Half-year Report
Fidelity Japanese Values PLC
Half-Yearly results for the 6 months ended 30 June 2017
Financial Highlights:
-
The Company delivered positive outperformance in the six month period to 30 June 2017, resulting in a net asset value (“NAVâ€) total return of +10.9%
-
The share price returned 22.2%, significantly outperforming the company’s reference index by 15.5%
-
Portfolio manager, Nicholas Price, believes that the prospects for Japanese equities remain positive, and is encouraged by steadily increasing interest on the part of foreign investors
Contacts
For further information, please contact:
Natalia de Sousa - Company Secretary
01737 837846
Performance Review
Market Review
The Japanese market advanced over the review period as concerns over external policy and political risks abated, and a cyclical recovery in the global economy contributed to an improvement in domestic macro and micro level fundamentals.
Share prices started the year on a positive note amid robust global macroeconomic indicators and upbeat corporate earnings results. Expectations that the Trump administration’s reflationary policies would boost US and global growth also supported gains. However, sentiment waned as mounting concerns about external political risks put upward pressure on the yen, which reached a high of around ¥136 against sterling. This uncertainty contributed to a second straight month of net selling by overseas investors in March, though corporates remained net buyers and individuals added on weakness.
Following a temporary pullback in early April, Japanese stocks rebounded strongly as concerns over political risks receded. The victory of centrist candidate Emmanuel Macron in the first round of the French Presidential election helped to ease the political uncertainty facing the eurozone, while the US Treasury Secretary’s support for a stronger US dollar and the announcement of plans for tax reforms further buoyed sentiment. A subsequent reversal in the yen, which closed the period at ¥146 against sterling, and a steady flow of positive domestic economic data and upbeat earnings results supported share price gains. Against this backdrop, overseas investors turned net buyers of Japanese stocks, a trend that continued through the second quarter.
Growth and quality stocks that exhibited solid earnings momentum generated the strongest returns over the review period, whereas value names underperformed as doubts about Trump’s reflationary policies and the outlook for commodity prices emerged. This trend was reflected at the sector level, where the strong gains in the technology and materials sectors contrasted with declines in the financials and commodity-related segments of the market. Smaller companies outpaced large caps, which were held back by the weak performance of automobile and banking stocks.
Portfolio Review
The net asset value (“NAVâ€) of the Company increased by 10.9% in sterling terms over the six months to 30 June 2017, outperforming both the Russell Nomura Mid/Small Cap Index and the average of the Company’s Peer Group, which rose 6.7% and 9.8% respectively over the same period. The discount to NAV narrowed as a result of share price performance which returned 22.2%. Core holdings in domestic-oriented sectors, such as retail and foods that displayed positive earnings momentum, were among the key drivers of the Company’s outperformance.
The attribution analysis below shows how the increase in NAV was achieved.
| Analysis of change in NAV for six months to 30 June 2017 | % |
| Impact of: | |
| Reference Index (in yen terms) | +8.0 |
| Reference Index income (in yen terms) | +1.2 |
| Stock selection (relative to the Index) | +1.8 |
| Gearing (in yen terms) | +2.1 |
| Exchange rate | -1.5 |
| Share repurchases | +0.1 |
| Charges | -0.8 |
| -------------------- | |
| Total return for the six months to 30 June 2017 | +10.9 |
| ============ |
In the retail sector, Tokyo Base, a relatively under-researched fashion apparel business, was the standout contributor to performance over the period. The speciality retailer has successfully differentiated itself in a tough market by focusing on products sourced from Japanese designers and made-in-Japan private brand goods. Its earnings results for its financial year to February 2017 exceeded its already positively revised guidance, while the acquisition of a stake in Tokyo-based fashion brand Loschild was expected to enhance its mid-term growth prospects.
Ryohin Keikaku, the operator of the MUJI brand of general merchandise stores, also reported solid full-year results. It continued to generate growth in revenue and profits, supported by its stable domestic business and overseas expansion, particularly in East Asia.
Meanwhile, shares in Tasaki & Co, a small-cap jewellery company, surged on reports of a management buyout that offered a significant premium to its current price. In the food sector, confectionery companies Morinaga and Kotobuki Spirits outperformed as they continued to post strong sales of mainstay products.
Conversely, sporting goods manufacturer Yonex was the most significant detractor from performance. Its shares fell due to concerns that rising promotion costs in China would limit near-term profit growth. However, the company has considerable scope to increase sales in Asia over the longer-term, both in terms of the high-priced bracket, where it already has a high market share, and in mid-priced products.
Kitchen appliance maker Zojirushi’s operating profits fell short of market expectations and pricing trends for its products weakened. However, the expansion of Asia’s middle class remains a key driver for sales of high-end rice cookers and steel bottles.
Although there have been no significant changes to the overall portfolio, the Portfolio Manager increased holdings in fast growing services companies and globally competitive technology-related names. For example, he identified attractive opportunities in the online recruitment and outsourcing sector, as well as in on-line social network games and fast fashion e-commerce. In the technology sector, the Company bought positions in beneficiaries of secular growth in factory automation and medical equipment, as well as companies with leading global shares in electronic components. Conversely, the Company selectively sold positions in financials following their strong performance since late 2016 and the move to negative interest rates. The Portfolio Manager also reduced the exposure to other strong performers, including furniture retailer Nitori and confectionery company Morinaga.
Gearing
The Company continues to gear through the use of long contracts for difference (“CFDsâ€). Total portfolio exposure as at 30 June 2017 was £227.3m, equating to gearing of 23.5% compared with 24.3% at 31 December 2016.
Outlook
Global growth remains on track and the Japanese economy is expected to expand at a rate above its long- term average growth rate. The Bank of Japan remains highly accommodative and domestic consumption is gradually improving along with employment conditions. Public spending is also on the rise as stimulus measures enacted in 2016 take effect. Furthermore, indicators of manufacturing activity such as exports and production remain firm. At the micro level, consensus forecasts point towards double-digit profit growth in fiscal year 2017 and equity valuations remain supportive. On a more cautious note, a slowdown in the global economic cycle may tilt risks to the downside, with policy changes by major central banks likely to be a key variable. External geopolitical factors, particularly concerns over North Korea, combined with heightened political uncertainty in Japan may also weigh on risk sentiment. However, on balance, we believe that the prospects for Japanese equities remain positive, and are heartened by the steadily increasing interest on the part of foreign investors.
By order of the Board
FIL Investments International
1 August 2017
Interim Management Report
Principal Risks and Uncertainties
The Board, with the assistance of the Manager, has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key risks faced by the Company.
The Board considers that the risks and uncertainties faced by the Company fall into the following categories: market risk; performance risk; discount control risk; gearing risk; currency risk; cybercrime risk; tax and regulatory risks; and operational risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 December 2016 which can be found on the Company’s pages of the Manager’s website at www.fidelityinvestmenttrusts.com. In addition, the risk matrix is reviewed three times a year by the audit committee and reported to the Board.
Share Repurchases and Treasury Shares
Repurchases of ordinary shares either for cancellation or for holding in Treasury are made at the discretion of the Board and within guidelines set by it from time to time. Share repurchases are made in the light of prevailing market conditions, together with their impact on liquidity and gearing. Shares will only be repurchased when the Board believes the result will be an enhancement to the net asset value of the ordinary shares for the remaining shareholders.
In order to assist in managing the discount, the Board received shareholder approval at the Annual General Meeting held on 6 June 2017 to hold in Treasury any ordinary shares repurchased by the Company, rather than cancelling them. Shares held in Treasury would only be re-issued at NAV per share or at a premium to NAV per share. This would ensure that the net e?ect of repurchasing and then re-issuing the ordinary shares would enhance NAV per share.
In the six month reporting period to 30 June 2017, 375,000 ordinary shares were repurchased for holding in Treasury. Since 30 June 2017, and as at the date of this report, no further ordinary shares have been repurchased for cancellation or into Treasury.
Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager (the “Managerâ€) and has delegated the Company’s portfolio management and company secretarial services to FIL Investments International. The transactions with the Manager and related parties are disclosed in Note 14 to the Financial Statements.
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. They have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing these Financial Statements.
Continuation votes are held every three years and the next continuation vote will be put to shareholders at the Annual General Meeting in 2019.
New Broker
The Board undertook a broker review in May of this year. Following this review, Stifel Nicolaus Europe Limited was appointed as the Company’s sole corporate broker with effect from 31 May 2017.
By order of the Board
FIL Investments International
1 August 2017
Directors’ Responsibility Statement
The Disclosure and Transparency Rules (“DTRâ€) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
-
the condensed set of Financial Statements contained within the Half-Yearly Report has been prepared in accordance with the Financial Reporting Council’s Standard, FRS 104: Interim Financial Reporting; and
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the Interim Management Report, together with the Performance Review, includes a fair review of the information required by DTR 4.2.7R and 4.2.8R.
The Half-Yearly Report has not been audited or reviewed by the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on 1 August 2017 and the above responsibility statement was signed on its behalf by David Robins, Chairman.
Twenty Largest Holdings
as at 30 June 2017
The Portfolio Exposures below show the amounts exposed to market price movements, including movements in the prices of the shares underlying the long CFDs. The Fair Value is the actual value of the portfolio on the Balance Sheet. Where a long CFD is held, the fair value reflects the profit or loss on the contract since it was opened and is based on how much the price of the underlying share has moved.
| Portfolio | |||
| Portfolio | Portfolio | Fair | |
| Exposure | Exposure | Value | |
| Long Exposures – shares unless otherwise stated | £’000 | %1 | £’000 |
| SoftBank Group (shares and long CFD) | |||
| Provider of telecommunication services including ADSL and fibre optic internet connection | 12,146 | 6.6 | 6,280 |
| --------------- | --------------- | --------------- | |
| Recruit Holdings (shares and long CFD) | |||
| Provider of information services and staffing services and advertising | 10,634 | 5.8 | 7,677 |
| --------------- | --------------- | --------------- | |
| Nippon Shinyaku (shares and long CFD) | |||
| Manufacturer of pharmaceutical and health food products | 8,989 | 4.9 | 7,657 |
| --------------- | --------------- | --------------- | |
| M3 (shares and long CFD) | |||
| Provider of medical related Internet services | 8,986 | 4.9 | 2,143 |
| --------------- | --------------- | --------------- | |
| Keyence (shares and long CFD) | |||
| Developer and manufacturer of sensors and measuring instruments | 8,471 | 4.6 | 5,865 |
| --------------- | --------------- | --------------- | |
| Daikin Industries (shares and long CFD) | |||
| Provider of air conditioning, chemicals, oil hydraulics, defence systems and electronics | 8,412 | 4.6 | 2,132 |
| --------------- | --------------- | --------------- | |
| Ryohin Keikaku | |||
| Retailer and wholesaler of generic private brand consumer products | 8,374 | 4.6 | 8,374 |
| --------------- | --------------- | --------------- | |
| Yamaha (shares and long CFD) | |||
| Manufacturer of musical instruments, audio equipment, and golf equipment | 8,183 | 4.4 | 5,253 |
| --------------- | --------------- | --------------- | |
| Makita (shares and long CFD) | |||
| Manufacturer and wholesaler of power tools and gardening and household equipment | 7,566 | 4.1 | 2,196 |
| --------------- | --------------- | --------------- | |
| Suzuki Motor | |||
| Manufacturer of automobiles, motorcycles and their related parts | 5,434 | 2.9 | 5,434 |
| --------------- | --------------- | --------------- | |
| Rinnai | |||
| Manufacturer and seller of gas appliances | 4,937 | 2.7 | 4,937 |
| --------------- | --------------- | --------------- | |
| Sysmex Corp (shares and long CFD) | |||
| Manufacturer of reagents and equipment for clinical tests | 4,748 | 2.6 | 1,611 |
| --------------- | --------------- | --------------- | |
| Nihon M&A Center (long CFD) | |||
| Provider of M&A advisory services to small and medium-sized enterprises | 4,719 | 2.6 | 698 |
| --------------- | --------------- | --------------- | |
| Yonex | |||
| Manufacturer and retailer of sporting goods | 4,686 | 2.4 | 4,686 |
| --------------- | --------------- | --------------- | |
| Yamaha Motor (shares and long CFD) | |||
| Manufacturer of motorcycles, marine and other motorized products | 4,200 | 2.3 | 1,216 |
| --------------- | --------------- | --------------- | |
| Kotobuki Spirits | |||
| Producer of confectionery | 4,136 | 2.2 | 4,136 |
| --------------- | --------------- | --------------- | |
| Shima Seiki Manufacturing | |||
| Manufacturer of electronic weft, glove and sock knitting machinery | 3,842 | 2.1 | 3,842 |
| --------------- | --------------- | --------------- | |
| Shinoken Group | |||
| Provider of property management and consulting services | 3,610 | 2.0 | 3,610 |
| --------------- | --------------- | --------------- | |
| MISUMI Group | |||
| Mail order distributor of precision machinery parts, semi-conductors and supplies for factories, hospitals, and restaurants | 3,598 | 2.0 | 3,598 |
| --------------- | --------------- | --------------- | |
| Nojima | |||
| Electronic equipment chain stores operator specialising in computers and communication products | 3,484 | 1.9 | 3,484 |
| --------------- | --------------- | --------------- | |
| Twenty largest exposures | 129,155 | 70.2 | 84,829 |
| --------------- | --------------- | --------------- | |
| Other long exposures | 98,130 | 53.3 | 98,130 |
| --------------- | --------------- | ||
| Total Portfolio Exposure2 | 227,285 | 123.5 | |
| ========= | ========= | ========= | |
| Total Portfolio Fair Value3 | 182,959 | ||
| Net current assets excluding derivative instruments4 | 1,042 | ||
| ========= | |||
| Shareholders’ Funds (per the Balance Sheet) | 184,001 | ||
| ========= |
1 Portfolio Exposure is expressed as a percentage of Shareholders’ Funds
2 Total Portfolio Exposure comprises market exposure to shares of £175,953,000 plus market exposure to long CFDs of £51,332,000.
3 Total Portfolio Fair Value comprises shares of £175,953,000 plus long CFD derivative instrument assets of £7,223,000 less long CFD derivative instrument liabilities of £217,000 (per the Balance Sheet ).
4 Net current assets excluding derivative instruments comprise debtors of £683,000 plus cash at bank of £1,264,000 less other creditors of £905,000 (per the Balance Sheet).
Gearing
as at 30 June 2017
| 30 June | 31 December | |
| 2017 | 2016 | |
| Portfolio | Portfolio | |
| Exposure | Exposure | |
| Shares and long CFDs | £’000 | £’000 |
| Investments – shares | 175,953 | 161,777 |
| Derivative instruments – long CFDs | 51,332 | 45,123 |
| --------------- | --------------- | |
| Total Portfolio Exposure | 227,285 | 206,900 |
| ========= | ========= | |
| Shareholders’ Funds | 184,001 | 166,405 |
| ========= | ========= | |
| Gearing – Total Portfolio Exposure in excess of Shareholders’ Funds | 23.5% | 24.3% |
| ========= | ========= |
FINANCIAL STATEMENTS
Income Statement
| Six months ended | Six months ended | Year ended | ||||||||
| 30 June 2017 | 30 June 2016 | 31 December 2016 | ||||||||
| unaudited | unaudited | audited` | ||||||||
| revenue | capital | total | revenue | capital | total | revenue | capital | total | ||
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gains on investments held at fair value through profit or loss | – | 14,705 | 14,705 | – | 27,710 | 27,710 | – | 30,593 | 30,593 | |
| Gains/(losses) on derivative instruments | – | 3,164 | 3,164 | – | (3,913) | (3,913) | – | 675 | 675 | |
| Income | 4 | 1,475 | – | 1,475 | 1,305 | – | 1,305 | 2,471 | – | 2,471 |
| Investment management fee | 5 | (943) | – | (943) | (633) | – | (633) | (1,597) | – | (1,597) |
| Other expenses | (229) | – | (229) | (250) | – | (250) | (489) | – | (489) | |
| Foreign exchange gains | – | 15 | 15 | 95 | 87 | 182 | – | 247 | 247 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Net return on ordinary activities before finance costs and taxation | 303 | 17,884 | 18,187 | 517 | 23,884 | 24,401 | 385 | 31,515 | 31,900 | |
| Finance costs | (57) | – | (57) | (40) | – | (40) | (91) | – | (91) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return on ordinary activities before taxation | 246 | 17,884 | 18,130 | 477 | 23,884 | 24,361 | 294 | 31,515 | 31,809 | |
| Taxation on return on ordinary activities | 6 | (121) | – | (121) | (103) | – | (103) | (202) | – | (202) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return on ordinary activities after taxation for the year | 125 | 17,884 | 18,009 | 374 | 23,884 | 24,258 | 92 | 31,515 | 31,607 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Return per ordinary share | 7 | 0.09p | 13.17p | 13.26p | 0.31p | 19.83p | 20.14p | 0.07p | 24.56p | 24.63p |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
The Company does not have any other comprehensive income. Accordingly the net return on ordinary activities after taxation for the period is also the total comprehensive income for the period 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 period and all items in the above statement derive from continuing operations.
Statement of Changes in Equity
| share | capital | |||||||
| share | premium | redemption | other | capital | revenue | total | ||
| capital | account | reserve | reserve | reserve | reserve | equity | ||
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Six months ended 30 June 2017 (unaudited) | ||||||||
| Total shareholders' funds at 31 December 2016 | 34,041 | 20,722 | 2,767 | 56,886 | 66,368 | (14,379) | 166,405 | |
| Ordinary shares repurchased and held in Treasury | 12 | – | – | – | (413) | – | – | (413) |
| Net return on ordinary activities after taxation for the period | – | – | – | – | 17,884 | 125 | 18,009 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total shareholders' funds at 30 June 2017 | 34,041 | 20,722 | 2,767 | 56,473 | 84,252 | (14,254) | 184,001 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Six months ended 30 June 2016 (unaudited) | ||||||||
| Total shareholders' funds at 31 December 2015 | 28,555 | 6,874 | 2,621 | 57,568 | 34,853 | (14,471) | 116,000 | |
| Ordinary shares repurchased for cancellation | 9, 11, 12 | (125) | – | 125 | (413) | – | – | (413) |
| Issue of ordinary shares on the exercise of rights attached to subscription shares | 9, 10 | 5,632 | 13,855 | – | – | – | – | 19,487 |
| Net return on ordinary activities after taxation for the period | – | – | – | – | 23,884 | 374 | 24,258 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total shareholders' funds at 30 June 2016 | 34,062 | 20,729 | 2,746 | 57,155 | 58,737 | (14,097) | 159,332 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Year ended 31 December 2016 (audited) | ||||||||
| Total shareholders' funds at 31 December 2015 | 28,555 | 6,874 | 2,621 | 57,568 | 34,853 | (14,471) | 116,000 | |
| Ordinary shares repurchased and held in Treasury | 12 | – | – | – | (184) | – | – | (184) |
| Ordinary shares repurchased for cancellation | 9, 11, 12 | (146) | – | 146 | (498) | – | – | (498) |
| Issue of ordinary shares on the exercise of rights attached to subscription shares | 9, 10 | 5,632 | 13,848 | – | – | – | – | 19,480 |
| Net return on ordinary activities after taxation for the year | – | – | – | – | 31,515 | 92 | 31,607 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total shareholders' funds at 31 December 2016 | 34,041 | 20,722 | 2,767 | 56,886 | 66,368 | (14,379) | 166,405 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
Balance Sheet
as at 30 June 2017 Company number 2885584
| 30.06.17 | 31.12.16 | 30.06.16 | ||
| unaudited | audited | unaudited | ||
| Notes | £’000 | £’000 | £’000 | |
| Fixed assets | ||||
| Investments held at fair value through profit or loss | 8 | 175,953 | 161,777 | 158,060 |
| ========= | ========= | ========= | ||
| Current assets | ||||
| Derivative instruments | 8 | 7,223 | 4,619 | 1,856 |
| Debtors | 683 | 534 | 1,530 | |
| Cash at bank | 1,264 | 620 | 4,293 | |
| --------------- | --------------- | --------------- | ||
| 9,170 | 5,773 | 7,679 | ||
| ========= | ========= | ========= | ||
| Creditors | ||||
| Derivative instruments | 8 | (217) | (424) | (3,938) |
| Other creditors | (905) | (721) | (2,469) | |
| --------------- | --------------- | --------------- | ||
| (1,122) | (1,145) | (6,407) | ||
| ========= | ========= | ========= | ||
| Net current assets | 8,048 | 4,628 | 1,272 | |
| --------------- | --------------- | --------------- | ||
| Net assets | 184,001 | 166,405 | 159,332 | |
| ========= | ========= | ========= | ||
| Capital and reserves | ||||
| Share capital | 9 | 34,041 | 34,041 | 34,062 |
| Share premium account | 10 | 20,722 | 20,722 | 20,729 |
| Capital redemption reserve | 11 | 2,767 | 2,767 | 2,746 |
| Other reserve | 12 | 56,473 | 56,886 | 57,155 |
| Capital reserve | 84,252 | 66,368 | 58,737 | |
| Revenue reserve | (14,254) | (14,379) | (14,097) | |
| --------------- | --------------- | --------------- | ||
| Total equity shareholders’ funds | 184,001 | 166,405 | 159,332 | |
| ========= | ========= | ========= | ||
| Net asset value per ordinary share | 13 | 135.69p | 122.37p | 116.94p |
| ========= | ========= | ========= |
Notes to the Financial Statements
1 Principal Activity
Fidelity Japanese 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 2885584, 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 Publication of non-statutory accounts
The Financial Statements in this Half-Yearly Financial Report have not been audited by the Company’s Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 (the “Actâ€). The financial information for the year ended 31 December 2016 is extracted from the latest published Financial Statements of the Company. Those Financial Statements were delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Act.
3 Basis of preparation
The Company prepares its Financial Statements on a going concern basis and in accordance with UK Generally Accepted Accounting Practice (“UK GAAPâ€) and FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland, issued by the Financial Reporting Council. The Financial Statements are also prepared in accordance with the 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. FRS 104: Interim Financial Reporting has also been applied in preparing this condensed set of Financial Statements. The accounting policies followed are consistent with those disclosed in the Company’s Annual Report and Financial Statements for the year ended 31 December 2016.
4 Income
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30.06.17 | 30.06.16 | 31.12.16 | |
| unaudited | unaudited | audited | |
| £’000 | £’000 | £’000 | |
| Investment income | |||
| Overseas dividends | 1,211 | 1,031 | 2,022 |
| Derivative income | |||
| Dividends on long CFDs | 264 | 274 | 449 |
| --------------- | --------------- | --------------- | |
| Total income | 1,475 | 1,305 | 2,471 |
| ========= | ========= | ========= |
5 Investment Management Fee
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30.06.17 | 30.06.16 | 31.12.16 | |
| unaudited | unaudited | audited | |
| £’000 | £’000 | £’000 | |
| --------------- | --------------- | --------------- | |
| Investment management fees | 943 | 633 | 1,597 |
| ========= | ========= | ========= |
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investments International (“FIIâ€), the Investment Manager. Both companies are Fidelity group companies. FII charges portfolio management services fees at an annual rate of 0.85% of the value of assets under management. Fees are payable quarterly in arrears and are calculated on the last business day of March, June, September and December.
6 Taxation on return on ordinary activities
The taxation charge of £121,000 (six months ended 30 June 2016: £103,000 and year ended 31 December 2016: £202,000) is irrecoverable overseas taxation suffered on dividend income.
7 Return per ordinary share
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30.06.17 | 30.06.16 | 31.12.16 | |
| unaudited | unaudited | audited | |
| pence | pence | pence | |
| Revenue return per ordinary share | 0.09p | 0.31p | 0.07p |
| Capital return per ordinary share | 13.17p | 19.83p | 24.56p |
| --------------- | --------------- | --------------- | |
| Total return per ordinary share | 13.26p | 20.14p | 24.63p |
| ========= | ========= | ========= |
The revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation for the period of £125,000 (six months ended 30 June 2016: £374,000 and year ended 31 December 2016: £92,000). The capital return per ordinary share is based on the net capital return on ordinary activities after taxation for the period of £17,884,000 (six months ended 30 June 2016: £23,884,000 and year ended 31 December 2016: £31,515,000). The total return per ordinary share is based on the net total return on ordinary activities after taxation for the period of £18,009,000 (six months ended 30 June 2016: £24,258,000 and year ended 31 December 2016: £31,607,000).
The returns per ordinary share are based on the weighted average number of ordinary shares in issue held outside Treasury during the period of 135,763,601 (six months ended 30 June 2016: 120,433,450 and year ended 31 December 2016: 128,319,344).
There is no dilution in the period as all the subscription share rights were exercised during the year ended 31 December 2016. There was no dilution during the six months ended 30 June 2016 and the year ended 31 December 2016 as the average ordinary share price was below the exercise price of the subscription shares.
8 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 | Valued by reference to |
| 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 table below sets out the Company’s fair value hierarchy:
| 30 June 2017 | ||||
| unaudited | ||||
| level 1 | level 2 | level 3 | total | |
| £’000 | £’000 | £’000 | £’000 | |
| Financial assets at fair value through profit or loss | ||||
| Investments | 175,007 | – | 946 | 175,953 |
| Derivative instruments | – | 7,223 | – | 7,223 |
| --------------- | --------------- | --------------- | --------------- | |
| 175,007 | 7,223 | 946 | 183,176 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| --------------- | --------------- | --------------- | --------------- | |
| Derivative instruments | – | (217) | – | (217) |
| ========= | ========= | ========= | ========= | |
| 31 December 2016 | ||||
| audited | ||||
| level 1 | level 2 | level 3 | total | |
| £’000 | £’000 | £’000 | £’000 | |
| Financial assets at fair value through profit or loss | ||||
| Investments | 160,819 | – | 958 | 161,777 |
| Derivative instruments | – | 4,619 | – | 4,619 |
| --------------- | --------------- | --------------- | --------------- | |
| 160,819 | 4,619 | 958 | 166,396 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| --------------- | --------------- | --------------- | --------------- | |
| Derivative instruments | – | (424) | – | (424) |
| ========= | ========= | ========= | ========= | |
| 30 June 2016 | ||||
| unaudited | ||||
| level 1 | level 2 | level 3 | total | |
| £’000 | £’000 | £’000 | £’000 | |
| Financial assets at fair value through profit or loss | ||||
| Investments | 158,060 | – | – | 158,060 |
| Derivative instruments | – | 1,856 | – | 1,856 |
| --------------- | --------------- | --------------- | --------------- | |
| 158,060 | 1,856 | – | 159,916 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| --------------- | --------------- | --------------- | --------------- | |
| Derivative instruments | – | (3,938) | – | (3,938) |
| ========= | ========= | ========= | ========= | |
9 Share Capital
| 30 June 2017 | 31 December 2016 | 30 June 2016 | ||||
| unaudited | audited | unaudited | ||||
| number of | number of | number of | ||||
| shares | £’000 | shares | £’000 | shares | £’000 | |
| Ordinary shares of 25 pence each – issued, allotted and fully paid | ||||||
| Held outside Treasury | ||||||
| Beginning of the period | 135,981,695 | 33,996 | 114,218,356 | 28,555 | 114,218,356 | 28,555 |
| ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | |
| Ordinary shares repurchased and transferred into Treasury (see below) | (375,000) | (94) | (180,000) | (45) | – | – |
| Ordinary shares repurchased for cancellation | – | – | (584,000) | (146) | (500,000) | (125) |
| Issue of ordinary shares on the exercise of rights attached to subscription shares | – | – | 22,527,339 | 5,632 | 22,527,339 | 5,632 |
| ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | |
| End of the period | 135,606,695 | 33,902 | 135,981,695 | 33,996 | 136,245,695 | 34,062 |
| ========== | ========== | ========== | ========== | ========== | ========== | |
| Held in Treasury | ||||||
| Beginning of the period | 180,000 | 45 | – | – | – | – |
| Ordinary shares repurchased and held in Treasury | 375,000 | 94 | 180,000 | 45 | – | – |
| ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | |
| End of the period | 555,000 | 139 | 180,000 | 45 | – | – |
| ========== | ========== | ========== | ========== | ========== | ========== | |
| Subscription shares of 0.001 pence each – issued, allotted and fully paid | ||||||
| Beginning of the period | – | – | 22,527,339 | – | 22,527,339 | – |
| Cancellation of subscription shares on the exercise of rights | – | – | (22,527,339) | – | (22,527,339) | – |
| ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | |
| End of the period | – | – | – | – | – | – |
| ========== | ========== | ========== | ========== | ========== | ========== | |
| Total share capital | 34,041 | 34,041 | 34,062 | |||
| ========== | ========== | ========== | ========== | ========== | ========== | |
During the period the Company repurchased 375,000 ordinary shares and held them in Treasury (year ended 31 December 2016: 180,000 and six months ended 30 June 2016: nil). Shares held in Treasury carry no rights to vote, to receive a dividend or to participate in the winding up of the Company. No ordinary shares were repurchased for cancellation during the period (year ended 31 December 2016: 584,000 and six months ended 30 June 2016: 500,000).
During the year ended 31 December 2016 the Company issued 22,527,339 ordinary shares on the exercise of rights attached to subscription shares and cancelled the same number of subscription shares (six months ended 30 June 2016: 22,527,339).
10 Share premium account
| 30.06.17 | 31.12.16 | 30.06.16 | |
| unaudited | audited | unaudited | |
| £’000 | £’000 | £’000 | |
| Beginning of the period | 20,722 | 6,874 | 6,874 |
| Net proceeds of ordinary shares issued on the exercise of rights attached to subscription shares | – | 13,848 | 13,855 |
| ----------------- | ----------------- | ----------------- | |
| End of the period | 20,722 | 20,722 | 20,729 |
| ========== | ========== | ========== |
11 Capital redemption reserve
| 30.06.17 | 31.12.16 | 30.06.16 | |
| unaudited | audited | unaudited | |
| £’000 | £’000 | £’000 | |
| Beginning of the period | 2,767 | 2,621 | 2,621 |
| ----------------- | ----------------- | ----------------- | |
| Nominal value of ordinary shares repurchased for cancellation | – | 146 | 125 |
| ----------------- | ----------------- | ----------------- | |
| End of the period | 2,767 | 2,767 | 2,746 |
| ========== | ========== | ========== |
12 Other reserve
| 30.06.17 | 31.12.16 | 30.06.16 | |
| unaudited | audited | unaudited | |
| £’000 | £’000 | £’000 | |
| Beginning of the period | 56,886 | 57,568 | 57,568 |
| Cost of ordinary shares repurchased and held in Treasury | (413) | (184) | – |
| Cost of ordinary shares repurchased for cancellation | – | (498) | (413) |
| ----------------- | ----------------- | ----------------- | |
| End of the period | 56,473 | 56,886 | 57,155 |
| ========== | ========== | ========== |
13 Net asset value per ordinary share
The net asset value per ordinary share is based on net assets of £184,001,000 (31 December 2016: £166,405,000 and 30 June 2016: £159,332,000) and on 135,606,695 (31 December 2016: 135,981,695 and 30 June 2016: 136,245,695) ordinary shares, being the number of ordinary shares in issue that are held outside Treasury at the period 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.
14 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€), the Investment Manager. Both companies are Fidelity group companies. Details of the fee arrangements are given in Note 5.
During the period fees charged by FII for portfolio management services were £943,000 (six months ended 30 June 2016: £633,000 and year ended 31 December 2016: £1,597,000) and for non-portfolio management services were £23,000 (six months ended 30 June 2016: £23,000 and year ended 31 December 2016: £46,000). 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 £486,000 (31 December 2016: £441,000 and 30 June 2016: £330,000) and fees for non-portfolio management services of £12,000 (31 December 2016: £12,000 and 30 June 2016: £11,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the period was £35,000 (six months ended 30 June 2016: £49,000 and year ended 31 December 2016: £88,000) and at the Balance Sheet date £29,000 (31 December 2016: £32,000 and 30 June 2016: £57,000) was accrued and included in other creditors.
As at 30 June 2017, the Board consisted of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors have a service contract with the Company. The Chairman receives an annual fee of £30,000, the Audit Committee Chairman an annual fee of £23,000 and each other Director an annual fee of £20,000. The following members of the Board hold ordinary shares in the Company: David Robins 37,000 shares, Philip Kay 12,183 shares, Sir Laurence Magnus 48,000 shares and Mami Mizutori 11,063 shares.
15. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this Half-Yearly Report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2017 and 30 June 2016 has not been audited or reviewed.
The information for the year ended 31 December 2016 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.
16 ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 December 2017 as prepared under UK GAAP by 31 March 2018. The Annual Report should be available by early April 2018, with the Annual General Meeting expected to be held in May 2018.
For further information, please contact:
Natalia de Sousa - Company Secretary
01737 837846
ENDS
A copy of the Half-Yearly Financial Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM
The Half-Yearly Financial 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. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
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