Final Results
FIDELITY CHINA SPECIAL SITUATIONS PLC
Preliminary Announcement of Results
For the year ended 31 March 2013
Chairman's Statement
RESULTS FOR THE YEAR ENDED 31 MARCH 2013
I have pleasure in presenting the Annual Report of Fidelity China Special
Situations PLC for the year ended 31 March 2013.
PERFORMANCE REVIEW
During the year under review, the Net Asset Value ("NAV") of the Company
increased by 15.7% outperforming the MSCI China Benchmark Index by 3.5%. The
Company's share price increased by 15.0% (all figures on a total return basis).
These results are encouraging for shareholders and mark a clear improvement
compared to the previous year.
Although the Company has underperformed the MSCI China Index by 2.0% since
launch, it has outperformed the MSCI China Mid Cap Index by 17.3% and the MSCI
China Small Cap Index by 11.1% in the same period. It is the view of the Board
and the Manager that over a longer period the advantage of investing in smaller
and mid cap stocks will be reflected in outperformance of the Benchmark.
Concerns about the hard landing for the Chinese economy have receded following
the relatively smooth leadership transition during the year and the maintenance
of relatively healthy GDP growth. Government-supported domestic wage increases
should boost consumer confidence, validating the consumption and services focus
of the portfolio.
Investors should not underestimate the challenges facing the Chinese Government
in rebalancing an economy the size of China's from an export-driven to a
domestic consumption-focused one. However, the Board remains convinced of three
things:
- that no investor should ignore an economy of China's importance and every
portfolio should consider dedicating a portion of funds to investing in China;
- that the growth in China should now come from the increase in wealth of the
growing middle class which would be evidenced by growth in domestic
consumption; and
- that over time an investment in Chinese equities should generate a good
return for shareholders.
SHARE ISSUES AND SHARE REPURCHASES
The Board believes it is in the best interests of shareholders if the share
price of the Company tracks closely to the underlying NAV, which is published
each business day. The Board has the ability to issue shares at a premium to
NAV and to buy back shares at a discount to NAV for cancellation. During the
reporting year, in furtherance of this policy, the Board authorised the
repurchase and cancellation at a discount of 6,525,000 Ordinary Shares. Since
the year end, the Company has repurchased a further 15,250,000 Ordinary Shares
for cancellation. The Board is seeking shareholder consent at the forthcoming
Annual General Meeting to continue exercising these powers.
GEARING
On 17 February 2012, the Company entered into a revolving credit facility
agreement with Scotiabank Europe PLC for US$150,000,000, which has been fully
drawn down.
To achieve further gearing, the Company uses Contracts For Difference on a
number of holdings in its portfolio. Further details are in Note 19 of the
Annual Report.
At 31 March 2013, the Company's gearing, defined as the excess of Gross Asset
Exposure over Net Assets, was 22.1% (2012: 12.4%).
MANAGEMENT FEE
With effect from 1 April 2013, the annual management fee payable to the
Managers was reduced from 1.5% to 1.2% of the Net Asset Value. The performance
fee remains unchanged. Further details are included in the Directors' Report in
the Annual Report.
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE ("AIFMD")
The implementation date for the AIFMD is expected to be July 2014, the scope of
which will require all UK investment trusts to revise their current operational
framework and ultimately lead to increased operational expenses.
The Company will fall under the full scope of the Directive. Therefore, it is
the intention of the Board to become fully compliant with the Directive ahead
of the implementation date.
THE BOARD
In accordance with the UK Corporate Governance Code for Directors of FTSE 350
companies, the entire Board is subject to annual re-election at the forthcoming
Annual General Meeting. The Directors' biographies can be found in the Annual
Report. The Directors have a wide range of appropriate skills and experience to
form a balanced board for the Company.
THE MANAGER
Anthony Bolton, our Portfolio Manager, undertook to manage the portfolio up
until the Company's next year end, in March 2014, four years from the launch.
As this date approaches, the Board has considered carefully the appointment of
a suitable successor.
I am delighted to say that we have now agreed that Dale Nicholls will succeed
Mr Bolton in 2014. He has an excellent track record and has been investing in
China successfully for ten years. He will start to work with Mr Bolton in the
latter part of 2013 to ensure an orderly handover in 2014.
Mr Nicholls's investment style is similar to Mr Bolton's, being based on a
bottom up analysis of individual stocks. The Directors are confident that he
will position the portfolio to take best advantage of China's continuing
growth. Mr Nicholls will attend the Annual General Meeting on 24th July which
will give shareholders an opportunity to meet him.
DIVIDEND
As the Company's objective is to achieve long-term capital growth, the Board
does not expect that dividends will constitute a material element of the total
return to shareholders. However, in order to continue to qualify as an
investment trust, the Company is required under Section 1159 of the Corporation
Tax Act 2010 not to retain more than 15% of its total income.
The Board recommends a final dividend of 1.00 pence per Ordinary Share to be
approved by shareholders at the forthcoming Annual General Meeting.
The dividend will be payable on 2 August 2013 to shareholders on the register
on 19 July 2013 (ex dividend date 17 July 2013).
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 ANNUAL GENERAL MEETING - 24 JULY 2013
The Annual General Meeting of the Company will be held at the Merchant Taylors'
Hall, 30 Threadneedle Street, London EC2R 8JB, on Tuesday 24 July 2013 at 12
noon.
The Board is looking forward to having the opportunity to speak to
shareholders. The Portfolio Manager, Anthony Bolton, will also be attending in
order to give his yearly presentation and to meet shareholders.
John Owen CMG MBE DL
Chairman
17 June 2013
Manager's Report
Anthony Bolton has more than 30 years' experience of managing equity funds and
began investing in Chinese equities in 2004. He previously acted as portfolio
manager for a number of Fidelity funds, including Fidelity Special Situations
Fund, which he managed from 1979 until 2007. He also managed the portfolios of
two listed investment trusts, Fidelity Special Values PLC (from 1994 to 2007)
and Fidelity European Values PLC (from 1991 to 2001).
PERFORMANCE REVIEW
I am pleased to be able to report some better figures for the 2012/13 financial
year. Both the Net Asset Value and share price recovered over the last six
months or so of the year. Over the year the Net Asset Value and share price
rose by 15.7% and 15.0% respectively while the MSCI China index was up 12.2%
The year under review was very much one of two halves; the first six months
broadly followed the trend of much of 2011 but since September 2012 Chinese
markets have been recovering. The factors that have hurt the Company in the
past - being both geared and exposed to medium and smaller sized companies,
which tend to be more volatile than the market overall - are now working in
investors' favour. A chart showing the share price and NAV against the
Benchmark Index as well as the MSCI China Small Cap and MSCI China Mid Cap
Indices is included in the Annual Report.
As I did last year, let me first outline the four main elements of my
investment strategy:
1. Exposure to consumption and services, both of which largely depend on the
strength of the domestic economy in China. These are the sectors that I believe
have the best growth prospects. The leaders of the new administration have
reinforced the policy of their predecessors - shifting Chinese economic growth
more towards consumption.
2. A focus on private medium and small sized businesses rather than large state
owned enterprises. These are the entrepreneur-run businesses on which I believe
China's long-term prospects are based. An extra attraction is that the new
administration is committed to increasing the role of private enterprise in the
economy and reducing the role of the state.
3. Concentration, wherever possible, on business models that are similar to
those I used to invest in when I ran funds focused on the UK and Continental
Europe. These are the models that I am familiar with and I know work well. In
China they are at an early stage of their development which means that, if
successful, they should have a long period of growth ahead of them.
4. Buying shares in these companies on reasonable and, if possible, cheap
valuations. There are still many bargains available today, particularly in
smaller Hong Kong and American-listed Chinese businesses. Some of them sell at
discounts to their international peers despite, in many cases, having better
growth prospects.
At the end of this report I have described a number of the companies held in
the portfolio which I hope will give readers a better flavour of the types of
business I invest in. All but one of these are considered medium and
small-sized companies (with a market capitalisation under £5bn) - these account
for about 75% of the portfolio. Many are less well known and poorly covered by
sell-side analysts. I have picked twelve companies, a different selection from
last year's, even though all but one of the fourteen mentioned then are still
held in the portfolio.
INVESTMENT REVIEW
2011 and the first half of 2012 witnessed a big slowdown in the rate of growth
of the Chinese economy - nominal growth (after adding back inflation) dropped
from nearly 20% p.a. to a probable actual figure of around 8%. However, in the
third quarter of 2012 growth started to pick up again, helped by easier credit
and investment spending. I had originally expected markets to start recovering
ahead of this turn but in the "risk-off" environment of the time investors
needed to see evidence of the improvement before they believed it. The turn in
Hong Kong-listed shares occurred in September while the domestic "A" shares
market started to recover a few months later. Although markets have paused and
consolidated over the last few months, I remain optimistic for reasons I will
mention later, although I monitor the short-term threats relating to the
situation in North Korea, the state of relations between China and Japan and
the possible spread of bird flu.
Real GDP growth in the first quarter of 2013 was 7.7%. Much focus has been put
on this figure being below the 7.9% seen in the last quarter of 2012 and below
some expectations. I am not too fazed by this number as this was held back by
some one-off factors, although I do acknowledge that not all economic data
coming out of China at the moment is positive. I believe the slow but steady
recovery of the economy continues, although there are definite challenges for
certain areas such as industrial exporters who are suffering from the combined
effects of rising wage costs and an appreciating currency. It seems likely that
the authorities will ensure that growth in the first year of the new
administration will be good and above the target figure of 7.5%. However, as I
have argued in previous reports, in the medium-term China must accept a lower
level of growth than in the past due to the shift of the economy towards
consumption and away from investment. Many commentators suggest consumption-led
growth is more sustainable and therefore of better quality. I agree with this
view and note that the Politburo has talked about focusing on the quality and
profitability of growth. In some ways I am disappointed that the current
recovery is once again based on credit and investment and there was also a
stronger recovery in the residential property market than I had expected. That
said, I do recognise that the shift of the economy towards consumption is
something that will take a number of years to complete.
Again, investors have been focusing on the financial environment in China. The
recent growth in credit has been led by a pick-up in what is termed "social
finance" products. These include trust company funds, bonds and wealth
management products rather than traditional bank debt. Some of the wealth
management products have been investing in questionable assets. The demand for
these products has been high as investors have sought higher yields than those
available on bank deposits, while banks have preferred to sell products with a
higher margin. For a long time the regulation of these products, often sold
without a parent bank guarantee, has been relatively relaxed but at the end of
March the banking regulator brought out a number of new rules. Although there
are definitely risks with some of these products, these new rules should help
reduce risks. As expected, many of the loans local government finance vehicles
had taken on after the global financial crisis were extended rather than being
repaid. This process will probably be repeated again in the future until the
central government finds other ways to help local governments. One of the big
debates about the economy in China is the extent that GDP growth has relied on
the growth of credit, which cannot continue indefinitely. Larger amounts of
credit growth appear to be producing less GDP growth although the lag between
credit growth and GDP growth is often underestimated. However, it is inevitable
that China's growth model will change.
I believe that the financial challenges that worry many investors, who often
look at China through the prism of their Western experience, are surmountable,
particularly with the help of the central government. In my view the bigger
challenges China faces in the longer term are more to do with political and
social reform.
In April, I attended the Boao Forum, a high level economic forum which some
refer to as China's equivalent of Davos. It takes place on Hainan Island which
is the most southerly part of China and a popular holiday destination. Many of
China's top leaders as well as senior political figures from the rest of the
world attend. One of the reasons I went was to hear Xi Jinping speak first
hand. I was impressed by his speech which was definitely different from the
typical speeches previous leaders had made - it was more down to earth and
direct and not couched in the traditional political language that leaders have
used in the past.
The process of political change in China is fascinating. It is nearly totally
opaque to the outside world and the new leaders keep their policies very close
to their chests. As I suggested in the interim report, the new Standing
Committee chosen in November was reduced from nine to seven members. Although
Xi Jinping, the new president, was given more power, five of the seven members
are considered conservative. Because of their age these five will be replaced
in 5 years time but, in the meantime, they may act as a brake on radical
reform. Early statements from the new leaders are promising in terms of reform,
especially for private enterprise and financial companies, and tackling
corruption is a major focus. Much of the detail surrounding new policies has
still not been announced but we will get this as 2013 progresses and
particularly during the Third Plenum in late October. There is always a risk
that the new leadership disappoints the optimists. However, for financial
markets the promise of reform can often be as much a stimulus as the measures
themselves.
I favour companies with businesses in Hong Kong. Hong Kong remains the key
gateway for many financial flows in and out of the PRC. Last year nearly
thirty-five million mainland tourists visited Hong Kong, which has a population
of only seven million people. This backcloth is positive for companies in the
retail and hospitality area. Most of the portfolio's exposure to banks and
property companies is via companies based in Hong Kong. In the property area,
the Company holds a number of smaller real estate firms selling at substantial
discounts to their net asset values. Several of these have exposure to the
middle market hotels favoured by PRC tourists. Despite the property cooling
measures in Hong Kong, I still think this is an attractive area and I prefer
Hong Kong companies to mainland based ones where the Company's exposure remains
low. In the long run, I expect a number of Hong Kong-focused businesses to be
bought out by mainland companies.
In terms of listings, roughly 55% of the portfolio is in Chinese businesses
listed in Hong Kong, 20% in `A' & `B' shares listed on the mainland, another
20% in US-listed Chinese companies and 5% in businesses listed elsewhere but
making the majority of their profits in China. Regarding US-listed companies,
in general their share prices have lagged the recovery in Hong Kong. Sentiment
has been adversely affected by negative short selling reports, worries about
variable interest entity structures and reports that the US Justice Department
is reviewing allegations of accounting irregularities at various firms
operating out of China. In my view this has presented the opportunity to
purchase a number of these companies' shares at very attractive valuations,
which compensates for the risks associated with them. I believe the accounting
dispute will be settled at a Government to Government level and some progress
has been announced recently.
I still see the Hong Kong-listed Chinese companies as the most attractive. Over
time, I expect mainland investors to be allowed to invest more freely in Hong
Kong-listed shares. In a similar way to how mainlanders have transformed the
shopping environment in Hong Kong, I think they could also transform the stock
market, where valuations in general are still well below those on the mainland.
Moreover, it is an interesting anomaly that on the "A" share market smaller
companies are generally more popular than large companies and they get higher
valuations, but in Hong Kong the reverse is the case. As money flows more
freely between the two markets I expect this valuation gap to close.
OUTLOOK
In summary, and without wishing to sound like a stuck record, I remain very
optimistic with regards to the outlook for the shares of Chinese companies
aside from the short-term risks mentioned earlier. In general, I expect 2013 to
be a good year for equities globally and so far the US and, more recently,
Japan have been the leading stock markets. A number of ASEAN markets have
performed well and I expect China to catch up. Despite the market rise since
September, China valuations are still about 25% below their 10 year averages.
The outlook for earnings growth, even with a lower level of GDP growth, is good
and well above what is generally available in developed markets, while wage
increases running near double figures continue to underwrite a favourable
consumer environment. Sentiment is cautious, both among local and international
investors, but this is normally a good contrary indicator. I expect investment
flows into equities to rise. The "A" share market, where over the past few
years investors have typically been redeeming their equity holdings, is ripe
for a change of sentiment. I am very hopeful that my strategy will see both the
share price and Net Asset Value return permanently to positive territory.
At the Company's inception I gave a commitment to run the portfolio for at
least two years and I subsequently extended this on two occasions, each time
for a further period of one year. It has always been my intention to step down
as Portfolio Manager at some stage having been closely involved in the process
of identifying my successor. I have now decided to retire on 31 March 2014 at
the end of the Company's current financial year. I am delighted that my
colleague Dale Nicholls will take over from me then. He has a similar
investment approach to my own with a focus on medium and smaller sized
companies and has been investing most successfully in Chinese companies for the
last ten years. I believe he has the right combination of talents to see the
portfolio through the next chapter of its life. We will work closely together
until I hand over the portfolio to him on 1 April 2014 but I will still make
the final decision on all investments until then. Although I will be sorry to
end my involvement with the Company that was set up at my instigation I know it
will be in good hands and I will be retaining my personal investment in the
Company's shares.
Anthony Bolton
Portfolio Manager
17 June 2013
COMPANY COMMENTARY (all data as at 31 March 2013)
Wing Hang Bank (Market Capitalisation: £2,116m) (Portfolio Weighting: 3.0%)
Wing Hang Bank is one of the smaller Hong Kong Banks. The Fung family and
directors own about 22% of the shares and Bank of New York Mellon 20%. The
majority of its operations are in Hong Kong but it has a growing presence in
the PRC and Macau. Its conservative and prudent management has guided the bank
well through various cycles. In the long run I expect a number of the smaller
Hong Kong Banks to be acquired. It sells on only one point three times book
value whilst having a normalised return on equity of 10%.
SAIC (£17,300m) (2.1%)
Shanghai Auto owns its own automobile brands in China but also has significant
interests in two key Chinese joint ventures - one with General Motors and one
with VW (although VW also has a second joint venture in China with another
local company). Many consider these two joint ventures to be leaders in one
mass market. The shares, which are "A" shares listed in Shanghai, sell at about
seven times our estimate of 2013 earnings. In many cases, "A" shares sell at
premium valuations to the "H" shares of companies in the same industry, but
with SAIC the reverse has been the case.
Ports Design (£305m) (2.0%)
Ports, a company I first met in 2005, is a unique business that has developed
one of the few Chinese-originated luxury fashion brands. It has about three
hundred and fifty stores in China and also owns fifty stores selling
BMW-labelled apparel and accessories. For many years it grew very quickly, but
recently the growth has slowed down. There have also been some
governance-related issues within the group which now appear to have been
resolved. However, selling at only about eight times this year's earnings, I
believe the shares to be a bargain.
21Vianet Group (£358m) (1.6%)
21Vianet is the leading independent data centre owner in China. The growth of
internet businesses in China and the demand for hosting by cloud services is
rapidly increasing demand for data storage. It is a similar business to
Telecity in the UK or Equinix in the US which have both been very good stock
market performers over the last few years. 21Vianet sells on a lower valuation
of enterprise value relative to earnings before interest, amortisation,
depreciation and tax (the most common valuation yardstick used in this
industry) than these two companies despite the fact that its growth is
significantly higher.
Lee's Pharmaceutical (£239m) (1.4%)
Lee's Pharmaceutical is a Chinese pharmaceutical company that licenses products
from medium-sized global pharmaceutical companies that do not have a presence
in China. It also develops its own drugs. Lee's Pharmaceutical focuses on
cardiovascular, oncology, ophthalmology, dermatological and gynaecological
diseases. When I first met the company the shares were exceptionally cheap.
Although they have performed well today they sell at about seventeen times 2013
earnings while growth is about 30% p.a. Morgan Stanley has recently valued the
company's drug pipeline alone (over thirty drugs at different stages of
development) at over three-quarters of the company's market valuation.
Bitauto (£271m) (1.1%)
Bitauto operates one of the leading new car listing websites in China and the
leading used car listing website. It also provides car dealers with marketing
software and services. The dealer network in China is expanding rapidly as more
car brands compete in the world's largest car market. Last autumn,
Autotrader.com, the US company with a similar line of business, bought a 22%
stake in the company. Revenue is growing at about 30% p.a. and the shares sell
at about thirteen times 2013 earnings.
China International Travel Services (£3,077m) (1.2%)
This "A" share listed company owns a major travel agency business and is one of
the two main duty-free shop operators in China. The majority of profits come
from its duty-free business. In duty-free it has a dominant position on the
holiday island of Hainan where visitor numbers are increasing rapidly and where
it is building a new mega-store. Chinese travellers are spending an increasing
amount of money overseas but the government has a strong incentive to keep more
consumption in the country, which means potentially more favourable policies
for the duty-free industry. The shares sell at about nineteen times 2013
earnings, not a giveaway valuation, but considerably cheaper than many "A"
shares that have much less attractive prospects.
SPT Energy (£472m) (1.2%)
SPT is one of the largest non-state-owned oil service companies in China. It
offers a wide range of integrated and specialised drilling services including
turnkey drilling, vertical drilling, directional drilling, fluids and fracking.
China is very keen to build up more onshore oil and gas resources. Indeed it
has ambitious production targets for shale gas which involve a considerable
increase in the number of onshore wells being drilled in China, which should
benefit companies like SPT. The shares sell at about fourteen times 2013
estimated earnings, a discount to its listed competitors despite similar growth
prospects.
Changyou.com (£1,008m) (1.0%)
Changyou is one of the leading P.C. games developers in China. Its core product
is a martial arts game called `Tian Long Ba Bu'. It is also a leader in the web
games sector via its subsidiary 7Road and it owns a games portal, 17173.com.
Changyou is one of the cheapest companies in China, selling at under five times
2013 estimated earnings and with half its market capitalisation in net cash.
Global Logistic Properties (£6,621m) (1.0%)
Global Logistics Properties owns one of the largest estates of logistics
warehouses in China. Its network covers twenty nine cities and it has
operations in seven cities in Japan as well as a small business in Brazil.
China accounts for just over half of its assets. With the expansion of the
domestic economy in China, the demand for modern, high-standard distribution
facilities is growing strongly and there are few national chains. Although the
shares only sell at a small discount to their estimated net asset value, the
outlook for growth in capital values is very good.
Alibaba (unlisted) (2.1%)
Alibaba, the largest unlisted holding in the portfolio, is the leading
e-commerce company in China. Over 75% of e-commerce transactions in China go
through one of its two main portals, which handled over US$170bn of sales last
year - more than eBay and Amazon combined. Alibaba has a clever business model;
it is a platform for other retailers rather than handling goods itself. This
means it is much less capital-intensive than other e-commerce companies and
much more profitable. The Company holds a convertible which was issued on a
valuation of the company around US$48bn. The listing which could take place in
Hong Kong later this year is likely to be at a significant premium to this. If
it is, it will be one of the biggest IPOs in Hong Kong.
Income Statement for the year ended 31 March 2013
Year Year
ended ended
31.03.13 31.03.12
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue
Overseas 13,195 - 13,195 11,145 - 11,145
dividends
Overseas 526 - 526 1,252 - 1,252
scrip
dividends
UK 284 - 284 515 - 515
dividends
UK scrip 273 - 273 - - -
dividends
Deposit 5 - 5 9 - 9
interest
Dividends 1,234 - 1,234 1,064 - 1,064
received on
long CFDs
Interest (328) - (328) (390) - (390)
paid on
long CFDs
Interest 8 - 8 10 10
received on
short CFDs
Dividends (58) - (58) (134) - (134)
paid on
short CFDs
---------- ---------- ---------- ---------- ---------- ----------
Total 15,139 - 15,139 13,471 - 13,471
income
Gains/ - 87,198 87,198 - (155,156) (155,156)
(losses) on
investments
designated
at fair
value
through
profit or
loss
Net - (115) (115) - 27,460 27,460
(losses)/
gains on
derivative
instruments
held at
fair value
through
profit or
loss
Foreign (19) 890 871 80 6 86
exchange
(losses)/
gains on
other net
assets
Foreign - (4,898) (4,898) - (1,605) (1,605)
exchange
losses on
bank loans
---------- ---------- ---------- ---------- ---------- ----------
Total 15,120 83,075 98,195 13,551 (129,295) (115,744)
income and
gains/
(losses)
Expenses
Investment (4,187) (4,187) (8,374) (4,156) (4,156) (8,312)
management
fee
Other (1,573) - (1,573) (1,655) - (1,655)
expenses
---------- ---------- ---------- ---------- ---------- ----------
Profit/ 9,360 78,888 88,248 7,740 (133,451) (125,711)
(loss)
before
finance
costs and
taxation
Finance
costs
Interest on (871) (871) (1,742) (878) (878) (1,756)
bank loans
---------- ---------- ---------- ---------- ---------- ----------
Profit/ 8,489 78,017 86,506 6,862 (134,329) (127,467)
(loss)
before
taxation
Taxation (289) (809) (1,098) (289) (237) (526)
(¹)
---------- ---------- ---------- ---------- ---------- ----------
Net profit/ 8,200 77,208 85,408 6,573 (134,566) (127,993)
(loss)
after
taxation
for the
year
========== ========== ========== ========== ========== ==========
Earnings/ 1.25p 11.76p 13.01p 0.99p (20.33)p (19.34)p
(loss) per
Ordinary
Share
========== ========== ========== ========== ========== ==========
(¹) This relates to overseas taxation only.
The Company does not have any income or expense that is not included in the net
profit/(loss) for the year. Accordingly the "Net profit/(loss) after taxation
for the year" is also the "Total comprehensive income/(loss) 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 and is prepared in accordance with IFRS. The revenue and capital
columns are supplementary and presented for information purposes as recommended
by the Statement of Recommended Practice issued by the AIC.
All of the profit/(loss) and total comprehensive income/(loss) is attributable
to the equity shareholders of the Company. There are no minority interests. All
items in the above statement derive from continuing operations. No operations
were acquired or discontinued in the year.
Statement of Changes in Equity for the year ended 31 March 2013
share capital
share premium redemption other capital revenue total
capital account reserve reserve reserve reserve equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Equity 6,564 204,648 - 452,232 18,188 2,331 683,963
shareholders'
funds at 31
March 2011
Issue of 63 6,921 - - - - 6,984
Ordinary
Shares
Repurchase of (29) - 29 (2,323) - - (2,323)
Ordinary
Shares
Net (loss)/ - - - - (134,566) 6,573 (127,993)
profit after
taxation for
the year
Dividend paid - - - - - (1,656) (1,656)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Equity 6,598 211,569 29 449,909 (116,378) 7,248 558,975
shareholders'
funds at 31
March 2012
Repurchase of (66) - 66 (5,216) - - (5,216)
Ordinary
Shares
Net profit - - - - 77,208 8,200 85,408
after
taxation for
the year
Dividend paid - - - - - (4,934) (4,934)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Equity 6,532 211,569 95 444,693 (39,170) 10,514 634,233
shareholders'
funds at 31
March 2013
========== ========== ========== ========== ========== ========== ==========
Balance Sheet as at 31 March 2013
Company number 7133583
2013 2012
£'000 £'000
Non current assets
Investments designated at fair value 712,898 629,709
through profit or loss
---------- ----------
Current assets
Derivative assets held at fair value 8,592 11,582
through profit or loss
Amounts held at futures clearing houses 4,056 3,922
and brokers
Other receivables 3,131 9,146
Cash and cash equivalents 18,511 20,123
---------- ----------
34,290 44,773
---------- ----------
Current liabilities
Derivative liabilities held at fair value (3,110) (3,792)
through profit or loss
Bank loans (98,739) (93,841)
Other payables (11,106) (17,874)
---------- ----------
(112,955) (115,507)
---------- ----------
Net current liabilities (78,665) (70,734)
---------- ----------
Net Assets 634,233 558,975
==========
Equity attributable to equity shareholders
Share capital 6,532 6,598
Share premium account 211,569 211,569
Capital redemption reserve 95 29
Other reserve 444,693 449,909
Capital reserve (39,170) (116,378)
Revenue reserve 10,514 7,248
---------- ----------
Total equity shareholders' funds 634,233 558,975
==========
Net Asset Value per Ordinary Share 97.09p 84.72p
==========
Cash Flow Statement for the year ended 31 March 2013
Year Year
ended ended
31.03.13 31.03.12
£'000 £'000
Operating activities
Cash inflow from investment income 13,394 11,063
Cash inflow from net derivative income 867 508
Cash inflow from other income 5 11
Cash outflow from Directors' fees (156) (146)
Cash outflow from other payments (9,618) (9,933)
Cash outflow from the purchase of (443,379) (613,873)
investments
Cash outflow from the costs of (17,861) (13,711)
derivatives
Cash inflow from the sale of investments 445,595 554,516
Cash inflow from the proceeds of 20,054 34,528
derivatives
Cash outflow from amounts held at futures (384) (642)
clearing houses and brokers
---------- ----------
Net cash inflow/(outflow) from operating 8,517 (37,679)
activities before servicing of finance
Servicing of finance
Cash outflow on interest on bank loans (1,736) (1,594)
---------- ----------
Net cash inflow/(outflow) from operating 6,781 (39,273)
activities and servicing of finance
---------- ----------
Financing activities
Cash inflow from the issue of Ordinary - 6,984
Shares
Cash outflow from the repurchase of (4,349) (1,345)
Ordinary Shares
Cash inflow from bank loans - 30,223
Cash outflow from dividends paid to (4,934) (1,656)
shareholders
---------- ----------
Net cash (outflow)/inflow from financing (9,283) 34,206
activities
---------- ----------
Decrease in cash and cash equivalents (2,502) (5,067)
Net cash and cash equivalents at the 20,123 25,184
start of the year
Effect of foreign exchange movements 890 6
---------- ----------
Cash and cash equivalents at the end of 18,511 20,123
the year
========== ==========
The above statements are prepared in accordance with International Financial
Reporting Standards ("IFRS"). This Preliminary Statement, which has been agreed
with the Independent Auditor, was approved by the Board on 17 June 2013. It is
not the Company's Statutory Financial Statements. The Statutory Financial
Statements for the year ended 31 March 2013 have been approved and audited but
have not yet been filed with the Registrar of Companies. The Statutory
Financial Statements for the year ended 31 March 2013 have received an
unqualified audit report do not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying the report and do
not contain statements under section 498(2) and (3) of the Companies Act 2006.
The Annual Report and Financial Statements will be posted to shareholders as
soon as is practicable and in any event no later than 24 June 2013.
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