FIDELITY ASIAN VALUES PLC - Final Results
PR Newswire
London, 22 October 2015
The information below has been extracted from the Annual Report and Accounts for the year ended 31 July 2015 and is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports.
Chairman’s Statement
I have pleasure in presenting the Annual Report of Fidelity Asian Values PLC (the “Company”) for the year ended 31 July 2015.
CHANGE OF PORTFOLIO MANAGER
As reported in the Half-Yearly Report for the six months ended 30 June 2015, John Lo stepped down as Portfolio Manager of the Company and Nitin Bajaj was appointed from 1 April 2015.
The Board appreciates the long period of steady returns and good performance under the former Portfolio Manager, John Lo, and I would like to take this opportunity on behalf of the Board and shareholders to thank him for his successful stewardship of the portfolio. However, the Board believes that the Company is insufficiently differentiated from its peers in order to thrive. At the start of the year, the Board considered various options and decided that a value strategy with a smaller cap focus would make better use of the Company’s closed-ended structure, have the potential to perform well against peers, and hopefully narrow the Company’s discount to NAV. In Nitin Bajaj, Fidelity was able to offer the Company a value manager with a strong track record in Asian smaller companies and a strong marketing mindset. Over the last four months, Nitin has reshaped the portfolio to reflect his investment style, and performance so far has been very promising despite volatile market conditions.
CHANGE OF COMPARATIVE INDEX
As announced on 24 July 2015 and with effect from 1 August 2015, the Company will adopt the MSCI All Countries Asia ex Japan Index as its Comparative Index. This Index is widely used within the Company’s peer group and is more appropriate as a comparative index. The main difference is that the new Comparative Index includes India, a market which is clearly part of Asia and where the new Portfolio Manager is likely to find significant opportunities to add value for shareholders. The change has no bearing on the investments held by the Company.
Investors should remember that Nitin’s approach to investing is based solely on his ability to find good companies and he is not influenced by the Index in his decision making.
PROPOSED CHANGES TO THE COMPANY’S INVESTMENT POLICY
The Board has reviewed the Company’s investment policy following the change in Portfolio Manager, and as a result is proposing a small number of changes. These will enable the Portfolio Manager to enhance investment returns, by having greater flexibility in how he can implement his stock selection strategy.
The proposed changes would extend the ways in which derivatives can be used by the Company, and clarify and make certain consequential amendments to the investment policy. The changes, and in particular the limits and guidelines that will apply to the use of derivatives, are explained in more detail in the Circular to shareholders dated 21 October 2015 accompanying the Annual Report. However, Board guidelines in respect of Net Gearing will be retained in order to avoid causing an increase in NAV volatility. A resolution to amend the investment policy is being proposed at the Annual General Meeting on 30 November 2015, as detailed in the section on the Annual General Meeting in the Annual Report.
PERFORMANCE
Total
return (%) |
1
year |
3
years |
5
years |
Since
launch |
| NAV per share – undiluted |
+4.0 |
+37.6 |
+40.7 |
+189.2 |
| Share price |
+6.2 |
+36.7 |
+37.7 |
+165.6 |
| MSCI All Countries Far East ex Japan Index |
+0.3 |
+18.4 |
+28.6 |
+87.4 |
INVESTMENT REVIEW
For the third successive year, the NAV and share price of the Company increased in excess of the Comparative Index. The financial year under review saw a NAV return of 4.0% whilst the Index returned only 0.3%. Returns to our shareholders have been further enhanced by a narrowing of the discount from 12.5% at the start of the year to 10.7% at the end of the year.
Asian equities edged higher with gains driven mainly by the surge in China and Hong Kong markets following the announcement of the Shanghai – Hong Kong Stock Connect Program. Equity market performance was also helped by a shift in the structure of the Chinese economy, as policymakers encouraged consumption growth and greater private sector participation in the economy. However, the end of the reporting year and the start of the new review period have been dominated by the recent levels of volatility and selling-off of markets around the world led largely by the fall in Chinese equity valuations of around 19.7% (MSCI China Index) between 1 April and the end of September 2015. Despite this, our Portfolio Manager has produced returns in excess of the Comparative Index, with NAV return exceeding the Index by 2.5% over this period.
OUTLOOK
Nitin writes in greater detail about the background to these market movements but is continuing to find rewarding opportunities to invest in companies run by efficient managers at reasonable valuations.
OTHER MATTERS
Fee arrangements
Following a review of the Company’s fee arrangements, the Board agreed with its Manager, Fidelity Investment Services (UK) Limited, to reduce the annual management charge (“AMC”) of 1.00% of gross assets per annum with effect from 1 August 2015. The revised fee structure will be on a tiered basis and the AMC will be charged at a rate of 0.90% of the Company’s first £200 million of gross assets and at a rate of 0.85% on gross assets above £200 million. The Board believe that these revised fee arrangements will be more beneficial to investors and the Company overall.
Gearing
At 31 July 2015, the Company held net cash of 9.0% (2014: gearing of 11.3%). Further details are provided in the Annual Report.
Dividend
Subject to shareholders’ approval at the forthcoming Annual General Meeting, the Directors recommend a dividend of 2.00 pence per ordinary share (2014: 1.10 pence). This dividend will be payable on 10 December 2015 to shareholders on the register at close of business on 30 October 2015 (ex-dividend date 29 October 2015). As the Company’s objective is long term capital growth, any revenue surplus is a function of a particular year’s business and it should not be assumed that dividends will continue to be paid in future.
Share Repurchases
Repurchases of ordinary shares are made at the discretion of the Board and within guidelines set from time to time by the Board in light of prevailing market conditions. Share repurchases will only be made when they will result in an enhancement to the NAV of ordinary shares for remaining shareholders. There were no ordinary shares repurchased for cancellation during the year under review.
Treasury Shares
The Board has decided to seek shareholder approval to hold in Treasury ordinary shares repurchased by the Company, rather than cancelling them. The Treasury shares would carry no voting rights or rights to receive a dividend and would have no entitlement in a winding up of the Company. No more than 5% of the issued ordinary share capital of the Company would be held in Treasury. Any 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 effect of repurchasing and then re-issuing ordinary shares would enhance NAV per share.
Shareholder approval to implement this recommendation will be sought at the forthcoming Annual General Meeting.
Board Changes
The year under review saw some changes to the Board. Hugh Bolland stepped down as Chairman and non-executive Director and I succeeded him as Chairman.
The Board welcomed Michael Warren as a new member of the Board with effect from 29 September 2014. He was subsequently elected as a Director of the Company by shareholders on 9 December 2014.
The Board is also pleased to welcome Tim Scholefield as a new member of the Board with effect from 30 September 2015. Mr Scholefield has over 27 years’ experience of managing portfolios and investment teams both in the UK and Asia. Further details are included in his biography in the Annual Report.
William Knight will be stepping down from the Board at the conclusion of the Annual General Meeting on 30 November 2015. I would like to take this opportunity to thank him on behalf of the Board and the shareholders for his invaluable contribution over the years.
Continuation Vote
In accordance with the Articles of Association of the Company, the Company is subject to a continuation vote every five years. The next continuation vote will take place at the Annual General Meeting in 2016.
Annual General Meeting
The Annual General Meeting will be held on 30 November 2015 at Fidelity’s offices at 25 Cannon Street, London EC4M 5TA (St Paul’s or Mansion House tube stations) commencing at 11.00 am. All shareholders and Fidelity Savings Plan and ISA Scheme investors are invited to attend. The new Portfolio Manager will be making a presentation on the year under review and the immediate prospects for the Company.
Kate Bolsover
Chairman
21 October 2015
Portfolio Manager’s Review
MARKET REVIEW
Over the period under review, markets initially performed very strongly, mainly driven by China and Hong Kong markets. The implementation of the Shanghai Hong Kong Stock Connect Program for the first time allowed mainland Chinese investors to invest in Hong Kong. These investors concentrated on medium and small stocks in Hong Kong, leading to a surge in their prices and valuation. However, towards the end of the review period Asian markets became more volatile on rising prospects for a US interest rate hike and debt default in Greece. Sentiment weakened further as investors worried about a slowdown in China and high levels of leverage in the Chinese stock market. This meant that the earlier gains were wiped out leaving the Index broadly unchanged. From a sector perspective, defensive health care, utilities and telecommunication services providers gained strongly. In contrast, consumer discretionary was the worst performing sector. Materials and energy producers declined due to a sharp fall in natural resources prices.
PERFORMANCE REVIEW
Over the 12 month period ended July 2015, the portfolio strongly outperformed the comparative MSCI All Countries Far East ex Japan Index. Returns were buoyed by rewarding stock selection in South Korea and India, as well as favourable positioning in China. At sector level, stock selection in the information technology and consumer discretionary sectors, and overweighting in the consumer staples and healthcare sectors contributed the most to the fund’s relative returns. In April 2015, I took over the management of the portfolio from John Lo. Although it is just four months into my tenure, I am happy to note that the portfolio has continued to outperform the Index over this period.
Over the 12 month period, IT sector holdings such as e-commerce company Alibaba Group and electronic supply chain manager Redington India were leading contributors within the IT sector. The position in Alibaba surged following a much anticipated listing, and Redington India also gained in view of optimism about likely growth in demand in anticipation of stronger growth in the Indian economy. John booked profits in Alibaba in November 2014 after it reached his target price. I reduced the position in Redington India in April and sold it completely in July due to increasing competition.
In the discretionary space, the position in Korean travel agent Hana Tour Service proved beneficial as it gained market share due to its strong brand and channel operations. However, I offloaded the holding in April due to valuation concerns.
Within staples, a position in Australia-based confectionery firm Yowie Group, which I initiated in April, proved rewarding. The company is rolling out its brand of chocolates in the US, where it is shielded from intense competition as it is the property rights owner of the unique brand and has exclusive access to the US market. The position remains among the Company’s top holdings.
Relative returns from the healthcare sector were primarily driven by the holding in Religare Health Trust, which owns hospitals in India. I added to the holding in April given its strong brand, structural growth opportunity in India and attractive dividend yield.
Elsewhere, an overweight stance in China-based insurance provider Ping An Insurance and brokerage services firm Citic Securities buoyed returns. Both these stocks gained against the backdrop of a series of financial sector reforms announced by the government. More specifically, Citic Securities was a direct beneficiary of the Shanghai Hong Kong Stock Connect program which led to a surge in trading volumes. Ping An was sold in April as I switched into better quality, value names with simpler business models such as Power Grid Corporation and Religare Health Trust. Citic Securities was also offloaded in May as the stock reached my valuation target.
On a less positive note, the holding in Slater & Gordon was the main detractor from performance. The Share price fell amid concerns about an acquisition of the professional services division of UK-listed legal firm Quindell. The Australian regulator was also reported to be looking into the processes of Slater & Gordon’s auditors. A large portion of the holding was sold in the interest of prudence to mitigate the unfavourable impact from the news flow related to the stock. Elsewhere, a holding in specialty machinery producer Sarine Technologies declined after missing earnings expectations, whilst the holding in oil & gas exploration firm Rex International hampered returns as a fall in oil prices weighed growth expectations. Both these positions were closed in April to finance the purchase of better quality small cap value names.
INVESTMENT STRATEGY
As the Company’s new Portfolio Manager, I will continue to focus on strong businesses run by outstanding managers which are available at reasonable valuations with an objective of compounding money over a three to five years period. There will be times, like the last quarter, where things do not go to plan – this can be due to external reasons (stock market cycles) and also errors in judgement or analysis on my part. This is why buying strong businesses which are run by good managers and are available at reasonable prices is important as they reduce the risk from incorrect judgement.
I also remain biased towards smaller companies for three reasons. First, this space gives us the opportunity to invest in “winners of tomorrow” before they become well known. Secondly, this space is not widely followed by professional investors and hence there is a higher likelihood of finding “mispriced businesses”. Lastly, with more than 15,000 listed companies in Asia, there is a lot of scope to find both “winners of tomorrow” and “mispriced businesses”.
Over the last few months, the portfolio has been transitioned to reflect my value bias and focus on smaller companies. As a result, the Company now has a higher overweight exposure to smaller companies with market capitalisation of less than US$1 billion.
Outlook
I am deliberately omitting saying anything about stock market outlook. I have yet to meet anyone who can reliably forecast markets. I certainly cannot. As Warren Buffet famously said: “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future”. However, I am beginning to find stocks that I wish to buy for the portfolio.
Nitin Bajaj
Portfolio Manager
21 October 2015
Strategic Report
PRINCIPAL RISKS AND UNCERTAINTIES
There is an ongoing process for identifying, evaluating and managing the principal risks faced by the Company and this is regularly reviewed by the Board.
The Board is responsible for the Company’s system of risk management and internal controls and for reviewing its effectiveness. The Board also determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives. An internal controls report providing an assessment of risks, together with controls to mitigate these risks, is prepared by the Manager and considered by the Audit Committee at each of its meetings.
The Company’s Alternative Investment Fund Manager, FIL Investment Services (UK) Limited 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:
Market risk
The Company’s assets consist mainly of listed securities and the principal risks are therefore market related such as market downturn, interest rate movements, and exchange rate movements. The Portfolio Manager’s success or failure to protect and increase the Company’s assets against this background is core to the Company’s continued success.
Risks to which the Company is exposed, and which form part of the market risk category, are included in Note 18 to the Financial Statements 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.
Performance risk
The achievement of the Company’s performance objective relative to the market requires the application of risk such as strategy, asset allocation and stock selection, and may lead to underperformance of the Comparative Index. The Board reviews risk at each Board meeting, considers the asset allocation of the portfolio and the risks associated with particular countries and industry sectors within the parameters of the investment objective and strategy. The Portfolio Manager is responsible for actively managing and monitoring the portfolio selected in accordance with the asset allocation parameters and seeks to ensure that individual stocks meet an acceptable risk/reward profile. The emphasis is on long term performance and the Board accepts that by targeting long term results the Company risks volatility of performance in the shorter term.
As outlined in the Chairman’s Statement, the Board appointed a new Portfolio Manager from 1 April 2015. This change incurred a degree of transition risk as the new Portfolio Manager made changes to the portfolio and gearing levels. However, this has been successfully managed and performance so far has been promising despite market volatility.
Discount control risk
The price of the Company’s shares as well as its discount to NAV, are factors which are not within the Company’s total control. Some short term influence over the discount may be exercised by the use of share repurchases at acceptable prices within the parameters set by the Board. The Company’s ordinary share price, NAV and discount volatility are monitored daily by the Manager and considered by the Board regularly.
Gearing risk
The Company has the option to invest up to the total of any loan facilities or to use CFDs to invest in equities. The principal risk is that while in a rising market the Company will benefit from gearing, in a falling market the impact would be detrimental. Other risks are that the cost of gearing may be too high or that the term of the gearing is inappropriate in relation to market conditions. The Company currently has no bank loans and gears through the use of long CFDs. Utilising long CFDs for gearing purposes provides greater flexibility and has been significantly cheaper than traditional bank loans. The Board regularly considers the level of gearing and gearing risk and sets limits within which the Manager must operate.
Currency risk
The functional currency of the Company in which it reports its results is UK sterling; however, most of its assets and its income are denominated in other currencies. Consequently, it is subject to currency risk on exchange rate movements between UK sterling and these other currencies. It is the Company’s policy not to hedge against currency risks. Further details can be found in Note 18 to the Financial Statements.
Tax and regulatory risks
A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status, resulting in the Company being subject to tax on capital gains. A breach of other legal and regulatory rules may lead to suspension from listing on the Stock Exchange. The Board receives regular reports from the Manager confirming regulatory compliance during the year.
Operational risks
The Company has no employees and relies on a number of third party service providers, principally the Manager, Registrar, Custodian and Depositary. The Company is dependent on the Manager’s control systems and those of its Registrar and Custodian, both of whom are monitored and managed by the Manager in the context of the Company’s assets and interests on behalf of the Board. The Depositary, under a tri-partite agreement, oversees the custody of investments and cash. The security of the Company’s assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements, among other things, rely on the effective operation of such systems.
The Manager, Registrar and Custodian are subject to a risk-based programme of internal audits by the Manager. In addition, service providers’ own internal controls reports are received by the Board and any concerns investigated. Although the likelihood of poor governance, compliance and operational administration by third party service providers is low, the financial consequences could be serious, including the associated reputational damage to the Company.
Other risks
A continuation vote takes place every five years. There is a risk that shareholders do not vote in favour of continuation during periods when performance is poor. The next continuation vote will take place in 2016.
RELATED PARTY TRANSACTIONS
No Director has a contract of service with the Company and no contracts existed during or at the end of the financial period in which any Director was materially interested and which were significant in relation to the Company’s business. Therefore, there have been no related party transactions requiring disclosure under Financial Reporting Standard 8.
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 in preparing these Financial Statements.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial period. Under that law they have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice.
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 assume that the Company will continue in business; and
• confirm, to the extent possible, that the Financial Statements are fair, balanced and understandable.
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 that 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.fidelity.co.uk/its 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.
We confirm that to the best of our 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; and the Strategic Report and Directors’ Report include 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. We confirm that we consider the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.
Approved by the Board on 21 October 2015 and signed on its behalf.
Kate Bolsover
Chairman
Income Statement for the year ended 31 July 2015
|
|
|
|
|
2015 |
|
|
|
|
|
2014 |
|
|
|
|
|
revenue |
|
capital |
|
total |
|
revenue |
|
capital |
|
total |
|
Notes |
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
| Gains on investments designated at fair value through profit or loss |
9 |
|
– |
|
1,589 |
|
1,589 |
|
– |
|
15,131 |
|
15,131 |
| Gains on derivative instruments held at fair value through profit or loss |
10 |
|
– |
|
4,352 |
|
4,352 |
|
– |
|
3,147 |
|
3,147 |
| Income |
2 |
|
4,527 |
|
– |
|
4,527 |
|
3,332 |
|
– |
|
3,332 |
| Investment management fee |
3 |
|
(2,018) |
|
– |
|
(2,018) |
|
(1,805) |
|
– |
|
(1,805) |
| Other expenses |
4 |
|
(622) |
|
– |
|
(622) |
|
(588) |
|
– |
|
(588) |
| Exchange gains/(losses) on other net assets |
|
|
24 |
|
19 |
|
43 |
|
(62) |
|
(349) |
|
(411) |
|
|
|
---------- |
|
---------- |
|
---------- |
|
---------- |
|
---------- |
|
---------- |
| Net return on ordinary activities before finance costs and taxation |
|
|
1,911 |
|
5,960 |
|
7,871 |
|
877 |
|
17,929 |
|
18,806 |
| Finance costs |
5 |
|
(101) |
|
– |
|
(101) |
|
(103) |
|
– |
|
(103) |
|
|
|
---------- |
|
---------- |
|
---------- |
|
---------- |
|
---------- |
|
---------- |
| Net return on ordinary activities before taxation |
|
|
1,810 |
|
5,960 |
|
7,770 |
|
774 |
|
17,929 |
|
18,703 |
| Taxation on return on ordinary activities |
6 |
|
(287) |
|
(566) |
|
(853) |
|
(5) |
|
(621) |
|
(626) |
|
|
|
---------- |
|
---------- |
|
---------- |
|
---------- |
|
---------- |
|
---------- |
| Net return on ordinary activities after taxation for the year |
|
|
1,523 |
|
5,394 |
|
6,917 |
|
769 |
|
17,308 |
|
18,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
========== |
|
========== |
|
========== |
|
========== |
|
========== |
|
========== |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Return per ordinary share |
7 |
|
2.26p |
|
7.99p |
|
10.25p |
|
1.14p |
|
25.62p |
|
26.76p |
|
|
|
========== |
|
========== |
|
========== |
|
========== |
|
========== |
|
========== |
A Statement of Total Recognised Gains and Losses has not been prepared as there are no gains and losses other than those reported in this Income Statement.
The total column of the Income Statement is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year.
The Notes in the Annual Report form an integral part of these Financial Statements.
Reconciliation of Movements in Shareholders’ Funds for the year ended 31 July 2015
|
Notes |
share
capital
£’000 |
|
share
premium
account
£’000 |
|
capital
redemption
reserve
£’000 |
|
other non-
distributable
reserve
£’000 |
|
other
reserve
£’000 |
|
capital
reserve
£’000 |
|
revenue
reserve
£’000 |
|
total
equity
£’000 |
|
| Opening shareholders’ funds at 1 August 2013 |
|
|
|
|
|
16,920 |
|
20,232 |
3,149 |
7,367 |
|
9,013 |
|
97,794 |
|
1,354 |
|
155,829 |
| Repurchase of ordinary shares |
13 |
|
|
|
|
(48) |
|
- |
48 |
– |
|
(400) |
|
– |
|
– |
|
(400) |
| Net return on ordinary activities after taxation for the year |
|
|
|
|
|
- |
|
- |
– |
|
– |
|
17,308 |
|
769 |
|
18,077 |
| Dividend paid to shareholders |
8 |
|
|
|
|
|
|
|
– |
|
– |
|
– |
|
(744) |
|
(744) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Closing shareholders’ funds at 31 July 2014 |
|
|
|
|
|
16,872 |
|
20,232 |
3,197 |
7,367 |
|
8,613 |
|
115,102 |
|
1,379 |
|
172,762 |
| Net return on ordinary activities after taxation for the year |
|
|
|
|
|
– |
|
– |
- |
– |
|
– |
|
5,394 |
|
1,523 |
|
6,917 |
| Dividend paid to shareholders |
8 |
|
|
|
|
|
|
|
|
– |
|
– |
|
– |
|
(742) |
|
(742) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Closing shareholders’ funds at 31 July 2015 |
|
|
|
|
|
16,872 |
|
20,232 |
3,197 |
7,367 |
|
8,613 |
|
120,496 |
|
2,160 |
|
178,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
The Notes in the Annual Report form an integral part of these Financial Statements.
Balance Sheet as at 31 July 2015
Company number 3183919
|
|
|
2015 |
|
2014 |
|
Notes |
|
£’000 |
|
£’000 |
| Fixed assets |
|
|
|
|
|
| Investments designated at fair value through profit or loss |
9 |
|
162,858 |
|
169,880 |
|
|
|
---------- |
|
---------- |
| Current assets |
|
|
|
|
|
| Derivative assets held at fair value through profit or loss |
10 |
|
– |
|
2,617 |
| Debtors |
11 |
|
3,737 |
|
836 |
| Cash at bank |
|
|
14,366 |
|
1,436 |
|
|
|
---------- |
|
---------- |
|
|
|
18,103 |
|
4,889 |
|
|
|
---------- |
|
---------- |
| Creditors |
|
|
|
|
|
| Derivative liabilities held at fair value through profit or loss |
10 |
|
– |
|
(609) |
| Other creditors |
12 |
|
(2,024) |
|
(1,398) |
|
|
|
---------- |
|
---------- |
|
|
|
(2,024) |
|
(2,007) |
|
|
|
---------- |
|
---------- |
| Net current assets |
|
|
16,079 |
|
2,882 |
|
|
|
---------- |
|
---------- |
| Total net assets |
|
|
178,937 |
|
172,762 |
|
|
|
========== |
|
========== |
| Capital and reserves |
|
|
|
|
|
| Share capital |
13 |
|
16,872 |
|
16,872 |
| Share premium account |
14 |
|
20,232 |
|
20,232 |
| Capital redemption reserve |
14 |
|
3,197 |
|
3,197 |
| Other non-distributable reserve |
14 |
|
7,367 |
|
7,367 |
| Other reserve |
14 |
|
8,613 |
|
8,613 |
| Capital reserve |
14 |
|
120,496 |
|
115,102 |
| Revenue reserve |
14 |
|
2,160 |
|
1,379 |
|
|
|
---------- |
|
---------- |
| Total equity shareholders’ funds |
|
|
178,937 |
|
172,762 |
|
|
|
========== |
|
========== |
| Net asset value per ordinary share |
15 |
|
265.14p |
|
255.99p |
|
|
|
========== |
|
========== |
The Financial Statements were approved by the Board of Directors on 21 October 2015 and were signed on its behalf by:
Kate Bolsover Chairman
The Notes in the Annual Report form an integral part of these Financial Statements.
Cash Flow Statement for the year ended 31 July 2015
|
|
|
year
ended
2015 |
|
year
ended
2014 |
|
Notes |
|
£’000 |
|
£’000 |
| Operating activities |
|
|
|
|
|
| Investment income received |
|
|
3,778 |
|
2,897 |
| Income received from long CFDs |
|
|
162 |
|
185 |
| Investment management fees paid |
|
|
(2,029) |
|
(1,785) |
| Directors’ fees paid |
|
|
(125) |
|
(121) |
| Other cash payments |
|
|
(405) |
|
(482) |
|
|
|
---------- |
|
---------- |
| Net cash inflow from operating activities |
16 |
|
1,381 |
|
694 |
|
|
|
---------- |
|
---------- |
| Servicing of finance |
|
|
|
|
|
| Interest paid on long CFDs |
|
|
(106) |
|
(102) |
|
|
|
---------- |
|
---------- |
| Net cash outflow from servicing of finance |
|
|
(106) |
|
(102) |
|
|
|
---------- |
|
---------- |
| Taxation paid |
|
|
|
|
|
| Overseas capital gains tax paid |
|
|
(742) |
|
(271) |
|
|
|
---------- |
|
---------- |
| Net cash outflow from taxation |
|
|
(742) |
|
(271) |
|
|
|
---------- |
|
---------- |
| Financial investment |
|
|
|
|
|
| Purchase of investments |
|
|
(252,478) |
|
(118,100) |
| Disposal of investments |
|
|
259,238 |
|
115,361 |
|
|
|
---------- |
|
---------- |
| Net cash inflow/(outflow) from financial investment |
|
|
6,760 |
|
(2,739) |
|
|
|
---------- |
|
---------- |
| Derivative activities |
|
|
|
|
|
| Receipts on long CFD positions closed |
|
|
6,360 |
|
271 |
| Movements on amounts held at brokers |
|
|
– |
|
856 |
|
|
|
---------- |
|
---------- |
| Net cash inflow from derivative activities |
|
|
6,360 |
|
1,127 |
|
|
|
---------- |
|
---------- |
| Dividend paid to shareholders |
|
|
(742) |
|
(744) |
|
|
|
---------- |
|
---------- |
Net cash inflow/(outflow) before financing |
|
|
12,911 |
|
(2,035) |
|
|
|
========== |
|
========== |
| Financing |
|
|
|
|
|
| Repurchase of ordinary shares |
|
|
– |
|
(400) |
|
|
|
---------- |
|
---------- |
| Net cash outflow from financing |
|
|
– |
|
(400) |
|
|
|
========== |
|
========== |
|
|
|
|
|
|
|
|
|
|
|
|
| Increase/(decrease) in cash |
17 |
|
12,911 |
|
(2,435) |
|
|
|
========== |
|
========== |
|
|
|
|
|
|
The Notes in the Annual Report form an integral part of these Financial Statements.
Notes to the Financial Statements
1 ACCOUNTING POLICIES
The Company has prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”), in January 2009.
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 fixed asset investments and derivative assets and liabilities, and on the assumption that approval as an investment trust continues to be granted by HM Revenue and Customs.
b) Income – Income from equity investments is credited to the revenue column of the Income Statement on the date on which the right to receive the payment is established. Overseas dividends are stated gross of withholding tax. Interest receivable on short term deposits is credited to the revenue column of the Income Statement on an accruals basis. Where the Company has elected to receive a dividend as scrip dividend, that is in the form of additional shares rather than cash, the amount of the dividend foregone is credited to the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the dividend foregone is credited to the capital column of the Income Statement. Derivative income from dividends on long contracts for difference (“CFDs”) is credited to the revenue column of the Income Statement on the date on which the right to receive the payment is established.
c) Special dividends – Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case.
d) Expenses – All expenses are accounted for on an accruals basis and are charged in full to the revenue column of the Income Statement.
e) 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.
f) Taxation – Irrecoverable overseas withholding tax suffered is recognised at the same time as the income to which it relates. Deferred taxation is recognised in respect of all timing differences, that have originated but not reversed at the Balance Sheet date, where transactions or events have occurred that result in an obligation to pay more tax in the future, or a right to pay less. A deferred taxation asset is recognised when it is more likely than not that the asset will be recoverable.
g) Foreign currency – The Directors, having regard to the currency of the Company’s share capital and the predominant currency in which its investors operate, have determined the functional currency to be UK sterling. Transactions denominated in foreign currencies are translated to UK sterling at the rate of exchange ruling as at the date of those transactions. Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. Exchange gains and losses on investments are included within ‘Gains on investments designated at fair value through profit or loss’ and exchange gains and losses on derivative instruments are included within ‘Gains on derivative instruments held at fair value through profit or loss’, both in the capital column of the Income Statement. Exchange gains and losses on other currency balances are recognised as ‘Exchange gains/(losses) on other net assets’ in the revenue or capital columns of the Income Statement, depending on whether they relate to revenue or capital items.
h) Valuation of investments – The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets 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 internally on that basis to the Company’s Board of Directors. Accordingly, upon initial recognition investments are designated by the Company as “at fair value through profit or loss”. They are included initially at fair value, which is taken to be their cost, and subsequently the investments are valued at fair value, which is measured as follows:
• Listed investments are valued at bid prices or last market prices, depending on the convention of the exchange on which they are listed, or otherwise at fair value based on published price quotations. Equity linked notes are valued at the same value as the listed investment underlying the contract.
In accordance with the AIC SORP the Company includes transaction costs, incidental to the purchase or sale of investments, within gains on investments and has disclosed them in Note 9 below.
i) Derivative instruments – When appropriate the Company may obtain exposure to Asian equities through the use of long CFDs. CFDs are held “at fair value through profit or loss” and are valued at fair value, which is measured as follows:
• The difference between the opening price and the closing price of the underlying shares in the contract, calculated in accordance with accounting policy 1 (h) above.
Gains and losses in the fair value of the CFDs are included in ‘Gains on derivative instruments held at fair value through profit or loss’ in the capital column of the Income Statement. Any positions on derivative instruments open at the year end are reflected in the Balance Sheet at their fair value either within ‘current assets’ or ‘creditors’, as appropriate.
j) 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 the 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 by the Institute of Chartered Accountants in England and Wales in TECH 02/10: Distributable Profits, changes in the fair value of investments which are readily convertible to cash at the Balance Sheet date, without accepting adverse terms, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as ‘capital reserve’ in the Reconciliation of Movements in Shareholders’ Funds and the Balance Sheet. At the Balance Sheet date all investments held by the Company were listed on a recognised stock exchange and were considered to be readily convertible to cash.
k) Dividends – Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.
|
|
|
|
2015
£’000 |
|
2014
£’000 |
2 |
INCOME |
|
|
|
|
|
|
Income from investments |
|
|
|
|
|
|
Overseas dividends |
|
|
4,021 |
|
2,996 |
|
Overseas scrip dividends |
|
|
325 |
|
148 |
|
Overseas interest |
|
|
16 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
4,362 |
|
3,146 |
|
Income from derivative instruments |
|
|
|
|
|
|
Dividends from long CFDs |
|
|
162 |
|
185 |
|
Other income |
|
|
|
|
|
|
Deposit income |
|
|
3 |
|
1 |
|
|
|
|
|
|
|
|
Total income |
|
|
4,527 |
|
3,332 |
|
|
|
|
|
|
|
|
|
|
|
2015
£’000 |
|
2014
£’000 |
3 |
INVESTMENT MANAGEMENT FEE |
|
|
|
|
|
|
Investment management fee |
|
|
2,018 |
|
1,805 |
|
|
|
|
|
|
|
A summary of the terms of the Management Agreement is given in the Directors’ Report of the Annual
Report
|
|
|
|
2015
£’000 |
|
2014
£’000 |
4 |
OTHER EXPENSES |
|
|
|
|
|
|
AIC fees |
|
|
16 |
|
14 |
|
Custody fees |
|
|
96 |
|
86 |
|
Depositary fees1 |
|
|
23 |
|
1 |
|
Directors’ expenses |
|
|
27 |
|
26 |
|
Directors’ fees2 |
|
|
125 |
|
123 |
|
Fees payable to the Company’s Auditor for the audit of the Financial Statements |
|
|
24 |
|
24 |
|
Legal and professional fees |
|
|
66 |
|
86 |
|
Marketing expenses |
|
|
101 |
|
88 |
|
Printing and publication expenses |
|
|
53 |
|
53 |
|
Registrars’ fees |
|
|
36 |
|
36 |
|
Sundry other expenses |
|
|
55 |
|
51 |
|
|
|
|
|
|
|
|
|
|
|
622 |
|
588 |
|
|
|
|
|
|
|
1 A depositary was appointed with effect from 17 July 2014. 2 Details of the breakdown of Directors’ fees are disclosed in the Directors’ Remuneration Report.
|
|
|
|
2015
£’000 |
|
2014
£’000 |
5 |
FINANCE COSTS |
|
|
|
|
|
|
Interest paid on long CFDs |
|
|
101 |
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
2014 |
|
|
|
|
|
|
revenue
£’000 |
|
capital
£’000 |
|
total
£’000 |
|
revenue
£’000 |
|
capital
£’000 |
|
total
£’000 |
6 |
TAXATION ON RETURN ON ORDINARY ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) Analysis of the taxation charge for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation on overseas dividends |
|
|
287 |
|
– |
|
287 |
|
5 |
|
– |
|
5 |
|
Taxation on Indian capital gains |
|
|
– |
|
566 |
|
566 |
|
– |
|
621 |
|
621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current taxation for the year (see Note 6b) |
|
|
287 |
|
566 |
|
853 |
|
5 |
|
621 |
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b) Factors affecting the taxation charge for the year The taxation charged for the year is lower than the standard rate of UK corporation tax of 20.67% (2014: 22.33%). A reconciliation of the taxation charge based on the standard rate of UK corporation tax to the actual taxation charge is shown below:
|
|
|
|
|
|
2015 |
|
|
|
|
|
2014 |
|
|
|
|
|
|
revenue
£’000 |
|
capital
£’000 |
|
total
£’000 |
|
revenue
£’000 |
|
capital
£’000 |
|
total
£’000 |
|
Return on ordinary activities before taxation |
|
|
1,810 |
|
5,960 |
|
7,770 |
|
774 |
|
17,929 |
|
18,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 20.67% (2014: 22.33%) |
|
|
374 |
|
1,232 |
|
1,606 |
|
173 |
|
4,004 |
|
4,177 |
|
Effects of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on investments not taxable* |
|
|
– |
|
(1,232) |
|
(1,232) |
|
– |
|
(4,004) |
|
(4,004) |
|
Income not taxable |
|
|
(821) |
|
– |
|
(821) |
|
(636) |
|
– |
|
(636) |
|
Excess management expenses |
|
|
454 |
|
– |
|
454 |
|
469 |
|
– |
|
469 |
|
Overseas taxation expensed |
|
|
(7) |
|
– |
|
(7) |
|
(6) |
|
– |
|
(6) |
|
Overseas taxation suffered |
|
|
287 |
|
– |
|
287 |
|
5 |
|
– |
|
5 |
|
Overseas capital gains tax charge |
|
|
– |
|
566 |
|
566 |
|
– |
|
621 |
|
621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxation charge (Note 6a) |
|
|
287 |
|
566 |
|
853 |
|
5 |
|
621 |
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Investment trust companies are exempt from UK taxation on capital gains if they meet the HM Revenue & Customs criteria set out in Section 1159 Corporation Taxes Act 2010.
c) Deferred taxation
A deferred tax asset at 31 July 2015 of £2,829,000 (2014: £2,509,000), in respect of excess management expenses of £11,539,000 (2014: £9,343,000) and excess loan interest of £2,605,000 (2014: £2,605,000), has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these tax allowable expenses.
|
|
|
|
|
|
2015 |
|
|
|
|
|
2014 |
|
|
|
|
|
|
revenue |
|
capital |
|
total |
|
revenue |
|
capital |
|
total |
7 |
RETURN PER ORDINARY SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return per ordinary share – basic |
|
|
2.26p |
|
7.99p |
|
10.25p |
|
1.14p |
|
25.62p |
|
26.76p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The returns per ordinary share are respectively based on the net revenue return on ordinary activities after taxation for the year of £1,523,000 (2014: £769,000), the net capital return on ordinary activities after taxation for the year of £5,394,000 (2014 £17,308,000) and the net total return on ordinary activities after taxation for the year of £6,917,000 (2014: £18,077,000), and on 67,488,213 ordinary shares (2014: 67,568,925) being the weighted average number of ordinary shares in issue during the year.
|
|
|
|
2015
£’000 |
|
2014
£’000 |
8 |
DIVIDENDS |
|
|
|
|
|
|
Dividend paid |
|
|
|
|
|
|
Dividend of 1.10 pence per ordinary share paid for the year ended 31 July 2014 |
|
|
742 |
|
– |
|
Dividend of 1.10 pence per ordinary share paid for the year ended 31 July 2013 |
|
|
– |
|
744 |
|
|
|
|
|
|
|
|
|
|
|
742 |
|
744 |
|
|
|
|
|
|
|
|
Dividend proposed |
|
|
|
|
|
|
Dividend of 2.00 pence per ordinary share proposed for the year ended 31 July 2015 (based on the number of shares in issue at the date of this report) |
|
|
1,350 |
|
– |
|
Dividend of 1.10 pence per ordinary share proposed for the year ended 31 July 2014 |
|
|
– |
|
742 |
|
|
|
|
|
|
|
|
|
|
|
1,350 |
|
742 |
|
|
|
|
|
|
|
The Directors propose the payment of a dividend for the year ended 31 July 2015 of 2.00 pence per ordinary share to be paid on 10 December 2015 to shareholders on the register at 30 October 2015 (ex-dividend date 29 October 2015).
|
|
|
|
2015
£’000 |
|
2014
£’000 |
9 |
INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS |
|
|
|
|
|
|
Listed overseas |
|
|
162,858 |
|
169,880 |
|
|
|
|
|
|
|
|
Opening fair value of investments |
|
|
|
|
|
|
Opening book cost |
|
|
142,586 |
|
127,297 |
|
Opening investment holding gains |
|
|
27,294 |
|
23,976 |
|
|
|
|
|
|
|
|
|
|
|
169,880 |
|
151,273 |
|
Movements in the year |
|
|
|
|
|
|
Purchases at cost |
|
|
253,555 |
|
118,425 |
|
Sales – proceeds |
|
|
(262,166) |
|
(114,949) |
|
Sales – realised gains on sales in the year |
|
|
39,384 |
|
11,813 |
|
Movement in investment holding (losses)/gains in the year |
|
|
(37,795) |
|
3,318 |
|
|
|
|
|
|
|
|
Closing fair value of investments |
|
|
162,858 |
|
169,880 |
|
|
|
|
|
|
|
|
Closing book cost |
|
|
173,359 |
|
142,586 |
|
Closing investment holding (losses)/gains |
|
|
(10,501) |
|
27,294 |
|
|
|
|
|
|
|
|
Closing fair value of investments |
|
|
162,858 |
|
169,880 |
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
2014 |
|
|
|
|
£’000 |
|
£’000 |
|
Gains on investments in the year |
|
|
|
|
|
|
Gains on sales of investments |
|
|
39,384 |
|
11,813 |
|
Investment holding (losses)/gains |
|
|
(37,795) |
|
3,318 |
|
|
|
|
|
|
|
|
|
|
|
1,589 |
|
15,131 |
|
|
|
|
|
|
|
Costs of investment transactions in the year
Transaction costs incurred on the acquisition and disposal of investments, which are included within gains on investments above, were as follows:
|
|
|
|
2015
£’000 |
|
2014
£’000 |
|
Purchase transaction costs |
|
|
388 |
|
217 |
|
Sales transaction costs |
|
|
619 |
|
302 |
|
|
|
|
|
|
|
|
|
|
|
1,007 |
|
519 |
|
|
|
|
|
|
|
The portfolio turnover rate for the year was 142.9% (2014: 74.1%).
|
|
|
|
2015
£’000 |
|
2014
£’000 |
10 |
DERIVATIVE INSTRUMENTS |
|
|
|
|
|
|
Gains on derivative instruments held at fair value through profit or loss in the year |
|
|
|
|
|
|
Gains on long CFD positions closed |
|
|
6,360 |
|
271 |
|
Movement in investment holding (losses)/gains on long CFDs |
|
|
(2,008) |
|
2,876 |
|
|
|
|
|
|
|
|
|
|
|
4,352 |
|
3,147 |
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
2014 |
|
|
|
|
fair value |
|
exposure |
|
fair value |
|
exposure |
|
|
|
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
Derivative assets/(liabilities) held at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
|
Long CFDs – assets |
|
|
– |
|
– |
|
2,617 |
|
10,509 |
|
Long CFDs – liabilities |
|
|
– |
|
– |
|
(609) |
|
11,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
– |
|
2,008 |
|
22,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
£’000 |
|
2014
£’000 |
11 |
DEBTORS |
|
|
|
|
|
|
Securities sold for future settlement |
|
|
3,318 |
|
390 |
|
Accrued income |
|
|
366 |
|
367 |
|
Other debtors |
|
|
53 |
|
79 |
|
|
|
|
|
|
|
|
|
|
|
3,737 |
|
836 |
|
|
|
|
|
|
|
|
|
|
|
2015
£’000 |
|
2014
£’000 |
12 |
OTHER CREDITORS |
|
|
|
|
|
|
Securities purchased for future settlement |
|
|
1,502 |
|
750 |
|
Other creditors and accruals |
|
|
522 |
|
648 |
|
|
|
|
|
|
|
|
|
|
|
2,024 |
|
1,398 |
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
2014 |
|
|
|
|
number of shares |
|
£’000 |
|
number
of shares |
|
£’000 |
13 |
SHARE CAPITAL |
|
|
|
|
|
|
|
|
|
|
Ordinary shares of 25 pence each – issued, allotted and fully paid |
|
|
|
|
|
|
|
|
|
|
Beginning of the year |
|
|
67,488,213 |
|
16,872 |
|
67,680,213 |
|
16,920 |
|
Repurchase of ordinary shares |
|
|
– |
|
– |
|
(192,000) |
|
(48) |
|
|
|
|
|
|
|
|
|
|
|
|
End of the year |
|
|
67,488,213 |
|
16,872 |
|
67,488,213 |
|
16,872 |
|
|
|
|
|
|
|
|
|
|
|
14 RESERVES
The share premium account represents the amount by which the proceeds from the issue of ordinary shares, on the exercise of rights attached to subscription shares, exceeded the nominal value 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 amounts transferred with High Court approval from the warrant reserve, in prior years. It is not distributable by way of dividend. It cannot be used to fund share repurchases.
The other reserve represents amounts transferred with High Court approval from the share premium account and the capital redemption reserve, in prior years. It is not distributable by way of dividend. It can be used to fund share repurchases.
The capital reserve reflects realised gains or losses on investments and derivative instruments sold, unrealised increases and decreases in the fair value of investments and derivative instruments 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 has 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.
15 NET ASSET VALUE PER ORDINARY SHARE
The net asset value per ordinary share is based on net assets of £178,937,000 (2014: £172,762,000) and on 67,488,213 (2014: 67,488,213) ordinary shares, being the number of ordinary shares in issue at the year end.
|
|
|
|
2015
£’000 |
|
2014
£’000 |
16
|
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS
AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net total return before finance costs and taxation |
|
|
7,871 |
|
18,806 |
|
Net capital return before finance costs and taxation |
|
|
(5,960) |
|
(17,929) |
|
|
|
|
|
|
|
|
Net revenue return before finance costs and taxation |
|
|
1,911 |
|
877 |
|
Scrip dividends |
|
|
(325) |
|
(148) |
|
(Decrease)/increase in accrued income and other debtors |
|
|
27 |
|
(31) |
|
Increase in other creditors and accruals |
|
|
55 |
|
1 |
|
Overseas taxation suffered |
|
|
(287) |
|
(5) |
|
|
|
|
|
|
|
|
Net cash inflow from operating activities |
|
|
1,381 |
|
694 |
|
|
|
|
|
|
|
|
|
|
|
2015
£’000 |
|
2014
£’000 |
17 |
RECONCILIATION OF NET CASH MOVEMENTS TO MOVEMENT IN NET FUNDS |
|
|
|
|
|
|
Net funds at the beginning of the year |
|
|
1,436 |
|
4,220 |
|
|
|
|
|
|
|
|
Net cash increase/(decrease) |
|
|
12,911 |
|
(2,435) |
|
Foreign exchange movement on cash at bank |
|
|
19 |
|
(349) |
|
|
|
|
|
|
|
|
Change in net funds |
|
|
12,930 |
|
(2,784) |
|
|
|
|
|
|
|
|
Net funds at the end of the year |
|
|
14,366 |
|
1,436 |
|
|
|
|
|
|
|
|
|
|
|
2015
£’000 |
|
net cash flows
£’000 |
foreign exchange
movements
£’000 |
|
|
2014
£’000 |
|
Analysis of movements in net funds |
|
|
|
|
|
|
|
|
|
|
Cash at bank |
|
|
14,366 |
|
12,911 |
|
19 |
|
1,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 FINANCIAL INSTRUMENTS
MANAGEMENT OF RISK
The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Strategic Report in the Annual Report. This Note is incorporated in accordance with Financial Reporting Standard 29 ‘Financial Instruments: Disclosures’ (“FRS 29”) and 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 held in accordance with the Company’s investment objective and policies;
• Derivative instruments which comprise of long CFDs; and
• Cash, liquid resources and short term debtors and creditors that arise from its operations.
The risks identified by FRS 29 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 and credit risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies have remained unchanged since the beginning of the accounting period.
Market price risk
Interest rate risk
The Company finances its operations through share capital raised. In addition, the Company has a geared exposure to Asian equities through the use of long CFDs which incur funding costs and consequently the Company is exposed to a financial risk as a result of increases in Asian interest rates.
Interest rate risk exposure
The values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:
|
|
|
|
2015 |
|
2014 |
|
|
|
|
£’000 |
|
£’000 |
|
Exposure to financial instruments that earn interest |
|
|
|
|
|
|
Cash at bank |
|
|
14,366 |
|
1,436 |
|
|
|
|
|
|
|
|
Exposure to financial instruments that bear interest |
|
|
|
|
|
|
Long CFDs – exposure less fair value |
|
|
– |
|
(20,364) |
|
|
|
|
|
|
|
|
Net exposure to financial instruments that earn/(bear) interest |
|
|
14,366 |
|
(18,928) |
|
|
|
|
|
|
|
Foreign currency risk
The Company’s total return and total net assets are affected by foreign exchange movements because the Company has income and assets which are denominated in currencies other than the Company’s base currency which is UK sterling.
Three principal areas have been identified where foreign currency risk could impact the Company:
• Movements in rates affecting the value of investments and long CFDs;
• Movements in rates affecting short term timing differences; and
• Movements in rates affecting income received.
The Company does not hedge, by the use of derivative instruments, the UK sterling value of investments, long CFDs and other net assets which are priced in other currencies.
The Company might also be subject to short term exposure from exchange rate movements, for example, between the date when an investment is bought or sold and the date when settlement of the transaction occurs.
Currency exposure of financial assets
The company’s financial assets may comprise equity investments, long CFDs, short term debtors and cash. The currency profile of these financial assets is shown below:
|
|
2015 |
|
currency |
|
|
investments designated at fair value through profit or loss |
|
exposure to long CFDs |
|
short term debtors |
|
cash |
|
total |
|
|
|
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
Australian dollar |
|
|
14,153 |
|
– |
|
1,279 |
|
– |
|
15,432 |
|
Canadian dollar |
|
|
617 |
|
– |
|
– |
|
– |
|
617 |
|
Chinese renminbi |
|
|
1,498 |
|
– |
|
– |
|
26 |
|
1,524 |
|
Hong Kong dollar |
|
|
27,105 |
|
– |
|
13 |
|
40 |
|
27,158 |
|
Indian rupee |
|
|
25,808 |
|
– |
|
429 |
|
– |
|
26,237 |
|
Indonesian rupiah |
|
|
6,991 |
|
– |
|
– |
|
– |
|
6,991 |
|
Israeli shekel |
|
|
186 |
|
– |
|
– |
|
– |
|
186 |
|
Japanese yen |
|
|
1,068 |
|
– |
|
– |
|
– |
|
1,068 |
|
Korean won |
|
|
14,428 |
|
– |
|
10 |
|
4 |
|
14,442 |
|
Malaysian ringgit |
|
|
4,332 |
|
– |
|
797 |
|
– |
|
5,129 |
|
New Zealand dollar |
|
|
423 |
|
– |
|
– |
|
– |
|
423 |
|
Philippine peso |
|
|
2,931 |
|
– |
|
– |
|
– |
|
2,931 |
|
Singapore dollar |
|
|
12,721 |
|
– |
|
397 |
|
– |
|
13,118 |
|
Taiwan dollar |
|
|
27,427 |
|
– |
|
283 |
|
156 |
|
27,866 |
|
Thai baht |
|
|
9,217 |
|
– |
|
– |
|
– |
|
9,217 |
|
UK sterling |
|
|
– |
|
– |
|
53 |
|
66 |
|
119 |
|
US dollar |
|
|
13,953 |
|
– |
|
476 |
|
14,074 |
|
28,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,858 |
|
– |
|
3,737 |
|
14,366 |
|
180,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
currency |
|
|
investments designated at fair value through profit or loss |
|
exposure to long CFDs |
|
short term debtors |
|
cash* |
|
total |
|
|
|
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
Australian dollar |
|
|
10,284 |
|
– |
|
– |
|
– |
|
10,284 |
|
Chinese renminbi |
|
|
1,028 |
|
– |
|
23 |
|
25 |
|
1,076 |
|
Danish krone |
|
|
2,244 |
|
– |
|
– |
|
– |
|
2,244 |
|
Hong Kong dollar |
|
|
64,346 |
|
13,653 |
|
260 |
|
– |
|
78,259 |
|
Indian rupee |
|
|
14,601 |
|
– |
|
260 |
|
123 |
|
14,984 |
|
Korean won |
|
|
39,355 |
|
– |
|
3 |
|
– |
|
39,358 |
|
Malaysian ringgit |
|
|
1,759 |
|
– |
|
– |
|
– |
|
1,759 |
|
New Zealand dollar |
|
|
786 |
|
– |
|
– |
|
– |
|
786 |
|
Singapore dollar |
|
|
14,374 |
|
– |
|
– |
|
– |
|
14,374 |
|
Taiwan dollar |
|
|
13,892 |
|
– |
|
207 |
|
202 |
|
14,301 |
|
UK sterling |
|
|
– |
|
– |
|
79 |
|
41 |
|
120 |
|
US dollar |
|
|
7,211 |
|
8,719 |
|
4 |
|
1,045 |
|
16,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,880 |
|
22,372 |
|
836 |
|
1,436 |
|
194,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*Cash includes cash at bank and amounts held at brokers.
Currency exposure of financial liabilities
The Company finances its investment activities through its ordinary share capital and reserves and it may have a geared exposure to Asian equities through the use of long CFDs.
The Company’s financial liabilities may comprise long CFDs and other short term creditors. The currency profile of these financial liabilities is shown below:
|
|
|
|
2015 |
|
currency |
|
|
gearing through long CFDs |
|
short term creditors |
|
total |
|
|
|
|
£’000 |
|
£’000 |
|
£’000 |
|
Australian dollar |
|
|
– |
|
3 |
|
3 |
|
Indian rupee |
|
|
– |
|
372 |
|
372 |
|
Indonesian rupiah |
|
|
– |
|
21 |
|
21 |
|
Korean won |
|
|
– |
|
256 |
|
256 |
|
Philippine peso |
|
|
– |
|
135 |
|
135 |
|
Singapore dollar |
|
|
– |
|
529 |
|
529 |
|
Taiwan dollar |
|
|
– |
|
325 |
|
325 |
|
Thai baht |
|
|
– |
|
37 |
|
37 |
|
UK sterling |
|
|
– |
|
345 |
|
345 |
|
US dollar |
|
|
– |
|
1 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
2,024 |
|
2,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
currency |
|
|
gearing through long CFDs |
|
short term creditors |
|
total |
|
|
|
|
£’000 |
|
£’000 |
|
£’000 |
|
Danish krone |
|
|
– |
|
195 |
|
195 |
|
Hong Kong dollar |
|
|
11,114 |
|
2 |
|
11,116 |
|
Indian rupee |
|
|
– |
|
350 |
|
350 |
|
Korean won |
|
|
– |
|
249 |
|
249 |
|
Taiwan dollar |
|
|
– |
|
306 |
|
306 |
|
UK sterling |
|
|
– |
|
293 |
|
293 |
|
US dollar |
|
|
9,250 |
|
3 |
|
9,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
20,364 |
|
1,398 |
|
21,762 |
|
|
|
|
|
|
|
|
|
Other price risk
Other price risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets quarterly to consider the asset allocation of the portfolio and the risk associated with particular industry sectors within the parameters of the investment objective. The Portfolio Manager is responsible for actively managing and 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.
Liquidity risk
The Company’s assets mainly comprise readily realisable securities and long CFDs which can be sold easily to meet funding commitments if necessary. Short-term flexibility is achieved by the use of overdraft facilities if required.
Counterparty risk
All securities and derivative instruments are transacted with brokers and carry the risk that the counterparty to a transaction may not meet its financial obligations. All counterparties for any type of trading are assessed by an independent Credit Research and Analysis function of the Manager. Exposures to counterparties are monitored frequently by the Manager. For long CFDs, in accordance with the terms of International Swap Dealers Association (“ISDA”) market standard derivative contracts, 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 July 2015 the Company held no long CFDs. At 31 July 2014, £2,088,000 was held by the broker in government bonds, in a segregated collateral account on behalf of the Company, to reduce the risk exposure of the Company.
Credit risk
Investments 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 a large number of brokers and are settled on a delivery versus payment basis. Limits are set on the amount that can be due from any one broker. All security transactions are through brokers which have been approved as an acceptable counterparty. This is reviewed on an ongoing basis. At the year end, the Company’s exposure to credit risk includes cash at bank and outstanding securities transactions.
Derivative instrument risk
The risks and risk management processes which result from the use of derivative instruments are included within the risk categories disclosed above. Long CFDs may be used by the Portfolio Manager to gain unfunded long exposure to equity markets, sectors or single stocks. “Unfunded” exposure is exposure gained without an initial outflow of capital. The risks and performance contribution of these instruments to the Company’s portfolio is overseen by the Manager’s highly experienced, specialist derivative instruments team, using portfolio risk assessment tools to build the portfolio.
RISK SENSITIVITY ANALYSIS
Investment exposure sensitivity analysis
An increase of 10% in the fair value of the investments at 31 July 2015 would have increased the total return on ordinary activities after taxation for the year and total net assets by £16,286,000 (2014: £16,988,000). A decrease of 10% in the fair value of investments would have had an equal and opposite effect.
Derivative instrument exposure sensitivity analysis
The Company may invest in long CFDs to gain exposure to Asian equities. At 31 July 2015 the Company held no long CFDs. At 31 July 2014 an increase of 10% in the price of shares underlying the long CFDs held would have increased total return on ordinary activities after taxation for the year and total net assets by £2,237,000. A decrease of 10% would have had an equal and opposite effect.
Interest rate risk sensitivity analysis
If interest rates had increased by 0.25% and the Company’s exposure at 31 July 2015 to bank balances and long CFDs had been held throughout the year, with all other variables remaining constant, total return on ordinary activities after taxation for the year and total net assets would have increased by £36,000 (2014: £47,000 decrease). A decrease in interest rates of 0.25% would have had an equal and opposite effect.
Foreign currency risk sensitivity analysis
At 31 July 2015, if UK sterling had strengthened by 10% in relation to the larger currency exposures, then with all other variables held constant, total return on ordinary activities after taxation for the year and total net assets would have decreased by the following amounts:
|
|
|
|
2015
£’000 |
|
2014
£’000 |
|
Australian dollar |
|
|
(1,403) |
|
(935) |
|
Hong Kong dollar |
|
|
(2,469) |
|
(6,104) |
|
Indian rupee |
|
|
(2,351) |
|
(1,330) |
|
Korean won |
|
|
(1,290) |
|
(3,555) |
|
Taiwan dollar |
|
|
(2,504) |
|
(1,272) |
|
US dollar |
|
|
(2,591) |
|
(1,543) |
At 31 July 2015, if UK sterling had weakened by 10% in relation to the larger currency exposures, then with all other variables held constant, total return on ordinary activities after taxation for the year and total net assets would have increased by the following amounts:
|
|
|
|
2015
£’000 |
|
2014
£’000 |
|
Australian dollar |
|
|
1,714 |
|
1,143 |
|
Hong Kong dollar |
|
|
3,018 |
|
7,460 |
|
Indian rupee |
|
|
2,874 |
|
1,626 |
|
Korean won |
|
|
1,576 |
|
4,345 |
|
Taiwan dollar |
|
|
3,060 |
|
1,555 |
|
US dollar |
|
|
3,167 |
|
1,886 |
Fair value of financial assets and liabilities
As explained in Notes 1 (h) and 1 (i) above, investments are stated at fair value, which is bid or last market price, and long CFDs are stated at fair value, which is the difference between the opening price and closing price of the underlying shares in the contract. Other financial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. In the case of cash, book value approximates to fair value due to the short maturity of the instruments.
FAIR VALUE HIERARCHY
Under FRS 29 companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate their 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 Notes 1 (h) and 1 (i) above. At 31 July 2015 the Company held £161,602,000 (2014: £169,880,000) of listed investments which are considered to fall within Level 1, £1,256,000 (2014: £nil) of equity linked notes which are considered to fall within Level 2 and no long CFDs (2014: £2,008,000) which are considered to fall within Level 2.
19 CAPITAL MANAGEMENT
The Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital and reserves, as disclosed in its Balance Sheet above, and its gearing which is managed through the use of long CFDs, as disclosed in the Annual Report. These resources are managed in accordance with the Company’s investment policy and in pursuit of its investment objective, both of which are detailed in the Strategic Report in the Annual Report. The principal risks and their management are disclosed in the Strategic Report and in Note 18 above.
20 RELATED PARTY TRANSACTIONS
The Company has identified the Directors as its only related parties. The Directors have complied with the provisions of Financial Reporting Standard 8 “Related Party Disclosures”, which require disclosure of related party transactions and balances. Key management compensation paid was £137,000 (2014: £134,000) This included remuneration paid to the Directors, as disclosed in the Directors’ Remuneration Report, and £12,000 (2014: £11,000) of Employer’s National Insurance contributions.
STATUS OF RESULTS ANNOUNCEMENT
2014 FINANCIAL INFORMATION
The figures and financial information for 2014 are extracted from the published Annual Report and Accounts for the year ended 31 July 2014 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.
2015 FINANCIAL INFORMATION
The figures and financial information for 2015 are extracted from the published Annual Report and Accounts for the year ended 31 July 2015 and do not constitute the statutory accounts for that year. The Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Registrar of Companies in due course.
A copy of the Annual Report and Circular will be submitted to the National Storage Mechanism in due course and will be available for inspection at www.morningstar.co.uk/uk/NSM.
The Annual Report and Financial Statements as well as the Circular will be posted to shareholders on/around 27 October 2015 and will be available on the Company's website at www.fidelity.co.uk/its in due course.
For Enquiries, please contact:
Natalia de Sousa
FIL Investments International
Company Secretary
22 October 2015
+44 (0) 1737 837846
