Final Results
11/10/2024 07:00
FIDELITY ASIAN VALUES PLC
FINAL RESULTS FOR THE YEAR ENDED 31 JULY 2024
Highlights:
* During the twelve-month period ended 31 July 2024, Fidelity Asian Values PLC
reported a Net Asset Value (NAV) return of +3.2% and ordinary share price
total return of -1.7%.
* The benchmark index, the MSCI All Countries Asia ex Japan Small Cap Index,
produced a total return of +13.7% over the same timeframe.
* The Board has announced a final dividend of 14.5 pence per share.
Contacts
For further information, please contact:
George Bayer
Company Secretary
FIL Investments International
0207 961 4240
Financial Highlights
Assets as at 31 July 2024 2023
Gross Asset Exposure £442.9m £440.8m
Net Market Exposure £416.2m £413.7m
Total Shareholders’ Funds £392.0m £394.6m
NAV per Ordinary Share 1 551.66p 549.33p
Gross Gearing 1 13.0% 11.7%
Net Gearing 1 6.2% 4.9%
--------------- ---------------
Share Price and Discount data at 31 July
Ordinary Share Price at year end 496.00p 520.00p
Year high 542.00p 534.00p
Year low 476.00p 423.00p
Discount to NAV per Ordinary Share at year end 1 (10.1%) (5.3%)
(Discount) year low/Premium (2.2%) 0.8%
(Discount) year high (11.9%) (12.9%)
--------------- ---------------
Results for the year ended 31 July
Revenue Return per Ordinary Share 1 14.24p 15.17p
Capital Return per Ordinary Share 1 2.06p 39.95p
--------------- ---------------
Total Return per Ordinary Share 1 16.30p 55.12p
========= =========
Ongoing Charges for the year to 31 July 0.95% 0.96%
Variable Element of Management Fee 3 0.19% 0.07%
Ongoing Charges including Variable Element of Management Fee for the year to 31 July 1 1.14% 1.03%
========= =========
1 Alternative Performance Measures. See below
2 The variable element of the management fee is calculated over a rolling
three year period with reference to the Benchmark Index.
Chairman’s Statement
This is my first Annual Report for the Company, having taken over as Chairman
from Kate Bolsover at the last AGM in November 2023. As Kate noted in her
Chairman’s Statement in last year’s report, your Portfolio Managers Nitin
Bajaj and Ajinkya Dhavale have delivered periods of significant outperformance
since Nitin’s appointment in April 2015. However, as we all know, the value
of equity investments can go down as well as up, and there is no avoiding the
fact that the year ended 31 July 2024 has been a relatively disappointing one
for the Company and its shareholders.
In the year under review, the Net Asset Value (“NAV”) total return was
+3.2%, while the Comparative Index (the MSCI All Countries Asia ex Japan Small
Cap Index (net) total return (in sterling terms)) returned +13.7%. The total
return to shareholders was -1.7% owing to a widening in the share price
discount to NAV, which moved from 5.3% on 1 August 2023 to 10.1% at the period
end.
During the period, Ajinkya Dhavale was appointed as the Company’s
Co-Portfolio Manager to support and closely work alongside the Portfolio
Manager, Nitin Bajaj. Ajinkya’s appointment helps to strengthen the
investment process and manage key person risk.
Nitin and Ajinkya’s investment style is bottom-up, contrarian and
value-focused. In simple terms this means they focus on individual company
fundamentals and seek to avoid crowded trades where high company valuations
may limit further upside. While this style has historically delivered
differentiated investment returns, it can also lead to periods of
underperformance when extreme momentum is driven by investors focusing on a
narrow range of areas, as has been the case recently in countries, sectors and
themes such as India, technology and artificial intelligence (AI).
You will find detailed information on the portfolio and its performance in the
Portfolio Managers’ Review in the following section. In brief, however, your
Portfolio Managers feel that many Indian companies, and technology stocks –
particularly those related to AI – are overvalued, and they have been
focusing their attention more on China, where they see attractive value
opportunities, particularly in companies serving the domestic consumer. With
China having been very out of favour among investors in the post-Covid period,
the ‘caged upside’ in these companies has yet to be realised, and we
believe that these stocks – selected through the same rigorous, consistent
and research-intensive investment process that has delivered such good
long-term returns for the Company – should achieve their potential in time.
As a Board, we are cognisant of the geopolitical risks around investing in
China, given potential higher US trade tariffs and the impact of
‘de-globalisation’, and this has in part informed our decision to limit
the aggregate China and Hong Kong exposure. The portfolio’s focus on more
domestic names should limit the influence of global factors on these
companies.
Board strategy day
As incoming Chairman of what is a relatively ‘new’ Board following a
number of retirements and appointments in recent years, I was keen that we
should ‘get back to basics’ and explore the factors that the independent
non-executive directors of an investment company can and should be
influencing. To this end, we undertook a strategy day earlier in 2024, where
we reassessed discount management, competitor analysis, the rationale and
mechanics of the variable management fee and its allocation to capital or
revenue reserves, trading policy and liquidity considerations, and the
implementation of and compliance with investment limits. One of the outcomes
of the strategy day was the abovementioned decision to combine China and Hong
Kong under a single investment limit, where previously there was a limit for
each market, meaning that exposure could be significantly higher. While Nitin
and Ajinkya are very much bottom-up investors, who select stocks based on
company fundamentals and valuation rather than place of business or country of
listing, as a Board we feel that the application of such limits is helpful in
ensuring the portfolio remains diversified and that risks are not overly
concentrated in any one area.
Due diligence trip
The whole Board normally visits Asia on a due diligence trip every other year.
As incoming Chairman, I have been fortunate to visit the investment team in
Singapore in the ‘off’ year, to deepen my understanding of how
Fidelity’s large team of analysts, portfolio managers and other
professionals work together to benefit the shareholders of the Company. With
some 60 analysts across the region, each assigned a sector or subsector, there
is an enormous volume of potential investment ideas, but the bar for inclusion
in your Company’s portfolio is high, and I observed a healthy dynamic of
rigorous challenge with plenty of lively debate between Nitin and the broader
team. Having also sat in on meetings with investee companies, I was encouraged
by the depth of the conversations and the collaborative feel of the
interactions, with challenging questions answered well and a warm but
professional relationship in evidence.
Discount management and share repurchases
With geopolitical tensions remaining high in a year also filled with notable
global election activity, market conditions have continued to be unsettled,
leading to a degree of volatility in the Company’s share price discount to
NAV, which ranged during the period between 2.2% at its narrowest and 11.9% at
its widest, finishing the year at 10.1%. Between 13 October 2023 and 31 July
2024, the Board approved the repurchase of 768,780 ordinary shares (1.0% of
the issued share capital) for holding in Treasury, at a cost of £3,826,000.
Since then and up to the date of this report, 687,461 shares have been
repurchased as part of the Company’s active and ongoing discount management
strategy. The primary purpose of share buybacks is to limit discount
volatility, and at the AGM in November 2024 the Board will seek shareholder
approval to renew the annual authority to repurchase up to 14.99% or allot up
to 10% of the ordinary shares in issue.
The timing of repurchases of ordinary shares are made at the discretion of the
Broker, within guidelines set by the Board and considering prevailing market
conditions. Shares will only be repurchased in the market at prices below the
prevailing NAV per ordinary share, thereby resulting in an accretive
enhancement to the NAV per ordinary share. The shares repurchased are
currently held in Treasury and would only be reissued at NAV per ordinary
share or at a premium to NAV per ordinary share. The Board will consider
cancelling shares when the percentage of shares held in Treasury exceeds 10%
of the total issued share capital.
Marketing and promotion
Your Board is keenly aware that share buybacks alone are unlikely to eliminate
a persistent discount to NAV; discounts are a function of supply and demand
and, as such, increasing demand is at least as important as absorbing excess
supply. As well as appointing a new director, Lucy Costa Duarte, who has a
strong track record in marketing and distribution, we continue to allocate
significant resources to marketing in order to increase shareholder value.
Through Fidelity’s sales and marketing teams and internal and external PR
partners, we have been working to increase the Company’s profile through
digital and print advertising, sponsorship, events, direct marketing and press
coverage. We also work with a third-party research provider, Kepler Partners,
to produce regular notes on the Company, which are distributed widely and made
available on the Company’s website. The focus on reaching both retail and
professional (wealth manager) audiences is evident in the makeup of our share
register, with 40% of our shares owned by direct investors through platforms,
and 49% (up 4% over five years) by wealth managers on behalf of their clients.
Dividend
Your Portfolio Managers invest principally for long-term capital growth, but
their value-oriented investment style tends to lead them towards unleveraged,
cash-generative businesses that may themselves be able to pay rising
dividends. In the last two years your Board has declared substantially higher
dividends (14.0 pence per share in 2022 and 14.5 pence per share in 2023),
compared with less than 9.0 pence per share in the three preceding years. We
noted at the time that shareholders should not assume that such dividends
would continue in the future.
The Board is recommending a final dividend of 14.5 pence per share for the
year ended 31 July 2024 for approval by shareholders at the AGM to be held on
21 November 2024. We would reiterate, however, that income is an output rather
than an aim of the investment process, and that no guarantees can be offered
as to the level of any future dividends.
Gearing
Your Company can borrow additional money to invest on behalf of its
shareholders, known as gearing. This can enhance returns for shareholders
although, conversely, in falling markets, it can amplify losses. The
Company’s formal gearing policy allows for maximum gross asset exposure of
140% of NAV (up to 130% in long positions and a maximum of 10% in short
positions); however, your Board has set a goal for net market exposure to be
in a range of 90% to 115% in normal market conditions. The level of gross
gearing is directly proportional to the investment opportunities that your
Portfolio Managers see. When they are optimistic about the outlook and there
is a good supply of compelling investment ideas, then the Company will tend to
be more geared. At the period end, gross gearing was 13.0% (2023: 11.7%) and
net gearing was 6.2% (2023: 4.9%). This remains at the historically high end
of the range during Nitin’s tenure, and, while the impact of gearing was
slightly negative in the period under review, its level underlines the
Portfolio Managers’ belief in the prospects for the Company’s investments.
While higher than the long-term average level, gearing is not objectively
‘high’, particularly on a net basis, but instead reflects a degree of
cautious optimism. Rather than using bank borrowing (which is often deployed
across a portfolio on a pro-rata basis), the gearing is achieved using
contracts for difference (“CFDs”), which, as a type of derivative, are
implemented on a stock-by-stock basis. Each year, your Board reviews the use
of CFDs, and we have again concluded that at the present time they remain a
more efficient and flexible form of financing than either secured or unsecured
debt, as well as enabling your Portfolio Managers to be fleet of foot in the
deployment of gearing. We are fortunate that Fidelity has the infrastructure
and capability to allow the use of CFDs in the portfolio; few other management
groups can offer this.
Use of short positions
Fidelity’s capability in derivative instruments is also what allows your
Portfolio Managers to ‘short’ stocks, which has again had a positive
impact on returns in the year under review. A short position is taken on the
view that the price of a stock or the value of an index will go down rather
than up. Short positions are limited to a maximum of 10% of the portfolio and
do not usually exceed 10 stocks; however, while relatively small in scope,
this additional tool has materially added to performance since its
introduction in late 2019. Total short exposure as at 31 July 2024 was 3.4%
of net assets (2023: 3.4%).
BOARD OF DIRECTORS
Kate Bolsover stood down at the AGM in November 2023 after nine years of
outstanding service as Chairman. As I stepped into the role of Chairman,
Matthew Sutherland assumed my previous position as Senior Independent
Director. Sally Macdonald has taken on the role of Chairman of the Management
Engagement Committee from Michael Warren who will retire from the Board at the
forthcoming AGM, when he will have served for 10 years. We are grateful to
Michael for having stayed on an extra year in order to ensure a good handover
of the institutional and historical knowledge of the Company. In June 2024 we
welcomed Lucy Costa Duarte to the Board. Lucy is Investment Director for
International Biotechnology Trust plc (‘IBT’) at Schroders and has a
wealth of experience in marketing investment trusts, as well as previously
having headed the emerging markets equity capital markets team at Citigroup.
She will stand for election at the AGM in November.
As I noted above, there has been a significant number of retirements from and
appointments to the Board in the past few years. Following Michael Warren’s
retirement, I will be the longest-serving director, at five years, and we
should now be entering a period of board stability. Your Board has a diversity
of backgrounds and, we feel confident that we have an appropriate mix of
skills to ensure the Company’s continued good governance.
ANNUAL GENERAL MEETING
The AGM of the Company will be held at 11.00 am on Thursday, 21 November 2024
at 4 Cannon Street, London EC4M 5AB (nearest tube stations are St Paul’s or
Mansion House) and for those shareholders who are unable to attend the meeting
in person, we will live-stream the formal business and presentations of the
meeting via the Lumi AGM meeting platform. Full details of the meeting are
given in the Notice of Meeting.
Nitin Bajaj, the Portfolio Manager and Ajinkya Dhavale, the Co-Portfolio
Manager, will be making a presentation to shareholders highlighting the
achievements and challenges of the year past and the prospects for the year to
come. They and the Board will be very happy to answer any questions that
shareholders may have.
Copies of their presentation can be requested by email at
investmenttrusts@fil.com or in writing to the Secretary at FIL Investments
International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey
KT20 6RP.
Please note that investors on platforms, such as Fidelity Personal Investing,
Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest, will need to
request attendance at the AGM in accordance with the policies of your chosen
platform. If you are unable to obtain a unique IVC and PIN from your nominee
or platform, we would welcome your online participation as a guest. Once you
have accessed https://web.lumiagm.com from your web browser on a tablet or
computer, you will need to enter the Lumi Meeting ID which is 159-339-971. You
should then select the ‘Guest Access’ option before entering your name and
who you are representing, if applicable. This will allow you to view the
meeting and ask questions, but you will not be able to vote.
OUTLOOK
Although the year under review has been a difficult one performance-wise,
Nitin and Ajinkya continue to see good prospects for their portfolio of
undervalued, quality businesses. With much of the investing world continuing
to be in thrall to all things AI, your Portfolio Managers’ positioning in
unloved and overlooked areas arguably carries limited downside potential,
compared to other areas of the market, with the possibility of significant
upside, as has been seen in previous years. As a contrarian strategy, there
may be times when the portfolio is sailing into the wind, but Nitin and
Ajinkya remain very disciplined and are sticking to their proven long-term
investment process. You can read below more on their views and how they are
expressing them in the portfolio.
CLARE BRADY
Chairman
10 October 2024
PORTFOLIO MANAGERS’ REVIEW
Nitin Bajaj was appointed as the Portfolio Manager of Fidelity Asian Values
PLC on 1 April 2015. He is based in Singapore and has over 22 years’
investment experience. He is also the Portfolio Manager for the Fidelity Asian
Smaller Companies Fund as well as the Fidelity China Focus Fund. He first
joined Fidelity in 2003 as an Investment Analyst and then took over the
Fidelity India Special Situations Fund and subsequently started the Fidelity
India Value Fund. He managed these funds until November 2012, when Fidelity
decided to sell its India business.
Ajinkya Dhavale has been appointed as the Company’s Co-Portfolio Manager to
support and closely work alongside Nitin Bajaj. He has extensive experience in
Asian markets and companies and shares a common investment approach and
complementary investment experience with the Portfolio Manager. He has over 16
years of investment experience. He originally joined Fidelity as an analyst in
2013, covering the Auto, Cement, Telecommunications and Property sectors and
is Co-Portfolio Manager of the Fidelity Asian Smaller Companies Fund.
QUESTION 1
How has the Company performed in the year to 31 July 2024?
ANSWER
During the year ended 31 July 2024, the Company’s net asset value
(“NAV”) rose 3.2% as compared to the 13.7% total return from the
Comparative Index (the MSCI All Countries Asia ex Japan Small Cap Index (net)
total return (in sterling terms)). The total share price return was -1.7% due
to the widening of the discount to NAV.
Overall, our stock selection contributed positively to the Company’s
relative performance versus the Comparative Index. However, our market
selection remained a drag against the backdrop of continued divergence in
country performance.
Our investment process is driven by owning good businesses run by managements
we trust and investing in them only when we have ample margin of safety –
this often leads us to take contrarian positions as it is easier to find
undervalued businesses in countries which are out of favour with investors.
Following this philosophy, we have a significant percentage of our portfolio
in China and Hong Kong and Indonesia compared to the index but in all these
markets small caps saw a sharp fall in share prices and underperformed the
regional small cap index. Conversely, India, where our portfolio has a large
underweight due to valuation concerns, rose strongly and outperformed the
index.
Chart 1: Country attribution over 12 months to 31 July 2024
Average weight (%) Cumulative returns Contribution to relative returns (%)
Company Index Relative Index Stock Market Total
(%) (%) (%) (%) selection selection
China + Hong Kong +40.6 +13.1 +27.5 -2.8 +4.6 -10.8 -6.2
India +18.6 +31.0 -12.4 +49.9 -1.0 -3.6 -4.6
Indonesia +14.6 +2.2 +12.4 -14.9 +2.4 -3.8 -1.4
Korea (South) +9.1 +15.6 -6.5 -3.4 +1.0 +1.2 +2.2
Australia +5.2 +0.0 +5.2 0.0 -0.4 0.0 -0.4
Singapore +3.3 +5.0 -1.7 0.0 +0.5 +0.2 +0.7
Taiwan +1.4 +25.8 -24.4 +18.0 +1.2 -1.0 +0.2
Other Countries +10.3 +7.4 +2.9 +0.1 -0.8 +0.7 -0.1
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total Primary Assets +103.0 +100.0 +3.0 -9.6
Cash & others -3.0 0.0 -3.0 -0.9
--------------- --------------- --------------- ---------------
Total 100.0 100.0 0.0 -10.5
========= ========= ========= =========
Note: The table above uses figures calculated as a percentage of net assets.
Source: Fidelity International, 31 July 2024. Index: MSCI All countries Asia
ex Japan Small Cap Index (net) total return (in sterling terms).
QUESTION 2
What stocks have been the main contributors and detractors to performance
during the period and why?
ANSWER
It was not surprising that our top three contributors relative to the Index
during the 12-month period were from India while our largest relative
detractors were all from China and Hong Kong as it was very much in line with
country performance within Asian small caps.
In India, our holdings in the country’s largest power trading company PTC
India was a key contributor. It reported strong volume growth particularly for
higher margin long-term trades. Exposure to Granules India added value as the
small cap pharmaceuticals company continued to increase its leadership in high
volume products such as paracetamol and new launches in higher margin drugs.
Similarly, India’s 4th largest mortgage financier LIC Housing Finance
benefited from its access to low-cost funds helping it focus mainly on prime
borrowers and maintain high returns on equity and strong asset quality. We
continue to like all of them but trimmed exposure on strong performance and
reduced the margin of safety.
Most of the detractors in China and Hong Kong operate in consumption and
housing driven sectors where near-term weakness in demand led to earnings
downgrade as well as multiple deratings. For instance, Hong Kong-listed Galaxy
Entertainment Group which is the second largest casino operator in Macau hurt
returns due to increased competition and Chinese consumption recovery being
slower than we had anticipated. However, tourism spending remains one of the
most interesting areas in China given rising incomes, changing demographics
and attractive valuations for Macau based casinos. Similarly, our holding in
drug retailer Yixintang Pharmaceutical, which has a leadership in Yunnan
province, fell on the back of the introduction of a price comparison system.
We continue to like its structural medium to long-term prospects as it
consolidates in a fragmented sector. It provides low double-digit Return on
Equity (“ROE”) which is a measure of the prospective return against the
value of the shares, and trades about 8 times its 12 month forward earnings,
which is a measure of the price of the shares against the likely future
profits. Meanwhile, the biggest detractor China Overseas Grand Oceans is one
of the country’s leading property developers focused on tier 3 cities that
is gaining market share as weaker players are going out of business. It trades
below 0.2x its book value, which is a measure of the price of the shares
versus the value of the assets of the company. It provides about a 9% dividend
yield.
While these companies have detracted from performance over the 12-month review
period, their valuations reflect earnings expectations that are at trough
levels providing us a significant margin of safety and upside potential.
QUESTION 3
The Company’s portfolio is overweight in China. Why do you prefer investment
in China compared to other countries in the Asian region?
ANSWER
We do not invest in countries, we invest in businesses. Our higher exposure to
China is driven by the bottom up security selection in a range of
well-financed and well-run businesses where their current valuations provide a
sufficient margin of safety compared to most other markets in the Asian
region.
We understand the concerns investors have about China’s geopolitical issues,
its property downcycle and weak consumption trends. In our opinion, the
housing cycle downturn has been absorbed in a large measure and its negative
impact on the economy will be felt to a lower extent next year. This is part
of an economic cycle correction, but sound businesses will still be around,
likely to be in better shape and emerge stronger as the cycle recovers. Given
current valuations, there is significant upside on owning these businesses
over a 3-year horizon. The cycle in China is not too dissimilar to the US
cycle post the housing crisis in 2007 or the economic downcycle in India
between 2011 and 2013.
In our opinion, China has created one of the best infrastructures in the world
– both human and physical. The foundations are strong and hence our belief
that the weakness we see currently is cyclical rather than structural. We
believe in good businesses, run by competent and honest people and buying them
at cheap prices. We are finding quite a few of these in China today and hence
the significant overweight position in China.
QUESTION 4
Looking beyond China, where do you currently see the best opportunities?
ANSWER
Beyond China, Indonesia is one place that is providing opportunities to own a
good mix of growth and quality businesses at attractive valuations as the
market has lagged most of Asia over the last year. It is the third largest
economy in the region after China and India with a strong demographic profile
with tailwinds for consumption shifts as well as infrastructure development.
The country has been more prudent with its public finances than other
countries in the region. Our exposure to Indonesia is diversified across
financials, building materials, industrials and consumer businesses that offer
fairly high and sustainable returns at sufficient margin of safety. Indonesia
has some of the strongest banking franchises with conservative underwriting
culture. They have stable asset quality and benefit from structural growth as
penetration levels are increasing from low levels. The consumer companies
owned in Indonesia are also high-quality franchises with market leadership.
This gives them strong pricing power and ability to generate margins that are
higher than global peers over the long term.
We have also been adding exposure to businesses in Korea. The country’s
‘value up’ programme that pushes for governance reforms should yield
positive outcomes from Korean corporates. We have selectively been adding
positions in companies where there is considerable margin of safety built into
current valuations to limit the downside, but potential for gains is immense
if their management teams improve total shareholder returns through higher
dividends and buybacks.
QUESTION 5
Small cap value stocks continue to outperform small cap growth stocks over the
longer term. What has driven this and do you expect the pattern to continue?
ANSWER
Small cap value stocks have performed better than small cap growth stocks over
the last 25+ years. This is essentially because the small cap value stocks
have grown earnings faster than small cap growth stocks.
Over 80% of our portfolio remains in these value stocks as we believe they
will continue to do better based on their superior earnings growth and higher
cash returns in terms of dividends.
QUESTION 6
How do you view macro and geopolitical events and the effects they will have
on your portfolio?
ANSWER
Macro and geopolitical events are not central to our decision-making but we
realise we cannot ignore them entirely, as companies exist within business
cycles and they are impacted by geopolitical events. So, we try to factor both
into our decision-making predominantly at single stock level and at portfolio
risk level. These give us guard rails rather than being the main driver of
decision-making. Stock picking is the mainstay of the investment process. This
has been its strength, and we feel we are better placed if we ‘stick to our
knitting’.
For instance, we are aware of the tensions between the USA and China and feel
that this is a long-term trend but it is beyond our expertise to predict
specific events that can trigger near-term market responses. Therefore, we
continue to follow our process and have chosen to focus more on opportunities
in domestic-demand led Chinese businesses rather than the businesses that
derive significant revenues from the US market.
At the same time, it is helpful to reiterate that macroeconomic factors are
cyclical - they come and go – if we can construct a diversified portfolio of
good businesses run by competent and honest management teams and invest at a
price that leaves sufficient margin of safety, we should over time be able to
generate returns for our investors over the medium to long term.
QUESTION 7
How does the Company consider governance and stewardship?
ANSWER
The investment process centres around good businesses managed by good people
available at a good price, which implies that we actively look for a business
that solves a problem for its consumers. The ‘good people’ behind a
business respect law and regulation and take care of their employees,
customers, the environment, and shareholders, as well as managing their
businesses responsibly. We strongly believe that only an honest and competent
management team will drive the business towards creating value over the long
term. It is unlikely that a management team that has not focused on
shareholder returns over the last 15-20 years will suddenly start putting the
shareholder at the heart of what they do.
Fidelity International is a signatory of the UK Stewardship Code that sets
globally recognised standards of stewardship for investors saving money on
behalf of UK savers and pensioners. We support the Code’s aim of encouraging
big investors to focus on promoting good corporate governance at the companies
they invest in.
Fidelity’s stewardship activities support the responsible allocation of the
Company’s assets in two main ways: by informing the investment process at
the research and investment decision-making stages, and through leveraging our
ownership position in companies with the aim of effecting positive corporate
change.
QUESTION 8
What is your approach to gearing and short positions? And what impact have
they had on returns during the year and over the longer term?
ANSWER
The level of gearing in the Company remains a function of the number of
investment ideas we find. It increases when we see more ideas than money and
it reduces (or we keep a higher cash balance) when we do not find as many
ideas.
Gearing has recently increased as we have found investments in China, a market
which has been out of favour with investors. However, valuations in many other
parts are not as attractive. India remains expensive leading us to reduce
exposure in this market.
QUESTION 9
What are some of the points that are important to remind the holders of the
Company?
ANSWER
We own businesses that are better quality than the market and are currently
priced at cheaper valuations than the market. This has been the bed rock of
our investment process for over a decade. The portfolio’s Return on Equity
(“ROE”) remains at a premium to the market while the Price to Earnings
ratios of our holdings are at a significant discount.
The ROE metric of the portfolio is higher than that of the market implying the
Company is generating superior returns for each pound of shareholder’s
equity than the market. Further the blended Price to Earnings ratio of our
holdings is at a significant discount which implies that we are paying a lower
price for each potential pound of future earnings by our portfolio companies
compared to the market as a whole.
This is driven by our historically high exposure to China, Hong Kong and
Indonesia where businesses are undervalued versus their long-term returns
potential, as well as due to our low exposure to India, given valuations in
the Indian small cap segment are extremely expensive.
We do not predict market movements and have come to understand that markets
are seldom rational in their short-term responses. Thus, we consistently focus
on investing in good businesses, run by good management teams that are
available at a suitable margin of safety. This is the approach that has stood
the test of time generating sustainable performance for the Company in the
long run and should do the same in the next few years.
NITIN BAJAJ AJINKYA DHAVALE
Portfolio Manager Co-Portfolio Manager
10 October 2024
PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MANAGEMENT
As required by provisions 28 and 29 of the 2018 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, including
those that could threaten its business model, future performance, solvency and
liquidity. The Board, with the assistance of the Alternative Investment Fund
Manager (FIL Investment Services (UK) Limited (the “Manager”)), has
developed a risk matrix which, as part of the risk management and internal
controls process, identifies the key existing and emerging risks and
uncertainties that the Company faces.
The Board considers the risks listed below as the principal risks and
uncertainties faced by the Company.
PRINCIPAL RISKS
1. Economic, Political and Market Risks
Trend (from previous year): Increased
Description and Impact Mitigation
· The Company and its assets may be affected by economic and market risks. These are market downturns, interest rate movements, deflation/inflation, exchange rate movements and market shocks. Inflation and economic instability are potentially impacting · The Company’s portfolio is made up mainly of listed securities. The Portfolio Managers’ success or failure to protect and increase the Company’s assets against the economic, political and market background is core to the Company’s continued success. Their investment philosophy of stock-picking and investing in attractively valued companies aims to outperform the Comparative Index over time. The Board is provided with a detailed investment review which covers material economic, political and market risks and legislative changes at each Board meeting. · The Board has oversight of the Company’s portfolio, regularly reviews the impact of gearing and derivatives, and has comfort that the portfolio is sufficiently diversified by sector and number of holdings. · Risks to which the Company is exposed to in the market and currency risk category are included in Note 17 to the Financial Statements together with summaries of the policies for managing these risks. It is the Company’s policy not to hedge the underlying currencies of the holdings in the portfolio but rather to take the currency risk into consideration when making investment decisions.
investors’ risk appetite. · The Company is exposed to several geopolitical risks. The fast-changing global geopolitical landscape is largely shaped by the ongoing effects of war conflicts, deglobalisation trends and significant supply disruption. The
Middle East and Russia are significant net exporters of oil, natural gas and a variety of soft commodities and supply limitations have fuelled global inflation and economic instability, specifically within Western nations. Macro-economic uncertainty
continues to impact Western investment appetite. Conflict in the Middle East provides another source of emerging geopolitical risk and economic instability. · China’s outlook for ‘controlled stabilisation’ remains intact, supported by targeted policy
measures. The expanding strength of the global industrial cycle is benefitting China’s exports, which are once again becoming the main driver of growth alongside capex, while growth of consumption remains subdued. Whilst investment from mainland China has
increased significantly, driven by favourable government policies and the high dividends available from some Hong Kong shares, China’s vulnerabilities remain, with risks related to the global outlook and geopolitical tensions including the possibility of
global trade conflict, ongoing tensions between South Korea and North Korea, South China Sea dispute and implications of China-Taiwan relations. · As the year progresses, political risks could increase, heading towards the US elections during late 2024,
which coupled with ongoing geopolitical conflicts, could lead to higher volatility for broader markets, and oil in particular, as well as risk of changes in foreign policies across the globe. · Most of the Company’s assets and income are denominated in
currencies other than sterling which is the Company’s functional and presentation currency. As a result, movements in exchange rates may affect the sterling value of its assets and income.
2. Investment Performance Risk (including the use of Derivatives and Gearing)
Trend (from previous year): Unchanged
Description and Impact Mitigation
· The achievement of the Company’s investment performance objective relative to the market requires the taking of risk, such as investment strategy, asset allocation and stock selection, and may lead to NAV and share price underperformance compared to the Comparative Index and/ or peer group companies. · Continued underperformance could lead to the Company and its objective becoming unattractive to investors. · The Company gears using derivatives including long CFDs which provide greater flexibility and are generally cheaper than bank loans. The principal risk is that the Portfolio Managers fail to use gearing effectively, resulting in a failure to outperform in a rising market or to underperform in a falling market. · Derivative instruments are used to enhance investment returns, as well as for hedging and efficient portfolio management purposes. There is a risk that the use of derivatives may lead to higher volatility in the NAV and the share price than might otherwise be the case. · The Investment Manager is responsible for actively 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 Board reviews Fidelity’s
compliance with agreed investment restrictions; investment performance and risk; relative performance; the portfolio’s risk profile; and whether appropriate strategies are employed to mitigate any negative impact of substantial changes in the markets. The
Board also regularly canvasses major shareholders for their views with respect to company matters. · The Board has put in place policies and limits to control the Company’s use of derivatives and exposures. These are monitored daily by the Manager’s
Compliance team and regular reports are provided to the Board. Further detail on derivative instruments risk is included in Note 17 to the Financial Statements. · The Board regularly considers the level of gearing and gearing risk. The Investment Policy
sets the gearing limits within which the Manager must operate and the Board regularly considers the level of gearing and gearing risk.
3. Changes in Legislation, Taxation or Regulation
Trend (from previous year): Increased
Description and Impact Mitigation
· Changes in legislation, taxation or regulation, or other external influence that require changes to the investment trust structure of the Company are a significant risk for the Company. · A breach of Section 1158 of the Corporation Tax Act 2010 could · The Board and Manager closely monitor regulatory, taxation and legislative changes, with developments impacting the Company summarised in the form of regular reporting to the Board. · The Manager monitors Section 1158 status to ensure any issues are escalated to the Board and addressed promptly. · The Manager participates in industry discussions regarding regulatory changes impacting investment companies, and regulatory developments continue to be monitored and managed by FIL through active lobbying and negotiations as well as a robust change management process.
lead to a loss of investment trust status resulting in the Company being subject to tax on capital gains. · There have been increased concerns about investment cost disclosures and their impact on the industry. More recently, however, it should be noted
that the government and regulator have announced a temporary exemption for investment companies from the EU cost disclosure requirements.
4. Cybercrime and Information Security
Trend (from previous year): Increased
Description and Impact Mitigation
· Cybersecurity risk from cyberattacks or threats to the functioning of global markets and to the Manager’s own business model, including its and the Company’s outsourced suppliers. · Risk of cybercrime such as phishing, remote access threats, extortion, and denial-of-service attacks from geopolitically motivated parties. · The risk is monitored by the Board with the help of the Manager’s global cybersecurity team and their extensive Strategic Cyber and Information Security programme and assurances from outsourced suppliers. · The Manager has established a comprehensive
framework of information security policies and standards which provide a structured approach to identify, prevent, and respond to information security threats. The Company’s other service providers also have similar measures in place. · Key performance
indicators and metrics have been developed by the Manager to monitor the overall efficacy of cybersecurity processes and controls and to further enhance the Manager’s cybersecurity strategy and operational resilience.
5. Business Continuity and Crisis Management
Trend (from previous year): Increased
Description and Impact Mitigation
· There continues to be focus from financial services regulators around the world on the contingency plans of regulated financial firms, particularly given the prevalence of hybrid working arrangements. · Business process disruption risk from continued threats of cyberattacks, geopolitical threats and natural events, such as earthquakes, resulting in financial and/or reputational impact to the Company, affecting the functioning of the business. · The Manager has Business Continuity and Crisis Management Frameworks in place to deal with business disruption and assure operational resilience. The Board has been assured that the Manager has appropriate business continuity plans and the provision of
services has continued to be supplied without significant interruption. · The Company relies on several third-party service providers, principally the Registrar, Custodian and Depositary. They are all subject to a risk-based programme of internal audits by
the Manager and their own internal controls reports are received by the Manager on behalf of the Board on an annual basis. The findings are presented to the Board and any concerns are investigated by the Manager. The third-party service providers have also
confirmed the implementation of appropriate measures to ensure business disruption is minimised.
6. Competition Risks and Marketplace Threats Impacting Business Growth
Trend (from previous year): Increased
Description and Impact Mitigation
· Threats facing the Company include external pressures affecting the Company’s ability to maintain and grow the business, and a loss of shareholders if the demand for investment trusts decline and the demand for passive funds and holistic/digital finance · The Board, the Company’s Broker and Manager closely monitor the peer group and industry activity, and an annual review of strategy is undertaken by the Board, to ensure that the Company continues to offer a relevant product to shareholders.
offerings continue to increase, particularly within the current market environment of increased M&A activity.
7. Level of Discount to Net Asset Value
Trend (from previous year): Increased
Description and Impact Mitigation
· Due to the nature of investment companies, the price of the Company’s shares and its discount to NAV are factors which are not completely within the Company’s control. · In considering the risk that the discount to NAV poses to shareholder value and returns, both the absolute level of the discount and the amount relative to the Company’s peer group and the wider market are considered. · The Board reviews the investment strategy, investment performance and the marketing approach, given the influence of all these factors on the discount. · The Company’s share price, NAV and discount volatility are monitored daily by the Manager and the
Company’s Broker and considered by the Board on a regular basis. The demand for shares can be influenced through good performance and an active investor relations programme. · Repurchases of ordinary shares are made at the discretion of the Board, within
guidelines set by the Board, and considering prevailing market conditions.
8. Operational Risks
Trend (from previous year): Increased
Description and Impact Mitigation
· Operational risks include financial losses or reputational damage from inadequate internal processes, people and systems or from external parties and events. · Fidelity’s Operational Risk Management Framework is designed to pro-actively prevent, identify and manage operational risks inherent in most activities. · Fidelity uses robust systems and procedures dedicated to its operational processes. Its risk management structure is designed according to the FCA’s three lines of defence model.
9. Key Person Risk
Trend (from previous year): Decreased
Description and Impact Mitigation
· Loss of the Portfolio Manager, Co-Portfolio Manager or other key individuals could lead to potential performance and/or operational issues. · The Portfolio Manager, Nitin Bajaj, has a differentiated style in relation to his peers. This style is intrinsically linked with the Company’s investment philosophy and strategy and, therefore, the Company has a key person dependency on him. · There is also a risk that the Manager has inadequate succession plans for other key operational individuals. · The Company has a Co-Portfolio Manager, Ajinkya Dhavale, who supports the Portfolio Manager, and has extensive experience in the Asian markets and companies and shares a common investment approach and complementary investment experience with the
Portfolio Manager. The Portfolio Manager is also supported by an Investment Director, Himalee Bahl, as a primary spokesperson for the Company. This helps strengthen the investment process. · The Manager identifies key dependencies which are then addressed
through succession plans, particularly for portfolio managers.
10. Environmental, Social and Governance (“ESG”) Risks
Trend (from previous year): Decreased
Description and Impact Mitigation
· Investor expectations and/or regulatory requirements related to ESG factors of the underlying investee companies and the portfolio are not perceived to be met. · Whilst the Company is not labelled as an ESG product, reputational damage to the Company may arise from perception in the marketplace. · Whilst the investment portfolio does not target or employ any set limit on ESG investments, the Portfolio Managers are expected to engage with companies where sustainability issues arise. · Fidelity carries out ESG considerations at the fundamental
research level. · The Portfolio Managers and analysts carry out additional quantitative and qualitative analysis of potential investments to form a view on ESG characteristics of every investee company. · The Manager has developed an ESG investment risk
oversight framework to reinforce its Investment Risk Policy to set minimum controls.
EMERGING RISKS
The Audit Committee continues to identify any new emerging risks and take any
action necessary to mitigate their potential impact. The risks identified are
placed on the Company’s risk matrix and appropriately graded. This process,
together with the policies and procedures for the mitigation of existing and
emerging risks, is updated and reviewed regularly in the form of comprehensive
reports by the Audit Committee. The Board determines the nature and extent of
any risks it is willing to take to achieve its strategic objectives.
Climate change, which refers to a large scale shift in the planet’s weather
patterns and average temperatures, continues to be a key emerging issue as
well as a principal risk confronting asset managers and their investors.
Globally, climate change effects are already being experienced in the form of
changing weather patterns. Extreme weather events can potentially impact the
operations of investee companies, their supply chains and their customers. The
Board notes that the Manager has integrated ESG considerations, including
climate change, into the Company’s investment process. The Board will
continue to monitor how this may impact the Company as a risk to investment
valuations and potentially to shareholder returns. The Board, together with
the Manager, is also monitoring the emerging risk posted by the rapid
advancement of artificial intelligence (AI) and technology and how it may
threaten the Company’s activities and its potential impact on the portfolio
and investee companies. Although advances in computing power mean that AI is a
powerful tool that will impact society, there are risks from its increasing
use and manipulation with the potential to harm, including a heightened threat
to cybersecurity.
EMERGING RISKS – MANAGER’S ROLE
The Manager also has responsibility for risk management for the Company. It
works with the Board to identify and manage the principal risks and emerging
risks and uncertainties to ensure that the Board can continue to meet its UK
corporate governance obligations.
ANNUAL REVIEW OF FULL RISK REGISTER
The Company has a full risk register which includes less material risks which
the Board reviews at least annually.
GOING CONCERN STATEMENT
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 and its expenditure and cash flow
projections. The Directors, having considered the liquidity of the Company’s
portfolio of investments (being mainly securities which are readily
realisable) and the projected income and expenditure, are satisfied that the
Company is financially sound and has adequate resources to meet all of its
liabilities and ongoing expenses and continue in operational existence for the
foreseeable future. The Board has, therefore, concluded that the Company has
adequate resources to continue to adopt the going concern basis for the period
to 31 October 2025 which is at least twelve months from the date of approval
of the Financial Statements. This conclusion also takes into account the
Board’s assessment of the ongoing risks from significant geopolitical and
market events.
Accordingly, the Financial Statements of the Company have been prepared on a
going concern basis.
The prospects of the Company over a period longer than twelve months can be
found in the Viability Statement below.
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 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 above. The
Company is an investment trust with the objective of achieving long-term
capital growth. The Board considers long-term to be at least five years, and
accordingly, the Directors believe that 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.
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 Company’s level of gearing;
· The Company’s NAV and share price performance versus its Comparative
Index;
· The principal and emerging risks and uncertainties facing the Company and
their potential impact as set out above;
· The Company’s continuation vote;
· 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 Board regularly reviews the investment policy and considers that it
remains appropriate, subject to a proposed change to the non-Asian investment
limit outlined in the Notice of AGM.
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 Investment Manager’s compliance with the Company’s investment
objective and policy, its investment strategy and asset allocation;
· The Company’s 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
considered to be reasonable in comparison to the Company’s total assets.
In preparing the Financial Statements, the Directors have considered the
impact of climate change, as detailed above and below. The Board has also
considered the impact of regulatory changes, ongoing geopolitical tensions,
and how these may affect the Company.
In addition, the Directors’ assessment of the Company’s ability to operate
in the foreseeable future is included in the Going Concern Statement above.
A continuation vote takes place every five years. There is a risk that
shareholders do not vote in favour of the continuation of the Company during
periods when performance of the Company’s NAV and share price is poor. The
last continuation vote was at the Company’s AGM held on 3 December 2021. The
next continuation vote will take place at the AGM in 2026.
PROMOTING THE SUCCESS OF THE COMPANY
Under Section 172(1) of the Companies Act 2006, the Directors of a company
must act in a way they consider, in good faith, would be most likely to
promote the success of the Company for the benefit of its members as a whole,
and in doing so have regard (amongst other matters) to the likely consequences
of any decision in the long term; the need to foster relationships with the
Company’s suppliers, customers and others; the impact of the Company’s
operations on the community and the environment; the desirability of the
Company maintaining a reputation for high standards of business conduct; and
the need to act fairly as between members of the Company.
As an externally managed investment trust, the Company has no employees or
physical assets, and a number of the Company’s functions are outsourced to
third parties. The key outsourced function is the provision of investment
management services by the Manager, but other professional service providers
support the Company by providing administration, custodial, banking and audit
services. The Board considers the Company’s key stakeholders to be the
existing and potential shareholders, the external appointed Manager and other
third-party professional service providers. The Board considers that the
interest of these stakeholders is aligned with the Company’s objective of
delivering long-term capital growth to investors, in line with the Company’s
stated investment objective and strategy, while providing the highest
standards of legal, regulatory and commercial conduct.
The Board, with the Portfolio Managers, sets the overall investment strategy
and reviews this at an annual strategy day which is separate from the regular
cycle of board meetings. In order to ensure good governance of the Company,
the Board has set various limits on the investments in the portfolio, whether
in the maximum size of individual holdings, the use of derivatives, the level
of gearing and others. These limits and guidelines are regularly monitored and
reviewed. The Board receives regular reports from the Company’s Broker which
covers market activity, and how the Company compares with its peers.
The Board places great importance on communication with shareholders. The
Annual General Meeting (“AGM”) provides the key forum for the Board and
the Portfolio Managers to present to the shareholders on the Company’s
performance and future plans and the Board encourages all shareholders to
attend either in person or virtually and raise any questions or concerns. The
Chairman and other Board members are available to meet shareholders as
appropriate. Shareholders may also communicate with Board members at any time
by writing to them at the Company’s registered office at FIL Investments
International, Beech Gate, Millfield Lane, Tadworth, Surrey KT20 6RP or via
the Company Secretary in writing at the same address or by email at
investmenttrusts@fil.com. The Portfolio Managers meet with major shareholders,
potential investors, stock market analysts, journalists and other commentators
during the year. These communication opportunities help inform the Board in
considering how best to promote the success of the Company over the long term.
The Board seeks to engage with the Manager and other service providers and
advisers in a constructive and collaborative way, promoting a culture of
strong governance, while encouraging open and constructive debate, in order to
ensure appropriate and regular challenge and evaluation. This aims to enhance
service levels and strengthen relationships with service providers, with a
view to ensuring shareholders’ interests are best served, by maintaining the
highest standards of commercial conduct while keeping cost levels competitive.
Whilst the Company’s direct operations are limited, the Board recognises the
importance of considering the impact of the Company’s investment strategy on
the wider community and environment. The Board believes that a proper
consideration of ESG issues aligns with the investment objective to deliver
long-term capital growth, and the Board’s review of the Manager includes an
assessment of their ESG approach.
In addition to ensuring that the Company’s investment objective was being
pursued, key decisions and actions taken by the Directors during the reporting
year, and up to the date of this report, have included:
· As part of the Board’s succession plans, the appointment of Lucy Costa
Duarte to the Board as non-executive Director with effect from 1 June 2024;
· Authorising the repurchase of 768,780 ordinary shares up to the date of
this Annual Report in line with the Board’s discount management policy; and
· The decision to recommend the payment of a final dividend of 14.5 pence
per ordinary share.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial period. Under that law they have elected to prepare the Financial
Statements in accordance with UK Generally Accepted Accounting Practice (UK
Accounting Standards and applicable law), including Financial Reporting
Standard FRS 102: The Financial Reporting Standard applicable in the UK and
Republic of Ireland (“FRS 102”). Under company law, the Directors must not
approve the Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of the profit or
loss for the reporting period.
In preparing these Financial Statements, the Directors are required to:
· Select suitable accounting policies in accordance with Section 10 of FRS
102 and then apply them consistently;
· Make judgements and accounting estimates that are reasonable and prudent;
· Present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· State whether applicable UK Accounting Standards, including FRS 102, 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 presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time, the financial position of the Company and to
enable them to ensure that the Company and 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 to the Manager the 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/asianvalues. 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 own jurisdictions.
The Directors confirm that to the best of their knowledge:
· The Financial Statements, prepared in accordance with UK Generally
Accepted Accounting Practice, including FRS 102, give a true and fair view of
the assets, liabilities, financial position and profit of the Company;
· The Annual Report, including the Strategic 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; and
· 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.
The Statement of Directors’ Responsibilities was approved by the Board on 10
October 2024 and signed on its behalf by:
CLARE BRADY
Chairman
FINANCIAL STATEMENTS
Income Statement for the year ended 31 July 2024
Year ended 31 July 2024 Year ended 31 July 2023
Notes Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Gains on investments 10 – 10,399 10,399 – 29,025 29,025
(Losses)/gains on derivative instruments 11 – (5,073) (5,073) – 1,781 1,781
Income 3 17,605 – 17,605 17,773 – 17,773
Investment management fees 4 (2,749) (744) (3,493) (2,644) (281) (2,925)
Other expenses 5 (992) – (992) (988) – (988)
Foreign exchange gains – 107 107 – 1,089 1,089
--------------- --------------- --------------- --------------- --------------- ---------------
Net return on ordinary activities before finance costs and taxation 13,864 4,689 18,553 14,141 31,614 45,755
Finance costs 6 (2,473) – (2,473) (1,997) – (1,997)
--------------- --------------- --------------- --------------- --------------- ---------------
Net return on ordinary activities before taxation 11,391 4,689 16,080 12,144 31,614 43,758
Taxation on return on ordinary activities 7 (1,203) (3,215) (4,418) (1,238) (2,882) (4,120)
--------------- --------------- --------------- --------------- --------------- ---------------
Net return on ordinary activities after taxation for the year 10,188 1,474 11,662 10,906 28,732 39,638
========= ========= ========= ========= ========= =========
Return per ordinary share 8 14.24p 2.06p 16.30p 15.17p 39.95p 55.12p
========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly, the net
return on ordinary activities after taxation for the year is also the total
comprehensive income for the year and no separate Statement of Comprehensive
Income has been presented.
The total column of this statement represents the Income Statement of the
Company. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
No operations were acquired or discontinued in the year and all items in the
above statement derive from continuing operations.
The Notes below form an integral part of these Financial Statements.
Statement of Changes in Equity for the year ended 31 July 2024
“ Share Share Capital Other non- Capital Revenue Total
capital premium redemption distributable reserve reserve shareholders’
£’000 account reserve reserve £’000 £’000 funds
Notes £’000 £’000 £’000 £’000
Total shareholders’ funds at 31 July 2023 18,895 50,501 3,197 7,367 299,562 15,055 394,577
Net return on ordinary activities after taxation for the year – – – – 1,474 10,188 11,662
Repurchase of ordinary shares 14 – – – – (3,826) – (3,826)
Dividend paid to shareholders 9 – – – – – (10,399) (10,399)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 31 July 2024 18,895 50,501 3,197 7,367 297,210 14,844 392,014
========= ========= ========= ========= ========= ========= =========
Total shareholders’ funds at 31 July 2022 18,895 50,501 3,197 7,367 273,448 14,215 367,623
Net return on ordinary activities after taxation for the year – – – – 28,732 10,906 39,638
Repurchase of ordinary shares 14 – – – – (2,618) – (2,618)
Dividend paid to shareholders 9 – – – – – (10,066) (10,066)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 31 July 2023 18,895 50,501 3,197 7,367 299,562 15,055 394,577
========= ========= ========= ========= ========= ========= =========
The Notes below form an integral part of these Financial Statements.
Balance Sheet as at 31 July 2024
Company number 03183919
Notes 2024 2023
£’000 £’000
Fixed assets
Investments 10 378,577 377,631
Current assets
Derivative instruments 11 1,297 1,758
Debtors 12 4,379 3,556
Amounts held at futures clearing houses and brokers 4,413 3,820
Cash at bank 9,070 13,029
--------------- ---------------
19,159 22,163
========= =========
Current liabilities
Derivative instruments 11 (2,045) (1,665)
Other creditors 13 (3,242) (3,552)
Bank overdrafts (435) –
--------------- ---------------
(5,722) (5,217)
========= =========
Net current assets 13,437 16,946
========= =========
Net assets 392,014 394,577
========= =========
Capital and reserves
Share capital 14 18,895 18,895
Share premium account 15 50,501 50,501
Capital redemption reserve 15 3,197 3,197
Other non-distributable reserve 15 7,367 7,367
Capital reserve 15 297,210 299,562
Revenue reserve 15 14,844 15,055
--------------- ---------------
Total shareholders’ funds 392,014 394,577
========= =========
Net asset value per ordinary share 16 551.66p 549.33p
========= =========
The Financial Statements above and below were approved by the Board of
Directors on 10 October 2024 and were signed on its behalf by:
Clare Brady
Chairman
The Notes below 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 prepared its Financial Statements in accordance with UK
Generally Accepted Accounting Practice (“UK GAAP”), including FRS 102
“The Financial Reporting Standard applicable in the UK and Republic of
Ireland”, issued by the Financial Reporting Council (“FRC”). The
Financial Statements have also been prepared in accordance 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 July 2022. 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.
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. The
Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence up to 31 October 2025 which is
at least twelve months from the date of approval of these Financial
Statements. In making their assessment the Directors have reviewed income and
expense projections, reviewed the liquidity of the investment portfolio and
considered the Company’s ability to meet liabilities as they fall due. This
conclusion also takes into account the Director’s assessment of the risks
faced by the Company as detailed in the Going Concern Statement above.
In preparing these Financial Statements the Directors have considered the
impact of climate change risk as a principal and an emerging risk as set out
above, and have concluded that there was no further impact of climate change
to be taken into account as the investments are valued based on market
pricing. In line with FRS 102, investments are valued at fair value, which for
the Company are quoted bid prices for investments in active markets at the
balance sheet date. Investments which are unlisted are priced using
market-based valuation approaches. All investments therefore reflect the
market participants view of climate change risk on the investments held by the
Company.
The Company’s Going Concern Statement in the Strategic Report above takes
account of all events and conditions up to 31 October 2025, which is at least
twelve months from the date of approval of these Financial Statements.
b) Significant accounting estimates and judgements – The preparation of the
Financial Statements requires the use of estimates and judgements. These
estimates and judgements affect the reported amounts of assets and liabilities
at the reporting date. While estimates are based on best judgement using
information and financial data available, the actual outcome may differ from
these estimates.
The key sources of estimation and uncertainty relate to the fair value of the
unlisted investments.
Judgements
The Directors consider whether each fair value is appropriate following
detailed review and challenge of the pricing methodology. The judgement
applied in the selection of the methodology used (see Note 2 (k)) for
determining the fair value of each unlisted investment can have a significant
impact upon the valuation.
Estimates
The key estimate in the Financial Statements is the determination of the fair
value of the unlisted investments by the Manager’s Fair Value Committee
(“FVC”), with support from the external valuer and Fidelity’s unlisted
investments specialists, for detailed review and appropriate challenge by the
Directors. This estimate is key as it significantly impacts the valuation of
the unlisted investments at the Balance Sheet date. When no recent primary or
secondary transaction in the company’s shares have taken place, the fair
valuation process involves estimation using subjective inputs that are
unobservable (for which market data is unavailable). The estimates involved in
the valuation process may include the following:
(i) the selection of appropriate comparable companies. Comparable companies
are chosen on the basis of their business characteristics and growth patterns;
(ii) the selection of a revenue metric (either historical or forecast);
(iii) the selection of an appropriate illiquidity discount factor to reflect
the reduced liquidity of unlisted companies versus their listed peers;
(iv) the estimation of the likelihood of a future exit of the position
through an initial public offering (“IPO”) or a company sale;
(v) the selection of an appropriate industry benchmark index to assist with
the valuation; and
(vi) the calculation of valuation adjustments derived from milestone analysis
and future cash flows (i.e. incorporating operational success against the
plans/forecasts of the business into the valuation).
As the valuation outcomes may differ from the fair value estimates a price
sensitivity analysis is provided in the Other Price Risk Sensitivity in Note
17, to illustrate the effect on the Financial Statements of an over or under
estimation of fair value.
The risk of an over or under estimation of fair value is greater when
methodologies are applied using more subjective inputs.
c) Segmental reporting – The Company is engaged in a single segment business
and, therefore, no segmental reporting is provided.
d) Presentation of the Income Statement – In order to reflect better the
activities of an investment company and in accordance with guidance issued by
the AIC, supplementary information which analyses the Income Statement between
items of a revenue and capital nature has been prepared alongside the Income
Statement. The net revenue return after taxation for the year is the measure
the Directors believe appropriate in assessing the Company’s compliance with
certain requirements set out in Section 1159 of the Corporation Tax Act 2010.
e) Income – Income from equity investments is accounted for on the date on
which the right to receive the payment is established, normally the
ex-dividend date. Overseas dividends are accounted for gross of any tax
deducted at source. Amounts are credited to the revenue column of the Income
Statement. Where the Company has elected to receive its dividends in the form
of additional shares rather than cash, the amount of the cash dividend
foregone is recognised in the revenue column of the Income Statement. Any
excess in the value of the shares received over the amount of the cash
dividend is recognised in the capital column of the Income Statement. Special
dividends are treated as a revenue receipt or a capital receipt depending on
the facts and circumstances of each particular case.
Derivative instrument income received from dividends on long contracts for
difference (“CFDs”) are accounted for on the date on which the right to
receive the payment is established, normally the ex-dividend date. The amount
net of tax is credited to the revenue column of the Income Statement.
Interest received on CFDs, collateral and bank deposits are accounted for on
an accruals basis and credited to the revenue column of the Income Statement.
Interest received on CFDs represent the finance costs calculated by reference
to the notional value of the CFDs.
f) Investment management fees and other expenses – Investment management
fees and other expenses are accounted for on an accruals basis and are charged
as follows:
· The base investment management fee is allocated in full to revenue;
· The variable investment management fee, is charged/credited to capital as
it is based on the performance of the net asset value per share relative to
the Benchmark Index; and
· All other expenses are allocated in full to revenue with the exception of
those directly attributable to share issues or other capital events.
g) Functional currency and foreign exchange – The functional and reporting
currency of the Company is UK sterling, which is the currency of the primary
economic environment in which the Company operates. Transactions denominated
in foreign currencies are reported in UK sterling at the rate of exchange
ruling at the date of the transaction. Assets and liabilities in foreign
currencies are translated in the rates of exchange ruling at the Balance Sheet
date. Foreign exchange gains and losses arising on the translation are
recognised in the Income Statement as a revenue or a capital item depending on
the nature of the underlying item to which they relate.
h) Finance costs – Finance costs comprise interest on bank overdrafts and
finance costs paid on CFDs, which are accounted for on an accruals basis, 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.
i) Taxation – The taxation charge represents the sum of current taxation and
deferred taxation.
Current taxation is taxation suffered at source on overseas income less
amounts recoverable under taxation treaties. Taxation is charged or credited
to the revenue column of the Income Statement, except where it relates to
items of a capital nature, in which case it is charged or credited to the
capital column of the Income Statement. 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.
Deferred taxation is the taxation expected to be payable or recoverable on
timing differences between the treatment of certain items for accounting
purposes and their treatment for the purposes of computing taxable profits.
Deferred taxation is based on tax rates that have been enacted or
substantively enacted when the taxation is expected to be payable or
recoverable. Deferred tax assets are only recognised if it is considered more
likely than not that there will be sufficient future taxable profits to
utilise them.
j) Dividend paid – Dividends payable to equity shareholders are recognised
when the Company’s obligation to make payment is established.
k) Investments – The Company’s business is investing in financial
instruments with a view to profiting from their total return in the form of
income and long-term capital growth. This portfolio of investments is managed
and its performance evaluated on a fair value basis, in accordance with a
documented investment strategy, and information about the portfolio is
provided on that basis to the Company’s Board of Directors. Investments are
measured at fair value with changes in fair value recognised in profit or
loss, in accordance with the provisions of both Section 11 and Section 12 of
FRS 102. The fair value of investments is initially taken to be their cost and
is subsequently measured as follows:
· Listed investments are valued at bid prices, or last market prices,
depending on the convention of the exchange on which they are listed; and
· Unlisted investments are not quoted, or are not frequently traded, and are
stated at the best estimate of fair value. The Manager’s Fair Value
Committee (“FVC”), which is independent of the Portfolio Managers’ team,
meets quarterly to determine the fair value of unlisted investments. These are
based on the principles outlined in Note 2 (b).
The unlisted investments are valued at fair value following a detailed review
and appropriate challenge by the Directors of the pricing methodology proposed
by the FVC.
The FVC provide a recommendation of fair values to the Directors based on
recognised valuation techniques that take account of the cost of the
investment, recent arm’s length transactions in the same or similar
investments and financial performance of the investment since purchase.
Consideration is given to the input received from the Fidelity International
analyst that covers the company, the external valuer and Fidelity’s unlisted
investments specialist.
In accordance with the AIC SORP, the Company includes transaction costs,
incidental to the purchase or sale of investments, within gains on investments
in the capital column of the Income Statement and has disclosed these costs in
Note 10.
l) Derivative instruments – When appropriate, permitted transactions in
derivative instruments are used. Derivative transactions into which the
Company may enter include long and short CFDs, futures, options and forward
currency contracts. Derivatives are classified as other financial instruments
and are initially accounted and measured at fair value on the date the
derivative contract is entered into and subsequently measured at fair value as
follows:
· Long and short CFDs – the difference between the strike price and the
value of the underlying shares in the contract;
· Futures – the difference between the contract price and the quoted trade
price;
· Forward currency contracts – valued at the appropriate quoted forward
foreign exchange rate ruling at the Balance Sheet date; and
· Options – the quoted trade price for the contract.
Where transactions are used to protect or enhance income, if the circumstances
support this, the income and expenses derived are included in net income in
the revenue column of the Income Statement. Where such transactions are used
to protect or enhance capital, if the circumstances support this, the income
and expenses derived are included 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 on the Balance Sheet at their fair value
within current assets or current liabilities.
m) Debtors – Debtors include securities sold for future settlement, amounts
receivable on the settlement of derivatives, accrued income, taxation
recoverable and other debtors and prepayments incurred in the ordinary course
of business. If collection is expected in one year or less (or in the normal
operating cycle of the business, if longer) they are classified as current
assets. If not, they are presented as non-current assets. They are recognised
initially at fair value and, where applicable, subsequently measured at
amortised cost using the effective interest rate method.
n) Amounts held at futures clearing houses and brokers – These are amounts
held in segregated accounts as collateral on behalf of brokers and are carried
at amortised cost.
o) Other creditors – Other creditors include securities purchased for future
settlement, Indian capital gains tax payable, short CFD dividends payable,
investment management fees, secretarial and administration fees and other
creditors and expenses accrued in the ordinary course of business. If payment
is due within one year or less (or in the normal operating cycle of the
business, if longer) they are classified as current liabilities. If not, they
are presented as non-current liabilities. They are recognised initially at
fair value and, where applicable, subsequently measured at amortised cost
using the effective interest rate method.
p) Capital reserve – The following are accounted for in the capital reserve:
· Gains and losses on the disposal of investments and derivative
instruments;
· Changes in the fair value of investments and derivative instruments held
at the year end;
· Foreign exchange gains and losses of a capital nature;
· Variable element of management fee;
· Dividends receivable which are capital in nature;
· Other expenses which are capital in nature; and
· Taxation charged or credited relating to items which are capital in
nature.
Technical guidance issued by the Institute of Chartered Accountants in England
and Wales in TECH 02/17BL, guidance on the determination of realised profits
and losses in the context of distributions under the Companies Act 2006,
states that changes in the fair value of investments which are readily
convertible to cash, without accepting adverse terms at the Balance Sheet
date, can be treated as realised. Capital reserves realised and unrealised are
shown in aggregate as capital reserve in the Statement of Changes in Equity
and the Balance Sheet. At the Balance Sheet date, the portfolio of the Company
consisted of investments listed on a recognised stock exchange and derivative
instruments contracted with counterparties having an adequate credit rating,
and the portfolio was considered to be readily convertible to cash, with the
exception of the level 3 investments which had unrealised investment holding
losses of £1,088,000 (2023: losses of £899,000). See Note 17 for further
details on the level 3 investments.
3 Income
Year ended Year ended
31.07.24 31.07.23
£’000 £’000
Investment income
Overseas dividends 14,009 14,847
Overseas scrip dividends 172 266
Interest on securities 584 164
--------------- ---------------
14,765 15,277
========= =========
Derivative income
Dividends received on long CFDs 1,797 1,743
Interest received on CFDs 462 258
--------------- ---------------
2,259 2,001
========= =========
Other interest
Interest received on collateral and bank deposits 581 495
--------------- ---------------
Total income 17,605 17,773
========= =========
Special dividends of £1,827,000 have been recognised in capital during the
year (2023: £420,000).
4 Investment Management Fees
Year ended 31 July 2024 Year ended 31 July 2023
Revenue Capital 1 Total Revenue Capital 1 Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fees 2,749 744 3,493 2,644 281 2,925
========= ========= ========= ========= ========= =========
1 For the calculation of the variable management fee, the Company’s NAV
return was compared to the Benchmark Index return on a rolling three year
basis.
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.
The Company charges base investment management fees to revenue at an annual
rate of 0.70% of net assets. In addition, there is +/-0.20% variation fee
based on the Company’s NAV per ordinary share performance relative to the
Company’s Benchmark Index which is charged/credited to capital. Fees are
payable monthly in arrears and are calculated on a daily basis.
5 Other Expenses
Year ended Year ended
31.07.24 31.07.23
£’000 £’000
Allocated to revenue:
AIC fees 21 21
Custody fees 73 85
Depositary fees 31 30
Directors’ expenses 54 35
Directors’ fees 1 189 193
Legal and professional fees 189 161
Marketing expenses 172 195
Printing and publication expenses 73 86
Registrars’ fees 44 38
Secretarial and administration fees payable to the Investment Manager 75 75
Sundry other expenses 20 21
Fees payable to the Company's Independent Auditor for the audit of the Financial Statements 51 48
--------------- ---------------
992 988
========= =========
1 Details of the breakdown of Directors’ fees are disclosed in the
Directors’ Remuneration Report.
6 Finance Costs
Year ended Year ended
31.07.24 31.07.23
£’000 £’000
Interest on bank overdrafts 1 2
Interest paid on CFDs 2,147 1,788
Dividends paid on short CFDs 325 207
--------------- ---------------
2,473 1,997
========= =========
7 Taxation on Return on Ordinary Activities
Year ended 31 July 2024 Year ended 31 July 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
a) Analysis of the taxation charge for the year
Overseas taxation 1,203 – 1,203 1,238 – 1,238
Indian capital gains tax – 3,215 3,215 – 2,882 2,882
--------------- --------------- --------------- --------------- --------------- ---------------
Taxation charge for the year (see Note 7b) 1,203 3,215 4,418 1,238 2,882 4,120
========= ========= ========= ========= ========= =========
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 25.00% (2023: 25.00%). A
reconciliation of the standard rate of UK corporation tax to the taxation
charge for the year is shown below:
Year ended 31 July 2024 Year ended 31 July 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return on ordinary activities before taxation 11,391 4,689 16,080 12,144 31,614 43,758
Net return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 25.00% (2023: blended rate of 21.01%) 2,848 1,172 4,020 2,551 6,642 9,193
Effects of:
Capital gains not taxable 1 – (1,358) (1,358) – (6,701) (6,701)
Income not taxable (3,464) – (3,464) (3,137) – (3,137)
Excess management expenses 620 186 806 586 59 645
Expense relief for overseas taxation (4) – (4) – – –
Overseas taxation 1,203 – 1,203 1,238 – 1,238
Indian capital gains tax 2 – 3,215 3,215 – 2,882 2,882
--------------- --------------- --------------- --------------- --------------- ---------------
Taxation charge for the year (see Note 7a) 1,203 3,215 4,418 1,238 2,882 4,120
========= ========= ========= ========= ========= =========
1 The Company is exempt from UK corporation tax 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.
2 The Indian capital gains tax charge is composed of £1,081,000 (2023:
£527,000) paid in the period and £2,134,000 (2023: £2,355,000) deferred
until such time as the Indian investments are sold.
c) Deferred taxation
A deferred tax asset of £9,432,000 (2023: £8,626,000), in respect of excess
management expenses of £35,457,000 (2023: £32,235,000) and excess interest
paid of £2,271,000 (2023: £2,271,000), has not been recognised as it is
unlikely that there will be sufficient future taxable profits to utilise these
expenses.
The UK corporation tax rate increased from 19% to 25% from 1 April 2023. The
rate of 25% has been applied to calculate the unrecognised deferred tax asset
for the current year (2023: 25.00%).
8 Return per Ordinary Share
Year ended Year ended
31.07.24 31.07.23
Revenue return per ordinary share 14.24p 15.17p
Capital return per ordinary share 2.06p 39.95p
--------------- ---------------
Total return per ordinary share 16.30p 55.12p
========= =========
The return per ordinary share is based on the net return on ordinary
activities after taxation for the year divided by the weighted average number
of ordinary shares in issue during the year, as shown below:
£’000 £’000
Net revenue return on ordinary activities after taxation 10,188 10,906
Net capital return on ordinary activities after taxation 1,474 28,732
--------------- ---------------
Net total return on ordinary activities after taxation 11,662 39,638
========= =========
Number Number
Weighted average number of ordinary shares held outside of Treasury 71,551,097 71,912,335
========= =========
9 Dividends Paid to Shareholders
Year ended Year ended
31.07.24 31.07.23
£’000 £’000
Dividend paid
Dividend of 14.5 pence per ordinary share paid for the year ended 31 July 2023 10,399 –
Dividend of 14.0 pence per ordinary share paid for the year ended 31 July 2022 – 10,066
--------------- ---------------
10,399 10,066
========= =========
Dividend proposed
Dividend proposed of 14.5 pence per ordinary share for the year ended 31 July 2024 10,204 –
Dividend proposed of 14.5 pence per ordinary share for the year ended 31 July 2023 – 10,415
--------------- ---------------
10,204 10,415
========= =========
The Directors have proposed the payment of a dividend for the year ended 31
July 2024 of 14.5 pence per ordinary share which is subject to approval by
shareholders at the Annual General Meeting on 21 November 2024 and has not
been included as a liability in these Financial Statements. If approved, the
dividend will be paid on 6 December 2024 to shareholders on the register at
the close of business on 8 November 2024 (ex-dividend date 7 November 2024).
10 Investments at Fair Value through Profit or Loss
2024 2023
£’000 £’000
Listed investments 378,517 376,751
Unlisted investments 60 880
--------------- ---------------
Investments at fair value 378,577 377,631
========= =========
Opening book cost 374,514 336,727
Opening investment holding gains 3,117 2,118
--------------- ---------------
Opening fair value 377,631 338,845
========= =========
Movements in the year
Purchases at cost 217,080 209,419
Sales – proceeds (226,533) (199,658)
Gains on investments 10,399 29,025
--------------- ---------------
Closing fair value 378,577 377,631
========= =========
Closing book cost 406,135 374,514
Closing investment holding (losses)/gains (27,558) 3,117
--------------- ---------------
Closing fair value 378,577 377,631
========= =========
The Company received £226,533,000 (2023: £199,658,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£185,459,000 (2023: £171,632,000). These investments have been revalued over
time and until they were sold any unrealised gains/losses were included in the
fair value of the investments.
Investment transaction costs
Transaction costs incurred in the acquisition and disposal of investments,
which are included in the gains on the investments above, were as follows:
Year ended Year ended
31.07.24 31.07.23
£’000 £’000
Purchases transaction costs 249 311
Sales transaction costs 410 416
--------------- ---------------
659 727
========= =========
11 Derivative Instruments
Year ended Year ended
31.07.24 31.07.23
£’000 £’000
(Losses)/gains on derivative instruments
Realised (losses)/gains on long CFD positions closed (6,842) 393
Realised gains/(losses) on short CFD positions closed 2,417 (876)
Realised losses on futures contracts closed (62) (109)
Realised gains on options contracts closed 1,136 951
Realised gains on forward currency contracts – 118
Movement in investment holding (losses)/gains on long CFDs (2,113) 1,016
Movement in investment holding gains/(losses) on short CFDs 909 (261)
Movement in investment holding (losses)/gains on futures (162) 270
Movement in investment holding (losses)/gains on options (356) 233
Movement in investment holding gains on forward currency contracts – 46
--------------- ---------------
(5,073) 1,781
========= =========
2024 2023
Fair value Fair value
£’000 £’000
Derivative instruments recognised on the Balance Sheet
Derivative instrument assets 1,297 1,758
Derivative instrument liabilities (2,045) (1,665)
--------------- ---------------
(748) 93
========= =========
2024 2023
Fair value Asset Fair value Asset
£’000 exposure £’000 exposure
£’000 £’000
At the year end the Company held the following derivative instruments:
Long CFDs (1,315) 48,144 798 44,089
Long future – – 172 4,061
Call options (long exposure) 208 2,805 – –
Put options – – (156) 1,466
Short CFDs 373 12,995 (536) 10,586
Short future – – (10) 1,292
Call options (short exposure) (14) 374 (175) 1,705
--------------- --------------- --------------- ---------------
(748) 64,318 93 63,199
========= ========= ========= =========
12 Debtors
2024 2023
£’000 £’000
Securities sold for future settlement 2,733 1,366
Amounts receivable on settlement of derivatives 66 162
Accrued income 1,162 1,572
Taxation recoverable 302 315
Other debtors and prepayments 116 141
--------------- ---------------
4,379 3,556
========= =========
13 Other Creditors
2024 2023
£’000 £’000
Securities purchased for future settlement 201 598
Indian capital gains tax payable 2,134 2,355
Amounts payable on short CFD dividends 214 –
Creditors and accruals 693 599
--------------- ---------------
3,242 3,552
========= =========
14 Share Capital
2024 2023
Number of Nominal Number of Nominal
shares value shares value
£’000 £’000
Issued, allotted and fully paid
Ordinary shares of 25 pence each held outside of Treasury
Beginning of the year 71,829,336 17,958 72,398,336 18,100
Ordinary shares repurchased into Treasury (768,780) (192) (569,000) (142)
--------------- --------------- --------------- ---------------
End of the year 71,060,556 17,766 71,829,336 17,958
========= ========= ========= =========
Ordinary shares of 25 pence each held in Treasury 1
Beginning of the year 3,751,553 937 3,182,553 795
Ordinary shares repurchased into Treasury 768,780 192 569,000 142
--------------- --------------- --------------- ---------------
End of the year 4,520,333 1,129 3,751,553 937
========= ========= ========= =========
Total share capital 18,895 18,895
========= =========
1 Ordinary shares held in Treasury carry no rights to vote, to receive a
dividend or to participate in a winding up of the Company.
The cost of ordinary shares repurchased into Treasury during the year was
£3,826,000 (2023: £2,618,000).
15 Capital and Reserves
Share Share Capital Other non- Capital Revenue Total
capital premium redemption distributable reserve reserve shareholders’
£’000 account reserve reserve £’000 £’000 funds
£’000 £’000 £’000 £’000
At 1 August 2023 18,895 50,501 3,197 7,367 299,562 15,055 394,577
Gains on investments (see Note 10) – – – – 10,399 – 10,399
Losses on derivative instruments (see Note 11) – – – – (5,073) – (5,073)
Foreign exchange gains – – – – 107 – 107
Investment management fees (see Note 4) – – – – (744) – (744)
Indian capital gains tax (see Note 7) – – – – (3,215) – (3,215)
Revenue return on ordinary activities after taxation for the year – – – – – 10,188 10,188
Dividend paid to shareholders (see Note 9) – – – – – (10,399) (10,399)
Repurchase of ordinary shares (see Note 14) – – – – (3,826) – (3,826)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 July 2024 18,895 50,501 3,197 7,367 297,210 14,844 392,014
========= ========= ========= ========= ========= ========= =========
At 1 August 2022 18,895 50,501 3,197 7,367 273,448 14,215 367,623
Gains on investments (see Note 10) – – – – 29,025 – 29,025
Gains on derivative instruments (see Note 11) – – – – 1,781 – 1,781
Foreign exchange gains – – – – 1,089 – 1,089
Investment management fees (see Note 4) – – – – (281) – (281)
Indian capital gains tax (see Note 7) – – – – (2,882) – (2,882)
Revenue return on ordinary activities after taxation for the year – – – – – 10,906 10,906
Dividend paid to shareholders (see Note 9) – – – – – (10,066) (10,066)
Repurchase of ordinary shares (see Note 14) – – – – (2,618) – (2,618)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 July 2023 18,895 50,501 3,197 7,367 299,562 15,055 394,577
========= ========= ========= ========= ========= ========= =========
The capital reserve balance at 31 July 2024 includes investment holding losses
of £27,558,000 (2023: gains of £3,117,000) as detailed in Note 10. See Note
2 (p) for further details. The revenue and capital reserves are distributable
by way of dividend.
16 Net Asset Value per Ordinary Share
The calculation of the net asset per ordinary share is based on the total
shareholders’ funds divided by the number of ordinary shares held outside of
Treasury.
2024 2023
Total shareholders’ funds £392,014,000 £394,577,000
Ordinary shares held outside of Treasury at year end 71,060,556 71,829,336
Net asset value per ordinary share 551.66p 549.33p
=========== ===========
It is the Company’s policy that shares held in Treasury will only be
reissued at net asset value per ordinary share or at a premium to net asset
value per ordinary share and, therefore, shares held in Treasury have no
dilutive effect.
17 Financial Instruments
Management of risk
The Company’s investing activities in pursuit of its investment objective
involve certain inherent risks. The Board confirms that there is an ongoing
process for identifying, evaluating and managing the risks faced by the
Company. The Board with the assistance of the Manager, has developed a risk
matrix which, as part of the internal control process, identifies the risks
that the Company faces. Principal risks identified are economic, political and
market, investment performance (including the use of derivatives and gearing),
changes in legislation, taxation or regulation, cybercrime and information
security, business continuity and crisis management, competition and
marketplace threats impacting business growth, level of discount to NAV,
operational, key person and environmental, social and governance (“ESG”).
Risks are identified and graded in this process, together with steps taken in
mitigation, and are updated and reviewed on an ongoing basis. These risks and
how they are identified, evaluated and managed are shown in the Strategic
Report.
This Note refers to the identification, measurement and management of risks
potentially affecting the value of financial instruments. The Company’s
financial instruments may comprise:
· Equity shares (listed and unlisted), equity linked notes and corporate
bonds held in accordance with the Company’s investment objective and
policies;
· Derivative instruments which comprise CFDs, forward currency contracts,
futures and options on listed stocks and equity indices; and
· Cash, liquid resources and short-term debtors and creditors that arise
from its operations.
The risks identified arising from the Company’s financial instruments are
market price risk (which comprises interest rate risk, foreign currency risk
and other price risk), liquidity risk, counterparty risk, credit risk and
derivative instruments 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 principally finances its operations through its share capital and
reserves. In addition, the Company has gearing through the use of derivative
instruments. The level of gearing is reviewed by the Board and the Portfolio
Managers. The Company is exposed to a financial risk arising as a result of
any increases in interest rates associated with the funding of the derivative
instruments.
Interest rate risk exposure
The values of the Company’s financial instruments that are exposed to
movements in interest rates are shown below:
2024 2023
£’000 £’000
Exposure to financial instruments that bear interest
Long CFDs – exposure less fair value 49,459 43,291
Bank overdrafts 435 –
--------------- ---------------
49,894 43,291
========= =========
Exposure to financial instruments that earn interest
Short CFDs – exposure plus fair value 13,368 10,050
Cash at bank 9,070 13,029
Amounts held at futures clearing houses and brokers 4,413 3,820
--------------- ---------------
26,851 26,899
========= =========
Net exposure to financial instruments that bear interest (23,043) (16,392)
========= =========
Foreign currency risk
The Company’s net return on ordinary activities after taxation for the year
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. The Portfolio Managers may seek to manage exposure to currency
movements by using forward and spot foreign exchange contracts. The Company
can also be subject to short-term exposure to exchange rate movements, for
example, between the date when an investment is purchased or sold and the date
when settlement of the transaction occurs.
Three principal areas have been identified where foreign currency risk could
impact the Company:
· Movements in currency exchange rates affecting the value of investments
and derivative instruments;
· Movements in currency exchange rates affecting short-term timing
differences; and
· Movements in currency exchange rates affecting income received.
Currency exposure of financial assets
The currency exposure profile of the Company’s financial assets is shown
below:
2024
Currency Investments Long Debtors 2 Cash at Total
at fair value exposure to £’000 bank £’000
£’000 derivative £’000
instruments 1
£’000
Hong Kong dollar 85,219 42,392 648 – 128,259
Indian rupee 67,191 – 4,493 19 71,703
Indonesian rupiah 62,226 – – – 62,226
US dollar 41,115 3,358 2,307 8,851 55,631
South Korean won 51,091 – 14 89 51,194
Australian dollar 18,557 3,223 926 – 22,706
Singapore dollar 10,789 1,976 – – 12,765
Taiwan dollar 11,113 – 301 86 11,500
Chinese renminbi 9,900 – – – 9,900
Philippine peso 6,928 – 3 – 6,931
Thai baht 4,109 – – – 4,109
Sri Lankan rupee 3,959 – – – 3,959
Other overseas currencies 6,380 – – – 6,380
UK sterling – – 100 25 125
--------------- --------------- --------------- --------------- ---------------
378,577 50,949 8,792 9,070 447,388
========= ========= ========= ========= =========
1 The exposure to the market of long CFDs and call options.
2 Debtors include amounts held at futures clearing houses and brokers.
2023
Currency Investments Long Debtors 2 Cash at Total
at fair value exposure to £’000 bank £’000
£’000 derivative £’000
instruments 1
£’000
Hong Kong dollar 105,426 28,575 1,517 89 135,607
Indian rupee 82,090 – 3,260 1,351 86,701
US dollar 27,358 14,980 2,077 11,289 55,704
Indonesian rupiah 51,868 – – – 51,868
South Korean won 33,540 12 7 – 33,559
Australian dollar 19,017 3,303 – 213 22,533
Singapore dollar 12,934 2,746 – – 15,680
Taiwan dollar 14,861 – 377 – 15,238
Chinese renminbi 14,109 – – 87 14,196
Philippine peso 4,361 – – – 4,361
Malaysian ringgit 3,832 – – – 3,832
Sri Lankan rupee 3,423 – – – 3,423
Other overseas currencies 4,812 – 11 – 4,823
UK sterling – – 127 – 127
--------------- --------------- --------------- --------------- ---------------
377,631 49,616 7,376 13,029 447,652
========= ========= ========= ========= =========
1 The exposure to the market of long CFDs long futures and put options.
2 Debtors include amounts held at futures clearing houses and brokers.
Currency exposure of financial liabilities
The Company principally 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:
2024
Currency Short Other Bank Total
exposure to creditors overdrafts £’000
derivative £’000 £’000
instruments 1
£’000
US dollar 9,665 230 – 9,895
Hong Kong dollar 3,704 216 435 4,355
Indian rupee – 2,134 – 2,134
UK sterling – 630 – 630
Korean won – 31 – 31
Singapore dollar – 1 – 1
--------------- --------------- --------------- ---------------
13,369 3,242 435 17,046
========= ========= ========= =========
1 The exposure to the market of short CFDs and call options.
2023
Currency Short Other Bank Total
exposure to creditors overdrafts £’000
derivative £’000 £’000
instruments 1
£’000
US dollar 12,957 233 – 13,190
Indian rupee – 2,355 – 2,355
Hong Kong dollar 626 41 – 667
Korean won – 326 – 326
Indonesian rupiah – 64 – 64
Singapore dollar – 1 – 1
UK sterling – 532 – 532
--------------- --------------- --------------- ---------------
13,583 3,552 – 17,135
========= ========= ========= =========
1 The exposure to the market of short CFDs, short futures and call options.
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 Managers are responsible for actively monitoring the existing
portfolio selected in accordance with the overall asset allocation parameters
described above and seeks to ensure that individual stocks also meet an
acceptable risk/reward profile. Other price risks arising from derivative
positions, mainly due to the underlying exposures, are estimated using Value
at Risk and Stress Tests as set out in the Company’s internal Risk
Management Process Document.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in
meeting obligations associated with financial liabilities. The Company’s
assets mainly comprise readily realisable securities and derivative
instruments which can be sold easily to meet funding commitments if necessary.
Short-term flexibility, if required, is achieved by the use of a bank
overdraft.
Liquidity risk exposure
At 31 July 2024, the undiscounted gross cash outflows of the financial
liabilities were all repayable within one year and consisted of derivative
instrument liabilities of £2,045,000 (2023: £1,665,000), other creditors of
£3,242,000 (2023: £3,552,000) and bank overdrafts of £435,000 (2023:
£nil).
Counterparty risk
Certain 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
and Derivatives 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 Manager employs, the Manager will seek to
minimise such risk 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 and exchange traded 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 2024, £405,000 (2023: £793,000) was held by the brokers in cash
denominated in US dollars in a segregated collateral account on behalf of the
Company, to reduce the credit risk exposure of the Company. This collateral
comprised: HSBC Bank plc £288,000 (2023: £124,000), Goldman Sachs
International £117,000 (2023: £233,000) and J.P. Morgan Securities plc £nil
(2023: £436,000).
£4,413,000 (2023: £3,820,000), shown as amounts held at futures clearing
houses and brokers on the Balance Sheet, was held by the Company in a
segregated collateral account, on behalf of the brokers, to reduce the credit
risk exposure of the brokers. This collateral is comprised of: UBS AG
£3,019,000 (2023: £3,346,000) in cash, J.P. Morgan Securities plc
£1,394,000 (2023: £nil) in cash and Morgan Stanley & Co International plc
£nil (2023: £474,000) in cash.
Credit risk
Financial instruments may be adversely affected if any of the institutions
with which money is deposited suffer insolvency or other financial
difficulties. All transactions are carried out with brokers that have been
approved by the Manager and are settled on a delivery versus payment basis.
Limits are set on the amount that may be due from any one broker and are kept
under review by the Manager. Exposure to credit risk arises on unsettled
security transactions and derivative instrument contracts and cash at bank.
Derivative instruments risk
The risks and risk management processes which result from the use of
derivative instruments, are set out in a Risk Management Process Document.
Derivative instruments are used by the Manager for the following purposes:
· To gain unfunded long exposure to equity markets, sectors or single
stocks. Unfunded exposure is exposure gained without an initial flow of
capital;
· To hedge equity market risk using derivatives with the intention of at
least partially mitigating losses in the exposures of the Company’s
portfolio as a result of falls in the equity market; and
· To position short exposures in the Company’s portfolio. These uncovered
exposures benefit from falls in the prices of shares which the Portfolio
Managers believes to be over valued. These positions, therefore, distinguish
themselves from other short exposures held for hedging purposes since they are
expected to add risk to the portfolio.
RISK SENSITIVITY ANALYSIS
Interest rate risk sensitivity analysis
Based on the financial instruments held and interest rates at 31 July 2024, an
increase of 1.00% in interest rates throughout the year, with all other
variables held constant, would have decreased the net return on ordinary
activities after taxation for the year and decreased the net assets of the
Company by £230,000 (2023: decreased the net return and decreased the net
assets by £164,000). A decrease of 1.00% in interest rates throughout the
year would have had an equal but opposite effect.
Foreign currency risk sensitivity analysis
Based on the financial instruments held and currency exchange rates as at the
Balance Sheet date, with all other variables held constant, a 10%
strengthening of the UK sterling exchange rate against other currencies would
have decreased the Company’s net return on ordinary activities after
taxation for the year and decreased the net assets (2023: decreased the net
return and decreased the net assets) by the following amounts:
Currency 2024 2023
£’000 £’000
Hong Kong dollar 11,264 12,267
Indian rupee 6,324 7,668
Indonesian rupiah 5,657 4,709
South Korean won 4,651 3,021
US dollar 4,158 3,865
Australian dollar 2,064 2,048
Singapore dollar 1,160 1,425
Taiwan dollar 1,045 1,385
Chinese renminbi 900 1,291
Philippine peso 630 396
Thai baht 374 277
Sri Lankan rupee 360 311
Other overseas currencies 580 509
--------------- ---------------
39,167 39,172
=========== ===========
Based on the financial instruments held and currency exchange rates as at the
Balance Sheet date, with all other variables held constant, a 10% weakening of
the UK sterling exchange rate against other currencies would have increased
the Company’s net return on ordinary activities after taxation for the year
and increased the net assets (2023: increased the net return and increased the
net assets) by the following amounts:
Currency 2024 2023
£’000 £’000
Hong Kong dollar 13,767 14,993
Indian rupee 7,730 9,372
Indonesian rupiah 6,914 5,756
South Korean won 5,685 3,693
US dollar 5,082 4,724
Australian dollar 2,523 2,504
Singapore dollar 1,418 1,742
Taiwan dollar 1,278 1,693
Chinese renminbi 1,100 1,577
Philippine peso 770 485
Thai baht 457 338
Sri Lankan rupee 440 380
Other overseas currencies 709 623
--------------- ---------------
47,873 47,880
=========== ===========
Other price risk – exposure to investments sensitivity analysis
Based on the listed investments held and share prices at 31 July 2024, an
increase of 10% in share prices, with all other variables held constant, would
have increased the Company’s net return on ordinary activities after
taxation for the year and increased the net assets of the Company by
£37,852,000 (2023: increased the net return and increased the net assets by
£37,675,000). A decrease of 10% in share prices would have had an equal and
opposite effect.
An increase of 10% in the valuation of unlisted investments held at 31 July
2024 would have increased the Company’s net return on ordinary activities
after taxation for the year and increased the net assets of the Company by
£6,000 (2023: increased the net return and increased the net assets by
£88,000). A decrease of 10% in the valuation would have had an equal and
opposite effect.
Other price risk – net exposure to derivative instruments sensitivity
analysis
Based on the derivative instruments held and share prices at 31 July 2024, an
increase of 10% in the share prices underlying the derivative instruments,
with all other variables held constant, would have increased the Company’s
net return on ordinary activities after taxation for the year and increased
the net assets of the Company by £3,758,000 (2023: increased the net return
and increased the net assets by £3,603,000). A decrease of 10% in share
prices 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 Notes
2 (k) and (l), investments and derivative instruments are shown at fair value.
In the case of cash at bank, 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 inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly
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 2 (k) and (l). The table below sets out the Company’s fair value
hierarchy:
2024
Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments 358,503 19,028 1,046 378,577
Derivative instrument assets 131 1,166 – 1,297
------------------ ------------------ ------------------ ------------------
358,634 20,194 1,046 379,874
=========== =========== =========== ===========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (14) (2,031) – (2,045)
=========== =========== =========== ===========
2023
Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments 367,312 9,439 880 377,631
Derivative instrument assets 172 1,586 – 1,758
------------------ ------------------ ------------------ ------------------
367,484 11,025 880 379,389
=========== =========== =========== ===========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (341) (1,324) – (1,665)
=========== =========== =========== ===========
The table below sets out the movements in level 3 financial instruments during
the year:
Year ended Year ended
31.07.24 31.07.23
£’000 £’000
Beginning of the year 880 1,591
Transfers into level 3 at cost – Interojo 1 1,404 –
Transfers out of level 3 at cost – Tuhu Car 2 (1,049) –
Movement in investment holding losses (189) (711)
------------------ ------------------
End of the year 1,046 880
=========== ===========
1 Financial instruments are transferred into level 3 on the date they are
suspended or when they have not traded for thirty days.
2 Financial instruments are transferred out of level 3 when they become
listed.
Below are details of the four investments which fall into level 3 of which the
first two investments are unlisted and the latter two are suspended from
trading.
Chime Biologics
Chime Biologics is a China-based Contract Development and Manufacturing
Organization (CDMO) that provides a solution supporting customers from
early-stage biopharmaceutical development through to late-stage clinical and
commercial manufacturing and is an unlisted company. The valuation at 31 July
2024 is based on the company’s financial information, the macro-environment
and the Probability-Weighted Expected Return Model (“PWERM”). As at 31
July 2024, its fair value was £60,000 (2023: £69,000).
Eden Biologics
Eden Biologics develops biosimilars and is also engaged in providing process
development and contract manufacturing solutions to the biopharmaceutical
industry and is an unlisted company. On 26 February 2018, the company
voluntarily delisted from the Taipei Exchange. In September 2023, there was a
potential voluntary liquidation of the company which was subsequently
postponed indefinitely. The company is attempting to restructure, and the
future outcome is uncertain. Given the distressed nature of the company a
decision was made for the price to be written down to nil as of the 16 April
2024. As at 31 July 2024, its fair value was £nil (2023: £40,000).
Interojo
Interojo is a Korean-based company that manufactures and markets contact
lenses. The company was suspended from trading on the Korean Stock Exchange on
8 April 2024 due to the auditors being unable to give an unqualified audit
opinion on stock valuation concerns. The valuation at 31 July 2024 is based on
a 20% discount of the suspended price. As at 31 July 2024, its fair value was
£986,000 (2023: £1,842,000).
Salt Lake Potash
Salt Lake Potash is a mineral exploration company. The company was suspended
from trading on the Australian Stock Exchange on 27 July 2021 and in October
2021 it announced that it would be entering voluntary administration. As at 31
July 2024, its fair value was £nil (2023: £nil).
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 any gearing, which is managed by 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. The principal
risks and their management are disclosed in the Strategic Report and in Note
17.
The Company’s gross and net gearing at the year end is set out above:
2024
Gross gearing Net gearing
Asset % 1 Asset % 1
exposure exposure
£’000 £’000
Investments 378,577 96.6 378,577 96.6
Long CFDs 48,144 12.3 48,144 12.3
Call options (long exposure) 2,805 0.7 2,805 0.7
------------------ ------------------ ------------------ ------------------
Total long exposures 429,526 109.6 429,526 109.6
=========== =========== =========== ===========
Short CFDs 12,995 3.3 (12,995) (3.3)
Call options (short exposure) 374 0.1 (374) (0.1)
------------------ ------------------ ------------------ ------------------
Gross asset exposure/net market exposure 442,895 113.0 416,157 106.2
=========== =========== =========== ===========
Shareholders’ funds 392,014 392,014
=========== ===========
Gearing 2 13.0% 6.2%
=========== ===========
1 Asset exposure to the market expressed as a percentage of shareholders’
funds.
2 Gearing is the amount by which gross asset exposure/net market exposure
exceeds shareholders’ funds expressed as a percentage of shareholders’
funds.
2023
Gross gearing % 1 Net gearing % 1
Asset Asset
exposure exposure
£’000 £’000
Investments 377,631 95.7 377,631 95.7
Long CFDs 44,089 11.2 44,089 11.2
Long future 4,061 1.0 4,061 1.0
Put options 1,466 0.4 1,466 0.4
------------------ ------------------ ------------------ ------------------
Total long exposures 427,247 108.3 427,247 108.3
=========== =========== =========== ===========
Short CFDs 10,586 2.7 (10,586) (2.7)
Call options 1,705 0.4 (1,705) (0.4)
Short future 1,292 0.3 (1,292) (0.3)
------------------ ------------------ ------------------ ------------------
Gross asset exposure/net market exposure 440,830 111.7 413,664 104.9
=========== =========== =========== ===========
Shareholders’ funds 394,577 394,577
=========== ===========
Gearing 2 11.7% 4.9%
=========== ===========
1 Asset exposure to the market expressed as a percentage of shareholders’
funds.
2 Gearing is the amount by which gross asset exposure/net market exposure
exceeds shareholders’ funds expressed as a percentage of shareholders’
funds.
19 Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment
Fund Manager and has delegated portfolio management and the role of company
secretary to FIL Investments International (“FII”). Both companies are
Fidelity group companies.
Details of the current fee arrangements are given in the Directors’ Report.
During the year, management fees of £3,493,000 (2023: £2,925,000), and
secretarial and administration fees of £75,000 (2023: £75,000) were payable
to FII. At the Balance Sheet date, management fees of £277,000 (2023:
£292,000), and secretarial and administration fees of £6,200 (2023:
£25,000) were accrued and included in other creditors. FII also provides the
Company with marketing services. The total amount payable for these services
during the year was £172,000 (2023: £195,000). At the Balance Sheet date,
marketing services of £77,000 (2023: £nil) were accrued and included in
other creditors.
Disclosures of the Directors’ interests in the ordinary shares of the
Company and Director’s fees and taxable expenses relating to reasonable
travel expenses payable to the Directors are given in the Directors’
Remuneration Report. In addition to the fees and taxable expenses disclosed in
the Directors’ Remuneration Report, £19,000 (2023: £20,000) of
employers’ National Insurance contributions were paid by the Company. At the
Balance Sheet date, Directors’ fees of £20,000 (2023: £16,000) were
accrued and payable.
Alternative Performance Measures
Discount/Premium
The discount/premium is considered to be an Alternative Performance Measure.
It is the difference between the NAV per ordinary share of the Company and the
ordinary share price and is expressed as a percentage of the NAV per ordinary
share. Details of the Company’s discount/premium are on the Financial
Highlights above.
Gearing
Gearing (both Gross and Net) is considered to be an Alternative Performance
Measure. See Note 18 for details of the Company’s gearing.
Net Asset Value (“NAV”) per Ordinary Share
The NAV per ordinary share is considered to be an Alternative Performance
Measure. See the Balance Sheet above and Note 16 for further details.
Ongoing charges
Th ongoing charges ratio is considered to be an Alternative Performance
Measure. The ongoing charges ratio has been calculated in accordance with
guidance issued by the AIC as the total of investment management fees and
other expenses expressed as a percentage of the average net asset values
throughout the year.
2024 2023
£’000 £’000
Investment management fees (£’000) 2,749 2,644
Other expenses (£’000) 992 988
------------------ ------------------
Ongoing charges (£’000) 3,741 3,632
=========== ===========
Variable element of management fee (£’000) 744 281
Average net assets (£’000) 392,271 377,729
------------------ ------------------
Ongoing charges ratio 0.95% 0.96%
=========== ===========
Ongoing charges ratio including variable element of management fee 1.14% 1.03%
=========== ===========
Revenue, Capital and Total Returns per Share
Revenue, capital and total returns per share are considered to be Alternative
Performance Measures. See the Income Statement above and Note 8 for further
details.
Total Return Performance
Total return performance is considered to be an Alternative Performance
Measure. NAV per ordinary share total return includes reinvestment of the
dividend in the NAV of the Company on the ex-dividend date. The ordinary share
price total return includes the reinvestment of the net dividend in the month
that the share price goes ex-dividend.
The tables below provide information relating to the NAV per ordinary share
and ordinary share price of the Company and the impact of the dividend
reinvestments and the total returns for the years ended 31 July 2024 and 31
July 2023.
2024 Net asset Ordinary
value per share
ordinary price
share
31 July 2023 549.33p 520.00p
31 July 2024 551.66p 496.00p
Change in year +0.4% -4.6%
Impact of dividend reinvestment +2.8% +2.9%
------------------ ------------------
Total return for the year +3.2% -1.7%
=========== ===========
2023 Net asset Ordinary
value per share
ordinary price
share
31 July 2022 507.78p 458.00p
31 July 2023 549.33p 520.00p
Change in year +8.2% +13.5%
Impact of dividend reinvestment +3.2% +3.8%
------------------ ------------------
Total return for the year +11.4% +17.3%
=========== ===========
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 July 2024 are an abridged
version of the Company's full Annual Report and Financial Statements, which
have been approved and audited with an unqualified report. The 2023 and 2022
statutory accounts received unqualified reports from the Company's Auditor and
did not include any reference to matters to which the Auditor drew attention
by way of emphasis without qualifying the reports and did not contain a
statement under s.498 of the Companies Act 2006. The statutory accounts for
2023 and 2022 have been delivered to the Registrar of Companies. The 2024
Financial Statements will be filed with the Registrar of Companies in due
course.
A copy of the above results announcement will be available on the Company's
website at www.fidelity.co.uk/asianvalues within two working days.
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 be posted to shareholders later this month and
additional copies will be available from the registered office of the Company
and on the Company's website: www.fidelity.co.uk/asianvalues where up to
date information on the Company, including daily NAV and
share prices, factsheets and other information can also be found.
Neither the contents of the 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
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