FIDELITY SPECIAL VALUES PLC
Final Results for the year ended 31 August
2024
Financial
Highlights:
-
During the
year ended 31 August 2024, Fidelity
Special Values PLC reported a net asset value return of +24.1% and
an ordinary share price total return of +24.3%.
-
The
Benchmark Index, the FTSE All-Share Index, produced a total return
of +17.0% over the same period.
-
The Board
recommends a final dividend of 6.30
pence per share which together with the interim dividend
payment of 3.24 pence per share
(totalling 9.54 pence) represents an
increase of 8.4% over the prior year.
-
Strong
earnings delivery and positioning in financials contributed
positively to performance.
Contacts
For further information, please
contact:
Smita Amin
Company Secretary
01737 836347
CHAIRMAN’S STATEMENT
Whilst geopolitical challenges remain, from the conflict in the
Middle East and war in
Ukraine to the forthcoming US
Presidential election, there is a growing sense that, from an
economic and market standpoint, things are beginning to return to
some sort of ‘normality’. Heightened post-Covid rates of inflation
across developed markets have moderated significantly, and monetary
policy is beginning to follow suit, while economic growth
expectations are tending towards a more ‘soft landing’ scenario
than may have been the case this time last year. All these factors
would normally point to a more benign backdrop for equity
investment, and indeed some of the larger equity markets – from the
US to Japan – have reached new
highs in the year under review, albeit not without some
volatility.
While investor attention may largely have been captured by US
technology stocks, particularly those relating to artificial
intelligence, there has been a quiet renaissance in the
still-unloved UK equity market, with the FTSE All-Share Index
(Benchmark) producing a very creditable total return of 17.0% in
the 12 months to 31 August 2024. It
is therefore particularly pleasing to be able to report another
year of outperformance by your Company, with a net asset value
(“NAV”) total return of 24.1% and a share price total return of
24.3%.
One of the things that sets your Company apart is your Portfolio
Managers’ focus on opportunities across the market cap spectrum.
Perhaps unusually, there was no one standout area in the UK
market’s performance for the year, with total returns of 16.9% for
the large-cap FTSE 100 Index, 17.3% for the mid-cap FTSE 250 Index
and 18.7% for the FTSE Small-Cap Index. This provides some context
to your Company’s performance, with positive contributions coming
from all areas, from banking giant NatWest Group to mid-cap support
services stock Babcock International Group and Irish housebuilder
Glenveagh Properties. You can find out more about the contributors
to performance in the Portfolio Managers’ Review below.
The UK equity market, which has been broadly out of favour on the
international stage since the Brexit vote in 2016, continues to
trade at a material valuation discount to some other large
developed markets, particularly the US. A key element to your
Company’s investment approach is to identify quality companies with
valuations lower than peers within the UK market. Thus, while a
more positive backdrop may see investor attention returning to the
UK and pushing up valuations in aggregate, the cheaper companies
that your Portfolio Manager favours could see an additional
tailwind.
Of course, equity investing is a long-term endeavour, and one year
of standout performance should not be viewed in isolation.
Alex Wright has now been your lead
Portfolio Manager for 12 years, and it is pleasing to report
that
he has outperformed the Benchmark in eight of those 12 years,
generating a NAV total return of +272.2% and a share price total
return of +305.5%. Over this period, an investment of £1,000 would
have returned £3,055 with dividends reinvested.
Alex has been supported since 2020 by co-Portfolio Manager
Jonathan Winton. Jonathan and Alex
share the same contrarian value based philosophy and process and
have worked closely together for more than a decade, since Jonathan
became co-manager of the open-ended Fidelity UK Smaller Companies
fund in 2013. He has been lead manager of this fund since 2014, and
in July this year was awarded the Investment Week Fund Manager of
the Year Award in the UK Smaller Companies category. While Alex has
the final say on buy and sell ideas for your Company’s portfolio,
Jonathan’s wealth of expertise in the smaller companies space means
that he is a key contributor to such ideas, and the two often
attend company meetings together.
DIVIDENDS
While your Company’s investment approach is focused on long-term
capital growth rather than income generation, dividends have
historically formed an important part of the total shareholder
return. The Board’s policy is to pay dividends twice a year in
order to smooth the dividend payments for the Company’s financial
year.
The Company’s revenue return for the year to 31 August 2024 was 11.58
pence per share (2023: 10.67
pence). The Board raised the interim dividend significantly
at the half-year stage, with the payout of 3.24 pence per share (backed by a revenue return
of 3.34 pence per share) being 28.1%
higher than the 2.53 pence per share
interim dividend in 2023. The Board is recommending a final
dividend of 6.30 pence per share for
the year ended 31 August 2024 (2023:
6.27 pence) for approval by
shareholders at the Annual General Meeting (“AGM”) on
12 December
2024. Together the interim and final dividends total
9.54 pence, representing an
above-inflation increase of 8.4% over the 8.80 pence paid for the year ended 31 August 2023. The final dividend will be
payable on 10 January 2025 to
shareholders on the register at the close of business on
29 November 2024 (ex-dividend date
28 November 2024).
The total dividends for the year will provide shareholders with a
15th consecutive year of sustained annual dividend growth. While
income is not the core objective of your Company’s investment
strategy, we as a Board understand the value of a regular dividend
stream to smooth the less certain trajectory of short-term capital
performance.
GEARING
As your Portfolio Managers explain in their review below, net
gearing increased somewhat during the financial year, rising from
6.5% on 31 August 2023 to a peak of
9.2% in July, and ending the period at 7.9% on 31 August 2024. While still relatively low in the
context of the Board’s target range of 0-25%, the increase reflects
an improving corporate earnings environment as well as continued
attractive valuation opportunities within the investment universe.
Although the overall macroeconomic picture remains somewhat
uncertain, the Board has agreed with the Portfolio Managers that
the Company’s gearing should be allowed to rise further if required
to take advantage of compelling investment ideas in the year
ahead.
The ability to gear is a key structural advantage of investment
trusts compared with their open-ended counterparts. Rather than
using bank borrowing (which is often deployed across a portfolio on
a pro-rata basis), your Company’s gearing is achieved using
contracts for difference (“CFDs”), which are implemented on a
stock-by-stock basis, allowing a targeted increase in exposure to
your Investment Manager’s favoured positions. The Board reviews the
use of CFDs annually, and has concluded that they remain
appropriate, in terms of both their greater flexibility and their
lower costs, versus more structural forms of gearing, such as bank
borrowings.
Combined with Alex and Jonathan’s contrarian and value-focused
investment approach, your Board believes that the judicious use of
gearing should continue to add value for shareholders over the
longer-term, as has been proven historically. The Board believes
that a gearing range of 0-25% remains appropriate in normal market
conditions.
DISCOUNT
The last two years under review has seen discounts across the
investment trust market remaining both more volatile and wider than
long-term averages. The picture has improved somewhat in the year
under review compared to the previous 12 months, with the sector
average discount at the time of writing around 14%, compared with
nearly 19% at the same point in 2023. Against such a backdrop, it
is reassuring that your Company’s discount to NAV, although wider
than historically, has remained both relatively stable and narrower
than those of its peers, beginning the financial year at 8.8% and
ending it at 8.9%, in a range from 10.0% at its widest to 4.9% at
its narrowest.
Under the Company’s discount management policy, the Board seeks to
maintain the discount in single digits in normal market conditions.
With the exception of a single day in April, the discount did not
breach 10% in the year under review, and as in the previous year,
the Board has not undertaken any share repurchases. While it
remains somewhat frustrating to be trading at a discount after
performing so strongly in the reporting year, your Company has
continued to trade on the narrowest discount to NAV in its peer
group (8.9% at the time of writing, compared with an average of
10.0% for the other companies in its peer group), despite some
peers having bought back shares or undertaken corporate
actions.
Each year at the AGM, the Board seeks shareholders’ authority to
repurchase up to 14.99% of the issued share capital. Rest assured
that we continue to monitor the level of the Company’s discount
closely and will take action when we believe that to do so will be
effective and to the benefit of shareholders.
RAISING OUR PROFILE
Share repurchases are only one of the tools available to investment
company boards seeking to ensure that share prices do not
materially diverge from the value of underlying investments.
Increasing demand is arguably of far greater value than absorbing
excess supply through share repurchases, and your Board and
Fidelity – helped enormously by your Portfolio Managers’ strong
long-term performance record and differentiated investment approach
– have continued to work hard to raise the Company’s profile with
both retail and institutional investors. This is critically
important work, and while a lot of it happens behind the scenes,
you may have also seen coverage in the press as a result of Alex
and Jonathan’s engagement.
We were very pleased to have won the prestigious Investment Company
of the Year award from Investment Week magazine for the best trust
in the UK All Companies sector in November
2023, repeating our success at the 2022 awards, and we are
delighted to be on the shortlist once again for this year’s
award.
BOARD OF DIRECTORS
Nigel Foster, our Senior Independent
Director, will retire from the Board at the AGM on 12 December,
having completed nine years’ service. As our longest-serving
Director, he has made a great contribution to the smooth running of
the Company over his tenure, and we thank him for his efforts and
wish him well for the future. The Board is currently well advanced
in the process of seeking a new Director to replace Nigel, and we
will make an announcement in due course. Claire Boyle will replace him as the Senior
Independent Director when he steps down, whilst also continuing to
serve as Audit Committee Chair. There have been no other changes to
the Board in the year under review.
In accordance with the UK Corporate Governance Code for Directors
of FTSE 350 companies, all Directors are subject to annual
re-election at the AGM on 12 December
2024. The Directors’ biographies can be found in the Annual
Report, and, between them, they have a wide range of appropriate
skills and experience to form a balanced Board for the
Company.
ANNUAL GENERAL MEETING
The Company’s AGM will be held at 11.00am on
Thursday, 12 December 2024 at
4 Cannon Street, London EC4M 5AB
and virtually via the online Lumi AGM meeting platform.
The AGM provides a great opportunity for shareholders to meet the
Company’s Directors, and of course, for us to meet you, and hear
first-hand from Alex Wright, your
Portfolio Manager. We hope to see as many of you as possible on the
day. Full details of the AGM are below.
OUTLOOK
In his presentation to shareholders at the Company’s 2023 AGM, Alex
outlined his positive prognosis for the UK equity market, and it is
pleasing to see his optimism has been rewarded in the year under
review. I referred at the beginning of this statement to a ‘quiet
renaissance’ in UK equities and, as Alex and Jonathan point out in
their review, inflows to the market have remained muted, proving
that they are not a necessary condition for positive performance.
However, an improving corporate earnings environment, the prospect
of some political stability and a gradual economic recovery may
help to bring greater attention to the many good companies listed
on the London Stock Exchange, which would undoubtedly give further
impetus to the market.
Against such a backdrop, your Board and Portfolio Managers continue
to believe that a well diversified, multi-cap portfolio of unloved
but high-quality companies has the potential to deliver compelling
long-term returns. UK shares remain undervalued in a global
context, and the dividend income on offer from many companies could
prove an increasing draw in a lower interest rate environment. We
will have to wait and see if this can be the catalyst to turn a
quiet renaissance into something with greater volume.
DEAN
BUCKLEY
Chairman
6 November 2024
ANNUAL GENERAL MEETING – THURSDAY, 12 DECEMBER 2024 AT 11.00
AM
The AGM of the Company will be held at 11.00
am on
Thursday, 12 December
2024
at 4 Cannon Street, London EC4M
5AB (nearest tube stations are St Paul’s or Mansion House) and
virtually via the online Lumi AGM meeting platform. Full details of
the meeting are given in the Notice of Meeting in the Annual
Report.
For those shareholders who are unable to attend in person, we will
live-stream the formal business and presentations of the meeting
online.
Alex Wright, the Portfolio Manager,
will be making a presentation to shareholders highlighting the
achievements and challenges of the year past and the prospects for
the year to come. He and the Board will be very happy to answer any
questions that shareholders may have. Copies of his presentation
can be requested by email at
investmenttrusts@fil.com
or in writing to the Secretary at FIL Investments International,
Beech Gate, Millfield Lane,
Lower Kingswood, Tadworth, Surrey
KT20 6RP.
Properly registered shareholders joining the AGM virtually will be
able to vote on the proposed resolutions. Please see Note 9 to the
Notes to the Notice of Meeting in the Annual Report for details on
how to vote virtually. Investors viewing the AGM online will be
able to submit live written questions to the Board and the
Portfolio Manager and we will answer as many of these as possible
at an appropriate juncture during the meeting.
Further information and links to the Lumi platform may be found on
the Company’s website
www.fidelity.co.uk/specialvalues.
On the day of the AGM, in order to join electronically and ask
questions via the Lumi platform,
shareholders will need to connect to the website
https://web.lumiagm.com.
Please note that investors on platforms, such as Fidelity Personal
Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell
Youinvest, will need to request attendance at the AGM in accordance
with the policies of your chosen platform. They may request that
you submit electronic votes in advance of the meeting. If you are
unable to obtain a unique IVC and PIN from your nominee or
platform, we will also welcome online participation as a guest.
Once you have accessed
https://web.lumiagm.com
from your web browser on a tablet or computer, you will need to
enter the
Lumi Meeting ID
which is
141-269-839.
You should then select the ‘Guest Access’ option before entering
your name
and who you are representing, if applicable. This will allow you to
view the meeting and ask questions, but you will not be able to
vote.
PORTFOLIO MANAGER’S REVIEW
QUESTION
How has the Company performed in the year to 31 August 2024?
ANSWER
The Company has recorded strong absolute returns over the reporting
year with a net asset value and a share price total return of 24.1%
and 24.3% respectively, compared to the Benchmark (FTSE All-Share
Index) return of 17.0%. Overall, our portfolio holdings have had an
unusually strong earnings delivery, and performance has benefited
from improving trading outlooks. The stronger economic backdrop has
also meant that the share prices of our more economically sensitive
small and mid-cap holdings have started to recover after a tough
2022-23 period.
Top contributor Keller Group reported positive trading trends and
predicted that its results would be materially ahead of the
previous year. The company is a market leader in ground
engineering, a small niche sub-sector that provides it with
exposure to various development and infrastructure trends globally,
and particularly in the US, where it is a key beneficiary of
federal spending plans, such as the Inflation Reduction Act, but
has flown under the radar compared to US-listed beneficiaries.
Irish housebuilders Cairn Homes and Glenveagh Properties also
reported favourable market conditions and strong sales outlooks,
reflecting Ireland’s housing shortage and population growth,
improving mortgage market and supportive government initiatives and
policies.
Our financial holdings have continued to perform strongly with the
likes of Just Group, NatWest Group, Aviva and AIB Group all among
the top contributors. Just Group specialises in annuities (pensions
which pay a fixed income for life) and has benefited from a surge
in demand for insurance for corporate pension schemes known as bulk
annuities. Higher interest rates have also lifted demand for
individual annuities. Composite insurer Aviva also reported a good
set of results with earnings, capital generation and solvency all
better than expected. Its management has built credibility through
the successful restructuring of the company and are starting to
establish a track record of consistent operational performance.
Meanwhile, banking groups NatWest and AIB continued to benefit from
the higher interest rate environment and reported strong
results.
Elsewhere, food manufacturer Bakkavor Group reported strong
performance in the first half of 2024 and has also raised its
annual profit forecast several times. Results from support services
holdings Babcock International Group and Mitie Group provided
further evidence that their turnarounds were beginning to
materialise. Merger and acquisition (“M&A”) activity continued
to benefit portfolio performance; information and analytics group
Ascential featured among the top contributors to fund returns after
Informa, the UK events and academic publisher, confirmed plans to
acquire it in a deal worth close to £1.2 billion, a 53% premium to
prevailing market value.
QUESTION
What were some of the major changes you made to the
portfolio during the year and what drove those?
ANSWER
The market outflows from small and medium sized stocks have
presented us with some interesting opportunities at the smaller end
of the market cap spectrum. Interestingly, this included a handful
of prior growth darlings, such as the online personalised greetings
card and gifts company Moonpig Group, web services firm Team
Internet and specialist media platform Future. Sector wise, we have
been finding new ideas in cyclical areas such as industrials,
advertising, staffing, real estate and housing, where demand is
stabilising and valuations remain low. Another area where we found
more opportunities is defensives, where we have initiated a new
position in food and grocery retailer Tesco and added to the likes
of consumer health and hygiene brand owner Reckitt Benckiser Group,
tobacco firm BAT and electricity network operator National Grid on
weakness. Financials remain well represented in the portfolio given
very attractive valuations, a more conducive backdrop and plenty of
opportunities, with idiosyncratic factors driving their growth.
However, we have taken some profits given the strong performance of
some of our holdings. One stock we added to in the space is
Standard Chartered, a diversified banking group with a focus on
Emerging Markets whose turnaround story is finally coming through.
Elsewhere, we remain meaningfully underweight in resources, a
reflection of our lack of exposure to the large miners given our
negative outlook for iron ore and thermal coal, and a reduction in
our energy exposure.
QUESTION
How has gearing evolved over the
period?
ANSWER
Gearing has increased somewhat over the past year reflecting the
improving corporate earnings environment, continued attractive
valuations and opportunities on offer. It stood at 7.9% at the end
of August 2024, and contributed
positively to performance over the period. We continue to use CFDs
rather than debt for gearing purposes which provides us with the
flexibility to increase or decrease gearing. Unlike conventional
bank loan facilities, we only pay financing costs when we wish to
be geared, paying nothing when we are not.
QUESTION
Your approach is to look for companies from across sectors
and the market-cap spectrum that are overlooked and therefore
undervalued by the market. How important is diversification to your
approach?
ANSWER
Given our focus on unloved stocks with potential for change,
diversification is an important aspect of our approach, as not all
investment theses will play out and it can take time for the
changes to come through and the market to recognise the
improvements. We typically hold between 80 and 120 positions. By
building a portfolio of stocks that are at different stages of
their recovery process, the intention is to deliver outperformance
across the market cycle. We are privileged to be able to leverage
Fidelity International’s extensive research resources to find
opportunities and subsequently monitor our holdings on a day-to-day
basis. The smaller end of the market cap spectrum is particularly
inefficient as fewer sell-side analysts cover these stocks, and
running a diversified portfolio allows us to gain exposure to
companies with smaller market caps. We aim for stock selection to
be the primary driver of performance and therefore a good spread of
holdings across industries helps us to ensure the portfolio is not
overly susceptible to particular sector-specific, regulatory or
macroeconomic risks. If we feel a sector is meaningfully under
represented, we will typically focus on trying to find
opportunities where possible.
QUESTION
UK equities continue to trade at a wide discount compared
to other global markets. What catalysts are required to change
this?
ANSWER
While UK equities have generated good returns since the pandemic,
fund flows have remained negative, which is puzzling. Many domestic
investors seem to have had their heads turned by the strong
historic returns generated by US and technology stocks. However,
the latter’s lofty valuations make them vulnerable to
disappointments, as we have seen in recent months and any sustained
underperformance may well cause investors to reassess their
allocation.
Labour’s landslide victory is expected to result in improved
political stability in the UK. This should prove attractive to
investors against a backdrop of increased uncertainty in
Europe and the US, where the
future course of domestic and foreign policies looks more
unpredictable. The new UK government, with its large majority, has
sought to foster more favourable business and market sentiment by
stressing the importance of fiscal discipline and boosting economic
growth, as well as its desire to work towards improved relations
with the European Union. This, combined with a domestic economy
that has performed better than anticipated, and corporate earnings
that have proved particularly resilient in a global context, may
help draw more attention to the UK.
We have recently seen a pick-up in M&A activity, as corporates
grow in confidence amid improving economic and business conditions.
This trend should continue given how attractive large parts of the
UK market are. Other supportive dynamics include attractive
dividends in a global context and the fact that a record number of
UK companies are buying back their own shares.
Conditions surrounding the UK equity market are beginning to
improve and this should hopefully help turn the tide. However, as
the past year has shown, inflows into UK equities are not necessary
to be able to generate attractive returns, although they would
clearly have helped.
QUESTION
What is the outlook for the Company over the next twelve
months and beyond?
ANSWER
We continue to believe that the combination of attractive
valuations and the large divergence in performance between
different parts of the market creates good opportunities for
attractive returns from UK stocks on a three-to-five-year
view.
Given the relatively robust performance of UK companies, it has
been a surprise that we have not started to see the valuation gap
between the UK and other global markets narrow. For us, this
demonstrates the strong opportunity for savvy investors willing to
buy into the UK market today. Compared with their own historic
averages, as well as stock markets across the globe, UK shares
remain cheap and we are seeing value across the market cap
spectrum.
While there continues to be a degree of uncertainty both in the UK
as well as globally, overall the UK economic outlook has improved.
Companies have proved surprisingly resilient and we are encouraged
by the performance of our holdings in the recent reporting
season.
Overall, we believe the portfolio is well positioned to benefit
from the improving economic backdrop and we remain excited about
the opportunity set on offer. Our holdings continue to trade at a
meaningful c.20% discount to the broader UK market, despite
resilient earnings, superior returns on capital and relatively low
levels of debt. This quality profile gives us confidence that we
can continue to deliver attractive returns to investors.
ALEX
WRIGHT
Portfolio Manager
6 November 2024
PRINCIPAL RISKS AND UNCERTAINTIES AND RISK
MANAGEMENT
As required by provisions 28 and 29 of the 2018 UK Corporate
Governance Code, the Board has a robust ongoing process for
identifying, evaluating and managing the principal risks and
uncertainties faced by the Company, including those that could
threaten its business model, future performance, solvency or
liquidity. The Board, with the assistance of the Alternative
Investment Fund Manager (FIL Investment Services (UK) Limited/the
“Manager”), has developed a risk matrix which, as part of the risk
management and internal controls process, identifies the key
existing and emerging risks and uncertainties that the Company
faces.
The Audit Committee continues to identify any new emerging risks
and take any action necessary to mitigate their potential impact.
The risks identified are placed on the Company’s risk matrix and
graded appropriately. This process, together with the policies and
procedures for the mitigation of existing and emerging risks, is
updated and reviewed regularly in the form of comprehensive reports
by the Audit Committee. The Board determines the nature and extent
of any risks it is willing to take in order to achieve the
Company’s strategic objectives.
Climate change, which refers to a large scale shift in the planet’s
weather patterns and average temperatures, continues to be a key
emerging as well as a principal risk confronting asset managers and
their investors. Globally, climate change effects are already being
experienced in the form of changing weather patterns. Extreme
weather events can potentially impact the operations of investee
companies, their supply chains and their customers. The Board notes
that the Manager includes ESG considerations, including climate
change, into the Company’s investment process. The Board will
continue to monitor how this may impact the Company as a risk to
investment valuations and potentially shareholder
returns.
Other emerging risks may continue to evolve from unforeseen
geopolitical and economic events.
The Board, together with the Manager, is also monitoring the
emerging risks posed by the rapid advancement of artificial
intelligence (“AI”) and technology and how it may threaten the
Company’s activities and its potential impact on the portfolio and
investee companies. Although advances in computing power mean that
AI is a powerful tool that will impact society, there are risks
from its increasing use and manipulation with the potential to
harm, including a heightened threat to cybersecurity.
The Manager also has responsibility for risk management for the
Company. It works with the Board to identify and manage the
principal and emerging risks and uncertainties and to ensure that
the Board can continue to meet its UK corporate governance
obligations.
The Board considers the risks listed below as the principal risks
and uncertainties faced by the Company.
|
Principal Risks
|
Description and Risk Mitigation
|
|
Market, Economic and Political Risks
|
The Company may be affected by market and economic risks. The
principal market related risks are market downturn, interest rate
movements, inflation and market shocks, such as the UK economic
recovery, volatility from the war in Ukraine and conflict in the
Middle East and the Red Sea. 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.
Although inflation in the UK and across most economies has
stabilised, risks remain driven by a combination of global labour
shortages in some sectors and supply chain shortages, including
energy and food security. Inflation and economic instability are
leading to a prolonged cost-of-living crisis and potentially
impacting investors’ risk appetite.
The Company is exposed to a number of geopolitical risks. The
fast-changing global geopolitical landscape is largely shaped by
the ongoing armed conflicts effects, deglobalisation trends and
significant supply disruption, as well as concerns around global
growth and uncertainties on effects of changes in monetary
policies. Russia and the Middle East are both significant net
exporters of oil, natural gas and a variety of soft commodities and
supply limitations have fuelled global inflation and economic
instability, specifically within Western nations. The ongoing
conflicts add to geopolitical risk and economic instability,
including social unrest across Europe. The conflict in the Red Sea
poses risk of disruption to shipping routes and the supply and cost
of goods, thereby affecting the global economy and trade. Globally,
geopolitical uncertainty is significantly impacted by
deglobalisation trends driven by the prioritisation of the
resiliency of supply chains national security concerns as well as
from political pressure. The ramifications of onshoring include
regulatory protectionism across regions, heightening geopolitical
tensions on the continent and overseas. US-China and EU-China
tensions over trade and technology rivalry increase the concerns of
China- Taiwan relations potentially escalating to military conflict
as well as increasing tensions over trade and economic issues due
to competing territorial claims.
As the year progresses, political risks are also set to increase
heading towards the US elections in November, and coupled with
ongoing geopolitical conflicts, could lead to higher volatility for
broader markets and oil in particular. In China, divergent growth
patterns persist, as exports and manufacturing growth accelerate,
but domestic consumption remains subdued, and the property sector
continues to weigh on growth momentum.
The Company’s portfolio is made up mainly of listed securities. The
Portfolio Manager’s success or failure to protect and increase the
Company’s value against the above background is core to the
Company’s continued success. The investment philosophy of
stock-picking and investing in attractively valued companies should
outperform the Benchmark over time.
The risk from the likely effects of unforeseen economic and market
events is somewhat mitigated by the Company’s investment trust
structure which means no forced sales need to take place to deal
with any redemptions. Therefore, investments can be held over a
longer time horizon.
The Board reviews market, economic and political risks and
legislative changes at each Board meeting. The Portfolio Manager
provides an investment review at each meeting which includes a
review of the economic and political environment and any risks and
challenges faced by the Company.
Risks to which the Company is exposed to in the market risk
category are included in Note 17 to the Financial Statements below
together with summaries of the policies for managing these
risks.
|
|
Investment Performance Risk (including the use of
derivatives and gearing)
|
The achievement of the Company’s investment performance objective
relative to the market requires the taking of risk such as
investment strategy, asset allocation and stock selection, and may
lead to NAV and share price underperformance compared to the
Company’s Benchmark and/or peer group companies. 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 Benchmark and its competitors and also
considers the outlook for the market with the Portfolio Manager at
each Board meeting. The emphasis is on long-term investment
performance as there is a risk for the Company of volatility of
performance in the shorter-term.
Derivative instruments are used to protect and enhance investment
returns. There is a risk that the use of derivatives may lead to
higher volatility in the NAV and the share price than might
otherwise be the case. The Board has put in place policies and
limits to control the Company’s use of derivatives and exposures.
These are monitored on a daily basis by the Manager’s Compliance
team and regular reports are provided to the Board. Further detail
on derivative instruments risk is included in Note 17 to the
Financial Statements below.
The Company gears through the use of long CFDs which provide
greater flexibility and are generally cheaper than bank loans as a
form of financing. The principal risk is that the Portfolio Manager
fails to use gearing effectively, resulting in a failure to
outperform in a rising market or increasing underperformance in a
falling market. The Board regularly considers the level of gearing
and gearing risk and sets limits within which the Manager must
operate.
|
|
Regulatory Risk
|
The Company may be impacted by changes in legislation, taxation,
regulation or other external influence that require changes to the
nature of the Company’s business. More recently, there have been
increased concerns around investment cost disclosures and its
impact in the industry. Regulatory changes for investment companies
are monitored regularly by the Board and managed through active
engagement with regulators and trade bodies by the Manager and also
the AIC.
|
|
Cybercrime and Information Security
Risks
|
The operational risk and business impact from heightened external
levels of cybercrime and the risk of data loss 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 and risk teams have
developed a number of initiatives and controls in order to provide
enhanced mitigating protection to this ever-increasing threat, and
also potentially addressing the risks of artificial intelligence
(AI). The risk is regularly re-assessed by Fidelity’s information
security teams and risk frameworks are continually enhanced. This
has resulted in the implementation of additional tools and
processes, including improvements to existing ones. Fidelity has
dedicated cybersecurity and technology risk teams which provide
continuous oversight, regular awareness updates and best practice
guidance.
Risks also remain due to the war in Ukraine and conflict in the
Middle East and the trend to more working from home. These
primarily relate to phishing, ransomware, remote access threats,
extortion and denial of services attacks, threats from highly
organised criminal networks and sophisticated ransomware operators.
The Manager has dedicated detect and respond resources specifically
to monitor the cyber threats associated within the workplace and
there are a number of mitigating actions in place including,
control strengthening, geo-blocking and phishing mitigants,
combined with enhanced resilience and recovery options.
The Company’s third-party service providers are also subject to
regular oversight and provide assurances and have similar control
measures in place to detect and respond to cyber threats and
activity.
|
|
Business Continuity Risk
|
There continues to be increased focus from financial services
regulators around the world on the contingency plans of regulated
financial firms. The top risks globally are cybersecurity,
geopolitical events and natural disasters. There are also ongoing
risks from the war in Ukraine and conflict in the Middle East,
specifically regarding cyberattacks and the potential loss of power
and/or broadband services.
The Manager continues to take all necessary and reasonable steps to
assure operational resilience and to meet its regulatory
obligations, assess its ability to continue operating and the steps
it needs to take to support its clients, including the Board, and
has an appropriate control environment in place. The Manager has
provided the Board with assurance that the Company has appropriate
operational resilience and business continuity plans and the
provision of services has continued to be supplied without
interruption.
Specific risks posed by the pandemic continue to ease with
increasing levels of staff returning to routine office-based
working, albeit under hybrid working arrangements which allows
greater flexibility on remote working as part of the new operating
model.
The Company relies on a number of third-party service providers,
principally the Registrar, Custodian and Depositary. They are all
subject to a risk-based programme of risk oversight and internal
audits by the Manager and their own internal controls reports are
received by the Board on an annual basis and any concerns are
investigated. The third-party service providers have also confirmed
the implementation of appropriate measures to ensure no business
disruption.
Risks associated with these services are generally rated as low,
but the financial consequences could be serious, including
reputational damage to the Company. These are mitigated through
operational resilience frameworks.
|
|
Key Person and Operational Support
Risks
|
The loss of the Portfolio Manager or key individuals could lead to
potential performance, operational or regulatory issues. The
Manager identifies key dependencies which are then addressed
through succession plans, particularly for portfolio
managers.
The Portfolio Manager, Alex Wright, has a differentiated style in
relation to his peers. This style is intrinsically linked with the
Company’s investment philosophy and strategy, and therefore, the
Company has a key person dependency on him. Fidelity has succession
plans in place for its portfolio managers which have been discussed
with the Board and provides some assurance in this regard. Jonathan
Winton, the Co-Portfolio Manager, works alongside the Portfolio
Manager and has extensive experience in the markets and companies
and shares a common investment approach and complementary
investment experience with the Portfolio Manager. There is also a
risk that the Manager has inadequate succession plans for other key
operational individuals.
|
|
Discount Control Risk
|
Due to the nature of investment companies, the price of the
Company’s shares and its discount to NAV are factors which are not
totally within the Company’s control. The Board has a discount
management policy in place and some short-term influence over the
discount may be exercised by the use of share repurchases at
acceptable prices and within the parameters set by the Board. The
demand for shares can be influenced through good performance and an
active investor relations program.
The Company’s share price, NAV and discount volatility are
monitored daily by the Manager with the Company’s Broker and
considered by the Board on a regular basis.
|
|
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, such as the risk of extreme weather events that may impact
global supply chains for companies and customers. ESG risks include
investor expectations and how the Company is positioned from a
marketing perspective and whether it is compliant with its ESG
disclosure requirements. Whilst Fidelity considers ESG factors in
its investment decision-making process, the Company does not carry
the label. 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. The Portfolio Manager considers the effects
of ESG when making investment decisions. ESG ratings of the
companies within the Company’s portfolio compared to MSCI ratings
are provided in the Annual Report.
|
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. The last continuation vote was at the AGM held on
14 December 2022, and 99.89% of
shareholders voted in favour of the continuation of the Company.
The next continuation vote will take place at the AGM in
2025.
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 UK Corporate Governance
Code, the Directors have assessed the prospects of the Company over
a longer period than the twelve month period required by the “Going
Concern” basis. The Company is an investment trust with the
objective of achieving long-term capital growth. The Board
considers long-term to be at least five years, and accordingly, the
Directors believe that five years is an appropriate investment
horizon to assess the viability of the Company, although the life
of the Company is not intended to be limited to this or any other
period.
In making an assessment of the viability of the Company, the Board
has considered the following:
· The
ongoing relevance of the investment objective in prevailing market
conditions;
· The
Company’s level of gearing;
· The
Company’s NAV and share price performance compared to its
Benchmark;
· The
principal and emerging risks and uncertainties facing the Company
and their potential impact, as set out above;
· The
likely future demand for the Company’s shares;
· The
Company’s share price discount to the NAV and the Board’s discount
management policy;
· 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 2024 was well ahead of the
Benchmark. The NAV total return was +60.0% and the share price
total return was +47.3% compared to the Benchmark total return of
+37.9%. 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
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 continued impact of climate change and potential
emerging risks from the use of artificial intelligence as detailed
above. The Board has also considered the impact of regulatory
changes, unforeseen market events, geopolitical issues and the
ongoing global implications of the war in Ukraine and the Middle East conflict and how this may affect
the Company.
In addition, the Directors’ assessment of the Company’s ability to
operate in the foreseeable future is included in the Going Concern
Statement below.
GOING CONCERN STATEMENT
The Directors have considered the Company’s investment objective,
risk management policies, liquidity risk, credit risk, capital
management policies and procedures, the nature of its portfolio and
its expenditure and cash flow projections. The Directors, having
considered the liquidity of the Company’s portfolio of investments
(being mainly securities which are readily realisable) and the
projected income and expenditure, are satisfied that the Company is
financially sound and has adequate resources to meet all of its
liabilities and ongoing expenses and continue in operational
existence for the foreseeable future. The Board has, therefore,
concluded that the Company has adequate resources to continue to
adopt the going concern basis for the period to 30 November 2025 which is at least twelve months
from the date of approval of the Financial Statements. This
conclusion also takes into account the Board’s assessment of the
ongoing risks from the war in Ukraine, the Middle
East conflict and significant market and geopolitical
events.
Accordingly, the Financial Statements of the Company have been
prepared on a going concern basis.
The prospects of the Company over a period longer than twelve
months can be found in the Viability Statement above.
PROMOTING THE SUCCESS OF THE COMPANY
Under Section 172(1) of the Companies Act 2006, the Directors of a
company must act in a way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit
of its members as a whole, and in doing so have regard (amongst
other matters) to the likely consequences of any decision in the
long-term; the need to foster relationships with the Company’s
suppliers, customers and others; the impact of the Company’s
operations on the community and the environment; the desirability
of the Company maintaining a reputation for high standards of
business conduct; and the need to act fairly as between members of
the company.
As an externally managed investment company, the Company has no
employees or physical assets, and a number of its 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 receives regular reports from the Company’s Broker which
covers market activity, how the Company compares with its peers in
the AIC UK All Companies sector.
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. It believes that a proper consideration of
Environmental, Social and Governance (“ESG”) issues aligns with the
Company’s investment objective to deliver long-term capital
growth.
In addition to ensuring that the Company’s investment objective was
being pursued, key decisions and actions taken by the Directors
during the reporting year, and up to the date of approval of this
report, have included:
· As
part of the Board’s succession plan, initiating a recruitment
process to replace Nigel Foster who
having completed nine years on the Board on 1 September 2024 will step down at the conclusion
of the AGM on 12 December 2024. His
replacement will be announced in due course;
· The
decision to appoint Claire Boyle as
the Senior Independent Director to replace Nigel Foster from 12
December 2024;
· The
decision to pay an interim dividend of 3.24
pence per share and to recommend the payment of a final
dividend of 6.30 pence per share (a
total of 9.54 pence per share), to
maintain the 15 year track record of increasing dividends, while
retaining funds for reinvestment, consistent with the objective of
long-term capital growth;
· Meetings
by the Chairman with some of the Company’s key shareholders during
the reporting year; and
· The
decision to once again hold a hybrid AGM in 2024 in order to make
it more accessible to those investors who are unable to or prefer
not to attend in person.
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the Annual Report and
Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Financial Statements
for each financial period. Under that law, the Directors have
elected to prepare the Financial Statements in accordance with UK
Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law), including Financial Reporting Standard FRS 102:
The Financial Reporting Standard applicable in the UK and
Republic of Ireland (“FRS 102”).
Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss for the reporting period.
In preparing these Financial Statements the Directors are required
to:
· Select
suitable accounting policies in accordance with Section 10 of FRS
102 and then apply them consistently;
· Make
judgements and estimates that are reasonable and
prudent;
· Present
information, including accounting policies, in a fair and balanced
manner that provides relevant, reliable, comparable and
understandable information;
· State
whether applicable UK Accounting Standards, including FRS 102, have
been followed, subject to any material departures disclosed and
explained in the Financial Statements; and
· Prepare
the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Company and the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors’ Report,
a Corporate Governance Statement and a Directors’ Remuneration
Report which comply with that law and those regulations.
The Directors have delegated the responsibility for the maintenance
and integrity of the corporate and financial information included
on the Company’s pages of the Manager’s website at
www.fidelity.co.uk/specialvalues
to the Manager. Visitors to the website need to be aware that
legislation in the UK governing the preparation and dissemination
of the Financial Statements may differ from legislation in their
jurisdictions.
The Directors confirm that to the best of their
knowledge:
· The
Financial Statements, prepared in accordance with UK Generally
Accepted Accounting Practice, including FRS 102, give a true and
fair view of the assets, liabilities, financial position and profit
of the Company;
· The
Annual Report, including the Strategic Report, includes a fair
review of the development and performance of the business and the
position of the Company, together with a description of the
principal risks and uncertainties it faces; and
· The
Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Company’s performance, business
model and strategy.
The Statement of Directors’ Responsibility was approved by the
Board on 6 November 2024 and signed
on its behalf by:
DEAN
BUCKLEY
Chairman
INCOME STATEMENT FOR THE YEAR ENDED 31 AUGUST 2024
|
|
|
Year ended 31 August 2024
|
Year ended 31 August 2023
|
|
|
Notes
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
Gains/(losses) on investments
|
10
|
–
|
166,057
|
166,057
|
–
|
(12,021)
|
(12,021)
|
|
Gains on derivative instruments
|
11
|
–
|
19,524
|
19,524
|
–
|
35,770
|
35,770
|
|
Investment and derivative income
|
3
|
48,413
|
–
|
48,413
|
43,717
|
–
|
43,717
|
|
Other interest
|
3
|
2,751
|
–
|
2,751
|
2,971
|
–
|
2,971
|
|
Investment management fees
|
4
|
(6,095)
|
–
|
(6,095)
|
(5,698)
|
–
|
(5,698)
|
|
Other expenses
|
5
|
(898)
|
–
|
(898)
|
(948)
|
–
|
(948)
|
|
Foreign exchange gains/(losses)
|
|
–
|
204
|
204
|
–
|
(4,032)
|
(4,032)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Net return on ordinary activities before finance costs and
taxation
|
|
44,171
|
185,785
|
229,956
|
40,042
|
19,717
|
59,759
|
|
Finance costs
|
6
|
(5,794)
|
–
|
(5,794)
|
(4,774)
|
–
|
(4,774)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Net return on ordinary activities before
taxation
|
|
38,377
|
185,785
|
224,162
|
35,268
|
19,717
|
54,985
|
|
Taxation on return on ordinary activities
|
7
|
(848)
|
–
|
(848)
|
(672)
|
–
|
(672)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Net return on ordinary activities after taxation for the
year
|
|
37,529
|
185,785
|
223,314
|
34,596
|
19,717
|
54,313
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Return per ordinary share
|
8
|
11.58p
|
57.32p
|
68.90p
|
10.67p
|
6.08p
|
16.75p
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The Company does not have any other comprehensive income.
Accordingly, the net return on ordinary activities after taxation
for the year is also the total comprehensive income for the year
and no separate Statement of Comprehensive Income has been
presented.
The total column of this statement represents the Income Statement
of the Company. The revenue and capital columns are supplementary
and presented for information purposes as recommended by the
Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the year and all
items in the above statement derive from continuing
operations.
The Notes below form an integral part of these Financial
Statements.
BALANCE SHEET AS AT 31 AUGUST
2024
Company number 2972628
|
|
Notes
|
2024
£’000
|
2023
£’000
|
|
Fixed assets
|
|
|
|
|
Investments
|
10
|
1,120,686
|
882,692
|
|
|
|
---------------
|
---------------
|
|
Current assets
|
|
|
|
|
Derivative instruments
|
11
|
4,318
|
1,769
|
|
Debtors
|
12
|
8,200
|
8,937
|
|
Cash and cash equivalents
|
|
11,749
|
59,460
|
|
|
|
---------------
|
---------------
|
|
|
|
24,267
|
70,166
|
|
|
|
=========
|
=========
|
|
Current liabilities
|
|
|
|
|
Derivative instruments
|
11
|
(200)
|
(949)
|
|
Other creditors
|
13
|
(1,212)
|
(860)
|
|
|
|
---------------
|
---------------
|
|
|
|
(1,412)
|
(1,809)
|
|
|
|
---------------
|
---------------
|
|
Net current assets
|
|
22,855
|
68,357
|
|
|
|
=========
|
=========
|
|
Net assets
|
|
1,143,541
|
951,049
|
|
|
|
=========
|
=========
|
|
Capital and reserves
|
|
|
|
|
Share capital
|
14
|
16,205
|
16,205
|
|
Share premium account
|
15
|
238,442
|
238,442
|
|
Capital redemption reserve
|
15
|
3,256
|
3,256
|
|
Other non-distributable reserve
|
15
|
5,152
|
5,152
|
|
Capital reserve
|
15
|
834,580
|
648,795
|
|
Revenue reserve
|
15
|
45,906
|
39,199
|
|
|
|
---------------
|
---------------
|
|
Total Shareholders’ funds
|
|
1,143,541
|
951,049
|
|
|
|
=========
|
=========
|
|
Net asset value per ordinary share
|
16
|
352.84p
|
293.44p
|
|
|
|
=========
|
=========
|
The Financial Statements were approved by the Board of Directors on
6 November 2024 and were signed on
its behalf by:
DEAN
BUCKLEY
Chairman
The Notes below form an integral part of these Financial
Statements.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 AUGUST 2024
|
|
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
2023
|
|
16,205
|
238,442
|
3,256
|
5,152
|
648,795
|
39,199
|
951,049
|
|
Net return on ordinary activities after taxation for the
year
|
|
–
|
–
|
–
|
–
|
185,785
|
37,529
|
223,314
|
|
Dividends paid to Shareholders
|
9
|
–
|
–
|
–
|
–
|
–
|
(30,822)
|
(30,822)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total Shareholders’ funds at 31 August
2024
|
|
16,205
|
238,442
|
3,256
|
5,152
|
834,580
|
45,906
|
1,143,541
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Total Shareholders’ funds at 31 August
2022
|
|
16,205
|
238,442
|
3,256
|
5,152
|
629,078
|
30,466
|
922,599
|
|
Net return on ordinary activities after taxation for the
year
|
|
–
|
–
|
–
|
–
|
19,717
|
34,596
|
54,313
|
|
Dividends paid to Shareholders
|
9
|
–
|
–
|
–
|
–
|
–
|
(25,863)
|
(25,863)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total Shareholders’ funds at 31 August
2023
|
|
16,205
|
238,442
|
3,256
|
5,152
|
648,795
|
39,199
|
951,049
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The Notes below form an integral part of these Financial
Statements.
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 AUGUST 2024
|
|
Notes
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Operating activities
|
|
|
|
|
Investment income received
|
|
42,980
|
39,436
|
|
Net derivative income received
|
|
4,454
|
5,934
|
|
Interest received
|
|
2,723
|
2,971
|
|
Investment management fee paid
|
|
(6,008)
|
(5,699)
|
|
Directors' fees paid
|
|
(170)
|
(173)
|
|
Other cash payments
|
|
(696)
|
(777)
|
|
|
|
---------------
|
---------------
|
|
Net cash inflow from operating activities before finance
costs and taxation
|
20
|
43,283
|
41,692
|
|
|
|
=========
|
=========
|
|
Finance costs paid
|
|
(5,853)
|
(4,622)
|
|
Overseas taxation suffered
|
|
(536)
|
(1,119)
|
|
|
|
---------------
|
---------------
|
|
Net cash inflow from operating
activities
|
|
36,894
|
35,951
|
|
|
|
=========
|
=========
|
|
Investing activities
|
|
|
|
|
Purchases of investments
|
|
(353,057)
|
(429,178)
|
|
Sales of investments
|
|
282,830
|
368,171
|
|
Receipts on long CFDs
|
|
51,625
|
70,856
|
|
Payments on long CFDs
|
|
(35,747)
|
(45,085)
|
|
Receipts on short CFDs
|
|
950
|
–
|
|
Payments on short CFDs
|
|
(588)
|
–
|
|
Movement on amounts held at futures clearing houses and
brokers
|
|
–
|
8,190
|
|
|
|
---------------
|
---------------
|
|
Net cash outflow from investing
activities
|
|
(53,987)
|
(27,046)
|
|
|
|
=========
|
=========
|
|
Net cash (outflow)/inflow before financing
activities
|
|
(17,093)
|
8,905
|
|
|
|
=========
|
=========
|
|
Financing activities
|
|
|
|
|
Dividends paid
|
9
|
(30,822)
|
(25,863)
|
|
|
|
---------------
|
---------------
|
|
Net cash outflow from financing
activities
|
|
(30,822)
|
(25,863)
|
|
|
|
=========
|
=========
|
|
Net decrease in cash and cash
equivalents
|
|
(47,915)
|
(16,958)
|
|
Cash and cash equivalents at the beginning of the
year
|
|
59,460
|
80,450
|
|
Effect of movement in foreign exchange
|
|
204
|
(4,032)
|
|
|
|
---------------
|
---------------
|
|
Cash and cash equivalents at the end of the
year
|
|
11,749
|
59,460
|
|
|
|
=========
|
=========
|
|
Represented by:
|
|
|
|
|
Cash at bank
|
|
2,072
|
2,028
|
|
Amount held in Fidelity Institutional Liquidity Fund
|
|
9,677
|
57,432
|
|
|
|
---------------
|
---------------
|
|
|
|
11,749
|
59,460
|
|
|
|
=========
|
=========
|
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
2025 which is at least twelve months from the date of
approval of these Financial Statements. In making their assessment
the Directors have reviewed income and expense projections,
reviewed the liquidity of the investment portfolio and considered
the Company’s ability to meet liabilities as they fall due. This
conclusion also takes into account the Director’s assessment of the
risks faced by the Company as detailed in the Going Concern
Statement above.
In preparing these Financial Statements the Directors have
considered the impact of climate change risk as an emerging and a
principal risk as set out above, and have concluded that there was
no further impact of climate change to be taken into account as the
investments are valued based on market pricing. In line with FRS
102, investments are valued at fair value, which 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 set out above takes account
of all events and conditions up to 30
November 2025, which is at least twelve months from the date
of approval of these Financial Statements.
b) Significant accounting estimates and
judgements
– The Directors make judgements and estimates concerning the
future.
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, such as expectations of
future events, and are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The
judgements required in order to determine the appropriate valuation
methodology of level 3 financial instruments have a risk of causing
an adjustment to the carrying amounts of assets. These judgements
include making assessments of the possible valuations in the event
of a listing or other marketability related risks.
c) Segmental reporting
– The Company is engaged in a single segment business and,
therefore, no segmental reporting is
provided.
d) Presentation of the Income Statement
– In order to reflect better the activities of an investment
company and in accordance
with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and
capital nature has been prepared alongside the Income Statement.
The net revenue return after taxation for the year is the measure
the Directors believe appropriate in assessing the Company’s
compliance with certain requirements set out in Section 1159 of the
Corporation Tax Act 2010.
e) Income
– Income from equity investments is accounted for on the date on
which the right to receive the payment is established,
normally the ex-dividend date. Overseas dividends are accounted for
gross of any tax deducted at source. Amounts are credited to the
revenue column of the Income Statement. Where the Company has
elected to receive its dividends in the form of additional shares
rather than cash, the amount of the cash dividend foregone is
recognised in the revenue column of the Income Statement. Any
excess in the value of the shares received over the amount of the
cash dividend is recognised in the capital column of the Income
Statement. Special dividends are treated as a revenue receipt or a
capital receipt depending on the facts and circumstances of each
particular case. Interest on securities is accounted for on an
accruals basis and is credited to the revenue column of the Income
Statement.
Derivative instrument income received from dividends on long
contracts for difference (“CFDs”) is accounted for on the date on
which the right to receive the payment is established, normally the
ex-dividend date. The amount net of tax is credited to the revenue
column of the Income Statement.
Interest received on short 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 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
gains/(losses) on investments in the capital column of the Income
Statement and has disclosed these costs in Note 10
below.
l) Derivative instruments
– When appropriate, permitted transactions in derivative
instruments are used. Derivative transactions
into which the Company may enter include long and short CFDs,
futures, options and warrants. Derivatives are classified as other
financial instruments and are initially accounted for and measured
at fair value on the date the derivative contract is entered into
and subsequently measured at fair value as follows:
· Long
and short CFDs – the difference between the strike price and the
value of the underlying shares in the contract;
· Futures
– the difference between the contract price and the quoted trade
price; and
· Options
– value based on similar instruments or the quoted trade price for
the contract.
Where transactions are used to protect or enhance income, if the
circumstances support this, the income and expenses derived are
included in net income in the revenue column of the Income
Statement. Where such transactions are used to protect or enhance
capital, if the circumstances support this, the income and expenses
derived are included: for long CFDs, as gains or losses on long
CFDs, and for short CFDs, futures and options as gains or losses on
short CFDs, futures and options in the capital column of the Income
Statement. Any positions on such transactions open at the year end
are reflected on the Balance Sheet at their fair value within
current assets or current liabilities.
m) Debtors –
Debtors include securities sold for future settlement, amounts
receivable on settlement of derivatives, accrued income,
taxation recoverable and other debtors and prepayments incurred in
the ordinary course of business. If collection is expected in one
year or less (or in the normal operating cycle of the business, if
longer) they are classified as current assets. If not, they are
presented as non-current assets. They are recognised initially at
fair value and, where applicable, subsequently measured at
amortised cost using the effective interest rate method.
n) Amounts held at futures clearing houses and
brokers
– These are amounts held in segregated accounts as collateral on
behalf
of brokers and are carried at amortised cost.
o) Cash and cash equivalents
– Cash and cash equivalents may comprise cash at bank and money
market funds which are short-term, highly liquid and are readily
convertible to a known amount of cash. These are subject to an
insignificant risk of changes in value.
p) Other creditors
– Other creditors include securities purchased for future
settlement, finance costs payable, investment management
fees and other creditors and expenses accrued in the ordinary
course of business. If payment is due within one year or less (or
in the normal operating cycle of the business, if longer) they are
classified as current liabilities. If not, they are presented as
non-current liabilities. They are recognised initially at fair
value and, where applicable, subsequently measured at amortised
cost using the effective interest rate method.
q) Capital reserve
– The following are accounted for in the capital
reserve:
· Gains
and losses on the disposal of investments and derivative
instruments;
· Changes
in the fair value of investments and derivative instruments held at
the year end;
· Foreign
exchange gains and losses of a capital nature;
· Dividends
receivable which are capital in nature; and
· Costs
of repurchasing or issuing ordinary shares.
Technical guidance issued by the Institute of Chartered Accountants
in England and Wales in TECH 02/17BL, guidance on the
determination of realised profits and losses in the context of
distributions under the Companies Act 2006, states that changes in
the fair value of investments which are readily convertible to
cash, without accepting adverse terms at the Balance Sheet date,
can be treated as realised. Capital reserves realised and
unrealised are shown in aggregate as capital reserve in the
Statement of Changes in Equity and the Balance Sheet. At the
Balance Sheet date, the portfolio of the Company consisted of
investments listed on a recognised stock exchange and derivative
instruments contracted with counterparties having an adequate
credit rating, and the portfolio was considered to be readily
convertible to cash, with the exception of the level 3 investments
which had unrealised investment holding losses of £10,868,000
(2023: losses of £9,684,000).
3 INCOME
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Investment income
|
|
|
|
UK dividends
|
30,235
|
29,189
|
|
UK property income distributions
|
135
|
–
|
|
UK scrip dividends
|
1,310
|
–
|
|
UK property income scrip dividends
|
157
|
–
|
|
Interest on securities
|
1,528
|
805
|
|
Overseas dividends
|
10,395
|
10,543
|
|
|
---------------
|
---------------
|
|
|
43,760
|
40,537
|
|
|
=========
|
=========
|
|
Derivative income
|
|
|
|
Dividends received on long CFDs
|
4,653
|
3,180
|
|
|
---------------
|
---------------
|
|
Investment and derivative income
|
48,413
|
43,717
|
|
|
=========
|
=========
|
|
Other interest
|
|
|
|
Interest received on bank deposits, collateral and money market
funds
|
2,723
|
2,965
|
|
Interest received on tax reclaims
|
–
|
6
|
|
Interest received on short CFDs
|
28
|
–
|
|
|
---------------
|
---------------
|
|
|
2,751
|
2,971
|
|
|
=========
|
=========
|
|
Total income
|
51,164
|
46,688
|
|
|
=========
|
=========
|
Special dividends of £5,206,000 (2023: £1,904,000) have been
recognised in capital during the year.
4 INVESTMENT MANAGEMENT FEES
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Investment management fees
|
6,095
|
5,698
|
|
|
=========
|
=========
|
FIL Investment Services (UK) Limited is the Company’s Alternative
Investment Fund Manager and has delegated portfolio management to
FIL Investments International (“FII”). Both companies are Fidelity
group companies.
FII charges investment management fees at an annual rate of 0.60%
of net assets. Fees are accrued on a daily basis and payable
monthly.
5
OTHER EXPENSES
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
AIC fees
|
21
|
21
|
|
Custody fees
|
27
|
35
|
|
Depositary fees
|
58
|
57
|
|
Directors’ expenses
|
15
|
17
|
|
Directors’ fees1
|
170
|
172
|
|
Legal and professional fees
|
101
|
82
|
|
Marketing expenses
|
229
|
303
|
|
Printing and publication expenses
|
122
|
116
|
|
Registrars’ fees
|
74
|
68
|
|
Fees payable to the Company’s Independent Auditor for the audit of
the Financial Statements2
|
53
|
50
|
|
Sundry other expenses
|
28
|
27
|
|
|
---------------
|
---------------
|
|
Other expenses
|
898
|
948
|
|
|
=========
|
=========
|
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
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Interest paid on long CFDs
|
5,765
|
4,761
|
|
Interest paid on bank overdrafts
|
29
|
13
|
|
|
---------------
|
---------------
|
|
|
5,794
|
4,774
|
|
|
=========
|
=========
|
7.
TAXATION ON RETURN ON ORDINARY
ACTIVITIES
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
a) Analysis of the taxation charge for the
year
|
|
|
|
Overseas taxation
|
848
|
672
|
|
|
---------------
|
---------------
|
|
Taxation charge for the year (see Note
7b)
|
848
|
672
|
|
|
=========
|
=========
|
b) Factors affecting the taxation charge for the
year
The taxation charge for the year is lower than the standard rate of
UK corporation tax for an investment trust company of 25.00% (2023:
blended rate of 25.00%). A reconciliation of the standard rate of
UK corporation tax to the taxation charge for the year is shown
below:
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Net return on ordinary activities before taxation
|
224,162
|
54,985
|
|
|
---------------
|
---------------
|
|
Net return on ordinary activities before taxation multiplied by the
blended rate of UK corporation tax of 25.00% (2023: blended rate of
21.52%)
|
56,040
|
11,833
|
|
Effects of:
|
|
|
|
Capital gains not taxable1
|
(46,446)
|
(4,243)
|
|
Income not taxable
|
(10,485)
|
(8,550)
|
|
Excess management expenses
|
891
|
960
|
|
Overseas taxation
|
(848)
|
672
|
|
|
---------------
|
---------------
|
|
Total taxation charge for the year (see Note
7a)
|
(848)
|
672
|
|
|
=========
|
=========
|
1 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 £18,126,000 (2023: £17,235,000), in respect
of excess expenses of £72,504,000 (2023: £68,940,000) available to
be set off against future taxable profits has not been recognised
as it is unlikely that there will be sufficient future taxable
profits to utilise these expenses.
The UK corporation tax rate increased from 19.00% to 25.00% from
1 April 2023. The rate of 25.00% has
been applied to calculate the unrecognised deferred tax asset for
the current year (2023: 25.00%).
8. RETURN PER ORDINARY SHARE
|
|
Year ended
31.08.24
|
Year ended
31.08.23
|
|
Revenue return per ordinary share
|
11.58p
|
10.67p
|
|
Capital return per ordinary share
|
57.32p
|
6.08p
|
|
|
---------------
|
---------------
|
|
Total return per ordinary share
|
68.90p
|
16.75p
|
|
|
=========
|
=========
|
The return per ordinary share is based on the net return on
ordinary activities after taxation for the year divided by the
weighted average number of ordinary shares held outside Treasury
during the year, as shown below:
|
|
£’000
|
£’000
|
|
Net revenue return on ordinary activities after taxation
|
37,529
|
34,596
|
|
Net capital return on ordinary activities after taxation
|
185,785
|
19,717
|
|
|
---------------
|
---------------
|
|
Net total return on ordinary activities after
taxation
|
223,314
|
54,313
|
|
|
=========
|
=========
|
|
|
Number
|
Number
|
|
Weighted average number of ordinary shares held outside of
Treasury
|
324,098,920
|
324,098,920
|
|
|
=========
|
=========
|
9. DIVIDENDS PAID TO SHAREHOLDERS
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Dividends paid
|
|
|
|
Interim dividend of 3.24 pence per ordinary share paid for the year
ended 31 August 2024
|
10,501
|
–
|
|
Final dividend of 6.27 pence per ordinary share paid for the year
ended 31 August 2023
|
20,321
|
–
|
|
Interim dividend of 2.53 pence per ordinary share paid for the year
ended 31 August 2023
|
–
|
8,200
|
|
Final dividend of 5.45 pence per ordinary share paid for the year
ended 31 August 2022
|
–
|
17,663
|
|
|
---------------
|
---------------
|
|
|
30,822
|
25,863
|
|
|
=========
|
=========
|
|
Dividends proposed
|
|
|
|
Final dividend proposed of 6.30 pence per ordinary share for the
year ended 31 August 2024
|
20,418
|
–
|
|
Final dividend proposed of 6.27 pence per ordinary share for the
year ended 31 August 2023
|
–
|
20,321
|
|
|
---------------
|
---------------
|
|
|
20,418
|
20,321
|
|
|
=========
|
=========
|
The Directors have proposed the payment of a final dividend of
6.30 pence per ordinary share for the
year ended 31 August 2024 which is
subject to approval by Shareholders at the Annual General Meeting
on 12 December 2024 and has not been
included as a liability in these Financial Statements. The
dividends will be paid on 10 January
2025 to Shareholders on the register at the close of
business on 29 November 2024
(ex-dividend date 28 November
2024).
10 INVESTMENTS
|
|
2024
£’000
|
2023
£’000
|
|
Listed investments
|
1,119,970
|
880,839
|
|
Unlisted investments
|
716
|
1,853
|
|
|
---------------
|
---------------
|
|
Total investments at fair value
|
1,120,686
|
882,692
|
|
|
=========
|
=========
|
|
Opening book cost
|
914,377
|
813,135
|
|
Opening investment holding (losses)/gains
|
(31,685)
|
22,537
|
|
|
---------------
|
---------------
|
|
Opening fair value
|
882,692
|
835,672
|
|
|
=========
|
=========
|
|
Movement in the year
|
|
|
|
Puchases at cost
|
354,795
|
426,404
|
|
Sales – proceeds
|
(282,858)
|
(367,363)
|
|
Gains/(losses) on investments
|
166,057
|
(12,021)
|
|
|
---------------
|
---------------
|
|
Closing fair value
|
1,120,686
|
882,692
|
|
|
=========
|
=========
|
|
Closing book cost
|
1,003,728
|
914,377
|
|
Closing investment holding gains/(losses)
|
116,958
|
(31,685)
|
|
|
---------------
|
---------------
|
|
Closing fair value
|
1,120,686
|
882,692
|
|
|
=========
|
=========
|
The Company received £282,858,000 (2023: £367,363,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £265,444,000 (2023: £325,162,000).
These investments have been revalued over time and until they were
sold any unrealised gains/(losses) were included in the fair value
of the investments.
Investment transaction costs
Transaction costs incurred in the acquisition and disposal of
investments, which are included in the gains/(losses) on
investments above, were as follows:
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Purchases transaction costs
|
1,606
|
1,688
|
|
Sales transaction costs
|
135
|
167
|
|
|
---------------
|
---------------
|
|
|
1,741
|
1,855
|
|
|
=========
|
=========
|
11. DERIVATIVE INSTRUMENTS
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Gains on long CFD positions closed
|
15,864
|
25,778
|
|
Gains on short CFD positions closed
|
362
|
–
|
|
Movement in investment holding gains on long CFDs
|
3,400
|
9,992
|
|
Movement in investment holding losses on short CFDs
|
(102)
|
–
|
|
|
---------------
|
---------------
|
|
|
19,524
|
35,770
|
|
|
=========
|
=========
|
|
|
2024
Fair value
£’000
|
2023
Fair value
£’000
|
|
Derivative instruments recognised on the Balance
Sheet
|
|
|
|
Derivative instrument assets
|
4,318
|
1,769
|
|
Derivative instrument liabilities
|
(200)
|
(949)
|
|
|
---------------
|
---------------
|
|
|
4,118
|
820
|
|
|
=========
|
=========
|
|
|
2024
|
2023
|
|
|
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
|
4,220
|
115,050
|
820
|
130,073
|
|
Short CFDs
|
(102)
|
2,117
|
–
|
–
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
4,118
|
117,167
|
820
|
130,073
|
|
|
=========
|
=========
|
=========
|
=========
|
12. DEBTORS
|
|
2024
£’000
|
2023
£’000
|
|
Securities sold for future settlement
|
146
|
117
|
|
Amounts receivable on settlement of derivatives
|
–
|
14
|
|
Accrued income
|
6,598
|
7,058
|
|
Overseas taxation recoverable
|
1,408
|
1,720
|
|
Other debtors and prepayments
|
48
|
28
|
|
|
---------------
|
---------------
|
|
|
8,200
|
8,937
|
|
|
=========
|
=========
|
13. OTHER CREDITORS
|
|
2024
£’000
|
2023
£’000
|
|
Securities purchased for future settlement
|
271
|
–
|
|
Finance costs payable
|
150
|
209
|
|
Creditors and accruals
|
791
|
651
|
|
|
---------------
|
---------------
|
|
|
1,212
|
860
|
|
|
=========
|
=========
|
14. SHARE CAPITAL
|
|
2024
|
2023
|
|
|
Number of
shares
|
Nominal
value
£’000
|
Number of
shares
|
Nominal
value
£’000
|
|
Issued, allotted and fully paid Ordinary shares of 5 pence
each held outside of Treasury
|
|
|
|
|
|
Total share capital – Beginning of the
year
|
324,098,920
|
16,205
|
324,098,920
|
16,205
|
|
New ordinary shares issued/repurchased
|
–
|
–
|
–
|
–
|
|
|
-----------------
|
-----------------
|
-----------------
|
-----------------
|
|
Total share capital – End of the year
|
324,098,920
|
16,205
|
324,098,920
|
16,205
|
|
|
==========
|
==========
|
==========
|
==========
|
During the year, no new ordinary shares were issued (2023: nil
shares). At 31 August 2024, no shares
were held in Treasury.
15 CAPITAL AND RESERVES
|
|
Share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Other
non-
distributable
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
Share-
holders’
funds
£’000
|
|
At 1 September 2023
|
16,205
|
238,442
|
3,256
|
5,152
|
648,795
|
39,199
|
951,049
|
|
Gains on investments (see Note 10)
|
–
|
–
|
–
|
–
|
166,057
|
–
|
166,057
|
|
Gains on long CFDs (see Note 11)
|
–
|
–
|
–
|
–
|
19,264
|
–
|
19,264
|
|
Gains on short CFDs (see Note 11)
|
–
|
–
|
–
|
–
|
260
|
–
|
260
|
|
Foreign exchange gains
|
–
|
–
|
–
|
–
|
204
|
–
|
204
|
|
Revenue return on ordinary activities after taxation for the
year
|
–
|
–
|
–
|
–
|
–
|
37,529
|
37,529
|
|
Dividends paid to Shareholders (see Note 9)
|
–
|
–
|
–
|
–
|
–
|
(30,822)
|
(30,822)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
At 31 August 2024
|
16,205
|
238,442
|
3,256
|
5,152
|
834,580
|
45,906
|
1,143,541
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
|
Share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Other
non-
distributable
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
Share-
holders’
funds
£’000
|
|
At 1 September 2022
|
16,205
|
238,442
|
3,256
|
5,152
|
629,078
|
30,466
|
922,599
|
|
Losses on investments (see Note 10)
|
–
|
–
|
–
|
–
|
(12,021)
|
–
|
(12,021)
|
|
Gains on long CFDs (see Note 11)
|
–
|
–
|
–
|
–
|
35,770
|
–
|
35,770
|
|
Foreign exchange losses
|
–
|
–
|
–
|
–
|
(4,032)
|
–
|
(4,032)
|
|
Revenue return on ordinary activities after taxation for the
year
|
–
|
–
|
–
|
–
|
–
|
34,596
|
34,596
|
|
Dividends paid to Shareholders (see Note 9)
|
–
|
–
|
–
|
–
|
–
|
(25,863)
|
(25,863)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
At 31 August 2023
|
16,205
|
238,442
|
3,256
|
5,152
|
648,795
|
39,199
|
951,049
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The capital reserve balance at 31 August
2024 includes investment holding gains of £116,958,000
(2023: losses of £31,685,000) as detailed in Note 10. The revenue
and capital reserves are distributable by way of dividend. See Note
2 (q) for further details.
16 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based
on the total Shareholders' funds divided by the number of ordinary
shares held outside of Treasury.
|
|
2024
|
2023
|
|
Total Shareholders’ funds
|
£1,143,541,000
|
£951,049,000
|
|
Ordinary shares held outside of Treasury at year end
|
324,098,920
|
324,098,920
|
|
Net asset value per ordinary share
|
352.84p
|
293.44p
|
|
|
============
|
============
|
It is the Company’s policy that shares held in Treasury will only
be reissued at net asset value per ordinary share or at a premium
to net asset value per ordinary share and, therefore, shares held
in Treasury have no dilutive effect.
17 FINANCIAL INSTRUMENTS
Management of risk
The Company’s investing activities in pursuit of its investment
objective involve certain inherent risks. The Board confirms that
there is an ongoing process for identifying, evaluating and
managing the risks faced by the Company. The Board with the
assistance of the Manager, has developed a risk matrix which, as
part of the internal control process, identifies the risks that the
Company faces. Principal risks identified are market, economic and
political, investment performance (including the use of derivatives
and gearing), regulatory, cybercrime and information security,
business continuity, key person and operational support, discount
control and environmental, social and governance (“ESG”). Risks are
identified and graded in this process, together with steps taken in
mitigation, and are updated and reviewed on an ongoing basis. These
risks and how they are identified, evaluated and managed are shown
above.
This note refers to the identification, measurement and management
of risks potentially affecting the value of financial instruments.
The Company's financial instruments may comprise:
· Equity
shares (listed and unlisted) and corporate 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:
|
|
2024
£’000
|
2023
£’000
|
|
Exposure to financial instruments that bear
interest
|
|
|
|
Long CFDs – exposure less fair value
|
110,830
|
129,253
|
|
|
---------------
|
---------------
|
|
Exposure to financial instruments that earn
interest
|
|
|
|
Cash and cash equivalents
|
11,749
|
59,460
|
|
Short CFDs – exposure plus fair value
|
2,015
|
–
|
|
|
---------------
|
---------------
|
|
|
13,764
|
59,640
|
|
|
=========
|
=========
|
|
Net exposure to financial instruments that bear
interest
|
97,066
|
69,793
|
|
|
=========
|
=========
|
Foreign currency risk
The Company does not carry out currency speculation. The Company’s
net return 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:
|
|
2024
|
|
Currency
|
Investments
held at fair
value
£’000
|
Long
exposure to
derivative
instruments1
£’000
|
Debtors
£’000
|
Cash
and cash
equivalents2
£’000
|
Total
£’000
|
|
Euro
|
54,522
|
41,800
|
751
|
–
|
97,073
|
|
US dollar
|
39,752
|
–
|
542
|
33
|
40,327
|
|
Swiss franc
|
37,673
|
–
|
273
|
–
|
37,946
|
|
Swedish krona
|
22,811
|
–
|
–
|
–
|
22,811
|
|
Australian dollar
|
12,439
|
–
|
–
|
–
|
12,439
|
|
South African rand
|
2,024
|
–
|
–
|
–
|
2,024
|
|
Canadian dollar
|
–
|
–
|
–
|
28
|
28
|
|
UK sterling
|
951,465
|
73,250
|
6,634
|
11,688
|
1,043,037
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
1,120,686
|
115,050
|
8,200
|
11,749
|
1,255,685
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
exposure to the market of long CFDs.
2 Cash
and cash equivalents are made up of £2,072,000 cash at bank and
£9,677,000 held in Fidelity Institutional Liquidity
Fund.
|
|
2023
|
|
Currency
|
Investments
held at fair
value
£’000
|
Long
exposure to
derivative
instruments1
£’000
|
Debtors2
£’000
|
Cash
and cash
equivalents3
£’000
|
Total
£’000
|
|
Euro
|
67,412
|
77,457
|
823
|
–
|
145,692
|
|
US dollar
|
31,515
|
–
|
722
|
36,855
|
69,092
|
|
Swiss franc
|
36,842
|
–
|
224
|
–
|
37,066
|
|
Swedish krona
|
14,175
|
–
|
–
|
–
|
14,175
|
|
Australian dollar
|
7,782
|
–
|
49
|
–
|
7,831
|
|
Norwegian krone
|
4,841
|
–
|
–
|
–
|
4,841
|
|
South African rand
|
2,468
|
–
|
–
|
–
|
2,468
|
|
Canadian dollar
|
1,703
|
–
|
–
|
29
|
1,732
|
|
UK sterling
|
715,954
|
52,616
|
7,119
|
22,576
|
798,265
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
882,692
|
130,073
|
8,937
|
59,460
|
1,081,162
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
exposure to the market of long CFDs.
2 Cash
and cash equivalents are made up of £2,028,000 cash at bank and
£57,432,000 held in Fidelity Institutional Liquidity
Fund.
Currency exposure of financial
liabilities
The Company finances its investment activities through its ordinary
share capital and reserves. The Company’s financial liabilities
comprise other creditors. The currency profile of these financial
liabilities is shown below:
|
Currency
|
Short exposure to
derivative
instruments1
£’000
|
Other
creditors
£’000
|
2024
Total
£’000
|
|
US dollar
|
2,117
|
1
|
2,118
|
|
Euro
|
–
|
62
|
62
|
|
UK sterling
|
–
|
1,149
|
1,149
|
|
|
---------------
|
---------------
|
---------------
|
|
|
2,117
|
1,212
|
3,329
|
|
|
=========
|
=========
|
=========
|
1 The
exposure to the market of short CFDs.
|
Currency
|
Short exposure to
derivative
instruments1
£’000
|
Other
creditors
£’000
|
2023
Total
£’000
|
|
Swiss franc
|
–
|
135
|
135
|
|
UK sterling
|
–
|
725
|
725
|
|
|
---------------
|
---------------
|
---------------
|
|
|
–
|
860
|
860
|
|
|
=========
|
=========
|
=========
|
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 2024, the undiscounted
gross cash outflows of the financial liabilities were all repayable
within one year and consisted of derivative instrument liabilities
of £200,000 (2023: £949,000) and other creditors of £1,212,000
(2023: £860,000).
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 2024,
£3,410,000 (2023: £580,000) was held by the brokers in a segregated
collateral account on behalf of the Company, to reduce the credit
risk exposure of the Company. This collateral comprised: J.P.
Morgan Securities plc £2,370,000 (2023: £220,000), UBS AG £510,000
(2023: £nil), HSBC Bank plc £380,000 (2023: £360,000) and Goldman
Sachs International Ltd £150,000 (2023: £nil). At 31 August 2024, there were no amounts held by the
Company at futures clearing houses and brokers, in a segregated
collateral account, on behalf of the brokers, to reduce the credit
risk exposure of the brokers (2023: £nil).
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 2024, an increase of 1.00%
in interest rates throughout the year, with all other variables
held constant, would have decreased the Company’s net return on
ordinary activities after taxation for the year and decreased the
net assets of the Company by £971,000 (2023: decreased the net
return and decreased the net assets by £698,000). 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 2024, a 10%
strengthening of the UK sterling exchange rate against foreign
currencies, with all other variables held constant, would have
decreased the Company’s net return on ordinary activities after
taxation for the year and decreased the net assets of the Company
by £19,133,000 (2023: decreased the net return and decreased the
net assets by £25,706,000). A 10% weakening of the UK sterling
exchange rate against foreign currencies, with all other variables
held constant, would have increased the Company’s net return on
ordinary activities after taxation for the year and increased the
net assets of the Company by £23,385,000 (2023: increased the net
return and increased the net assets by £31,418,000).
Other price risk – exposure to investments sensitivity
analysis
Based on the listed investments held and share prices at
31 August 2024, an increase of 10% in
share prices, with all other variables held constant, would have
increased the Company's net return on ordinary activities after
taxation for the year and increased the net assets of the Company
by £111,997,000 (2023: increased the net return and increased the
net assets by £88,084,000). 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 2024 would have increased
the Company’s net return on ordinary activities after taxation for
the year and increased the net assets of the Company by £72,000
(2023: increased the net return after taxation and increased the
net assets by £185,300). 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 2024, an increase of 10% in
the share prices underlying the derivative instruments, with all
other variables held constant, would have increased the Company’s
net return on ordinary activities after taxation for the year and
increased the net assets of the Company by £11,717,000 (2023:
increased the net return and increased the net assets by
£13,007,000). A decrease of 10% in share prices would have had an
equal and opposite effect.
Fair Value of Financial Assets and
Liabilities
Financial assets and liabilities are stated in the Balance Sheet at
values which are not materially different to their fair values. As
explained in Notes 2 (k) and (l) above, investments and derivative
instruments are shown at fair value.
Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that
classifies its financial instruments measured at fair value at one
of three levels, according to the relative reliability of the
inputs used to estimate the fair values.
|
Classification
|
Input
|
|
Level 1
|
Valued using quoted prices in active markets for identical
assets
|
|
Level 2
|
Valued by reference to inputs other than quoted prices included in
level 1 that are observable (i.e. developed using market data) for
the asset or liability, either directly or indirectly
|
|
Level 3
|
Valued by reference to valuation techniques using inputs that are
not based on observable market data
|
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset. The valuation techniques
used by the Company are explained in Notes 2 (l) and (m) above. The
table below sets out the Company's fair value hierarchy:
|
|
2024
|
|
Financial assets at fair value through profit or loss
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
|
Investments
|
1,096,402
|
23,413
|
871
|
1,120,686
|
|
Derivative instrument assets
|
–
|
4,318
|
–
|
4,318
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
1,096,402
|
27,731
|
871
|
1,125,004
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Financial liabilities at fair value through profit or
loss
|
|
|
|
|
|
Derivative instrument liabilities
|
–
|
(200)
|
–
|
(200)
|
|
|
=========
|
=========
|
=========
|
=========
|
|
|
2023
|
|
Financial assets at fair value through profit or loss
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
|
Investments
|
857,351
|
23,246
|
2,095
|
882,692
|
|
Derivative instrument assets
|
–
|
1,769
|
–
|
1,769
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
857,351
|
25,015
|
2,095
|
884,461
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Financial liabilities at fair value through profit or
loss
|
|
|
|
|
|
Derivative instrument liabilities
|
–
|
(949)
|
–
|
(949)
|
|
|
=========
|
=========
|
=========
|
=========
|
The table below sets out the movements in level 3 financial
instruments during the year:
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Beginning of the year
|
2,095
|
448
|
|
Sales proceeds – Marwyn Value Investors
|
(99)
|
–
|
|
Sales gain – Marwyn Value Investors
|
59
|
–
|
|
Transfer into level 3 at cost – Prax Exploration & Production
and Unbound Group1
|
–
|
1,942
|
|
Movement in investment holding (losses)
|
(1,184)
|
(295)
|
|
|
--------------
|
--------------
|
|
End of the year
|
871
|
2,095
|
|
|
========
|
=========
|
1 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 31 August
2024 is based on the indicative bid price in the absence of
a last trade price. Following a corporate action event in
October 2023, the current year
valuation is based on a reduced number of shares compared to the
prior year. As part of this transaction, £99,000 was received as
cash in the reporting year. As at 31 August
2024, its fair value was £154,000 (2023:
£242,000).
TVC Holdings
TVC Holdings is an unlisted investment holding company incorporated
in Ireland. The valuation at
31 August 2024 is based on the NAV
from the 2022 audited company’s financial report. As at
31 August 2024, its fair value was
£251,000 (2023: £254,000). Subsequent to the year end, and
following an extraordinary general meeting on 17 October, it was
agreed to put the company into liquidation. It is anticipated that
an initial distribution of c. €0.09 will be made to shareholders,
subject to liquidator approval.
Studio Retail Group
Studio Retail Group operated as a multi-channel retail company. On
14 February 2022, the company was
suspended from trading on the London Stock Exchange. The company is
now delisted and in administration. As at 31
August 2024, its fair value was £nil (2023:
£nil).
McColl’s Retail Group
McColl’s Retail Group owns and operates convenience and newsagent
stores. The company was suspended from trading on 6 May 2022 after appointing administrators. As at
31 August 2024, its fair value was
£nil (2023: £nil).
Prax Exploration & Production
Hurricane Energy plc, an oil and gas exploration company, delisted
from the London Stock Exchange in June
2023, after it was acquired by Prax Exploration &
Production. The valuation on 31 August
2024 is based on the latest trade price from the JP Jenkins
platform. As at 31 August
2024, its fair value was £466,000 (2023:
£1,599,000).
Unbound Group
Unbound Group plc is a UK based company engaged in selling a range
of brands focused on the over 55 age demographics. On 17 July 2023, the company stopped trading and has
subsequently gone into administration. As at 31 August 2024, its fair value was £nil (2023:
£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 Annual Report. The
principal risks and their management are disclosed above and in
Note 17.
The Company’s gearing at the year end is set out below:
|
|
2024
|
|
Gross gearing
Asset exposure
|
Net gearing
Asset exposure
|
|
£’000
|
%1
|
£’000
|
%1
|
|
Investments
|
1,120,686
|
98.0
|
1,120,686
|
98.0
|
|
Long CFDs
|
115,050
|
10.1
|
115,050
|
10.1
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total long exposures
|
1,235,736
|
108.1
|
1,235,736
|
108.1
|
|
Short CFDs
|
2,117
|
0.2
|
(2,117)
|
(0.2)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Gross asset exposure/net market
exposure
|
1,237,853
|
108.3
|
1,233,619
|
107.9
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Shareholders’ funds
|
1,143,541
|
|
1,143,541
|
|
|
|
=========
|
|
=========
|
|
|
Gearing2
|
|
8.3%
|
|
7.9%
|
|
|
|
=========
|
|
=========
|
|
|
2023
|
|
Gross gearing
Asset exposure
|
Net gearing
Asset exposure
|
|
£’000
|
%1
|
£’000
|
%1
|
|
Investments
|
882,692
|
92.8
|
882,692
|
92.8
|
|
Long CFDs
|
130,073
|
13.7
|
130,073
|
13.7
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total long exposures
|
1,012,765
|
106.5
|
1,012,765
|
106.5
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Shareholders’ funds
|
951,049
|
|
951,049
|
|
|
|
=========
|
|
=========
|
|
|
Gearing2
|
|
6.5%
|
|
6.5%
|
|
|
|
=========
|
|
=========
|
1 Asset
exposure to the market expressed as a percentage of Shareholders’
funds.
2 Gearing
is the amount by which Asset Exposure exceeds Shareholders’ funds
expressed as a percentage of Shareholders’ funds.
19 TRANSACTIONS WITH THE MANAGER AND RELATED
PARTIES
FIL Investment Services (UK) Limited is the Company’s Alternative
Investment Fund Manager and has delegated portfolio management and
the role of company secretary to FIL Investments International
(“FII”). Both companies are Fidelity group companies.
Details of the current fee arrangements are given in the Directors’
Report in the Annual Report and in Note 4 above. During the year,
fees payable to FII for portfolio management services were
£6,095,000 (2023: £5,698,000). At the Balance Sheet date, fees for
portfolio management services of £570,000 (2023: £483,000) 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 £229,000 (2023: £303,000). At the
Balance Sheet date, marketing services of £52,000 (2023: £nil) 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, £19,000 (2023: £18,000) of
Employers’ National Insurance contributions were paid by the
Company. At the Balance Sheet date, Directors' fees of £14,000
(2023: £14,000) were accrued and payable.
20 RECONCILIATION OF NET RETURN ON ORDINARY ACTIVITIES
BEFORE FINANCE COSTS AND TAXATION TO NET CASH INFLOW FROM OPERATING
ACTIVITIES BEFORE FINANCE COSTS AND TAXATION
|
|
Year ended
31.08.24
£’000
|
Year ended
31.08.23
£’000
|
|
Net total return on ordinary activities before finance costs and
taxation
|
229,956
|
59,759
|
|
Less: net capital return on ordinary activities before finance
costs and taxation
|
(185,785)
|
(19,717)
|
|
|
---------------
|
---------------
|
|
Net revenue return on ordinary activities before finance
costs and taxation
|
44,171
|
40,042
|
|
Scrip dividends
|
(1,467)
|
–
|
|
Decrease in debtors
|
440
|
1,650
|
|
Increase in other creditors
|
139
|
–
|
|
|
---------------
|
---------------
|
|
Net cash inflow from operating activities before finance
costs and taxation
|
43,283
|
41,692
|
|
|
=========
|
=========
|
Alternative Performance Measures
The Company uses the following Alternative Performance Measures
which are all defined in the Glossary of Terms in the Annual
Report.
DISCOUNT/PREMIUM
The discount/premium is considered to be an Alternative Performance
Measure. It is the difference between the net asset value per
ordinary share of the Company and the ordinary share price and is
expressed as a percentage of the NAV per ordinary share. Details of
the Company’s discount are on the Financial Highlights page in the
Annual Report.
GEARING
Gearing (both gross and net) 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
The ongoing charges are considered to be an Alternative Performance
Measure. It 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.
|
|
2024
|
2023
|
|
Investment management fees (£’000)
|
6,095
|
5,698
|
|
Other expenses (£’000)
|
898
|
948
|
|
|
---------------
|
---------------
|
|
Ongoing charges (£’000)
|
6,993
|
6,646
|
|
|
=========
|
=========
|
|
Ongoing charges
|
0.70%
|
0.70%
|
|
|
=========
|
=========
|
Revenue, Capital and Total Returns per
Share
Revenue, capital and total returns per share are considered to be
Alternative Performance Measures. See the Income Statement and Note
8 above for further details.
Total Return Performance
Total return performance is considered to be an Alternative
Performance Measure. The NAV per ordinary share total return
includes reinvestment of the dividend in the NAV of the Company on
the ex-dividend date. The ordinary share price total return
includes the reinvestment of the net dividend in the month that the
share price goes ex-dividend.
The tables below provide information relating to the NAV per
ordinary share and the ordinary share price of the Company, the
impact of the dividend reinvestments and the total returns for the
years ended 31 August 2024 and
31 August 2023.
|
2024
|
Net asset
value per
ordinary
share
|
Ordinary
share
price
|
|
31 August 2023
|
293.44p
|
267.50p
|
|
31 August 2024
|
352.84p
|
321.50p
|
|
Change in year
|
+20.2%
|
+20.2%
|
|
Impact of dividend reinvestments
|
+3.9%
|
+4.1%
|
|
|
--------------
|
--------------
|
|
Total return for the year
|
+24.1%
|
+24.3%
|
|
|
=========
|
=========
|
|
2023
|
Net asset
value per
ordinary
share
|
Ordinary
share
price
|
|
31 August 2022
|
284.67p
|
260.50p
|
|
31 August 2023
|
293.44p
|
267.50p
|
|
Change in year
|
+3.1%
|
+2.7%
|
|
Impact of dividend reinvestments
|
+2.8%
|
+2.9%
|
|
|
--------------
|
--------------
|
|
Total return for the year
|
+5.9%
|
+5.6%
|
|
|
=========
|
=========
|
The Annual Financial Report Announcement is not the Company's
statutory accounts. The above results for the year ended
31 August 2024 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 2023 and 2024 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 2023 is derived from the statutory accounts for
2023 which have been delivered to the Registrar of Companies. The
2024 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
