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Fidelity Special Values PLC Interim / Quarterly Report 2022
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Interim / Quarterly Report
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National Storage Mechanism | Additional information
Fidelity Special Values Plc - Half-year Report
PR Newswire
London, April 28
Fidelity Special Values PLC
Half-Yearly Results for the six months ended 28 February 2022 (unaudited)
Financial Highlights:
- The Board of Fidelity Special Values PLC (the “Company”) recommends an interim dividend of 2.30 pence per share, an increase of 6% from last year’s interim dividend.
-
The Company recorded a net asset value (“NAV”) total return of -4.5% and share price total return of -4.7% while the Benchmark Index total return was +2.4%.
-
The Company’s NAV and share price total returns remain ahead of the Benchmark Index over one, three, five and ten years.
-
Despite increased market volatility, the Company mostly trades at premium.
-
The Company’s portfolio currently trades on a 20-30% discount to the UK market (based on earnings estimates), despite the fact that holdings offer stronger profit growth potential, superior returns on capital and carry less debt than the broader market.
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
FIL Investments International
Portfolio Manager’s Half-Yearly Review
PERFORMANCE
In the six month period to 28 February 2022, the Company’s net asset value (“NAV”) per ordinary share returned -4.5% and the share price returned -4.7%, whilst the FTSE All-Share Index (the Company’s Benchmark Index) returned +2.4% (all on a total return basis). Despite the short term performance, the Company’s NAV and share price total returns remain ahead of the Benchmark Index over one, three, five and ten years. This report seeks to summarise the reporting period, highlight the key drivers of performance and put forward the Portfolio Manager’s views looking ahead.
Stock Market and Portfolio Review
The period was marked by increased market volatility and sharp shifts in sector and style factor preferences, as investors attempted to come to terms with mounting inflationary pressures, anticipated interest rate rises and, more recently, the uncertainty stemming from the build-up to and eventual invasion of Ukraine by Russia in February.
UK equities started the review period on a weak note, declining for the first time in September after seven months of continuous gains, amid signs of a slowdown in the pace of the global economic recovery, as well as concerns over central bank tapering, tax increases and supply chain disruptions. The emergence of the Omicron COVID-19 variant triggered a global sell-off towards the end of November. However, markets recovered quickly as concerns over the impact of the virus gradually receded, and were further supported by robust corporate earnings, alongside general optimism around the recovery continuing in the UK and other major economies. The positive sentiment helped equities to end 2021 on a strong note.
2022 started off with an extreme style rotation out of expensive growth stocks (whose valuations are often based on long duration projections which are particularly sensitive to interest rate rises) in favour of more attractively valued shares (where valuations reflect to a greater extent nearer term potential earnings). While UK equities were not immune to the prevailing volatility seen in other markets, they proved comparatively more resilient. However, the UK economy continued to be hampered by inflationary pressures, with consumer prices rising to their highest level in almost 30 years in December. This prompted the Bank of England to increase interest rates twice during the review period (and again in March). Markets remained under pressure in February owing to the uncertainty stemming from Russia’s invasion of Ukraine. Recent market moves in response to the unfolding humanitarian crisis have been sharp and not always particularly discriminate. As major sanctions are imposed on Russia, the possibility of a potential shutdown of energy supplies raised concerns about energy security, leading to a spike not only in oil and gas prices, but also more broadly in commodity prices, given both Russia and Ukraine are key producers of steel, nickel, aluminium, wheat and corn, to name a few.
Over the period, the Company’s NAV has lagged the return of the FTSE All-Share Index, which proved particularly resilient in a global context given its meaningful exposure to oil and gas producers and miners, two areas where the Company was underweight.
Against a backdrop of rising price pressures and supply chain constraints, both our industrials and consumer discretionary holdings proved a drag on returns having performed particularly strongly last year. Our combined exposure to these two areas, which declined by 8% and 7% respectively, fell just short of 50% (compared to 25% for the Index). Both sectors were seen as more susceptible to an economic slowdown and were weak as a result, although many of our support services holdings (a subset of the industrial sector) have resilient business models which they demonstrated during the pandemic. While we have reduced our exposure to consumer facing businesses over the period, there are interesting stock specific turnarounds taking place and valuations are low, characteristics which both sectors have in common.
Our longstanding underweight to metals and mining was another meaningful headwind, as already-high metals prices have risen further since the Ukraine invasion due to Russian supply disruption. The sector, which accounted for 8% of the index (but only 3% of the portfolio), rose by 16%. We are happy to maintain a low and very selective exposure here, as we remain convinced that the prices of many metals are unsustainably high and that this may lead to demand destruction. At these levels, the risk/reward is very much skewed to the downside, and as contrarian investors we would rather own stocks where expectations are low and we see catalysts for improvement. While we held a marginally lower exposure to energy (7.7% position compared to 8.5% for the Index), the strong performance of our holdings helped mitigate the drag on relative returns.
At a stock level, the small (0.7%) position in Studio Retail hurt returns after the online catalogue company experienced supply chain and working capital issues. The company had successfully evolved to becoming an online business, with a product set that was competitively priced and spanned multiple product categories. It had benefited from the surge in online shopping and navigated the pandemic well. However, supply chain challenges in the second half of last year and failure to secure an emergency £25 million loan from lenders forced the company into administration. The shares of Inchcape, a leading automotive distributor and retailer, underperformed despite delivering results slightly ahead of consensus, amid worries about the company’s retail exposure to Russia. The company subsequently confirmed that this part of the business generated around 5% of group operating profit and that, given the current circumstances, ownership of that business is no longer tenable. The holding in support services Mitie Group also fell, however the company has been rejuvenated under a new management team, which has improved their culture, systems, contract risk profile and balance sheet. Elsewhere, despite a sizeable exposure to financials, the lack of exposure to banking group HSBC (reflecting our preference for banks where a positive change story will help drive improving returns) hurt performance, as the stock outperformed due to its higher sensitivity to short term US rates.
On a more positive note, our holding in specialty pharmaceutical firm Indivior, a developer of treatments for opioid-based drug addictions, was the leading contributor after reporting better than expected results primarily due to strong progress in its Sublocade product. The company also announced that it is considering a US listing for its shares given approximately 80% of its revenue is generated in the US. Meanwhile, London-headquartered gemstones miner Gemfields reported record breaking auctions last year, underpinning a recovery from the pandemic which had severely hampered their 2020 auction schedule due to the many travel, quarantine and congregating restrictions. Shares in advertising group M&C Saatchi also performed strongly after the company reported strong half year results exceeding pre-pandemic levels and received a takeover approach from the acquisition vehicle of its top shareholder Vin Murria.
USE OF GEARING
During the review period, we continued to use contracts for difference (“CFDs”) to gear the Company’s portfolio long exposure and eliminate some of the currency exposure for those holdings listed outside of the UK.
Towards the end of the period, we used our low leverage levels to take advantage of attractively valued opportunities and increase the leverage somewhat as stocks had heavily sold off. We have mainly been buying in areas which are less affected by the Russia-Ukraine conflict, but nevertheless have fallen with the market, rather than buying into the most affected areas. This very much aligns with how we reacted in March 2020 with the onset of the COVID-19 pandemic.
Overall, there was a meaningful reduction in the Company’s gearing level over the period. Gearing stood at 6.9% at the end of February (compared to 14.6% at the end of August 2021) and approximately 4% of the portfolio was held in companies that have received firm cash bids.
OUTLOOK
UK equities remain significantly undervalued compared to global markets and reasonably valued in absolute terms. These factors contributed to their resilience in the more volatile market conditions that we have recently experienced, and should continue to prove helpful in the months ahead. As both central banks and investors come to terms with inflationary pressures, and interest rate expectations are adjusted accordingly, this should benefit our portfolio of attractively valued companies with improving fundamentals. In such conditions, market participants typically re-focus on short term earnings and valuations, resulting in a more supportive environment for value strategies. However, the impact of rising prices on individual companies needs to be closely monitored and this is a key focus for us.
From an industry grouping perspective, positioning has become less pronounced compared to the broader market. While we remain overweight GDP sensitive stocks and financials, those exposures have reduced somewhat as a result of profit taking. Meanwhile, we remain underweight resources, primarily miners. Despite the recent spikes in commodity prices, we have not been tempted to add to our exposure in this area, as we believe those pricing levels are unsustainable and are likely to result in demand destruction. The market seems fixated on short term effects, such as higher inflation and commodity prices, rather than medium term implications, notably potential lower commodity demand as a result of lower GDP growth.
After the strong returns of the past decade, investors will need to be more discerning as to where they invest. The next ten years are unlikely to bring the same synchronised increases in asset classes that we have enjoyed for a long time and which were supported by incredibly low interest rates and very supportive stimulus measures. Selectivity is likely to be key to generating good returns. Fortunately, the UK market still offers a lot of attractively valued opportunities, and so has the potential to generate decent returns for investors, although it is going to be more difficult. The Company’s portfolio currently trades on a 20-30% discount to the UK market (based on 2022 and 2023 earnings estimates), despite the fact that our holdings offer stronger profit growth potential, superior returns on capital and carry less debt than the broader market.
ALEX WRIGHT
Portfolio Manager
28 April 2022
TWENTY LARGEST INVESTMENTS AS AT 28 FEBRUARY 2022
The Asset Exposures shown below measure exposure to market price movements as a result of owning shares and derivative instruments. The Fair Value is the actual value of the portfolio as reported in the Balance Sheet. Where a contract for difference (“CFD”) is held, the Fair Value reflects the profit or loss on the contract since it was opened and is based on how much the share price of the underlying share has moved.
| Asset Exposure | Fair Value £’000 |
||
| £’000 | %1 | ||
| Long Exposures – shares unless otherwise stated | |||
| Legal & General Group (long CFD) | |||
| Life Insurance | 37,185 | 4.0 | 604 |
| --------------- | --------------- | --------------- | |
| Aviva (long CFD) | |||
| Life Insurance | 36,312 | 3.9 | (1,099) |
| --------------- | --------------- | --------------- | |
| Shell | |||
| Oil, Gas and Coal | 36,298 | 3.9 | 36,298 |
| --------------- | --------------- | --------------- | |
| Sanofi (long CFD) | |||
| Pharmaceuticals & Biotechnology | 29,806 | 3.2 | (118) |
| --------------- | --------------- | --------------- | |
| Serco Group | |||
| Industrial Support Services | 28,486 | 3.1 | 28,486 |
| --------------- | --------------- | --------------- | |
| Phoenix Group Holdings | |||
| Life Insurance | 25,843 | 2.8 | 25,843 |
| --------------- | --------------- | --------------- | |
| Inchcape | |||
| Industrial Support Services | 25,712 | 2.8 | 25,712 |
| --------------- | --------------- | --------------- | |
| AIB Group (long CFD) | |||
| Banks | 23,926 | 2.6 | (3,700) |
| --------------- | --------------- | --------------- | |
| Imperial Brands | |||
| Tobacco | 21,971 | 2.4 | 21,971 |
| --------------- | --------------- | --------------- | |
| DCC | |||
| Industrial Support Services | 21,468 | 2.3 | 21,468 |
| --------------- | --------------- | --------------- | |
| Hellenic Telecommunications Organisation | |||
| Telecommunications Service Providers | 20,911 | 2.3 | 20,911 |
| --------------- | --------------- | --------------- | |
| WPP | |||
| Media | 20,453 | 2.2 | 20,453 |
| --------------- | --------------- | --------------- | |
| Spire Healthcare Group | |||
| Health Care Providers | 19,905 | 2.1 | 19,905 |
| --------------- | --------------- | --------------- | |
| NatWest Group (shares and long CFD) | |||
| Banks | 19,514 | 2.1 | 556 |
| --------------- | --------------- | --------------- | |
| Ryanair Holdings (shares and long CFDs) | |||
| Travel & Leisure | 18,665 | 2.0 | 1,950 |
| --------------- | --------------- | --------------- | |
| ContourGlobal | |||
| Electricity | 18,480 | 2.0 | 18,480 |
| --------------- | --------------- | --------------- | |
| Mitie Group | |||
| Industrial Support Services | 18,259 | 2.0 | 18,259 |
| --------------- | --------------- | --------------- | |
| Meggitt | |||
| Aerospace and Defense | 18,092 | 1.9 | 18,092 |
| --------------- | --------------- | --------------- | |
| Vodafone Group (long CFD) | |||
| Telecommunications Service Providers | 16,064 | 1.7 | (911) |
| --------------- | --------------- | --------------- | |
| Morgan Advanced Materials | |||
| Electronic & Electrical Equipment | 15,628 | 1.7 | 15,628 |
| --------------- | --------------- | --------------- | |
| Twenty largest long exposures | 472,978 | 51.0 | 288,788 |
| Other long exposures | 518,441 | 55.9 | 477,852 |
| \========= | \========= | \========= | |
| Gross Asset Exposure2 (113 holdings) | 991,419 | 106.9 | |
| --------------- | --------------- | ||
| Portfolio Fair Value3 | 766,640 | ||
| Net current assets (excluding derivative assets and liabilities) | 160,846 | ||
| --------------- | |||
| Shareholders’ Funds | 927,486 | ||
| \========= |
1 Asset Exposure is expressed as a percentage of Shareholders’ Funds.
2 Gross Asset Exposure comprises market exposure to investments of £775,792,000 plus market exposure to derivative instruments of £215,627,000.
3 Portfolio Fair Value comprises Investments of £775,792,000 plus derivative assets of £1,355,000 less derivative liabilities of £10,507,000 (per the Balance Sheet below).
INTERIM MANAGEMENT REPORT
BOARD CHANGES
Andy Irvine will step down as Chairman of the Board and as a non-executive Director at the conclusion of the Annual General Meeting (“AGM”) in December 2022. He will be replaced as Chairman by Dean Buckley and Nigel Foster will replace Mr Buckley as Senior Independent Director at the same time. A recruitment process is being carried out to recruit a non-executive Director as part of the Board’s succession plan.
DISCOUNT/PREMIUM AND SHARE REPURCHASES/ISSUES
Under the Company’s discount management policy, the Board seeks to maintain the discount in single digits in normal market conditions and will repurchase shares to help stabilise the share price discount.
The Board will approve the issuance of shares if the Company’s shares are trading at a sufficient level of premium to ensure that it adds value for Shareholders and that the issue of shares is not dilutive. Issuing shares increases the size of the Company, making it more liquid and allowing costs to be spread out over a larger pool of assets.
Over the reporting period, the Company’s shares traded between a premium of 2.1% and a discount of 4.4%. The peer group average discount as at 28 February 2022 was 8.6%.
In the reporting period, the Company’s shares mostly traded at a premium and in order to meet demand, the Company issued a total of 10,565,000 ordinary shares from its block listing facilities. Since then and as at the date of this Half-Yearly Report, the Company has issued a further 505,000 shares.
In order to ensure that the Company was able to continue to meet the demand for shares, it acquired a new block listing from the UK Listing Authority for 30,000,000 shares, effective from 7 February 2022.
No shares were repurchased for cancellation or into Treasury in the reporting period.
The Board continues to monitor the level of the Company’s discount/premium closely and will take action when it believes that it will be effective and to the benefit of Shareholders.
INTERIM DIVIDEND
The Board’s policy is to pay dividends twice yearly in order to smooth the dividend payments for the Company’s financial year. The Company’s revenue return for the six months to 28 February 2022 was 1.80 pence per share.
The Board has declared an interim dividend of 2.30 pence per share which is 6% higher than the 2.17 pence per share paid as the interim dividend in 2021. This will be paid on 22 June 2022 to Shareholders on the register on 13 May 2022 (ex-dividend date 12 May 2022). Shareholders should note that the Board will review the final dividend payment later in the year based on dividend receipts from the companies held in the portfolio. However, based on current forecasts, the Board would hope to maintain at least the same level of dividend as paid in the prior year and would intend to pay it entirely from the revenue earned in the reporting period.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board, with the assistance of the Manager (FIL Investment Services (UK) Limited), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties faced by the Company.
The Board considers that the principal risks and uncertainties faced by the Company fall into the following categories: market, economic and political risks; investment management risk; cybercrime risk; environmental, social and governance (ESG) risk; regulatory risk; key person risk; discount control risk; competition risk; pandemic risk; and operational (service providers) risks.
Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 August 2021, a copy of which can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/specialvalues.
While the principal risks and uncertainties are the same as those at the previous year end, the quantum of these risks has, and continues to, change and the Board remains vigilant in monitoring such risks.
A key emerging risk that the Board has identified is climate change. It is one of the most critical emerging issues confronting asset managers and their investors. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor this.
Risks from the emerging new variants of COVID continue, but the defense against the virus improves with each passing year. Investors should be prepared for market fluctuations and remember that holding shares in the Company should be considered to be a long term investment. These risks are somewhat mitigated by the investment trust structure of the Company which means that no forced sales need to take place to deal with any redemptions. Therefore, investments in the Company’s portfolio can be held over a longer time horizon.
The Manager carries on reviewing its business continuity plans and its operational resilience strategies on an ongoing basis. It continues to take all reasonable steps in meeting its regulatory obligations and to assess operational risks, the ability to continue operating and the steps it needs to take to serve and support its clients, including the Board. The Manager has appropriate business continuity plans in place and the provision of services has continued to be supplied without interruption during the pandemic and continues to do so.
Investment team key activities, including those of portfolio managers, analysts and trading/support functions, have continued to perform well despite the operational challenges posed when working from home or when split team arrangements were in place.
The Company’s other third party service providers have also implemented similar measures to ensure that business disruption is kept to a minimum.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
The Manager has delegated the Company’s portfolio management and company secretariat services to FIL Investments International. Transactions with the Manager and related party transactions with the Directors are disclosed in Note 12 to the Financial Statements below.
GOING CONCERN STATEMENT
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio, its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and can continue in operational existence for a period of at least twelve months from the date of this Half-Yearly Report.
This conclusion also takes into account the Board’s assessment of the ongoing risks from COVID and evolving variants as set out above.
Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.
Continuation votes are held every three years and the next continuation vote will be put to Shareholders at the AGM in December 2022.
**BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL**
28 April 2022
Directors’ Responsibility Statement
The Disclosure and Transparency Rules (“DTR”) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
a) the condensed set of Financial Statements contained within the Half-Yearly Report has been prepared in accordance with the Financial Reporting Council’s Standard: FRS 104: Interim Financial Reporting; and
b) the Portfolio Manager’s Half-Yearly Review and the Interim Management Report above, include a fair review of the information required by DTR 4.2.7R and 4.2.8R.
In line with previous years, the Half-Yearly Report has not been audited by the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on 28 April 2022 and the above responsibility statement was signed on its behalf by Andy Irvine, Chairman.
FINANCIAL STATEMENTS
INCOME STATEMENTFOR THE SIX MONTHS ENDED 28 FEBRUARY 2022
| Six months ended 28 February 2022 unaudited |
Year ended 31 August 2021 audited |
Six months ended 28 February 2021 unaudited |
||||||||
| Notes | Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| (Losses)/gains on investments | – | (48,464) | (48,464) | – | 252,899 | 252,899 | – | 101,257 | 101,257 | |
| (Losses)/gains on long CFDs | – | (2,563) | (2,563) | – | 55,323 | 55,323 | – | 35,062 | 35,062 | |
| Investment and derivative income | 4 | 9,107 | – | 9,107 | 27,890 | – | 27,890 | 7,538 | – | 7,538 |
| Other interest | 4 | 181 | – | 181 | 257 | – | 257 | 87 | – | 87 |
| Investment management fees | 5 | (2,806) | – | (2,806) | (5,098) | – | (5,098) | (2,475) | – | (2,475) |
| Other expenses | (470) | – | (470) | (669) | – | (669) | (359) | – | (359) | |
| Foreign exchange gains/(losses) | – | 687 | 687 | – | (720) | (720) | – | (950) | (950) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities before finance costs and taxation | 6,012 | (50,340) | (44,328) | 22,380 | 307,502 | 329,882 | 4,791 | 135,369 | 140,160 | |
| Finance costs | (309) | – | (309) | (378) | – | (378) | (122) | – | (122) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities before taxation | 5,703 | (50,340) | (44,637) | 22,380 | 307,502 | 329,882 | 4,791 | 135,369 | 140,160 | |
| Taxation on return/(loss) on ordinary activities | 6 | (32) | – | (32) | (406) | – | (406) | (169) | – | (169) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities after taxation for the period | 5,671 | (50,340) | (44,669) | 21,596 | 307,502 | 329,098 | 4,500 | 135,369 | 139,869 | |
| \========= | \========= | \========= | \========= | \========= | \========= | \========= | \========= | \========= | ||
| Return/(loss) per ordinary share | 7 | 1.80p | (15.95p) | (14.15p) | 7.22p | 102.74p | 109.96p | 1.54p | 46.37p | 47.91p |
| \========= | \========= | \========= | \========= | \========= | \========= | \========= | \========= | \========= |
The Company does not have any other comprehensive income. Accordingly, the net return/(loss) on ordinary activities after taxation for the period is also the total comprehensive income for the period and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the period and all items in the above statement derive from continuing operations.
Statement of Changes in Equity for the six months ended 28 February 2022
| Notes | Share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Other non- distributable reserve £’000 |
Capital reserve £’000 |
Revenue reserve £’000 |
Total Shareholders’ funds £’000 |
|
| Six months ended 28 February 2022 (unaudited) | ||||||||
| Total Shareholders’ funds at 31 August 2021 | 15,651 | 205,466 | 3,256 | 5,152 | 702,637 | 21,928 | 954,090 | |
| New ordinary shares issued | 10 | 528 | 31,673 | – | – | – | – | 32,201 |
| Net (loss)/return on ordinary activities after taxation for the period | – | – | – | – | (50,340) | 5,671 | (44,669) | |
| Dividend paid to Shareholders | 8 | – | – | – | – | – | (14,136) | (14,136) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 28 February 2022 | 16,179 | 237,139 | 3,256 | 5,152 | 652,297 | 13,463 | 927,486 | |
| \========= | \========= | \========= | \========= | \========= | \========= | \========= | ||
| Year ended 31 August 2021 (audited) | ||||||||
| Total Shareholders’ funds at 31 August 2020 | 14,501 | 144,306 | 3,256 | 5,152 | 394,572 | 17,718 | 579,505 | |
| New ordinary shares issued | 10 | 1,150 | 61,259 | – | – | – | – | 62,409 |
| Costs associated with the issue of new ordinary shares | – | (123) | – | – | – | – | (123) | |
| Issue of ordinary shares from Treasury | 10 | – | 24 | – | – | 2,383 | – | 2,407 |
| Repurchase of ordinary shares into Treasury | 10 | – | – | – | – | (1,820) | – | (1,820) |
| Net return on ordinary activities after taxation for the year | – | – | – | – | 307,502 | 21,596 | 329,098 | |
| Dividends paid to Shareholders | 8 | – | – | – | – | – | (17,386) | (17,386) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 31 August 2021 | 15,651 | 205,466 | 3,256 | 5,152 | 702,637 | 21,928 | 954,090 | |
| \========= | \========= | \========= | \========= | \========= | \========= | \========= | ||
| Six months ended 28 February 2021 (unaudited) | ||||||||
| Total Shareholders’ funds at 31 August 2020 | 14,501 | 144,306 | 3,256 | 5,152 | 394,572 | 17,718 | 579,505 | |
| New ordinary shares issued | 10 | 447 | 21,366 | – | – | – | – | 21,813 |
| Costs associated with the issue of new ordinary shares | – | (117) | – | – | – | – | (117) | |
| Issue of ordinary shares from Treasury | 10 | – | 24 | – | – | 2,383 | – | 2,407 |
| Repurchase of ordinary shares into Treasury | 10 | – | – | – | – | (1,811) | – | (1,811) |
| Net return on ordinary activities after taxation for the period | – | – | – | – | 135,369 | 4,500 | 139,869 | |
| Dividend paid to Shareholders | 8 | – | – | – | – | – | (10,783) | (10,783) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds at 28 February 2021 | 14,948 | 165,579 | 3,256 | 5,152 | 530,513 | 11,435 | 730,883 | |
| \========= | \========= | \========= | \========= | \========= | \========= | \========= |
BALANCE SHEET as at 28 February 2022
Company Number 2972628
| Notes | 28.02.22 unaudited £’000 |
31.08.21 audited £’000 |
28.02.21 unaudited £’000 |
|
| Fixed assets | ||||
| Investments | 9 | 775,792 | 886,710 | 676,404 |
| --------------- | --------------- | --------------- | ||
| Current assets | ||||
| Derivative instruments | 9 | 1,355 | 1,968 | 2,551 |
| Debtors | 5,844 | 6,674 | 4,927 | |
| Amounts held at futures clearing houses and brokers | 10,530 | 40 | – | |
| Cash and cash equivalents | 145,625 | 63,780 | 49,284 | |
| --------------- | --------------- | --------------- | ||
| 163,354 | 72,462 | 56,762 | ||
| \========= | \========= | \========= | ||
| Current liabilities | ||||
| Derivative instruments | 9 | (10,507) | (3,161) | (1,835) |
| Other creditors | (1,153) | (1,921) | (448) | |
| --------------- | --------------- | --------------- | ||
| (11,660) | (5,082) | (2,283) | ||
| \========= | \========= | \========= | ||
| Net current assets | 151,694 | 67,380 | 54,479 | |
| \========= | \========= | \========= | ||
| Net assets | 927,486 | 954,090 | 730,883 | |
| \========= | \========= | \========= | ||
| Capital and reserves | ||||
| Share capital | 10 | 16,179 | 15,651 | 14,948 |
| Share premium account | 237,139 | 205,466 | 165,579 | |
| Capital redemption reserve | 3,256 | 3,256 | 3,256 | |
| Other non-distributable reserve | 5,152 | 5,152 | 5,152 | |
| Capital reserve | 652,297 | 702,637 | 530,513 | |
| Revenue reserve | 13,463 | 21,928 | 11,435 | |
| --------------- | --------------- | --------------- | ||
| Total Shareholders’ funds | 927,486 | 954,090 | 730,883 | |
| \========= | \========= | \========= | ||
| Net asset value per ordinary share | 11 | 286.62p | 304.79p | 244.46p |
| \========= | \========= | \========= |
Cash Flow Statement for the six months ended 28 February 2022
| 28.02.22 unaudited £’000 |
31.08.21 audited £’000 |
28.02.21 unaudited £’000 |
|
| Operating activities | |||
| Investment income received | 10,686 | 17,825 | 6,457 |
| Net derivative income | 2,858 | 7,930 | 2,129 |
| Interest received | 47 | 24 | 12 |
| Underwriting commission received | – | 16 | – |
| Investment management fee paid | (2,839) | (5,059) | (2,578) |
| Directors’ fees paid | (77) | (163) | (87) |
| Other cash payments | (376) | (567) | (318) |
| --------------- | --------------- | --------------- | |
| Net cash inflow from operating activities before finance costs and taxation | 10,299 | 20,006 | 5,615 |
| Finance costs paid | (309) | (378) | (122) |
| Overseas taxation suffered | (57) | (348) | 50 |
| --------------- | --------------- | --------------- | |
| Net cash inflow from operating activities | 9,933 | 19,280 | 5,543 |
| --------------- | --------------- | --------------- | |
| Investing activities | |||
| Purchases of investments | (126,137) | (378,229) | (201,782) |
| Sales of investments | 184,319 | 305,611 | 186,160 |
| Receipts on long CFDs | 35,710 | 91,127 | 49,036 |
| Payments on long CFDs | (30,314) | (28,938) | (9,017) |
| Movement on amounts held at futures clearing houses and brokers | (10,490) | 820 | 860 |
| --------------- | --------------- | --------------- | |
| Net cash inflow/(outflow) from investing activities | 53,088 | (9,609) | 25,257 |
| --------------- | --------------- | --------------- | |
| Net cash inflow before financing activities | 63,021 | 9,671 | 30,800 |
| --------------- | --------------- | --------------- | |
| Financing activities | |||
| Dividends paid | (14,136) | (17,386) | (10,783) |
| Net proceeds from the issue of ordinary shares | 32,273 | 64,356 | 22,343 |
| Cost associated with the issue of new ordinary shares | – | (123) | (117) |
| Repurchase of ordinary shares | – | (1,820) | (1,811) |
| --------------- | --------------- | --------------- | |
| Net cash inflow from financing activities | 18,137 | 45,027 | 9,632 |
| --------------- | --------------- | --------------- | |
| Net increase in cash and cash equivalents | 81,158 | 54,698 | 40,432 |
| Cash and cash equivalents at the beginning of the period | 63,780 | 9,802 | 9,802 |
| Effect of movement in foreign exchange | 687 | (720) | (950) |
| --------------- | --------------- | --------------- | |
| Cash and cash equivalents at the end of the period | 145,625 | 63,780 | 49,284 |
| --------------- | --------------- | --------------- | |
| Represented by: | |||
| Cash at bank | 27,953 | 2,000 | 2,011 |
| Amount held in Fidelity Institutional Liquidity Fund | 117,672 | 61,780 | 47,273 |
| --------------- | --------------- | --------------- | |
| 145,625 | 63,780 | 49,284 | |
| \========= | \========= | \========= |
Notes to the Financial Statements
1 PRINCIPAL ACTIVITY
Fidelity Special Values PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 2972628, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.
2 PUBLICATION OF NON-STATUTORY ACCOUNTS
The Financial Statements in this Half-Yearly Report have not been audited by the Company’s Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 (the “Act”). The financial information for the year ended 31 August 2021 is extracted from the latest published Financial Statements of the Company. Those Financial Statements were delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Act.
3 ACCOUNTING POLICIES
(i) basis of preparation
The Company prepares its Financial Statements on a going concern basis and in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”) and FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland, issued by the Financial Reporting Council. The Financial Statements are also prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”) in April 2021. FRS 104: Interim Financial Reporting has also been applied in preparing this condensed set of Financial Statements. The accounting policies followed are consistent with those disclosed in the Company’s Annual Report and Financial Statements for the year ended 31 August 2021.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements. This conclusion also takes into account the Board’s assessment of the continuing risks arising from COVID-19 and evolving variants.
4 INCOME
| Six months ended 28.02.22 unaudited £’000 |
Year ended 31.08.21 audited £’000 |
Six months ended 28.02.21 unaudited £’000 |
|
| Investment income | |||
| UK dividends | 6,148 | 13,392 | 4,191 |
| UK scrip dividends | 85 | – | – |
| UK property income distributions | – | – | 260 |
| Overseas dividends | 1,828 | 6,114 | 1,734 |
| Overseas scrip dividends | 23 | – | – |
| Underwriting commission | – | 16 | – |
| --------------- | --------------- | --------------- | |
| 8,084 | 19,522 | 6,185 | |
| \========= | \========= | \========= | |
| Derivative income | |||
| Dividends received on long CFDs | 1,023 | 8,368 | 1,353 |
| --------------- | --------------- | --------------- | |
| Investment and derivative income | 9,107 | 27,890 | 7,538 |
| \========= | \========= | \========= | |
| Other interest | |||
| Interest received on long CFDs* | 134 | 233 | 75 |
| Interest received on bank deposits, collateral and money market funds | 47 | 24 | 12 |
| --------------- | --------------- | --------------- | |
| 181 | 257 | 87 | |
| \========= | \========= | \========= | |
| Total income | 9,288 | 28,147 | 7,625 |
| \========= | \========= | \========= |
* Due to negative interest rates during the reporting period, the Company received interest on some of its long CFD positions.
Special dividends of £286,000 (year ended 31 August 2021: £1,730,000 and six months ended 28 February 2021: £1,617,000) have been recognised in capital.
5 INVESTMENT MANAGEMENT FEES
| Six months ended 28.02.22 unaudited £’000 |
Year ended 31.08.21 audited £’000 |
Six months ended 28.02.21 unaudited £’000 |
|
| Portfolio management services | 2,806 | 5,065 | 2,442 |
| Non-portfolio management services* | – | 33 | 33 |
| --------------- | --------------- | --------------- | |
| Investment management fees | 2,806 | 5,098 | 2,475 |
| \========= | \========= | \========= |
* Includes company secretarial, fund accounting, taxation, promotional and corporate advisory services.
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.
From 1 January 2021, FII charges portfolio management fees at an annual rate of 0.60% of net assets and the fee for non-portfolio management services of £100,000 per annum is no longer charged. Prior to this date, the portfolio management fees were charged on a tiered fee basis of 0.85% on the first £700 million of nets assets and 0.75% of net assets in excess of £700 million.
6 TAXATION ON RETURN/(LOSS) ON ORDINARY ACTIVITIES
| Six months ended 28.02.22 unaudited £’000 |
Year ended 31.08.21 audited £’000 |
Six months ended 28.02.21 unaudited £’000 |
|
| Overseas taxation | 32 | 406 | 169 |
| --------------- | --------------- | --------------- | |
| Total taxation charge for the period | 32 | 406 | 169 |
| \========= | \========= | \========= |
7 RETURN/(LOSS) PER ORDINARY SHARE
| Six months ended 28.02.22 unaudited |
Year ended 31.08.21 audited |
Six months ended 28.02.21 unaudited |
|
| Revenue return per ordinary share | 1.80p | 7.22p | 1.54p |
| Capital (loss)/return per ordinary share | (15.95p) | 102.74p | 46.37p |
| --------------- | --------------- | --------------- | |
| Total (loss)/return per ordinary share | (14.15p) | 109.96p | 47.91p |
| \========= | \========= | \========= |
The return/(loss) per ordinary share is based on the net return/(loss) on ordinary activities after taxation for the period divided by the weighted average number of ordinary shares in issue during the period, as shown below:
| £’000 | £’000 | £’000 | |
| Net revenue return on ordinary activities after taxation | 5,671 | 21,596 | 4,500 |
| Net capital (loss)/return on ordinary activities after taxation | (50,340) | 307,502 | 135,369 |
| --------------- | --------------- | --------------- | |
| Net total (loss)/return on ordinary activities after taxation | (44,669) | 329,098 | 139,869 |
| \========= | \========= | \========= |
| Number | Number | Number | |
| Weighted average number of ordinary shares in issue during the period | 315,639,997 | 299,297,599 | 291,958,494 |
| \========= | \========= | \========= |
8 DIVIDENDS PAID TO SHAREHOLDERS
| Six months ended 28.02.22 unaudited £’000 |
Year ended 31.08.21 audited £’000 |
Six months ended 28.02.21 unaudited £’000 |
|
| Final dividend of 4.50 pence per ordinary share paid for the year ended 31 August 2021 | 14,136 | – | – |
| Interim dividend of 2.17 pence per ordinary share paid for the year ended 31 August 2021 | – | 6,603 | – |
| Final dividend of 3.70 pence per ordinary share paid for the year ended 31 August 2020 | – | 10,783 | 10,783 |
| --------------- | --------------- | --------------- | |
| 14,136 | 17,386 | 10,783 | |
| \========= | \========= | \========= |
The Company has declared an interim dividend for the six month period to 28 February 2022 of 2.30 pence per ordinary share (2021: 2.17 pence). The interim dividend will be paid on 22 June 2022 to Shareholders on the register at 13 May 2022 (ex-dividend date 12 May 2022). The total cost of this interim dividend, which has not been included as a liability in these Financial Statements, is £7,454,000 (2021: £6,541,000). This amount is based on the number of ordinary shares in issue held at the date of this report.
9 Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.
| Classification | Input |
| Level 1 | Valued using quoted prices in active markets for identical assets |
| Level 2 | Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly |
| Level 3 | Valued by reference to valuation techniques using inputs that are not based on observable market data |
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are as disclosed in the Company’s Annual Report for the year ended 31 August 2021 (Accounting Policies Notes 2 (l) and (m) on pages 59 and 60).
The table below sets out the Company’s fair value hierarchy:
| 28 February 2022 (unaudited) | Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Financial assets at fair value through profit or loss | ||||
| Investments | 775,353 | – | 439 | 775,792 |
| Derivative instrument assets | – | 1,355 | – | 1,355 |
| --------------- | --------------- | --------------- | --------------- | |
| 775,353 | 1,355 | 439 | 777,147 | |
| \========= | \========= | \========= | \========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (10,507) | – | (10,507) |
| \========= | \========= | \========= | \========= |
| 31 August 2021 (audited) | Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Financial assets at fair value through profit or loss | ||||
| Investments | 885,753 | – | 957 | 886,710 |
| Derivative instrument assets | – | 1,968 | – | 1,968 |
| --------------- | --------------- | --------------- | --------------- | |
| 885,753 | 1,968 | 957 | 888,678 | |
| \========= | \========= | \========= | \========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (3,161) | – | (3,161) |
| \========= | \========= | \========= | \========= |
| 28 February 2021 (unaudited) | Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Financial assets at fair value through profit or loss | ||||
| Investments | 675,630 | – | 774 | 676,404 |
| Derivative instrument assets | – | 2,551 | – | 2,551 |
| --------------- | --------------- | --------------- | --------------- | |
| 675,630 | 2,551 | 774 | 678,955 | |
| \========= | \========= | \========= | \========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (1,835) | – | (1,835) |
| \========= | \========= | \========= | \========= |
10 SHARE CAPITAL
| 28 February 2022 unaudited |
31 August 2021 audited |
28 February 2021 unaudited |
||||
| Number of shares |
£’000 | Number of shares |
£’000 | Number of shares |
£’000 | |
| Issued, allotted and fully paid ordinary shares of 5 pence each | ||||||
| Held outside Treasury | ||||||
| Beginning of the period | 313,028,920 | 15,651 | 290,029,480 | 14,501 | 290,029,480 | 14,501 |
| Ordinary shares repurchased into Treasury | – | – | (1,025,473) | (51) | (1,025,473) | (51) |
| Ordinary shares issued out of Treasury | – | – | 1,025,473 | 51 | 1,025,473 | 51 |
| New ordinary shares issued | 10,565,000 | 528 | 22,999,440 | 1,150 | 8,944,440 | 447 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| End of the period | 323,593,920 | 16,179 | 313,028,920 | 15,651 | 298,973,920 | 14,948 |
| \========= | \========= | \========= | \========= | \========= | \========= | |
| Held in Treasury* | ||||||
| Beginning of the period | – | – | – | – | – | – |
| Ordinary shares repurchased into Treasury | – | – | 1,025,473 | 51 | 1,025,473 | 51 |
| Ordinary shares issued out of Treasury | – | – | (1,025,473) | (51) | (1,025,473) | (51) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| End of the period | – | – | – | – | – | – |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Total share capital | 323,593,920 | 16,179 | 313,028,920 | 15,651 | 298,973,920 | 14,948 |
| \========= | \========= | \========= | \========= | \========= | \========= |
* Ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.
During the period, 10,565,000 ordinary shares (year ended 31 August 2021: 24,024,913 shares and six months ended 28 February 2021: 9,969,913 shares) were issued. The premium received in the period on the issue of new ordinary shares of £31,673,000 (year ended 31 August 2021: £61,259,000 and six months ended 28 February 2021: £21,366,000) was credited to the share premium account. In the year to 31 August 2021, 1,025,473 ordinary shares were issued out of Treasury. £24,000 was credited to the share premium account and £2,383,000 was credited to the capital reserve.
No ordinary shares were repurchased and held in Treasury during the period (year ended 31 August 2021 and six months ended 28 February 2021: 1,025,473 shares). The cost of repurchasing these shares in the year to 31 August 2021 was charged to the capital reserve (year ended 31 August 2021: £1,820,000 and six months ended 28 February 2021: £1,811,000).
11 NET ASSET VALUE PER ORDINARY SHARE
| 28.02.22 unaudited |
31.08.21 audited |
28.02.21 unaudited |
|
| Total Shareholders’ funds | £927,486,000 | £954,090,000 | £730,883,000 |
| Ordinary shares held outside Treasury at period end | 323,593,920 | 313,028,920 | 298,973,920 |
| Net asset value per ordinary share | 286.62p | 304.79p | 244.46p |
| \========= | \========= | \========= |
It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per ordinary share or at a premium to net asset value per ordinary share and, therefore, shares held in Treasury have no dilutive effect. Since 3 December 2020, there have been no shares held in Treasury.
12 Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management and the role of Company Secretary to FIL Investments International (“FII”). Both companies are Fidelity group companies.
Details of the fee arrangements are given in Note 5 above. During the period, fees for portfolio management services of £2,806,000 (year ended 31 August 2021: £5,065,000 and six months ended 28 February 2021: £2,442,000) and fees for non-portfolio management services of £nil (year ended 31 August 2021: £33,000 and six months ended 28 February 2021: £33,000) were payable to FII. Non-portfolio management fees include company secretarial, fund accounting, taxation, promotional and corporate advisory services. At the Balance Sheet date, fees for portfolio management services of £441,000 (year ended 31 August 2021: £474,000 and six months ended 28 February 2021: £332,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the period was £142,000 (year ended 31 August 2021: £106,000 and six months ended 28 February 2021: £62,000). At the Balance Sheet date, marketing services of £16,000 (year ended 31 August 2021: £13,000 and six months ended 28 February 2021: £16,000) were accrued and included in other creditors.
As at 28 February 2022, the Board consisted of five Non-Executive Directors, all of whom are considered to be independent. None of the Directors have a service contract with the Company. The Chairman receives an annual fee of £41,000, the Audit Committee Chairman an annual fee of £31,750 and each other Director an annual fee of £27,000.
As at the date of this report, the following members of the Board held ordinary shares in the Company: Andy Irvine 250,000 shares, Dean Buckley 50,000 shares, Nigel Foster 75,000 shares, Claire Boyle 7,466 shares and Alison McGregor 20,000 shares.
The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 28 February 2022 and 28
February 2021 has not been audited or reviewed by the Company’s Independent Auditor.
The information for the year ended 31 August 2021 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
A copy of the Half-Yearly Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at www.fidelity.co.uk/specialvalues where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.
