Half-year Report
26/04/2024 07:00
Fidelity Special Values PLC
Half-Yearly Results for the six months ended 29 February 2024 (unaudited)
Financial Highlights:
* The Board of Fidelity Special Values PLC (the “Company”) recommends an
interim dividend of 3.24 pence per share, an increase of 28.1% from last
year’s interim dividend.
* During the six months ended 29 February 2024, the Company reported a Net
Asset Value (NAV) of +4.0% and ordinary share price total return of +4.8%.
* The Benchmark, the FTSE All-Share Index, had a total return of +3.9% over
the same period.
* Mergers and acquisitions activity contributed to performance with five of
the top ten contributors to performance attracting bids.
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 29 February 2024, the Company recorded a
net asset value (“NAV”) per ordinary share return of +4.0% and a share
price return of +4.8%, compared to a +3.9% return for the Benchmark FTSE
All-Share Index (all on a total return basis). This report seeks to summarise
the period, highlight the key drivers of performance and set out the Portfolio
Manager’s forward-looking views.
Stock Market and Portfolio Review
UK equities advanced during the period despite persistent global challenges
including geopolitical tensions, economic uncertainty, high borrowing costs
and China’s sluggish post pandemic economy. Nevertheless, the market
narrative was supported by decelerating inflationary pressures that allowed
the Bank of England (“BoE”) to keep interest rates unchanged during the
review period after fourteen successive rate hikes. This has led to
expectations that we may have reached the peak of rate increases, while
improving economic data increased conviction in the soft-landing narrative,
providing a tailwind for equities.
From a sector perspective, market gains were led by technology, industrials
and consumer discretionary, while basic materials and consumer staples were
the biggest detractors. While both the value and growth segments showed gains,
the technology-led rally from November meant that growth outperformed over the
period. Similarly, small cap stocks rebounded strongly following two years of
significant underperformance.
The period started with UK equities posting gains in September as easing
inflation prompted the BoE to keep its policy interest rate unchanged at
5.25%. The decision to leave rates unchanged surprised the market, as previous
expectations factored in a high likelihood of an imminent rate hike.
Encouragingly, positive inflationary developments extended beyond the UK, with
the eurozone and the US also reporting decelerating price pressures, which
heightened investor optimism over a soft landing. By the end of November,
markets had priced in a peak in current interest rates, with expectations of
cuts in 2024, both at home and abroad.
However, equities started off 2024 on a weak note. This shift was underpinned
by investors recalibrating their expectations for imminent and substantial
interest rate cuts by major central banks. A desire for firmer evidence that
inflation was under control and the lack of commitment on the timing of rate
adjustments by central banks contributed to an atmosphere of uncertainty among
market participants. Meanwhile, geopolitical concerns remained centre stage as
a result of disruption of commercial shipping in the Red Sea, leading to some
supply chain bottlenecks.
Economic indicators in the UK painted a mixed picture. Preliminary estimates
revealed a 0.3% contraction in UK GDP (quarter-on-quarter) in the fourth
quarter of 2023, driven by declines in both consumer and government spending.
While this marked the second consecutive quarter of contraction (defined as a
technical recession), nevertheless, GDP is estimated to have increased overall
in 2023 but only by 0.1%. On a positive note, the preliminary data for January
was more encouraging showing a 0.2% month-on-month GDP expansion. UK inflation
has also fallen rapidly from its peak of more than 11% in late 2022 to just
3.4% in February, but it is still above the Bank of England’s 2% target and
wage inflation remains stubbornly higher than the headline rate.
Over the period, the Company’s NAV marginally outperformed its Benchmark.
Irish support services group DCC was the leading contributor as its shares
benefited from an improving outlook, delivering on ambitious new targets for
its energy division. Its aim to evolve its strategy towards lower carbon
energy solutions was underlined by its acquisition of Progas GmbH, a leading
distributor of LPG in Germany, considerably expanding its customer base in the
country. Ryanair Holdings continued to benefit from the post-pandemic recovery
in demand for international travel, as a strong Easter, record summer traffic
and the growth in air fares offset higher fuel costs. The company also
announced it would pay its first ever dividend, as it continued to benefit
from the constrained supply environment and higher cost of new planes.
Similarly, defence contractor Babcock International Group paid its first
dividend in four years, as it reaped the benefits of a turnaround plan,
becoming a more predictable business, that is well placed for higher military
spending amid rising geopolitical tensions.
Mergers and acquisitions (“M&A”) activity continued to be a significant
performance driver during the period with five of the top ten contributors
attracting bids, or becoming subject to takeover speculation. Smart Metering
Systems agreed to a £1.3 billion deal from US private equity firm KKR
(Kohlberg Kravis Roberts) while ten-pin bowling operator Ten Entertainment
Group was taken over by another US private equity firm Trive Capital. Shares
in Direct Line Insurance Group rose on news that Belgian insurer Ageas was
considering making a takeover offer. Meanwhile, shares in Aviva, the UK’s
biggest insurer, rose after reports that it could be the target of a takeover
by a foreign buyer. Media and events company Ascential also added value after
the company agreed to sell its digital commerce business to Omnicom Group and
its product design business to funds advised by Apax Partners. Once the
transactions are complete, Ascential intends to distribute £850 million to
its shareholders.
Conversely, the holding in Swiss pharmaceuticals group Roche Holdings
detracted from performance, as investors weighed the company’s more modest
than expected 2024 outlook. Group sales, which include diagnostics, were
expected to grow by a mid-single digit percentage, when adjusted for currency
swings, but the projections were lower than consensus estimates. Nevertheless,
results showed the company was overcoming a slump in demand for its COVID-19
products and a decline in sales of a trio of established cancer drugs.
Shares in merchant banking group Close Brothers declined sharply after the
Financial Conduct Authority announced that it would review historic claims of
unfair costs on discretionary car finance commissions and ensure that
consumers received compensation if it uncovers evidence of widespread
misconduct. Although we had significantly reduced our holding having
identified this risk, the estimated fines are likely to be higher than
previously thought and the residual position proved a drag on returns given
the significant sell-off.
Industrial threads maker Coats Group was another detractor. The company has
seen a decline in trading revenues, but there are signs of a gradual recovery,
while its balance sheet and cash generation remain strong. Elsewhere, Victrex
was weighed down by weakness across the chemical sector.
Meanwhile, shares in health and beauty products company PZ Cussons fell
following the devaluation of Nigeria’s currency, the naira, before the
company’s results announcement in February and this led to a reduction in
its dividend and a paring back of profit forecasts. The company counts Nigeria
as one of its four major markets, although it now only represents 15% of
profits. PZ Cussons is undergoing a turnaround having reinvested in its core
brands, professionalised the organisation and has started to simplify its
operations.
Use of gearing
During the review period, we continued to use contracts for difference to gear
the portfolio’s long exposure and eliminate some of the currency exposure
for those holdings listed outside the UK. Overall, there was a small reduction
in the Company’s gearing level over the period. Gearing remains low at 5.9%
at the end of February (compared to 6.5% at the end of August 2023). While
valuations are attractive and we are finding new ideas, we are conscious of
the increased cost of borrowing and want to retain some dry powder to take
advantage of opportunities and any short-term volatility.
Outlook
While there continues to be a degree of economic and geopolitical uncertainty,
the attractiveness of UK valuations versus history and compared to other
markets, as well as 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. Their unloved status
means we continue to find overlooked companies with good upside potential
across industries and the market cap spectrum. What is more, the lack of
interest from other investors means that, despite our focus on attractive
valuations, we do not have to compromise on quality.
While the value in the UK market is not being recognised by investors, it is
being acknowledged by other market participants. Overseas corporates and
private equity firms are seeing the value and are taking advantage of those
attractive valuations. As noted previously, we have had a lot of success with
M&A across the portfolio in the last six months. After a lull in the middle of
last year, activity has picked up. The low valuations are also reflected in
the substantial buyback activity among UK corporates.
From a portfolio perspective, we remain disciplined, taking profits in stocks
that have performed well and where the risk/reward is no longer as attractive.
We are particularly wary of stocks where fundamentals and margins have been
strong, and a deterioration is not priced in. A stock we sold after strong
returns was Marks & Spencer, where we felt the investment thesis had played
out. The stock had doubled having taken market share in the clothing, home and
food segments which had benefited from the exit of the likes of New Look,
Arcadia and Debenhams, favourable weather conditions as well as a switch from
shopping online back to shops after the pandemic. Market sentiment was
becoming overwhelmingly positive and after such a strong run, we felt the
risk/return was more skewed to the downside given a wide range of scenarios in
a relatively weak economic environment. Elsewhere, higher interest rates have
benefited sectors such as banks and life insurers, which had been shunned
since the global financial crisis. While they continue to be well represented
in our portfolios, we have taken some profits following strong returns, and
changed some of our positions, for instance reducing our NatWest Group
position in favour of Standard Chartered, given better revenue growth
prospects, and switching some of our Phoenix Group Holdings exposure into Just
Group, a move that paid off handsomely in light of the very strong set of
results they recently announced.
Conversely, we have been on the lookout for companies that have seen their
earnings rebased and which trade on low valuations with limited downside and
the potential for significant upside once the environment normalises. We have
been finding new ideas in cyclical areas such as industrials, media, and
staffing and adding back into some UK housing related names of late, where
demand appears to be stabilising and valuations remain low.
Overall, we continue to see potential for attractive returns given the
upside/downside profile of our portfolio. We are encouraged by the performance
of our holdings in the recent reporting season. We have seen a strong full
year 2023 reporting season, and in particular excellent results from some of
our financials positions. With the exception of high-end and big-ticket
consumer goods, where spend is under pressure, generally the results season
has painted a fairly robust economic picture, with things actually starting to
look more positive in most areas into the fourth quarter of 2023 and first
quarter of 2024, compared to 2023 as a whole. The one exception is China where
poor economic conditions on the ground appear to be deteriorating further. Our
holdings have low revenue exposure to China (much lower than the UK market)
given our low exposure to big staples, financials and mining companies that
are driven primarily by Chinese demand. Overall, we have been encouraged by
the robustness of earnings in the portfolio and indeed the market as a whole.
Alex Wright
Portfolio Manager
25 April 2024
Twenty Largest Investments as at 29 February 2024
The Asset Exposures shown below measure exposure to market price movements as
a result of owning shares, 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 % 1 £’000
Long Exposures – shares unless otherwise stated
AIB Group (corporate bond and long CFD)
Banks 46,005 4.8 16,597
--------------- --------------- ---------------
DCC
Industrial Support Services 44,061 4.5 44,061
--------------- --------------- ---------------
Imperial Brands
Tobacco 36,957 3.8 36,957
--------------- --------------- ---------------
Ryanair Holdings (shares and long CFD)
Travel & Leisure 33,616 3.5 4,371
--------------- --------------- ---------------
Roche Holdings
Pharmaceuticals & Biotechnology 32,947 3.4 32,947
--------------- --------------- ---------------
Aviva
Life Insurance 32,725 3.4 32,725
--------------- --------------- ---------------
Mitie Group
Industrial Support Services 26,649 2.8 26,649
--------------- --------------- ---------------
GSK
Pharmaceuticals & Biotechnology 26,453 2.7 26,453
--------------- --------------- ---------------
Babcock International Group
Aerospace & Defense 23,265 2.4 23,265
--------------- --------------- ---------------
Coats Group
General Industrials 22,821 2.4 22,821
--------------- --------------- ---------------
NatWest Group
Banks 22,636 2.3 22,636
--------------- --------------- ---------------
Glenveagh Properties (shares and long CFDs)
Household Goods & Home Construction 22,586 2.3 19,458
--------------- --------------- ---------------
Standard Chartered
Banks 21,453 2.2 21,453
--------------- --------------- ---------------
Direct Line Insurance Group
Non-Life Insurance 19,414 2.0 19,414
--------------- --------------- ---------------
Spire Healthcare Group
Health Care Providers 19,389 2.0 19,389
--------------- --------------- ---------------
Keller Group (shares and long CFD)
Construction & Materials 19,326 2.0 13,011
--------------- --------------- ---------------
OMV
Oil, Gas & Coal 19,027 2.0 19,027
--------------- --------------- ---------------
Phoenix Group Holdings
Life Insurance 19,021 2.0 19,021
--------------- --------------- ---------------
Conduit Holdings
Non-Life Insurance 18,572 1.9 18,572
--------------- --------------- ---------------
Reckitt Benckiser Group
Personal Care, Drug & Grocery Stores 17,718 1.8 17,718
--------------- --------------- ---------------
Twenty largest long exposures 524,641 54.2 456,545
Other long exposures 500,540 51.7 456,686
--------------- --------------- ---------------
Gross Asset Exposure (96 holdings) 1,025,181 105.9
========= =========
Portfolio Fair Value 913,231
=========
1 Asset Exposure is expressed as a percentage of Shareholders’ Funds.
Fair Value and Asset Exposure of Investments as at 29 February 2024
Asset Exposure
Fair Value £’000 % 1
£’000
Investments 912,136 912,136 94.2
Long CFDs 1,095 113,045 11.7
--------------- --------------- ---------------
913,231 1,025,181 105.9
========= ========= =========
Cash at bank 2 66 (111,884) (11.6)
Bank overdraft (5,260) (5,260) (0.5)
Fidelity Institutional Liquidity Fund 55,114 55,114 5.7
Other net current assets (excluding derivative assets and liabilities) 5,252 5,252 0.5
--------------- --------------- ---------------
Shareholders’ Funds 968,403 968,403 100.0
========= ========= =========
The Company uses gearing through the use of long CFD positions. Gross gearing
as at 29 February 2024 was 5.9% (31 August 2023: 6.5% and 28 February 2023
5.3%).
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 and Directors’ Responsibility Statement
Board Changes
Nigel Foster will have completed his nine year tenure on the Board during this
year and will step down at the conclusion of the Annual General Meeting in
December 2024. A recruitment process for his replacement will be carried out
during the course of the year.
Interim Dividend
Dividends are an important component of long-term returns and 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 29 February 2024 was 3.34
pence per share.
The Board has declared an interim dividend of 3.24 pence per share which is
28.1% higher than the 2.53 pence per share paid as the interim dividend in
2023. This will be paid on 20 June 2024 to shareholders on the register on 10
May 2024 (ex-dividend date 9 May 2024). 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.
Discount Management and Share Repurchases
Investment trust discounts continue to remain wide and the Company has not
been immune to this trend. As at 29 February 2024, the average discount for
the companies in the UK All Companies peer group was 10.8%. However, in the
six months under review, the Company’s discount to NAV has remained
relatively stable beginning the year at 8.8% and ending it at 8.3%. 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. As the discount remained in
single digits in the reporting period, the Company did not repurchase any
shares.
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.
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 continue to fall into the following categories: market, economic and
political; investment performance (including the use of derivatives and
gearing); cybercrime and information security; environmental, social and
governance (“ESG”); competition; business continuity; key person and
operational support; discount control regulatory risks. Information on each of
these risks is given on pages 23 to 25 in the Strategic Report section of the
Annual Report for the year ended 31 August 2023, 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 last
year end, the uncertainty continues to be heightened by the global
implications of the ongoing Russia and Ukraine conflict dominating political
risks and industry concerns as well as the Middle East conflict. There is
geopolitical and economic uncertainty, in addition to events currently being
faced globally such as the cost of living, inflation, interest rate rises,
food supply crisis and the threat of cyberattacks on critical infrastructure.
There continues to be tension between China and the US. The quantum of risks
continues to change and the Board remains vigilant in monitoring such risks.
Climate change continues to be a key principal risk, that is confronting asset
managers and their investors. Globally, climate change effects are already
being experienced in the form of changing weather patterns. Climate change
patterns can potentially impact the operations of investee companies, their
supply chains and their customers. Additional risks may also arise from
increased regulations, increased costs and net-zero programmes which can all
impact investment returns. 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, 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 somewhat 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. This includes investment
team key activities which also covers portfolio managers, analysts and
trading/support functions. The Manager reviews its operational resilience
strategies on an ongoing basis and continues to take all reasonable steps in
meeting its regulatory obligations, assess its ability to continue operating
and the steps it needs to take to serve and support its clients, including the
Board. It has an appropriate control environment in place.
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 as outlined above.
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
25 April 2024
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 25 April 2024 and the
above responsibility statement was signed on its behalf by Dean Buckley,
Chairman.
Financial Statements
Income Statement for the six months ended 29 February 2024
Six months ended 29 February 2024 Year ended 31 August 2023 Six months ended 28 February 2023
unaudited audited unaudited
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Gains/(losses) on investments – 20,869 20,869 – (12,021) (12,021) – 52,800 52,800
Gains on long CFDs – 5,742 5,742 – 35,770 35,770 – 34,556 34,556
Investment and derivative income 4 15,462 – 15,462 43,717 – 43,717 13,700 – 13,700
Other interest 4 1,861 – 1,861 2,971 – 2,971 1,438 – 1,438
Investment management fees 5 (2,863) – (2,863) (5,698) – (5,698) (2,806) – (2,806)
Other expenses (468) – (468) (948) – (948) (459) – (459)
Foreign exchange gains/(losses) – 220 220 – (4,032) (4,032) – (2,131) (2,131)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return on ordinary activities before finance costs and taxation 13,992 26,831 40,823 40,042 19,717 59,759 11,873 85,225 97,098
Finance costs 6 (2,994) – (2,994) (4,774) – (4,774) (1,996) – (1,996)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return on ordinary activities before taxation 10,998 26,831 37,829 35,268 19,717 54,985 9,877 85,225 95,102
Taxation on return on ordinary activities 7 (154) – (154) (672) – (672) (8) – (8)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return on ordinary activities after taxation for the period 10,844 26,831 37,675 34,596 19,717 54,313 9,869 85,225 95,094
========= ========= ========= ========= ========= ========= ========= ========= =========
Return per ordinary share 8 3.34p 8.28p 11.62p 10.67p 6.08p 16.75p 3.04p 26.30p 29.34p
========= ========= ========= ========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly, the net
return on ordinary activities after taxation for the period is also the total
comprehensive income for the period and no separate Statement of Comprehensive
Income has been presented.
The total column of this statement represents the Income Statement of the
Company. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
No operations were acquired or discontinued in the period and all items in the
above statement derive from continuing operations.
Statement of Changes in Equity for the six months ended 29 February 2024
Notes 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
Six months ended 29 February 2024 (unaudited)
Total shareholders’ funds at 31 August 2023 16,205 238,442 3,256 5,152 648,795 39,199 951,049
Net return on ordinary activities after taxation for the period – – – – 26,831 10,844 37,675
Dividend paid to shareholders 9 – – – – – (20,321) (20,321)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 29 February 2024 16,205 238,442 3,256 5,152 675,626 29,722 968,403
========= ========= ========= ========= ========= ========= =========
Year ended 31 August 2023 (audited)
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 year – – – – 19,717 34,596 54,313
Dividends paid to shareholders 9 – – – – – (25,863) (25,863)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 31 August 2023 16,205 238,442 3,256 5,152 648,795 39,199 951,049
========= ========= ========= ========= ========= ========= =========
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
========= ========= ========= ========= ========= ========= =========
Balance Sheet as at 29 February 2024 Company number 2972628
Notes 29.02.24 31.08.23 28.02.23
unaudited audited unaudited
£’000 £’000 £’000
Fixed assets
Investments 10 912,136 882,692 904,659
--------------- --------------- ---------------
Current assets
Derivative instruments 10 2,675 1,769 2,631
Debtors 5,908 8,937 4,942
Amounts held at futures clearing houses and brokers 775 – 425
Cash and cash equivalents 55,180 59,460 89,441
--------------- --------------- ---------------
64,538 70,166 97,439
========= ========= =========
Current liabilities
Derivative instruments 10 (1,580) (949) (888)
Bank overdraft (5,260) – –
Other creditors (1,431) (860) (1,180)
--------------- --------------- ---------------
(8,271) (1,809) (2,068)
========= ========= =========
Net current assets 56,267 68,357 95,371
========= ========= =========
Net assets 968,403 951,049 1,000,030
Capital and reserves
Share capital 11 16,205 16,205 16,205
Share premium account 238,442 238,442 238,442
Capital redemption reserve 3,256 3,256 3,256
Other non-distributable reserve 5,152 5,152 5,152
Capital reserve 675,626 648,795 714,303
Revenue reserve 29,722 39,199 22,672
--------------- --------------- ---------------
Total shareholders’ funds 968,403 951,049 1,000,030
========= ========= =========
Net asset value per ordinary share 12 298.80p 293.44p 308.56p
========= ========= =========
Cash Flow Statement for the six months ended 29 February 2024
29.02.24 31.08.23 28.02.23
unaudited audited unaudited
£’000 £’000 £’000
Operating activities
Investment income received 18,069 39,436 15,650
Net derivative income 859 5,934 3,479
Interest received 1,861 2,971 1,438
Investment management fee paid (2,887) (5,699) (2,831)
Directors’ fees paid (85) (173) (91)
Other cash payments (332) (777) (416)
--------------- --------------- ---------------
Net cash inflow from operating activities before finance costs and taxation 17,485 41,692 17,229
========= ========= =========
Finance costs paid (3,040) (4,622) (1,925)
Overseas taxation incurred 216 (1,119) 51
--------------- --------------- ---------------
Net cash inflow from operating activities 14,661 35,951 15,355
========= ========= =========
Investing activities
Purchases of investments (133,738) (429,178) (210,375)
Sales of investments 124,932 368,171 192,392
Receipts on long CFDs 23,200 70,856 47,093
Payments on long CFDs (17,719) (45,085) (23,445)
Movement on amounts held at futures clearing houses and brokers (775) 8,190 7,765
--------------- --------------- ---------------
Net cash (outflow)/inflow from investing activities (4,100) (27,046) 13,430
========= ========= =========
Net cash inflow before financing activities 10,561 8,905 28,785
========= ========= =========
Financing activities
Dividends paid (20,321) (25,863) (17,663)
Net cash outflow from financing activities (20,321) (25,863) (17,663)
Net (decrease)/increase in cash and cash equivalents (9,760) (16,958) 11,122
Cash and cash equivalents at the beginning of the period 59,460 80,450 80,450
Effect of movement in foreign exchange 220 (4,032) (2,131)
--------------- --------------- ---------------
Cash and cash equivalents at the end of the period 49,920 59,460 89,441
--------------- --------------- ---------------
Represented by:
Cash at bank 66 2,028 2,868
Bank overdraft (5,260) – –
Amount held in Fidelity Institutional Liquidity Fund 55,114 57,432 86,573
--------------- --------------- ---------------
49,920 59,460 89,441
========= ========= =========
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 2023 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 2023.
(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 Year Six months
ended ended ended
29.02.24 31.08.23 28.02.23
unaudited audited unaudited
£’000 £’000 £’000
Investment income
UK dividends 10,044 29,189 10,736
UK scrip dividends 526 – –
Interest on securities 785 805 109
Overseas dividends 3,096 10,543 2,234
--------------- --------------- ---------------
14,451 40,537 13,079
========= ========= =========
Derivative income
Dividends received on long CFDs 1,011 3,180 621
--------------- --------------- ---------------
Investment and derivative income 15,462 43,717 13,700
========= ========= =========
Other interest
Interest received on bank deposits, collateral and money market funds 1,861 2,965 1,438
Interest received on tax reclaims – 6 –
--------------- --------------- ---------------
1,861 2,971 1,438
========= ========= =========
Total income 17,323 46,688 15,138
========= ========= =========
No special dividends have been recognised in capital during the period (year
ended 31 August 2023: £1,904,000 and six months ended 28 February 2023:
£nil).
5 Investment Management Fees
Six months Year Six months
ended ended ended
29.02.24 31.08.23 28.02.23
unaudited audited unaudited
£’000 £’000 £’000
Investment management fees 2,863 5,698 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. Fees are accrued on a daily basis and payable monthly.
6 Finance Costs
Six months Year Six months
ended ended ended
29.02.24 31.08.23 28.02.23
unaudited audited unaudited
£’000 £’000 £’000
Interest paid on long CFDs 2,992 4,761 1,995
Interest on bank overdrafts 2 13 1
--------------- --------------- ---------------
2,994 4,774 1,996
========= ========= =========
7 Taxation on Return on Ordinary Activities
Six months Year Six months
ended ended ended
28.02.24 31.08.23 28.02.23
unaudited audited unaudited
£’000 £’000 £’000
Overseas taxation 154 672 8
--------------- --------------- ---------------
Total taxation charge for the period 154 672 8
========= ========= =========
8 Return per Ordinary Share
Six months Year Six months
ended ended ended
29.02.24 31.08.23 28.02.23
unaudited audited unaudited
Revenue return per ordinary share 3.34p 10.67p 3.04p
Capital return per ordinary share 8.28p 6.08p 26.30p
--------------- --------------- ---------------
Total return per ordinary share 11.62p 16.75p 29.34p
========= ========= =========
The return per ordinary share is based on the net return 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
Net revenue return on ordinary activities after taxation 10,844 34,596
Net capital return on ordinary activities after taxation 26,831 19,717
--------------- ---------------
Net total return on ordinary activities after taxation 37,675 54,313
========= =========
Number Number
Weighted average number of ordinary shares held outside of Treasury 324,098,920 324,098,920
=========== ===========
9 Dividends Paid to Shareholders
Six months Year Six months
ended ended ended
29.02.24 31.08.23 28.02.23
unaudited audited unaudited
£’000 £’000 £’000
Final dividend of 6.27 pence per ordinary share paid for the year ended 31 August 2023 20,321 – –
Interim dividend of 2.53 pence per ordinary share paid for the year ended 31 August 2023 – 8,200 –
Final dividend of 5.45 pence per ordinary share paid for the year ended 31 August 2022 – 17,663 17,663
--------------- --------------- ---------------
20,321 25,863 17,663
========= ========= =========
The Company has declared an interim dividend for the six month period to 29
February 2024 of 3.24 pence per ordinary share (2023: 2.53 pence). The interim
dividend will be paid on 20 June 2024 to shareholders on the register at the
close of business on 10 May 2024 (ex-dividend date 09 May 2024). The total
cost of this interim dividend, which has not been included as a liability in
these Financial Statements, is £10,501,000 (2023: £8,200,000). 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 2023 (Accounting
Policies Notes 2 (k) and 2 (l) on pages 60 and 61). The table below sets out
the Company’s fair value hierarchy:
29 February 2024 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 884,245 23,919 3,972 912,136
Derivative instrument assets – 2,675 – 2,675
--------------- --------------- --------------- ---------------
884,245 26,594 3,972 914,811
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (1,559) (21) (1,580)
========= ========= ========= =========
31 August 2023 (audited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 857,351 23,246 2,095 882,692
Derivative instrument assets – 1,769 – 1,769
--------------- --------------- --------------- ---------------
857,351 25,015 2,095 884,461
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (949) – (949)
========= ========= ========= =========
28 February 2023 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’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)
========= ========= ========= =========
11 Share Capital
29 February 2024 31 August 2023 28 February 2023
unaudited audited unaudited
Number of £’000 Number of £’000 Number of £’000
shares shares shares
Issued, allotted and fully paid ordinary shares of 5 pence each
Total share capital
Beginning of the period 324,098,920 16,205 324,098,920 16,205 324,098,920 16,205
Ordinary shares issued/repurchased – – – – – –
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
End of the period 324,098,920 16,205 324,098,920 16,205 324,098,920 16,205
========== ========== ========== ========== ========== ==========
During the period, no new ordinary shares were issued (year ended 31 August
2023: nil shares and six months to 28 February 2023: nil shares). At 29
February 2024, 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.
29.02.24 31.08.23 28.02.23
unaudited audited unaudited
Total shareholders’ funds £968,403,000 £951,049,000 £1,000,030,000
Ordinary shares held outside of Treasury at the period end 324,098,920 324,098,920 324,098,920
Net asset value per ordinary share 298.80p 293.44p 308.56p
========= ========= =========
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.
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 of £2,863,000 (year
ended 31 August 2023: £5,698,000 and six months ended 28 February 2023:
£2,806,000). At the Balance Sheet date, fees for portfolio management
services of £459,000 (year ended 31 August 2023: £483,000 and six months
ended 28 February 2023: £459,000).
FII also provides the Company with marketing services. The total amount
payable for these services during the period was £132,000 (year ended 31
August 2023: £303,000 and six months ended 28 February 2023: £134,000). At
the Balance Sheet date, marketing services of £98,000 (year ended 31 August
2023 and six months ended 28 February 2023: £nil) were accrued and included
in other creditors.
As at 29 February 2024, 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 £44,500, the Audit
Committee Chairman an annual fee of £35,000, the Senior Independent Director
receives an annual fee of £31,500 and each other Director an annual fee of
£29,500.
As at the date of this report, the following members of the Board held
ordinary shares in the Company: Claire Boyle 7,466 shares, Dean Buckley 50,000
shares, Nigel Foster 88,000 shares, Ominder Dhillon 7,750 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 29
February 2024 and 28
February 2023 has not been audited or reviewed by the Company’s Independent
Auditor.
The information for the year ended 31 August 2023 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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