Fidelity Asian Values PLC
Final Results for the year ended
31 July 2016
Financial Highlights:
-
Fidelity Asian Values NAV increases by 33.8% over one year until
31 July 2016, outperforming its
benchmark by 18%. Share price return of 33.3%.
-
Appointment of portfolio manager Nitin
Bajaj, with a focus on undervalued small and medium
sized companies, offers diversity for those investors looking
for
differentiated exposure to Asian markets.
-
Proposal for a Bonus Issue of Subscription Shares for the
benefit of shareholders
-
The Board of FAV recommends a dividend of 4.50 pence per ordinary share, an increase from
2.00p in 2015
“Over recent years, the Board has striven to develop Fidelity
Asian Values PLC to be more appealing to its existing and potential
investors. Having introduced Nitin
Bajaj as Portfolio Manager in 2015, with a particular focus
on undervalued small and medium sized companies, we believe the
Company is now well positioned to add diversity for those investors
looking for further and differentiated exposure to markets in
Asia (ex Japan).” Kate
Bolsover, Chairman
Contacts
For further information, please
contact:
Natalia de Sousa - Company
Secretary
01737 837846
FIL Investments International
Chairman’s Statement
I have pleasure in presenting the Annual Report of Fidelity
Asian Values PLC (the “Company”) for the year ended 31 July 2016.
Over recent years, the Board has striven to develop Fidelity
Asian Values PLC to be more appealing to its existing and potential
investors. Having introduced Nitin
Bajaj as Portfolio Manager in 2015, with a particular focus
on undervalued small and medium sized companies, we believe the
Company is now well positioned to add diversity for those investors
looking for further and differentiated exposure to markets in
Asia (ex Japan).
Bonus Issue of Subscription Shares
Shareholders will note that there are a number of documents
accompanying this report. These relate to a proposal for a Bonus
Issue of Subscription Shares which the Directors believe will have
the following advantages:
a) Following the
exercise of any Subscription Share Rights, the Company will have an
increased number of Ordinary Shares in issue and the Company’s
assets would therefore increase. This may improve the liquidity in
the market for its Ordinary Shares;
b) On any exercise of
the Subscription Share Rights, the capital base of the Company will
increase, allowing operating costs to be spread across a larger
number of Ordinary Shares, and this may cause the ongoing charges
as a percentage of average net assets to fall; and
c) the Bonus Issue may
broaden the Company’s Shareholder base as the Subscription Shares
are dispersed in the market, attracting new investors and improving
liquidity for Shareholders.
Additionally, Shareholders will receive securities that may be
converted into Ordinary Shares at a future date at a fixed price;
the Subscription Shares will also have a monetary value and may be
traded in a similar fashion to their Existing Ordinary Shares or
converted into Ordinary Shares and finally, unlike warrants,
Subscription Shares qualify for the stocks and shares component of
an ISA and self-invested personal pensions (SIPPs).
Implementation of the bonus issue requires amendments to the
Company’s Articles of Association to provide for the rights of the
subscription shares, and for authority to be obtained to allot the
subscription shares. Shareholders will have an opportunity to vote
on this proposal at the AGM. Further details of the proposed Bonus
Issue, and the Board’s recommendation to vote in favour, are set
out in the documents accompanying this report.
Performance
|
1 |
3 |
5 |
Since |
| Total return (%) |
year |
years |
years |
launch |
| NAV per Ordinary Share |
+33.8 |
+55.4 |
+57.8 |
+286.8 |
| Share Price |
+33.3 |
+55.9 |
+59.2 |
+254.0 |
| Comparative Index* |
+15.8 |
+22.4 |
+28.1 |
+117.1 |
* Since
1 August 2015, the Company’s
Comparative Index is the MSCI All Countries Asia ex Japan Index
(net) in Sterling terms. Prior to that date it was MSCI All
Countries Far East ex Japan Index (net) in Sterling terms.
Investment Review
As you will read in the Portfolio Manager’s review, Nitin’s
approach to investment is totally stock led. Nevertheless, it is
always good to put some broader market context around this for
those who do not follow the Asian markets on a daily basis.
Globally, markets have been volatile over the past year and, since
Brexit, Sterling has also depreciated against most global
currencies. Against this background, your Company has outperformed
its Comparative Index by 18% in sterling terms over the year,
returning 33.8% to shareholders. As Nitin is the first to point
out, this will not always be the case, but nevertheless the Board
and I would like to thank him and the rest of the Fidelity team for
what has been an excellent year for shareholders.
From a country perspective, Indonesia and South
Korea were the best performing markets. Reforms and other
stimulus measures were at the forefront of everyone’s minds and
regional central banks maintained monetary policies to boost
investment and growth. The Indonesian government also introduced a
tax amnesty bill, fuelling a rally towards the end of the year.
South Korean equities were supported by foreign institutional
investment, despite ongoing tensions with North Korea. Taiwan, Thailand and the
Philippines were also among the better performers.
Chinese equities generated positive returns but underperformed
the regional index due to concerns about slowing growth and rising
corporate debt. Meanwhile, Chinese policymakers continued to
provide support to the economy through various policy measures
aimed at supporting China’s transition to a more sustainable
consumption-led economy. These reforms included a focus on cutting
excess capacity as well as exporting capacity through its
“One-Belt-One Road” initiatives. Indian equities also
underperformed the regional average, although marginally, as delay
in reforms and the rise in non-performing assets in the Indian
banking sector caused investor concerns for most of the review
period. However, the market recovered in the last few months as the
pace of reforms accelerated and corporate earnings showed early
signs of a recovery.
From a sector perspective, companies in the e-commerce, online
gaming and electronic components improved most strongly. The
emergence of new products in automation and in virtual and
augmented reality contributed to good performance for technology
hardware producers. Elsewhere, a sharp recovery in commodity prices
since the start of 2016 lifted the resources sector. Consumer
staples and telecommunication services sectors also outperformed
the broader market.
Due Diligence visit to Singapore and India
At the end of March, the Board carried out its bi-annual due
diligence visit to Asia, visiting
Fidelity International’s offices in Singapore and meeting with its analysts before
moving onto Mumbai. After two days
in Mumbai we went to Delhi, where FIL employs some 2,500 staff,
including a team of 13 analysts, many of whom assist Nitin in his
fundamental research about companies and sectors. In addition, we
met with the team that manages most of the IT capabilities of FIL
and were given an excellent explanation of the way in which IT
helps analysts and fund managers to make their investment
decisions. We made several visits to companies in India which allowed us to watch Nitin and the
analysts in action as they discussed and challenged management
teams. We also reviewed Fidelity’s investment processes which
allowed us to see at first-hand the vast pace of change and
development in India.
We were greatly encouraged by what we saw throughout a busy few
days and came away with a reinforced view that Asia remains a global economic powerhouse,
whose developing countries play an increasing role in the
consumption of goods as well as their production. With such a large
investible universe in Asia, we
are confident that Fidelity’s depth of research and Nitin Bajaj’s
stock-picking abilities will be put to excellent use in the
future.
Gearing
On 31 July 2016, the Company’s net
cash position reduced to 2.3%, as compared with 9.0% as on
31 July 2015. Further details are
provided in the Annual Report. Nitin has not used gearing in any
meaningful way so far in his tenure as the Company’s Portfolio
Manager. He continues to believe that the Company’s performance
will be driven by stock picking and gearing will be used when he
has more ideas than money. Conversely, if he sees fewer
opportunities, as he does today largely due to higher valuations in
the small cap space, he will hold net cash.
Outlook
Asia remains very attractive on
a number of measures versus the developed world – be it from a
fundamental perspective or from a valuation view point.
Domestic-driven countries, such as India, Indonesia and the
Philippines, will be better-placed because of their lower
exposure to the UK and Europe.
Their higher growth rates and ongoing reforms will make them
attractive to investors in a low-growth world. In India, a stable and business-friendly
government continues to focus on improving economic fundamentals
and boosting growth in the medium term. The introduction of major
tax reforms is likely to boost efficiencies, lower the cost of
business and potentially transform the country’s manufacturing base
with expected productivity gains. A focus on reforms,
infrastructure development and investment supports the corporate
earnings outlook for Indonesia.
The Philippines is also
benefitting from a new leadership that seems to be pro-growth and
pro-reforms.
Given that Asia has more than
17,000 listed companies, the opportunity to find hidden gems is
immense. The Company will continue to focus on finding attractive
long term investment opportunities across the region based on
strong fundamental research.
Other Matters
Change of Comparative Index
As I explained in last year’s Annual Report, the Company adopted
the MSCI All Countries Asia ex Japan Index as its Comparative Index
from 1 August 2015. The Board felt
that this was a more appropriate Index for the Company as it is
widely used within the Company’s peer group. In particular, this
Index includes India, an Asian
market in which Nitin is likely to find significant investment
opportunities for shareholders.
Change to the Investment Policy
In order to enhance investment returns and provide greater
flexibility in how Nitin can implement his investment process, the
Board received shareholder approval at the Annual General Meeting
(“AGM”) on 30 November 2015, to
extend the way in which derivatives can be used by the Company. The
Board continues to maintain guidelines in respect of these new
powers and works closely with Nitin and Fidelity to ensure these
are adhered to. Full details of the changes can be found in the
Circular dated 21 October 2015.
Fee arrangements
As reported in last year’s Annual report, the fee structure with
effect from 1 August 2015 is on a
tiered basis. The annual management charge is 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.
Dividend
Subject to shareholders’ approval at the forthcoming AGM, the
Directors recommend a dividend of 4.50
pence per ordinary share (2015: 2.00
pence). This dividend will be payable on 6 December 2016 to shareholders on the register
at close of business on 4 November
2016 (ex-dividend date 3 November
2016). 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 and Treasury
Shares
Repurchases of ordinary shares are made at the discretion of the
Board and within guidelines set from time to time by it in light of
prevailing market conditions. Share repurchases will only be made
when it results in an enhancement to the NAV of ordinary shares for
remaining shareholders. The Board received shareholder approval at
last year’s AGM to hold in Treasury ordinary shares repurchased by
the Company, rather than cancelling them. Treasury shares 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 can 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.
No ordinary shares were repurchased for cancellation or for
holding in Treasury during the year under review and none have been
repurchased since the end of the reporting period and as at the
date of this report.
Board Changes
The Board was pleased to welcome Timothy
Scholefield as a non-executive Director on 30 September 2015 and he was subsequently elected
by shareholders at the AGM on 30 November 2015. William Knight retired from the Board at the
conclusion of the AGM and at the same time, Philip Smiley was appointed as the Senior
Independent Director.
Viability Statement
In accordance with the 2014 UK Corporate Governance Code, the
Directors are now required to report on the viability of the
Company over a longer period than the twelve month period required
by the Going Concern statement which is in the Annual Report. This
new statement can be found in the Annual Report.
Continuation Vote
In accordance with the Company’s Articles of Association, the
Company is subject to a continuation vote at this year’s AGM and
every five years thereafter. The Company’s performance record has
been strong since launch with a NAV increase of 286.8% compared to
the Comparative Index of 117.1%. The share price has increased by
254.0% since launch. During the year to 31
July 2016, both the NAV and share price have outperformed
the Comparative Index by 18.0% and 17.5% respectively (all figures
in Sterling and on a total return basis). The NAV and share price
are also ahead of the Index over 3 and 5 years. In addition, the
prospects of the Company over a five year investment horizon can be
found in the Annual Report. Therefore your Board recommends that
shareholders vote in favour of the continuation vote. The
resolution being put to the AGM, and the Board’s recommendation to
vote in favour, are set out in the Notice of Meeting for the AGM
accompanying this report.
Annual General Meeting
The AGM of the Company will be held at 11.00 am on 2 December
2016 at Fidelity’s offices at 25 Cannon Street, London EC4M 5TA (St Paul’s or Mansion House
tube stations). Full details of the meeting are given in the Notice
of Meeting accompanying this Annual Report.
The Board is looking forward to the opportunity to speak to
shareholders. Nitin Bajaj, the
Portfolio Manager, will be making a presentation on the year’s
results and the prospects for the Company for the year to come. We
encourage you to join us on this occasion.
Kate
Bolsover
Chairman
Portfolio Manager’s Review
Market Review
I am pleased to report that the net asset value (“NAV”) of the
Company has appreciated 33.8% over the 12 months ended 31 July 2016, as compared to 15.8% total returns
(including dividends) for the Comparative Index. This was a good
year for performance – both in terms of absolute and relative
returns as the NAV appreciated meaningfully above the Comparative
Index.
Despite this good performance, I think (and the Board would
concur) that one year is too short a duration to effectively
adjudge performance. Our investment process is driven by a desire
to compound money over a 3 to 5 year time horizon and any
performance measurement should be viewed with this timeframe in
mind.
My review this year, and in future, will focus less on an
evaluation of individual stocks within the portfolio and more on
how I choose the companies to invest in. The Company is able to
invest in a large number of companies across a wide geographic area
and therefore my investment approach is far more process driven
rather than focusing on any one particular country, sector or
trend.
Finally, before I go through the investment process and details
of last year’s performance, I should thank the analyst team at
Fidelity for their hard work and insights. A good investment team
is critical for sustaining good performance, and I am fortunate to
be supported by a highly motivated and knowledgeable team of
analysts that leaves no stone unturned to find money making
opportunities.
Investment philosophy and process
The financial returns that the Company will be able to generate
over the forthcoming 5 years will be largely driven by the hard
work of the team and my investment philosophy (although a bit of
luck always helps). Outlined below are the key tenets of the
philosophy I adopt when evaluating potential investments. It’s a
process built through years of practice, observation and empirical
evidence. The Board has bought into this process and I will try to
stay true to it – even during testing times.
I seek to buy good businesses run by good management teams at
prices that make sense to me. To accomplish this there are
three key guiding principles:
First, understand the business. Stocks are not merely
tickers on a screen but a reflection of businesses that exist and
compete in the real world. So, it is very important to understand
the economic characteristics of the underlying franchise. I don’t
think anyone can pick winning stocks if they do not pay close
attention to the business of the company. If, for example, I
decided to invest in Colgate India – I would be investing, not
only, in the future of the tooth paste industry in India but also in the competitive advantages
of Colgate within that industry. To make a sound investment
decision, I think it is critical to understand the industry and
how, as in this example, Colgate would continue to maintain or even
enhance its market strength. This is the starting point of every
opportunity that is investigated.
Second, valuation is critical. For me investing is as
much about protecting downside as it is about participating in the
upside. I want to buy good businesses when either they are ignored
or the market misunderstands the business. These are times when you
can buy stocks at valuations which provide a lot of upside for the
investors; after all valuation anomalies are at the core of the
investment process. I therefore rarely buy into good businesses
when valuations are high. The reason for this is that in these
cases there is little margin of safety or room for error. Return
of capital is as important as return on capital.
Third, beware of chasing hot stories. I consciously try
to stay away from existing trends in the market. This links back to
valuations as well-loved sectors generally tend to be more
expensively priced than warranted. Large cap growth companies in
the late 1990s, technology companies in 2000, real estate and
commodities stocks before the stock market crash of 2007/08 and
shale gas companies more recently before the oil prices crashed are
some such examples. I am generally more curious about businesses
where expectations are low and which are out of a mainstream
investor’s sight.
In addition to the above three basic principles, I prefer to
invest in companies where there is a good management team in
place and some additional “angle”. It can be either
corporate/industry restructuring or the possibility of industry
consolidation/take over etc. This forms an integral part of
“special situations” that the Company looks to invest in.
Given this philosophy, most of the Company’s investments will
have a 2 to 3 year time horizon. I am not trying to gamble with
your money. To be successful in the stock market, I need to know
more about the businesses that the Company invests in than others
do. There is only one way to do it – research, research and more
research. If I truly understand the business correctly and enter at
a valuation point which provides a margin of safety, then over time
I should be able to win. This is not a speculative investment trust
and it is important that you feel comfortable with this
approach.
Analysis of performance for the year
to 31 July 2016 – key contributors
and detractors
There are two main categories of errors in investing - errors of
omission and errors of commission. An error of omission occurs when
a stock goes up and the Company does not own it (opportunity loss)
whereas an error of commission is when the value of a stock the
Company owns goes down (real loss).
As alluded to earlier in my review, my preoccupation is with
errors of commission. The idea being that losses can be minimised
if a mistake is made, then the correct decisions can keep adding to
the pool of investment returns. In this respect, last year was a
good one.
In terms of “what went right” – about 5% of the portfolio was
invested in stocks which doubled and another 15% in companies that
went up by more than 50%. Most of these are not well known blue
chip stocks but small niche businesses with good management teams
that I am able to discover, thanks to our proprietary research,
before they caught the attention of the general stock market. I
would credit this success to the depth of our research process.
The Company lost absolute money in only 12% of the portfolio –
and within that it lost more than 20% in less than 4% of the
portfolio. The result was that stock appreciation in the remaining
portfolio, plus the dividends received on many of the stocks owned,
collectively delivered a satisfactory 12 month performance.
The most common trait in the companies where money was lost is
that these businesses carried more debt than they should have. I am
generally averse to companies which need to borrow too much to
operate their businesses – this is another reminder that too much
debt is an enemy to all equity holders. I have re-learnt that
lesson.
Market outlook
I do not wish to make predictions as to where markets are
headed. As Warren Buffet often says, “Forecasts may tell you a
great deal about the forecaster, they tell you nothing about the
future.” I pay little attention to forecasts which are aired 24X7
on business channels. They do not help in making money. I feel
our time is better spent understanding the businesses that I
invest in on your behalf.
However, what I would like to add is that the world is uncertain
at best. It is difficult to say how the current unorthodox
macro-economic policies as well as ongoing political changes will
shape the world. My working assumption is that the world economy
over the next 5 years will be bumpy at best. Hence, it is all the
more important to back winning businesses and buy them at
valuations that leave enough margin of safety for bad luck as well
as bad analysis. It has never been easy to do this and it is
definitely not getting any easier.
That’s why the depth and quality of Fidelity’s research team is
a crucial advantage. I can find and invest in companies that are
off the radar for most media and mainstream investors. It requires
hard work to unearth them and probably patience before one makes
money in them. I am ready for both.
As a final word, I am satisfied with the portfolio as it stands
today. As stated earlier, the world is an uncertain place at best
and we may even have a bear market in the coming two or three
years. To me that would be an opportunity to accumulate more
interesting businesses, when the market gets fearful, as I think
the long term fundamentals of Asia
are good with rising education levels and the potential for
productivity which follows. As is often said, “You make your money
in the bear market; you just realise the profits in a bull market”.
Let’s hope I get more opportunities to buy fantastic businesses at
attractive prices!
Nitin
Bajaj
Portfolio Manager
Strategic Report
Principal Risks and Uncertainties
As required by provision C.2.1 of the 2014 UK Corporate
Governance Code, the Board has a robust ongoing process for
identifying, evaluating and managing the principal risks and
uncertainties faced by the Company and this is reviewed on a
regular basis.
The Board is responsible for the Company’s system of risk
management and internal controls and for reviewing its
effectiveness. It 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 Alternative Investment Fund Manager, FIL Investment Services
(UK) Limited, also has responsibility for risk management for the
Company. It works with the Board to identify and manage the
principal risks and to ensure that the Board can continue to meet
its UK corporate governance obligations.
The Board considers the following as the principal risks and
uncertainties faced by the Company:
| Principal Risks |
Description and Risk
Mitigation |
| Market risk |
The Company’s assets
consist mainly of listed securities and the principal risks are
therefore market related such as market 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 in the market risk category,
are included in Note 17 to the Financial Statements in the Annual
Report together with summaries of the policies for managing these
risks. |
| Performance risk |
The achievement of the Company’s
performance objective relative to the market requires the taking 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. |
| 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 which provide greater
flexibility and are significantly cheaper than bank loans. The
Board regularly considers the level of gearing and gearing risk and
sets limits within which the Manager must operate. |
| Derivatives risk |
The Company increased
its derivatives capabilities at the end of 2015. Derivative
instruments are used to enable both the protection and enhancement
of investment returns. There is a risk that the use of derivatives
may lead to a higher volatility in the NAV and the share price than
might otherwise be the case. The Board has put in place policies
and limits to control the Company’s use of derivatives and
exposures. These are monitored on a daily basis by the Manager’s
Compliance team and regular reports are provided to the Board.
Further details on derivative instruments risk is included in Note
17 in the Annual Report. |
| Currency risk |
The Company’s share capital and the
predominant currency in which its investors operate is Sterling and
thus the Directors have determined that the functional currency of
the Company in which it reports its results is 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 Sterling and these other
currencies. It is the Company’s policy not to hedge against
currency risks. Further details can be found in Note 17 to the
Financial Statements in the Annual Report. |
Other risks facing the Company include:
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 tax and regulatory compliance during the year.
Operational risks – Service
Providers
The Company relies on a number of third party service providers,
principally the Manager, Registrar, Custodian and Depositary. It is
dependent on the effective operation of the Manager’s control
systems and those of its service providers with regard to the
security of the Company’s assets, dealing procedures, accounting
records and the maintenance of regulatory and legal
requirements.
They are all subject to a risk-based programme of internal
audits by the Manager. In addition, service providers’ own internal
control reports are received by the Board and any concerns
investigated.
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 takes
place at this year’s Annual General Meeting. Further details
including a review of the Company’s performance are in the
Chairman’s Statement above.
Viability Statement
In accordance with provision C.2.2 of the 2014 UK Corporate
Governance Code, the Directors have assessed the prospects of the
Company over a longer period than the twelve month period required
by the “Going Concern” basis. The Company is an investment trust
with the objective of achieving long term capital growth and the
Board consider five years is an appropriate investment horizon to
assess the viability of the Company, although the life of the
Company is not intended to be limited to this or any other period.
A risk to the Company’s continuation is shareholder
dissatisfaction, and therefore in accordance with the Company’s
Articles of Association, a continuation vote is held every five
years, the next one taking place at this year’s Annual General
Meeting.
In making an assessment on the viability of the Company, the
Board has considered the following:
·
The ongoing relevance of the investment objective in prevailing
market conditions;
·
The principal risks and uncertainties facing the Company as set out
above and their potential impact;
·
The future demand for the Company’s shares;
·
The Company’s share price discount to the NAV;
·
The liquidity of the Company’s portfolio;
·
The level of income generated by the Company; and
·
Future income and expenditure forecasts.
The Company’s performance has been strong since launch. The
Board regularly reviews the investment policy and considers it to
be appropriate. The Board has concluded that there is a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five years
based on the following considerations:
·
The Manager’s compliance with the Company’s investment objective,
its investment strategy and asset allocation;
·
The fact that the portfolio mainly comprises readily realisable
securities which can be sold to meet funding requirements if
necessary;
·
The Board’s discount management policy; and
·
The ongoing processes for monitoring operating costs and income
which are modest in comparison to the Company’s net assets.
In addition, the Directors’ assessment of the Company’s ability
to operate in the foreseeable future is included in the Going
Concern statement in the Directors’ Report in the Annual
Report.
Going Concern
The Directors have considered the Company’s investment
objective, risk management policies, liquidity risk, credit risk,
capital management policies and procedures, the nature of its
portfolio (being mainly securities which are readily realisable)
and its expenditure and cash flow projections and have concluded
that the Company has adequate resources to continue to adopt the
going concern basis for at least 12 months from the date of this
Annual Report. The prospects of the Company over a period longer
than 12 months can be found in the Viability Statement in the
Annual Report.
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 year. Under that law they have
elected to prepare the Financial Statements in accordance with UK
Generally Accepted Accounting Practice and FRS 102: The Financial
Reporting Standard applicable in the UK and Republic of Ireland. The Financial Statements
are required by law to give a true and fair view of the state of
affairs of the Company and of the profit or loss for the
period.
In preparing these Financial Statements the Directors are
required to:
· select
suitable accounting policies and then apply them consistently;
· make
judgements and estimates that are reasonable and prudent;
· state
whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the
Financial Statements; and
· prepare
the Financial Statements on the going concern basis unless it is
inappropriate to assume that the Company will continue in
business.
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.fidelityinvestmenttrusts.com to the Manager. Visitors to the
website need to be aware that legislation in the UK governing the
preparation and dissemination of the Financial Statements may
differ from legislation in their jurisdictions.
The Directors confirm that to the best of their knowledge:
· The
Financial Statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company; and
· The
Annual Report includes a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties it faces.
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
Approved by the Board on 25 October
2016 and signed on its behalf by:
Kate
Bolsover
Chairman
Income Statement
for the year ended 31 July
2016
|
|
Year
ended 31 July 2016 |
Year
ended 31 July 2015 |
|
|
revenue |
capital |
total |
revenue |
capital |
total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Gains on investments held at fair
value through profit or loss |
10 |
– |
53,659 |
53,659 |
– |
1,589 |
1,589 |
| Gains on derivative instruments |
11 |
– |
1,928 |
1,928 |
– |
4,352 |
4,352 |
| Income |
3 |
6,441 |
– |
6,441 |
4,527 |
– |
4,527 |
| Investment management fee |
4 |
(1,847) |
– |
(1,847) |
(2,018) |
– |
(2,018) |
| Other expenses |
5 |
(674) |
– |
(674) |
(622) |
– |
(622) |
| Foreign exchange gains |
|
72 |
583 |
655 |
24 |
19 |
43 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Net return on ordinary activities
before finance costs and taxation |
|
3,992 |
56,170 |
60,162 |
1,911 |
5,960 |
7,871 |
| Finance costs |
6 |
(94) |
– |
(94) |
(101) |
– |
(101) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Net return on ordinary activities
before taxation |
|
3,898 |
56,170 |
60,068 |
1,810 |
5,960 |
7,770 |
| Taxation on return on ordinary
activities |
7 |
(284) |
174 |
(110) |
(287) |
(566) |
(853) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Net return on ordinary activities
after taxation for the year |
|
3,614 |
56,344 |
59,958 |
1,523 |
5,394 |
6,917 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Return per ordinary
share |
8 |
5.36p |
83.49p |
88.85p |
2.26p |
7.99p |
10.25p |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
The Company does not have any income or expenses that are not
included in the net return on ordinary activities after taxation
for the year. Accordingly the net return on ordinary activities
after taxation for the year is also the total comprehensive income
for the year and no separate Statement of Comprehensive Income has
been presented.
The total column of this statement represents the Income
Statement of the Company. The revenue and capital columns are
supplementary and presented for information purposes as recommended
by the Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the year and all
items in the above statement derive from continuing operations.
The Notes form an integral part of these financial
statements.
Statement of Changes in Equity
for the year ended 31 July
2016
|
|
|
|
|
other |
|
|
|
|
|
|
|
share |
capital |
non- |
|
|
|
total |
|
|
share |
premium |
redemption |
distributable |
other |
capital |
revenue |
shareholders’ |
|
|
capital |
account |
reserve |
reserve |
reserve |
reserve |
reserve |
equity |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Total shareholders’ funds at 31
July 2015 |
|
16,872 |
20,232 |
3,197 |
7,367 |
8,613 |
120,496 |
2,160 |
178,937 |
| Net return on ordinary activities
after taxation for the year |
|
– |
– |
– |
– |
– |
56,344 |
3,614 |
59,958 |
| Dividend paid to shareholders |
9 |
– |
– |
– |
– |
– |
– |
(1,350) |
(1,350) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total shareholders’ funds at 31
July 2016 |
|
16,872 |
20,232 |
3,197 |
7,367 |
8,613 |
176,840 |
4,424 |
237,545 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total 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 |
9 |
– |
– |
– |
– |
– |
– |
(742) |
(742) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total shareholders’ funds at 31
July 2015 |
|
16,872 |
20,232 |
3,197 |
7,367 |
8,613 |
120,496 |
2,160 |
178,937 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
The Notes form an integral part of these financial
statements.
Balance Sheet
as at 31 July 2016
Company number 3183919
|
|
2016 |
2015 |
|
Notes |
£’000 |
£’000 |
| Fixed assets |
|
|
|
| Investments held at fair value
through profit or loss |
10 |
222,424 |
162,858 |
|
|
--------------- |
--------------- |
| Current assets |
|
|
|
| Derivative instruments |
11 |
1,139 |
– |
| Other receivables |
12 |
1,018 |
3,737 |
| Amounts held in margin accounts |
|
991 |
– |
| Cash at bank |
|
14,324 |
14,366 |
|
|
--------------- |
--------------- |
|
|
17,472 |
18,103 |
|
|
--------------- |
--------------- |
| Current Liabilities |
|
|
|
| Derivative instruments |
11 |
(542) |
– |
| Other payables |
13 |
(1,809) |
(2,024) |
|
|
--------------- |
--------------- |
|
|
(2,351) |
(2,024) |
|
|
--------------- |
--------------- |
| Net current assets |
|
15,121 |
16,079 |
|
|
--------------- |
--------------- |
| Net assets |
|
237,545 |
178,937 |
|
|
--------------- |
--------------- |
| Capital and reserves |
|
|
|
| Share capital |
14 |
16,872 |
16,872 |
| Share premium account |
15 |
20,232 |
20,232 |
| Capital redemption reserve |
15 |
3,197 |
3,197 |
| Other non-distributable reserve |
15 |
7,367 |
7,367 |
| Other reserve |
15 |
8,613 |
8,613 |
| Capital reserve |
15 |
176,840 |
120,496 |
| Revenue reserve |
15 |
4,424 |
2,160 |
|
|
--------------- |
--------------- |
| Total shareholders’
funds |
|
237,545 |
178,937 |
|
|
--------------- |
--------------- |
| Net asset value per ordinary
share |
16 |
351.98p |
265.14p |
|
|
--------------- |
--------------- |
The Financial Statements were approved by the Board of Directors
on 25 October 2016 and were signed on
its behalf by:
Kate
Bolsover
Chairman
The Notes form an integral part of these financial
statements.
Notes to the Financial Statements
1 Principal Activity
Fidelity Asian 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 3183919, and
its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth,
Surrey KT20 6RP. The Company has been approved by HM Revenue
& Customs as an Investment Trust under Section 1158 of the
Corporation Tax Act 2010 and intends to conduct its affairs so as
to continue to be approved.
2 Accounting Policies
The Company has for the first time applied the revised UK
Generally Accepted Accounting Practice (“UK GAAP”), issued by the
Financial Reporting Council (“FRC”) and these Financial Statements
have been prepared in accordance with FRS 102: The Financial
Reporting Standard applicable in the UK and Republic of Ireland, effective for accounting
periods beginning on or after 1 January
2015. The Company has early adopted the amendments to FRS
102: Fair value hierarchy disclosures, issued by the FRC in
March 2016. The Financial Statements
have also been prepared in accordance with the revised Statement of
Recommended Practice: Financial Statements of Investment Trust
Companies and Venture Capital Trusts (“SORP”) issued by the
Association of Investment Companies (“AIC”), in November 2014.
As a result of the adoption of the revised UK GAAP and SORP
presentation formats have been amended where appropriate. The
Reconciliation of Movements in Shareholders’ Funds has been renamed
the Statement of Changes in Equity. A Cash Flow Statement has not
been presented. The Company is exempt from presenting a Cash Flow
Statement as a Statement of Changes in Equity is presented and
substantially all of the Company’s investments are highly liquid
and are carried at market value. The net return on ordinary
activities after taxation for the year and total shareholders’
funds remain unchanged from what was reported under the former UK
GAAP basis applied in the 2015 Annual Report and the 2015 figures
have not required restatement.
a) Basis of accounting – The Financial Statements have
been prepared on a going concern basis and under the historical
cost convention, except for the measurement at fair value of
investments and derivative instruments. A resolution proposing the
continuation of the Company as an investment trust will be put to
shareholders at the AGM on 2 December
2016. The Directors are recommending that shareholders vote
in favour of this resolution. In accordance with this
recommendation and given that the Company’s assets consist mainly
of securities which are readily realisable and that the Directors
have a reasonable expectation that the Company has adequate
resources to continue for the foreseeable future, the Directors
believe that it is appropriate to prepare the Financial Statements
on a going concern basis. Accordingly the Financial Statements do
not include any adjustments that may arise from a reconstruction or
liquidation of the Company. Such adjustments would include expenses
of reconstruction or liquidation along with any costs associated
with realising the portfolio.
b) Segmental reporting – The Company is engaged in a
single segment business and, therefore, no segmental reporting is
provided.
c) Presentation of the Income Statement – In order to
reflect better the activities of an investment company and in
accordance with guidance issued by the AIC, supplementary
information which analyses the Income Statement between items of a
revenue and capital nature has been prepared alongside the Income
Statement. The net revenue return after taxation for the year is
the measure the Directors believe appropriate in assessing the
Company’s compliance with certain requirements set out in Section
1159 of the Corporation Tax Act 2010.
d) Income – Income from equity investments and derivative
instruments is credited to the revenue column of the Income
Statement on the date on which the right to receive the income is
established, normally the ex dividend date. Where the Company has
elected to receive its dividends in the form of additional shares
rather than cash, the amount of the cash dividend foregone is
recognised as income. Any excess in the value of the shares
received over the amount of the cash dividend foregone is
recognised as a gain in the capital column of the Income Statement.
Special dividends are treated as a revenue receipt or a capital
receipt depending on the facts and circumstances of each particular
case. Interest income is accounted for on an accruals basis.
e) Management fees and other expenses – Management fees
and other expenses are accounted for on an accruals basis and are
charged in full to the revenue column of the Income Statement.
f) Functional currency and foreign exchange – The
Directors, having regard to the Company’s share capital and the
predominant currency in which its investors operate, have
determined its functional currency to be UK sterling. Transactions
denominated in foreign currencies are calculated in UK sterling at
the rate of exchange ruling at the date of the transaction. Assets
and liabilities in foreign currencies are translated at the rates
of exchange ruling at the Balance Sheet date. Foreign exchange
gains and losses arising on translation are recognised in the
Income Statement as a revenue or a capital item depending on the
nature of the underlying item to which they relate.
g) Finance costs – Finance costs comprise interest paid
on long contracts for difference (“CFDs”), which is accounted for
on an accruals basis using the effective interest method, and
dividends paid on short CFDs, which are accounted for on the date
on which the obligation to incur the cost is established, normally
the ex-dividend date. Finance costs are charged in full to the
revenue column of the Income Statement.
h) Taxation – The taxation expense/(credit) represents
the sum of current taxation and deferred taxation.
Taxation currently payable is based on the taxable profit for
the year. Taxable profit differs from net return on ordinary
activities before taxation for the year, as reported in the Income
Statement, because it excludes items of income or expense that are
taxable or deductible in other years and items that are never
taxable or deductible. The Company’s liability for current taxation
is calculated using taxation rates that have been enacted or
substantively enacted by the Balance Sheet date.
Deferred taxation is the taxation expected to be payable or
recoverable on differences between the carrying amounts of assets
and liabilities in the Financial Statements and the corresponding
taxation bases used in the computation of taxable profit based on
tax rates that have been enacted or substantively enacted when the
taxation is expected to be payable or recoverable, and is accounted
for using the balance sheet liability method. Deferred taxation
liabilities are recognised for all taxable temporary differences
and deferred taxation assets are recognised to the extent that it
is probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Taxation is charged or credited to the revenue column of the
Income Statement, except where it relates to items of a capital
nature, in which case it is charged or credited to the capital
column of the Income Statement. Where expenses are allocated
between revenue and capital any tax relief in respect of the
expenses is allocated between revenue and capital returns on the
marginal basis using the Company’s effective rate of corporation
tax for the accounting period. The Company is an approved
Investment Trust under Section 1158 of the Corporation Tax Act 2010
and is not liable for UK taxation on capital gains.
i) Dividend paid – Dividends payable to equity
shareholders are recognised when the Company’s obligation to make
payment is established.
j) Investment held at fair value through profit or loss –
The 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 on that basis to the Company’s Board of Directors.
Investments are measured at fair value with changes in fair value
recognised in profit or loss, in accordance with the provisions of
both Section 11 and Section 12 of FRS 102. The fair value of
investments is initially taken to be their cost and is subsequently
measured as bid or last traded prices, depending upon the
convention of the exchange on which they are listed, where
available, or otherwise at fair value based on published price
quotations. Equity linked notes are valued at the same price 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 held at fair value through
profit or loss in the capital column of the Income Statement and
has disclosed those costs in note 10 below.
k) Derivative instruments held at fair value through profit
or loss – When appropriate permitted transactions in derivative
instruments are used. Derivative transactions into which the
Company may enter include long and short CFDs, futures and options.
Derivatives are classified as, fair value through profit or loss –
held for trading, and are initially accounted and measured at fair
value on the date the derivative contract is entered into and
subsequently measured at fair value as follows:
·
CFDs – the difference between the strike price and the value of the
underlying shares in the contract, calculated in accordance with
accounting policy 2(j) above; and
·
Futures and options – the quoted trade price for the contract.
Where such transactions are used to protect or enhance income,
if the circumstances support this, income derived is included in
derivative income in the revenue column of the Income Statement.
Where such transactions are used to protect or enhance capital, if
the circumstances support this, gains and losses derived are
included in gains on derivative instruments in the capital column
of the Income Statement. Any positions on such transactions open at
the year end are reflected in the Balance Sheet at their fair value
within current assets or current liabilities.
l) Other receivables – Other receivables include
securities sold for future settlement, accrued income and debtors
and pre-payments incurred in the ordinary course of business. If
collection is expected in one year or less (or in the normal
operating cycle of the business, if longer) they are classified as
current assets. If not, they are presented as non-current assets.
Debtors are recognised initially at fair value and, where
applicable, subsequently measured at amortised cost using the
effective interest rate method.
m) Amounts held in margin accounts – Amounts held in
margin accounts are amounts held in segregated accounts as
collateral on behalf of brokers and are subject to an insignificant
risk of changes in value.
n) Cash at bank – Cash at bank and cash equivalents may
comprise cash and short-term money market funds which are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
o) Other payables – Other payables include securities
purchased for future settlement and investment management fees,
secretarial and administration fees and interest payable and other
creditors and expenses accrued in the ordinary course of business.
Other payables are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of
the business, if longer). If not, they are presented as non-current
liabilities. Other payables are recognised initially at fair value
and, where applicable, subsequently measured at amortised cost
using the effective interest rate method.
p) Capital reserve – The following are transferred to the
capital reserve:
·
Gains and losses on the disposal of investments and derivative
instruments;
·
Changes in the fair value of investments and derivative instruments
held at the year end;
·
Foreign exchange gains and losses of a capital nature;
·
Dividends receivable which are capital in nature; and
·
Taxation charged or credited relating to items which are capital in
nature.
As a result of technical guidance issued by the Institute of
Chartered Accountants in England
and Wales in TECH 02/10: Guidance
on the determination of realised profits and losses in the context
of distributions under the Companies Act 2006, changes in the fair
value of investments which are readily convertible to cash, without
accepting adverse terms at the Balance Sheet date, can be treated
as realised. Capital reserves realised and unrealised are shown in
aggregate as capital reserve in the Statement of Changes in Equity
and the Balance Sheet. At the Balance Sheet date the portfolio of
the Company consisted of; investments listed on a recognised stock
exchange and derivative instruments, contracted with counterparties
having an adequate credit rating, and the portfolio was considered
to be readily convertible to cash.
3 Income
|
Year ended |
Year ended |
|
31.07.16 |
31.07.15 |
|
£’000 |
£’000 |
| Investment income |
|
|
| Overseas dividends |
5,847 |
4,021 |
| Overseas scrip dividends |
413 |
325 |
| Overseas interest |
– |
16 |
|
--------------- |
--------------- |
|
6,260 |
4,362 |
|
--------------- |
--------------- |
| Derivative income |
|
|
| Dividends on long CFDs |
165 |
162 |
| Interest on short CFDs |
3 |
– |
|
--------------- |
--------------- |
|
168 |
162 |
|
--------------- |
--------------- |
| Other income |
|
|
| Deposit interest |
13 |
3 |
|
--------------- |
--------------- |
| Total income |
6,441 |
4,527 |
|
--------------- |
--------------- |
4 Investment Management Fees
|
Year ended |
Year ended |
|
31.07.16 |
31.07.15 |
|
£’000 |
£’000 |
| Investment management fee |
1,847 |
2,018 |
|
--------------- |
--------------- |
FIL Investment Services (UK) Limited is the Company’s
Alternative Investment Fund Manager and has delegated portfolio
management to FIL Investments International (“FII”). Both companies
are Fidelity group companies. FII charges fees at an annual rate of
0.90% on the first £200 million of gross assets and 0.85% on gross
assets over £200 million. Prior to 1 August
2015, fees were charged at a flat annual rate of 1.00% on
gross assets. Fees are payable quarterly in arrears and are
calculated on the last business day of March, June, September and
December.
5 Other Expenses
|
Year ended |
Year ended |
|
31.07.16 |
31.07.15 |
|
£’000 |
£’000 |
| AIC fees |
19 |
16 |
| Custody fees |
87 |
96 |
| Depositary fees |
22 |
23 |
| Directors’ expenses |
27 |
27 |
| Directors’ fees1 |
123 |
125 |
| Legal and professional fees |
62 |
66 |
| Marketing expenses |
122 |
101 |
| Printing and publication
expenses |
63 |
53 |
| Registrars’ fees |
38 |
36 |
| Secretarial and administration
fees |
75 |
42 |
| Sundry other expenses |
12 |
13 |
| Fees payable to the Company's
Independent Auditor for the audit of the Financial Statements |
24 |
24 |
|
--------------- |
--------------- |
|
674 |
622 |
|
--------------- |
--------------- |
1
Details of the breakdown of Directors’ fees are disclosed in the
Directors’ Remuneration Report in the Annual Report.
6 Finance Costs
|
Year ended |
Year ended |
|
31.07.16 |
31.07.15 |
|
£’000 |
£’000 |
| Interest paid on long CFDs |
52 |
101 |
| Dividends paid on short CFDs |
42 |
– |
|
--------------- |
--------------- |
|
94 |
101 |
|
--------------- |
--------------- |
7 Taxation on Return on Ordinary
Activities
|
Year
ended 31 July 2016 |
|
Year ended
31 July 2015 |
|
|
revenue |
capital |
total |
revenue |
capital |
total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| a) Analysis of the taxation
charge for the year |
|
|
|
|
|
|
| Taxation on overseas dividends |
284 |
– |
284 |
287 |
– |
287 |
| Indian capital gains tax |
|
|
|
|
|
|
| – paid in the year |
– |
– |
– |
– |
742 |
742 |
| Deferred tax |
– |
(174) |
(174) |
– |
(176) |
(176) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total taxation charge for the year
(see Note 7b) |
284 |
(174) |
110 |
287 |
566 |
853 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
b) Factors affecting the taxation
charge for the year
The taxation charge for the year is lower than the standard rate
of UK corporation tax for an investment trust company of 20% (2015:
20.67%). A reconciliation of taxation at the standard rate of UK
corporation tax to the taxation charge for the year is shown
below:
|
Year
ended 31 July 2016 |
|
Year ended
31 July 2015 |
|
|
revenue |
capital |
total |
revenue |
capital |
total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Return on ordinary activities before
taxation |
3,898 |
56,170 |
60,068 |
1,810 |
5,960 |
7,770 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Return on ordinary activities before
taxation multiplied by the standard rate of UK |
|
|
|
|
|
|
| corporation tax of 20% (2015:
20.67%) |
780 |
11,234 |
12,014 |
374 |
1,232 |
1,606 |
| Effects of: |
|
|
|
|
|
|
| Gains on investments not
taxable1 |
– |
(11,234) |
(11,234) |
– |
(1,232) |
(1,232) |
| Income not taxable |
(1,168) |
– |
(1,168) |
(821) |
– |
(821) |
| Excess management expenses |
399 |
– |
399 |
454 |
– |
454 |
| Overseas taxation expensed |
(11) |
– |
(11) |
(7) |
– |
(7) |
| Overseas taxation suffered |
284 |
– |
284 |
287 |
– |
287 |
| Overseas capital gains tax
suffered |
– |
– |
– |
– |
742 |
742 |
| Deferred tax |
– |
(174) |
(174) |
– |
(176) |
(176) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total taxation charge for the year
(see Note 7a) |
284 |
(174) |
110 |
287 |
566 |
853 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
1
The Company is exempt from UK taxation on capital gains as it meets
the HM Revenue & Customs criteria for an investment company set
out in Section 1159 of the Corporation Tax Act 2010.
c) Deferred taxation
A deferred tax asset of £2,905,000 (2015: £2,546,000), in
respect of excess management expenses of £13,534,000 (2015:
£11,539,000) and excess loan interest of £2,605,000 (2015:
£2,605,000), has not been recognised as it is unlikely that there
will be sufficient future taxable profits to utilise these
expenses.
A deferred tax liability at 31 July
2016 of nil (2015: £174,000) has been recognised in respect
of Indian capital gains tax on Indian securities sold within a year
of their purchase. A deferred tax liability of £438,000 has not
been recognised at 31 July 2016 due
to uncertainty as to whether future sales within a year of their
purchase will occur, and if they did occur, whether the future
price paid would result in a capital gain.
8 Return per Ordinary Share
|
Year
ended 31 July 2016 |
|
Year ended
31 July 2015 |
|
|
revenue |
capital |
total |
revenue |
capital |
total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Return per ordinary share – basic
and diluted |
5.36p |
83.49p |
88.85p |
2.26p |
7.99p |
10.25p |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
The returns per ordinary share are based on, respectively; the
net revenue return on ordinary activities after taxation for the
year of £3,614,000 (2015: £1,523,000), the net capital return on
ordinary activities after taxation for the year of £56,344,000
(2015: £5,394,000) and the net total return on ordinary activities
after taxation for the year of £59,958,000 (2015: £6,917,000), and
on 67,488,213 ordinary shares (2015: 67,488,213), being the
weighted average number of ordinary shares in issue during the
year.
9 Dividends Paid to Shareholders
|
Year ended |
Year ended |
|
31.07.16 |
31.07.15 |
|
£’000 |
£’000 |
| Dividend paid |
|
|
| Dividend paid of 2.00 pence per
ordinary share for the year ended 31 July 2015 |
1,350 |
– |
| Dividend paid of 1.10 pence per
ordinary share for the year ended 31 July 2014 |
– |
742 |
|
--------------- |
--------------- |
|
1,350 |
742 |
|
--------------- |
--------------- |
| Dividend proposed |
|
|
| Dividend proposed of 4.50 pence per
ordinary share for the year ended 31 July 2016 |
3,037 |
– |
| Dividend proposed of 1.10 pence per
ordinary share payable for the year ended 31 July 2015 |
– |
1,350 |
|
--------------- |
--------------- |
|
3,037 |
1,350 |
|
--------------- |
--------------- |
The Directors have proposed the payment of a dividend for the
year ended 31 July 2016 of
4.50 pence per ordinary share which
is subject to approval by shareholders at the Annual General
Meeting and has not been included as a liability in these financial
statements. The dividend will be paid on 6
December 2016 to shareholders on the register at the close
of business on 4 November 2016 (ex
dividend date 3 November 2016).
10 Investments held at fair value
through profit or loss
|
2016 |
2015 |
|
£’000 |
£’000 |
| Total
investments1 |
222,424 |
162,858 |
|
--------------- |
--------------- |
| Opening book cost |
173,359 |
142,586 |
| Opening investment holding
(losses)/gains |
(10,501) |
27,294 |
|
--------------- |
--------------- |
| Opening fair value |
162,858 |
169,880 |
| Movements in the year |
|
|
| Purchases at cost |
105,417 |
253,555 |
| Sales – proceeds |
(99,510) |
(262,166) |
| Sales – gains in the year |
5,960 |
39,384 |
| Movement in investment holding
gains/(losses) in the year |
47,699 |
(37,795) |
|
--------------- |
--------------- |
| Closing fair value |
222,424 |
162,858 |
|
--------------- |
--------------- |
| Closing book cost |
185,226 |
173,359 |
| Closing investment holding
gains/(losses) |
37,198 |
(10,501) |
|
--------------- |
--------------- |
| Closing fair value |
222,424 |
162,858 |
|
--------------- |
--------------- |
1
The Fair Value Hierarchy of the investments is shown in Note 17
below.
|
Year ended |
Year ended |
|
31.07.16 |
31.07.15 |
|
£’000 |
£’000 |
| Gains on investments in the
year |
|
|
| Gains on sales of investments |
5,960 |
39,384 |
| Investment holding
gains/(losses) |
47,699 |
(37,795) |
|
--------------- |
--------------- |
|
53,659 |
1,589 |
|
--------------- |
--------------- |
Investment transaction costs
Transaction costs incurred in the acquisition and disposal of
investments, which are included in the gains on investments held at
fair value through profit or loss in the capital column of the
Income Statement, were as follows:
|
Year ended |
Year ended |
|
31.07.16 |
31.07.15 |
|
£’000 |
£’000 |
| Purchase transaction costs |
207 |
388 |
| Sales transaction costs |
213 |
619 |
|
--------------- |
--------------- |
|
420 |
1,007 |
|
--------------- |
--------------- |
The portfolio turnover rate for the year was 55.9% (2015:
142.9%).
11 Derivative instruments
|
|
|
Year ended |
Year ended |
|
|
|
31.07.16 |
31.07.15 |
|
|
|
£’000 |
£’000 |
| Net gains on derivative
instruments |
|
|
|
|
| Realised gains on long CFDs |
|
|
861 |
6,360 |
| Realised losses on short CFDs |
|
|
(36) |
– |
| Realised gains on options |
|
|
300 |
– |
| Movement in investment holding
gains/(losses) on long CFDs |
|
|
1,114 |
(2,008) |
| Movement in investment holding
losses on short CFDs |
|
|
(329) |
– |
| Movement in investment holding gains
on options |
|
|
18 |
– |
|
|
|
--------------- |
--------------- |
|
|
|
1,928 |
4,352 |
|
|
|
--------------- |
--------------- |
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
fair value |
fair value |
|
|
|
£’000 |
£’000 |
| Fair value of derivative
instruments recognised on the Balance Sheet |
|
|
|
|
| Derivative assets held at fair value
through profit or loss |
|
|
1,139 |
– |
| Derivative liabilities held at fair
value through profit or loss |
|
|
(542) |
– |
|
|
|
--------------- |
--------------- |
|
|
|
597 |
– |
|
|
|
--------------- |
--------------- |
|
|
|
|
|
|
2016 |
2015 |
|
|
gross asset |
|
gross asset |
|
fair value |
exposure |
fair value |
exposure |
| At the year end the Company held
the following derivative instruments |
£’000 |
£’000 |
£’000 |
£’000 |
| Long CFDs |
1,114 |
5,263 |
– |
– |
| Short CFDs |
(329) |
5,458 |
– |
– |
| Covered call options reducing long
exposure |
(138) |
(1,517) |
– |
– |
| Written put options |
(50) |
380 |
– |
– |
|
--------------- |
--------------- |
--------------- |
--------------- |
|
597 |
9,584 |
– |
– |
|
--------------- |
--------------- |
--------------- |
--------------- |
|
|
|
|
|
| 12 Other Receivables |
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£’000 |
£’000 |
| Securities sold for future
settlement |
|
|
676 |
3,318 |
| Accrued income |
|
|
255 |
366 |
| Debtors and prepayments |
|
|
87 |
53 |
|
|
|
--------------- |
--------------- |
|
|
|
1,018 |
3,737 |
|
|
|
--------------- |
--------------- |
13 Other Payables
|
|
|
2016 |
2015 |
|
|
|
£’000 |
£’000 |
| Securities purchased for future
settlement |
|
|
1,381 |
1,502 |
| Deferred tax |
|
|
– |
174 |
| Creditors and accruals |
|
|
428 |
348 |
|
|
|
--------------- |
--------------- |
|
|
|
1,809 |
2,024 |
|
|
|
--------------- |
--------------- |
|
|
|
|
|
| 14 Share Capital |
|
|
|
|
|
|
|
|
|
|
2016 |
|
2015 |
|
|
Number of |
|
Number of |
|
|
shares |
£’000 |
shares |
£’000 |
| Issued, allotted and fully
paid – Ordinary Shares of 25 pence each held outside
Treasury |
|
|
|
|
| Beginning and end of the
year |
67,488,213 |
16,872 |
67,488,213 |
16,872 |
|
----------------- |
--------------- |
----------------- |
--------------- |
15 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.
16 Net Asset Value per Ordinary
Share
The net asset value per ordinary share is based on net assets of
£237,545,000 (2015: £178,937,000) and on 67,488,213 (2015:
67,488,213) ordinary shares, being the number of ordinary shares in
issue at the year end.
17 Financial Instruments
Management of risk
The Company’s investing activities in pursuit of its investment
objective involve certain inherent risks. The Board confirms that
there is an ongoing process for identifying, evaluating and
managing the risks faced by the Company. The Board with the
assistance of the Investment Manager, has developed a risk matrix
which, as part of the internal control process, identifies the
risks that the Company faces. Principal risks identified are
market, performance, discount control, gearing and currency risks.
Other risks identified are tax and regulatory and operational
risks, including those relating to third party service providers
covering investment management, marketing and business development,
company secretarial, fund administration and operations and support
functions. Risks are identified and graded in this process,
together with steps taken in mitigation, and are updated and
reviewed on an ongoing basis. Risks identified are shown in the
Strategic Report in the Annual Report.
This note refers to the identification, measurement and
management of risks potentially affecting the value of financial
instruments. The Company’s financial instruments comprise:
·
Equity shares and equity linked notes;
·
Derivative instruments including CFDs and options; and
·
Cash, liquid resources and short-term receivables and payables that
arise from its operations.
The risks identified arising from the Company’s financial
instruments are market price risk (which comprises interest rate
risk, foreign currency risk and other price risk), liquidity risk,
counterparty risk, credit risk and derivative instrument risk. The
Board reviews and agrees policies for managing each of these risks,
which are summarised below. These policies are consistent with
those followed last year.
Market price risk
Interest rate risk
The Company finances its operations through ordinary share
capital and reserves. In addition, the Company may achieve a geared
exposure to Asian equities through the use of derivative
instruments which incur funding costs. 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:
|
2016 |
2015 |
| Exposure to financial instruments
that earn interest |
£’000 |
£’000 |
| Cash at bank |
14,324 |
14,366 |
| Short CFDs – exposure plus fair
value |
5,129 |
– |
| Amounts held in margin accounts |
991 |
– |
|
----------------- |
--------------- |
|
20,444 |
14,366 |
|
----------------- |
--------------- |
|
|
|
|
£’000 |
£’000 |
| Exposure to financial instruments
that bear interest |
|
|
| Long CFDs – exposure less fair
value |
4,149 |
– |
|
----------------- |
--------------- |
| Net exposure to financial
instruments that earn interest |
16,295 |
14,366 |
|
----------------- |
--------------- |
Foreign currency risk
The Company’s net return on ordinary activities after taxation
and its net assets can be affected by foreign exchange rate
movements because the Company has income, assets and liabilities
which are denominated in currencies other than the Company’s
functional currency which is UK sterling.
Three principal areas have been identified where foreign
currency risk could impact the Company:
·
Movements in foreign exchange rates affecting the value of
investments and derivative instruments;
·
Movements in foreign exchange rates affecting short term timing
differences; and
·
Movements in foreign exchange rates affecting income received.
The portfolio management team monitor foreign currency risk but
it is not the Company’s policy to hedge against currency risk.
Currency exposure of financial
assets
The Company’s financial assets comprise equity investments, long
exposures to derivative instruments, other receivables and cash and
cash equivalents. The currency profile of these financial assets is
shown below:
|
|
|
|
|
2016 |
|
investments |
|
|
|
|
|
held at |
long |
|
|
|
|
fair value |
exposure to |
|
|
|
|
through |
derivative |
other |
|
|
|
profit or
loss |
instruments |
receivables |
cash1 |
total |
| currency |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Indian rupee |
45,185 |
– |
63 |
30 |
45,278 |
| Hong Kong dollar |
35,952 |
– |
104 |
54 |
36,110 |
| Taiwan dollar |
24,690 |
– |
73 |
904 |
25,667 |
| US dollar |
14,291 |
5,643 |
1 |
11,620 |
31,555 |
| Singapore dollar |
18,717 |
– |
90 |
– |
18,807 |
| Australian dollar |
16,816 |
– |
365 |
– |
17,181 |
| Thai baht |
15,471 |
– |
227 |
– |
15,698 |
| Korean won |
15,416 |
– |
1 |
3 |
15,420 |
| Philippine peso |
12,741 |
– |
– |
– |
12,741 |
| Indonesian rupiah |
9,969 |
– |
4 |
– |
9,973 |
| Malaysian ringgit |
5,236 |
– |
– |
– |
5,236 |
| Other overseas currencies |
7,940 |
– |
7 |
1,564 |
9,511 |
| UK sterling |
– |
– |
83 |
1,140 |
1,223 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
|
222,424 |
5,643 |
1,018 |
15,315 |
244,400 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
1
Cash includes cash at bank and amounts held in margin accounts.
|
|
|
|
|
2015 |
|
investments |
|
|
|
|
|
held at |
exposure |
|
|
|
|
fair value |
to long |
|
|
|
|
through profit |
derivative |
other |
|
|
|
or loss |
instruments |
receivables |
cash |
total |
| currency |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| US dollar |
13,953 |
– |
476 |
14,074 |
28,503 |
| Taiwan dollar |
27,427 |
– |
283 |
156 |
27,866 |
| Hong Kong dollar |
27,105 |
– |
13 |
40 |
27,158 |
| Indian rupee |
25,808 |
– |
429 |
– |
26,237 |
| Australian dollar |
14,153 |
– |
1,279 |
– |
15,432 |
| Korean won |
14,428 |
– |
10 |
4 |
14,442 |
| Singapore dollar |
12,721 |
– |
397 |
– |
13,118 |
| Thai baht |
9,217 |
– |
– |
– |
9,217 |
| Indonesian rupiah |
6,991 |
– |
– |
– |
6,991 |
| Malaysian ringgit |
4,332 |
– |
797 |
– |
5,129 |
| Other overseas currencies |
6,723 |
– |
– |
26 |
6,749 |
| UK sterling |
– |
– |
53 |
66 |
119 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
|
162,858 |
– |
3,737 |
14,366 |
180,961 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
Currency exposure of financial
liabilities
The Company finances its investment activities through its
ordinary share capital and reserves. The Company’s financial
liabilities comprise short positions on derivative instruments and
other payables. The currency profile of these financial liabilities
is shown below:
|
|
|
2016 |
|
exposure |
|
|
|
to short |
|
|
|
derivative |
other |
|
|
instruments |
payables |
total |
| currency |
£’000 |
£’000 |
£’000 |
| US dollar |
3,520 |
20 |
3,540 |
| Hong Kong dollar |
2,789 |
– |
2,789 |
| Korean won |
– |
806 |
806 |
| Australian dollar |
666 |
– |
666 |
| Other overseas currencies |
– |
575 |
575 |
| UK sterling |
– |
408 |
408 |
|
--------------- |
--------------- |
--------------- |
|
6,975 |
1,809 |
8,784 |
|
--------------- |
--------------- |
--------------- |
|
|
|
2015 |
|
exposure |
|
|
|
to short |
|
|
|
derivative |
other |
|
|
instruments |
payables |
total |
| currency |
£’000 |
£’000 |
£’000 |
| Singapore dollar |
– |
529 |
529 |
| Indian rupee |
– |
372 |
372 |
| Taiwan dollar |
– |
325 |
325 |
| Korean won |
– |
256 |
256 |
| Other overseas currencies |
– |
197 |
197 |
| UK sterling |
– |
345 |
345 |
|
--------------- |
--------------- |
--------------- |
|
– |
2,024 |
2,024 |
|
--------------- |
--------------- |
--------------- |
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 at least 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
Liquidity risk is the risk that the Company will encounter
difficulties in meeting obligations associated with financial
liabilities. The Company’s assets mainly comprise readily
realisable securities and derivative instruments which can be sold
easily to meet funding commitments if necessary. Short-term
flexibility is achieved by the use of a bank overdraft, if
required.
Liquidity risk exposure
The remaining undiscounted gross cash outflows of the financial
liabilities were all repayable within one year and consisted of
derivative instrument financial liabilities held at fair value
through profit or loss of £542,000 (2015: nil) and other payables
of £1,809,000 (2015: £2,024,000).
Counterparty risk
Certain of the derivative instruments in which the Company may
invest are not traded on an exchange but instead will be traded
between counterparties based on contractual relationships, under
the terms outlined in the International Swaps Dealers Association’s
(“ISDA”) market standard derivative legal documentation. These are
known as Over The Counter (“OTC”) trades. As a result the Company
is subject to the risk that a counterparty may not perform its
obligations under the related contract. In accordance with the risk
management process which the Investment Manager employs, this risk
is minimised by only entering into transactions with counterparties
which are believed to have an adequate credit rating at the time
the transaction is entered into, by ensuring that formal legal
agreements covering the terms of the contract are entered into in
advance, and through adopting a counterparty risk framework which
measures, monitors and manages counterparty risk by the use of
internal and external credit agency ratings and by evaluating
derivative instrument credit risk exposure.
For OTC derivative transactions, collateral is used to reduce
the risk of both parties to the contract. Collateral is managed on
a daily basis for all relevant transactions. At 31 July 2016 £846,000 (2015: nil) was held by the
brokers, in government bonds in a segregated collateral account on
behalf of the Company, to reduce the credit risk exposure of the
Company and £991,000 (2015: nil) was held by the Company in cash,
shown as amounts in margin accounts on the Balance Sheet, in a
segregated collateral account on behalf of the brokers, to reduce
the credit risk exposure of the brokers.
Credit risk
Financial instruments may be adversely affected if any of the
institutions with which money is deposited suffer insolvency or
other financial difficulties. All transactions are carried out with
brokers that have been approved by the Investment Managers and are
settled on a delivery versus payment basis. Limits are set on the
amount that may be due from any one broker and are kept under
review by the Investment Manager. Exposure to credit risk arises on
unsettled security transactions and derivative instrument contracts
and cash at bank.
Derivative instrument risk
The Company’s investment policy was changed following the 2015
AGM and derivative instruments may now be employed for the
following purposes:
· as an
alternative form of gearing to bank loans. The Company would enter
into long CFDs which would achieve an equivalent effect to buying
an asset financed by bank borrowing but often at lower financing
costs;
· to hedge
equity market risks where suitable protection can be purchased to
limit the downside of a falling market at a reasonable cost;
and
· to
enhance the investment returns by taking short exposures on stocks
that the Investment Manager considers to be over-valued.
Derivative instruments are subject to Other Price Risk and the
measures taken to control it as described above in this Note. In
addition, the portfolio management team includes an experienced,
specialist derivatives team that uses portfolio risk assessment and
construction tools to manage the risk and investment performance of
derivative instruments.
RISK SENSITIVITY ANALYSIS
Interest rate risk sensitivity
analysis
Based on the financial instruments held and interest rates at
the balance sheet date, an increase of 0.25% in interest rates
throughout the year would have increased the return on ordinary
activities after taxation for the year and increased the net assets
of the Company by £41,000 (2015: £36,000). A decrease of 0.25% in
interest rates throughout the year would have had an equal but
opposite effect.
Foreign currency risk sensitivity
analysis
Based on the financial assets and liabilities held and the
exchange rates ruling at the balance sheet date, a strengthening of
the UK sterling exchange rate by 10% against foreign currency
exchange rates would have decreased the return on ordinary
activities after taxation for the year and decreased the net assets
of the Company by the following amounts:
|
2016 |
2015 |
| currency |
£’000 |
£’000 |
| Indian rupee |
(4,114) |
(2,351) |
| Hong Kong dollar |
(3,273) |
(2,469) |
| US dollar |
(2,427) |
(2,591) |
| Taiwan dollar |
(2,333) |
(2,504) |
| Singapore dollar |
(1,689) |
(1,144) |
| Australian dollar |
(1,553) |
(1,403) |
|
--------------- |
--------------- |
|
(15,389) |
(12,462) |
|
--------------- |
--------------- |
Based on the financial assets and liabilities held and the
exchange rates ruling at the balance sheet date, a weakening of the
UK sterling exchange rate by 10% against foreign currency exchange
rates would have increased the return on ordinary activities after
taxation for the year and increased the net assets of the Company
by the following amounts:
|
2016 |
2015 |
| currency |
£’000 |
£’000 |
| Indian rupee |
5,028 |
2,874 |
| Hong Kong dollar |
4,000 |
3,018 |
| US dollar |
2,966 |
3,167 |
| Taiwan dollar |
2,852 |
3,060 |
| Singapore dollar |
2,065 |
1,399 |
| Australian dollar |
1,899 |
1,714 |
|
--------------- |
--------------- |
|
18,810 |
15,232 |
|
--------------- |
--------------- |
Other price risk – exposure to
investments sensitivity analysis
An increase of 10% in the fair value of investments at
31 July 2016 would have increased the
total return on ordinary activities after taxation for the year and
increased the net assets of the Company by £22,242,000 (2015:
£16,286,000). A decrease of 10% in the fair value of investments
would have had an equal and opposite effect.
Other price risk – exposure to
derivative instruments sensitivity analysis
An increase of 10% in the fair value of the investments
underlying the derivative instruments at 31
July 2016 would have decreased the total return on ordinary
activities after taxation for the year and decreased the net assets
of the Company by £133,000 (2015: nil). A decrease of 10% in the
fair value of investments underlying the derivative instruments
would have had an equal and opposite effect.
Fair Value of Financial Assets and
Liabilities
Financial assets and liabilities are stated in the Balance Sheet
at values which are not materially different to their fair values.
As explained in Note 2 (j) and (k) above, investments and
derivative instruments are shown at fair value. In the case of cash
and cash equivalents, book value approximates to fair value due to
the short maturity of the instruments.
Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy
that classifies its financial instruments measured at fair value at
one of three levels, according to the relative reliability of the
inputs used to estimate the fair values.
| Classification |
Input |
| Level 1 |
Valued using quoted prices in active
markets for identical assets |
| Level 2 |
Valued by reference to valuation
techniques using observable inputs other than quoted prices
included within level 1 |
| Level 3 |
Valued by reference to valuation
techniques using inputs that are not based on observable market
data |
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset. The valuation techniques
used by the Company are explained in Note 2 (j) and (k) above. The
table below sets out the Company’s fair value hierarchy:
|
|
|
2016 |
|
|
2015 |
|
level 1 |
level 2 |
total |
level 1 |
level 2 |
total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Financial assets at fair value
through profit or loss |
|
|
|
|
|
|
| Investments |
216,658 |
5,766 |
222,424 |
161,602 |
1,256 |
162,858 |
| Derivative instruments |
– |
1,139 |
1,139 |
– |
– |
– |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
|
216,658 |
6,905 |
223,563 |
161,602 |
1,256 |
162,858 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Financial liabilities at fair
value through profit or loss |
|
|
|
|
|
|
| Derivative instruments |
(188) |
(354) |
(542) |
– |
– |
– |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
18 Capital Resources and Gearing
The Company does not have any externally imposed capital
requirements. The financial resources of the Company comprise its
share capital and reserves, as disclosed in the Balance Sheet
above, and its gearing which is achieved through the use of
derivative instruments. Financial resources are managed in
accordance with the Company’s investment policy and in pursuit of
its investment objective, both of which are detailed in the
Strategic Report in the Annual Report. The principal risks and
their management are disclosed in the Strategic Report in the
Annual Report and in Note 17 above.
The Company’s gearing at the year end is set out below:
|
2016 |
2015 |
|
gross asset |
gross asset |
|
exposure |
exposure |
|
£’000 |
£’000 |
| Long exposures – shares and equity
linked notes |
222,424 |
162,858 |
| Covered call options reducing the
above exposure |
(1,517) |
– |
| Written put options |
380 |
– |
| Long CFDs |
5,263 |
– |
|
--------------- |
--------------- |
| Total long exposures |
226,550 |
162,858 |
| Short exposures – short CFDs |
5,458 |
– |
|
--------------- |
--------------- |
| Gross Asset Exposure |
232,008 |
162,858 |
|
--------------- |
--------------- |
| Total Shareholders’
Funds |
237,545 |
178,937 |
|
--------------- |
--------------- |
| Gearing – (net cash
position)1 |
(2.3)% |
(9.0)% |
|
--------------- |
--------------- |
1
Gross Asset Exposure less than Total Shareholders’ Funds expressed
as a percentage of Total Shareholders’ Funds
19 Transactions with the Manager and
Related Parties
FIL Investment Services (UK) Limited is the Company’s
Alternative Investment Fund Manager and has delegated portfolio
management and the role of company secretary to FIL Investments
International (“FII”). Both companies are Fidelity group companies.
Details of the fee arrangements are given in the Directors’ Report
in the Annual Report, and in Note 4 above. During the year
management fees of £1,847,000 (2015: £2,018,000) and secretarial
and administration fees of £75,000 (2015: £42,000) were payable to
FII. At the Balance Sheet date management fees of £174,000 (2015:
£150,000) and secretarial and administration fees of £46,000 (2015:
£3,000) were accrued and included in other payables. FII also
provides the Company with marketing services. The total amount
payable for these services during the year was £122,000 (2015:
£101,000). At the Balance Sheet date marketing services of £14,000
(2015: £47,000) were accrued and included in other payables.
Disclosures of the Directors’ interests in the ordinary shares
of the Company and Directors’ fees and taxable benefits relating to
reasonable travel expenses payable to the Directors are given in
the Directors’ Remuneration Report in the Annual Report. The
Directors received compensation of £135,000 (2015: £137,000). In
addition to the fees and taxable benefits disclosed in the
Directors’ Remuneration Report, this amount includes £11,000 (2015:
£12,000) of employers’ National Insurance Contributions paid by the
Company.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
ENDS
A copy of the Annual Report will shortly be submitted to the
National Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The Annual Report will also be available on the Company's
website at www.fidelityinvestmenttrusts.com where up to date
information on the Company, including daily NAV and share prices,
factsheets and other information can also be found.