Final Results
Fidelity Special Values PLC
Final Results for the year ended 31 August 2016
Financial Highlights:
- Fidelity Special Values PLC’s NAV increases by 9.9% over the year but, due to the impact of Brexit on the banking stocks and other selected holdings, slightly lagged the 11.7% return of the Benchmark Index
- For the three years, performance of the NAV and share price was +30.5% and +24.1% respectively, both ahead of the Benchmark Index return of +20.4%. For the five years, the NAV and share price performance was +117.4% and +121.0%, significantly ahead of the Benchmark Index return of +57.7%
- The Board recommends a final dividend of 2.70 pence per share and together with the interim dividend of 1.00 pence per share (totalling 3.70 pence) represents a 10.4% increase from the 3.35 pence paid in 2015
“Having introduced Alex Wright as Portfolio Manager in 2012, the ability of the Company to invest across the market, in terms of size (market capitalisation) of underlying investments, while focusing particularly on undervalued small and medium companies, has proved advantageous. The valuation of the market today is neither too expensive nor very cheap compared to history, and with muted growth prospects, we will need strong stockpicking and risk management to drive the Company’s NAV. We feel that the strategy in place is well aligned with the long term interests of the Company’s Shareholders.†Andy Irvine, Chairman
Contacts
For further information, please contact:
Bonita Guntrip
Senior Company Secretary, FIL Investments International
01737 837320
Chairman’s Statement
I have pleasure in presenting the Annual Report of Fidelity Special Values PLC for the year ended 31 August 2016, my first as Chairman of the Company.
Over the past few years, the Board has worked to develop Fidelity Special Values PLC as an actively managed, contrarian investment trust which is appealing to both its existing and potential investors. As Chairman, I intend to continue to lead the Company in this direction.
Having introduced Alex Wright as Portfolio Manager in 2012, the ability of the Company to invest across the market, in terms of size (market capitalisation) of underlying investments, while focusing particularly on undervalued small and medium companies, has proved advantageous. We believe the Company is well positioned to be the investment of choice for those seeking exposure to UK listed companies but with the benefit of investing up to 20% of the portfolio in listed companies on overseas exchanges in order to enhance Shareholder returns. At the date of this report, 15.9% of the Company’s portfolio was held in overseas securities.
Performance
The net asset value (“NAVâ€) of the Company increased by 9.9% over the year but slightly lagged the 11.7% return of the Benchmark Index.
The underperformance of the NAV against the Index was caused by some of the Company’s financial sector positions falling due to unfavourable market sentiment around banking stocks in particular. Banks were especially hard hit by the fallout of the Brexit vote, and the wider market sell-off seen in the days immediately following the vote also had an impact on selected holdings elsewhere in the portfolio. Nevertheless, Alex’s commendable stock selection abilities have generated strong returns in other areas of the portfolio, while his ability to avoid some of the more troubled areas has also proved supportive of overall performance. Despite the ongoing uncertainty created by a variety of macroeconomic influences and political events, bottom-up stock selection continued to be the driving force behind the portfolio’s strong absolute return, demonstrating the value of fundamental research and a contrarian approach.
The contrarian nature of the Company’s investment selection means that the Board does not expect a consistent outperformance of the Index every single year, though we do believe that the portfolio has the potential to outperform significantly over the longer term as illustrated by the Company’s three and five year performance. For the three years, performance of the NAV and share price was +30.5% and +24.1% respectively, both ahead of the Benchmark Index return of +20.4%. For the five years, the NAV and share price performance was +117.4% and +121.0%, significantly ahead of the Benchmark Index return of +57.7% (all numbers on a total return basis). As ever, the Board encourages Shareholders to take a similarly long term view of their investment in the Company’s shares.
The Portfolio Manager’s Review below covers performance and related factors in greater detail.
Outlook
The year under review saw some volatility in asset prices, but the weakness in sterling post the Brexit vote and the Bank of England’s decision to cut interest rates and further expand monetary easing has provided strong support to the market towards the end of the period. Alex continues to closely observe the emerging trends in the UK economy, particularly the levels of confidence among consumers and companies. These insights will form the basis of his stock selection. The valuation of the market today is neither too expensive nor very cheap compared to history, and with muted growth prospects, we will need strong stockpicking and risk management to drive the Company’s NAV. We feel that the strategy in place is well aligned with the long term interests of the Company’s Shareholders.
OTHER MATTERS
Discount, Share Repurchases and Issues
Under the Company’s discount management policy, the Board seeks to maintain the discount in single digits in normal market conditions and will, subject to market conditions, repurchase ordinary shares with the objective of stabilising the share price discount based on the cum income NAV within a single digit range.
The level of discount has widened from 2.0% at the start of the reporting year to 10.0% as at 31 August 2016. Post the Brexit vote, there was a general widening of discounts in the investment trust sector and the Company’s discount reached a level of 13.3%. Although these were exceptional times, the Board stepped in to carry out some share repurchases. During the year, the Company’s shares traded within a range of 13.3% discount to 1.3% premium. The Board continues to monitor the discount closely and take action where it feels it will be effective.
During the reporting year, the Company repurchased 1,175,000 ordinary shares into Treasury. Since the end of the reporting period and as at the date of this report, the Company has repurchased a further 725,000 shares into Treasury.
Gearing
The Board has agreed with the Portfolio Manager that if he is able to find attractive opportunities in the market, then the Company’s gearing should be allowed to rise, and stay geared, as long as the opportunities remain. Net gearing (see Glossary of Terms in the Annual Report) was 7.9% as at 31 August 2016. Combined with Alex Wright’s contrarian and value-focused investment philosophy, and making good use of the Company’s structural advantages over its open-ended counterparts, this should continue to add value for Shareholders over the long term.
Dividend
The Board’s dividend policy is to pay dividends twice yearly in order to smooth the dividend payment throughout the year. An interim dividend of 1.00 pence per share (2015: 1.00 pence* was paid on 25 May 2016. The Board recommends a final dividend of 2.70 pence per share for the year ended 31 August 2016 for approval by Shareholders at the Annual General Meeting (“AGMâ€) on 13 December 2016. The interim and final dividends represent a total increase of 10.4% over the 3.35 pence paid for the year ended 31 August 2015. This dividend will be payable on 19 December 2016 to Shareholders on the register at close of business on 18 November 2016 (ex-dividend date 17 November 2016).
* Restated for the five for one sub-division of shares which took place on 29 June 2015
Shareholders may choose to reinvest their dividends to purchase more shares in the Company. Details of the Dividend Reinvestment Plan are set out in the Annual Report.
The interim dividend that the Company has paid in the last two years is less than 30% of the total dividend paid for the reporting year. We believe that Shareholders would welcome a more evenly balanced dividend and the Board has therefore determined to increase the weighting of the interim payment.
Board of Directors
In common with our practice since 2004, all Directors are subject to annual re-election and their biographical details are included in the Annual Report to assist Shareholders when considering their votes.
After six years as Chairman and eleven years as a Director, Lynn Ruddick stepped down from the Board on 5 July 2016 and I succeeded her as Chairman. I would like to take this opportunity to thank her on behalf of the Board, Shareholders and Fidelity for her invaluable contribution to the Company. She will be missed. At the same time, Sharon Brown was appointed as the Senior Independent Director and will also continue as Chairman of the Audit Committee.
Viability Statement
The 2014 UK Corporate Governance Code requires the Directors to report on the viability of the Company over a longer period than the twelve month period required by the Going Concern below. This new statement can be found below.
Continuation Vote
In accordance with the Company’s Articles of Association, the Company is subject to a continuation vote every three years. The next such vote is at the AGM on 13 December 2016. The Company’s performance record has been very strong since launch with a NAV increase of 1,406.9% compared to the Benchmark Index of 384.1%. The share price has increased by 1,296.7% since launch. Although the one year NAV and share price total returns have underperformed the Benchmark Index, the 3 and 5 years performance remains well ahead of the Index. In addition, the prospects of the Company over a five year investment horizon can be found in the Viability Statement below. Therefore your Board recommends that Shareholders vote in favour of the continuation vote.
Annual General Meeting: Tuesday 13 December 2016 at 11.30 am
The AGM will be held at 11.30 am on Tuesday 13 December 2016 at Fidelity’s offices at Painters’ Livery Hall, 9 Little Trinity Lane, London EC4V 2AD (Mansion House tube station). Shareholders are asked to note the change of address to our usual AGM venue which is undergoing refurbishment.
It is the most important meeting that we, the Directors of your Company, have with our Shareholders each year. 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. We hope as many of you as possible are able to come and join us for this occasion.
Andy Irvine
Chairman
3 November 2016
Portfolio Manager’s Review
Introduction
The Company’s NAV return of 9.9% (total return basis) for the reporting year was strong in absolute terms, although slightly behind the Benchmark Index, which returned 11.7%. The UK stock market performed strongly in 2016, especially in the post Brexit vote period, as concerns eased about the potential fallout of the referendum, and a weakening sterling exchange rate provided a benefit for many of the large international companies listed in London.
In my report, I will explore some of the main influences on the Company’s performance and some of the significant changes in the portfolio over the last financial year.
UK Market and Economic Review
· The UK stock market rose over the 12 month period, as the slow expansion in the global economy continued, and central banks remained focussed on monetary ‘easing’. The UK market also benefited from the fall in the sterling exchange rate.
· The UK economy has continued to advance, with GDP growing by 0.6% in the three months to the end of June, most of it coming in the run-up to the Brexit vote. However, following the UK’s vote to leave the European Union (“EUâ€), the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly.
· The fall in sterling is likely to put some upward pressure on inflation in the near term. At the end of July 2016, the annual rate of Consumer Price Index (CPI) stood at 0.6%, up from 0% at the end of August 2015.
· The Bank of England reduced its interest rate from 0.5% to 0.25%, a new record low and the first decrease in rates since 2009. The central bank also signalled that rates could go lower if the economy worsens. Alongside this, it announced additional measures to stimulate the UK economy, including a £100 billion scheme to force banks to pass on the low interest rate to households and businesses. It will also buy £60 billion of UK government bonds and £10 billion of corporate bonds.
The Company’s financial year, which ended on 31 August 2016, was positive with regard to the NAV performance, as several of our key holdings performed well, but overall returns slightly lagged the broader market index due in large part to the weak performance of our financials holdings which were out of favour with the market.
The start of the 12-month review period was marked by concerns over the health of the global economy. Nevertheless, UK equities rallied in the fourth quarter to end 2015 with small gains, as stock prices were buoyed by improved investor confidence. However, the stock market witnessed periodic bouts of volatility, particularly following the terrorist attacks in Paris, continuing geopolitical tensions and emerging market uncertainty. Steep falls in Chinese stock markets in January led to a slow start to 2016, but markets rallied thereafter as positive monetary policy announcements from leading central banks allayed concerns about global economic growth to some extent. The European Central Bank’s aggressive plans to ramp up stimulus measures in the eurozone and the Fed’s cautious stance on further interest rate increases were well received.
The build-up to the Brexit referendum and its aftermath dominated investor sentiment during the second quarter of 2016. Although victory for the Leave camp led to an immediate sharp fall in stock prices, the market recovered quickly as the political situation stabilised and the Bank of England lowered interest rates.
Against this macro-economic and political backdrop, investors continued to favour assets with perceived safety, leading to rising valuations in ‘defensive’ categories such as tobacco, staples and utilities. Sectors with greater uncertainty and negative exposure to falling interest rates remained unloved and cheap.
Portfolio Review
Although our bias towards smaller (more domestic) companies and value (out of favour) stocks has created a challenging environment for performance, we have had some very strong contributions from stock selection which has allowed us to deliver another year of strong absolute returns not far short of the overall market.
We have seen strong performance from our positions in US technology large-caps Hewlett Packard Enterprise and HP Inc. Following the company’s split earlier in the year, the stocks have begun to recover from very low starting valuations. Positive outlook for earnings growth was another major driver of fund returns during the review period. Notably, the holdings in financial services company Burford Capital and repair and insurance company HomeServe rose, supported by strong increases in their annual profits.
Merger and acquisition (“M&Aâ€) activity also continued to provide significant support to fund performance. For example, business outsourcer Xchanging was a notable contributor as its shares rose after the company said its board intends to unanimously recommend the cash offer from technology consulting company Computer Sciences Corporation. This trend has sustained even post-Brexit as overseas acquirers continue to look at potential M&A opportunities in the UK market. A combination of lower prices and weaker sterling should drive the number of takeouts higher. Since the referendum result, the portfolio has already seen a bid announced on Wireless Group at an 80% premium. Our strategy has historically benefited from M&A activity and I would expect this to continue.
On the downside, holdings in banking stocks declined following the Brexit vote. Investors were concerned that the UK’s exit from the EU would result in a slowdown in loan growth and put further pressure on interest margins. Bank of Ireland and Lloyds Banking Group were among the key detractors from performance. Despite a weak growth outlook, banking balance sheets are generally strong and valuations are very low. We remain invested in the sector, although I have trimmed some positions to reflect the more challenging economic environment. The sector has not had a good run of late but we continue to believe that the stocks we own in this category are materially misunderstood by the market. Elsewhere, the allocation to real estate agency group Countrywide declined due to concerns over the implications of the UK’s exit from the EU and a slowdown in housing delivery, although latest housing market data has shown signs of stabilisation.
As many investors have sought the safety of large-cap defensive names, we have been finding attractive ideas in the cyclical sectors of the UK market. We used this period to add to holdings in CRH and Wolseley. We also bought a new position in insulation group SIG. There are also several examples of contrarian small-caps that provide the Company with geographically diversified sales exposure. These include emerging market consumer lending company International Personal Finance and Photo-Me. The former has a positive growth outlook that is not reflected in the distressed valuation of its shares. Photo-Me is an operator of photobooths that is expanding into laundry machines and is an extremely cash generative business.
With the level of background uncertainty on the rise, the attraction of equity ‘safe havens’ has proved irresistible for many investors. This is intuitively sensible and understandable behaviour during times of stress. We have spoken before about how staples and tobacco companies trade on high valuations and have high margins, and so although in the short term, behavioural factors may drive them higher, the vast majority remain unsuitable investments for our investment process, which seeks to find positive change in unloved companies.
Outlook
I invest in companies when I believe they are undergoing a positive change, which is not reflected by the share price. These changes are not contingent on the UK’s membership of the EU. If the UK economy is able to find a stable footing, and the global recovery continues then many stocks that are currently being sold aggressively will appear significantly undervalued, providing a positive outlook for future performance.
Alex Wright
Portfolio Manager
3 November 2016
Fidelity International won the Money Observer’s Premier Investment Trust Group of the year.
Strategic Report
Principal Risks and Uncertainties and Risk Management
As required by provision C.2.1 of the 2014 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. The Board, with the assistance of the Manager, has developed a risk matrix which, as part of the risk management and internal control process, identifies the key risks that the Company faces. The risks identified and placed on the Company’s risk matrix and graded appropriately. This process, together with the policies and procedures for the mitigation of risks, is updated and reviewed regularly by the Audit Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives. The Alternative Investment Fund Manager, FIL Investment Services (UK) Limited, also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal risks and to ensure that the Board can continue to meet its UK corporate governance obligations. The Board considers the following as the principal risks and uncertainties faced by the Company.
EXTERNAL RISKS
| Principal Risks | Description and Risk Mitigation | |
| Market Risk | The Company’s assets consist mainly of listed securities and the principal risks are therefore market related such as market downturns, interest rate movements, deflation/inflation, terrorism and protectionism. | |
| Risks to which the Company is exposed and which form part of the market risks category are included in Note 17 to the Financial Statements in the Annual Report together with summaries of the policies for managing these risks. These are: market price risk (which comprises interest rate risk, foreign currency risk and other price risk); liquidity risk; counterparty risk; credit risk; and derivative instruments risk. | ||
| Long CFDs are currently used for gearing purposes. In addition, a day-to-day overdraft facility can be used if required. | ||
| Share Price Risk | Share prices are volatile and for the short term Shareholder, likely to want to sell in the near future, volatility is a risk. The Board does not believe that volatility should be a significant risk for the long term Shareholder. | |
| Discount Control Risk | During the 12 months to 31 August 2016, the discount widened as outlined in the Chairman’s Statement. The Board cannot fully control the discount at which the Company’s share price trades in relation to net asset value. However, it can influence this through its share repurchase policy and through creating demand for shares through good performance and an active investor relations programme. | |
Regulatory Risk |
The Company’s share price, NAV and discount volatility are monitored daily by the Manager and considered by the Board regularly. The Company may be impacted by changes in legislation, taxation or regulation. These are monitored at each Board meeting and managed through active lobbying by the Manager. |
|
| INTERNAL RISKS | ||
| Principal Risks | Description and Risk Mitigation | |
| Investment Management Risk | The Board relies on the Portfolio Manager’s skills and judgement to make investment decisions based on research and analysis of individual stocks and sectors. The Board reviews the performance of the asset value of the portfolio against the Company’s Benchmark Index and 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 and the Board accepts that by targeting long term results the Company risks volatility in the shorter term. The Brexit vote impacted performance as outlined in the Chairman’s Statement. | |
| Governance, Operational, Financial, Compliance, Administration etc Risks | The Company relies on a number of third party service providers, principally the Manager, Registrar, Custodian and Depositary. It is dependent on the effective operation of the Manager’s control systems and those of its service providers with regard to the security of the Company’s assets, dealing procedures and accounting records. Risks associated with these services are generally rated as low, although the financial consequences could be serious, including the associated reputational damage to the Company. The risk posed by external cybercrime threats is rated as significant and the Board receives regular updates on measures taken by the Manager to mitigate cyber attacks. |
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, issued by the Financial Reporting Council in September 2014, 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 as detailed in the investment objective in the Annual Report. Long term is considered by the Directors to be at least five years and accordingly they believe 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.
A risk to the Company’s continuation is Shareholder dissatisfaction, and therefore in accordance with the Company’s Articles of Association, a continuation vote is held every three years, the next one taking place at this year’s Annual General Meeting.
In making an assessment on the viability of the Company, the Board has considered the following:
· The ongoing relevance of the investment objective in prevailing market conditions;
· The principal risks and uncertainties facing the Company as set out above and their potential impact;
· The future demand for the Company’s shares;
· The Company’s share price discount to the NAV;
· The liquidity of the Company’s portfolio;
· The level of income generated by the Company; and
· Future income and expenditure forecasts.
The Company’s performance has been strong since launch. The Board regularly reviews the investment policy and considers it to be 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 Manager’s compliance with the Company’s investment objective, its investment strategy and asset allocation;
· The fact that the portfolio mainly comprises readily realisable securities which can be sold to meet funding requirements if necessary;
· The Board’s discount management policy; and
· The ongoing processes for monitoring operating costs and income which are modest in comparison to the Company’s total assets
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
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 (being mainly securities which are readily realisable) and its expenditure and cash flow projections and have concluded that the Company has adequate resources to continue to adopt the going concern basis for at least 12 months from the date of this Annual Report. The prospects of the Company over a period longer than 12 months can be found in the Viability Statement above.
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 year. Under that law they have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice, including FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland. The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss for the period.
In preparing these Financial Statements the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements;
· prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
The Directors are responsible for ensuring that adequate accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that 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 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.fidelityinvestmenttrusts.com 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 the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
· The Annual 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.
The Directors consider that 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.
Approved by the Board on 3 November 2016 and signed on its behalf.
Andy Irvine
Chairman
Income Statement
for the year ended 31 August 2016
| Year ended 31 August 2016 | Year ended 31 August 2015 | ||||||
| revenue | capital | total | revenue | capital | total | ||
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gains on investments | 10 | – | 43,853 | 43,853 | – | 18,355 | 18,355 |
| Gains on long CFDs | 11 | – | 1,328 | 1,328 | – | 21,843 | 21,843 |
| Losses on short CFDs, futures, options and warrants | 11 | – | (3,840) | (3,840) | – | (13,239) | (13,239) |
| Investment and net derivative income | 3 | 18,022 | – | 18,022 | 16,044 | – | 16,044 |
| Other interest | 3 | 127 | – | 127 | 155 | – | 155 |
| Investment management fees | 4 | (5,186) | – | (5,186) | (5,128) | – | (5,128) |
| Other expenses | 5 | (694) | – | (694) | (788) | – | (788) |
| Foreign exchange gains/(losses) | 28 | (285) | (257) | (5) | (490) | (495) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return on ordinary activities before finance costs and taxation | 12,297 | 41,056 | 53,353 | 10,278 | 26,469 | 36,747 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Finance costs | 6 | (1,085) | – | (1,085) | (1,063) | – | (1,063) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return on ordinary activities before taxation | 11,212 | 41,056 | 52,268 | 9,215 | 26,469 | 35,684 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Taxation on return on ordinary activities | 7 | (175) | – | (175) | (149) | – | (149) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return on ordinary activities after taxation for the year | 11,037 | 41,056 | 52,093 | 9,066 | 26,469 | 35,535 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Return per ordinary share | 8 | 4.15p | 15.42p | 19.57p | 3.39p | 9.90p | 13.29p |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
The Company does not have any other comprehensive income. Accordingly the net return on ordinary activities after taxation for the year is also the total comprehensive income for the year and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.
The Notes form an integral part of these Financial Statements.
Balance Sheet
as at 31 August 2016
Company number 2972628
| 2016 | 2015 | ||
| Notes | £’000 | £’000 | |
| Fixed assets | |||
| Investments | 10 | 539,096 | 510,256 |
| --------------- | --------------- | ||
| Current assets | |||
| Derivative instruments | 11 | 16,169 | 28,496 |
| Debtors | 12 | 4,995 | 3,172 |
| Amounts held at futures clearing houses and brokers | 7,365 | 47 | |
| Fidelity Institutional Liquidity Fund | 24,359 | 500 | |
| Cash at bank | 2,469 | 4,682 | |
| --------------- | --------------- | ||
| 55,357 | 36,897 | ||
| --------------- | --------------- | ||
| Creditors | |||
| Derivative instruments | 11 | (13,783) | (8,204) |
| Other creditors | 13 | (2,379) | (1,613) |
| --------------- | --------------- | ||
| (16,162) | (9,817) | ||
| --------------- | --------------- | ||
| Net current assets | 39,195 | 27,080 | |
| --------------- | --------------- | ||
| Net assets | 578,291 | 537,336 | |
| --------------- | --------------- | ||
| Capital and reserves | |||
| Share capital | 14 | 13,532 | 13,532 |
| Share premium account | 15 | 95,896 | 95,896 |
| Capital redemption reserve | 15 | 3,256 | 3,256 |
| Other non-distributable reserve | 15 | 5,152 | 5,152 |
| Capital reserve | 15 | 450,196 | 411,356 |
| Revenue reserve | 15 | 10,259 | 8,144 |
| --------------- | --------------- | ||
| Total Shareholders’ funds | 578,291 | 537,336 | |
| --------------- | --------------- | ||
| Net asset value per ordinary share | 16 | 217.94p | 201.61p |
| --------------- | --------------- |
The Financial Statements were approved by the Board of Directors on 3 November 2016 and were signed on its behalf by:
Andy Irvine
Chairman
The Notes form an integral part of these Financial Statements.
Statement of Changes in Equity
for the year ended 31 August 2016
| total | ||||||||
| share | capital | other 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’ funds at 31 August 2015 | 13,532 | 95,896 | 3,256 | 5,152 | 411,356 | 8,144 | 537,336 | |
| Repurchase of ordinary shares | – | – | – | – | (2,216) | – | (2,216) | |
| Net return on ordinary activities after taxation for the year | – | – | – | – | 41,056 | 11,037 | 52,093 | |
| Dividends paid to Shareholders | 9 | – | – | – | – | – | (8,922) | (8,922) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 31 August 2016 | 13,532 | 95,896 | 3,256 | 5,152 | 450,196 | 10,259 | 578,291 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 31 August 2014 | 13,532 | 95,767 | 3,256 | 5,152 | 390,883 | 10,629 | 519,219 | |
| Issue of ordinary shares | – | 129 | – | – | 603 | – | 732 | |
| Repurchase of ordinary shares | – | – | – | – | (6,599) | – | (6,599) | |
| Net return on ordinary activities after taxation for the year | – | – | – | – | 26,469 | 9,066 | 35,535 | |
| Dividends paid to Shareholders | 9 | – | – | – | – | – | (11,551) | (11,551) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 31 August 2015 | 13,532 | 95,896 | 3,256 | 5,152 | 411,356 | 8,144 | 537,336 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
The Notes 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 for the first time applied the revised UK Generally Accepted Accounting Practice (“UK GAAPâ€), issued by the Financial Reporting Council (“FRCâ€) and these Financial Statements have been prepared in accordance with FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland, effective for accounting periods beginning on or after 1 January 2015. The Company has early adopted the amendments to FRS 102: Fair value hierarchy disclosures, issued by the FRC in March 2016. The Financial Statements have also been prepared in accordance with the revised Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORPâ€) issued by the Association of Investment Companies (“AICâ€), in November 2014.
As a result of the adoption of the revised UK GAAP and SORP presentation formats have been amended where appropriate. The Reconciliation of Movements in Shareholders’ Funds has been renamed the Statement of Changes in Equity. A Cash Flow Statement has not been presented. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investments are highly liquid and are carried at market value. The net return on ordinary activities after taxation for the year and total Shareholders’ funds remain unchanged from what was reported under the former UK GAAP basis applied in the 2015 Annual Report and the 2015 figures have not required restatement.
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. A resolution proposing the continuation of the Company as an investment trust will be put to Shareholders at the AGM on 13 December 2016. The Directors are recommending that Shareholders vote in favour of this resolution. In accordance with this recommendation and given that the Company’s assets consist mainly of securities which are readily realisable and that the Directors have a reasonable expectation that the Company has adequate resources to continue for the foreseeable future, the Directors believe that it is appropriate to prepare the Financial Statements on a going concern basis. Accordingly the Financial Statements do not include any adjustments that may arise from a reconstruction or liquidation of the Company. Such adjustments would include expenses of reconstruction or liquidation along with any costs associated with realising the portfolio.
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 significant risk of causing a material adjustment to the carrying amounts of assets and liabilities. These judgements include making assessments of the possible valuations in the event of a listing and 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. UK dividends are accounted for net of any tax credit. 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. Debt security interest 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 (“CFDsâ€) and derivative expenses paid as dividends on short CFDs are accounted for on the date on which the right to receive or make the payment is established, normally the ex dividend date. The net amount is credited to the revenue column of the Income Statement.
Interest received on short CFDs, bank deposits and money market funds is accounted for on an accruals basis and is credited to the revenue column of the Income Statement.
f) Management fees and other expenses – Management fees and other expenses are accounted for on an accruals basis and are charged in full to the revenue column of the Income Statement.
g) Functional currency and foreign exchange – The Directors, having regard to the Company’s share capital and the predominant currency in which its investors operate, have determined its functional currency to be UK sterling. 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 represent interest paid on long CFDs and are accounted for on an accruals basis using the effective interest method. They are charged to finance costs in 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.
Deferred taxation is the taxation expected to be payable or recoverable on timing differences between taxable profit and the accounting profit and is based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable. It is accounted for using the balance sheet liability method. Deferred taxation liabilities are recognised for all taxable timing differences and deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available against which deductible timing differences can be utilised.
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 and AIM quoted investments are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed, or otherwise, at fair value based on published price quotations; and
- Unlisted investments, are investments which are not quoted, or are not frequently traded, and are stated at the Directors best estimate of fair value. The Manager’s Fair Value Committee, which is independent of the Portfolio Manager’s team, provides a recommendation of fair values to the Directors based on recognised valuation techniques that take account of the cost of the investment and recent arm’s length transactions in the same or similar investments.
In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within gains on investments in the capital column of the Income Statement and has disclosed these costs in note 10.
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 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 contract price and the quoted trade price; and
- Options – the quoted trade price for the contract.
Where transactions are used to protect or enhance income, if the circumstances support this, the income and expenses derived are included in net income in the revenue column of the Income Statement. Where such transactions are used to protect or enhance capital, if the circumstances support this, the income and expenses derived are included: for long CFDs, as gains or losses on long CFDs, and for short CFDs, futures, options and warrants as gains or losses on short CFDs, futures, options and warrants 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 creditors.
m) Debtors – Debtors include securities sold for future settlement, accrued income, taxation recoverable and other debtors and pre-payments 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 subject to an insignificant risk of changes in value.
o) Fidelity Institutional Liquidity Fund – The Company holds an investment in the Fidelity Liquidity Fund plc, a short term money market fund investing in a diversified range of short term instruments. It is a distributing fund and accordingly the interest earned is credited to the revenue column of the Income Statement.
p) Cash at bank – Cash at bank is subject to an insignificant risk of changes in value.
q) Other creditors – Other creditors include securities purchased for future settlement, investment management fees, interest payable 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.
r) 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 ordinary shares.
As a result of technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/10: Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, 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 unquoted investments with a fair value of £5,860,000 (2015: £1,706,000).
3 Income
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| Investment income | ||
| UK dividends | 9,327 | 9,146 |
| UK scrip dividends | 95 | 716 |
| Overseas dividends | 3,546 | 3,331 |
| Overseas scrip dividends | 862 | 281 |
| Debt security interest | 384 | 133 |
| ---------------- | ---------------- | |
| 14,214 | 13,607 | |
| ---------------- | ---------------- | |
| Derivative income/(expenses) | ||
| Dividends received on long CFDs | 4,937 | 3,366 |
| Dividends and interest paid on short CFDs | (1,129) | (929) |
| ---------------- | ---------------- | |
| 3,808 | 2,437 | |
| ---------------- | ---------------- | |
| Investment and net derivative income | 18,022 | 16,044 |
| ---------------- | ---------------- | |
| Other interest | ||
| Interest received on short CFDs | 56 | 98 |
| Interest received on bank deposits and money market funds | 71 | 57 |
| ---------------- | ---------------- | |
| 127 | 155 | |
| ---------------- | ---------------- | |
| Total investment and net derivative income and other interest | 18,149 | 16,199 |
| ---------------- | ---------------- |
4 Investment Management Fees
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| Portfolio management services | 4,586 | 4,528 |
| Non-portfolio management services1 | 600 | 600 |
| ---------------- | ---------------- | |
| Investment management fees | 5,186 | 5,128 |
| ---------------- | ---------------- |
1 Includes company secretarial, fund accounting, taxation, promotional and corporate advisory services.
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investments International (“FIIâ€). Both companies are Fidelity group companies. FII charges portfolio management services fees at an annual rate of 0.875% of net assets. Fees are payable quarterly in arrears and are calculated on the last business day of March, June, September and December.
5 Other Expenses
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| AIC fees | 21 | 21 |
| Custody fees | 17 | 16 |
| Depositary fees | 47 | 45 |
| Directors’ expenses | 17 | 11 |
| Directors’ fees1 | 154 | 146 |
| Legal and professional fees | 106 | 85 |
| Marketing expenses | 155 | 132 |
| Printing and publication expenses | 89 | 93 |
| Registrars’ fees | 42 | 67 |
| Fees payable to the Independent Auditor for the audit of the Financial Statements2 | 24 | 24 |
| Costs in relation to the ordinary share sub-division | – | 127 |
| Sundry other expenses | 22 | 21 |
| ---------------- | ---------------- | |
| 694 | 788 | |
| ---------------- | ---------------- |
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 | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| ---------------- | ---------------- | |
| Interest paid on long CFDs | 1,085 | 1,063 |
| ---------------- | ---------------- |
7 Taxation on Return on Ordinary Activities
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| a) Analysis of the taxation charge for the year | ||
| Overseas taxation recovered | (18) | (62) |
| Overseas taxation suffered | 193 | 211 |
| ---------------- | ---------------- | |
| Total taxation charge for the year (see Note 7b) | 175 | 149 |
| ---------------- | ---------------- |
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 20.00% (2015: 20.58%). A reconciliation of tax at the standard rate of UK corporation tax to the taxation charge for the year is shown below:
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| Return on ordinary activities before taxation | 52,268 | 35,684 |
| ---------------- | ---------------- | |
| Return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 20.00% (2015: 20.58%) | 10,454 | 7,344 |
| Effects of: | ||
| Gains on investments not taxable1 | (8,211) | (5,447) |
| Income not taxable | (2,761) | (2,766) |
| Excess management expenses | 518 | 869 |
| Overseas taxation recovered | (18) | (62) |
| Overseas taxation suffered | 193 | 211 |
| ---------------- | ---------------- | |
| Total taxation charge for the year (see Note 7a) | 175 | 149 |
| ---------------- | ---------------- |
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 £10,289,000 (2015: £10,914,000), in respect of excess expenses of £57,160,000 (2015: £54,569,000) has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.
8 Return per Ordinary Share
| Year ended 31 August 2016 | Year ended 31 August 2015 | |||||
| revenue | capital | total | revenue | capital | total | |
| Return per ordinary share – basic and diluted | 4.15p | 15.42p | 19.57p | 3.39p | 9.90p | 13.29p |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | |
The returns per ordinary share are based on, respectively; the net revenue return on ordinary activities after taxation for the year of £11,037,000 (2015: £9,066,000), the net capital return on ordinary activities after taxation for the year of £41,056,000 (2015: £26,469,000) and the net total return on ordinary activities after taxation for the year of £52,093,000 (2015: £35,535,000), and on 266,183,770 ordinary shares (2015: 267,389,412), being the weighted average number of ordinary shares held outside Treasury in issue during the year.
9 Dividends Paid to Shareholders
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| Dividends paid | ||
| Interim dividend of 1.00 pence per Ordinary Share paid for the year ended 31 August 2016 | 2,659 | – |
| Final dividend of 2.35 pence per Ordinary Share paid for the year ended 31 August 2015 | 6,263 | – |
| Interim dividend of 1.00 pence per Ordinary Share paid for the year ended 31 August 2015 | – | 2,665 |
| Dividend of 3.30 pence per Ordinary Share paid for the year ended 31 August 2014 | – | 8,886 |
| ---------------- | ---------------- | |
| 8,922 | 11,551 | |
| ---------------- | ---------------- | |
| Dividend proposed | ||
| Final dividend proposed of 2.70 pence per Ordinary Share for the year ended 31 August 2016 | 7,145 | – |
| Final dividend of 2.35 pence per Ordinary Share paid for the year ended 31 August 2015 | – | 6,263 |
| ---------------- | ---------------- | |
| 7,145 | 6,263 | |
| ---------------- | ---------------- |
The Directors have proposed the payment of a final dividend for the year ended 31 August 2016 of 2.70 pence per ordinary share which is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The dividend will be paid on 19 December 2016 to Shareholders on the register at the close of business on 18 November 2016 (ex-dividend date 17 November 2016).
10 Investments
| 2016 | 2015 | |
| £’000 | £’000 | |
| Listed investments | 461,651 | 422,310 |
| AIM quoted investments | 64,346 | 79,920 |
| Specialist Fund Market investments | 7,239 | 6,320 |
| Unlisted investments | 5,860 | 1,706 |
| ---------------- | ---------------- | |
| Total investments at fair value | 539,096 | 510,256 |
| ---------------- | ---------------- | |
| Opening book cost | 473,056 | 401,146 |
| Opening investment holding gains | 37,200 | 57,733 |
| ---------------- | ---------------- | |
| Opening fair value | 510,256 | 458,879 |
| Movements in the year | ||
| Purchases at cost | 229,514 | 243,733 |
| Sales – proceeds | (244,527) | (210,711) |
| Sales – gains | 11,910 | 38,888 |
| Movement in investment holding gains/(losses) | 31,943 | (20,533) |
| ---------------- | ---------------- | |
| Closing fair value | 539,096 | 510,256 |
| ---------------- | ---------------- | |
| Closing book cost | 469,953 | 473,056 |
| Closing investment holding gains | 69,143 | 37,200 |
| ---------------- | ---------------- | |
| Closing fair value | 539,096 | 510,256 |
| ---------------- | ---------------- |
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| £’000 | £’000 | |
| Gains on investments | ||
| Gains on sales of investments | 11,910 | 38,888 |
| Investment holding gains/(losses) | 31,943 | (20,533) |
| ---------------- | ---------------- | |
| 43,853 | 18,355 | |
| ---------------- | ---------------- | |
| Investment transaction costs | ||
| Transaction costs incurred in the acquisition and disposal of investments, which are included in the gains | ||
| on sales of investments above, were as follows: | ||
| Purchases transaction costs | 880 | 720 |
| Sales transaction costs | 198 | 144 |
| ---------------- | ---------------- | |
| 1,078 | 864 | |
| ---------------- | ---------------- |
The portfolio turnover rate for the year was 46.5% (2015: 46.2%).
11 Derivative Instruments
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| Gains on long CFDs | £’000 | £’000 |
| Gains on long CFD positions closed | 16,977 | 22,578 |
| Movement on investment holding losses | (15,649) | (735) |
| ---------------- | ---------------- | |
| 1,328 | 21,843 | |
| ---------------- | ---------------- | |
| Losses on short CFDs, futures, options and warrants | ||
| Losses on short CFD contracts closed | (3,738) | (5,648) |
| Movement on investment holding gains/(losses) on short CFDs | 2,124 | (2,883) |
| Gains/(losses) on futures contracts closed | 1,987 | (7,679) |
| Movement on investment holding (losses)/gains on futures | (4,381) | 2,984 |
| Gains on options contracts closed | 168 | – |
| Losses on warrants expired | – | (13) |
| ---------------- | ---------------- | |
| (3,840) | (13,239) | |
| ---------------- | ---------------- | |
| 2016 | 2015 | |
| fair value | fair value | |
| Derivative instruments recognised on the Balance Sheet | £’000 | £’000 |
| Derivative instrument assets | 16,169 | 28,496 |
| Derivative instrument liabilities | (13,783) | (8,204) |
| ---------------- | ---------------- | |
| 2,386 | 20,292 | |
| ---------------- | ---------------- |
| 2016 | 2015 | |||
| gross asset | gross asset | |||
| fair value | exposure | fair value | exposure | |
| At the year end the Company held the following derivative instruments | £’000 | £’000 | £’000 | £’000 |
| Long CFDs | 5,925 | 152,398 | 21,574 | 158,331 |
| Short CFDs | (1,197) | 22,127 | (3,321) | 38,455 |
| Index futures – hedging exposures | (2,342) | (45,606) | 2,039 | (41,933) |
| ---------------- | ---------------- | ---------------- | ---------------- | |
| 2,386 | 128,919 | 20,292 | 154,853 | |
| ---------------- | ---------------- | ---------------- | ---------------- |
12 Debtors
| 2016 | 2015 | |
| £’000 | £’000 | |
| Securities sold for future settlement | 3,084 | 1,223 |
| Accrued income | 1,827 | 1,851 |
| Taxation recoverable | 48 | 76 |
| Other debtors and prepayments | 36 | 22 |
| ---------------- | ---------------- | |
| 4,995 | 3,172 | |
| ---------------- | ---------------- |
13 Creditors
| 2016 | 2015 | |
| £’000 | £’000 | |
| Securities purchased for future settlement | 911 | 360 |
| Creditors and accruals | 1,468 | 1,253 |
| ---------------- | ---------------- | |
| 2,379 | 1,613 | |
| ---------------- | ---------------- |
14 Share Capital
| 2016 | 2015 | |||
| number of | number of | |||
| shares | £’000 | shares | £’000 | |
| Issued, allotted and fully paid Ordinary Shares of 5 pence each | ||||
| Held outside Treasury | ||||
| Beginning of the year | 266,524,480 | 13,326 | – | – |
| Ordinary Shares issued on the sub-division1 | – | – | 266,249,480 | 13,312 |
| Ordinary Shares issued from Treasury | – | – | 350,000 | 18 |
| Ordinary Shares repurchased into Treasury | (1,175,000) | (59) | (75,000) | (4) |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| End of the year | 265,349,480 | 13,267 | 266,524,480 | 13,326 |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| Held in Treasury2 | ||||
| Beginning of the year | 4,120,000 | 206 | – | – |
| Ordinary Shares issued on the sub-division1 | – | – | 4,395,000 | 220 |
| Ordinary Shares issued from Treasury | – | – | (350,000) | (18) |
| Ordinary Shares repurchased into Treasury | 1,175,000 | 59 | 75,000 | 4 |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| End of the year | 5,295,000 | 265 | 4,120,000 | 206 |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| Total share capital | 13,532 | 13,532 | ||
| ------------------- | ------------------- | |||
| Issued, allotted and fully paid Ordinary Shares of 25 pence each | ||||
| Held outside Treasury | ||||
| Beginning of the year | – | – | 54,004,896 | 13,501 |
| Ordinary Shares repurchased into Treasury | – | – | (755,000) | (189) |
| Ordinary Shares cancelled on the sub-division1 | – | – | (53,249,896) | (13,312) |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| End of the year | – | – | – | – |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| Held in Treasury2 | ||||
| Beginning of the year | – | – | 124,000 | 31 |
| Ordinary Shares repurchased into Treasury | – | – | 755,000 | 189 |
| Ordinary Shares cancelled on the sub-division1 | – | – | (879,000) | (220) |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| End of the year | – | – | – | – |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| Total share capital | – | – | ||
| ------------------- | ------------------- |
1 On 29 June 2015 the existing Ordinary Shares of 25 pence each were sub-divided. Five new Ordinary Shares of 5 pence each were issued for each existing Ordinary Share of 25 pence each. The new Ordinary Shares rank pari passu with each other and are subject to the same rights and restrictions as the shares they replaced. A holding of new Ordinary Shares following the sub-division represents the same proportion of the issued share capital of the Company as the corresponding holding in the existing Ordinary Shares.
2 Shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.
15 Reserves
The share premium account represents the amount by which the proceeds from the issue of ordinary shares has exceeded the cost of those ordinary shares. It is not distributable by way of dividend. It cannot be used to fund share repurchases.
The capital redemption reserve maintains the equity share capital of the Company and represents the nominal value of shares repurchased and cancelled. It is not distributable by way of dividend. It cannot be used to fund share repurchases.
The other non-distributable reserve represents an amount transferred in prior years from the warrant reserve. It is not distributable by way of dividend. It cannot be used to fund share repurchases.
The capital reserve represents realised gains or losses on investments and derivatives sold, unrealised increases and decreases in the fair value of investments and derivatives held and other income and costs recognised in the capital column of the Income Statement. It can be used to fund share repurchases and it is distributable by way of dividend. The Board have stated that it has no current intention to pay dividends out of capital.
The revenue reserve represents retained revenue surpluses recognised through the revenue column of the Income Statement. It is distributable by way of dividend.
16 Net Asset Value per Ordinary Share
The net asset value per ordinary share is based on net assets of £578,291,000 (2015: £537,336,000) and on 265,349,480 (2015: 266,524,480) ordinary shares, being the number of New Ordinary Shares of 5 pence each held outside Treasury in issue at the year end. It is the Company’s policy that shares held in Treasury will only be reissued at a premium to net asset value per 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, performance, discount control, gearing and currency risks. Other risks identified are tax and regulatory and operational risks, including those relating to third party service providers covering investment management, marketing and business development, company secretarial, fund administration and operations and support functions. 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 in the Strategic Report in the Annual Report.
This note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments. The Company’s financial instruments may comprise:
-
Equity shares and bonds held in accordance with the Company’s investment objective and policies;
-
Derivative instruments which comprise CFDs, futures, options and warrants 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:
| 2016 | 2015 | |
| Exposure to financial instruments that bear interest | £’000 | £’000 |
| Long CFDs – exposure less fair value | 146,473 | 136,757 |
| ------------------- | ------------------- | |
| Exposure to financial instruments that earn interest | ||
| Short CFDs – exposure plus fair value | 20,930 | 35,134 |
| Amounts held at futures clearing houses and brokers | 7,365 | 47 |
| Fidelity Institutional Liquidity Fund | 24,359 | 500 |
| Cash at bank | 2,469 | 4,682 |
| ------------------- | ------------------- | |
| 55,123 | 40,363 | |
| ------------------- | ------------------- | |
| Net exposure to financial instruments that bear interest | 91,350 | 96,394 |
| ------------------- | ------------------- |
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 from 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 exchange rates affecting the value of investments and derivative instruments;
-
Movements in exchange rates affecting short term timing differences; and
-
Movements in exchange rates affecting income received.
Currency exposure of financial assets
The currency exposure profile of the Company’s financial assets is shown below:
| 2016 | |||||
| long | |||||
| investments | exposure to | ||||
| at | derivative | ||||
| fair value | instruments1 | debtors2 | cash | total | |
| currency | £’000 | £’000 | £’000 | £’000 | £’000 |
| US Dollar | 95,995 | 1,480 | 120 | 167 | 97,762 |
| Euro | 32,228 | 44,410 | 98 | – | 76,736 |
| Canadian dollar | 6,014 | – | 44 | – | 6,058 |
| Other foreign currencies | 78 | – | 15 | 13 | 106 |
| UK sterling | 404,781 | 60,902 | 36,442 | 2,289 | 504,414 |
| ------------------- | ------------------- | ------------------- | ------------------- | ------------------- | |
| 539,096 | 106,792 | 36,719 | 2,469 | 685,076 | |
| ------------------- | ------------------- | ------------------- | ------------------- | ------------------- |
1 The exposure to the market of long CFDs after the netting of hedging exposures.
2 Debtors comprise debtors and amounts held at futures clearing houses and brokers and in the Fidelity Institutional Liquidity Fund.
| 2015 | |||||
| long exposure | |||||
| investments at | to derivative | ||||
| fair value | instruments1 | debtors2 | cash | total | |
| currency | £’000 | £’000 | £’000 | £’000 | £’000 |
| Euro | 20,938 | 59,170 | 114 | – | 80,222 |
| US Dollar | 41,229 | 830 | 110 | 74 | 42,243 |
| Other foreign currencies | 11,787 | – | – | 23 | 11,810 |
| UK sterling | 436,302 | 56,398 | 3,495 | 4,585 | 500,780 |
| ------------------- | ------------------- | ------------------- | ------------------- | ------------------- | |
| 510,256 | 116,398 | 3,719 | 4,682 | 635,055 | |
| ------------------- | ------------------- | ------------------- | ------------------- | ------------------- |
1 The exposure to the market of long CFDs after the netting of hedging exposures.
2 Debtors comprise debtors and amounts held at futures clearing houses and brokers and in the 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 short positions on derivative instruments and other payables. The currency profile of these financial liabilities is shown below:
| 2016 | |||
| short | |||
| exposure to | |||
| derivative | |||
| instruments1 | creditors | total | |
| currency | £’000 | £’000 | £’000 |
| US Dollar | 8,642 | 80 | 8,722 |
| Other foreign currencies | 9,409 | 37 | 9,446 |
| UK sterling | 4,076 | 2,262 | 6,338 |
| ------------------- | ------------------- | ------------------- | |
| 22,127 | 2,379 | 24,506 | |
| ------------------- | ------------------- | ------------------- |
1 The exposure to the market of short CFDs.
| 2015 | |||
| short | |||
| exposure to | |||
| derivative | |||
| instruments1 | creditors | total | |
| currency | £’000 | £’000 | £’000 |
| US Dollar | 4,896 | – | 4,896 |
| Euro | 3,014 | 1 | 3,015 |
| Other foreign currencies | 4,285 | – | 4,285 |
| UK sterling | 26,260 | 1,612 | 27,872 |
| ------------------- | ------------------- | ------------------- | |
| 38,455 | 1,613 | 40,068 | |
| ------------------- | ------------------- | ------------------- |
1 The exposure to the market of short CFDs.
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 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 Derivative Risk Measurement and Management 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
The remaining undiscounted gross cash outflows of the financial liabilities were all repayable within one year and consisted of derivative instrument liabilities of £13,783,000 (2015: £8,204,000) and creditors of £2,379,000 (2015: £1,613,000).
Counterparty risk
Certain of the 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 Dealers Association’s (“ISDAâ€) market standard derivative legal documentation. As a result the Company is subject to the risk that a counterparty may not perform its obligations under the related contract. In accordance with the risk management process which the Manager employs, the Manager will seek to minimise such risk by only entering into transactions with counterparties which it believes 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 evaluates derivative instrument credit risk exposure.
For Over The Counter (“OTCâ€) derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At 31 August 2016, £5,933,000 (2015: £19,171,000) was held by the broker, in government bonds in a segregated collateral account on behalf of the Company, to reduce the credit risk exposure of the Company and £7,365,000 (2015: £47,000), was held by the Company in cash, shown as amounts held at futures clearing houses and brokers on the Balance Sheet, in a segregated collateral account on behalf of the broker, to reduce the credit risk exposure of the broker.
Credit risk
Financial instruments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties. All transactions are carried out with brokers that have been approved by the Manager and are settled on a delivery versus payment basis. Limits are set on the amount that may be due from any one broker and are kept under review by the Manager. Exposure to credit risk arises on unsettled security transactions and derivative instrument contracts and cash at bank.
Derivative instruments risk
The risks and risk management processes which result from the use of derivative instruments, are set out in a documented Derivative Risk Measurement and Management Document. Derivative instruments are used by the Manager for the following purposes:
· To gain unfunded long exposure to equity markets, sectors or single stocks. Unfunded exposure is exposure gained without an initial flow of capital;
· To hedge equity market risk using derivatives with the intention of at least partially mitigating losses in the exposures of the Company’s portfolio as a result of falls in the equity market;
· To enhance portfolio total return by writing short call options (covered call writing) and the selected use of other option strategies; 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 2016, an increase of 0.25% in interest rates throughout the year, with all other variables held constant, would have decreased the return on ordinary activities after taxation for the year and decreased the net assets of the Company by £228,000 (2015: £233,000). A decrease of 0.25% in interest rates throughout the year would have had an equal but opposite effect.
Foreign currency risk sensitivity analysis
Based on the financial instruments held and currency exchange rates at 31 August 2016, 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 Company’s net assets by £12,110,000 (2015: £11,098,000). A 10% weakening of the UK sterling exchange rate against foreign currencies would have increased the Company’s net return on ordinary activities after taxation for the year and increased the Company’s net assets by £14,802,000 (2015: £13,564,000).
Other price risk – exposure to investments sensitivity analysis
Based on the investments held and share prices at 31 August 2016, 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 £53,910,000 (2015: £51,026,000). A decrease of 10% in share prices 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 2016, 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 £8,467,000 (2015: £7,794,000). A decrease of 10% in share prices would have had an equal and opposite effect. Details of the Company’s net exposure to derivative instruments are shown in Note 18.
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 Note 2 (k) and (l), investments and derivative instruments are shown at fair value. In the case of amounts held at futures clearing houses and brokers, Fidelity Institutional Liquidity Fund and cash at bank, book value approximates to fair value due to the short maturity of the instruments. The book value of financial assets and liabilities valued at amortised cost using the effective interest rate method approximates to 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 valuation techniques using observable inputs other than quoted prices included within level 1 |
| 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 Note 2 (k) and (l). The table below sets out the Company’s fair value hierarchy:
| 2016 | ||||
| level 1 | level 2 | level 3 | total | |
| Financial assets at fair value through profit or loss | £’000 | £’000 | £’000 | £’000 |
| Investments | 527,418 | 5,818 | 5,860 | 539,096 |
| Derivative instruments | – | 16,169 | – | 16,169 |
| --------------- | --------------- | --------------- | --------------- | |
| 527,418 | 21,987 | 5,860 | 555,265 | |
| --------------- | --------------- | --------------- | --------------- | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instruments1 | (2,342) | (11,441) | – | (13,783) |
| --------------- | --------------- | --------------- | --------------- | |
| 2015 | ||||
| level 1 | level 2 | level 3 | total | |
| Financial assets at fair value through profit or loss | £’000 | £’000 | £’000 | £’000 |
| Investments | 508,550 | – | 1,706 | 510,256 |
| Derivative instruments1 | 2,039 | 26,457 | – | 28,496 |
| --------------- | --------------- | --------------- | --------------- | |
| 510,589 | 26,457 | 1,706 | 538,752 | |
| --------------- | --------------- | --------------- | --------------- | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instruments | – | (8,204) | – | (8,204) |
| --------------- | --------------- | --------------- | --------------- |
1 Index futures financial liabilities of £2,342,000 (2015: financial assets of £2,039,000) are valued using quoted prices in active markets for identical assets are classified as level 1. The 2015 amount was disclosed as a level 2 financial asset last year and has been reclassified as level 1 this year.
The table below sets out the movements in level 3 financial instruments during the year:
| Year ended | Year ended | |
| 31.08.16 | 31.08.15 | |
| level 3 | level 3 | |
| £’000 | £’000 | |
| Beginning of the year | 1,706 | 303 |
| Purchases at cost | 5,585 | – |
| Investments written off | (6) | – |
| Transfers out of level 31 | (1,463) | – |
| Transfers into level 32 | – | 1,463 |
| Movement in investment holding gains/(losses) | 38 | (60) |
| --------------- | --------------- | |
| End of the year | 5,860 | 1,706 |
| --------------- | --------------- |
1 Financial instruments are transferred out of level 3 when they commence trading on an active market.
2 Financial instruments are transferred into level 3 on the date they are suspended or when they have not traded for thirty days.
18 Capital Resources and Gearing
The Company does not have any externally imposed capital requirements. The capital of the Company comprises its gearing, which is managed by the use of derivative instruments, and its issued share capital and reserves as disclosed in the Balance Sheet above. It is managed in accordance with the Company’s investment policy in pursuit of its investment objective, both of which are detailed in the Strategic Report in the Annual Report. The principal risks and their management are disclosed above.
The Company’s gross gearing and net gearing at the end of the year are shown below:
| 2016 | |||||
| gross asset exposure | net asset exposure | ||||
| £’000 | %1 | £’000 | %1 | ||
| Investments | 539,096 | 93.2 | 539,096 | 93.2 | |
| Long CFDs | 152,398 | 26.4 | 152,398 | 26.4 | |
| --------------- | --------------- | --------------- | --------------- | ||
| Total long exposures before hedges | 691,494 | 119.6 | 691,494 | 119.6 | |
| Less: Index futures – hedging exposures2 | (45,606) | (7.9) | (45,606) | (7.9) | |
| --------------- | --------------- | --------------- | --------------- | ||
| Long exposures after the netting of hedges | 645,888 | 111.7 | 645,888 | 111.7 | |
| Short exposures – short CFDs | 22,127 | 3.8 | (22,127) | (3.8) | |
| --------------- | --------------- | --------------- | --------------- | ||
| Exposure after the netting of hedges | 668,015 | 115.5 | 623,761 | 107.9 | |
| --------------- | --------------- | --------------- | --------------- | ||
| Shareholders’ Funds | 578,291 | 578,291 | |||
| --------------- | --------------- | ||||
| gross gearing | net gearing | ||||
| Gearing3 | 15.5% | 7.9% | |||
| --------------- | --------------- | --------------- | |||
1 Exposure to the market expressed as a percentage of Shareholders’ Funds.
2 Hedging exposures reduce exposure to the market and gearing.
3 Gearing is the amount by which asset exposure exceeds Shareholders’ Funds expressed as a percentage of Shareholders’ Funds.
| 2015 | ||||
| gross asset exposure | net asset exposure | |||
| £’000 | %1 | £’000 | %1 | |
| Investments | 510,256 | 95.0 | 510,256 | 95.0 |
| Long CFDs | 158,331 | 29.4 | 158,331 | 29.4 |
| --------------- | --------------- | --------------- | --------------- | |
| Total long exposures before hedges | 668,587 | 124.4 | 668,587 | 124.4 |
| Less: Index futures – hedging exposures2 | (41,933) | (7.8) | (41,933) | (7.8) |
| --------------- | --------------- | --------------- | --------------- | |
| Long exposures after the netting of hedges | 626,654 | 116.6 | 626,654 | 116.6 |
| Short exposures – short CFDs | 38,455 | 7.2 | (38,455) | (7.2) |
| --------------- | --------------- | --------------- | --------------- | |
| Exposure after the netting of hedges | 665,109 | 123.8 | 588,199 | 109.4 |
| --------------- | --------------- | --------------- | --------------- | |
| Shareholders’ Funds | 537,336 | 537,336 | ||
| --------------- | --------------- | |||
| gross gearing | net gearing | |||
| Gearing3 | 23.8% | 9.4% | ||
| --------------- | --------------- | |||
1 Exposure to the market expressed as a percentage of Shareholders’ Funds.
2 Hedging exposures reduce exposure to the market and gearing.
3 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 (“FIIâ€). Both companies are Fidelity group companies. Details of the fee arrangements are given in the Directors’ Report, in the Annual report, and Note 4. During the year fees for portfolio management services of £4,586,000 (2015: £4,528,000) and fees for non-portfolio management services of £600,000 (2015: £600,000) were payable to FII. Non-portfolio management fees include company secretarial, fund accounting, taxation, promotional and corporate advisory services. At the Balance Sheet date, fees for portfolio management services of £810,000 (2015: £786,000) and fees for non-portfolio management services of £100,000 (2015: £100,000) were accrued and included in other payables. FII also provides the Company with marketing services. The total amount payable for these services during the year was £155,000 (2015: £132,000). At the Balance Sheet date £63,000 (2015: £100,000) for marketing services was accrued and included in other payables.
Disclosures of the Directors’ interests in the ordinary shares of the Company and Directors’ fees and taxable benefits relating to reasonable travel expenses payable to the Directors are given in the Directors’ Remuneration Report in the Annual Report. The Directors received compensation of £187,000 (2015: £170,000). In addition to the fees and taxable benefits disclosed in the Directors’ Remuneration Report, this amount includes £18,000 (2015: £15,000) of employers’ National Insurance Contributions paid by the Company.
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
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 also be available on the Company's website at www.fidelityinvestmenttrusts.com where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.
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