Annual Report • Jul 31, 2017
Annual Report
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Annual Report For the year ended 31 July 2017
"Fidelity Asian Values PLC provides shareholders with a distinctive investment approach which is differentiated from its peer sector. Asia is the world's fastestgrowing economic region and the Trust looks to capitalise on this by finding good businesses, run by good people and buying them at a good price. The Company, therefore, favours undervalued small and medium sized companies as this allows it to find mispriced businesses, the "winners of tomorrow", before they become well known." Kate Bolsover, Chairman
TAKE THE ROAD LESS TRAVELLED WITH SOMEBODY WHO KNOWS IT WELL
The Company's objective is to achieve long term capital growth principally from the stockmarkets of the Asian Region excluding Japan.
| Total Shareholders' Funds | £280.2m |
|---|---|
| Market Capitalisation | £264.5m |
| Ordinary Shares of 25 pence each in issue | 67,488,213 |
| Subscription Shares of 0.001 pence each in issue | 13,497,222 |
1 Includes reinvested income.
2 The Company's Comparative Index since 1 August 2015. Prior to that date it was the MSCI All Countries Far East ex Japan Index (net) in Sterling terms. 3 The NAV per Ordinary Share assuming that all the Subscription Share rights are exercised.
Sources: Fidelity and Datastream
Past performance is not a guide to future returns
FINANCIAL
INFORMATION FOR SHAREHOLDERS
SHAREHOLDER INFORMATION
| 2017 | 2016 | |
|---|---|---|
| Assets at 31 July | ||
| Gross Asset Exposure1 | £273.7m | £232.0m |
| Total Shareholders' Funds | £280.2m | £237.5m |
| NAV per Ordinary Share | 415.17p | 351.98p |
| Diluted NAV per Ordinary Share2 | 407.77p | n/a |
| Gearing – (net cash position)3 | (2.3%) | (2.3%) |
| Share Price and Discount data at 31 July | ||
| Ordinary Share Price at year end | 386.00p | 313.00p |
| Year high | 405.50p | 317.50p |
| Year low | 309.25p | 197.30p |
| Discount to NAV per Ordinary Share at year end | 7.0% | 11.1% |
| Year high | 13.5% | 14.8% |
| Year low | 0.4% | 7.8% |
| Discount to diluted NAV per Ordinary Share at year end | 5.3% | n/a |
| Subscription Share Price at year end | 29.50p | n/a |
| Results for the year ended 31 July | ||
| Revenue Return per Ordinary Share | 6.08p | 5.36p |
| Capital Return per Ordinary Share | 61.62p | 83.49p |
| Total Return per Ordinary Share | 67.70p | 88.85p |
| Dividend proposed per Ordinary Share | 5.00p | 4.50p |
| Total returns (includes reinvested income) for the year ended 31 July | ||
| NAV per Ordinary Share | +19.3% | +33.8% |
| Ordinary Share Price | +24.9% | +33.3% |
| Comparative Index4 | +28.2% | +15.8% |
| Ongoing charges for the year ended 31 July5 | 1.22% | 1.33% |
1 The value of the portfolio exposed to market price movements.
2 The NAV per Ordinary Share assuming that all the Subscription Share rights are exercised.
3 Gross Asset Exposure less Total Shareholders' Funds expressed as a percentage of Total Shareholders' Funds.
4 The Company's Comparative Index is the MSCI All Countries Asia ex Japan Index (net) in Sterling terms.
5 Ongoing charges (excluding finance costs and taxation) as a percentage of average Net Asset Values for the year (prepared in accordance with methodology recommended by the Association of Investment Companies).
Sources: Fidelity and Datastream
Past performance is not a guide to future returns
Kate Bolsover – I have pleasure in presenting the Annual Report of Fidelity Asian Values PLC (the "Company") for the year ended 31 July 2017.
Fidelity Asian Values PLC provides shareholders with a distinctive investment approach which is differentiated from its peer sector. Asia is the world's fastest-growing economic region and the Trust looks to capitalise on this by finding good businesses, run by good people and buying them at a good price. The Company, therefore, favours undervalued small and medium sized companies as this allows it to find mispriced businesses, the "winners of tomorrow", before they become well known.
As you will read in Nitin's Portfolio Manager's Review, his approach to investing is driven by stock selection and his focus is on generating absolute returns for our shareholders. Such an approach can lead to lower relative performance during strong bull markets, given that the portfolio is constructed with a bottom up and benchmark agnostic approach and the portfolio's active money is typically in excess of 90%. Essentially, this is what happened in the last twelve months as equities in Asia Pacific excluding Japan, as represented by the MSCI All Countries Asia ex Japan Index, rose by 28.2% in Sterling terms. Against this background, the Trust's NAV rose by 19.3% and its share price by 24.9%. Nitin's value bias and his preference for smaller companies both weighed on performance in a market environment where larger companies outperformed smaller companies and growth stocks outpaced value stocks. Nonetheless, since taking over the Company's portfolio, the NAV and share price have returned an impressive 54.9% and 60.2% respectively, compared to the Comparative Index return of 38.9%. The Board is therefore comfortable that this performance is consistent with Nitin's value based approach and his strong adherence to a clear investment process.
Whilst Nitin does not asset allocate against a benchmark, it is nevertheless relevant to consider the overall performance of markets in the region in order to set the Company in context. Overall signs of economic stabilisation in China and a positive outlook for global growth supported equities in Asia excluding Japan. Chinese and Hong Kong equities benefited from healthy economic activity and a booming property market. The launch of a stock trading link to connect the Hong Kong and Shenzhen stock markets and the ongoing focus on supply side reforms also supported investor sentiment. Meanwhile, the MSCI's decision to include A-shares in its emerging markets benchmark had little effect on equity market levels. Gains in South Korea and Taiwan were driven by the strong performance of the information technology sector. In South Korea, investors also expected that the new President Moon Jae-In will unveil pro-growth policy measures. The President announced plans to adopt a more
conciliatory approach towards North Korea as well as negotiate with China and the US over a controversial anti-missile system. In Indonesia, equities gained as credit rating agency Standard & Poor's upgraded the country's long term sovereign bonds ratings to investment grade, citing the government's focus on fiscal discipline. Progress on tax reforms boosted confidence towards the Philippines. Indian equities also rose amid expectations of accelerated policy reform measures, smooth implementation of the new uniform Goods and Services Tax (GST) regime and a steady fall in inflation.
| 1 | 3 | 5 | Since | |
|---|---|---|---|---|
| Total return (%) | year | years | years | launch |
| NAV per | ||||
| Ordinary Share | +19.3 | +66.0 | +119.6 | +361.6 |
| Share Price | +24.9 | +76.9 | +127.5 | +342.2 |
| Comparative Index* | +28.2 | +48.9 | +75.9 | +178.5 |
* Since 1 August 2015, the Company's Comparative Index is the MSCI All Countries Asia ex Japan Index (net) in Sterling terms. Prior to that date it was MSCI All Countries Far East ex Japan Index (net) in Sterling terms.
All sectors in the Asia region excluding Japan, except telecommunication services and health care, saw positive returns. In particular, the IT sector led gains against the backdrop of better-than-expected earnings. Further, the emergence of new products in automation and in virtual and augmented reality contributed to good performance for technology hardware producers. Equities in the materials sector tracked iron ore and commodity prices higher and financial stocks also benefited from the growth in economic activity in the region.
As at 31 July 2017, the Company's net cash position was 2.3% (2016: 2.3%). Nitin is cautious of market valuations and many of his holdings have hit their price targets. He continues to believe that the Company's performance will be driven by stock picking and he expects to invest cash and in time reintroduce gearing when he is able to uncover more well-priced ideas.
Notwithstanding the geo-political tension and uncertainty, particularly in relation to North Korea, the Board believe that the long term outlook for Asia Pacific excluding Japan remains strong. Focus on policy reforms along with strong structural growth drivers such as positive demographics, rising income and domestic consumption, and higher infrastructure spending are expected to provide multi-year investment opportunities across the region. Notably, India and China are witnessing significant progress on reforms. China's focus on deleveraging and liberalising its financial markets is likely to be positive for sentiment.
However, from a valuation point of view, equities are no longer cheap versus their historical prices. Given current valuations, it is harder to find many businesses which offer a substantial margin
of safety. Although we have seen positive earnings revisions in the past few months, we need further earnings upgrades to justify current valuation levels.
Nonetheless, given that Asia has more than 17,000 listed companies, the opportunity to find hidden gems remains and the Company will continue to focus on finding attractive long term investment opportunities across the region based on strong fundamental research.
The Directors currently have authority to issue 5% of the issued ordinary share capital of the Company, without first offering such shares to existing ordinary shareholders pro rata to their existing holdings, which expires at the Annual General Meeting ("AGM") on 7 December 2017. The Board has reviewed this level of authority. Given the fact that the Company's share price has at times traded close to a premium, the Directors are seeking shareholder approval to increase the 5% limit to 10% of the issued ordinary share capital of the Company at the forthcoming AGM. This will give the Directors additional capacity to issue shares in the Company should the need arise. This gives the Company more scope to grow cost-effectively, helping to increase liquidity and to spread costs.
At the Company's AGM on 2 December 2016, shareholders approved the bonus issue of subscription shares on the basis of one subscription share for every five held by qualifying investors. Each subscription share gives the holder the right, but not the obligation, to subscribe for one ordinary share on the annual exercise dates. The subscription shares can be exercised annually in the 25 business days preceding the last business day in November this year, and in November 2018 and 2019. The exercise price is equal to the published NAV of 366.88 pence per ordinary share on 2 December 2016 plus a premium of 1% if exercised this year (370.75 pence), a premium of 4% if exercised in 2018 (381.75 pence) and a premium of 7% if exercised in 2019 (392.75 pence).
Repurchases of ordinary and subscription shares are made at the discretion of the Board and within guidelines set by it from time to time in light of prevailing market conditions. Shares will only be repurchased when it results in an enhancement to the NAV of ordinary shares for the remaining shareholders. In order to assist in managing the discount, the Board has shareholder approval to hold in Treasury ordinary shares repurchased by the Company, rather than cancelling them. Any shares held in Treasury would only be re-issued at NAV per share, or at a premium to NAV per share. Any subscription shares repurchased would be cancelled. No ordinary shares were repurchased for cancellation or for holding in Treasury and no subscription shares were repurchased for cancellation during the year under review and none have been repurchased since the end of the reporting period and as at the date of this report.
Subject to shareholders' approval at the forthcoming AGM, the Directors recommend a dividend of 5.00 pence per ordinary share which represents an increase of 11.1% to the 4.50 pence paid in 2016. This dividend will be payable on 12 December 2017 to shareholders on the register at close of business on 20 October 2017 (ex-dividend date 19 October 2017). As the Company's objective is long term capital growth, any revenue surplus is a function of a particular year's business and it should not be assumed that dividends will continue to be paid in the future.
All Directors are subject to annual re-election at the forthcoming AGM and their biographical details are included on page 22 to assist shareholders when considering their votes.
The AGM of the Company will be held at 11.00 am on 7 December 2017 at Fidelity's offices at 25 Cannon Street, London EC4M 5TA (nearest tube stations are St Paul's or Mansion House). Full details of the meeting are given on pages 63 to 65.
This is our opportunity to meet as many shareholders as possible and I hope therefore that you are able to join us. In addition to the formal business of the meeting, Nitin will be making a presentation on the year's results and the prospects for the Company for the year to come.
Kate Bolsover Chairman 11 October 2017
Nitin Bajaj has been the Company's Portfolio Manager since 1 April 2015. He is based in Singapore and has over 17 years' investment experience and is also the Portfolio Manager for the Fidelity Asian Smaller Companies Fund. Nitin joined Fidelity in 2003 as an
Investment Analyst in London. He moved to India in 2009 to take over the Fidelity India Special Situation Fund and subsequently started the Fidelity India Value Fund. Nitin managed these funds until November 2012, when Fidelity decided to sell its India business. Nitin holds a Bachelor of Commerce from the University of Delhi, India and an MBA from INSEAD. He is also a Chartered Accountant.
The NAV of the Company appreciated by 19.3% on a total return basis during the year ended 31 July 2017. Since 30 June 2015 (effective date for change in strategy for the Company), NAV has appreciated by 54.9%. The reference numbers for the Comparative Index are 28.2% and 38.9%1 .
However, performance last year lagged the market by 8.9 percentage points – this was primarily due to not owning technology companies which are the current market darlings (more on this later). Performance since the change in strategy has been good, both in absolute and relative terms. This is a satisfactory outcome given that the market has been in an upswing for the past two years. A central pillar of our investment process is to minimise losses by investing in good businesses that have good balance sheets and buying them at a price that leaves enough margin of safety. These types of companies can lag the market in big upswings in investor sentiment. So, to be able to do better than the market since 30 June 2015 is a good outcome.
While we are pleased with performance thus far, it has only been two years since the Company's strategy changed. You will remember that our investment process is driven by a desire to compound money over a three to five year horizon. Any performance measurement should be viewed in that time frame. As Warren Buffet puts it, "Yearly figures are neither to be ignored nor viewed as all-important. The pace of earth's movement around the sun is not synchronized with the time required for either investment ideas or operating decisions to bear fruit."
As always, before we move to a more detailed discussion, I would like to highlight the efforts of the analyst team at Fidelity. They continue to put hours of diligence in analysing companies on your behalf. They form the bedrock on which we are trying to build long term returns. We owe a great deal of gratitude to them and I would like to thank them on your behalf.
Apologies to those who have read this last year. An investment philosophy does not change year to year and the message fundamentally remains the same.
The returns that we generate over the coming five years will be largely driven by the hard work of the team and our investment philosophy (and some luck!). Outlined below are the key tenets of the philosophy when evaluating potential investments. It's a process built through years of practice, observation and empirical evidence. The Board has bought into this process and we will stay true to it – even during testing times.
What we are trying to do is buy good businesses run by good management teams and buy them at good prices (that leave enough margin of safety). To accomplish this, there are three key guiding principles:
First, understand the business. Stocks are not merely tickers on a screen but a reflection of businesses that exist and compete in the real world. So, it is important to understand the economic characteristics of the underlying franchise. I don't think we can pick winning stocks if we do not pay close attention to the business of a company. If, for example, I decide to invest in Cebu Air – I am basically investing in the future of low cost airlines in Philippines and the competitive advantages of Cebu Air within that industry. To make a sound investment decision, it is critical to understand the industry and how Cebu Air will continue to maintain or even enhance its market strength. This is the starting point of every opportunity that is investigated.
Second, valuation is critical. For me investing is as much about protecting downside as it is about participating in the upside. I want to buy good businesses when either they are ignored or misunderstood by the market. These are times when one can get them at valuations that leave a lot of upside for the investors. Valuation anomalies are at the core of the investment process – where the market either ignores or misunderstands a business. I therefore rarely buy into good businesses when valuations are high. The reason for this is that in these cases there is little margin of safety or room for error. Return of capital is as important as return on capital.
Third, beware of chasing hot stories. I consciously try to stay away from existing trends in the market. This links back to valuations as well-loved sectors generally tend to be more expensively priced than warranted. There are many examples of these – from tulip mania to Nifty 50 to the tech boom to the housing bubble of the mid-2000s. At their peak, these themes are always appealing but they seldom lead to good long term returns. I am generally more curious about businesses where expectations are low and which are out of a mainstream investor's sight.
FINANCIAL
INFORMATION FOR SHAREHOLDERS
1 Comparative Index is MSCI All countries Asia ex Japan Index. Relative performance as a measurement tool is important as credit for a rising market should not be given to the Portfolio Manager. The real value is in generating returns in excess of market indices. Reference Index numbers are stated including pre tax dividends.
In addition to the above three basic principles, I prefer to invest in companies where there is a good management team in place and some additional angle. It can either be corporate/industry restructuring or the possibility of industry consolidation/take-over etc. This forms an integral part of "special situations" that the Company looks to invest in.
Given this philosophy, most of the Company's investments will have a two to three year time horizon. I am not trying to gamble with your money. To be successful in the stock market, I need to know more about the businesses that the Company invests in than others do. There is only one way to do it – research, research and more research. If I truly understand the business correctly and enter at a valuation which provides a margin of safety, then over time we should be able to win. This is not a speculative investment trust and it is important that you feel comfortable with this.
There are two main categories of errors in investing - errors of omission and errors of commission. An error of omission occurs when the value of a stock goes up and the Company does not own it (opportunity loss) whereas an error of commission is when something we own goes down (real loss).
As alluded to earlier in this review, my primary preoccupation is with errors of commission. The idea being that losses can be minimised if a mistake is made, then the correct decisions can keep adding to the pool of investment returns.
However, given that the Comparative Index appreciated by 28.2% for the year as compared to 19.3% for the NAV of the Company – I think this review warrants a discussion about errors of omission. The primary reason for the variation in performance from the Comparative Index last year was stellar performance of technology companies, such as Samsung, Alibaba and Tencent appreciating between 60-90%. These are sound businesses run by good management teams, but I did not feel comfortable with the valuations being ascribed to them as it leaves little margin of safety. Hence, I have not invested in these stocks so far and do not see any reason to change this view at current prices. Valuation discipline is at the core of our investment philosophy and that will not change.
As a consequence of investors' focus on large technology companies there was a wide dispersion in the returns of the large companies index compared to the broader smaller companies' index with returns of 28.2% and 15.0% respectively over a one year basis. This is amongst the largest dispersions between the two indices over the last 20 years. Despite this, there is little difference in the long term returns between the two groups. Hence, we continue to work with the hypothesis that smaller companies, which are less well researched, offer better stock picking opportunities (and hence better relative returns) and that is where the team and I will continue to focus our efforts.
Now to errors of commission.
| Lost Money | Loss >20% | Profit >50% | Profit>100% | |
|---|---|---|---|---|
| 1 Year | 16% | 5% | 12% | 1% |
| Tenure | 17% | 6% | 37% | 13% |
The Company lost absolute money in 16% of the portfolio – and within that it lost more than 20% in 5% of the portfolio (costing approximately 2.5% loss on the Company's assets). In most companies where we lost money, it was largely due to changes in business circumstances or some degree of debt burden that they carried. I am pleased with this outcome – I would rather not have made any mistakes but that's almost impossible in a capitalistic system where new competitors emerge all the time to challenge existing business models.
In terms of "what went right" – about 12% of the portfolio was invested in stocks that went up more than 50% (making us a profit of around 9.5% of the Company's assets). Most of these are not well known blue chip stocks but small niche businesses with good management teams that we were able to research and buy before they caught the attention of the general stock market. I would put this down to the depth of our research process.
As a final word on performance, I would like to caution that positive market sentiment has helped the underlying businesses as well as stock prices of companies that the Company owns. As and when the market turns negative these numbers will look less attractive. However, given the quality of the underlying businesses that the Company owns and the valuations they trade at, I feel comfortable that in the long term the Company should be able to compound money at our desired rate.
I do not wish to make predictions as to where markets are headed. Experts and media provide 24/7 commentaries on market outlook. I pay little attention to such forecasts and have never found them useful in making money. I feel that our time is better spent in understanding the businesses that we invest in on your behalf.
Although I am sharing with you my assessment of the market and the economy, the purpose is not to make a forecast. It is to better understand the current risk preference and tolerance in the market. As it stands:
Liquidity is ample. China continues to lead the charge in liquidity creation through record amounts of incremental debt being injected into the economy.
This has driven most equity markets to their all time highs (if not significantly ahead of their previous peaks).
None of the above mentioned data are individually a cause of alarm – and some of it is actually quite encouraging. But all of them put together – economies nearing full employment, increasing levels of debt and stock markets close to peak CAPE ratios – paint a very clear picture that most market participants are leaning towards "greed" rather than "fear". Either there is general belief that the buoyant global scenario is likely to continue for quite a few years , or everyone believes that they can ride the wave better than others and get off at the right time. They may be right. Or they may not be. Do we want to dance until the music stops playing?
I am more inclined to the old adage - be fearful when others are greedy (and vice versa). As a result, over the last six months, the Company sold more stocks (as they approached fair value or beyond) than it has bought. This has led to the Company holding more cash than it is used to. Some investors may find issue with this. Even though I understand their point of view, I am a firm believer that the Company should only invest when I find the right opportunity; not just because the Company has the money. 'Marry in haste; repent at leisure' holds true in the investing world as well.
During times of such optimism in the stock markets, I think it is even more important that we stay true to our investment philosophy of owning companies which have solid business models and well financed balance sheets, are run by able management teams and the Company own s them only if there is enough margin of safety. I will wait patiently and deploy capital only where there is conviction.
Additionally, the Company has also bought insurance (through put options) against major fall s in the markets. I hope that I never have to use this, but given the current environment and low prices for buying insurance, I felt it was prudent to have some protection.
As a final word, I am generally happy with the portfolio as it stands today. The Company owns shares in some good businesses which are not being fairly valued by the market and I will continue to be patient in investing the cash held in the portfolio . I have no doubt opportunities to deploy it will emerge – and I, together with the analyst team at Fidelity, continue to work hard to find "good businesses", run by "good management teams" and available at a "good price ".
Portfolio Manager 11 October 201 7
The Directors have pleasure in presenting the Strategic Report of the Company. The Chairman's Statement and the Portfolio Manager's Review on pages 3 to 7 form part of the Strategic Report.
The Company carries on business as an investment company and has been accepted as an approved investment trust by HM Revenue & Customs under Sections 1158 and 1159 of the Corporation Tax Act 2010, subject to the Company continuing to meet eligibility conditions. The Directors are of the opinion that the Company has conducted its affairs in a manner which will satisfy the conditions for continued approval.
The Company is registered as an investment company under Section 833 of the Companies Act 2006 and its ordinary shares are listed and traded on the London Stock Exchange. It is not a close company and has no employees.
The Company's objective is to achieve long term capital growth principally from the stockmarkets of the Asian Region excluding Japan.
In order to achieve this objective, the Company operates as an investment company and has an actively managed portfolio of investments. As an investment company, it is able to gear the portfolio and the Board takes the view that long term returns for shareholders can be enhanced by using gearing in a carefully considered and monitored way.
As part of the strategy, the Board has delegated the management of the portfolio and certain other services. The Portfolio Manager aims to achieve a total return on the Company's assets over the longer term in excess of the equivalent return on the MSCI All Countries Asia ex Japan Index, the Company's Comparative Index. The stock selection approach adopted by the Portfolio Manager is considered to be well suited to achieving this objective.
The Company's objective, strategy and principal activity have remained unchanged throughout the year ended 31 July 2017.
The Company seeks to meet its investment objective through investment in a diversified portfolio of securities and instruments issued by or related to companies listed on the stockmarkets in the Asian Region excluding Japan but investments may be made in companies listed elsewhere, which in the opinion of the Portfolio Manager, have significant interests in the Asian Region, excluding Japan.
In order to diversify the Company's portfolio, the Board has set broad guidelines for the Manager, which the Board reserves the right to amend as it sees fit, in respect of the country weightings of the portfolio. The Company may invest directly in the shares of companies or indirectly through equity related instruments (such as derivative contracts, warrants or convertible bonds) and in debt instruments. The Company may also invest in quoted securities and in other investment funds, subject to the investment restrictions set out below.
No material change will be made to the investment policy without shareholder approval.
The Company will invest and manage its assets with an objective of spreading risk with the following investment restrictions:
The Company is permitted to invest in Non-Voting Depositary Receipts, American Depositary Receipts, Global Depositary Receipts and Equity Linked Notes. Any such investment will be included in the relevant aggregate country weighting.
The Company is not expected to undertake any foreign exchange hedging of its portfolio, but reserves the right to do so.
In order to meet its investment objective, the Company may utilise derivative instruments, including index-linked notes, futures, contracts for differences ("CFDs"), call options (including covered calls), put options and other equity related derivative instruments.
STRATEGY
FINANCIAL
INFORMATION FOR SHAREHOLDERS
The Board has created strict policies and exposure limits and sublimits to manage derivatives.
Derivative use is limited in terms of the value of the total portfolio to which the Company is exposed, whether through direct or indirect investment. The Board adopts the policy that:
It is the Board's intention that, in normal market circumstances, the Portfolio Manager will maintain Net Market Exposure in the range of 90% to 115%. The sum of all short exposures of the Company under derivatives, excluding hedges, will not exceed 10% of total net assets.
The majority of the Company's exposure to equities will be through direct investment and not through derivatives. In addition, the limits on exposure to individual companies and groups are calculated after translating all derivative exposures into economically equivalent amounts of the underlying assets.
In order to continue to qualify as an investment company, the Company is required by Section 1159 of the Corporation Tax Act 2010 to distribute sufficient net income so that it retains no more than 15% of its income in any reporting year. The Company currently only pays dividends out of revenue reserves.
The portfolio is primarily built on a stock by stock basis following the Portfolio Manager's assessment of the fundamental value available in individual securities, with geographical weightings largely the result of stock selection, rather than macroeconomic considerations. The portfolio's geographical weightings may vary significantly from the weightings within its Comparative Index and the concentration on the identification of fundamental value in individual stocks within the Asian Region excluding Japan
may result in investments made against prevalent trends and local conventions. The Portfolio Manager invests in securities of companies which he considers to have fundamental value.
The Company's performance for the year ended 31 July 2017, including a summary of the year's activities, and details on trends and factors that may impact the future performance of the Company are included in the Chairman's Statement and the Portfolio Manager's Review on pages 3 to 7. The Forty Largest Holdings, the Distribution of the Portfolio, the Ten Year Record and the Summary of Performance Charts are set on pages 13 to 21.
The Board recognises that investing in equities is a long term process and the Company's returns will vary from year to year.
The Company's results for the year ended 31 July 2017 are set out in the Income Statement on page 41. The total net return on ordinary activities after taxation was £45.7 million, of which the revenue return was £4.1 million. This equates to a basic return per ordinary share of 67.70 pence of which the revenue return was 6.08 pence.
The Directors recommend that a dividend of 5.00 pence (2016: 4.50 pence) per ordinary share be paid on 12 December 2017 to shareholders who appear on the register as at the close of business on 20 October 2017 (ex-dividend date 19 October 2017).
The KPIs used to determine the performance of the Company and which are comparable to those reported by the other investment companies are set out below.
| Year ended 31 July 2017 % |
Year ended 31 July 2016 % |
|
|---|---|---|
| NAV per share1 | +19.3 | +33.8 |
| Share price1 | +24.9 | +33.3 |
| Comparative Index1,2 | +28.2 | +15.8 |
| Discount to NAV | 7.0 | 11.1 |
| Ongoing charges3 | 1.22 | 1.33 |
1 Total returns (includes reinvested income).
2 MSCI All Countries Asia ex Japan Index (net) in Sterling terms.
3 The Board has a policy of ensuring that the costs of running the Company are reasonable and competitive.
Sources: Fidelity and Datastream
In addition to the KPIs set out above, the Board also reviews the Company's performance against its peer group of investment companies. Long term performance is also monitored and the Ten Year Record and the Summary of Performance charts on pages 19 to 21 show this information.
As required by provision C.2.1 of the 2016 UK Corporate Governance Code, the Board has a robust ongoing process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company. The Board, with the assistance of the Alternative Investment Fund Manager (FIL Investment Services (UK) Limited/the "Manager"), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key risks that the Company faces. The risks identified are placed on the Company's risk matrix and graded appropriately. This process, together with the policies and procedures for the mitigation of risks, is updated and reviewed
regularly in the form of comprehensive reports considered by the Audit Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.
The Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal risks and uncertainties and to ensure that the Board can continue to meet its UK corporate governance obligations.
The Board considers the following as the principal risks and uncertainties faced by the Company and confirms that there have been no changes to these since the previous year.
| Principal Risks | Description and Risk Mitigation |
|---|---|
| Market risk | The Company's assets consist mainly of listed securities and the principal risks are therefore market related such as market downturn, interest rate movements, and exchange rate movements. The Portfolio Manager's success or failure to protect and increase the Company's assets against this background is core to the Company's continued success. |
| Risks to which the Company is exposed in the market risk category, are included in Note 17 to the Financial Statements on pages 53 to 59 together with summaries of the policies for managing these risks. |
|
| Performance risk | The achievement of the Company's performance objective relative to the market requires the taking of risk, such as strategy, asset allocation and stock selection, and may lead to underperformance of the Comparative Index. The Board reviews the performance of the portfolio against the Comparative Index and that of its competitors and the outlook for the markets with the Portfolio Manager at each Board meeting. It considers the asset allocation of the portfolio and the risks associated with particular countries and industry sectors within the parameters of the investment objective and strategy. The Portfolio Manager is responsible for actively managing and monitoring the portfolio selected in accordance with the asset allocation parameters and seeks to ensure that individual stocks meet an acceptable risk/reward profile. The emphasis is on long term performance as the Company risks volatility of performance in the shorter term. |
| Discount control risk | The price of the Company's shares and its discount to NAV are factors which are not within the Company's total control. Some short term influence over the discount may be exercised by the use of share repurchases at acceptable prices within the parameters set by the Board. The Company's share price, NAV and discount volatility are monitored daily by the Manager and considered by the Board at each of its meetings. |
| Gearing risk | The Company has the option to invest up to the total of any loan facilities or to use CFDs to invest in equities. The principal risk is that while in a rising market the Company will benefit from gearing, in a falling market the impact would be detrimental. Other risks are that the cost of gearing may be too high or that the term of the gearing inappropriate in relation to market conditions. The Company currently has no bank loans and gears through the use of long CFDs which provide greater flexibility and are significantly cheaper than bank loans. The Board regularly considers the level of gearing and gearing risk and sets limits within which the Manager must operate. |
FINANCIAL
INFORMATION FOR SHAREHOLDERS
| Principal Risks | Description and Risk Mitigation |
|---|---|
| Derivatives risk | Derivative instruments are used to enable both the protection and enhancement of investment returns. There is a risk that the use of derivatives may lead to a higher volatility in the NAV and the share price than might otherwise be the case. The Board has put in place policies and limits to control the Company's use of derivatives and exposures. These are monitored on a daily basis by the Manager's Compliance team and regular reports are provided to the Board. Further details on derivative instruments risk is included in Note 17 to the Financial Statements on pages 53 to 59. |
| Currency risk | The functional currency and presentational currency of the Company in which it reports its results is Sterling. Most of its assets and its income are denominated in other currencies. Consequently, it is subject to currency risk on exchange rate movements between Sterling and these other currencies. It is the Company's current policy not to hedge against currency risks. Further details can be found in Note 17 to the Financial Statements on pages 53 to 59. |
Other risks facing the Company include:
The risk posed by cybercrime is rated as significant and the Board receives regular updates from the Manager in respect of the type and possible scale of cyberattacks. The Manager's technology team has developed a number of initiatives and controls in order to provide enhanced mitigating protection to this ever increasing threat.
A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status, resulting in the Company being subject to tax on capital gains.
The Company may be impacted by changes in legislation, taxation or regulation. These are monitored at each Board meeting and managed through active lobbying by the Manager.
The Company relies on a number of third party service providers, principally the Manager, Registrar, Custodian and Depositary. It is dependent on the effective operation of the Manager's control systems and those of its service providers with regard to the security of the Company's assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements. They are all subject to a risk-based programme of internal audits by the Manager. In addition, service providers' own internal control reports are received by the Board on an annual basis and any concerns investigated.
A continuation vote takes place every five years. There is a risk that shareholders do not vote in favour of continuation during periods when performance is poor. The next continuation vote will be at the AGM in 2021.
In accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the "Going Concern" basis. The Company is an investment trust with the objective of achieving long term capital growth. The Board consider long term to be at least five years and accordingly, the Directors believe that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.
In making an assessment on the viability of the Company, the Board has considered the following:
The Company's performance has been strong since launch, with a NAV total return of 361.6%, a share price total return of 342.2% and a Comparative Index return of 178.5%. The Board regularly reviews the investment policy and considers it to be appropriate. The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years based on the following considerations:
• The Manager's compliance with the Company's investment objective, its investment strategy and asset allocation;
In addition, the Directors' assessment of the Company's ability to operate in the foreseeable future is included in the Going Concern Statement in the Directors' Report on page 23. The Company is also subject to a continuation vote at the AGM in 2021. The Board has a reasonable expectation that the Company will continue in operation and meet its liabilities as they occur. It therefore expects that the vote, when due, will be approved.
The Board carries out any candidate search against a set of objective criteria on the basis of merit, with due regard for the benefits of diversity on the Board, including gender. As at 31 July 2017, there were four male Directors and one female Director on the Board.
The Company has no employees. All of its Directors are nonexecutive and its day-to-day activities are carried out by third parties. There are therefore no disclosures to make in respect of employees.
Fidelity encourages Environmental, Social and Governance ("ESG") considerations in its investment decision making process. It has been a signatory to the United Nations Principles for Responsible Investment (UNPRI) since 2012 and submits an annual report detailing how it incorporates ESG into its investment analysis.
The Company has not adopted a policy on human rights as it has no employees and its operational processes are delegated. As an investment company, the Company does not provide goods and services in the normal course of business and has no customers. Accordingly, the Board considers that the Company is not within the scope of the Modern Slavery Act 2015.
The Company's financial reports are printed by a company which has won awards for its environmental awareness and further details of this may be found on the back cover of this report.
The Company has no premises, consumes no electricity, gas or diesel fuel and consequently does not have a measureable carbon footprint. FIL Investment Services (UK) Limited and FIL Investments International are registered with the Carbon Reduction Commitment Energy Efficiency Scheme administered by the Environment Agency.
The Manager's primary objective is to produce superior financial returns for the Company's shareholders. It believes that high standards of corporate social responsibility ("CSR") make good business sense and have the potential to protect and enhance investment returns. Consequently, its investment process takes social, environmental and ethical issues into account when, in the Manager's view, these have a material impact on either investment risk or return.
The Board believes that the Company should, where appropriate, take an active interest in the affairs of the companies in which it invests and that it should exercise its voting rights at their general meetings. Unless there are any particularly controversial issues (which are then referred to the Board), it delegates the responsibility for corporate engagement and shareholder voting to the Manager. These activities are reviewed regularly by the Manager's corporate governance team.
Some trends likely to affect the Company in the future are also common to many investment companies together with the impact of regulatory change. The factors likely to affect the Company's future development, performance and positions are set out in the Chairman's Statement and the Portfolio Manager's Review on pages 3 to 7.
By Order of the Board FIL Investments International Secretary 11 October 2017
as at 31 July 2017
The Gross Asset Exposures shown below measure exposure to market price movements as a result of owning shares, and derivative instruments. The Balance Sheet Value is the actual value of the portfolio. Where a contract for difference ("CFD") is held, the 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.
| Gross Asset Exposure | Balance Sheet Value |
||
|---|---|---|---|
| £'000 | %1 | £'000 | |
| Long exposures – shares unless otherwise stated | |||
| Power Grid Corp of India Operator of the Indian national electricity grid |
8,780 | 3.1 | 8,780 |
| WPG Holdings Distributor of semiconductor and core components |
8,494 | 3.0 | 8,494 |
| Housing Development Finance Provider of housing finance to individual households and corporates in India |
7,598 | 2.7 | 7,598 |
| Taiwan Semiconductor Manufacturing (shares and long CFD) Developer, manufacturer and distributor of Integrated circuit related products |
7,483 | 2.7 | 5,671 |
| LT Group Banking, beverages, spirits, tobacco and property development group |
7,341 | 2.6 | 7,341 |
| Redington India Distributor of information technology products, mobile handsets and accessories |
6,110 | 2.2 | 6,110 |
| Ascendas India Trust Real estate investment company |
4,907 | 1.8 | 4,907 |
| HDFC Bank Private sector bank |
4,568 | 1.6 | 4,568 |
| G8 Education Operator of day care centres |
4,421 | 1.6 | 4,421 |
| Infosys Provider of IT consulting and software services |
4,388 | 1.6 | 4,388 |
| Zhaopin Careers website operator |
3,876 | 1.4 | 3,876 |
| LG Household & Healthcare Household cleaning and personal care products manufacturer |
3,731 | 1.3 | 3,731 |
| WT Microelectronics Semiconductor products distributor |
3,523 | 1.3 | 3,523 |
| Cleanaway Company Hazardous waste treatment and waste management operator |
3,293 | 1.2 | 3,293 |
| Tisco Financial Group Auto finance bank |
3,290 | 1.2 | 3,290 |
| Convenience Retail Asia Convenience store chain operator |
3,283 | 1.2 | 3,283 |
| Gudang Garam Cigarette manufacturer and distributor |
3,071 | 1.1 | 3,071 |
| International Housewares Retail Housewares retail chain |
2,942 | 1.0 | 2,942 |
| Gross Asset Exposure | Balance Sheet Value |
||
|---|---|---|---|
| £'000 | %1 | £'000 | |
| Interojo Contact lens manufacturer |
2,940 | 1.0 | 2,940 |
| First Resources Palm oil producer |
2,821 | 1.0 | 2,821 |
| Pepsi-Cola Philippines Soft drinks manufacturer and distributor |
2,720 | 1.0 | 2,720 |
| West China Cement Cement products producer and distributor |
2,479 | 0.9 | 2,479 |
| Primax Electronics Consumer and business electronics manufacturer |
2,402 | 0.9 | 2,402 |
| Tempo Scan Pacific Pharmaceutical, health care and cosmetic products manufacturer and distributor |
2,247 | 0.8 | 2,247 |
| Cebu Air Airline operator |
2,238 | 0.8 | 2,238 |
| Gujarat State Petronet Natural gas transmission network operator |
2,234 | 0.8 | 2,234 |
| Anhui Expressway Toll expressways and highways operator and developer |
2,225 | 0.8 | 2,225 |
| Muthoot Finance Personal and business loans provider |
2,167 | 0.8 | 2,167 |
| Programmed Maintenance Services Property maintenance services provider |
2,122 | 0.8 | 2,122 |
| Dream International Toys designer, manufacturer and seller |
2,121 | 0.8 | 2,121 |
| BTS Rail Mass Transit Growth Infrastructure Fund Fund investing in the Core BTS Sky Train System |
2,100 | 0.7 | 2,100 |
| Changshouhua Food Edible corn oil products manufacturer |
2,079 | 0.7 | 2,079 |
| Fast Food Indonesia Kentucky Fried Chicken franchise restaurants operator |
2,069 | 0.7 | 2,069 |
| Wah Lee Industrial Plastic materials for computer peripherals and electronic connectors distributor |
2,045 | 0.7 | 2,045 |
| PT BFI Finance Indonesia Finance leases and consumer financing activities provider |
2,029 | 0.7 | 2,029 |
| Korea Electric Power Electricity generator, transmitter and distributor |
1,985 | 0.7 | 1,985 |
| Shine Mobile phone security devices provider |
1,946 | 0.7 | 1,946 |
| Shemaroo Entertainment Film and media producer |
1,922 | 0.7 | 1,922 |
| Balance | |||
|---|---|---|---|
| Gross Asset Exposure | Sheet Value | ||
| £'000 | %1 | £'000 | |
| Sebang Global Battery | |||
| Battery manufacturer | 1,875 | 0.7 | 1,875 |
| LPN Development | |||
| Property developer | 1,843 | 0.7 | 1,843 |
| Top forty long exposures | 139,708 | 50.0 | 137,896 |
| Other long exposures | 127,377 | 45.3 | 127,377 |
| Total long exposures before hedges (169 holdings) | 267,085 | 95.3 | 265,273 |
| Less: hedging exposures | |||
| Hang Seng China Enterprises Index December 2018 (put option) | (3,835) | (1.3) | 638 |
| KOSPI 200 Index December 2018 (put options) | (2,996) | (1.1) | 301 |
| S&P CNX Nifty Index September 2017 (put option) | (1,079) | (0.4) | 1 |
| Hang Seng Index December 2018 (put option) | (492) | (0.2) | 150 |
| KOSPI 200 Index September 2018 (put option) | (181) | – | – |
| Total hedging exposures | (8,583) | (3.0) | 1,090 |
| Total long exposures after the netting of hedges | 258,502 | 92.3 | 266,363 |
| Add: short exposures | |||
| Short CFDs (16 holdings) | 14,099 | 5.0 | (952) |
| Short future August 2017 (1 holding) | 1,094 | 0.4 | (60) |
| Total short exposures | 15,193 | 5.4 | (1,012) |
| Gross Asset Exposure2 | 273,695 | 97.7 | |
| Portfolio Fair Value3 | 265,351 | ||
| Net current assets (excluding derivative assets and liabilities) | 14,840 | ||
| Total Shareholders' Funds/Net assets | 280,191 |
1 Gross Asset Exposure is expressed as a percentage of Total Shareholders' Funds.
2 Gross Asset Exposure comprises market exposure to shares of £264,076,000 plus market exposure to derivative instruments of £9,619,000.
3 Portfolio Fair Value comprises Investments of £264,076,000 plus derivative assets of £2,829,000 less derivative liabilities of £1,554,000 (per the Balance Sheet on page 43).
The full portfolio listing as at 31 July 2017 is available on the Company's pages of the Manager's website at: www.fidelityinvestmenttrusts.com.
as at 31 July 2017
| India | Taiwan | China | South Korea |
Australia | Other | 2017 Total |
2017 Index* |
2016 Total |
|
|---|---|---|---|---|---|---|---|---|---|
| Portfolio | % | % | % | % | % | % | % | % | % |
| Consumer Discretionary | |||||||||
| Textiles, Apparel & Luxury Goods |
– | 0.4 | 2.3 | 0.6 | – | 2.3 | 5.6 | 1.1 | 5.9 |
| Specialty Retail | – | – | 0.6 | – | – | 4.0 | 4.6 | 0.2 | 4.7 |
| Diversified Consumer Services | 0.4 | – | – | – | 2.8 | 0.4 | 3.6 | 2.2 | 4.9 |
| Auto Components | 0.2 | 0.6 | 1.4 | 0.7 | – | 0.6 | 3.5 | 0.9 | 2.7 |
| Leisure Equipment & Products | – | – | – | – | – | 1.5 | 1.5 | 0.1 | 1.2 |
| Media | 0.7 | – | – | 0.3 | – | – | 1.0 | 0.4 | 0.6 |
| Multiline Retail | – | – | – | – | 0.4 | 0.3 | 0.7 | 0.2 | 1.0 |
| Internet & Catalogue Retail | – | – | – | – | – | – | – | 1.3 | 0.4 |
| Distributors | – | – | – | – | – | – | – | 0.1 | 0.3 |
| Automobiles | – | – | – | – | – | – | – | 2.9 | – |
| 1.3 | 1.0 | 4.3 | 1.6 | 3.2 | 9.1 | 20.5 | 9.4 | 21.7 | |
| Financials | |||||||||
| Banks | 4.3 | – | 0.3 | – | 0.4 | 1.2 | 6.2 | 15.3 | 7.7 |
| Real Estate Management & | |||||||||
| Development | 0.3 | 0.3 | 0.5 | – | – | 3.6 | 4.7 | 5.2 | 8.4 |
| Diversified Financial Services | 1.2 | – | – | 0.4 | 0.3 | 1.6 | 3.5 | 1.8 | 1.5 |
| Insurance | – | – | – | 2.3 | – | – | 2.3 | 5.5 | 0.9 |
| Real Estate Investment Trusts (REITs) |
– | – | – | – | – | 0.5 | 0.5 | 0.8 | 1.0 |
| Capital Markets | – | 0.4 | – | – | – | – | 0.4 | 1.0 | 0.6 |
| 5.8 | 0.7 | 0.8 | 2.7 | 0.7 | 6.9 | 17.6 | 29.6 | 20.1 | |
| Information Technology | |||||||||
| Electronic Equipment & Instruments |
2.2 | 6.6 | – | – | – | 0.4 | 9.2 | 10.3 | 6.2 |
| Internet Software & Services | 2.1 | – | 0.8 | – | – | 0.8 | 3.7 | 14.2 | 3.9 |
| Semiconductor Equipment & Products |
– | 2.7 | – | 0.6 | – | – | 3.3 | 6.2 | 6.1 |
| Software | 0.2 | – | – | – | – | – | 0.2 | 0.2 | 0.2 |
| Communications Equipment | – | – | – | – | – | – | – | – | 0.5 |
| 4.5 | 9.3 | 0.8 | 0.6 | – | 1.2 | 16.4 | 30.9 | 16.9 |
| Portfolio | India % |
Taiwan % |
China % |
South Korea % |
Australia % |
Other % |
2017 Total % |
2017 Index* % |
2016 Total % |
|---|---|---|---|---|---|---|---|---|---|
| Consumer Staples | |||||||||
| Food Products | – | 0.5 | 0.8 | – | 0.2 | 2.3 | 3.8 | 1.5 | 3.5 |
| Food & Staples Retailing | – | – | – | – | – | 3.2 | 3.2 | 0.6 | 2.6 |
| Beverages | – | – | 0.2 | – | – | 2.0 | 2.2 | 0.2 | 1.7 |
| Personal Products | 0.5 | 0.2 | – | 1.3 | – | – | 2.0 | 0.9 | 0.9 |
| Tobacco | – | – | – | – | – | 1.1 | 1.1 | 0.8 | 0.8 |
| Household Products | – | 0.1 | – | – | – | 0.6 | 0.7 | 0.4 | 0.7 |
| 0.5 | 0.8 | 1.0 | 1.3 | 0.2 | 9.2 | 13.0 | 4.4 | 10.2 | |
| Industrials | |||||||||
| Commercial & Professional Services |
– | 1.3 | 1.7 | 0.2 | 1.5 | 0.5 | 5.2 | 0.2 | 4.1 |
| Industrial Conglomerates | – | – | – | – | – | 3.5 | 3.5 | 3.3 | 2.6 |
| Transportation | – | – | 0.6 | – | – | 1.4 | 2.0 | 0.8 | 0.5 |
| Construction & Engineering | – | – | – | 0.6 | 0.2 | 0.2 | 1.0 | 0.9 | 0.6 |
| Transportation Infrastructure | – | – | 0.8 | – | – | – | 0.8 | 1.0 | 1.7 |
| Electrical Equipment | – | – | 0.4 | – | – | – | 0.4 | 0.1 | 0.4 |
| Machinery | – | – | – | – | – | – | – | 0.7 | – |
| – | 1.3 | 3.5 | 0.8 | 1.7 | 5.6 | 12.9 | 7.0 | 9.9 | |
| Health Care | |||||||||
| Health Care Providers & | |||||||||
| Services | 0.5 | 0.4 | 0.2 | 1.4 | 0.9 | 1.0 | 4.4 | 0.5 | 5.0 |
| Pharmaceuticals | – | 0.3 | 0.3 | 1.4 | 0.1 | 0.8 | 2.9 | 1.2 | 1.2 |
| Biotechnology | – 0.5 |
– 0.7 |
– 0.5 |
– 2.8 |
0.4 1.4 |
– 1.8 |
0.4 7.7 |
0.4 2.1 |
0.7 6.9 |
| Utilities | |||||||||
| Electric Utilities | 3.7 | – | – | 0.7 | – | 0.3 | 4.7 | 1.5 | 5.4 |
| Gas Utilities | 0.8 | – | – | 0.3 | – | – | 1.1 | 0.9 | 0.4 |
| Other Utilities | – | – | 0.4 | – | – | – | 0.4 | 0.6 | 0.2 |
| Water Utilities | – | – | – | – | – | – | – | 0.2 | 0.5 |
| 4.5 | – | 0.4 | 1.0 | – | 0.3 | 6.2 | 3.2 | 6.5 |
(Gross Asset Exposure expressed as a percentage of Total Shareholders' Funds)
| Portfolio | India % |
Taiwan % |
China % |
South Korea % |
Australia % |
Other % |
2017 Total % |
2017 Index* % |
2016 Total % |
|---|---|---|---|---|---|---|---|---|---|
| Energy | |||||||||
| Oil, Gas & Consumable Fuels | 0.9 | – | 0.3 | – | 1.1 | 0.8 | 3.1 | 4.1 | 0.8 |
| 0.9 | – | 0.3 | – | 1.1 | 0.8 | 3.1 | 4.1 | 0.8 | |
| Materials | |||||||||
| Construction Materials | – | – | 1.2 | – | – | – | 1.2 | 1.0 | 0.2 |
| Containers & Packaging | 0.5 | – | 0.4 | – | – | – | 0.9 | 0.1 | 1.9 |
| Metals & Mining | – | – | – | – | 0.4 | – | 0.4 | 1.5 | 0.4 |
| Chemicals | 0.3 | – | – | – | – | – | 0.3 | 2.0 | 1.0 |
| 0.8 | – | 1.6 | – | 0.4 | – | 2.8 | 4.6 | 3.5 | |
| Telecommunication Services | |||||||||
| Wireless Telecommunication Services |
– | – | – | – | 0.3 | – | 0.3 | 2.6 | 0.5 |
| Diversified Telecommunication Services |
– | – | – | – | – | 0.2 | 0.2 | 2.1 | 0.7 |
| – | – | – | – | 0.3 | 0.2 | 0.5 | 4.7 | 1.2 | |
| Exposure before hedging | 18.8 | 13.8 | 13.2 | 10.8 | 9.0 | 35.1 | 100.7 | ||
| Less – hedging exposures | (0.4) | (1.1) | (1.5) | (3.0) | |||||
| Gross Asset Exposure – 2017 | 18.4 | 13.8 | 13.2 | 9.7 | 9.0 | 33.6 | 97.7 | ||
| Index – 2017 | 10.4 | 13.8 | 33.0 | 17.6 | – | 25.2 | 100.0 | ||
| Gross Asset Exposure – 2016 | 19.1 | 12.6 | 12.3 | 6.9 | 7.3 | 39.5 | 97.7 |
* MSCI All Countries Asia ex Japan Index (net) total return in Sterling terms, the Company's Comparative Index.
| As at 31 July | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total gross asset exposure (£m)1 |
273.7 | 232.0 | 162.9 | 192.3 | 167.4 | 123.8 | 146.2 | 121.8 | 98.1 | 136.4 | 175.1 |
| Shareholders' funds (£m) |
280.2 | 237.5 | 178.9 | 172.8 | 155.8 | 117.1 | 141.3 | 117.2 | 92.1 | 135.9 | 170.7 |
| NAV per ordinary share (p) |
415.17 | 351.98 | 265.14 | 255.99 | 230.24 | 195.40 | 229.21 | 192.19 | 151.18 | 131.78 | 156.13 |
| Diluted NAV per ordinary share (p) |
407.772 | n/a | n/a | n/a | n/a | 194.703 | 223.203 | 191.993 | n/a | n/a | 156.134 |
| Ordinary share price (p) |
386.00 | 313.00 | 236.88 | 224.00 | 204.50 | 176.00 | 202.63 | 175.75 | 142.25 | 119.00 | 136.75 |
| Subscription share price (p) |
29.50 | n/a | n/a | n/a | n/a | 6.75 | 27.13 | 19.00 | n/a | n/a | n/a |
| Discount (%) | 7.0 | 11.1 | 10.7 | 12.5 | 11.2 | 9.9 | 11.6 | 8.6 | 5.9 | 9.7 | 12.4 |
| Discount – diluted (%) |
5.32 | n/a | n/a | n/a | n/a | 9.63 | 9.23 | 8.53 | n/a | n/a | 12.44 |
| Revenue return per ordinary share (p) |
6.08 | 5.36 | 2.26 | 1.14 | 1.05 | 1.45 | 0.85 | 0.27 | 1.49 | 1.43 | 0.63 |
| Dividend per ordinary share (p) |
5.00 | 4.50 | 2.00 | 1.10 | 1.10 | 1.00 | 1.00 | nil | 1.00 | 0.81 | nil |
| Cost of running the Company (ongoing charges) (%) |
1.22 | 1.33 | 1.42 | 1.50 | 1.55 | 1.46 | 1.47 | 1.52 | 1.65 | 1.34 | 1.51 |
| Gearing (%)5 | (2.3) | (2.3) | (9.0) | 11.3 | 7.4 | 5.7 | 3.5 | 3.9 | 6.5 | 0.3 | 2.5 |
| NAV total return (%) | +19.3 | +33.8 | +4.0 | +11.7 | +18.4 | –14.3 | +19.3 | +27.8 | +15.7 | –15.6 | +47.4 |
| Diluted NAV total return (%) |
+17.22 | n/a | n/a | n/a | n/a | –12.33 | +16.33 | +27.73 | n/a | n/a | +48.94 |
| Ordinary share price total return (%) |
+24.9 | +33.3 | +6.2 | +10.1 | +16.8 | –12.6 | +15.3 | +24.3 | +20.6 | –13.0 | +40.6 |
| Comparative Index total return (%)6 |
+28.2 | +15.8 | +0.3 | +5.4 | +12.0 | –6.6 | +16.3 | +19.8 | +11.0 | –10.7 | +41.3 |
1 The value of the portfolio exposed to market price movements. The amounts prior to 2013 represent total assets less current liabilities, excluding bank loans.
2 The dilution relates to the subscription shares that were issued on 2 December 2016 (per Note 16 on page 53).
3 The dilution relates to the subscription share offer that closed in June 2013.
4 The dilution relates to the final exercise of warrants in December 2006.
5 Total Portfolio Exposure (less than)/in excess of Shareholders' Funds expressed as a percentage of Shareholders' Funds (see Note 18 on page 60).
6 The Company's Comparative Index since 1 August 2015 is the MSCI All Countries Asia ex Japan Index (net) in Sterling terms. Prior to that date, it was the MSCI All Countries Far East ex Japan Index (net) in Sterling terms.
Sources: Fidelity and Datastream
Past performance is not a guide to future returns
Prices rebased to 100 Sources: Fidelity and Datastream
Sources: Fidelity and Datastream
Kate Bolsover Chairman (since 9 December 2014) Appointed 1 January 2010 Member of the: Audit Committee Management Engagement Committee (Chairman) Nomination Committee (Chairman)
Kate Bolsover is a non-executive Director of Montanaro UK Smaller Companies Investment Trust PLC, a Chairman of Tomorrow's People Trust Limited and a Director of a number of affiliated companies. She retired from the Board of JPMorgan American Investment Trust plc on 30 September 2016. She worked for Cazenove Group plc and J.P. Morgan Cazenove between 1995 and 2005 where she was Managing Director of the mutual fund business, and latterly Director of Corporate Communications. Prior to this, her work involved business development and mutual funds experience covering countries in the Far East.
Timothy Scholefield Appointed 30 September 2015 Member of the: Audit Committee Management Engagement Committee Nomination Committee
Timothy Scholefield is a non-executive Director of F&C Capital and Income Investment Trust PLC and Standard Life UK Smaller Companies plc. He is Chairman of City Merchants High Yield Trust Ltd and of the Investment Management Certificate panel. He has over twenty-five years' experience in investment management, latterly as Head of Equities at Baring Asset Management until April 2014. Prior to Baring, he was Head of International Equities at Scottish Widow Investment Partnership Limited. He spent 15 years at Royal & Sun Alliance Investments and rose to the position of Head of Worldwide Equities.
Philip Smiley Senior Independent Director (since 30 November 2015) Appointed 1 January 2010 Member of the: Audit Committee Management Engagement Committee Nomination Committee
Philip Smiley is a Director of the Arisaig India Fund and the Endowment Fund SPC. He is Chairman of the PXP Vietnam Emerging Equity Fund Limited and also of the Advisory Board of the Emerging Beachfront Land Investment Fund G.P. Limited. He has 31 years of experience of working in the Asia Pacific region, including several years with the Hong Kong Government (Civil Service Branch and the Economic Services Branch) followed by five years with the W.I. Carr Group, latterly as Managing Director of W.I. Carr (Far East) Limited in Hong Kong and group Director of Finance in London. Between 1991 and 2001 he was Managing Director and country Head of Jardine Fleming in Korea, where he was also elected Chairman of the British Chamber of Commerce, and then in Singapore, where he was appointed to the Stock Exchange Review Committee. From 2001 to 2005 he was group country Chairman of Jardine Matheson in Thailand and Indochina.
Michael Warren Appointed 29 September 2014 Member of the: Audit Committee Management Engagement Committee Nomination Committee
Michael Warren is a non-executive Director of Carrington Investments, Liontrust Panthera Fund Limited and a Quoted Operating Partner of LivingBridge VC LLP and a past non-executive Director of Alquity Investment Management Ltd and Vindependents. He worked for Thames River Capital from 2007 until 2012 as Investment Director. Prior to that he worked at HSBC Investments, where he was responsible for Institutional and Retail distribution, and before that Deutsche Asset Management, where he was a main board member. Latterly, he has served as Managing Director of the UK mutual fund business, DWS.
All Directors are non-executive Directors and all are independent.
Grahame Stott Chairman of the Audit Committee Appointed 24 September 2013 Member of the: Audit Committee (Chairman) Management Engagement Committee Nomination Committee
Grahame Stott is a non-executive Director and Chairman of the Audit Committee of China Motor Bus Company Limited. He is a qualified Actuary with considerable consultancy experience and insight into the intermediary market. He spent 20 years at Watson Wyatt in Hong Kong, during which time he became the regional Director for 12 countries across Asia Pacific. He also served as the Head of Watson Wyatt's Global Investment Consulting Business. His background is in working with fast growing listed companies. He is also a past Adviser with Mercer Financial Planning.
The Directors have pleasure in presenting their report and the audited Financial Statements of the Company for the year ended 31 July 2017.
The Company was incorporated in England and Wales as a public limited company on 2 April 1996 under the registered number 3183919 and commenced business as an investment trust on 13 June 1996.
FIL Investment Services (UK) Limited ("FISL") is the Company's appointed Alternative Investment Fund Manager (the "AIFM"/ Manager). FISL, as the Manager, has delegated the portfolio management of assets and the role of the company secretary to FIL Investments International.
The Alternative Investment Fund Management and Secretarial Services Agreement (the "Management Agreement") will continue unless and until terminated by either party giving to the other not less than six months' notice in writing. However, it may be terminated without compensation if the Company is liquidated, pursuant to the procedures laid down in the Articles of Association of the Company. It may also be terminated forthwith as a result of a material breach of the Management Agreement or on the insolvency of the Manager or the Company. In addition, the Company may terminate the Management Agreement by sixty days' notice if the Manager ceases to be a subsidiary of FIL Limited.
The Board reviews the Management Agreement at least annually and details are included in the Corporate Governance Statement on page 27.
The Company's annual management fee is charged on a tiered pricing structure which is 0.90% on the first £200 million of gross assets and 0.85% on gross assets over £200 million. In addition, the Company pays the Manager a secretarial and administration fee which is fixed at £75,000 per annum. Fees are calculated and paid quarterly.
The Manager has an arrangement with certain brokers whereby a portion of commissions from security transactions may be paid to the Company to reduce transaction costs. Amounts received by the Company under this arrangement are credited to capital and included in the gains on sales of investments in Note 10 on page 50. In the year to 31 July 2017, £8,000 was received (2016: £39,000). There is a regulatory requirement on the Manager to obtain best execution and no deal is entered into which prevents compliance.
All Directors served on the Board throughout the year ended 31 July 2017. A brief description of all serving Directors as at the date of this report is shown on page 22 and indicates their qualifications for Board membership.
In addition to the benefits under the Manager's global Directors' and Officers' liability insurance arrangements, the Company maintains additional insurance cover for its Directors under its own policy as permitted by the Companies Act 2006.
The Directors have considered the Company's investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio (being mainly securities which are readily realisable) and its expenditure and cash flow projections, and have concluded that the Company has adequate resources to continue to adopt the going concern basis for at least twelve months from the date of this Annual Report. The prospects of the Company over a period longer than twelve months can be found in the Viability Statement on page 11.
A resolution to reappoint Ernst & Young LLP as Auditor to the Company will be proposed at the AGM on 7 December 2017.
As required by Section 418 of the Companies Act 2006, each Director in office as at the date of this report confirms that:
The Corporate Governance Statement, which forms part of this report, can be found on pages 26 to 29.
The Company employs Capita Asset Services as its Registrar to manage the Company's share register, JPMorgan Chase Bank as its Custodian, which is primarily responsible for safeguarding the Company's assets and J.P. Morgan Europe Limited, under a tri-partite agreement, as its Depositary, which is primarily responsible for oversight of the custody of investment funds and the protection of investors' interests. Fees paid to these service providers are disclosed in Note 5 on page 47.
The Company's share capital comprises ordinary shares of 25 pence each and subscription shares of 0.001 pence each, both of which are fully listed on the London Stock Exchange. As at 31 July 2017, the issued share capital of the Company was 67,488,213 ordinary shares (2016: 67,488,213) and 13,497,222 subscription shares (2016: nil). No shares are held in Treasury.
Each ordinary share in issue carries one vote. The subscription shares do not carry voting rights.
The Board recognises the importance of the relationship between the Company's share price and the NAV per share and monitors this closely. It seeks authority from shareholders each year to issue shares at a premium or to repurchase shares at a discount to the NAV either for cancellation or for holding in Treasury. The Board will only exercise these authorities if deemed to be in the best interests of shareholders at the time.
No ordinary shares were issued during the year ended 31 July 2017 (2016: nil) and none have been issued since the year end and as at the date of this report. 13,497,222 (2016: nil) subscription shares were issued during the year and none have been issued since the year end and as at the date of this report. The subscription share rights can be exercised annually in the 25 business days prior to the relevant subscription date. The first subscription date is 30 November 2017, the second date is on 30 November 2018 and the final date is on 29 November 2019. Exercises take effect on the relevant subscription date.
The authorities to issue ordinary shares and to disapply preemption rights and to issue shares from Treasury expire at this year's AGM, and therefore resolutions renewing these authorities will be put to shareholders at the AGM on 7 December 2017.
No ordinary shares were repurchased for cancellation or for holding in Treasury during the year ended 31 July 2017 (2016: nil) and none have been repurchased since the year end and as at the date of this report.
The authority to repurchase ordinary shares expires at the forthcoming AGM and a special resolution to renew the authority to purchase shares for cancellation, including the ability to buy them into Treasury, will therefore be put to shareholders at the AGM on 7 December 2017. Similarly, a special resolution to renew the authority to purchase subscription shares for cancellation, will be put before shareholders at the AGM on 7 December 2017.
As at 31 July 2017 and 30 September 2017, the shareholders listed below held more than 3% of the issued share capital of the Company.
| Shareholders | 30 September 2017 (%) |
31 July 2017 (%) |
|---|---|---|
| Fidelity Platform Investors | 16.36 | 16.47 |
| Hargreaves Lansdown | 7.72 | 8.08 |
| Lazard Asset Management | 5.24 | 5.82 |
| Charles Stanley | 5.23 | 5.08 |
| Individuals | 3.27 | 3.37 |
| Alliance Trust Savings | 3.13 | 3.23 |
An analysis of ordinary shareholders as at 31 July 2017 is detailed in the table below.
| Ordinary shareholders as at 31 July 2017 |
% of issued share capital |
|---|---|
| Private shareholders* | 79.82 |
| Mutual funds | 8.85 |
| Pension funds | 8.13 |
| Insurance companies | 2.66 |
| Trading companies | 0.54 |
* Includes Fidelity Platform Investors (16.47%).
Information on proposed dividends, financial instruments and greenhouse emissions is set out in the Strategic Report on pages 8 to 12.
If you are in any doubt as to the action you should take, you should seek your own personal financial advice from your stockbroker, bank manager, solicitor or other financial adviser authorised under the Financial Services and Markets Act 2000.
If you have sold, transferred or otherwise disposed of all your shares in the Company, you should pass this document, together with any accompanying documents (but not the personalised Form of Proxy or Form of Direction) as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom you made the sale or transfer, for onward transmission to the purchaser or transferee.
At the AGM on 7 December 2017, resolutions will be proposed relating to the items of business set out in the Notice of Meeting on pages 63 and 64, including the items of special business which are summarised on the next page.
Resolution 12 is an ordinary resolution and provides the Directors with a general authority to allot securities in the Company up to an aggregate nominal value of £1,687,205. If passed, this resolution will enable the Directors to allot a maximum of 6,748,821 ordinary shares which represents approximately 10% of the issued ordinary share capital of the Company (including Treasury shares) as at 11 October 2017 and to impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with Treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter. The Directors would not intend to use this power unless they considered that it was in the interests of shareholders to do so. Any shares issued would be at no less than NAV per share, or at a premium to NAV per share.
Resolution 13 is a special resolution disapplying pre-emption rights and granting authority to the Directors, without the need for further specific shareholder approval, to make allotments of equity securities or sale of Treasury shares for cash up to an aggregate nominal value of £1,687,205 (including Treasury shares) (approximately 10% of the issued ordinary share capital of the Company as at 11 October 2017 and equivalent to 6,748,821 ordinary shares).
Resolution 14 is a special resolution which renews the Company's authority to purchase up to 14.99% (10,116,483) of the ordinary shares in issue (excluding Treasury shares) on 11 October 2017 either for immediate cancellation or for retention as Treasury shares at the determination of the Directors. Once shares are held in Treasury, the Directors may only dispose of them in accordance with the relevant legislation by subsequently selling the shares for cash or by cancelling the shares. Purchases of ordinary shares will be made at the discretion of the Directors and within guidelines set from time to time by them in the light of prevailing market conditions. Purchases will only be made in the market at prices below the prevailing NAV per share.
Resolution 15 is a special resolution which renews the Company's authority to purchase up to 14.99% (2,023,233) of the subscription shares in issue (none are held as Treasury shares) on 11 October 2017 for cancellation. Purchases of subscription shares will be made at the discretion of the Directors and within guidelines set from time to time by them in the light of prevailing market conditions.
Recommendation: The Board considers that each of the resolutions is likely to promote the success of the Company and is in the best interests of the Company and its shareholders as a whole. The Directors unanimously recommend that you vote in favour of the resolutions as they intend to do in respect of their own beneficial holdings.
By Order of the Board FIL Investments International Secretary 11 October 2017
The Corporate Governance Statement forms part of the Directors' Report. The Company is committed to maintaining high standards of corporate governance. Accordingly, the Board has put in place a framework for corporate governance which it believes is appropriate for an investment company.
The Board follows the principles of the UK Corporate Governance Code (the "UK Code") issued by the Financial Reporting Council (the "FRC") in 2016 and the AIC's Code of Corporate Governance (the "AIC Code") issued by the Association of Investment Companies (the "AIC") in 2016. The FRC has confirmed that investment companies which report against the AIC Code and which follow the AIC Guide on Corporate Governance will meet their obligations under the UK Code and paragraph 9.8.6 of the Listing Rules. This statement, together with the Statement of Directors Responsibilities on page 33, set out how the principles have been applied.
The AIC Code and the AIC Guide can be found on the AIC's website at www.theaic.co.uk and the UK Code on the FRC's website at www.frc.org.uk.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code for the year under review and up to the date of this report, except in relation to the UK Code provisions relating to the role of the chief executive; executive directors' remuneration; and the need for an internal audit function. For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers that these provisions are not relevant to the position of the Company as it is an externally managed investment company and has no executive directors, employees or internal operations.
The Board, chaired by Kate Bolsover, consists of five non-executive Directors. The Directors believe that, between them, they have good knowledge and wide experience of business in Asia and of investment companies and that the Board has an appropriate balance of skills, experience, independence and knowledge of the Company and length of service to discharge its duties and provide effective strategic leadership and proper governance of the Company.
Philip Smiley is the Senior Independent Director and fulfils the role as a sounding board for the Chairman, an intermediary for the other non-executive Directors as necessary and to act as a channel of communication for shareholders in the event that contact through the Chairman is inappropriate.
Biographical details of all the Directors are on page 22.
The Board has overall responsibility for the Company's affairs and for promoting the long term success of the Company. All matters which are not delegated to the Company's Manager under the Management Agreement are reserved for the Board's decision. Matters reserved for the Board and considered at meetings include decisions on strategy, management, structure, capital, share issues, share repurchases, gearing, financial reporting, risk management, investment performance, share price discount, corporate governance, Board appointments and the appointments of the Manager and the Company Secretary. The Board also considers shareholder issues including communication and investor relations.
All Directors are independent of the Manager and considered to be free from any relationship which could materially interfere with the exercise of their independent judgement. The Board follows a procedure of notification of other interests that may arise as part of considering any potential conflicts and is satisfied that none have arisen in the year under review.
All Directors are able to allocate sufficient time to the Company to discharge their responsibilities fully and effectively. Each Director is entitled to take independent professional advice, at the Company's expense, in the furtherance of their duties.
The Board considers that it meets sufficiently regularly to discharge its duties effectively and the table on page 27 gives the attendance record for the meetings held during the reporting year. The Portfolio Manager and key representatives of the Manager are in attendance at these meetings. Between these meetings there is regular contact with the Manager and other meetings are arranged as necessary. Additionally, Board Committees and sub-groups meet to pursue matters referred to them by the Board and the Chairman is in contact with the other Directors regularly without representatives of the Manager being present.
In addition to the formal Board and Committee meetings, the Board undertakes a due diligence trip to Asia every other year. During this trip, the Board meets with the management of existing and potential investee companies alongside the Portfolio Manager. They also meet Fidelity's research team and analysts. The next such trip will be in January 2018.
| Regular Board Meetings |
Nomination Committee Meetings |
Audit Committee Meetings |
|---|---|---|
| 5/5 | 2/2 | 3/3 |
| 5/5 | 2/2 | 3/3 |
| 5/5 | 2/2 | 3/3 |
| 5/5 | 2/2 | 3/3 |
| 5/5 | 2/2 | 3/3 |
Figures indicate those meetings for which each Director was eligible to attend and attended in the year. Regular Board meetings exclude ad hoc meetings for formal approvals. Since the end of the reporting period, the Directors have also had a Management Engagement Committee meeting at which they reviewed the performance of the Manager and the terms of the Company's Management Agreement.
The Board has access to the advice and services of the Company Secretary. The Company Secretary is responsible to the Board for ensuring Board procedures are followed and that applicable rules and regulations are complied with.
Upon appointment, each Director is provided with all relevant information regarding the Company and receives training on the investment operations and administration functions of the Company, together with a summary of their duties and responsibilities to the Company. Directors also receive regular briefings from, amongst others, the AIC, the Company's Auditor and the Company Secretary regarding any proposed developments or changes in law or regulations that affect the Company and/or the Directors.
All newly appointed Directors stand for election by the shareholders at the AGM following their appointment by the Board. All other Directors are subject to annual re-election. Directors standing for re-election at this year's AGM are accompanied by sufficient biographical details on page 22 to enable shareholders to make an informed decision. The terms and letters of appointment of Directors are available for inspection at the registered office of the Company and will be available prior to the AGM.
An annual evaluation of the Board, its Directors and its Committees is undertaken and takes the form of written questionnaires and discussions. The performance of the Chairman is evaluated by the other Directors. The Company Secretary and Portfolio Manager also participate in this process to provide all-round feedback to the Board. The results of these evaluations are discussed by the Board and the process is considered to be constructive in terms of identifying areas for improving the functioning and performance of the Board and its Committees and action is taken on the basis of these results. The Board considers tenure as one of the matters under review during the evaluation process. A Director may serve for more than nine years, provided
that the Director is considered by the Board to continue to be independent. The Board has a policy that a Chairman must step down after nine years in that role but may remain thereafter, an independent Director, subject to annual re-election.
Details of Directors' remuneration and share interests are disclosed in the Directors' Remuneration Report on pages 31 and 32.
The Board has three Committees: the Audit Committee, the Management Engagement Committee and the Nomination Committee. It discharges certain of its corporate governance responsibilities through these Committees. The terms of reference of each Committee can be found on the Company's pages of the Manager's website at www.fidelityinvestmenttrusts.com.
The Audit Committee is chaired by Grahame Stott and consists of all of the Directors. Full details are disclosed in the Report of the Audit Committee on pages 34 and 35.
The Management Engagement Committee is chaired by Kate Bolsover and consists of all of the Directors. It meets at least once a year and reports to the Board, making recommendations where appropriate. It is charged with reviewing and monitoring the performance of the Manager and ensuring that the terms of the Company's Management Agreement remain competitive and reasonable for shareholders.
Ahead of the AGM, the Committee has reviewed the performance of the Manager and the fee basis and also that of its peers. The Committee noted the Company's good long term performance record and the commitment, quality and continuity of the team responsible for the Company and concluded that it was in the interests of shareholders that the appointment of the Manager should continue.
The Nomination Committee is chaired by Kate Bolsover and consists of all of the Directors. It meets at least once a year and reviews the composition, size and structure of the Board. The Committee is responsible for succession planning and it is charged with nominating new Directors for consideration by the Board, and in turn for approval by shareholders. The Committee carries out its candidate search against a set of objective criteria, with due regard for the benefits of diversity on the Board, including gender. New Directors are appointed on the basis of merit and this process has led to a diverse Board membership. External consultants may be used to identify future potential candidates. However, the Board currently feels that due to the nature of the Company's business, it has access to a sufficiently wide pool of candidates not to use external consultants.
The Committee also considers the election and re-election of Directors ahead of each AGM. It has considered the performance and contribution of each Director and has recommended their continued service to the Company. This has been endorsed by the Board which recommends their reappointment by the shareholders at the forthcoming AGM.
Set out on page 33 is a statement by the Directors of their responsibilities in respect of the preparation of the Annual Report and Financial Statements. The Auditor has set out its reporting responsibilities within the Independent Auditor's Report on pages 36 to 40.
The Board has a responsibility to present a fair, balanced and understandable assessment of annual, half-yearly, other price sensitive public reports and reports to regulators, and to provide information required to be presented by statutory requirements. All such reports are reviewed by the Audit Committee and approved by the Board prior to their issue to ensure that this responsibility is fulfilled.
The Board is responsible for the Company's systems of risk management and internal controls and for reviewing their effectiveness. The review takes place at least once a year. Such systems are designed to manage rather than eliminate risk of failure to achieve business objectives and can only provide reasonable, but not absolute, assurance against material misstatement or loss.
The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives. It is responsible for the design, implementation and maintenance of controls and procedures to safeguard the assets of the Company although these tasks have been delegated on a dayto-day basis to the Manager. The system extends to operational and compliance controls and risk management. Clear lines of
accountability have been established between the Board and the Manager. The Manager provides regular reports on controls and compliance issues to the Audit Committee and the Board. In carrying out its review, the Audit Committee has regard to the activities of the Manager, the Manager's compliance and risk functions and the work carried out by the Independent Auditor and also includes consideration of reports concerning internal controls issued by the other service providers.
The Board, assisted by the Manager, has undertaken a rigorous risk and controls assessment. It confirms that there is an effective ongoing process in place to identify, evaluate and manage the Company's principal business and operational risks, and that it has been in place throughout the year ended 31 July 2017 and up to the date of this report. This process is in accordance with the FRC's "Risk Management, Internal Control and Related Financial Business Reporting" guidance.
The Board has reviewed the need for an internal audit function and has determined that the systems and procedures employed by the Manager, which are subject to inspection by the Manager's internal and external audit processes, provide sufficient assurance that a sound system of internal controls is maintained to safeguard shareholders' investments and the Company's assets. An internal audit function, specific to the Company, is therefore considered unnecessary. The Audit Committee meets the Manager's internal audit representative at least three times a year. It receives a summary of the Manager's externally audited internal controls report on an annual basis.
Part of the Manager's role in ensuring the provision of a good service pursuant to the Management Agreement, includes the ability for employees of Fidelity to raise concerns through a workplace concerns escalation policy (or "whistle-blowing procedure"). Fidelity has advised the Board that it is committed to providing the highest level of service to its customers and to applying the highest standards of quality, honesty, integrity and probity. The aim of the policy is to encourage employees and others working for Fidelity to assist the Company in tackling fraud, corruption and other malpractice within the organisation and in setting standards of ethical conduct. This policy has been endorsed accordingly by the Board.
The Company is committed to carrying out business fairly, honestly and openly. The Board recognises the benefits this has to reputation and business confidence. The Board, the Manager, the Manager's employees and others acting on the Company's behalf, are expected to demonstrate high standards of behaviour when conducting business.
The Board acknowledges its responsibility for the implementation and oversight of the Company's procedures for preventing bribery, and the governance framework for training, communication,
monitoring, reporting and escalation of compliance together with enforcing action as appropriate. The Board has adopted a zero tolerance policy in this regard.
The Board has adopted the Manager's Principles of Ownership in relation to investments. These Principles include the pursuit of an active investment policy through portfolio management decisions, voting on resolutions at general meetings and maintaining a continuing dialogue with the management of investee companies. Fidelity is a signatory to the UK Stewardship Code setting out the responsibilities of institutional shareholders and agents. Further details of the Manager's Principles of Ownership and voting may be found at www.fidelity.co.uk.
Communication with shareholders is given a high priority by the Board and it liaises with the Manager and the Company's broker who are in regular contact with the Company's major institutional investors to canvass shareholder opinion and to communicate its views to shareholders. All Directors are made aware of shareholders' concerns and the Chairman, the Senior Independent Director and, where appropriate, other Directors, are available to meet with shareholders to discuss strategy and governance. The Board regularly monitors the shareholder profile of the Company and receives regular reports from the Manager on meetings attended with shareholders and any concerns raised in such meetings. The Board aims to provide the maximum opportunity for dialogue between the Company and shareholders. If any shareholder wishes to contact a member of the Board directly they should either email the Company Secretary at [email protected] or write to the address provided on page 67. The Company Secretary will attend to any enquiries promptly and ensure that they are directed to the Chairman, Senior Independent Director or the Board as a whole, as appropriate.
The Board encourages all shareholders to attend the AGM on 7 December 2017 where they will have the opportunity to meet and address questions to the Chairman and other members of the Board, the Portfolio Manager and representatives of the Manager.
The Notice of Meeting on pages 63 to 65 sets out the business of the AGM and the special business resolutions are explained more fully on pages 24 and 25 of the Directors' Report. A separate resolution is proposed on each substantially separate issue including the Annual Report and Financial Statements. The Notice of the AGM and related papers are sent to shareholders at least 20 working days before the Meeting.
Every person entitled to vote on a show of hands has one vote. On a poll every shareholder who is present in person or by proxy or representative has one vote for every ordinary share held. At general meetings all proxy votes are counted and, except where a poll is called, proxy voting is reported for each resolution after it has been dealt with on a show of hands. The proxy voting results are disclosed on the Company's pages of the Manager's website at www.fidelityinvestmenttrusts.com.
Changes to the Company's Articles of Association must be made by special resolution.
On behalf of the Board
Chairman 11 October 2017
The Directors' Remuneration Report for the year ended 31 July 2017 has been prepared in accordance with the Large & Mediumsized Companies & Groups (Accounts & Reports) (Amendment) Regulations 2013 (the "Regulations"). As the Board is comprised entirely of non-executive Directors and has no chief executive officer and employees, many parts of the Regulations, in particular those relating to chief executive officer pay and employee pay, do not apply and are therefore not disclosed in this report.
Ordinary resolutions to approve both the Directors' Remuneration Report and the Remuneration Policy will be put to shareholders at the AGM on 7 December 2017. The Company's Independent Auditor is required to audit certain sections of this report and where such disclosures have been audited, the specific section has been indicated as such. The Auditor's opinion is included in its report on pages 36 to 40.
The fee structure from 1 August 2017 is as follows: Chairman: £32,000 (2016: £30,000); Chairman of the Audit Committee: £26,500 (2016: £25,000); and Directors: £24,000 (2016: £22,750). Increases in Directors' remuneration are made to ensure that fees remain competitive and sufficient to attract and retain the quality of Directors needed to manage the Company successfully.
The Remuneration Policy is subject to a binding vote, in the form of an ordinary resolution at every third Annual General Meeting ("AGM"). A binding vote means that if it is not successful the Board will be obliged to revise the policy and seek further shareholder approval at a General Meeting specially convened for that purpose. The policy that has been in place has been updated to reflect HMRC regulations in relation to expenses incurred by Directors in attending to the affairs of the Company. These are treated as a taxable benefit. The proposed policy which is subject to a vote at the AGM on 7 December 2017 is set out below.
The Company's Articles of Association limit the aggregate fees payable to each Director to £50,000 per annum. Subject to this overall limit, it is the Board's policy to determine the level of Directors' fees having regard to the time spent by them on the Company's affairs; the level of fees payable to non-executive directors in the industry generally; the requirement to attract and retain individuals with suitable knowledge and experience; and the role that individual Directors fulfil. Other than fees and reasonable out-of-pocket expenses incurred in attending to the affairs of the Company, the Directors are not eligible for any performance related pay or benefits, pension related benefits, share options, long term incentive schemes or other taxable benefits. The Directors are not entitled to exit payments and are not provided with any compensation for loss of office. Directors fees are paid monthly in arrears. Directors do not serve a notice period if their appointment were to be terminated.
The level of Directors' fees is determined by the whole Board. Directors do not vote on their own individual fees. The Board reviews the Company's Remuneration Policy and implementation on an annual basis. Reviews are based on information provided by the Company's Manager and research from third parties and it includes information on the fees of other similar investment trusts.
No Director has a service contract with the Company. New Directors are provided with a letter of appointment which, amongst other things, provides that their appointment is subject to the Companies Act 2006 and the Company's Articles of Association. Copies of the Directors' letters of appointment are available at each of the Company's AGM and can be obtained from the Company's registered office.
The Company's Remuneration Policy will apply to new Board members, who will be paid at the equivalent amount of fees as current Board members.
The Remuneration Policy (the "Policy"), as set out above, has been followed throughout the year ended 31 July 2017 and up to date of this report. This Policy is subject to approval at this year's AGM.
At the AGM held on 2 December 2016, 98.90% of votes were cast in favour of the Directors' Remuneration Report for the year ended 31 July 2016, 0.60% of votes were cast against and 0.50% of votes were withheld.
The Company's Remuneration Policy was last approved by shareholders at the AGM on 9 December 2014, with 98.91% of the votes cast in favour, 0.64% votes were against and 0.45% votes were withheld.
The single total aggregate Directors' remuneration for the year under review was £124,246 (2016: £124,169). This includes expenses incurred by Directors in attending to the affairs of the Company and are considered to be a taxable benefit. Information on individual Directors' fees and taxable benefits (Directors' expenses) are disclosed in the table on the next page.
| 2018 | 2017 | 2017 | 2017 | 2016 | 2016 | 2016 | |
|---|---|---|---|---|---|---|---|
| Projected | Fees | Taxable Benefits |
Total | Fees | Taxable Benefits |
Total | |
| Total | (Audited) | (Audited) | (Audited) | (Audited) | (Audited) | (Audited) | |
| Remuneration of Directors | (£) | (£) | (£) | (£) | (£) | (£) | (£) |
| Kate Bolsover | 32,000 | 30,000 | 471 | 30,471 | 29,000 | 666 | 29,666 |
| William Knight1 | n/a | n/a | n/a | n/a | 7,333 | – | 7,333 |
| Timothy Scholefield2 | 24,000 | 22,750 | – | 22,750 | 18,418 | – | 18,418 |
| Philip Smiley | 24,000 | 22,750 | 395 | 23,145 | 22,000 | 599 | 22,599 |
| Grahame Stott | 26,500 | 25,000 | – | 25,000 | 24,000 | – | 24,000 |
| Michael Warren | 24,000 | 22,750 | 130 | 22,880 | 22,000 | 153 | 22,153 |
| Total | 130,500 | 123,250 | 996 | 124,246 | 122,751 | 1,418 | 124,169 |
1 Retired 30 November 2015.
2 Appointed 30 September 2015.
The table below shows the total amount paid out in Directors' remuneration and distributions to shareholders for the financial years to 31 July 2017 and 31 July 2016. The projected Directors' remuneration for the year ending 31 July 2018 is disclosed in the table above.
| 31 July 2017 £ |
31 July 2016 £ |
|
|---|---|---|
| Expenditure on Directors' Remuneration: |
||
| Fees and taxable benefits | 124,246 | 124,169 |
| Distribution to Shareholders: | ||
| Dividend payments | 3,037,000 | 1,350,000 |
The Company's objective is to achieve long term capital growth principally from the stockmarkets of the Asian Region excluding Japan. The Company's performance is measured against the return of the MSCI All Countries Asia ex Japan Index as this is considered to be the most appropriate Comparative Index in respect of its asset allocation. The graph opposite shows performance over eight years to 31 July 2017.
Total return performance for eight years to 31 July 2017 100 120 140 160 180 200 220 240 260 280 300 31 Jul 17 31 Jul 16 31 Jul 15 31 Jul 14 31 Jul 13 31 Jul 12 31 Jul 11 31 Jul 10 31 Jul 09 +185.0% +187.1% +128.8%
NAV per share Share price Comparative Index*
* Since 1 August 2015, the Company's Comparative Index is the MSCI All Countries Asia ex Japan Index (net) in Sterling terms. Prior to 1 August 2015, the Comparative Index was the MSCI All Countries Far East ex Japan Index (net) in Sterling terms.
Prices rebased to 100
Sources: Fidelity and Datastream
Although there is no requirement for the Directors to hold shares in the Company, shareholdings by Directors is encouraged. Directors' interests in the Company's ordinary and subscription shares are shown below. All of the shareholdings are beneficial.
| Ordinary Shares | 31 July 2017 |
31 July 2016 |
Change during year |
|---|---|---|---|
| Kate Bolsover | 15,250 | 15,250 | nil |
| Timothy Scholefield | 10,000 | 10,000 | nil |
| Philip Smiley | 2,500 | 2,500 | nil |
| Grahame Stott | 20,000 | 20,000 | nil |
| Michael Warren | 4,000 | 4,000 | nil |
| Subscription Shares | |||
| Kate Bolsover1 | 3,050 | n/a | 3,050 |
| Timothy Scholefield1 | 2,000 | n/a | 2,000 |
| Philip Smiley1 | 500 | n/a | 500 |
| Grahame Stott1,2 | 8,000 | n/a | 8,000 |
| Michael Warren1 | 800 | n/a | 800 |
1 Subscription shares allotted as part of the Bonus Issue on 2 December 2016.
2 Includes purchase of 4,000 subscription shares.
The Directors' shareholdings remain unchanged as at the date of this report.
On behalf of the Board
Kate Bolsover Chairman 11 October 2017
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice, including FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland. The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss for the period.
In preparing these Financial Statements the Directors are required to:
The Directors are responsible for ensuring that adequate accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report, a Corporate Governance Statement and a Directors' Remuneration Report that comply with that law and those regulations.
The Directors have delegated responsibility for the maintenance and integrity of the corporate and financial information included on the Company's pages of the Manager's website at www.fidelityinvestmenttrusts.com to the Manager. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Financial Statements may differ from legislation in their jurisdictions.
The Directors confirm that to the best of their knowledge:
The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
Approved by the Board on 11 October 2017 and signed on its behalf by:
Kate Bolsover Chairman
I am pleased to present the formal report of the Audit Committee (the "Committee") to shareholders.
The primary responsibilities of the Committee are to ensure the integrity of the Company's financial reporting, the appropriateness of the risk management and internal controls processes and the effectiveness of the independent audit process and how this has been assessed for the year ended 31 July 2017.
The members of the Committee are myself as Chairman, Kate Bolsover, Timothy Scholefield, Philip Smiley and Michael Warren. Kate Bolsover is a member of the Committee because the Board believes it to be appropriate for all Directors to have such responsibility. The Committee considers that collectively its members have sufficient recent and relevant financial experience to discharge their responsibilities fully.
The Committee's performance is evaluated as part of the overall Board evaluation process on an annual basis.
The Committee's authority and duties are clearly defined in its terms of reference which are available on the Company's pages of the Manager's website at www.fidelityinvestmenttrusts.com. These duties include:
*The Committee, on behalf of the Board, has reviewed the work undertaken by the Manager's internal audit team and has sufficient reassurance that a sound system of internal controls is maintained to safeguard shareholders' investments and the Company's assets.
Since the date of the last Annual Report (25 October 2016), the Committee has met three times and the Independent Auditor attended two of those meetings.
The following matters are dealt with and reviewed at each Committee meeting:
In addition, the following matters were also dealt with at these meetings:
| April 2017 | • The Half-Yearly Report and Financial Statements and recommendation of its approval to the Board • The Going Concern Statement • Dividend payment options |
|---|---|
| June 2017 | • The Independent Auditor's engagement letter and audit plan for the Company's year ending 31 July 2017 |
| October 2017 | • The Independent Auditor's findings from the audit of the Company • The Independent Auditor's performance, independence and reappointment • Compliance with Corporate Governance and regulatory requirements • The Annual Report and Financial Statements and recommendation of its approval to the Board • The Viability and Going Concern Statements • Recommendation of the final dividend payment to the Board |
The Annual Report and Financial Statements are the responsibility of the Board and the Statement of Directors' Responsibilities is on page 33. The Committee advises the Board on the form and content of the Annual Report and Financial Statements, any issues which may arise in relation to these and on any specific areas which require judgement. The Committee members apply their expertise and knowledge in reviewing disclosures made in order to ensure that the Financial Statements are fair, balanced and understandable.
Summarised below are the most significant issues considered by the Committee in respect of these Financial Statements and how they were addressed.
| Recognition of Investment Income |
Recognition of investment income is undertaken in accordance with accounting policy Note 2(d) on page 44. The Manager provided detailed revenue forecasts which the Committee reviewed and sought explanations for any significant variances to these forecasts. The Committee reviewed the internal audit and compliance monitoring reports received from the Manager to satisfy itself that adequate systems were in place for properly recording the Company's income. Investment income was also tested and reported on by the Independent Auditor. |
|---|---|
| Valuation, existence and ownership of investments (including derivatives) |
The valuation of investments (including derivatives) is in accordance with accounting policy Notes 2(j) and 2(k) on page 45. The Committee took comfort from the Depositary's regular oversight reports that investment related activities were conducted in accordance with the Company's investment policy. The Committee received reports from the Manager and Depositary that the valuation, existence and ownership of investments had been verified. In addition, the Committee reviewed the work of the Independent Auditor, which had also confirmed the existence and ownership of the Company's investments with the Company's Custodian and that of the derivatives with the Company's counterparties. |
Ernst & Young LLP acted as the Company's Independent Auditor for the year ended 31 July 2017. The Committee reviewed the independence of the Auditor and the effectiveness of the audit process prior to recommending its appointment to the Board at the forthcoming AGM. Fees paid to the Independent Auditor for the audit of the Financial Statements are disclosed in Note 5 on page 47.
With regard to the independence of the Auditor, the Committee reviewed:
*There were no non-audit services provided to the Company during the reporting year and as at the date of this report.
With regard to the effectiveness of the audit process, the Committee reviewed:
The Committee concluded that the Auditor continues to remain independent and the audit process remains effective.
Ernst & Young LLP was appointed as the Company's Independent Auditor on 30 November 2015. The Committee reviewed the Auditor's independence and the effectiveness of the audit process prior to recommending their reappointment for a further year. The Auditor is required to rotate audit partners every five years and this is the second year that the audit partner, Matthew Price, has been in place. The Committee will continue to review the Auditor's appointment each year to ensure that the Company continues to receive an optimal level of service. There are no contractual obligations that restricts the Company's choice of auditor.
Chairman of the Audit Committee 11 October 2017
FINANCIAL
In our opinion the Financial Statements:
We have audited the Financial Statements of Fidelity Asian Values PLC's which comprise:
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the Financial Statements section of our report below. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs(UK) require us to report to you whether we have anything material to add or draw attention to:
| Overview of our audit approach | |||
|---|---|---|---|
| -------------------------------- | -- | -- | -- |
| Key audit matters | • Incomplete or inaccurate investments and derivatives income recognition and specifically the recognition of special dividends, including incorrect allocation between revenue and capital. |
|
|---|---|---|
| • Valuation and existence of listed investments and derivatives. | ||
| Materiality | • | £2.80m (2016: £2.38m) which represents 1% of Company's net assets as of 31 July 2017. |
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Key observations
Committee
dividends.
statement.
We concur with the accounting classification adopted for material special dividends as revenue or capital, including the classification of the £1.6m dividend from RHT Health Trust, £0.5m from Luen Thai Holding and £0.2m from Convenience Retail Asia as
We noted no issues in agreeing the sample of dividend income from investments and derivatives to and from the independent source and to the bank statements. We noted no issues in agreeing the accrued dividend to an independent source and post year end bank
communicated to the Audit
The results of our procedures identified no issues with the accuracy, classification or completeness of income receipts, including special
Incomplete or inaccurate investments and derivatives income recognition and specifically the recognition of special dividends, including incorrect allocation between revenue and capital
Refer to the Report of the Audit Committee page 35; Accounting policies (page 44); and Note 3 of the Financial Statements (page 46)
The Company has reported revenue of £8.4m for the year (2016: £6.4m).
We identified the incomplete or inaccurate recognition of special dividends to be a fraud risk due to the requirement to exercise judgement and manual processing.
The largest three special dividends received by the Company during the year were from:
Given this, we considered there to be a potential fraud risk in relation to special dividends, in accordance with Auditing Standards, in this area of our audit.
We performed the following procedures:
capital.
Valuation and existence of listed investments and derivatives
Refer to the Report of the Audit Committee page 35 Accounting policies (page 45); and Notes 10 and 11 of the Financial Statements (pages 50 and 51)
The valuation of listed investments and derivatives as at the year-end was £265.4m (2016: £223m), comprising £264.1m of listed investments and £1.3m of net derivatives (2016: £222.4m of listed investments and £0.6m of net derivatives).
The valuation of the assets held in the investment portfolio is the key driver of the Company's net asset value and total return.
Incorrect asset pricing or a failure to maintain proper legal title of the assets held by the Company could have a significant impact on portfolio valuation and, therefore, the return generated for shareholders.
We have performed the following procedures:
For all listed investments and derivatives, we noted no material differences in market value or exchange rates.
We noted no unreconciled differences between the Custodian, Brokers or Depository confirmations and the Company's underlying financial records.
The areas which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team remain unchanged from the prior year.
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the Company. Taken together, this enables us to form an opinion on the Financial Statements. We take into account size, risk profile, the organisation and effectiveness of controls, changes in the business environment and other factors when assessing the level of work to be performed. All audit work was performed directly by the audit engagement team.
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Company to be £2.80m million (2016: £2.38m), which is 1% (2016: 1%) of Net Assets of the Company. We have used Net assets of the Company as the basis for setting materiality as it provides the most important financial metric on which shareholders judge the performance of the Company and it is a generally accepted auditing practice for investment trust audits.
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Company's overall control environment, our judgement was that performance materiality was 75% (2016: 50%) of our planning materiality, namely £2.10m (2016: £1.19m). We have increased performance materiality at this percentage as this is a second year audit and due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected.
Given the importance of the distinction between revenue and capital for the Company we also applied a separate testing threshold of £0.24m (2016: £0.1m) for the revenue column of the Income Statement, being 5% of the profit before taxation (2016: 2.5%). We have increased the percentage from 2.5% to 5% as this is a second year audit and due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected.
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.14m (2016: £0.12m), which is set at 5% (2016: 5%) of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.
The other information comprises the information included in the Annual Report set out on page 24, including the Strategic Report and Directors' Report set out on pages 8 to 25, other than the Financial Statements and our Auditor's report thereon. The Directors are responsible for the other information.
Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the Financial Statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on page 33 – the statement given by the Directors that they consider the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
In our opinion:
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified no material misstatements in the Strategic Report or Directors' Report.
We are required to report to you if, in our opinion:
As explained more fully in the Statement of Directors' Responsibilities set out on page 33, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view in accordance with United Kingdom Generally Accepted Accounting Practice, including
FRS 102, and for such internal control as the Directors determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.
The objectives of our audit, in respect to fraud, are:
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
the documented policies and procedures and review of the Financial Statements to ensure compliance with the reporting requirements of the Company.
• We assessed the susceptibility of the Company's Financial Statements to material misstatement, including how fraud might occur by considering the key risks impacting the Financial Statements. We identified a fraud risk with respect to incomplete or inaccurate investments and derivatives income recognition and specifically the recognition of special dividends, including incorrect allocation between revenue and capital. Further discussion of our approach is set out in the section on key audit matters above.
A further description of our responsibilities for the audit of the Financial Statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor's report.
(Senior Statutory Auditor) For and on behalf of Ernst & Young LLP Statutory Auditor London 11 October 2017
The maintenance and integrity of the Fidelity International web site is the responsibility of Fidelity International; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the web site.
Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
for the year ended 31 July 2017
| Year ended 31 July 2017 | Year ended 31 July 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Notes | revenue £'000 |
capital £'000 |
total £'000 |
revenue £'000 |
capital £'000 |
total £'000 |
||
| Gains on investments at fair value through profit or loss | 10 | – | 44,906 | 44,906 | – | 53,659 | 53,659 | |
| (Losses)/gains on derivative instruments | 11 | – | (2,376) | (2,376) | – | 1,928 | 1,928 | |
| Income | 3 | 8,439 | – | 8,439 | 6,441 | – | 6,441 | |
| Investment management fee | 4 | (2,500) | – | (2,500) | (1,847) | – | (1,847) | |
| Other expenses | 5 | (725) | (165) | (890) | (674) | – | (674) | |
| Foreign exchange (losses)/gains on cash and cash equivalents |
– | (616) | (616) | 72 | 583 | 655 | ||
| Net return on ordinary activities before finance costs and taxation |
5,214 | 41,749 | 46,963 | 3,992 | 56,170 | 60,162 | ||
| Finance costs | 6 | (407) | – | (407) | (94) | – | (94) | |
| Net return on ordinary activities before taxation | 4,807 | 41,749 | 46,556 | 3,898 | 56,170 | 60,068 | ||
| Taxation on return on ordinary activities | 7 | (707) | (166) | (873) | (284) | 174 | (110) | |
| Net return on ordinary activities after taxation for the year |
4,100 | 41,583 | 45,683 | 3,614 | 56,344 | 59,958 | ||
| Basic return per ordinary share | 8 | 6.08p | 61.62p | 67.70p | 5.36p | 83.49p | 88.85p | |
| Diluted return per ordinary share | 8 | 6.06p | 61.43p | 67.49p | n/a | n/a | n/a |
The Company does not have any other comprehensive income. Accordingly the net return on ordinary activities after taxation for the year is also the total comprehensive income for the year and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the Association of Investment Companies.
No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.
for the year ended 31 July 2017
| other | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| share | capital | non | total | ||||||
| share | premium | redemption | distributable | other | capital | revenue | shareholders' | ||
| capital | account | reserve | reserve | reserve | reserve | reserve | funds | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Total shareholders' | |||||||||
| funds at 31 July 2016 | 16,872 | 20,232 | 3,197 | 7,367 | 8,613 | 176,840 | 4,424 | 237,545 | |
| Net return on ordinary | |||||||||
| activities after taxation | |||||||||
| for the year | – | – | – | – | – | 41,583 | 4,100 | 45,683 | |
| Dividend paid to | |||||||||
| shareholders | 9 | – | – | – | – | – | – | (3,037) | (3,037) |
| Total shareholders' | |||||||||
| funds at 31 July 2017 | 16,872 | 20,232 | 3,197 | 7,367 | 8,613 | 218,423 | 5,487 | 280,191 | |
| Total shareholders' funds at 31 July 2015 |
16,872 | 20,232 | 3,197 | 7,367 | 8,613 | 120,496 | 2,160 | 178,937 | |
| Net return on ordinary activities after taxation |
|||||||||
| for the year | – | – | – | – | – | 56,344 | 3,614 | 59,958 | |
| Dividend paid to | |||||||||
| shareholders | 9 | – | – | – | – | – | – | (1,350) | (1,350) |
| Total shareholders' | |||||||||
| funds at 31 July 2016 | 16,872 | 20,232 | 3,197 | 7,367 | 8,613 | 176,840 | 4,424 | 237,545 |
The Notes on pages 44 to 61 form an integral part of these Financial Statements.
as at 31 July 2017 Company number 3183919
| Notes | 2017 £'000 |
2016 £'000 |
|
|---|---|---|---|
| Fixed assets | |||
| Investments at fair value through profit or loss | 10 | 264,076 | 222,424 |
| Current assets | |||
| Derivative instruments | 11 | 2,829 | 1,139 |
| Other receivables | 12 | 1,766 | 1,018 |
| Amounts held in margin accounts | 1,937 | 991 | |
| Cash at bank | 14,822 | 14,324 | |
| 21,354 | 17,472 | ||
| Current Liabilities | |||
| Derivative instruments | 11 | (1,554) | (542) |
| Other payables | 13 | (3,685) | (1,809) |
| (5,239) | (2,351) | ||
| Net current assets | 16,115 | 15,121 | |
| Net assets | 280,191 | 237,545 | |
| Capital and reserves | |||
| Share capital | 14 | 16,872 | 16,872 |
| Share premium account | 15 | 20,232 | 20,232 |
| Capital redemption reserve | 15 | 3,197 | 3,197 |
| Other non-distributable reserve | 15 | 7,367 | 7,367 |
| Other reserve | 15 | 8,613 | 8,613 |
| Capital reserve | 15 | 218,423 | 176,840 |
| Revenue reserve | 15 | 5,487 | 4,424 |
| Total shareholders' funds | 280,191 | 237,545 | |
| Net asset value per ordinary share | 16 | 415.17p | 351.98p |
| Diluted net asset value per ordinary share | 16 | 407.77p | n/a |
The financial statements on pages 41 to 61 were approved by the Board of Directors on 11 October 2017 and were signed on its behalf by:
Kate Bolsover Chairman
The Notes on pages 44 to 61 form an integral part of these Financial Statements.
Fidelity Asian Values PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company's registration number is 3183919, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.
The Company has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Practice ("UK GAAP"), issued by the Financial Reporting Council ("FRC") and these Financial Statements have been prepared in accordance with FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland. The Company has early adopted the amendments to FRS 102: Fair value hierarchy disclosures, issued by the FRC in March 2016 and applicable for accounting periods beginning on or after 1 January 2017. The Financial Statements have also been prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP") issued by the Association of Investment Companies ("AIC"), in November 2014. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company's investments are highly liquid and are carried at market value.
a) Basis of accounting – The Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the measurement at fair value of investments and derivative instruments.
b) Segmental reporting – The Company is engaged in a single segment business and, therefore, no segmental reporting is provided.
c) Presentation of the Income Statement – In order to reflect better the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The net revenue return after taxation for the year is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.
d) Income – Income from equity investments and derivative instruments is credited to the revenue column of the Income Statement on the date on which the right to receive the income is established, normally the ex dividend date. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised as a gain in the capital column of the Income Statement. Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case. Interest income is accounted for on an accruals basis.
e) Management fees and other expenses – Management fees and other expenses are accounted for on an accruals basis. Management fees are charged in full to the revenue column of the Income Statement. Other expenses are charged in full to the revenue column of the Income Statement except where they relate to items of a capital nature, in which case they are charged to the capital column of the Income Statement.
f) Foreign currency – The Directors, having regard to the Company's share capital and the predominant currency in which its investors operate, have determined its functional currency to be UK sterling. UK sterling is also the currency in which the Financial Statements are presented. Transactions denominated in foreign currencies are calculated in UK sterling at the rate of exchange ruling at the date of the transaction. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. Foreign exchange gains and losses arising on translation are recognised in the Income Statement as a revenue or a capital item depending on the nature of the underlying item to which they relate.
g) Finance costs – Finance costs comprise interest paid on long contracts for difference ("CFDs"), which is accounted for on an accruals basis using the effective interest method, and dividends paid on short CFDs, which are accounted for on the date on which the obligation to incur the cost is established, normally the ex-dividend date. Finance costs are charged in full to the revenue column of the Income Statement.
h) Taxation – The taxation expense represents the sum of current taxation and deferred taxation.
Taxation currently payable is based on the taxable profit for the year. Taxable profit differs from net return on ordinary activities before taxation for the year, as reported in the Income Statement, because it excludes items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company's liability for current taxation is calculated using taxation rates that have been enacted or substantively enacted by the Balance Sheet date.
Deferred taxation is the taxation expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding taxation bases used in the computation of taxable profit based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable. Deferred taxation assets are only recognised if it is considered more likely than not that there will be sufficient future taxable profits to utilise them.
Taxation is charged or credited to the revenue column of the Income Statement, except where it relates to items of a capital nature, in which case it is charged or credited to the capital column of the Income Statement. Where expenses are allocated between revenue and capital any tax relief in respect of the expenses is allocated between revenue and capital returns on the marginal basis using the Company's effective rate of corporation tax for the accounting period. The Company is an approved Investment Trust under Section 1158 of the Corporation Tax Act 2010 and is not liable for UK taxation on capital gains.
i) Dividend paid – Dividends payable to equity shareholders are recognised when the Company's obligation to make payment is established.
j) Investment held at fair value through profit or loss – The portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided on that basis to the Company's Board of Directors. Investments are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of investments is initially taken to be their cost and is subsequently measured as bid or last traded prices, depending upon the convention of the exchange on which they are listed, where available, or otherwise at fair value based on published price quotations.
In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within gains on investments held at fair value through profit or loss in the capital column of the Income Statement and has disclosed those costs in Note 10.
k) Derivative instruments – When appropriate, permitted transactions in derivative instruments are used. Derivative transactions into which the Company may enter include CFDs, futures and options. Derivatives are classified as fair value through profit or loss – held for trading, and are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:
Where such transactions are used to protect or enhance income, if the circumstances support this, income derived is included in derivative income in the revenue column of the Income Statement. Where such transactions are used to protect or enhance capital, if the circumstances support this, gains and losses derived are included in gains on derivative instruments in the capital column of the Income Statement. Any positions on such transactions open at the year end are reflected in the Balance Sheet at their fair value within current assets or current liabilities.
l) Other receivables – Other receivables include securities sold for future settlement, accrued income and debtors and pre-payments incurred in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer) they are classified as current assets. If not, they are presented as non-current assets. Debtors are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.
m) Amounts held in margin accounts – Amounts held in margin accounts are amounts deposited by the Company in segregated accounts at the brokers as collateral and are subject to an insignificant risk of changes in value.
n) Cash at bank – Cash at bank is subject to an insignificant risk of change in value.
o) Other payables – Other payables include securities purchased for future settlement and investment management fees, secretarial and administration fees and interest payable and other creditors and expenses accrued in the ordinary course of business. Other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business, if longer). If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.
p) Capital reserve – The following are transferred to the capital reserve:
As a result of technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/10: Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms at the Balance Sheet date, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as capital reserve in the Statement of Changes in Equity and the Balance Sheet. At the Balance Sheet date the portfolio of the Company consisted of investments listed on a recognised stock exchange and derivative instruments contracted with counterparties having an adequate credit rating. The portfolio was considered to be readily convertible to cash.
| Year ended | Year ended | |
|---|---|---|
| 31.07.17 | 31.07.16 | |
| £'000 | £'000 | |
| Investment income | ||
| Overseas dividends | 8,112 | 5,847 |
| Overseas scrip dividends | 207 | 413 |
| 8,319 | 6,260 | |
| Derivative income | ||
| Dividends on long CFDs | 90 | 165 |
| Interest on short CFDs | 13 | 3 |
| 103 | 168 | |
| Other income | ||
| Deposit interest | 17 | 13 |
| Total income | 8,439 | 6,441 |
| Year ended | Year ended | |
|---|---|---|
| 31.07.17 | 31.07.16 | |
| £'000 | £'000 | |
| Investment management fee | 2,500 | 1,847 |
FIL Investment Services (UK) Limited is the Company's Alternative Investment Fund Manager and has delegated portfolio management to FIL Investments International ("FII"). Both companies are Fidelity group companies. FII charges fees at an annual rate of 0.90% on the first £200 million of gross assets and 0.85% on gross assets over £200 million. Fees are payable quarterly in arrears and are calculated on the last business day of March, June, September and December.
| Year ended 31 July 2017 | Year ended 31 July 2016 | |||||
|---|---|---|---|---|---|---|
| revenue £'000 |
capital £'000 |
total £'000 |
revenue £'000 |
capital £'000 |
total £'000 |
|
| AIC fees | 20 | – | 20 | 19 | – | 19 |
| Custody fees | 111 | – | 111 | 87 | – | 87 |
| Depositary fees | 25 | – | 25 | 22 | – | 22 |
| Directors' expenses | 28 | – | 28 | 27 | – | 27 |
| Directors' fees* | 123 | – | 123 | 123 | – | 123 |
| Legal and professional fees | 58 | – | 58 | 62 | – | 62 |
| Marketing expenses | 144 | – | 144 | 122 | – | 122 |
| Printing and publication expenses | 76 | – | 76 | 63 | – | 63 |
| Registrars' fees | 30 | – | 30 | 38 | – | 38 |
| Secretarial and administration fees | 75 | – | 75 | 75 | – | 75 |
| Sundry other expenses | 11 | – | 11 | 12 | – | 12 |
| Fees payable to the Company's Independent Auditor for the audit of the Financial Statements |
24 | – | 24 | 24 | – | 24 |
| Costs of the subscription share issue | – | 165 | 165 | – | – | – |
| 725 | 165 | 890 | 674 | – | 674 |
* Details of the breakdown of Directors' fees are disclosed in the Directors' Remuneration Report on page 31.
| Year ended | Year ended | |
|---|---|---|
| 31.07.17 | 31.07.16 | |
| £'000 | £'000 | |
| Interest paid on CFDs | 108 | 52 |
| Dividends paid on short CFDs | 299 | 42 |
| 407 | 94 |
| Year ended 31 July 2017 | Year ended 31 July 2016 | |||||
|---|---|---|---|---|---|---|
| revenue £'000 |
capital £'000 |
total £'000 |
revenue £'000 |
capital £'000 |
total £'000 |
|
| a) Analysis of the taxation charge for the year |
||||||
| Taxation on overseas dividends | 707 | – | 707 | 284 | – | 284 |
| Indian capital gains tax paid | – | 166 | 166 | – | – | – |
| Deferred tax | – | – | – | (174) | (174) | |
| Total taxation charge for the year | ||||||
| (see Note 7b) | 707 | 166 | 873 | 284 | (174) | 110 |
The taxation charge for the year is lower than the standard rate of UK corporation tax for an investment trust company of 19.67% (2016: 20.00%). A reconciliation of the standard rate of UK corporation tax to the taxation charge for the year is shown below:
| Year ended 31 July 2017 | Year ended 31 July 2016 | |||||
|---|---|---|---|---|---|---|
| revenue £'000 |
capital £'000 |
total £'000 |
revenue £'000 |
capital £'000 |
total £'000 |
|
| Return on ordinary activities before taxation | 4,807 | 41,749 | 46,556 | 3,898 | 56,170 | 60,068 |
| Return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 19.67% (2016: 20.00%) |
946 | 8,212 | 9,158 | 780 | 11,234 | 12,014 |
| Effects of: | – | |||||
| Capital returns not taxable* | – | (8,212) | (8,212) | – | (11,234) | (11,234) |
| Income not taxable | (1,528) | – | (1,528) | (1,168) | – | (1,168) |
| Excess management expenses | 543 | – | 543 | 399 | – | 399 |
| Excess interest paid | 56 | – | 56 | – | – | – |
| Overseas taxation expensed | (17) | – | (17) | (11) | – | (11) |
| Overseas taxation suffered | 707 | – | 707 | 284 | – | 284 |
| Indian capital gains tax paid | – | 166 | 166 | – | – | – |
| Deferred tax | – | – | – | – | (174) | (174) |
| Total taxation charge for the year (see Note 7a) |
707 | 166 | 873 | 284 | (174) | 110 |
* The Company is exempt from UK taxation on capital returns as it meets the HM Revenue & Customs criteria for an investment company set out in Section 1159 of the Corporation Tax Act 2010.
A deferred tax asset of £3,270,000 (2016: £2,905,000), in respect of excess management expenses of £16,346,000 (2016: £13,534,000) and excess interest paid of £2,892,000 (2016: £2,605,000), has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.
| Year ended 31 July 2017 | Year ended 31 July 2016 | |||||
|---|---|---|---|---|---|---|
| revenue | capital | total | revenue | capital | total | |
| Basic return per ordinary share | 6.08p | 61.62p | 67.70p | 5.36p | 83.49p | 88.85p |
| Diluted return per ordinary share | 6.06p | 61.43p | 67.49p | n/a | n/a | n/a |
The basic returns per ordinary share are based on the net returns on ordinary activities after taxation for the year: revenue return £4,100,000 (2016: £3,614,000), capital return £41,583,000 (2016: £56,344,000) and total return £45,683,000 (2016: £59,958,000). These returns are divided by the weighted average number of ordinary shares in issue during the year of 67,488,213 (2016: 67,488,213).
The diluted returns per ordinary share reflect the notional dilutive effect that would have occurred if the rights attaching to subscription shares had been exercised on 5 December 2016 and additional ordinary shares had been issued. The returns on ordinary activities after taxation for the year used in the diluted calculation are the same as those for the basic returns above. These returns are divided by the notional weighted average number of ordinary shares in issue during the year of 67,695,881. This number of shares reflects the additional number of ordinary shares that could have been purchased at the average ordinary share price for the period with the proceeds from the excess of the subscription share rights exercise price over the average ordinary share price. There were no diluted returns per ordinary share for the year ended 31 July 2016 as there were no subscription shares in issue during that year.
| Year ended | Year ended | |
|---|---|---|
| 31.07.17 | 31.07.16 | |
| £'000 | £'000 | |
| Dividend paid | ||
| Dividend paid of 4.50 pence per ordinary share for the year ended 31 July 2016 | 3,037 | – |
| Dividend paid of 2.00 pence per ordinary share for the year ended 31 July 2015 | – | 1,350 |
| 3,037 | 1,350 | |
| Dividend proposed | ||
| Dividend proposed of 5.00 pence per ordinary share for the year ended 31 July 2017 | 3,374 | – |
| Dividend proposed of 4.50 pence per ordinary share payable for the year ended 31 July 2016 | – | 3,037 |
| 3,374 | 3,037 |
The Directors have proposed the payment of a dividend for the year ended 31 July 2017 of 5.00 pence per ordinary share which is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The dividend will be paid on 12 December 2017 to shareholders on the register at the close of business on 20 October 2017 (ex-dividend date 19 October 2017).
| 2017 | 2016 | |
|---|---|---|
| £'000 | £'000 | |
| Listed investments* | 264,076 | 222,424 |
| Opening book cost | 185,226 | 173,359 |
| Opening investment holding gains/(losses) | 37,198 | (10,501) |
| Opening fair value of investments | 222,424 | 162,858 |
| Movements in the year | ||
| Purchases at cost | 137,251 | 105,417 |
| Sales – proceeds | (140,505) | (99,510) |
| Sales – gains in the year | 40,098 | 5,960 |
| Movement in investment holding gains in the year | 4,808 | 47,699 |
| Closing fair value of investments | 264,076 | 222,424 |
| Closing book cost | 222,070 | 185,226 |
| Closing investment holding gains | 42,006 | 37,198 |
| Closing fair value of investments | 264,076 | 222,424 |
| * The Fair Value Hierarchy of the investments is shown in Note 17. |
| Year ended | Year ended | |
|---|---|---|
| 31.07.17 | 31.07.16 | |
| £'000 | £'000 | |
| Gains on investments for the year | ||
| Gains on sales of investments | 40,098 | 5,960 |
| Investment holding gains | 4,808 | 47,699 |
| 44,906 | 53,659 |
Transaction costs incurred in the acquisition and disposal of investments, which are included in the gains on investments at fair value through profit or loss in the capital column of the Income Statement, were as follows:
| Year ended | Year ended | |
|---|---|---|
| 31.07.17 | 31.07.16 | |
| £'000 | £'000 | |
| Purchase transaction costs | 293 | 207 |
| Sales transaction costs | 365 | 213 |
| 658 | 420 |
The portfolio turnover rate for the year was 55.2% (2016: 55.9%).
| Year ended 31.07.17 |
Year ended 31.07.16 |
|
|---|---|---|
| £'000 | £'000 | |
| Net (losses)/gains on derivative instruments | ||
| Realised gains on long CFDs | 907 | 861 |
| Realised losses on short CFDs | (1,260) | (36) |
| Realised (losses)/gains on options | (74) | 300 |
| Movement in investment holding gains on long CFDs | 83 | 1,114 |
| Movement in investment holding losses on short CFDs | (683) | (329) |
| Movement in investment holding (losses)/gains on options | (1,349) | 18 |
| (2,376) | 1,928 | |
| 2017 | 2016 | |
| fair value | fair value | |
| £'000 | £'000 | |
| Fair value of derivative instruments recognised on the Balance Sheet | ||
| Derivative assets at fair value through profit or loss | 2,829 | 1,139 |
| Derivative liabilities at fair value through profit or loss | (1,554) | (542) |
| 1,275 | 597 |
| 2017 | 2016 | ||||
|---|---|---|---|---|---|
| gross asset | gross asset | ||||
| fair value £'000 |
exposure £'000 |
fair value £'000 |
exposure £'000 |
||
| At the year end the Company held the following derivative instruments | |||||
| Long CFDs | 1,197 | 3,009 | 1,114 | 5,263 | |
| Short CFDs | (952) | 14,099 | (329) | 5,458 | |
| Short future | (60) | 1,094 | – | – | |
| Put options (hedging exposure) | 1,090 | (8,583) | – | – | |
| Covered call options reducing long exposure | – | – | (138) | (1,517) | |
| Written put options | – | – | (50) | 380 | |
| 1,275 | 9,619 | 597 | 9,584 |
| 2017 | 2016 | |
|---|---|---|
| £'000 | £'000 | |
| Securities sold for future settlement | 1,089 | 676 |
| Accrued income | 562 | 255 |
| Debtors and prepayments | 115 | 87 |
| 1,766 | 1,018 |
The Directors consider that the carrying amount of other receivables approximates to their fair value.
| 2017 | 2016 | |
|---|---|---|
| £'000 | £'000 | |
| Securities purchased for future settlement | 3,083 | 1,381 |
| Creditors and accruals | 602 | 428 |
| 3,685 | 1,809 |
| 2017 | 2016 | |||
|---|---|---|---|---|
| Number of | ||||
| shares | £'000 | shares | £'000 | |
| Ordinary shares of 25 pence each – issued, allotted and fully paid Held outside Treasury |
||||
| Beginning and end of the year | 67,488,213 | 16,872 | 67,488,213 | 16,872 |
| Subscription shares of 0.001 pence – issued, allotted and fully paid Beginning of the year |
– | – | – | – |
| Subscription shares issued | 13,497,222 | – | – | – |
| End of the year | 13,497,222 | – | – | – |
| Total share capital | 16,872 | 16,872 |
A bonus issue of subscription shares to ordinary shareholders on the basis of one subscription share for every five ordinary shares held took place on 5 December 2016. Each subscription share gives the holder the right, but not the obligation, to subscribe for one ordinary share upon payment of the subscription price. The subscription price is based on the published unaudited NAV per ordinary share at 2 December 2016, plus a premium depending upon the year in which the right is exercised. The subscription share rights can be exercised annually in the 25 business days prior to the relevant subscription date (on which the exercises would take effect). The subscription dates, subscription prices and premiums are as follows:
| Subscription date | Exercise price | Premium | |
|---|---|---|---|
| First subscription date | 30 November 2017 | 370.75p | 1% |
| Second subscription date | 30 November 2018 | 381.75p | 4% |
| Final subscription date | 29 November 2019 | 392.75p | 7% |
After the final subscription date of 29 November 2019, the Company will appoint a trustee who will exercise any rights remaining that have not been exercised by shareholders, providing that by doing so a profit can be realised. To realise a profit the sale proceeds from selling the resulting ordinary shares in the market would need to be in excess of the 392.75 pence per share price of exercising the rights, plus any related expenses and fees. Any resulting profit will be paid to the holders of those outstanding subscription shares, unless the amount payable to an individual holder is less than £5, in which case such sum shall be retained for the benefit of the Company.
Subscription shares carry no rights to vote, to receive a dividend or to participate in the winding up of the Company.
The "share premium account" represents the amount by which the proceeds, from the issue of ordinary shares on the exercise of rights attached to subscription shares, exceeded the nominal value of those ordinary shares. It is not distributable by way of dividend. It cannot be used to fund share repurchases.
The "capital redemption reserve" maintains the equity share capital of the Company and represents the nominal value of shares repurchased and cancelled. It is not distributable by way of dividend. It cannot be used to fund share repurchases.
The "other non-distributable reserve" represents amounts transferred from the warrant reserve in prior years with High Court approval. It is not distributable by way of dividend. It cannot be used to fund share repurchases.
The "other reserve" represents amounts transferred from the share premium account and the capital redemption reserve in prior years with High Court approval. It is not distributable by way of dividend. It can be used to fund share repurchases.
The "capital reserve" reflects realised gains or losses on investments and derivative instruments sold, unrealised increases and decreases in the fair value of investments and derivative instruments held and other income and costs recognised in the capital column of the Income Statement. It can be used to fund share repurchases and it is distributable by way of dividend. The Board has stated that it has no current intention to pay dividends out of capital.
The "revenue reserve" represents retained revenue surpluses recognised through the revenue column of the Income Statement. It is distributable by way of dividend.
The net asset value per ordinary share is based on net assets of £280,191,000 (2016: £237,545,000) and on 67,488,213 (2016: 67,488,213) ordinary shares, being the number of ordinary shares in issue at the year end.
The diluted net asset value per ordinary share reflects the potential dilution in the net asset value per ordinary share if the rights of the 13,497,222 subscription shares in issue had been exercised on 31 July 2017 at the first exercise date price of 370.75 pence per share. The basis of the calculation is in accordance with the guidelines laid down by the AIC. There was no dilution at 31 July 2016 as no subscription shares were in issue.
The net asset value per ordinary share and the diluted net asset values per ordinary share are published by the London Stock Exchange on a daily basis.
The Company's investing activities in pursuit of its investment objective involve certain inherent risks. The Board confirms that there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Board with the assistance of the Investment Manager, has developed a risk matrix which, as part of the internal control process, identifies the risks that the Company faces. Principal risks identified are market, performance, discount control, gearing and currency risks. Other risks identified are tax and regulatory and operational risks, including those relating to third party service providers covering investment management, marketing and business development, company secretarial, fund administration and operations and support functions. Risks are identified and graded in this process, together with steps taken in mitigation, and are updated and reviewed on an ongoing basis. Risks identified are shown in the Strategic Report on pages 10 and 11.
This note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments. The Company's financial instruments comprise:
The risks identified arising from the Company's financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instrument risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies are consistent with those followed last year.
The Company finances its operations through ordinary share capital and reserves. In addition, the Company may achieve a geared exposure to Asian equities through the use of derivative instruments which incur funding costs. Consequently the Company is exposed to a financial risk as a result of increases in Asian interest rates.
The values of the Company's financial instruments that are exposed to movements in interest rates are shown below:
| 2017 | 2016 | |
|---|---|---|
| £'000 | £'000 | |
| Exposure to financial instruments that earn interest | ||
| Cash at bank | 14,822 | 14,324 |
| Short CFDs – exposure plus fair value | 13,147 | 5,129 |
| Amounts held in margin accounts | 1,937 | 991 |
| 29,906 | 20,444 | |
| Exposure to financial instruments that bear interest | ||
| Long CFDs – exposure less fair value | 1,812 | 4,149 |
| Net exposure to financial instruments that earn interest | 28,094 | 16,295 |
The Company's net return on ordinary activities after taxation and its net assets can be affected by foreign exchange rate movements because the Company has income, assets and liabilities which are denominated in currencies other than the Company's functional currency which is UK sterling.
Three principal areas have been identified where foreign currency risk could impact the Company:
The portfolio management team monitor foreign currency risk but it is not the Company's policy to hedge against currency risk.
The Company's financial assets comprise equity investments, long exposures to derivative instruments, other receivables and cash and cash equivalents. The currency profile of these financial assets is shown below:
| 2017 | |||||
|---|---|---|---|---|---|
| investments | |||||
| at fair | gross asset | ||||
| value | exposure to | ||||
| through | derivative | other | |||
| profit or loss | instruments1 | receivables2 | cash | total | |
| currency | £'000 | £'000 | £'000 | £'000 | £'000 |
| Indian rupee | 51,520 | (1,079) | 1,659 | 21 | 52,121 |
| Taiwan dollar | 34,214 | 3,009 | 387 | 1,623 | 39,233 |
| Hong Kong dollar | 41,209 | (4,327) | 90 | 762 | 37,734 |
| South Korean won | 30,140 | (3,177) | – | 7 | 26,970 |
| Australian dollar | 24,846 | – | – | 36 | 24,882 |
| US dollar | 8,090 | – | 1,400 | 11,493 | 20,983 |
| Philippine peso | 17,380 | – | – | – | 17,380 |
| Singapore dollar | 15,967 | – | 6 | – | 15,973 |
| Indonesian rupiah | 15,739 | – | 46 | – | 15,785 |
| Thai baht | 9,959 | – | – | – | 9,959 |
| Malaysian ringgit | 2,705 | – | – | – | 2,705 |
| Other overseas currencies | 10,851 | – | – | 685 | 11,536 |
| UK sterling | 1,456 | – | 115 | 195 | 1,766 |
| 264,076 | (5,574) | 3,703 | 14,822 | 277,027 |
1 The gross asset exposure of long CFDs after the netting of hedging exposures.
2 Other receivables include amounts held in margin accounts.
| 2016 | |||||
|---|---|---|---|---|---|
| gross asset | |||||
| investments | exposure | ||||
| at fair | to long | ||||
| value through | derivative | other | |||
| profit or loss | instruments | receivables* | cash | total | |
| currency | £'000 | £'000 | £'000 | £'000 | £'000 |
| Indian rupee | 45,185 | – | 63 | 30 | 45,278 |
| Hong Kong dollar | 35,952 | – | 104 | 54 | 36,110 |
| US dollar | 14,291 | 5,643 | 1 | 11,620 | 31,555 |
| Taiwan dollar | 24,690 | – | 73 | 904 | 25,667 |
| Singapore dollar | 18,717 | – | 90 | – | 18,807 |
| Australian dollar | 16,816 | – | 365 | – | 17,181 |
| Thai baht | 15,471 | – | 227 | – | 15,698 |
| South Korean won | 15,416 | – | 1 | 3 | 15,420 |
| Philippine peso | 12,741 | – | – | – | 12,741 |
| Indonesian rupiah | 9,969 | – | 4 | – | 9,973 |
| Malaysian ringgit | 5,236 | – | – | – | 5,236 |
| Other overseas currencies | 7,940 | – | 7 | 1,564 | 9,511 |
| UK sterling | – | – | 1,074 | 149 | 1,223 |
| 222,424 | 5,643 | 2,009 | 14,324 | 244,400 |
*Other receivables include amounts held in margin accounts.
The Company finances its investment activities through its ordinary share capital and reserves. The Company's financial liabilities comprise short positions on derivative instruments and other payables. The currency profile of these financial liabilities is shown below:
| 2017 | |||
|---|---|---|---|
| exposure | |||
| to short | |||
| derivative | other | ||
| instruments | payables | total | |
| currency | £'000 | £'000 | £'000 |
| Hong Kong dollar | 5,960 | 1,387 | 7,347 |
| Australian dollar | 3,110 | 307 | 3,417 |
| Indian rupee | 1,094 | 249 | 1,343 |
| US dollar | – | 331 | 331 |
| Other overseas currencies | 5,029 | 1,031 | 6,060 |
| UK sterling | – | 380 | 380 |
| 15,193 | 3,685 | 18,878 |
| 2016 | |||
|---|---|---|---|
| exposure | |||
| to short | |||
| derivative | other | ||
| instruments | payables | total | |
| currency | £'000 | £'000 | £'000 |
| US dollar | 3,520 | 20 | 3,540 |
| Hong Kong dollar | 2,789 | – | 2,789 |
| South Korean won | – | 806 | 806 |
| Australian dollar | 666 | – | 666 |
| Other overseas currencies | – | 575 | 575 |
| UK sterling | – | 408 | 408 |
| 6,975 | 1,809 | 8,784 |
Other price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets at least quarterly to consider the asset allocation of the portfolio and the risk associated with particular industry sectors within the parameters of the investment objective. The Portfolio Manager is responsible for actively managing and monitoring the existing portfolio, selected in accordance with the overall asset allocation parameters described above, and seeks to ensure that individual stocks also meet an acceptable risk/reward profile.
The Company's assets mainly comprise readily realisable securities and derivative instruments which can be sold to meet funding commitments when needed. Short term flexibility is achieved by the use of a bank overdraft, if required. Other financial liabilities are repayable within one year.
Certain of the derivative instruments in which the Company may invest are not traded on an exchange but instead will be traded between counterparties based on contractual relationships, under the terms outlined in the International Swaps Dealers Association's ("ISDA") market standard derivative legal documentation. These are known as Over The Counter ("OTC") trades. As a result the Company is subject to the risk that a counterparty may not perform its obligations under the related contract. In accordance with the risk management process which the Investment Manager employs, this risk is minimised by only entering into transactions with counterparties which are believed to have an adequate credit rating at the time the transaction is entered into, by ensuring that formal legal agreements covering the terms of the contract are entered into in advance, and through adopting a counterparty risk framework which measures, monitors and manages counterparty risk by the use of internal and external credit agency ratings and by evaluating derivative instrument credit risk exposure.
For OTC derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At 31 July 2017 £17,000 (2016: £846,000) was held by the brokers, in government bonds in a segregated collateral account on behalf of the Company, to reduce the credit risk exposure of the Company and £1,937,000 (2016: £991,000) was deposited by the Company in cash, shown as amounts in margin accounts on the Balance Sheet, in a segregated account at the brokers, to reduce the credit risk exposure of the brokers.
Financial instruments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties. All transactions are carried out with brokers that have been approved by the Investment Managers and are settled on a delivery versus payment basis. Limits are set on the amount that may be due from any one broker and are kept under review by the Investment Manager. Exposure to credit risk arises on unsettled security transactions and derivative instrument contracts and cash at bank.
The Company's investment policy allows derivative instruments to be employed for the following purposes:
Derivative instruments are subject to Other Price Risk and the measures taken to control it as described above in this Note. In addition, the portfolio management team includes an experienced, specialist derivatives team that uses portfolio risk assessment and construction tools to manage the risk and investment performance of derivative instruments.
Based on the financial instruments held and interest rates at the balance sheet date, an increase of 0.25% in interest rates throughout the year would have increased the net return on ordinary activities after taxation for the year and increased the net assets of the Company by £70,000 (2016: £41,000). A decrease of 0.25% in interest rates throughout the year would have had an equal but opposite effect.
Based on the financial assets and liabilities held and the exchange rates ruling at the Balance Sheet date, a strengthening of the UK sterling exchange rate by 10% against other currencies would have decreased the net return on ordinary activities after taxation for the year and decreased the net assets of the Company by the following amounts:
| 2017 | 2016 | |
|---|---|---|
| currency | £'000 | £'000 |
| Indian rupee | (4,808) | (4,114) |
| Hong Kong dollar | (3,671) | (3,273) |
| Taiwan dollar | (3,399) | (2,333) |
| South Korean won | (2,768) | (1,329) |
| Australian dollar | (2,247) | (1,553) |
| US dollar | (1,878) | (2,427) |
| (18,771) | (15,029) |
Based on the financial assets and liabilities held and the exchange rates ruling at the Balance Sheet date, a weakening of the UK sterling exchange rate by 10% against other currencies would have increased the net return on ordinary activities after taxation for the year and increased the net assets of the Company by the following amounts:
| currency | 2017 £'000 |
2016 £'000 |
|---|---|---|
| Indian rupee | 5,877 | 5,028 |
| Hong Kong dollar | 4,487 | 4,000 |
| Taiwan dollar | 4,155 | 2,852 |
| South Korean won | 3,383 | 1,624 |
| Australian dollar | 2,746 | 1,899 |
| US dollar | 2,295 | 2,966 |
| 22,943 | 18,369 |
An increase of 10% in the fair value of investments at 31 July 2017 would have increased the net return on ordinary activities after taxation for the year and increased the net assets of the Company by £26,408,000 (2016: £22,242,000). A decrease of 10% in the fair value of investments would have had an equal and opposite effect.
An increase of 10% in the fair value of the investments underlying the derivative instruments at 31 July 2017 would have decreased the net return on ordinary activities after taxation for the year and decreased the net assets of the Company by £2,077,000 (2016: £133,000). A decrease of 10% in the fair value of investments underlying the derivative instruments would have had an equal and opposite effect.
Financial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. As explained in Note 2 (j) and (k) above, investments and derivative instruments are shown at fair value. In the case of cash, book value approximates to fair value due to the short maturity of the instruments.
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.
| Classification | Input |
|---|---|
| Level 1 | Valued using quoted prices in active markets for identical assets |
| Level 2 | Valued by reference to valuation techniques using observable inputs other than quoted prices included within level 1 |
| Level 3 | Valued by reference to valuation techniques using inputs that are not based on observable market data |
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are explained in Note 2 (j) and (k). The table below sets out the Company's fair value hierarchy:
| level 1 £'000 |
level 2 £'000 |
2017 total £'000 |
level 1 £'000 |
level 2 £'000 |
2016 total £'000 |
|
|---|---|---|---|---|---|---|
| Financial assets at fair value through profit or loss |
||||||
| Investments | 259,508 | 4,568 | 264,076 | 216,658 | 5,766 | 222,424 |
| Derivative instruments | 789 | 2,040 | 2,829 | – | 1,139 | 1,139 |
| 260,297 | 6,608 | 266,905 | 216,658 | 6,905 | 223,563 | |
| Financial liabilities at fair value through profit or loss |
||||||
| Derivative instruments | (60) | (1,494) | (1,554) | (188) | (354) | (542) |
The Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital and reserves, as disclosed on the Balance Sheet on page 43, and any gearing, which may be achieved through the use of derivative instruments. Financial resources are managed in accordance with the Company's investment policy and in pursuit of its investment objective, both of which are detailed in the Strategic Report on page 8. The principal risks and their management are disclosed in the Strategic Report on pages 10 and 11 and in Note 17.
The Company's gearing (net cash position) at the year end is set out below:
| 2017 | 2016 | |
|---|---|---|
| gross asset | gross asset | |
| exposure | exposure | |
| £'000 | £'000 | |
| Long exposures to shares and equity linked notes | 264,076 | 222,424 |
| Covered call options reducing the above exposure | – | (1,517) |
| Long CFDs | 3,009 | 5,263 |
| Written put options | – | 380 |
| Total long exposures | 267,085 | 226,550 |
| Less: hedging exposure to Index linked put options | (8,583) | – |
| Total long exposures after the netting of hedges | 258,502 | 226,550 |
| Short CFDs | 14,099 | 5,458 |
| Short future | 1,094 | – |
| Gross Asset Exposure | 273,695 | 232,008 |
| Total Shareholders' Funds | 280,191 | 237,545 |
| Gearing – (net cash position)* | (2.3%) | (2.3%) |
* Gross Asset Exposure less Total Shareholders' Funds expressed as a percentage of Total Shareholders' Funds.
FIL Investment Services (UK) Limited is the Company's Alternative Investment Fund Manager and has delegated portfolio management and the role of company secretary to FIL Investments International ("FII"). Both companies are Fidelity group companies. Details of the fee arrangements are given in the Directors' Report, on page 23, and in Note 4. During the year management fees of £2,500,000 (2016: £1,847,000) and secretarial and administration fees of £75,000 (2016: £75,000) were payable to FII. At the Balance Sheet date management fees of £220,000 (2016: £174,000) and secretarial and administration fees of £46,000 (2016: £46,000) were accrued and included in other payables. FII also provides the Company with marketing services. The total amount payable for these services during the year was £144,000 (2016: £122,000). At the Balance Sheet date marketing services of £3,000 (2016: £14,000) were accrued and included in other payables.
Disclosures of the Directors' interests in the ordinary shares of the Company and Directors' fees and taxable benefits relating to reasonable travel expenses payable to the Directors are given in the Directors' Remuneration Report on pages 31 and 32. The Directors received compensation of £135,000 (2016: £135,000). In addition to the fees and taxable benefits disclosed in the Directors' Remuneration Report, this amount includes £11,000 (2016: £11,000) of employers' National Insurance Contributions paid by the Company.
| 31 July 2017 – Financial Year End | ||||||
|---|---|---|---|---|---|---|
| -- | -- | -- | -- | ----------------------------------- | -- | -- |
October 2017 – Announcement of results for the year ended 31 July 2017
October 2017 – Publication of this Report
19 October 2017 – Ex-dividend Date
20 October 2017 – Record Date
7 December 2017 – Annual General Meeting
12 December 2017 – Payment of the Dividend
31 January 2018 – Half-Year End
March 2018 – Announcement of the Half-Yearly results to 31 January 2018
April 2018 – Publication of the Half-Yearly Report
Notice is hereby given that the Annual General Meeting of Fidelity Asian Values PLC will be held at 25 Cannon Street, London EC4M 5TA on 7 December 2017 at 11.00 am for the following purposes:
To consider and, if thought fit, pass the following special business resolutions of which Resolution 12 will be proposed as an ordinary resolution and Resolutions 13 and 14 as special resolutions.
Authority to allot shares and disapply pre-emption rights
Resolutions 12 and 13 will, if approved, authorise the Directors to allot a limited number of new ordinary shares (or to sell any ordinary shares which the Company elects to hold in Treasury) for cash without first offering such shares to existing ordinary shareholders pro rata to their existing holdings. The limit set by the Board is 10% of the number of ordinary shares of the Company (including Treasury shares) in issue on 11 October 2017. The Directors will only issue new ordinary shares, or dispose of ordinary shares held in Treasury, under this authority in order to take advantage of opportunities in the market as they arise and only if they believe it is advantageous to the Company's shareholders to do so. Any ordinary shares held in Treasury would be re-issued at no less than net asset value ("NAV") per share or at a premium to NAV per share. This would ensure that the net effect of repurchasing and then re-issuing the ordinary shares would enhance NAV per share.
amount of £1,687,205 (approximately 10% of the aggregate nominal amount of the issued share capital of the Company (including Treasury shares) as at 11 October 2017) and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with Treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter, such authority to expire at the conclusion of the next Annual General Meeting ("AGM") of the Company or the date 15 months after the passing of this resolution, whichever is the earlier, but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require relevant securities to be allotted after such expiry as if the authority conferred by this resolution had not expired. All previous unexpired authorities are revoked, but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made (pursuant to such authorities including in respect of the allotment of shares pursuant to the exercise of subscription share rights).
and this power shall expire at the conclusion of the next AGM of the Company or the date 15 months after the passing of this resolution, whichever is the earlier, save that this authority shall allow the Company to make offers or agreements before the expiry of this authority, and the Directors may allot equity securities in relation to such an offer or agreement as if the authority conferred by this resolution had not expired.
Resolutions 14 and 15 are special resolutions which, if approved, will renew the Company's authority to purchase up to 14.99% respectively of the number of ordinary and subscription shares in issue (excluding Treasury shares) on 11 October 2017 either for immediate cancellation or, in respect of the ordinary shares repurchased, for retention as Treasury shares, at the determination of the Board. Once shares are held In Treasury, the Directors may only dispose of them in accordance with the relevant legislation by subsequently selling the shares for cash or cancelling the shares. Purchases of ordinary
shares and subscription shares will be at the discretion of the Board and within guidelines set from time to time by the Board in the light of prevailing market conditions. Purchases of ordinary shares will only be made in the market at prices below the prevailing NAV per share, thereby resulting in an increased NAV per share.
immediately preceding the day on which the share is purchased; and
By Order of the Board
Secretary 11 October 2017
11.00 am on 5 December 2017. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message. After this time any change of instructions to a proxy appointed through CREST should be communicated to the proxy by other means. CREST Personal Members or other CREST sponsored members and those CREST Members who have appointed voting service provider(s) should contact their CREST sponsor or voting service provider(s) for assistance with appointing proxies via CREST. For further information on CREST procedures, limitations and systems timings please refer to the CREST Manual. We may treat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001. In any case your proxy form must be received by the Company's Registrar no later than 11.00 am on 5 December 2017.
be entered on the Register of Members by close of business on 5 December 2017. If the meeting is adjourned then, to be so entitled, members must be entered on the Register of Members by close of business on the day two days before the time fixed for the adjourned meeting, or, if the Company gives notice of the adjourned meeting, at any other time specified in that notice.
Registered office: Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP.
Fidelity Asian Values PLC is a company listed on the London Stock Exchange and you can buy its shares through a stockbroker, share shop or bank. Fidelity also offers a range of options, so that you can invest in the way that is best for you. Details of how to invest can be found on Fidelity's website at:
Existing shareholders should contact the appropriate administrator using the contact details given below. This may be Capita Asset Services, the Company's Registrar, or Fidelity, or it may be another platform or administrator of your choice. Links to the websites of major platforms can be found online at: www.fidelityinvestmenttrusts.com
Capita Asset Services, Registrar to Fidelity Asian Values PLC, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
Telephone: 0871 664 0300 (calls cost 12p per minute plus network extras. If you are outside the United Kingdom, call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 9.00 am to 5.30 pm Monday to Friday, excluding public holidays in England and Wales).
Details of individual shareholdings and other information can also be obtained from the Registrar's website: www.signalshares.com.
Fidelity, using the freephone numbers given below, or by writing to: UK Customer Service, Fidelity International, Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge, Kent TN11 9DZ.
Private investors: call free to 0800 41 41 10, 9.00 am to 6.00 pm, Monday to Saturday.
Financial advisers: call free to 0800 41 41 81, 8.00 am to 6.00 pm, Monday to Friday.
General enquiries should be made to the Secretary, at the Company's registered office: FIL Investments International, Investment Trusts, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP.
Email: [email protected].
Website: www.fidelityinvestmenttrusts.com
Through the website of the Registrar at www.signalshares.com, shareholders are able to manage their shareholding online by registering for the Share Portal, a free and secure online access service. Facilities include:
Account Enquiry – Allows shareholders to access their personal shareholding, including share transaction history, dividend payment history and to obtain an up-to-date shareholding valuation.
Amendment of Standing Data – Allows shareholders to change their registered postal address and to add, change or delete dividend mandate instructions. Shareholders can also download from this site forms such as change of address, stock transfer and dividend mandate forms as well as buy and sell shares in the Company.
Should you have any queries in respect of the above facilities, please contact the Capita Share Portal helpline on 0871 664 0300 (calls cost 12p per minute plus your phone company's access charge. If you are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 9.00 am to 5.30 pm, Monday to Friday excluding public holidays in England and Wales).
You can make use of a low cost share dealing service provided by Capita Asset Services to buy or sell shares. Further information is available at www.capitadeal.com, or by telephoning 0371 664 0445 (calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 8.00 am to 4.30 pm, Monday to Friday excluding public holidays in England and Wales). The Capita Share Dealing Services allows you to deal in the shares of other companies for which Capita Asset Services acts as Registrar, provided you are already a shareholder in the relevant company, and that company offers the Share Deal facility to its shareholders.
Capita Asset Services' Dividend Re-investment Plan offers a convenient way for shareholders to build up their shareholding by using their dividend money to purchase additional shares in the Company. The Plan is provided by Capita Asset Services, a trading name of Capita IRG Trustees Limited which is authorised and regulated by the Financial Conduct Authority.
For more information and an application pack call 0371 664 0381 between 9.00 am and 5.30 pm Monday to Friday. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable international rate. Alternatively you can email: [email protected] or log on to www.signalshares.com.
You may donate your shares to charity free of charge through ShareGift. Further details are available at www.sharegift.org.uk or by telephoning 020 7930 3737.
If you hold Fidelity Asian Values PLC shares in an account provided by Fidelity International, you will receive a report every six months detailing all of your transactions and the value of your shares.
FIL Investment Services (UK) Limited Oakhill House 130 Tonbridge Road Hildenborough Tonbridge Kent TN11 9DZ
FIL Investments International Beech Gate Millfield Lane Lower Kingswood Tadworth Surrey KT20 6RP Email: [email protected]
Stifel Nicolaus Europe Ltd 150 Cheapside London EC2V 6ET
The Company was launched on 13 June 1996 with one warrant attached to every five shares. The original subscription price for each share was £1 (the final subscription date for the warrants was December 2016). The Company issued one subscription share for every five ordinary shares held on 4 March 2010 (the final subscription date was May 2013). A further subscription share issue was made on 2 December 2016 on the basis of one subscription share for every five held by qualifying investors. The dates for exercising these subscription shares will be November 2017, 2018 and 2019. Further details can be found on page 4.
The Company is a member of The Association of Investment Companies (the "AIC") from whom general information on investment trusts can be obtained by telephoning 020 7282 5555 (email address: [email protected]).
The share price of Fidelity Asian Values PLC is published daily in the Financial Times under the heading "Investment Companies". The share price is also published in The Times, The Daily Telegraph and The Independent. Price and performance information is also available at www.fidelityinvestmenttrusts.com.
Ernst & Young LLP 25 Churchill Place London E14 5EY
JPMorgan Chase Bank (London Branch) 125 London Wall London EC2Y 5AJ
J.P. Morgan Europe Limited 25 Bank Street London E14 5JP
Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Charles Russell Speechlys LLP 5 Fleet Place London EC4M 7RD
Investors can also obtain current price information by telephoning Fidelity for free on 0800 41 41 10 or FT Cityline on 0905 817 1690, (voice activated service – calls charged at 60p per minute on a per second basis from a BT landline. Charges for other telephone networks may vary). The Reuters code for Fidelity Asian Values PLC is FAS.L, the sedol is 0332231 and the ISIN is GB0003322319.
The NAV of the Company is calculated and released to the London Stock Exchange on a daily basis.
The sedol for the subscription shares is BDQZFVS and the ISIN is
GB00BDQZFV55.
All UK individuals under present legislation are permitted to have £11,300 of capital gains in the current tax year 2017/2018 (2016/2017: £11,100) before being liable for capital gains tax. Capital gains tax is charged at 10% and 20% dependent on the total amount of taxable income.
Alternative Investment Fund. The Company is an AIF.
Alternative Investment Fund Manager. The Board has appointed FIL Investment Services (UK) Limited to act as the Company's AIFM (the Manager).
The Alternative Investment Fund Managers' Directive ("AIFMD") is a European Union Directive implemented on 22 July 2014.
A negotiable certificate issued by a US bank representing a specified number of shares in a foreign stock that is traded on a US Exchange.
The tax you may have to pay if you sell your shares at a profit.
Assets provided as security.
MSCI All Countries Asia ex Japan Index (net) in Sterling terms total return.
A contract for difference is a derivative. It is a contract between the Company and an investment house at the end of which the parties exchange the difference between the opening price and the closing price of an underlying asset of the specified financial instrument. It does not involve the Company buying or selling the underlying asset, only agreeing to receive or pay the movement in its share price. A contract for difference allows the Company to gain access to the movement in the share price by depositing a small amount of cash known as margin. The Company may reason that the asset price will rise, by buying ("long" position) or fall, by selling ("short" position). If the Company holds long positions, dividends are received and interest is paid. If the Company holds short positions, dividends are paid and interest is received.
The UK tax the Company may have to pay on its profits for a year. As an investment trust company, the Company is exempt from UK corporation tax on its capital gains and does not pay tax on any UK dividends. It can also offset expenses against any taxable income and consequently it is tax efficient and does not pay corporation tax.
An entity that holds (as intermediary) the Company's assets, arranges the settlement of transactions and administers income, proxy voting and corporate actions. The Company's Custodian is JPMorgan Chase Bank.
An entity that oversees the custody, cash arrangements and other AIFM responsibilities of the Company. J.P. Morgan Europe act as the Company's Depositary.
Financial instruments (such as futures, options and contracts for difference) whose value is derived from the value of an underlying asset.
The diluted net asset value per ordinary share reflects what the net asset value per ordinary share would have been if all the rights attached to the outstanding subscription shares had been exercised at the year end date. A dilution occurs when the exercise price of the subscription share rights is less than the net asset value per ordinary share.
If the share price of the Company is lower than the net asset value per share, the Company's shares are said to be trading at a discount. The discount is shown as a percentage of the net asset value. The opposite of a discount is a premium. It is more common for an investment trust to trade at a discount than a premium.
Debt instruments whose return on investment is linked to specific equities or equity markets. The return on equity linked notes may be determined by an equity index, a basket of equities, or a single equity.
The fair value is the best measure of the realisable value of the investments, including derivatives, at a point in time and this is measured as:
Agreements to buy or sell a stated amount of a security at a specific future date and at a pre-agreed price.
Gearing describes the level of the Company's exposure and is expressed as a percentage of shareholders' funds. It reflects the amount of exposure the Company uses to invest in the market. It can be obtained through the use of bank loans, bank overdrafts and derivatives, in order to increase the Company's exposure to investments. If assets rise in value, gearing magnifies the return to shareholders. Correspondingly, if assets fall in value, gearing
magnifies the fall. Derivatives are used as a way of gaining exposure to the price movements of shares without buying the underlying shares directly.
In a simple example, if a company has £100 million of net assets and a total portfolio of £108 million, with £8 million of borrowings (either via bank loans or derivatives), then the shareholders' funds are 8% geared. Normally, the higher the gearing percentage, the more sensitive the Company's shares will be to the movements up and down in the value of the investment portfolio.
A measure of the Company's total equity exposure. It is calculated as the sum of all long exposures, after taking account of hedging positions and the absolute value of all short exposures.
A strategy aimed at minimising or eliminating the risk or loss through adverse movements normally involving taking a position in a derivative such as a future or an option.
FIL Investments Services (UK) Limited, was appointed as the Manager in accordance with the Alternative Investment Fund Managers' Directive (AIFMD), and has delegated the portfolio management of assets to FIL Investments International.
Net asset value is sometimes also described as "shareholders' funds", and represents the total value of the Company's assets less the total value of its liabilities. For valuation purposes it is common to express the net asset value on a per share basis.
The Net asset value divided by the number of ordinary shares in issue.
A measure of the Company's net equity exposure. It is calculated as the total of all long exposures (less the total of any exposures hedging the portfolio) less the total of all short exposures.
Total operational expenses (excluding finance costs and taxation) incurred by the Company as a percentage of average net asset values.
An option is a contract which gives the right but not the obligation to buy or sell an underlying asset at an agreed price on or before an agreed date. Options may be calls (buy) or puts (sell) and are used to gain or reduce exposure to the underlying asset on a conditional basis.
Nitin Bajaj is the appointed Portfolio Manager for the Company and is responsible for managing the Company's assets.
Section 561 of the Companies Act 2006 provides that a company offering a new issue of shares must first make an offer of these shares, on the same or more favourable terms, in proportion to the nominal value held by existing shareholders. At each Annual General Meeting, the Board seeks shareholder approval to disapply pre-emption right provisions, up to 10% of the Company's issued share capital.
If the share price of the Company is higher than the net asset value per share, the Company's shares are said to be trading at a premium. The premium is shown as a percentage of the net asset value. The opposite of a premium is a discount.
An entity that manages the Company's shareholders register. The Company's Registrar is Capita Asset Services.
The return generated in the period from the investments:
Shareholders' funds are also described as net asset value and represent the total value of the Company's assets less the total value of its liabilities.
The return on the share price or net asset value per share taking into account the rise and fall of share prices and the dividends paid to shareholders. Any dividends received by the shareholder are assumed to have been reinvested for additional shares (for share price total return) or in the Company's assets (for net asset value total return).
Ordinary shares of the Company that have been repurchased by the Company and not cancelled but held in Treasury. These shares do not receive dividends, have no voting rights and are excluded from the net asset value per share calculation.
In compliance with the Alternative Investment Fund Managers' Directive ("AIFMD"), the Board appointed FIL Investment Services (UK) Limited ("FISL") (a Fidelity group company) as the Company's Alternative Investment Fund Manager ("AIFM"). FISL has delegated the portfolio management and company secretarial function to FIL Investments International (another Fidelity group company). Details of the Management Agreement can be found in the Directors' Report on page 23.
The table below discloses information required by the Alternative Investment Fund Managers Regulations 2013.
| Function | AIFM Role and Responsibility | AIFMD Disclosure |
|---|---|---|
| Investment management |
The AIFM provides portfolio management of assets and investment advice in relation to the assets of the Company. It has delegated this function to FIL Investments International. |
Details of the Company's investment objective, strategy and investment policy, including limits, are on pages 8 and 9. |
| The Board remains responsible for setting the investment strategy, investment policy and investment guidelines and the AIFM operates within these guidelines. |
||
| Risk management | The AIFM has a responsibility for risk management for the Company which is in addition to the Board's corporate governance responsibility for risk management. |
The AIFM has an ongoing process for identifying, evaluating and managing the principal risks faced by the Company and |
| The Company has a Risk Management Process Document which is agreed with the Board and demonstrates that risk management is separated functionally and hierarchically from operating units and demonstrates independence safeguards. The Manager maintains adequate risk management systems in order to identify, measure and monitor all risks at least annually under AIFMD. The Manager is responsible for the implementation of various risk activities such as risk systems, risk profile, risk limits and testing. |
this is regularly reviewed by the Board. The Board remains responsible for the Company's system of internal control and for reviewing its effectiveness. Further details can be found in the Strategic Report on pages 10 and 11 and in Note 17 to the Financial Statements on pages 53 to 60. |
|
| The Board, as part of UK corporate governance, remain responsible for the identification of significant risks and for the ongoing review of the Company's risk management and internal control processes. |
||
| Valuation of illiquid assets |
The Directive requires the disclosure of the percentage of the Alternative Investment Fund's assets which are subject to special arrangements arising from their illiquid nature and any new arrangements for managing the liquidity of the Company. |
Not Applicable. |
| Leverage | The Company uses leverage to increase its exposure to the stockmarkets of the Asian Region (excluding Japan) and currently holds derivative instruments. The AIFM has set maximum levels of leverage that are reasonable. It has implemented systems to calculate and monitor compliance against these limits and has ensured that the limits have been complied with at all times. |
The maximum leverage limits are 1.80 for the Gross Method of calculating leverage and 1.50 for the Commitment Method. At 31 July 2017, actual leverage was 1.04 for the Gross Method and 1.03 for the Commitment Method. |
| There are two methods of leverage - the Gross Method which does not reduce exposure for hedging; and the Commitment Method which does reduce exposure for hedging. |
||
| Liquidity management |
The AIFM, in consultation with the Board, maintains a liquidity management policy which is considered at least annually. |
No new arrangements for managing the liquidity of the Company have been made. Further details can be found in Note 17 on page 57. |
| Remuneration of the AIFM |
The AIFM operates under the terms of Fidelity International's Global Remuneration Policy. This ensures that the AIFM complies with the requirements of the FCA's Remuneration Code (SYSC19A); the AIFM Remuneration Code (SYSC19B) and the BIPRU Remuneration Code (SYSC19C). |
Details of Fidelity International's Global Reumeration Policy can be found at www.fidelityinternational.com/global/ remuneration/default.page. |
The following disclosures relate to the contracts for difference ("CFDs") held by the Company which may be considered Total Return Swaps under the SFTR, which came into force on 12 January 2016. For the year ended 31 July 2017, the total return from CFDs was a loss of £1,257,000. CFDs were contracted bilaterally with Deutsche Bank AG ("DB"), Goldman Sachs ("GS"), HSBC Bank plc ("HSBC") and UBS AG ("UBS") and had an open maturity. At 31 July 2017, the fair value of CFDs was £245,000 (0.1% of net assets) comprising: DB £142,000; GS £3,000; HSBC (£235,000) and UBS £335,000. Collateral from UBS of £17,000 was held in a segregated account on behalf of the Company in UK Government bonds denominated in Sterling.
Fidelity, Fidelity International, the Fidelity International logo and symbol are trademarks of FIL Limited
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