when netting out holdings that have received cash bids where we have a high conviction that these bids will go through. This leaves us with plenty of dry powder to reinvest should more opportunities arise.
Alex Wright
Portfolio Manager
3 November 2022
Strategic Report
Principal Risks and Uncertainties and Risk Management
As required by provisions 28 and 29 of the 2018 UK Corporate Governance Code, the Board has a robust ongoing process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. The Board, with the assistance of the Alternative Investment Fund Manager (FIL Investment Services (UK) Limited/the “Manager”), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties that the Company faces. The Audit Committee continues to identify any new emerging risks and take any action necessary to mitigate their potential impact. The risks identified are placed on the Company’s risk matrix and graded appropriately. This process, together with the policies and procedures for the mitigation of existing and emerging risks, is updated and reviewed regularly in the form of comprehensive reports 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.
A key emerging issue that the Board has identified is climate change. It 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 Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal and emerging risks and uncertainties and to ensure that the Board can continue to meet its UK corporate governance obligations.
The Board considers the following as the principal risks faced by the Company.
| Principal Risks | Description and Risk Mitigation |
| Market, Economic and Political Risks | The principal market related risks are market downturn, interest rate movements and market shocks, such as the post pandemic UK economy recovery and volatility from the war in Ukraine. The Company may also be impacted by concerns over global economic growth and major political events affecting the UK market and economy and the consequences of this. Inflation continues to trend higher across most economies, driven by a combination of increased demand, as the pandemic restrictions are lifted, and global labour shortages in some sectors and supply chain shortages. The economic impact from the war in Ukraine is significant. 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. This is leading to prolonged cost-of-living crisis risks and potentially impacting investors’ risk appetite. The UK GDP growth forecast has been downgraded following the deteriorating economic outlook. UK inflation is expected to outpace average earnings and tax increases may be required to combat this rising inflation. Additional risks to the UK economy remain with proposals by the British Government to overwrite parts of the Northern Ireland protocol which risks breaching international law and possible retaliatory action by the EU, at a sensitive time for the UK economy. 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 Company’s portfolio is made up mainly of listed securities. The Portfolio Manager’s success or failure to protect and increase the Company’s value against the above background is core to the Company’s continued success. The investment philosophy of stock-picking and investing in attractively valued companies should outperform the Benchmark Index over time. The Board reviews market, economic and political risks and legislative changes at each Board meeting. Risks to which the Company is exposed to in the market risk category are included in Note 17 to the Financial Statements below together with summaries of the policies for managing these risks. |
| Cybercrime and Information Security Risks | The operational risk from cybercrime is significant. Cybercrime threats evolve rapidly and consequently the risk is regularly re-assessed and the Board receives regular updates from the Manager in respect of the type and possible scale of cyberattacks. The Manager’s technology team has developed a number of initiatives and controls in order to provide enhanced mitigating protection to this ever increasing threat. The risk is frequently re-assessed by Fidelity’s information security teams and has resulted in the implementation of new tools and processes, including improvements to existing ones. Fidelity has 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, and phishing mitigants, combined with enhanced resilience and recovery options. |
| Investment Performance Risk (including the use of derivatives and gearing) | The Board relies on the Portfolio Manager’s skills and judgement to make investment decisions based on research and analysis of individual stocks and sectors. The Board reviews the performance of the asset value of the portfolio against the Company’s Benchmark Index and its competitors and also considers the outlook for the market with the Portfolio Manager at each Board meeting. The emphasis is on long term investment performance as there is a risk for the Company of volatility of performance in the shorter term. Derivative instruments are used to protect and enhance investment returns. There is a risk that the use of derivatives may lead to higher volatility in the NAV and the share price than might otherwise be the case. The Board has put in place policies and limits to control the Company’s use of derivatives and exposures. 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 are currently cheaper than bank loans and provide flexilibility. 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. |
| 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 and sustainable investment is in the Annual Report. |
| Competition Risk | Threats facing the Company are loss of Shareholders if the demand for investment trusts declines, and the demand for passive funds and active ETFs (Exchange-Traded Funds) continue to increase. ESG funds offered by competitors may pose competition threats with funds or companies that may offer higher ESG credentials, especially for younger investors. The Board reviews the strategic direction of the Company on an ongoing basis to ensure that it offers a relevant product to Shareholders. It also regularly reviews the Shareholder profile of the Company with the Company’s broker. ESG factors are imbedded into the Portfolio Manager’s investment decision process. |
| Regulatory Risk | The Company may be impacted by changes in legislation, taxation, regulation or other external influence that require changes to the business. These are monitored at each Board meeting and managed through active engagement with regulators and trade bodies by the Manager. |
| Key Person and Operational Support Risks | The Portfolio Manager, Alex Wright, has a differentiated style in relation to his peers. This style is intrinsically linked with the Company’s investment philosophy and strategy and, therefore, the Company has a key person dependency on him. Fidelity has succession plans in place for its portfolio managers which have been discussed with the Board and provides some assurance in this regard. There is a Co- Portfolio Manager who works alongside the Portfolio Manager and has extensive experience in the markets and companies and shares a common investment approach and complementary investment experience with the Portfolio Manager. There is also a risk that the Manager has inadequate succession plans for other key operational individuals. The loss of the Portfolio Manager or key individuals could lead to potential performance, operational or regulatory issues. The Manager identifies key dependencies which are then addressed through succession plans, particularly for portfolio managers. |
| Business Continuity Risk | 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. |
| Discount Control Risk | Due to the nature of investment companies, the price of the Company’s shares and its discount to NAV are factors which are not totally within the Company’s control. The Board has a discount management policy in place and some short term influence over the discount may be exercised by the use of share repurchases at acceptable prices and within the parameters set by the Board. The demand for shares can be influenced through good performance and an active investor relations program. The Company’s share price, NAV and discount volatility are monitored daily by the Manager and the Company’s Broker and considered by the Board on a regular basis. |
Continuation Vote
A continuation vote takes place every three years. There is a risk that Shareholders do not vote in favour of continuation during periods when performance of the Company’s NAV and share price is poor. At the AGM held on 12 December 2019, 99.90% of Shareholders voted in favour of the continuation of the Company. The next continuation vote will take place at this year’s AGM on 14 December 2022 and the Directors expect the vote to be passed.
Viability Statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the “Going Concern” basis. The Company is an investment trust with the objective of achieving long term capital growth. The Board considers long term to be at least five years, and accordingly, the Directors believe that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.
In making an assessment 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 premium/discount to the NAV;
· The liquidity of the Company’s portfolio;
· The level of income generated by the Company; and
· Future income and expenditure forecasts.
The Company’s performance for the five year reporting period to 31 August 2022 was well ahead of the Benchmark Index, with a NAV total return of 25.8% and a share price total return of 19.1% compared to the Benchmark Index total return of 17.8%. The Board regularly reviews the investment policy and considers whether it remains appropriate. The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years based on the following considerations:
· The Investment Manager’s compliance with the Company’s investment objective and policy, its investment strategy and asset allocation;
· The fact that the portfolio comprises sufficient readily realisable securities which can be sold to meet funding requirements if necessary;
· The Board’s discount management policy; and
· The ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets.
In preparing the Financial Statements, the Directors have considered the impact of climate change, particularly in the context of the climate change risk identified within the ESG Risk above. The Board has also considered the impact of regulatory changes and how this may affect the Company.
In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which is included below. The Company is also subject to a continuation vote at this year’s AGM on 14 December 2022 and the Board expect that Shareholders will vote in favour of continuation.
Going Concern Statement
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and continue in operational existence for the foreseeable future. The Board has therefore concluded that the Company has adequate resources to continue to adopt the going concern basis for the period to 30 November 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 Risk above. The prospects of the Company over a period longer than twelve months can be found in the Viability Statement above.
Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.
The Company is subject to a continuation vote at this year’s AGM on 14 December 2022, and the Directors expect this vote to be passed.
PROMOTING THE SUCCESS OF THE COMPANY
Under Section 172(1) of the Companies Act 2006, the Directors of a company must act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the likely consequences of any decision in the long term; the need to foster relationships with the Company’s suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the company.
As an externally managed Investment Trust, the Company has no employees or physical assets, and a number of the Company’s functions are outsourced to third parties. The key outsourced function is the provision of investment management services by the Manager, but other professional service providers support the Company by providing administration, custodial, banking and audit services. The Board considers the Company’s key stakeholders to be the existing and potential shareholders, the external appointed Manager (FIL Investment Services (UK) Limited) and other third-party professional service providers. The Board considers that the interest of these stakeholders is aligned with the Company’s objective of delivering long term capital growth to investors, in line with the Company’s stated objective and strategy, while providing the highest standards of legal, regulatory and commercial conduct.
The Board, with the Portfolio Manager, sets the overall investment strategy and reviews this at an annual strategy day which is separate from the regular cycle of board meetings. In order to ensure good governance of the Company, the Board has set various limits on the investments in the portfolio, whether in the maximum size of individual holdings, the use of derivatives, the level of gearing and others. These limits and guidelines are regularly monitored and reviewed and are set out in the Annual Report.
The Board places great importance on communication with shareholders. The Annual General Meeting provides the key forum for the Board and the Portfolio Manager to present to the shareholders on the Company’s performance and future plans and the Board encourages all shareholders to attend in person or virtually and raise any questions or concerns. The Chairman and other Board members are available to meet shareholders as appropriate. Shareholders may also communicate with Board members at any time by writing to them at the Company’s registered office at FIL Investments International, Beech Gate, Millfield Lane, Tadworth, Surrey KT20 6RP or via the Company Secretary in writing at the same address or by email at investmenttrusts@fil.com. The Portfolio Manager meets with major shareholders, potential investors, stock market analysts, journalists and other commentators throughout the year. These communication opportunities help inform the Board in considering how best to promote the success of the company over the long term.
The Board seeks to engage with the Manager and other service providers and advisers in a constructive and collaborative way, promoting a culture of strong governance, while encouraging open and constructive debate, in order to ensure appropriate and regular challenge and evaluation. This aims to enhance service levels and strengthen relationships with service providers, with a view to ensuring shareholders’ interests are best served, by maintaining the highest standards of commercial conduct while keeping cost levels competitive.
Whilst the Company’s direct operations are limited, the Board recognises the importance of considering the impact of the Company’s investment strategy on the wider community and environment. The Board believes that a proper consideration of Environmental, Social and Governance (“ESG”) issues aligns with the investment objective to deliver long-term capital growth, and the Board’s review of the Manager includes an assessment of their ESG approach, which is set out in 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 approval of this report, have included:
· The decision to pay an interim dividend of 2.30 pence per share and a final dividend of 5.45 pence per share (a total of 7.75 pence per share), to maintain the 13 year track record of increasing dividends, while retaining funds for reinvestment, consistent with the objective of long term capital growth;
· The raising of £33,672,000 from share issuances, at a premium to net asset value, in order to satisfy investor demand over the year, and also serving the interests of current Shareholders by reducing costs per share and helping to further improve liquidity;
· 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;
· As part of the Board’s succession plans, the appointment of Ominder Dhillon to the Board with effect from 23 June 2022; and
· As part of the Board’s succession planning, the decision to appoint Dean Buckley as Chairman when Andy Irvine steps down at the AGM on 14 December 2022. In preparation, Mr Buckley has worked closely with the Chairman over the last few months.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial period. Under that law, the Directors have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), including Financial Reporting Standard FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the reporting period.
In preparing these Financial Statements the Directors are required to:
· Select suitable accounting policies in accordance with Section 10 of FRS 102 and then apply them consistently;
· Make judgements and estimates that are reasonable and prudent;
· Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· State whether applicable UK Accounting Standards, including FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
· Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Company and the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Corporate Governance Statement and a Directors’ Remuneration Report which comply with that law and those regulations.
The Directors have delegated the responsibility for the maintenance and integrity of the corporate and financial information included on the Company’s pages of the Manager’s website at www.fidelity.co.uk/specialvalues to the Manager. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Financial Statements may differ from legislation in their jurisdictions.
The Directors confirm that to the best of their knowledge:
· The Financial Statements, prepared in accordance with UK Generally Accepted Accounting Practice, including FRS 102, give a true and fair view of the assets, liabilities, financial position and loss of the Company;
· The Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces; and
· The Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.
The Statement of Directors’ Responsibility was approved by the Board on 3 November 2022 and signed on its behalf by:
ANDY IRVINE
Chairman
Income Statement for the year ended 31 August 2022
| Year ended 31 August 2022 | Year ended 31 August 2021 | ||||||
|
|
Notes |
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| (Losses)/gains on investments | 10 | – | (64,441) | (64,441) | – | 252,899 | 252,899 |
| (Losses)/gains on long CFDs | 11 | – | (14,992) | (14,992) | – | 55,323 | 55,323 |
| Investment and derivative income | 3 | 37,135 | – | 37,135 | 27,890 | – | 27,890 |
| Other interest | 3 | 877 | – | 877 | 257 | – | 257 |
| Investment management fees | 4 | (5,607) | – | (5,607) | (5,098) | – | (5,098) |
| Other expenses | 5 | (838) | – | (838) | (669) | – | (669) |
| Foreign exchange gains/(losses) | – | 5,874 | 5,874 | – | (720) | (720) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities before finance costs and taxation | 31,567 | (73,559) | (41,992) | 22,380 | 307,502 | 329,882 | |
| Finance costs | 6 | (1,243) | – | (1,243) | (378) | – | (378) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities before taxation | 30,324 | (73,559) | (43,235) | 22,002 | 307,502 | 329,504 | |
| Taxation on return/(loss) on ordinary activities | 7 | (196) | – | (196) | (406) | – | (406) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities after taxation for the year | 30,128 | (73,559) | (43,431) | 21,596 | 307,502 | 329,098 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Return/(loss) per ordinary share | 8 | 9.42p | (23.00p) | (13.58p) | 7.22p | 102.74p | 109.96p |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
The Company does not have any other comprehensive income. Accordingly the net return/(loss) on ordinary activities after taxation for the year is also the total comprehensive income for the year and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.
The Notes below form an integral part of these Financial Statements.
Balance Sheet as at 31 August 2022
Company number 2972628
|
|
Notes |
2022 £000 |
2021 £000 |
| Fixed assets | |||
| Investments | 10 | 835,672 | 886,710 |
| --------------- | --------------- | ||
| Current assets | |||
| Derivative instruments | 11 | 28 | 1,968 |
| Debtors | 12 | 10,940 | 6,674 |
| Amounts held at futures clearing houses and brokers | 8,190 | 40 | |
| Cash and cash equivalents | 80,450 | 63,780 | |
| --------------- | --------------- | ||
| 99,608 | 72,462 | ||
| ========= | ========= | ||
| Current liabilities | |||
| Derivative instruments | 11 | (9,200) | (3,161) |
| Other creditors | 13 | (3,481) | (1,921) |
| --------------- | --------------- | ||
| (12,681) | (5,082) | ||
| ========= | ========= | ||
| Net current assets | 86,927 | 67,380 | |
| ========= | ========= | ||
| Net assets | 922,599 | 954,090 | |
| ========= | ========= | ||
| Capital and reserves | |||
| Share capital | 14 | 16,205 | 15,651 |
| Share premium account | 15 | 238,442 | 205,466 |
| Capital redemption reserve | 15 | 3,256 | 3,256 |
| Other non-distributable reserve | 15 | 5,152 | 5,152 |
| Capital reserve | 15 | 629,078 | 702,637 |
| Revenue reserve | 15 | 30,466 | 21,928 |
| --------------- | --------------- | ||
| Total Shareholders’ funds | 922,599 | 954,090 | |
| ========= | ========= | ||
| Net asset value per ordinary share | 16 | 284.67p | 304.79p |
| ========= | ========= |
The Financial Statements above and below were approved by the Board of Directors on 3 November 2022 and were signed on its behalf by:
ANDY IRVINE
Chairman
The Notes below form an integral part of these Financial Statements.
Statement of Changes in Equity for the year ended 31 August 2022
|
|
Notes |
Share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Other non- distributable reserve £000 |
Capital reserve £000 |
Revenue reserve £000 |
Total Share- holders’ funds £000 |
| Total Shareholders’ funds at 31 August 2021 | 15,651 | 205,466 | 3,256 | 5,152 | 702,637 | 21,928 | 954,090 | |
| New ordinary shares issued | 14 | 554 | 33,118 | – | – | – | – | 33,672 |
| Costs associated with the issue of new ordinary shares | – | (142) | – | – | – | – | (142) | |
| Net (loss)/return on ordinary activities after taxation for the year | – | – | – | – | (73,559) | 30,128 | (43,431) | |
| Dividends paid to Shareholders | 9 | – | – | – | – | – | (21,590) | (21,590) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 31 August 2022 | 16,205 | 238,442 | 3,256 | 5,152 | 629,078 | 30,466 | 922,599 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Total Shareholders’ funds at 31 August 2020 | 14,501 | 144,306 | 3,256 | 5,152 | 394,572 | 17,718 | 579,505 | |
| New ordinary shares issued | 14 | 1,150 | 61,259 | – | – | – | – | 62,409 |
| Costs associated with the issue of new ordinary shares | – | (123) | – | – | – | – | (123) | |
| Issue of ordinary shares from Treasury | 14 | – | 24 | – | – | 2,383 | – | 2,407 |
| Repurchase of ordinary shares into Treasury | 14 | – | – | – | – | (1,820) | – | (1,820) |
| Net return on ordinary activities after taxation for the year | – | – | – | – | 307,502 | 21,596 | 329,098 | |
| Dividends paid to Shareholders | 9 | – | – | – | – | – | (17,386) | (17,386) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 31 August 2021 | 15,651 | 205,466 | 3,256 | 5,152 | 702,637 | 21,928 | 954,090 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
The Notes below form an integral part of these Financial Statements.
Cash Flow Statement for the year ended 31 August 2022
|
|
Notes |
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Operating activities | |||
| Investment income received | 25,034 | 17,825 | |
| Net derivative income | 9,133 | 7,930 | |
| Interest received | 493 | 24 | |
| Underwriting commission received | – | 16 | |
| Investment management fee paid | (5,597) | (5,059) | |
| Directors’ fees paid | (157) | (163) | |
| Other cash payments | (618) | (567) | |
| --------------- | --------------- | ||
| Net cash inflow from operating activities before finance costs and taxation | 20 | 28,288 | 20,006 |
| ========= | ========= | ||
| Finance costs paid | (1,186) | (378) | |
| Overseas taxation suffered | (783) | (348) | |
| --------------- | --------------- | ||
| Net cash inflow from operating activities | 26,319 | 19,280 | |
| ========= | ========= | ||
| Investing activities | |||
| Purchases of investments | (359,829) | (378,229) | |
| Sales of investments | 347,076 | 305,611 | |
| Receipts on long CFDs | 73,743 | 91,127 | |
| Payments on long CFDs | (80,763) | (28,938) | |
| Movement on amounts held at futures clearing houses and brokers | (8,150) | 820 | |
| --------------- | --------------- | ||
| Net cash outflow from investing activities | (27,923) | (9,609) | |
| ========= | ========= | ||
| Net cash (outflow)/inflow before financing activities | (1,604) | 9,671 | |
| ========= | ========= | ||
| Financing activities | |||
| Dividends paid | 9 | (21,590) | (17,386) |
| Net proceeds from issue of shares | 34,132 | 64,356 | |
| Costs associated with the issue of new ordinary shares | (142) | (123) | |
| Repurchase of ordinary shares | – | (1,820) | |
| --------------- | --------------- | ||
| Net cash inflow from financing activities | 12,400 | 45,027 | |
| ========= | ========= | ||
| Net increase in cash and cash equivalents | 10,796 | 54,698 | |
| Cash and cash equivalents at the beginning of the year | 63,780 | 9,802 | |
| Effect of movement in foreign exchange | 5,874 | (720) | |
| Cash and cash equivalents at the end of the year | 80,450 | 63,780 | |
| --------------- | --------------- | ||
| Represented by: | |||
| Cash at bank | 2,014 | 2,000 | |
| Amount held in Fidelity Institutional Liquidity Fund | 78,436 | 61,780 | |
| --------------- | --------------- | ||
| 80,450 | 63,780 | ||
| ========= | ========= |
The Notes below form an integral part of these Financial Statements.
Notes to the Financial Statements
1 Principal Activity
Fidelity Special Values PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 2972628, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.
2 Accounting Policies
The Company has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, issued by the Financial Reporting Council (“FRC”). The Financial Statements have also been prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”), in July 2022.
a) Basis of accounting –The Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the measurement at fair value of investments and derivative instruments. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence up to 30 November 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 ongoing risks as disclosed in the Going Concern Statement above and their consideration of the upcoming continuation vote at the AGM on 14 December 2022. The Directors recommend that the shareholders vote in favour of the continuation of the Company.
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 30 November 2023 which is at least twelve months from the date of approval of these Financial Statements.
b) Significant accounting estimates and judgements – The Directors make judgements and estimates concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The judgements required in order to determine the appropriate valuation methodology of level 3 financial instruments have a risk of causing an adjustment to the carrying amounts of assets. These judgements include making assessments of the possible valuations in the event of a listing or other marketability related risks.
c) Segmental reporting – The Company is engaged in a single segment business and, therefore, no segmental reporting is provided.
d) Presentation of the Income Statement – In order to reflect better the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The net revenue return after taxation for the year is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.
e) Income – Income from equity investments is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. Overseas dividends are accounted for gross of any tax deducted at source. Amounts are credited to the revenue column of the Income Statement. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised in the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital column of the Income Statement. Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case. Underwriting commission is recognised when the issue takes place and is credited to the revenue column of the Income Statement.
Derivative instrument income received from dividends on long contracts for difference (“CFDs”) is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. The amount net of tax is credited to the revenue column of the Income Statement.
Interest received on CFDs, bank deposits, collateral and money market funds is accounted for on an accruals basis and credited to the revenue column of the Income Statement. Interest received on CFDs represents the finance costs calculated by reference to the notional value of the CFDs.
f) Investment management fees and other expenses – Investment management fees and other expenses are accounted for on an accruals basis and are charged as follows:
· Investment management fees are allocated in full to revenue; and
· All other expenses are allocated in full to revenue with the exception of those directly attributable to share issues or other capital events.
g) Functional currency and foreign exchange – The functional and reporting currency of the Company is UK sterling, which is the currency of the primary economic environment in which the Company operates. Transactions denominated in foreign currencies are reported in UK sterling at the rate of exchange ruling at the date of the transaction. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. Foreign exchange gains and losses arising on translation are recognised in the Income Statement as a revenue or a capital item depending on the nature of the underlying item to which they relate.
h) Finance costs – Finance costs comprise interest on bank overdrafts and collateral and finance costs paid on CFDs, which are accounted for on an accruals basis. Finance costs are charged in full to the revenue column of the Income Statement.
i) Taxation – The taxation charge represents the sum of current taxation and deferred taxation.
Current taxation is taxation suffered at source on overseas income less amounts recoverable under taxation treaties. Taxation is charged or credited to the revenue column of the Income Statement, except where it relates to items of a capital nature, in which case it is charged or credited to the capital column of the Income Statement. Where expenses are allocated between revenue and capital any tax relief in respect of the expenses is allocated between revenue and capital returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period. The Company is an approved Investment Trust under Section 1158 of the Corporation Tax Act 2010 and is not liable for UK taxation on capital gains.
Deferred taxation is the taxation expected to be payable or recoverable on timing differences between the treatment of certain items for accounting purposes and their treatment for the purposes of computing taxable profits. Deferred taxation is based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable. Deferred tax assets are only recognised if it is considered more likely than not that there will be sufficient future taxable profits to utilise them.
j) Dividend paid – Dividends payable to equity Shareholders are recognised when the Company’s obligation to make payment is established.
k) Investments – The Company’s business is investing in financial instruments with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided on that basis to the Company’s Board of Directors. Investments are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of investments is initially taken to be their cost and is subsequently measured as follows:
· Listed investments are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed; and
· Unlisted investments are not quoted, or are not frequently traded, and are stated at the best estimate of fair value. The Manager’s Fair Value Committee (‘FVC’), which is independent of the Portfolio Manager’s team, meets quarterly to determine the fair value of unlisted investments.
The FVC provide a recommendation of fair values to the Board using market-based approaches such as multiples, industry valuation benchmarks and available market prices. Consideration is given to the cost of the investment, recent arm’s length transactions in the same or similar investments and the financial performance of the investment since purchase. This pricing methodology is subject to a detailed review and appropriate challenge by the Directors.
In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within (losses)/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 warrants. Derivatives are classified as other financial instruments and are initially accounted for and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:
· Long CFDs – the difference between the strike price and the value of the underlying shares in the contract;
· Futures – the difference between the contract price and the quoted trade price; and
· Options – valued based on similar instruments or the quoted trade price for the contract.
Where transactions are used to protect or enhance income, if the circumstances support this, the income and expenses derived are included in net income in the revenue column of the Income Statement. Where such transactions are used to protect or enhance capital, if the circumstances support this, the income and expenses derived are included: for long CFDs, as gains or losses on long CFDs, and for short CFDs, futures and options as gains or losses on short CFDs, futures and options in the capital column of the Income Statement. Any positions on such transactions open at the year end are reflected on the Balance Sheet at their fair value within current assets or current liabilities.
m) Debtors – Debtors include securities sold for future settlement, amounts receivable on settlement of derivatives, accrued income, taxation recoverable, amounts receivable for issue of shares and other debtors and prepayments incurred in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer) they are classified as current assets. If not, they are presented as non-current assets. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.
n) Amounts held at futures clearing houses and brokers – These are amounts held in segregated accounts as collateral on behalf of brokers and are carried at amortised cost.
o) Cash and cash equivalents – Cash and cash equivalents may comprise cash at bank and money market funds which are short term, highly liquid and are readily convertible to a known amount of cash. These are subject to an insignificant risk of changes in value.
p) Other creditors – Other creditors include securities purchased for future settlement, finance costs payable, investment management fees and other creditors and expenses accrued in the ordinary course of business. If payment is due within one year or less (or in the normal operating cycle of the business, if longer) they are classified as current liabilities. If not, they are presented as non-current liabilities. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.
q) Capital reserve – The following are accounted for in the capital reserve:
· Gains and losses on the disposal of investments and derivative instruments;
· Changes in the fair value of investments and derivative instruments held at the year end;
· Foreign exchange gains and losses of a capital nature;
· Dividends receivable which are capital in nature; and
· Costs of repurchasing or issuing ordinary shares.
Technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/17BL, guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, states that changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms at the Balance Sheet date, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as capital reserve in the Statement of Changes in Equity and the Balance Sheet. At the Balance Sheet date, the portfolio of the Company consisted of investments listed on a recognised stock exchange and derivative instruments contracted with counterparties having an adequate credit rating, and the portfolio was were considered to be readily convertible to cash, with the exception of the level 3 investments which had unrealised investment holding losses of £9,389,000 (2021: gains of £181,000).
3 Income
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Investment income | ||
| UK dividends | 20,437 | 13,392 |
| UK scrip dividends | 85 | – |
| Overseas dividends | 6,684 | 6,114 |
| Overseas scrip dividends | 23 | – |
| Underwriting commission | – | 16 |
| --------------- | --------------- | |
| 27,229 | 19,522 | |
| ========= | ========= | |
| Derivative income | ||
| Dividends received on long CFDs | 9,906 | 8,368 |
| --------------- | --------------- | |
| Investment and derivative income | 37,135 | 27,890 |
| ========= | ========= | |
| Other interest | ||
| Interest received on long CFDs* | 384 | 233 |
| Interest received on bank deposits, collateral and money market funds | 493 | 24 |
| --------------- | --------------- | |
| 877 | 257 | |
| ========= | ========= | |
| Total income | 38,012 | 28,147 |
| ========= | ========= |
Special dividends of £372,000 (2021: £1,730,000) have been recognised in capital during the year.
* Due to negative interest rates during the reporting year, the Company has received interest on some of its long CFD positions.
4 Investment Management Fees
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Portfolio management services | 5,607 | 5,065 |
| Non-portfolio management services* | – | 33 |
| --------------- | --------------- | |
| Investment management fees | 5,607 | 5,098 |
| ========= | ========= |
* Includes company secretarial, fund accounting, taxation, promotional and corporate advisory services.
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.
From 1 January 2021, FII charges portfolio management fees at an annual rate of 0.60% of net assets and the fee for non-portfolio management services of £100,000 per annum is no longer charged. Prior to this date, the portfolio management fees were charged on a tiered fee basis of 0.85% on the first £700 million of nets assets and 0.75% of net assets in excess of £700 million.
5 Other Expenses
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| AIC fees | 21 | 21 |
| Custody fees | 42 | 32 |
| Depositary fees | 71 | 56 |
| Directors’ expenses | 6 | 2 |
| Directors’ fees1 | 159 | 162 |
| Legal and professional fees | 95 | 89 |
| Marketing expenses | 191 | 106 |
| Printing and publication expenses | 115 | 94 |
| Registrars’ fees | 70 | 57 |
| Fees payable to the Company's Independent Auditor for the audit of the Financial Statements2 | 46 | 29 |
| Sundry other expenses | 22 | 21 |
| --------------- | --------------- | |
| Other expenses | 838 | 669 |
| ========= | ========= |
1 Details of the breakdown of Directors’ fees are disclosed in the Directors’ Remuneration Report in the Annual Report.
2 The VAT payable on audit fees is included in sundry other expenses.
6 Finance Costs
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Interest paid on long CFDs | 1,231 | 370 |
| Interest on bank overdrafts and collateral | 12 | 8 |
| --------------- | --------------- | |
| 1,243 | 378 | |
| ========= | ========= |
7 Taxation on Return/(Loss) on Ordinary Activities
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| a) Analysis of the taxation charge for the year | ||
| Overseas taxation | 196 | 406 |
| --------------- | --------------- | |
| Taxation charge for the year (see Note 7b) | 196 | 406 |
| ========= | ========= |
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 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Net (loss)/return on ordinary activities before taxation | (43,235) | 329,504 |
| --------------- | --------------- | |
| Net (loss)/return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 19% (2021: 19%) | (8,215) | 62,606 |
| Effects of: | ||
| Capital losses/(gains) not taxable* | 13,976 | (58,425) |
| Income not taxable | (5,173) | (3,657) |
| Excess management expenses | (588) | (524) |
| Overseas taxation | 196 | 406 |
| --------------- | --------------- | |
| Total taxation charge for the year (see Note 7a) | 196 | 406 |
| ========= | ========= |
* The Company is exempt from UK taxation on capital gains as it meets the HM Revenue & Customs criteria for an investment company set out in Section 1159 of the Corporation Tax Act 2010.
c) Deferred taxation
A deferred tax asset of £16,119,000 (2021: £16,893,000), in respect of excess expenses of £64,476,000 (2021: £67,571,000) available to be set off against future taxable profits has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.
In the Spring Budget of 2021, the UK Government announced that from 1 April 2023 the corporation tax rate would increase to 25%. 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.
8 Return/(Loss) per Ordinary Share
|
|
Year ended 31.08.22 |
Year ended 31.08.21 |
| Revenue return per ordinary share | 9.42p | 7.22p |
| Capital (loss)/return per ordinary share | (23.00p) | 102.74p |
| --------------- | --------------- | |
| Total (loss)/return per ordinary share | (13.58p) | 109.96p |
| ========= | ========= |
The return/(loss) per ordinary share is based on the net return/(loss) on ordinary activities after taxation for the year divided by the weighted average number of ordinary shares held outside Treasury during the year, as shown below:
| £000 | £000 | |
| Net revenue return on ordinary activities after taxation | 30,128 | 21,596 |
| Net capital (loss)/return on ordinary activities after taxation | (73,559) | 307,502 |
| --------------- | --------------- | |
| Net total (loss)/return on ordinary activities after taxation | (43,431) | 329,098 |
| ========= | ========= |
| Number | Number | |
| Weighted average number of ordinary shares held outside Treasury | 319,869,879 | 299,297,599 |
| ========= | ========= |
9 Dividends Paid to Shareholders
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Dividends paid | ||
| Interim dividend of 2.30 pence per ordinary share paid for the year ended 31 August 2022 | 7,454 | – |
| Final dividend of 4.50 pence per ordinary share paid for the year ended 31 August 2021 | 14,136 | – |
| Interim dividend of 2.17 pence per ordinary share paid for the year ended 31 August 2021 | – | 6,603 |
| Final dividend of 3.70 pence per ordinary share paid for the year ended 31 August 2020 | – | 10,783 |
| --------------- | --------------- | |
| 21,590 | 17,386 | |
| ========= | ========= | |
| Dividends proposed | ||
| Final dividend proposed of 5.45 pence per ordinary share for the year ended 31 August 2022 | 17,663 | – |
| Final dividend proposed of 4.50 pence per ordinary share for the year ended 31 August 2021 | – | 14,109 |
| --------------- | --------------- | |
| 17,663 | 14,109 | |
| ========= | ========= |
The Directors have proposed the payment of a final dividend of 5.45 pence per ordinary share for the year ended 31 August 2022 which is subject to approval by Shareholders at the Annual General Meeting on 14 December 2022 and has not been included as a liability in these Financial Statements. The dividend will be paid on 11 January 2023 to Shareholders on the register at the close of business on 2 December 2022 (ex-dividend date 1 December 2022).
10 Investments
|
|
2022 £000 |
2021 £000 |
| Listed investments | 835,398 | 886,438 |
| Unlisted investments | 274 | 272 |
| --------------- | --------------- | |
| Total investments at fair value | 835,672 | 886,710 |
| ========= | ========= | |
| Opening book cost | 726,247 | 635,740 |
| Opening investment holding gains/(losses) | 160,463 | (71,977) |
| --------------- | --------------- | |
| Opening fair value | 886,710 | 563,763 |
| ========= | ========= | |
| Movements in the year | ||
| Purchases at cost | 361,407 | 375,614 |
| Sales – proceeds | (348,004) | (305,566) |
| (Losses)/gains on investments | (64,441) | 252,899 |
| --------------- | --------------- | |
| Closing fair value | 835,672 | 886,710 |
| ========= | ========= | |
| Closing book cost | 813,135 | 726,247 |
| Closing investment holding gains | 22,537 | 160,463 |
| --------------- | --------------- | |
| Closing fair value | 835,672 | 886,710 |
| ========= | ========= |
The Company received £348,004,000 (2021: £305,566,000) from investments sold in the year. The book cost of these investments when they were purchased was £274,519,000 (2021: £285,107,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
Investment transaction costs
Transaction costs incurred in the acquisition and disposal of investments, which are included in the (losses)/gains on investments above, were as follows:
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Purchases transaction costs | 1,544 | 1,570 |
| Sales transaction costs | 195 | 157 |
| --------------- | --------------- | |
| 1,739 | 1,727 | |
| ========= | ========= |
The portfolio turnover rate for the year was 42.8% (2021: 45.9%).
11 Derivative Instruments
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| (Losses)/gains on long CFD positions closed | (7,013) | 62,189 |
| Movement in investment holding losses on long CFDs | (7,979) | (6,866) |
| --------------- | --------------- | |
| (14,992) | 55,323 | |
| ========= | ========= |
|
|
2022 Fair value £000 |
2021 Fair value £000 |
| Derivative instruments recognised on the Balance Sheet | ||
| Derivative instrument assets | 28 | 1,968 |
| Derivative instrument liabilities | (9,200) | (3,161) |
| --------------- | --------------- | |
| (9,172) | (1,193) | |
| ========= | ========= |
| 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 | (9,172) | 178,898 | (1,193) | 206,266 |
| ========= | ========= | ========= | ========= | |
12 Debtors
|
|
2022 £000 |
2021 £000 |
| Securities sold for future settlement | 924 | – |
| Amounts receivable on settlement of derivatives | 7 | – |
| Accrued income | 8,711 | 5,430 |
| Overseas taxation recoverable | 1,273 | 686 |
| UK income tax recoverable | – | 37 |
| Amounts receivable for issue of shares | – | 460 |
| Other debtors and prepayments | 25 | 61 |
| --------------- | --------------- | |
| 10,940 | 6,674 | |
| ========= | ========= |
13 Other Creditors
|
|
2022 £000 |
2021 £000 |
| Securities purchased for future settlement | 2,774 | 1,304 |
| Finance costs payable | 57 | – |
| Creditors and accruals | 650 | 617 |
| --------------- | --------------- | |
| 3,481 | 1,921 | |
| ========= | ========= |
14 Share Capital
| 2022 | 2021 | |||
|
|
Number of shares |
£000 |
Number of shares |
£000 |
| Issued, allotted and fully paid ordinary shares of 5 pence each | ||||
| Held outside Treasury | ||||
| Beginning of the year | 313,028,920 | 15,651 | 290,029,480 | 14,501 |
| Ordinary shares repurchased into Treasury | – | – | (1,025,473) | (51) |
| Ordinary shares issued out of Treasury | – | – | 1,025,473 | 51 |
| New ordinary shares issued | 11,070,000 | 554 | 22,999,440 | 1,150 |
| ----------------- | ----------------- | ----------------- | ----------------- | |
| End of the year | 324,098,920 | 16,205 | 313,028,920 | 15,651 |
| ========== | ========== | ========== | ========== | |
| Held in Treasury* | ||||
| Beginning of the year | – | – | – | – |
| Ordinary shares repurchased into Treasury | – | – | 1,025,473 | 51 |
| Ordinary shares issued out of Treasury | – | – | (1,025,473) | (51) |
| ----------------- | ----------------- | ----------------- | ----------------- | |
| End of the year | – | – | – | – |
| ========== | ========== | ========== | ========== | |
| Total share capital | 324,098,920 | 16,205 | 313,028,920 | 15,651 |
| ========== | ========== | ========== | ========== | |
* Ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.
During the year, 11,070,000 new ordinary shares (2021: 22,999,440 new ordinary issued) were issued. The premium received in the year on the issue of new ordinary shares of £33,118,000 (2021: £61,259,000) was credited to the share premium account. In the year to 31 August 2021, 1,025,473 ordinary shares were also issued out of Treasury. £24,000 was credited to the share premium account and £2,383,000 was credited to the capital reserve.
No ordinary shares were repurchased and held in Treasury during the year (2021: 1,025,473). The cost of repurchasing these shares in the year to 31 August 2021 of £1,820,000 was charged to the capital reserve.
15 Capital and Reserves
|
|
Share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Other non- distributable reserve £000 |
Capital reserve £000 |
Revenue reserve £000 |
Total Share- holders’ funds £000 |
| At 1 September 2021 | 15,651 | 205,466 | 3,256 | 5,152 | 702,637 | 21,928 | 954,090 |
| Losses on investments (see Note 10) | – | – | – | – | (64,441) | – | (64,441) |
| Losses on long CFDs (see Note 11) | – | – | – | – | (14,992) | – | (14,992) |
| Costs associated with the issue of new ordinary shares | – | (142) | – | – | – | – | (142) |
| Foreign exchange gains | – | – | – | – | 5,874 | – | 5,874 |
| New ordinary shares issued | 554 | 33,118 | – | – | – | – | 33,672 |
| Revenue return on ordinary activities after taxation for the year | – | – | – | – | – | 30,128 | 30,128 |
| Dividends paid to Shareholders (see Note 9) | – | – | – | – | – | (21,590) | (21,590) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 August 2022 | 16,205 | 238,442 | 3,256 | 5,152 | 629,078 | 30,466 | 922,599 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | |
| At 1 September 2020 | 14,501 | 144,306 | 3,256 | 5,152 | 394,572 | 17,718 | 579,505 |
| Gains on investments (see Note 10) | – | – | – | – | 252,899 | – | 252,899 |
| Gains on long CFDs (see Note 11) | – | – | – | – | 55,323 | – | 55,323 |
| Foreign exchange losses | – | – | – | – | (720) | – | (720) |
| New ordinary shares issued | 1,150 | 61,259 | – | – | – | – | 62,409 |
| Costs associated with the issue of new ordinary shares | – | (123) | – | – | – | – | (123) |
| Issue of ordinary shares from Treasury | – | 24 | – | – | 2,383 | – | 2,407 |
| Repurchase of ordinary shares into Treasury | – | – | – | – | (1,820) | – | (1,820) |
| Revenue return on ordinary activities after taxation for the year | – | – | – | – | – | 21,596 | 21,596 |
| Dividends paid to Shareholders (see Note 9) | – | – | – | – | – | (17,386) | (17,386) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 August 2021 | 15,651 | 205,466 | 3,256 | 5,152 | 702,637 | 21,928 | 954,090 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
The capital reserve balance at 31 August 2022 includes investment holding gains of £22,537,000 (2021: gains of £160,463,000) as detailed in Note 10 above. The revenue and capital reserves are distributable by way of dividend. See Note 2 (q) above for further details.
16 Net Asset Value per Ordinary Share
The calculation of the net asset value per ordinary share is based on the following:
| 2022 | 2021 | |
| Total Shareholders’ funds | £922,599,000 | £954,090,000 |
| Ordinary shares held outside of Treasury at year end | 324,098,920 | 313,028,920 |
| Net asset value per ordinary share | 284.67p | 304.79p |
| =========== | =========== |
It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per ordinary share or at a premium to net asset value per ordinary share and, therefore, shares held in Treasury have no dilutive effect.
17 Financial Instruments
Management of risk
The Company’s investing activities in pursuit of its investment objective involve certain inherent risks. The Board confirms that there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Board with the assistance of the Manager, has developed a risk matrix which, as part of the internal control process, identifies the risks that the Company faces. Principal risks identified are market, economic and political, cybercrime and information security, investment performance (including the use of derivatives and gearing), environmental, social and governance (“ESG”), competition, regulatory, key person and operational support, business continuity and discount control. 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 and bonds held in accordance with the Company’s investment objective and policies;
· Derivative instruments which comprise CFDs, futures and options on listed stocks and equity indices; and
· Cash, liquid resources and short term debtors and creditors that arise from its operations.
The risks identified arising from the Company’s financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instrument risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies are consistent with those followed last year.
MARKET PRICE RISK
Interest rate risk
The Company finances its operations through its share capital and reserves. In addition, the Company has gearing through the use of derivative instruments. The Board imposes limits to ensure gearing levels are appropriate. The Company is exposed to a financial risk arising as a result of any increases in interest rates associated with the funding of the derivative instruments.
Interest rate risk exposure
The values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:
|
|
2022 £000 |
2021 £000 |
| Exposure to financial instruments that bear interest | ||
| Long CFDs - exposure less fair value | 188,070 | 207,459 |
| --------------- | --------------- | |
| Exposure to financial instruments that earn interest | ||
| Amounts held at futures clearing houses and brokers | 8,190 | 40 |
| Cash and cash equivalents | 80,450 | 63,780 |
| --------------- | --------------- | |
| 88,640 | 63,820 | |
| ========= | ========= | |
| Net exposure to financial instruments that bear interest | 99,430 | 143,639 |
| ========= | ========= |
Due to negative interest rates during the reporting year, the Company has received interest on some of its long CFD positions.
Foreign currency risk
The Company does not carry out currency speculation. The Company’s net return/(loss) on ordinary activities after taxation for the year and its net assets can be affected by foreign exchange movements because the Company has income and assets which are denominated in currencies other than the Company’s functional currency which is UK sterling. The Company can also be subject to short term exposure to exchange rate movements, for example, between the date when an investment is purchased or sold and the date when settlement of the transaction occurs.
Three principal areas have been identified where foreign currency risk could impact the Company:
· Movements in currency exchange rates affecting the value of investments and derivative instruments;
· Movements in currency exchange rates affecting short term timing differences; and
· Movements in currency exchange rates affecting income received.
The portfolio management team monitor foreign currency risk but it is not the Company’s policy to hedge against currency risk.
Currency exposure of financial assets
The currency exposure profile of the Company’s financial assets is shown below:
| 2022 | |||||
|
Currency |
Investments held at fair value £000 |
Long exposure to derivative instruments1 £000 |
Debtors2 £000 |
Cash and cash equivalents3 £000 |
Total £000 |
| Euro | 69,765 | 71,606 | 316 | – | 141,687 |
| US dollar | 6,665 | – | 117 | 39,679 | 46,461 |
| Swiss franc | 20,631 | – | 376 | – | 21,007 |
| Swedish krona | 16,309 | – | – | – | 16,309 |
| Australian dollar | 12,179 | – | – | – | 12,179 |
| Norwegian krone | 6,377 | – | – | – | 6,377 |
| Emirati dirham | 4,780 | – | – | – | 4,780 |
| South African rand | 2,711 | 142 | – | – | 2,853 |
| Danish krone | – | – | 71 | – | 71 |
| Canadian dollar | – | – | – | 33 | 33 |
| UK sterling | 696,255 | 107,150 | 18,250 | 40,738 | 862,393 |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| 835,672 | 178,898 | 19,130 | 80,450 | 1,114,150 | |
| ========= | ========= | ========= | ========= | ========= | |
1 The exposure to the market of long CFDs.
2 Debtors include amounts held at futures clearing houses and brokers.
3 Cash and cash equivalents are made up of £2,014,000 cash at bank and £78,436,000 held in Fidelity Institutional Liquidity Fund.
| 2021 | |||||
|
Currency |
Investments held at fair value £000 |
Long exposure to derivative instruments1 £000 |
Debtors2 £000 |
Cash and cash equivalents3 £000 |
Total £000 |
| Euro | 66,994 | 56,536 | 76 | 2 | 123,608 |
| US dollar | 13,088 | – | 77 | 13,036 | 26,201 |
| Swiss franc | 21,802 | – | 275 | – | 22,077 |
| Swedish krona | 14,353 | – | – | – | 14,353 |
| Australian dollar | 13,967 | – | – | – | 13,967 |
| Norwegian krone | 4,753 | – | – | – | 4,753 |
| South African rand | 3,351 | 84 | – | – | 3,435 |
| Danish krone | – | – | 71 | – | 71 |
| UK sterling | 748,402 | 149,646 | 6,215 | 50,742 | 955,005 |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| 886,710 | 206,266 | 6,714 | 63,780 | 1,163,470 | |
| ========= | ========= | ========= | ========= | ========= | |
1 The exposure to the market of long CFDs.
2 Debtors include amounts held at futures clearing houses and brokers.
3 Cash and cash equivalents are made up of £2,000,000 cash at bank and £61,780,000 held in Fidelity Institutional Liquidity Fund.
Currency exposure of financial liabilities
The Company finances its investment activities through its ordinary share capital and reserves. The Company’s financial liabilities comprise other creditors. The currency profile of these financial liabilities is shown below:
| 2022 | ||
|
Currency |
Other creditors £000 |
Total £000 |
| Swiss franc | 2,141 | 2,141 |
| Euro | 6 | 6 |
| UK sterling | 1,334 | 1,334 |
| --------------- | --------------- | |
| 3,481 | 3,481 | |
| ========= | ========= | |
| 2021 | ||
|
Currency |
Other creditors £000 |
Total £000 |
| Norwegian krone | 13 | 13 |
| UK sterling | 1,908 | 1,908 |
| --------------- | --------------- | |
| 1,921 | 1,921 | |
| ========= | ========= | |
Other price risk
Other price risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets quarterly to consider the asset allocation of the portfolio and the risk associated with particular industry sectors within the parameters of the investment objective. The Portfolio Manager is responsible for actively monitoring the existing portfolio selected in accordance with the overall asset allocation parameters described above and seeks to ensure that individual stocks also meet an acceptable risk/reward profile. Other price risks arising from derivative positions, mainly due to the underlying exposures, are estimated using Value at Risk and Stress Tests as set out in the Company’s internal Risk Management Process Document.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with financial liabilities. The Company’s assets mainly comprise readily realisable securities and derivative instruments which can be sold easily to meet funding commitments if necessary. Short term flexibility is achieved by the use of a bank overdraft, if required.
Liquidity risk exposure
At 31 August 2022, the undiscounted gross cash outflows of the financial liabilities were all repayable within one year and consisted of derivative instrument liabilities of £9,200,000 (2021: £3,161,000) and other creditors of £3,481,000 (2021: £1,921,000).
Counterparty risk
Certain derivative instruments in which the Company may invest are not traded on an exchange but instead will be traded between counterparties based on contractual relationships, under the terms outlined in the International Swaps and Derivatives Association’s (“ISDA”) market standard derivative legal documentation. These are known as Over the Counter (“OTC”) trades. As a result, the Company is subject to the risk that a counterparty may not perform its obligations under the related contract. In accordance with the risk management process which the Investment Manager employs, this risk is minimised by only entering into transactions with counterparties which are believed to have an adequate credit rating at the time the transaction is entered into, by ensuring that formal legal agreements covering the terms of the contract are entered into in advance, and through adopting a counterparty risk framework which measures, monitors and manages counterparty risk by the use of internal and external credit agency ratings and by evaluating derivative instrument credit risk exposure.
For derivative transactions, collateral is used to reduce the risk of both parties to the contract. All collateral amounts are held in UK sterling and are managed on a daily basis for all relevant transactions. At 31 August 2022, there was no amounts held by brokers in a segregated collateral account on behalf of the Company, to reduce the credit risk exposure of the Company (2021: £2,120,000). In the year to 31 August 2021, this collateral comprised: J.P. Morgan Securities plc £1,270,000 and HSBC Bank plc £850,000. £8,190,000 (2021: £40,000), 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 comprised of: J.P. Morgan Securities plc £5,140,000 (2021: £nil), HSBC Bank plc £3,050,000 (2021: £nil) in cash and UBS AG £nil (2021: £40,000) in cash.
Credit risk
Financial instruments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties. All transactions are carried out with brokers that have been approved by the Manager and are settled on a delivery versus payment basis. Limits are set on the amount that may be due from any one broker and are kept under review by the Manager. Exposure to credit risk arises on unsettled security transactions and derivative instrument contracts and cash at bank.
Derivative instrument risk
The risks and risk management processes which result from the use of derivative instruments, are set out in a documented 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 August 2022, an increase of 1.00% in interest rates throughout the year, with all other variables held constant, would have increased the Company’s net loss on ordinary activities after taxation for the year and decreased the net assets of the Company by £994,000 (2021: decreased the net return and decreased the net assets by £1,436,000). A decrease of 1.00% in interest rates throughout the year would have had an equal but opposite effect.
Foreign currency risk sensitivity analysis
Based on the financial instruments held and currency exchange rates at 31 August 2022, a 10% strengthening of the UK sterling exchange rate against foreign currencies, with all other variables held constant, would have increased the Company’s net loss on ordinary activities after taxation for the year and decreased the net assets of the Company by £22,692,000 (2021: decreased the net return and decreased the net assets by £18,950,000). A 10% weakening of the UK sterling exchange rate against foreign currencies, with all other variables held constant, would have decreased the Company’s net loss on ordinary activities after taxation for the year and increased the net assets of the Company by £27,734,000 (2021: increased the net return and increased the net assets by £23,161,000).
Other price risk – exposure to investments sensitivity analysis
Based on the listed investments held and share prices at 31 August 2022, an increase of 10% in share prices, with all other variables held constant, would have decreased the Company’s net loss on ordinary activities after taxation for the year and increased the net assets of the Company by £83,540,000 (2021: increased the net return and increased the net assets by £88,644,000). A decrease of 10% in share prices would have had an equal and opposite effect.
An increase of 10% in the valuation of unlisted investments held at 31 August 2022 would have decreased the Company’s net loss on ordinary activities after taxation for the year and increased the net assets of the Company by £27,000 (2021: increased the net return after taxation and increased the net assets by £27,000). A decrease of 10% in the valuation would have had an equal and opposite effect.
Other price risk – net exposure to derivative instruments sensitivity analysis
Based on the derivative instruments held and share prices at 31 August 2022, an increase of 10% in the share prices underlying the derivative instruments, with all other variables held constant, would have decreased the Company’s net loss on ordinary activities after taxation for the year and increased the net assets of the Company by £17,890,000 (2021: increased the net return and increased the net assets by £20,627,000). A decrease of 10% in share prices would have had an equal and opposite effect.
Fair Value of Financial Assets and Liabilities
Financial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. As explained in Notes 2 (k) and (l) above, investments and derivative instruments are shown at fair value.
Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.
| Classification | Input |
| Level 1 | Valued using quoted prices in active markets for identical assets |
| Level 2 | Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly |
| Level 3 | Valued by reference to valuation techniques using inputs that are not based on observable market data |
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are explained in Notes 2 (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 | 835,224 | – | 448 | 835,672 |
| Derivative instrument assets | – | 28 | – | 28 |
| --------------- | --------------- | --------------- | --------------- | |
| 835,224 | 28 | 448 | 835,700 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (9,200) | – | (9,200) |
| ========= | ========= | ========= | ========= | |
| 2021 | ||||
|
Financial assets at fair value through profit or loss |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Investments | 885,753 | – | 957 | 886,710 |
| Derivative instrument assets | – | 1,968 | – | 1,968 |
| --------------- | --------------- | --------------- | --------------- | |
| 885,753 | 1,968 | 957 | 888,678 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (3,161) | – | (3,161) |
| ========= | ========= | ========= | ========= | |
The table below sets out the movements in level 3 financial instruments during the year:
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Beginning of the year | 957 | 897 |
| Sales – proceeds | (716) | (95) |
| Sales – gains | 278 | 14 |
| Transfer into level 3 at – Studio Retail Group and McColl’s Retail Group* | 9,499 | – |
| Movement in investment holding (losses)/gains | (9,570) | 141 |
| --------------- | --------------- | |
| End of the year | 448 | 957 |
| ========= | ========= |
* Financial instruments are transferred into level 3 on the date they are suspended, delisted or when they have not traded for thirty days.
Marwyn Value Investors
Marwyn Value Investors is a closed-ended fund incorporated in the United Kingdom. The fund is highly illiquid and the valuation at 31st August 2022 is based on the indicative bid price in the absence of a last trade price. As at 31 August 2022, its fair value was £174,000 (2021: £685,000).
TVC
Holdings
TVC Holdings is an unlisted investment holding company incorporated in Ireland. The valuation at 31 August 2022 is based on the last trade price and the company’s financial report. As at 31 August 2022, its fair value was £274,000 (2021: £272,000).
Studio Retail Group
Studio Retail Group operates as a multi-channel retail company. On 14 February 2022, the company suspended from trading on the London Stock Exchange and will be appointing administrators. As at 31 August 2022, its fair value was £nil.
McColl’s Retail Group
McColl’s Retail Group owns and operates convenience and news agent stores. The company suspended trading on Friday 6 May 2022 after appointing administrators. As at 31 August 2022, its fair value was £nil.
18 Capital Resources and Gearing
The Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital and reserves, as disclosed in the Balance Sheet above and any gearing, which is managed by the use of derivative instruments. Financial resources are managed in accordance with the Company’s investment policy and in pursuit of its investment objective, both of which are detailed in the Strategic Report in the Annual Report. The principal risks and their management are disclosed above and in Note 17 above.
The Company’s gearing at the year end is set out below:
|
|
2022 Asset exposure |
2021 Asset exposure |
||
| £000 | %1 | £000 | %1 | |
| Investments | 835,672 | 90.6 | 886,710 | 93.0 |
| Long CFDs | 178,898 | 19.4 | 206,266 | 21.6 |
| --------------- | --------------- | --------------- | --------------- | |
| Total asset exposures | 1,014,570 | 110.0 | 1,092,976 | 114.6 |
| ========= | ========= | ========= | ========= | |
| Shareholders’ funds | 922,599 | 954,090 | ||
| ========= | ========= | |||
| Gearing2 | 10.0 | 14.6 | ||
| ========= | ========= | |||
1 Asset exposure to the market expressed as a percentage of Shareholders’ funds.
2 Gearing is the amount by which Asset Exposure exceeds Shareholders’ funds expressed as a percentage of Shareholders’ funds.
19 Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management and the role of company secretary to FIL Investments International (“FII”). Both companies are Fidelity group companies.
Details of the current fee arrangements are given in the Directors’ Report in the Annual Report and in Note 4 above. During the year, fees for portfolio management services of £5,607,000 (2021: £5,065,000), and fees for non-portfolio management services of £nil (2021: £33,000) were payable to FII. Non-portfolio management fees include company secretarial, fund accounting, taxation, promotional and corporate advisory services. At the Balance Sheet date, fees for portfolio management services of £484,000 (2021: £474,000) 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 £191,000 (2021: £106,000). At the Balance Sheet date, marketing services of £13,000 (2021: £13,000) were accrued and included in other creditors.
Disclosures of the Directors’ interests in the ordinary shares of the Company and Director’s fees and taxable expenses relating to reasonable travel expenses payable to the Directors are given in the Directors’ Remuneration Report in the Annual Report. In addition to the fees and taxable expenses disclosed in the Directors’ Remuneration Report, £17,000 (2021: £16,000) of Employers’ National Insurance contributions were paid by the Company. At the Balance Sheet date, Directors’ fees of £15,000 (2021: £13,000) were accrued and payable.
20 Reconciliation of Net Return/(Loss) on Ordinary Activities before Finance Costs and Taxation to Net Cash Inflow from Operating Activities before Finance Costs and Taxation
|
|
Year ended 31.08.22 £000 |
Year ended 31.08.21 £000 |
| Net total (loss)/return on ordinary activities before finance costs and taxation | (41,992) | 329,882 |
| Net capital loss/(return) on ordinary activities before finance costs and taxation | 73,559 | (307,502) |
| --------------- | --------------- | |
| Net revenue return on ordinary activities before finance costs and taxation | 31,567 | 22,380 |
| ========= | ========= | |
| Scrip dividends | (108) | – |
| Increase in debtors | (3,208) | (2,392) |
| Increase in other creditors | 37 | 18 |
| --------------- | --------------- | |
| Net cash inflow from operating activities before finance costs and taxation | 28,288 | 20,006 |
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.
Gearing
Gearing is considered to be an Alternative Performance Measure. See Note 18 above for details of the Company’s gearing.
Net Asset Value (“NAV”) per Ordinary Share
The NAV per Ordinary Share is considered to be an Alternative Performance Measure. See the Balance Sheet and Note 16 above for further details.
Ongoing Charges
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 | 2021 | |
| Investment management fees (£000) | 5,607 | 5,098 |
| Other expenses (£000) | 838 | 669 |
| --------------- | --------------- | |
| Ongoing charges (£000) | 6,445 | 5,767 |
| ========= | ========= | |
| Average net assets (£000) | 934,785 | 759,198 |
| Ongoing charges ratio | 0.69% | 0.76% |
| ========= | ========= |
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. Share price total return includes the reinvestment of the net dividend in the month that the share price goes ex-dividend.
The tables below provide information relating to the NAVs and share prices of the Company, the impact of the dividend reinvestments and the total returns for the years ended 31 August 2022 and 31 August 2021.
|
2022 |
Net asset value per ordinary share |
Share price |
| 31 August 2021 | 304.79p | 308.50p |
| 31 August 2022 | 284.67p | 260.50p |
| Change in year | -6.6% | -15.6% |
| Impact of dividend reinvestment | +2.2% | +2.1% |
| --------------- | --------------- | |
| Total return for the year | -4.4% | -13.5% |
| ========= | ========= |
|
2021 |
Net asset value per ordinary share |
Share price |
| 31 August 2020 | 199.81p | 181.60p |
| 31 August 2021 | 304.79p | 308.50p |
| Change in year | +52.5% | +69.9% |
| Impact of dividend reinvestment | +3.7% | +3.9% |
| --------------- | --------------- | |
| Total return for the year | +56.2% | +73.8% |
| ========= | ========= |
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 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 Annual Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at: www.morningstar.co.uk/uk/NSM
The Annual Report will be posted to shareholders later this month and additional copies will be available from the registered office of the Company and on the Company's website: www.fidelity.co.uk/specialvalues where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
ENDS
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