Fidelity Special Values Plc - Annual Financial Report
Final Results for the year ended
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:
Company Secretary
01737 836347
CHAIRMAN’S STATEMENT
Whilst geopolitical challenges remain, from the conflict in the
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
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
The
Of course, equity investing is a long-term endeavour, and one year of standout performance should not be viewed in isolation.
Alex has been supported since 2020 by co-Portfolio Manager
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
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
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
BOARD OF DIRECTORS
In accordance with the
ANNUAL GENERAL MEETING
The Company’s AGM will be held at
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
OUTLOOK
In his presentation to shareholders at the Company’s 2023 AGM, Alex outlined his positive prognosis for the
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.
Chairman
ANNUAL GENERAL MEETING – THURSDAY,
The AGM of the Company will be held at
For those shareholders who are unable to attend in person, we will live-stream the formal business and presentations of the meeting online.
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
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,
Elsewhere, food manufacturer
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
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
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
ANSWER
While
Labour’s landslide victory is expected to result in improved political stability in the
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
Conditions surrounding the
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
Given the relatively robust performance of
While there continues to be a degree of uncertainty both in the
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
Portfolio Manager
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
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
The Board considers the risks listed below as the principal risks and uncertainties faced by the Company.
Principal Risks Description and Risk Mitigation
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
Market, Economic and Political Risks 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.
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.
Investment Performance Risk (including There is a risk that the use of
the use of derivatives and gearing) 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.
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
Regulatory Risk 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.
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
Cybercrime and Information Security continuous oversight, regular awareness
Risks 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.
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.
Business Continuity Risk 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.
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,
Key Person and Operational Support the Company has a key person dependency
Risks 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.
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
Discount Control Risk 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.
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
Environmental, Social and Governance does not carry the label. ESG
(“ESG”) Risk 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
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
· 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
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
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 (
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
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
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
·
The decision to appoint
·
The decision to pay an interim dividend of
· 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
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
· 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
The Directors confirm that to the best of their knowledge:
·
The Financial Statements, prepared in accordance with
· 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
Chairman
INCOME STATEMENT FOR THE YEAR ENDED
Year ended 31 August 2024 Year ended 31 August 2023
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Gains/
(losses) on 10 – 166,057 166,057 – (12,021) (12,021)
investments
Gains on
derivative 11 – 19,524 19,524 – 35,770 35,770
instruments
Investment
and 3 48,413 – 48,413 43,717 – 43,717
derivative
income
Other 3 2,751 – 2,751 2,971 – 2,971
interest
Investment
management 4 (6,095) – (6,095) (5,698) – (5,698)
fees
Other 5 (898) – (898) (948) – (948)
expenses
Foreign
exchange – 204 204 – (4,032) (4,032)
gains/
(losses)
--------------- --------------- --------------- --------------- --------------- ---------------
Net return
on ordinary
activities
before 44,171 185,785 229,956 40,042 19,717 59,759
finance
costs and
taxation
Finance 6 (5,794) – (5,794) (4,774) – (4,774)
costs
--------------- --------------- --------------- --------------- --------------- ---------------
Net return
on ordinary
activities 38,377 185,785 224,162 35,268 19,717 54,985
before
taxation
Taxation on
return on 7 (848) – (848) (672) – (672)
ordinary
activities
--------------- --------------- --------------- --------------- --------------- ---------------
Net return
on ordinary
activities
after 37,529 185,785 223,314 34,596 19,717 54,313
taxation
for the
year
========= ========= ========= ========= ========= =========
Return per
ordinary 8 11.58p 57.32p 68.90p 10.67p 6.08p 16.75p
share
========= ========= ========= ========= ========= =========
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
Company number 2972628
2024 2023
Notes £’000 £’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
Chairman
The Notes below form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
Other Total
Share Capital non- Share-
Share premium redemption distributable Capital Revenue holders’
capital account reserve reserve reserve reserve funds
Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000
Total
Shareholders’ 16,205 238,442 3,256 5,152 648,795 39,199 951,049
funds at 31
August 2023
Net return on
ordinary
activities – – – – 185,785 37,529 223,314
after
taxation for
the year
Dividends
paid to 9 – – – – – (30,822) (30,822)
Shareholders
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total
Shareholders’ 16,205 238,442 3,256 5,152 834,580 45,906 1,143,541
funds at 31
August 2024
========= ========= ========= ========= ========= ========= =========
Total
Shareholders’ 16,205 238,442 3,256 5,152 629,078 30,466 922,599
funds at 31
August 2022
Net return on
ordinary
activities – – – – 19,717 34,596 54,313
after
taxation for
the year
Dividends
paid to 9 – – – – – (25,863) (25,863)
Shareholders
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total
Shareholders’ 16,205 238,442 3,256 5,152 648,795 39,199 951,049
funds at 31
August 2023
========= ========= ========= ========= ========= ========= =========
The Notes below form an integral part of these Financial Statements.
CASH FLOW STATEMENT FOR THE YEAR ENDED
Year ended Year ended
31.08.24 31.08.23
Notes £’000 £’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 20 43,283 41,692
before finance costs and taxation
========= =========
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 – 8,190
clearing houses and brokers
--------------- ---------------
Net cash outflow from investing activities (53,987) (27,046)
========= =========
Net cash (outflow)/inflow before financing (17,093) 8,905
activities
========= =========
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 59,460 80,450
of the year
Effect of movement in foreign exchange 204 (4,032)
--------------- ---------------
Cash and cash equivalents at the end of 11,749 59,460
the year
========= =========
Represented by:
Cash at bank 2,072 2,028
Amount held in Fidelity Institutional 9,677 57,432
Liquidity Fund
--------------- ---------------
11,749 59,460
========= =========
The Notes below form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1 PRINCIPAL ACTIVITY
2 ACCOUNTING POLICIES
The Company has prepared its Financial Statements in accordance with
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
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
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
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
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
3 INCOME
Year ended Year ended
31.08.24 31.08.23
£’000 £’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 2,723 2,965
and money market funds
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 Year ended
31.08.24 31.08.23
£’000 £’000
Investment management fees 6,095 5,698
========= =========
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 Year ended
31.08.24 31.08.23
£’000 £’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 53 50
Statements2
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 Year ended
31.08.24 31.08.23
£’000 £’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 Year ended
31.08.24 31.08.23
£’000 £’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
Year ended Year ended
31.08.24 31.08.23
£’000 £’000
Net return on ordinary activities before 224,162 54,985
taxation
--------------- ---------------
Net return on ordinary activities before
taxation multiplied by the blended rate of UK 56,040 11,833
corporation tax of 25.00% (2023: blended rate of
21.52%)
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
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
8. RETURN PER ORDINARY SHARE
Year ended Year ended
31.08.24 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
£’000 £’000
Net revenue return on ordinary activities after 37,529 34,596
taxation
Net capital return on ordinary activities after 185,785 19,717
taxation
--------------- ---------------
Net total return on ordinary activities after 223,314 54,313
taxation
========= =========
Number Number
Weighted average number of ordinary shares held outside 324,098,920 324,098,920
of Treasury
========= =========
9. DIVIDENDS PAID TO SHAREHOLDERS
Year ended Year ended
31.08.24 31.08.23
£’000 £’000
Dividends paid
Interim dividend of 3.24 pence per ordinary 10,501 –
share paid for the year ended 31 August 2024
Final dividend of 6.27 pence per ordinary share 20,321 –
paid for the year ended 31 August 2023
Interim dividend of 2.53 pence per ordinary – 8,200
share paid for the year ended 31 August 2023
Final dividend of 5.45 pence per ordinary share – 17,663
paid for the year ended 31 August 2022
--------------- ---------------
30,822 25,863
========= =========
Dividends proposed
Final dividend proposed of 6.30 pence per 20,418 –
ordinary share for the year ended 31 August 2024
Final dividend proposed of 6.27 pence per – 20,321
ordinary share for the year ended 31 August 2023
--------------- ---------------
20,418 20,321
========= =========
The Directors have proposed the payment of a final dividend of
10 INVESTMENTS
2024 2023
£’000 £’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 Year ended
31.08.24 31.08.23
£’000 £’000
Purchases transaction costs 1,606 1,688
Sales transaction costs 135 167
--------------- ---------------
1,741 1,855
========= =========
11. DERIVATIVE INSTRUMENTS
Year ended Year ended
31.08.24 31.08.23
£’000 £’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 3,400 9,992
CFDs
Movement in investment holding losses on short (102) –
CFDs
--------------- ---------------
19,524 35,770
========= =========
2024 2023
Fair value Fair value
£’000 £’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
Asset Asset
Fair value exposure Fair value exposure
£’000 £’000 £’000 £’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 2023
£’000 £’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 2023
£’000 £’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
Nominal Nominal
Number of value Number of value
shares £’000 shares £’000
Issued, allotted
and fully paid
Ordinary shares of
5 pence each held
outside of
Treasury
Total share
capital – 324,098,920 16,205 324,098,920 16,205
Beginning of the
year
New ordinary
shares – – – –
issued/repurchased
----------------- ----------------- ----------------- -----------------
Total share
capital – End of 324,098,920 16,205 324,098,920 16,205
the year
========== ========== ========== ==========
During the year, no new ordinary shares were issued (2023: nil shares). At
15 CAPITAL AND RESERVES
Other Total
Share Capital non- Share-
Share premium redemption distributable Capital Revenue holders’
capital account reserve reserve reserve reserve funds
£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1
September 16,205 238,442 3,256 5,152 648,795 39,199 951,049
2023
Gains on
investments – – – – 166,057 – 166,057
(see Note
10)
Gains on
long CFDs – – – – 19,264 – 19,264
(see Note
11)
Gains on
short CFDs – – – – 260 – 260
(see Note
11)
Foreign
exchange – – – – 204 – 204
gains
Revenue
return on
ordinary
activities – – – – – 37,529 37,529
after
taxation for
the year
Dividends
paid to – – – – – (30,822) (30,822)
Shareholders
(see Note 9)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 August 16,205 238,442 3,256 5,152 834,580 45,906 1,143,541
2024
========= ========= ========= ========= ========= ========= =========
Other Total
Share Capital non- Share-
Share premium redemption distributable Capital Revenue holders’
capital account reserve reserve reserve reserve funds
£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1
September 16,205 238,442 3,256 5,152 629,078 30,466 922,599
2022
Losses on
investments – – – – (12,021) – (12,021)
(see Note
10)
Gains on
long CFDs – – – – 35,770 – 35,770
(see Note
11)
Foreign
exchange – – – – (4,032) – (4,032)
losses
Revenue
return on
ordinary
activities – – – – – 34,596 34,596
after
taxation for
the year
Dividends
paid to – – – – – (25,863) (25,863)
Shareholders
(see Note 9)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 August 16,205 238,442 3,256 5,152 648,795 39,199 951,049
2023
========= ========= ========= ========= ========= ========= =========
The capital reserve balance at
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
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
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 2023
£’000 £’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 97,066 69,793
interest
========= =========
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
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
Long
Investments exposure to Cash
held at fair derivative and cash
value instruments1 Debtors equivalents2 Total
Currency £’000 £’000 £’000 £’000 £’000
Euro 54,522 41,800 751 – 97,073
US dollar 39,752 – 542 33 40,327
Swiss 37,673 – 273 – 37,946
franc
Swedish 22,811 – – – 22,811
krona
Australian 12,439 – – – 12,439
dollar
South
African 2,024 – – – 2,024
rand
Canadian – – – 28 28
dollar
UK 951,465 73,250 6,634 11,688 1,043,037
sterling
--------------- --------------- --------------- --------------- ---------------
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
2023
Long
Investments exposure to Cash
held at fair derivative and cash
value instruments1 Debtors2 equivalents3 Total
Currency £’000 £’000 £’000 £’000 £’000
Euro 67,412 77,457 823 – 145,692
US dollar 31,515 – 722 36,855 69,092
Swiss 36,842 – 224 – 37,066
franc
Swedish 14,175 – – – 14,175
krona
Australian 7,782 – 49 – 7,831
dollar
Norwegian 4,841 – – – 4,841
krone
South
African 2,468 – – – 2,468
rand
Canadian 1,703 – – 29 1,732
dollar
UK 715,954 52,616 7,119 22,576 798,265
sterling
--------------- --------------- --------------- --------------- ---------------
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
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:
Short exposure to 2024
Other
derivative creditors Total
Currency instruments1 £’000 £’000
£’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.
Short exposure to 2023
Other
derivative creditors Total
Currency instruments1 £’000 £’000
£’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
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
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
Foreign currency risk sensitivity analysis
Based on the financial instruments held and currency exchange rates at
Other price risk – exposure to investments sensitivity analysis
Based on the listed investments held and share prices at
An increase of 10% in the valuation of unlisted investments held at
Other price risk – net exposure to derivative instruments sensitivity analysis
Based on the derivative instruments held and share prices at
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
Valued by reference to inputs other than quoted prices included
Level 2 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 Level 1 Level 2 Level 3 Total
at fair value £’000 £’000 £’000 £’000
through profit
or loss
Investments 1,096,402 23,413 871 1,120,686
Derivative
instrument – 4,318 – 4,318
assets
--------------- --------------- --------------- ---------------
1,096,402 27,731 871 1,125,004
========= ========= ========= =========
Financial
liabilities at
fair value
through profit
or loss
Derivative
instrument – (200) – (200)
liabilities
========= ========= ========= =========
2023
Financial assets Level 1 Level 2 Level 3 Total
at fair value £’000 £’000 £’000 £’000
through profit
or loss
Investments 857,351 23,246 2,095 882,692
Derivative
instrument – 1,769 – 1,769
assets
--------------- --------------- --------------- ---------------
857,351 25,015 2,095 884,461
========= ========= ========= =========
Financial
liabilities at
fair value
through profit
or loss
Derivative
instrument – (949) – (949)
liabilities
========= ========= ========= =========
The table below sets out the movements in level 3 financial instruments during the year:
Year ended Year ended
31.08.24 31.08.23
£’000 £’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 & – 1,942
Production and Unbound Group1
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
McColl’s
McColl’s
Prax Exploration & Production
Unbound Group plc is a
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 Net gearing
Asset exposure 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 1,235,736 108.1 1,235,736 108.1
exposures
Short CFDs 2,117 0.2 (2,117) (0.2)
--------------- --------------- --------------- ---------------
Gross asset
exposure/net 1,237,853 108.3 1,233,619 107.9
market exposure
========= ========= ========= =========
Shareholders’ 1,143,541 1,143,541
funds
========= =========
Gearing2 8.3% 7.9%
========= =========
2023
Gross gearing Net gearing
Asset exposure 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 1,012,765 106.5 1,012,765 106.5
exposures
========= ========= ========= =========
Shareholders’ 951,049 951,049
funds
========= =========
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
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’
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 Year ended
31.08.24 31.08.23
£’000 £’000
Net total return on ordinary activities before 229,956 59,759
finance costs and taxation
Less: net capital return on ordinary activities (185,785) (19,717)
before finance costs and taxation
--------------- ---------------
Net revenue return on ordinary activities before 44,171 40,042
finance costs and taxation
Scrip dividends (1,467) –
Decrease in debtors 440 1,650
Increase in other creditors 139 –
--------------- ---------------
Net cash inflow from operating activities before 43,283 41,692
finance costs and taxation
========= =========
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
Net asset
value per Ordinary
ordinary share
2024 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%
========= =========
Net asset
value per Ordinary
ordinary share
2023 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
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
