Fidelity Special Val: Half-year Report
28/04/2023 07:00
Fidelity Special Values PLC
Half-Yearly Results for the six months ended 28 February 2023 (unaudited)
Financial Highlights:
* The Board of Fidelity Special Values PLC (the “Company”) recommends an
interim dividend of 2.53 pence per share, an increase of 10% from last
year’s interim dividend.
* The net asset value (“NAV”) of the Company increased by +10.4% for the
six months ending 28 February 2023 outperforming the Benchmark Index (FTSE
All-Share Index) which rose by +8.7%.
* The ordinary share price return was 13.1%.
* The Portfolio Manager continues to find good opportunities towards the
smaller end of the market cap spectrum.
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
FIL Investments International
PORTFOLIO MANAGER’S HALF-YEARLY REVIEW
PERFORMANCE
In the six month reporting period to 28 February 2023, the net asset value
(“NAV”) per ordinary share return of +10.4% and the share price return of
+13.1% outperformed the FTSE All-Share Index (the Company’s Benchmark Index)
return of +8.7% (all on a total return basis). This report seeks to summarise
the reporting period, highlight the key drivers of performance, and set out
the Portfolio Manager’s views looking ahead.
STOCK MARKET AND PORTFOLIO REVIEW
UK equities advanced during the period despite an uncertain economic outlook.
The positive performance was mostly driven by blue chip stocks, with the FTSE
100 Index reaching an all-time high in February 2023, surpassing its previous
record from May 2018. However, returns from medium and smaller companies were
more subdued and they continued to lag their larger counterparts. At a sector
level, returns were largely driven by holdings in energy, mining and
financials, which have benefited from rising energy prices, higher inflation
and interest rates. Consumer discretionary stocks were also bolstered by an
improvement in sentiment from depressed levels, amid better than expected
holiday spending and optimism around China’s broader reopening following a
lifting of its COVID-related restrictions. Selected industrials, especially
aerospace and defence companies, were also able to benefit from the current
backdrop. For value investors, it was a particularly satisfying period, with
value outperforming growth by seven percentage points.
Despite the positive headline returns, share prices proved to be particularly
volatile. The period started with a sharp sell-off as investors were concerned
about the Bank of England’s monetary policy tightening path and the poor
economic outlook. An un-costed plan by Liz Truss’s newly formed government
in its ‘mini-budget’, to increase spending and implement tax cuts in a bid
to boost growth and counter slowing activity further spooked market
participants. Shares recovered in October 2022, after Truss was replaced by
Rishi Sunak as Prime Minister, and with the new Chancellor Jeremy Hunt
reversing most of the unfunded tax-cutting proposals following weeks of market
and political pressure. Tentative signs of moderating inflationary pressures
in the US bolstered expectations of a slowdown in the US Federal Reserve’s
monetary policy tightening cycle which also soothed investors’ concerns, as
did an easing of the stringent COVID-19 control policy in China, which boosted
hopes of a recovery in demand. However, markets turned somewhat cautious in
December 2022 as global central banks reaffirmed their commitment to bringing
inflation down, as it remained well above their target levels, and economic
data showed clear signs of slowing growth.
2023 kicked off on a positive note, building on the markets’ resilient
performance in 2022. Having started the year thinking that the end of interest
rate rises was in sight, market participants became increasingly concerned
that rates may have further to climb, after a string of economic reports and
company results showed that many Western economies were performing better than
expected. While inflation remained high, price pressures seemed to ease and
the BoE was relatively dovish in its commentary as it announced a 0.5% rate
hike in February 2023, the fourth time it has raised rates during the period,
to the current level of 4.0%.
Over the period, the Company’s NAV outperformed the return of the FTSE
All-Share Index. The outperformance was primarily driven by our long-standing
overweight stance in financials. Irish lender AIB Group was the leading
contributor as its shares benefited from an improved outlook for interest
income in an environment of rising rates. The group reported strong annual
profits and robust loan growth, while it also announced higher dividends. Also
within financials, reinsurance underwriter Conduit Holdings was another strong
performer. It posted an impressive start to 2023 with a significant rise in
premiums, and stated that it expected this ‘exceptional pricing
environment’ to continue, reflecting a fundamental re-pricing of risk and an
imbalance in the supply and demand of capital. Conduit is one of the few
operators in the industry with capital available to deploy, which should allow
for strong growth and profitability.
Meanwhile, designer and manufacturer of gift packaging and stationery IG
Design’s interim results highlighted a profit recovery and progress in the
turnaround of its America’s business. Its outlook statement highlighted a
strong order book for 2023, coupled with stable customer relationships. Our
view is that the business has significant recovery potential following several
issues over the last two years, many of which should prove to be temporary.
Mergers and acquisitions (“M&A”) activity also remained a strong theme
within the Company’s portfolio, despite the economic uncertainty. Oilfield
and engineering services group John Wood Group was a beneficiary, as it
received four unsolicited buyout proposals from US private equity group Apollo
Global Management, all of which the company rejected, citing undervaluation of
its stock. A smaller holding, Wentworth Resources, also accepted a takeover
bid from its operational partner in December.
Conversely, after a strong performance last year, government outsourcer Serco
was a detractor from performance, despite reiterating its expectations for
profits to be in line with previous forecasts. Over 2022, the business grew by
10%, excluding COVID contracts and currency effects. It also recently reported
that one of its biggest and most profitable contracts (worth close to $700
million) had been renewed for another five years. The Company has a large
exposure to the outsourcing sector, where many companies have benefited from
self-help and a stable demand environment, which has allowed their businesses
to grow. They also benefit from having a degree of inflation protection in
their contracts, which is particularly helpful in the current environment.
Shares in pharmaceutical group Roche Holdings also fell after the company
warned that profits in 2023 will decline, as falling demand for its COVID
therapy and diagnostics kits is likely to weaken sales. While this year was
always going to prove more challenging after strong pandemic-related demand,
the medium term outlook for the company remains strong with solid underlying
growth and a broad drugs pipeline. Consequently, we have increased our holding
in Roche whilst exiting our smaller position in AstraZeneca, given the
former’s relatively more attractive risk/ reward profile.
In the energy sector, the underweight stance in BP and Shell proved unhelpful
over the review period after they announced a shift in their strategies
alongside annual results. Both companies are allowing oil production to fall
and using cash profits to invest in highly competitive renewable power
industries, where future profitability is uncertain and likely lower than in
their existing oil operations.
However, both announced a partial strategic U-turn and said they would invest
more in oil production and less in renewables. We, on the other hand, prefer
smaller, overseas-listed oil and gas producers because they trade on more
attractive valuations, their focus is on maintaining or growing their oil and
gas production and their profits are used to reward shareholders via dividends
and buybacks.
Among other detractors, a small oil and gas producer and recent addition to
the portfolio, Ithaca Energy, underperformed following the Government’s
decision to increase the windfall tax on profits made from extracting UK oil
and gas. Nevertheless, we took advantage of the share price weakness and
increased our position in the company. Ithaca Energy has acquired and
developed an attractive portfolio of long-life oil and gas assets. The latter
is of particular interest given the stronger longer term outlook for European
gas prices in the wake of Western sanctions on Russia. Ithaca has a strong
balance sheet, offers a very generous dividend yield of more than 20%, and has
a clear distribution policy to pay a fixed percentage of its cash flows as
dividends.
USE OF GEARING
During the review period, we continued to use contracts for difference (CFDs)
to gear the Company’s portfolio of long exposures and to eliminate some of
the currency exposure for those holdings listed outside of the UK. Overall,
there was a meaningful reduction in the Company’s gearing level over the
reporting period. Gearing stood at 5.3% at the end of February 2023 (compared
to 10.0% at the end of August 2022). This reflects the completion of bids for
five of the Company’s holdings: ContourGlobal, Meggitt, RPS Group, Biffa and
Euromoney Institutional Investor. Since the end of the reporting period,
gearing has increased back to around 10%, as market volatility in March
presented us with new investment opportunities across a number of sectors.
OUTLOOK
We remain selective and favour companies with lower levels of debt and the
resilience to navigate uncertainty. Current valuations have priced in a weaker
economic environment, which is likely to remain challenging in the near term,
especially for those corporates and consumers in need of refinancing their
debts.
Financials form the biggest part of the Company’s portfolio, primarily banks
and insurers. Higher interest rates have allowed banks to significantly
improve their profitability at a time where earnings in many industries are
under pressure, yet many investors continue to avoid them because they are
scarred from the 2008 global financial crisis. However, UK and Irish banks
have become far higher quality businesses since the changes to the regulatory
environment over the past decade. They have strengthened their balance sheets,
trimmed bloated cost bases, and pulled back from riskier lending. Furthermore,
they are subject to robust regulatory frameworks, transparent accounting
practices and have diversified deposit structures. Some of these attributes
were absent from several smaller regional US banks and at Credit Suisse,
leading to recent negative headlines and outcomes for investors in these
companies.
Our holdings within the sector are diversified in terms of geographic and
banking model exposure, with idiosyncratic factors driving their growth. For
example, our largest holding, AIB Group, is not only an interest rate story
but is also the beneficiary of an improvement in Ireland’s banking market,
where the number of competing groups has recently shrunk from five to three.
The rising rate environment is also positive for life insurers, where we have
a meaningful overweight position. Their earnings have proved resilient during
the pandemic and should continue to benefit from an acceleration in the pace
of pension fund re-risking.
Ongoing value in some defensive areas remain, such as tobacco or hidden
defensives, for example, Government outsourcer Serco. However, we steer clear
of crowded areas comprising expensively valued dollar-earning companies and
other consumer staples.
The relative attractiveness of UK valuations versus other markets and the
large divergence in performance between different parts of the market continue
to create good opportunities for attractive returns from UK stocks on a
three-to-five-year view. The smaller end of the market cap spectrum is
particularly rich in investment opportunities given the lack of research
coverage. For us, this has always been a big structural overweight, and the
Company’s portfolio currently has a mid and small cap exposure at around
60%. Smaller companies have incurred severe deratings over the past year as
they are thought to be more cyclical and thus more susceptible to an economic
slowdown or recession. However, in our opinion, some of the share price falls
have been indiscriminate.
The attractive valuations in the UK have not gone unnoticed and after several
months of limited activity there has been a recent uptick in M&A activity with
private equity approaches for several UK companies, including our holding in
John Wood Group. It demonstrates that valuations for UK stocks are low enough
to maintain interest levels even in an uncertain market.
In our opinion, the UK market with its high dividends and low valuations
offers better prospective returns than many other asset classes, including
global equities.
ALEX WRIGHT
Portfolio Manager
27 April 2023
TWENTY LARGEST INVESTMENTS AS AT 28 FEBRUARY 2023
The Asset Exposures shown below measure exposure to market price movements as
a result of owning shares, corporate bonds and derivative instruments. The
Fair Value is the actual value of the portfolio as reported in the Balance
Sheet. Where a contract for difference (“CFD”) is held, the Fair Value
reflects the profit or loss on the contract since it was opened and is based
on how much the share price of the underlying share has moved.
Asset Exposure Fair Value £’000
£’000 % (1)
Long Exposures – shares unless otherwise stated
AIB Group (corporate bond and long CFD)
Banks 42,513 4.3 4,701
--------------- --------------- ---------------
Serco Group
Industrial Support Services 37,618 3.8 37,618
--------------- --------------- ---------------
NatWest Group
Banks 37,284 3.7 37,284
--------------- --------------- ---------------
Imperial Brands
Tobacco 36,439 3.6 36,439
--------------- --------------- ---------------
Phoenix Group Holdings
Life Insurance 35,572 3.6 35,572
--------------- --------------- ---------------
Aviva
Life Insurance 33,617 3.4 33,617
--------------- --------------- ---------------
DCC
Industrial Support Services 33,058 3.3 33,058
--------------- --------------- ---------------
Sanofi (long CFD)
Pharmaceuticals & Biotechnology 32,819 3.3 454
--------------- --------------- ---------------
Barclays
Banks 32,075 3.2 32,075
--------------- --------------- ---------------
Roche Holdings
Pharmaceuticals & Biotechnology 31,672 3.2 31,672
--------------- --------------- ---------------
Mitie Group
Industrial Support Services 27,772 2.8 27,772
--------------- --------------- ---------------
OMV
Oil, Gas & Coal 25,578 2.5 25,578
--------------- --------------- ---------------
Ryanair Holdings (shares and long CFD)
Travel & Leisure 22,883 2.3 2,895
--------------- --------------- ---------------
Spire Healthcare Group
Health Care Providers 20,636 2.0 20,636
--------------- --------------- ---------------
Babcock International Group
Aerospace & Defense 19,035 1.9 19,035
--------------- --------------- ---------------
C&C Group (shares and long CFD)
Beverages 17,928 1.8 15,038
--------------- --------------- ---------------
Legal & General Group (long CFD)
Life Insurance 17,779 1.8 (250)
--------------- --------------- ---------------
Conduit Holdings
Non-Life Insurance 17,293 1.7 17,293
--------------- --------------- ---------------
Ithaca Energy
Oil, Gas & Coal 16,496 1.6 16,496
--------------- --------------- ---------------
Close Brothers Group
Banks 16,273 1.6 16,273
========= ========= =========
Twenty largest long exposures 554,340 55.4 443,256
Other long exposures 498,488 49.9 463,146
========= ========= =========
Gross Asset Exposure (102 holdings) 1,052,828 105.3
--------------- ---------------
Portfolio Fair Value 906,402
=========
1 Asset Exposure is expressed as a percentage of Shareholders’ Funds.
Below are details of the Fair Value and Asset Exposure of Investments.
FAIR VALUE AND ASSET EXPOSURE OF INVESTMENTS AS AT 28 FEBRUARY 2023
Fair Asset Exposure
Value
£’000
£’000 % (1 )
Investments 904,659 904,659 90.5
Long CFDs 1,743 148,169 14.8
--------------- --------------- ---------------
906,402 1,052,828 105.3
========= ========= =========
Cash at bank (2) 2,868 (143,558) (14.4)
Fidelity Institutional Liquidity Fund 86,573 86,573 8.7
Other net current assets (excluding derivative assets and liabilities) 4,187 4,187 0.4
--------------- --------------- ---------------
Shareholders’ Funds 1,000,030 1,000,030 100.0
========= ========= =========
The Company uses gearing through the use of long CFD positions. Gross gearing
as at 28 February 2023 was 5.3% (31 August 2022: 10.0% and 28 February 2022:
6.9%).
1 Asset Exposure is expressed as a percentage of Shareholders’ Funds
2 The asset exposure column for cash at bank has been adjusted to assume
the Company traded direct holdings rather than exposure being gained through
long CFD positions. The amount is derived by taking the cost of the shares
underlying the long CFDs when the contracts were opened less the cash at bank
balance at the period end.
INTERIM MANAGEMENT REPORT
BOARD CHANGES
Andy Irvine stepped down as Chairman of the Board and as a non-executive
Director at the conclusion of the Annual General Meeting (“AGM”) held on
14 December 2022. He was replaced as Chairman by Dean Buckley and Nigel Foster
replaced Mr Buckley as Senior Independent Director at the same time.
DISCOUNT MANAGEMENT AND SHARE REPURCHASES
Under the Company’s discount management policy, the Board seeks to maintain
the discount in single digits in normal market conditions and will repurchase
shares to help stabilise the share price discount.
The Board will approve the issuance of shares if the Company’s shares are
trading at a sufficient level of premium to ensure that it adds value for
Shareholders and that the issue of shares is not dilutive. Issuing shares
increases the size of the Company, making it more liquid and allowing costs to
be spread out over a larger pool of assets.
Over the reporting period, the Company’s shares traded at a discount ranging
from 2.8% to 10.3% with an average discount of 6.3%. The peer group average
discount as at 28 February 2023 was 9.8%.
In the reporting period, the Company did not issue any shares or carry out any
share repurchases and this remains the case up until the date of this report.
The Board continues to monitor the level of the Company’s discount closely
and will take action when it believes to do so will be effective and to the
benefit of Shareholders.
INTERIM DIVIDEND
The Board’s policy is to pay dividends twice yearly in order to smooth the
dividend payments for the Company’s financial year. The Company’s revenue
return for the six months to 28 February 2023 was 3.04 pence per share.
The Board has declared an interim dividend of 2.53 pence per share which is
10.0% higher than the 2.30 pence per share paid as the interim dividend in
2022. This will be paid on 21 June 2023 to Shareholders on the register on 12
May 2023 (ex-dividend date 11 May 2023). Shareholders should note that the
Board will review the final dividend payment later in the year based on
dividend receipts from the companies held in the portfolio. However, based on
current forecasts, the Board would hope to maintain at least the same level of
dividend as paid in the prior year and would intend to pay it entirely from
the revenue earned in the reporting period.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board, with the assistance of the Manager (FIL Investment Services (UK)
Limited), 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 faced by the Company.
The Board considers that the principal risks and uncertainties faced by the
Company continues to fall into the following categories: market, economic and
political; cybercrime and information security; investment performance
(including the use of derivatives and gearing); environmental, social and
governance (“ESG”); competition; regulatory; key person and operational
support; business continuity and discount control risks. Information on each
of these risks is given in the Strategic Report section of the Annual Report
for the year ended 31 August 2022, a copy of which can be found on the
Company’s pages of the Manager’s website at
www.fidelity.co.uk/specialvalues.
While the principal risks and uncertainties are the same as those at the
previous year end, the uncertainty continues to be heightened by the ongoing
Russia and Ukraine conflict dominating political risks and industry concerns.
There is geopolitical and economic uncertainty, in addition to events
currently being faced globally such as the various crisis situations in
energy, the cost of living, rising inflation, food supply and the threat of
cyberattacks on critical infrastructure. More recently, the collapse of
Silicon Valley Bank and the buyout of Credit Suisse by UBS Group has caused
turmoil in the global banking sector and volatility in the markets. The
quantum of risks continues to change and the Board remains vigilant in
monitoring such risks.
Climate change continues to be a key emerging issue, as well as a principal
risk, that is confronting asset managers and their investors. 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 potentially impact the Company, the main risk being the impact on
investment valuations and shareholder returns.
Investors should be prepared for market fluctuations and remember that holding
shares in the Company should be considered to be a long term investment. Risks
are mitigated by the investment trust structure of the Company which means
that no forced sales need to take place to deal with any redemptions.
Therefore, investments in the Company’s portfolio can be held over a longer
time horizon.
The Manager has appropriate business continuity and operational plans in place
to ensure the uninterrupted provision of services, including investment team
key activities, including those of portfolio managers, analysts and
trading/support functions. It reviews its operational resilience strategies on
an ongoing basis and continues to take all reasonable steps in meeting its
regulatory obligations and to assess operational risks, the ability to
continue operating and the steps it needs to take to serve and support its
clients, including the Board.
The Company’s other third party service providers also have similar measures
to ensure that business disruption is kept to a minimum.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
The Manager has delegated the Company’s portfolio management and company
secretariat services to FIL Investments International. Transactions with the
Manager and related party transactions with the Directors are disclosed in
Note 13 to the Financial Statements below.
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, 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 can continue in operational existence for
a period of at least twelve months from the date of this Half-Yearly Report.
This conclusion also takes into account the Board’s assessment of the
ongoing risks from the war in Ukraine, significant market events and
regulatory changes and continued evolving variants of COVID.
Accordingly, the Financial Statements of the Company have been prepared on a
going concern basis.
Continuation votes are held every three years and the next continuation vote
will be put to shareholders at the AGM in 2025.
BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL
27 April 2023
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (“DTR”) of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
a) the condensed set of Financial Statements contained within the
Half-Yearly Report has been prepared in accordance with the Financial
Reporting Council’s Standard: FRS 104: Interim Financial Reporting; and
b) the Portfolio Manager’s Half-Yearly Review and the Interim
Management Report above, include a fair review of the information required by
DTR 4.2.7R and 4.2.8R.
In line with previous years, the Half-Yearly Report has not been audited by
the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on 27 April 2023 and the
above responsibility statement was signed on its behalf by Dean Buckley,
Chairman.
FINANCIAL STATEMENTS
INCOME STATEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
Six months ended 28 February 2023 unaudited Year ended 31 August 2022 audited Six months ended 28 February 2022 unaudited
Notes Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Gains/(losses) on investments – 52,800 52,800 – (64,441) (64,441) – (48,464) (48,464)
Gains/(losses) on long CFDs – 34,556 34,556 – (14,992) (14,992) – (2,563) (2,563)
Investment and derivative income 4 13,700 – 13,700 37,135 – 37,135 9,107 – 9,107
Other interest 4 1,438 – 1,438 877 – 877 181 – 181
Investment management fees 5 (2,806) – (2,806) (5,607) – (5,607) (2,806) – (2,806)
Other expenses (459) – (459) (838) – (838) (470) – (470)
Foreign exchange (losses)/gains – (2,131) (2,131) – 5,874 5,874 – 687 687
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before finance costs and taxation 11,873 85,225 97,098 31,567 (73,559) (41,992) 6,012 (50,340) (44,328)
Finance costs 6 (1,996) – (1,996) (1,243) – (1,243) (309) – (309)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before taxation 9,877 85,225 95,102 30,324 (73,559) (43,235) 5,703 (50,340) (44,637)
Taxation on return/(loss) on ordinary activities 7 (8) – (8) (196) – (196) (32) – (32)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities after taxation for the period 9,869 85,225 95,094 30,128 (73,559) (43,431) 5,671 (50,340) (44,669)
========= ========= ========= ========= ========= ========= ========= ========= =========
Return/(loss) per ordinary share 8 3.04p 26.30p 29.34p 9.42p (23.00p) (13.58p) 1.80p (15.95p) (14.15p)
========= ========= ========= ========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly the net
return/(loss) on ordinary activities after taxation for the period is also the
total comprehensive income for the period and no separate Statement of
Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the
Company. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
No operations were acquired or discontinued in the period and all items in the
above statement derive from continuing operations.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
Notes Share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Other non- distributable reserve £’000 Capital reserve £’000 Revenue reserve £’000 Total Shareholders’ funds £’000
Six months ended 28 February 2023 (unaudited)
Total Shareholders’ funds at 31 August 2022 16,205 238,442 3,256 5,152 629,078 30,466 922,599
Net return on ordinary activities after taxation for the period – – – – 85,225 9,869 95,094
Dividend paid to Shareholders 9 – – – – – (17,663) (17,663)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total Shareholders’ funds at 28 February 2023 16,205 238,442 3,256 5,152 714,303 22,672 1,000,030
========= ========= ========= ========= ========= ========= =========
Year ended 31 August 2022 (audited)
Total Shareholders’ funds at 31 August 2021 15,651 205,466 3,256 5,152 702,637 21,928 954,090
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
New ordinary shares issued 11 554 33,118 – – – – 33,672
Costs associated with the issue of new ordinary shares – (142) – – – – (142)
Net (loss)/return on ordinary activities after taxation for the year – – – – (73,559) 30,128 (43,431)
Dividends paid to Shareholders 9 – – – – – (21,590) (21,590)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total Shareholders’ funds at 31 August 2022 16,205 238,442 3,256 5,152 629,078 30,466 922,599
========= ========= ========= ========= ========= ========= =========
Six months ended 28 February 2022 (unaudited)
Total Shareholders’ funds at 31 August 2021 15,651 205,466 3,256 5,152 702,637 21,928 954,090
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
New ordinary shares issued 11 528 31,673 – – – – 32,201
Net (loss)/return on ordinary activities after taxation for the period – – – – (50,340) 5,671 (44,669)
Dividend paid to Shareholders 9 – – – – – (14,136) (14,136)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total Shareholders’ funds at 28 February 2022 16,179 237,139 3,256 5,152 652,297 13,463 927,486
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET AS AT 28 FEBRUARY 2023
Company number 2972628
Notes 28.02.23 unaudited £’000 31.08.22 audited £’000 28.02.22 Unaudited £’000
Fixed assets
Investments 10 904,659 835,672 775,792
--------------- --------------- ---------------
Current assets
Derivative instruments 10 2,631 28 1,355
Debtors 4,942 10,940 5,844
Amounts held at futures clearing houses and brokers 425 8,190 10,530
Cash and cash equivalents 89,441 80,450 145,625
--------------- --------------- ---------------
97,439 99,608 163,354
========= ========= =========
Current liabilities
Derivative instruments 10 (888) (9,200) (10,507)
Other creditors (1,180) (3,481) (1,153)
--------------- --------------- ---------------
(2,068) (12,681) (11,660)
========= ========= =========
Net current assets 95,371 86,927 151,694
========= ========= =========
Net assets 1,000,030 922,599 927,486
========= ========= =========
Capital and reserves
Share capital 11 16,205 16,205 16,179
Share premium account 238,442 238,442 237,139
Capital redemption reserve 3,256 3,256 3,256
Other non-distributable reserve 5,152 5,152 5,152
Capital reserve 714,303 629,078 652,297
Revenue reserve 22,672 30,466 13,463
--------------- --------------- ---------------
Total Shareholders’ funds 1,000,030 922,599 927,486
========= ========= =========
Net asset value per ordinary share 12 308.56p 284.67p 286.62p
========= ========= =========
CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
six months ended 28.02.23 unaudited £’000 Year ended 31.08.22 audited £’000 six months ended 28.02.22 Unaudited £’000
Operating activities
Investment income received 15,650 25,034 10,686
Net derivative income 3,479 9,133 2,858
Interest received 1,438 493 47
Investment management fee paid (2,831) (5,597) (2,839)
Directors’ fees paid (91) (157) (77)
Other cash payments (416) (618) (376)
--------------- --------------- ---------------
Net cash inflow from operating activities before finance costs and taxation 17,229 28,288 10,299
========= ========= =========
Finance costs paid (1,925) (1,186) (309)
Overseas taxation incurred 51 (783) (57)
--------------- --------------- ---------------
Net cash inflow from operating activities 15,355 26,319 9,933
========= ========= =========
Investing activities
Purchases of investments (210,375) (359,829) (126,137)
Sales of investments 192,392 347,076 184,319
Receipts on long CFDs 47,093 73,743 35,710
Payments on long CFDs (23,445) (80,763) (30,314)
Movement on amounts held at futures clearing houses and brokers 7,765 (8,150) (10,490)
--------------- --------------- ---------------
Net cash inflow/(outflow) from investing activities 13,430 (27,923) 53,088
========= ========= =========
Net cash inflow/(outflow) before financing activities 28,785 (1,604) 63,021
========= ========= =========
Financing activities
Dividends paid (17,663) (21,590) (14,136)
Net proceeds from issue of shares – 34,132 32,273
Cost associated with the issue of new ordinary shares – (142) –
Net cash (outflow)/inflow from financing activities (17,663) 12,400 18,137
Net increase in cash and cash equivalents 11,122 10,796 81,158
Cash and cash equivalents at the beginning of the period 80,450 63,780 63,780
Effect of movement in foreign exchange (2,131) 5,874 687
--------------- --------------- ---------------
Cash and cash equivalents at the end of the period 89,441 80,450 145,625
========= ========= =========
Represented by:
Cash at bank 2,868 2,014 27,953
Amount held in Fidelity Institutional Liquidity Fund 86,573 78,436 117,672
--------------- --------------- ---------------
89,441 80,450 145,625
========= ========= =========
NOTES TO THE FINANCIAL STATEMENTS
1 PRINCIPAL ACTIVITY
Fidelity Special 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 2972628, and its registered office is Beech Gate,
Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has
been approved by HM Revenue & Customs as an Investment Trust under Section
1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as
to continue to be approved.
2 PUBLICATION OF NON-STATUTORY ACCOUNTS
The Financial Statements in this Half-Yearly Report have not been audited by
the Company’s Independent Auditor and do not constitute statutory accounts
as defined in section 434 of the Companies Act 2006 (the “Act”). The
financial information for the year ended 31 August 2022 is extracted from the
latest published Financial Statements of the Company. Those Financial
Statements were delivered to the Registrar of Companies and included the
Independent Auditor’s Report which was unqualified and did not contain a
statement under either section 498(2) or 498(3) of the Act.
3 ACCOUNTING POLICIES
(i) Basis of Preparation
The Company prepares its Financial Statements on a going concern basis and in
accordance with UK Generally Accepted Accounting Practice (“UK GAAP”) and
FRS 102: The Financial Reporting Standard applicable in the UK and Republic of
Ireland, issued by the Financial Reporting Council. The Financial Statements
are also prepared in accordance with the Statement of Recommended Practice:
Financial Statements of Investment Trust Companies and Venture Capital Trusts
(“SORP”) issued by the Association of Investment Companies (“AIC”) in
July 2022. FRS 104: Interim Financial Reporting has also been applied in
preparing this condensed set of Financial Statements. The accounting policies
followed are consistent with those disclosed in the Company’s Annual Report
and Financial Statements for the year ended 31 August 2022.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for a period of at least twelve
months from the date of approval of these Financial Statements. Accordingly,
the Directors consider it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements. This conclusion also takes
into account the Directors’ assessment of the risks faced by the Company as
detailed in the Interim Management Report above.
4 INCOME
six months ended 28.02.23 unaudited £’000 Year ended 31.08.22 audited £’000 six months ended 28.02.22 Unaudited £’000
Investment income
UK dividends 10,736 20,437 6,148
UK scrip dividends – 85 85
Interest on securities 109 – –
Overseas dividends 2,234 ` 6,684 1,828
Overseas scrip dividends – 23 23
--------------- --------------- ---------------
13,079 27,229 8,084
========= ========= =========
Derivative income
Dividends received on long CFDs 621 9,906 1,023
--------------- --------------- ---------------
Investment and derivative income 13,700 37,135 9,107
========= ========= =========
Other interest
Interest received on long CFDs* – 384 134
Interest received on bank deposits, collateral and money market funds 1,438 493 47
--------------- --------------- ---------------
1,438 877 181
--------------- --------------- ---------------
Total income 15,138 38,012 9,288
========= ========= =========
* Due to negative interest rates during the reporting period, the
Company received interest on some of its long CFD positions.
No special dividends have been recognised in capital during the period (year
ended 31 August 2022: £372,000 and six months ended 28 February 2022:
£286,000).
5 INVESTMENT MANAGEMENT FEES
six months ended 28.02.23 unaudited £’000 Year ended 31.08.22 audited £’000 six months ended 28.02.22 Unaudited £’000
Investment management fees 2,806 5,607 2,806
========= ========= =========
FIL Investment Services (UK) Limited is the Company’s Alternative Investment
Fund Manager and has delegated portfolio management to FIL Investments
International (“FII”). Both companies are Fidelity group companies.
FII charges investment management fees at an annual rate of 0.60% of net
assets.
6 FINANCE COSTS
six months ended 28.02.23 unaudited £’000 Year ended 31.08.22 audited £’000 six months ended 28.02.22 Unaudited £’000
Interest paid on CFDs* 1,995 1,231 307
Interest on bank overdraft and collateral 1 12 2
--------------- --------------- ---------------
1,996 1,234 309
========= ========= =========
* Increased compared to prior periods due to an increase in interest
rates.
7 TAXATION ON RETURN/(LOSS) ON ORDINARY ACTIVITIES
six months ended 28.02.23 unaudited £’000 Year ended 31.08.22 audited £’000 six months ended 28.02.22 Unaudited £’000
Overseas taxation 8 196 32
--------------- --------------- ---------------
Total taxation charge for the period 8 196 32
========= ========= =========
8 RETURN/(LOSS) PER ORDINARY SHARE
six months ended 28.02.23 unaudited £’000 Year ended 31.08.22 audited £’000 six months ended 28.02.22 Unaudited £’000
Revenue return per ordinary share 3.04p 9.42p 1.80p
Capital return/ (loss) per ordinary share 26.30p (23.00p) (15.95p)
--------------- --------------- ---------------
Total return/ (loss) per ordinary share 29.34p (13.58p) (14.15p)
========= ========= =========
The return/(loss) per ordinary share is based on the net return/(loss) on
ordinary activities after taxation for the period divided by the weighted
average number of ordinary shares held outside of Treasury during the period,
as shown below:
£’000 £’000 £’000
Net revenue return on ordinary activities after taxation 9,869 30,128 5,671
Net capital return/ (loss) on ordinary activities after taxation 85,225 (73,559) (50,340)
--------------- --------------- ---------------
Net total return/ (loss) on ordinary activities after taxation 95,094 (43,431) (44,669)
========= ========= =========
Number Number Number
Weighted average number of ordinary shares help outside of Treasury during the period 324,098,920 319,869,879 315,639,997
========= ========= =========
9 DIVIDENDS PAID TO SHAREHOLDERS
six months ended 28.02.23 unaudited £’000 Year ended 31.08.22 audited £’000 six months ended 28.02.22 Unaudited £’000
Final dividend of 5.45 pence per ordinary share paid for the year ended 31 August 2022 17,663 – –
Interim dividend of 2.30 pence per ordinary share paid for the year ended 31 August 2022 – 7,454 –
Final dividend of 4.50 pence per ordinary share paid for the year ended 31 August 2021 – 14,136 14,136
--------------- --------------- ---------------
17,663 21,590 14,136
========= ========= =========
The Company has declared an interim dividend for the six month period to 28
February 2023 of 2.53 pence per ordinary share (2022: 2.30 pence). The interim
dividend will be paid on 21 June 2023 to Shareholders on the register at 12
May 2023 (ex-dividend date 11 May 2023). The total cost of this interim
dividend, which has not been included as a liability in these Financial
Statements, is £8,200,000 (2022: £7,454,000). This amount is based on the
number of ordinary shares in issue held at the date of this report.
10 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 as disclosed
in the Company’s Annual Report for the year ended 31 August 2022 (Accounting
Policies Notes 2 (k) and 2 (l) on pages 62 and 63.
The table below sets out the Company’s fair value hierarchy:
28 February 2023 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Financial assets at fair value through profit or loss
Investments 896,737 7,426 496 904,659
Derivative instrument assets – 2,631 – 2,631
--------------- --------------- --------------- ---------------
896,737 10,057 496 907,290
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (888) – (888)
========= ========= ========= =========
31 August 2022 (audited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Financial assets at fair value through profit or loss
Investments 835,224 – 448 835,672
Derivative instrument assets – 28 – 28
--------------- --------------- --------------- ---------------
835,224 28 448 835,700
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (9,200) – (9,200)
========= ========= ========= =========
28 February 2022 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Financial assets at fair value through profit or loss
Investments 775,353 – 439 775,792
Derivative instrument assets – 1,355 – 1,3
--------------- --------------- --------------- ---------------
775,353 1,355 439 777,147
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (10,507) – (10,507)
========= ========= ========= =========
11 SHARE CAPITAL
28 February 2023 unaudited 31 August 2022 audited 28 February 2022 Unaudited
Number of shares £’000 Number of shares £’000 Number of shares £’000
Issued, allotted and fully paid ordinary shares of 5 pence each
Held outside of Treasury
Beginning of the period 324,098,920 16,205 313,028,920 15,651 313,028,920 15,651
New ordinary shares issued – – 11,070,000 554 10,565,000 528
End of the period 324,098,920 16,205 324,098,920 16,205 323,593,920 16,179
---------------- --------------- ---------------- --------------- ---------------- ---------------
Total share capital 324,098,920 16,205 324,098,920 16,205 323,593,920 16,179
========== ========== ========== ========== ========== ==========
During the period, no new ordinary shares were issued (year ended 31 August
2022: 11,070,000 shares and six months to 28 February 2022: 10,565,000
shares). The premium received on the issue of new ordinary shares year ended
31 August 2022 (£33,118,000) and six month period to 28 February 2022
(£31,673,000) was credited to the share premium account. At 28 February 2023,
no shares were held in Treasury.
12 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the
total Shareholders’ funds divided by the number of ordinary shares held
outside of Treasury.
28.02.23 unaudited 31.08.22 audited 28.02.22 Unaudited
Total Shareholders’ funds £1,000,030,000 £922,599,000 –
Ordinary shares held outside of Treasury at period end 324,098,920 324,098,920 323,593,920
--------------- --------------- ---------------
Net asset value per ordinary share 308.56p 284.67p 286.62p
========= ========= =========
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. Since 3 December 2020, there have been no shares held in
Treasury.
13 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
FIL Investment Services (UK) Limited is the Company’s Alternative Investment
Fund Manager and has delegated portfolio management and the role of Company
Secretary to FIL Investments International (“FII”). Both companies are
Fidelity group companies.
Details of the fee arrangements are given in Note 5 above. During the period,
fees payable to FII for portfolio management services were £2,806,000 (year
ended 31 August 2022: £5,607,000 and six months ended 28 February 2022:
£2,806,000). At the Balance Sheet date, fees for portfolio management
services of £459,000 (year ended 31 August 2022: £484,000 and six months
ended 28 February 2022: £441,000) were accrued and included in other
creditors.
FII also provides the Company with marketing services. The total amount
payable for these services during the period was £134,000 (year ended 31
August 2022: £191,000 and six months ended 28 February 2022: £142,000). At
the Balance Sheet date, marketing services of £nil (year ended 31 August
2022: £13,000 and six months ended 28 February 2022: £16,000) were accrued
and included in other creditors.
As at 28 February 2023, the Board consisted of five Non-Executive Directors
(as shown in the Directory in the Half-Yearly Report), all of whom are
considered to be independent. None of the Directors have a service contract
with the Company. The Chairman receives an annual fee of £43,000, the
Chairman of the Audit Committee an annual fee of £34,000 and each other
Director an annual fee of £29,000.
As at the date of this report, the following members of the Board held
ordinary shares in the Company: Dean Buckley 50,000 shares, Nigel Foster
81,000 shares, Claire Boyle 7,466 shares, Ominder Dhillon nil shares and
Alison McGregor 30,000 shares.
The financial information contained in this Half-Yearly Results Announcement
does not constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the six months ended 28
February 2023 and 28
February 2022 has not been audited or reviewed by the Company’s Independent
Auditor.
The information for the year ended 31 August 2022 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies, unless otherwise stated. The report of the Auditor on
those financial statements contained no qualification or statement under
sections 498(2) or (3) of the Companies Act 2006.
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.
A copy of the Half-Yearly Report will shortly be submitted to the National
Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at
www.fidelity.co.uk/specialvalues where up to date information on the Company,
including daily NAV and share prices, factsheets and other information can
also be found.
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