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Fidelity Special Values PLC   -  FSV   

Half-year Report

Released 07:00 01-May-2019

Half-year Report

Fidelity Special Values PLC

Half-Yearly Results for the six months ended 28 February 2019 (unaudited)

Financial Highlights:

Contacts

For further information, please contact:

Bonita Guntrip
Senior Company Secretary
01737 837320
FIL Investments International

Overview

The Portfolio Manager, Alex Wright’s, approach is very much in keeping with Fidelity Special Values PLC’s heritage and history – that of an actively managed, contrarian investment trust which the Board believes will be appealing to both existing and potential investors alike. Alex focuses on buying unloved companies with the prospect of positive change, rather than those that are merely cheap. He invests in companies of all sizes, and in doing so hopes to position the Company as the investment of choice for those seeking exposure to UK listed companies but with the benefit of investing 20% of the portfolio in listed companies on overseas exchanges.

Whilst performance in the first half of the reporting period has been more challenging, there has been a strong recovery since the half year end and long term performance remains well ahead of the Benchmark Index over 3 and 5 years. The Company’s shares remain in high demand and continue to trade at a premium.

In addition, we are pleased to report that the Company has won a number of prestigious industry awards.

Andy Irvine, Chairman

Portfolio Manager's Half-Yearly Review

Performance
In the six month period to 28 February 2019, the Company’s net asset value (“NAV”) per ordinary share returned -6.1% and the share price returned -6.7%, whilst the FTSE All-Share Index (the Company’s Benchmark Index) returned -3.7% (all returns on a total basis). Despite this short term performance, the Company’s NAV and share price total returns over three and five years remain well ahead of the Benchmark Index. Over three years, the NAV returned +37.2% and the share price returned +43.4% compared to a Benchmark return of +30.4%. For the five year period, the NAV returned +38.4% and the share price +45.0% against a Benchmark return of +27.6%.

The attribution analysis table below shows the factors that contributed to the Company’s NAV per share total return for the six months to 28 February 2019.

Analysis of the change in NAV total return for the period (%) 
Impact of:
Index -3.7 
Stock selection -1.7 
Gearing -0.4 
Operational Costs -0.5 
Cash +0.2 
--------------- 
Total return for the six months to 28 February 2019 -6.1 
========= 

Stock Market and Portfolio Review
The UK stock market saw mixed trends over the review period, falling sharply in the first half of the period before staging a recovery in 2019 to recoup some of the losses of the previous year. The Benchmark Index decline over the period of 3.7% was dominated by increasingly complex Brexit negotiations between the UK government and opposition parties, and concerns over global economic growth against a backdrop of the ongoing US-China trade frictions. After two years of double digit returns, the Benchmark Index fell by 9.5% on a total return basis in the 2018 calendar year; its worst annual performance since the financial crisis. However, hopes of an improvement in trade negotiations between the US and China led a rally in equities in 2019, with the Index returning 6.6% in the two months to the end of February 2019.

Overall, the global economy has continued to slow over recent months, with a broad-based softening across all regions. This has come about as a result of the tightening in global financial conditions, a weaker global demand environment, as well as the impact of trade tensions on business sentiment. The deceleration in global growth is expected to weigh on UK net trade, although markets expect more accommodative monetary policies in all major economies, which should support the economic outlook. UK economic growth slowed in late 2018 and appears to have weakened further in early 2019. There is now considerable uncertainty over the medium term outlook, although this could ease once greater clarity emerges on the US-China trade negotiations and the future path of Brexit.

The deeply unloved status of the UK market has created an exceptionally fertile period for contrarian stock picking. One thing I have learnt from investing in unloved companies is that you should not necessarily wait for good news to become obvious before investing. By investing when all the bad news is ‘in the price’ and no good news is expected at all, you put the odds in your favour. I believe this is the situation we are in currently in the UK.

In terms of performance, the Company’s NAV underperformed the Benchmark Index in the reporting period. At a stock level, online gaming group GVC Holdings was the leading detractor weighed down by negative regulatory news. The Company’s investment in Citigroup fell amid concerns over its earnings in a worsening global economic scenario and falling bond yields. However, the bank’s recently announced fourth-quarter results showed profit growth that beat analysts’ expectations on better than anticipated expense declines and loan losses. It also has substantial excess capital and the business remains fundamentally strong. The negative sentiment in the sector also weighed down the holding in Bank of Ireland. Defence contractor Ultra Electronics was another notable detractor owing to a combination of worries surrounding Brexit, as well as Saudi Arabian and US military spending cuts. The company also has its own accounting concerns but it looks attractively valued, and its shares have risen considerably during March 2019. Shares in Royal Mail fell after the courier company warned that its full year earnings were expected to fall sharply as it had failed to meet its cost saving targets.

Despite the difficult environment, several of our key holdings across sectors made significant contributions, with stock selection in the healthcare and technology sectors being particularly successful. Notable contributors included infrastructure group John Laing, whose assets have increased strongly as its diversified portfolio of projects proved resilient. Outsourcing group Serco was another notable contributor after the company raised its 2019 profit and revenue forecasts, buoyed by a run of recent contract wins, and a good environment for pricing. The exposure to Swiss pharmaceuticals group Roche Holdings also added value after it was boosted by strong results from two drug trials, including one that showed potential as a first line cancer treatment. Not holding underperforming tobacco company British American Tobacco also enhanced relative performance. The allocation to software group Micro Focus International added value as a trading update for the last fiscal year suggested that revenue declines are moderating following a period of significant merger and acquisition execution issues which led to turbulent sales growth.

I continue to look for opportunities that can be found across the market, among international as well as domestic businesses. Following the further deterioration in sentiment towards the UK in the last quarter of 2018, I increased exposure to domestic UK stocks, recycling capital primarily from US-facing businesses. I do not have a differentiated view on the UK political or macroeconomic outlook. I acknowledge the risks here, but am interested in investing in domestic businesses if they can satisfy these criteria; a low valuation which reflects a worst case outlook, a strong balance sheet that can support the business through a period of earnings volatility, structurally sound markets, and a self help story independent of the UK macro environment. A permanent feature of my investment process is to look for companies that can ‘help themselves’ without relying on a rising macroeconomic tide. I will typically avoid companies where margins are at historic highs.

Use of Derivatives
During the review period, the Company continued to use contracts for difference (“CFDs”) to gear portfolio long exposure and to contract short positions. The previously opened hedge position on the FTSE 250 Index Future was again maintained.

As the Company had some gearing and the market fell in the review period, the use of derivatives was a detractor in the portfolio. Overall, gross gearing was at 6.9% at the end of February 2019, down from 10.4% at the start of the review period.

Outlook
A selective approach remains important. Not all UK stocks are equally attractive, and although many domestic businesses are being unfairly ignored, others are structurally compromised or financially unsound and therefore best avoided. I am happy buying unloved domestic stocks if I can see a balance sheet that can withstand a period of economic weakness, and a valuation that gives me some margin of safety. Attractive valuations can be found across the market, in large and small companies, both international and domestic-facing. My process rests on identifying unloved companies with the potential for positive change. The number of unloved companies available to choose makes me believe that 2019 could turn into a surprisingly positive year for investors brave enough to buy UK equities before the good news happens.

As ever, I will be spending my time researching and meeting with the management of companies, looking for those that offer some degree of downside protection but also potential for a positive change to show them in a new light. In my experience, this is the best way to deliver capital growth over the long term.

Alex Wright
Portfolio Manager
30 April 2019

Interim Management Report

Management Fee
As reported in the Annual Report for the year ended 31 August 2018, the Company has a new fee arrangement in place, with effect from 1 September 2018, which provides a reduction from the previous fee structure. The previous fee of 0.875% of net assets has been replaced by a tiered fee basis which is 0.85% on the first £700 million of net assets and reduces to 0.75% on net assets over £700 million. In addition, the fixed annual fee of £600,000 for services other than portfolio management reduced to £100,000 per annum. There is no change in the investment process as a result of the new fee arrangement.

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. As the Company’s shares have been trading at a premium, the Company has not carried out any share repurchases in the reporting period and up to the date of this report.

Issuing shares increases the size of the Company, making it more liquid and allowing costs to be spread out over larger assets. The Board will approve share issues from Treasury if the Company’s shares are generally trading at a sufficient premium to ensure that the issue of shares is not dilutive and the Company’s Broker believes that the Company should be issuing shares from Treasury.

In the six months to 28 February 2019, the Company’s shares traded at a premium which was within a range of 0.5% and 4.9%. As the Company’s shares had traded at a level of premium to ensure that the issue of shares from Treasury was not dilutive, the Board authorised the issue of 4,095,000 shares which were all the shares that the Company held in Treasury. In addition, the Company issued the final 480,000 shares from a previous block listing authority. Therefore, the Company acquired a new block listing authority from the UK Listing Authority to issue up to 23,889,440 ordinary shares, effective from 15 January 2019. As at 28 February 2019, the Company had issued 1,370,000 shares from this new block listing authority.

In total, the Company issued 5,945,000 shares in the six month reporting period. Since then and as at the date of this report, the Company has issued a further 2,175,000 shares in order to meet demand.

Interim Dividend
The Board’s dividend policy is to pay dividends twice yearly in order to smooth the dividend payment for the reporting year. The Company’s revenue return for the six months to 28 February 2019 was 1.78 pence per share. The Board has declared an interim dividend of 2.10 pence per share which is 13.5% higher than the 1.85 pence per share paid as the prior interim dividend and provides a good balance between the interim and final dividend payments. This will be paid on 26 June 2019 to Shareholders on the register on 17 May 2019 (ex-dividend date 16 May 2019).

Shareholders may choose to reinvest their dividends for additional shares in the Company. Details of the Dividend Reinvestment Plan are set out in the Half-Yearly Report.

Principal Risks and Uncertainties
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 and uncertainties faced by the Company.

The Board categorises the principal risks and uncertainties faced by the Company into two broad categories of external and internal risks. External risks comprise of market risk, share price risk, discount control risk, regulatory risk and cybercrime risk. Internal risks comprise of investment management risk and operational risks (such as service providers). Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 August 2018. A copy of the Annual Report can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/specialvalues.

These risks and uncertainties have not materially changed in the six months to 28 February 2019 and are equally applicable to the remaining six months of the Company’s financial year.

Transactions with the Manager and Related Parties
The Manager has delegated the Company’s portfolio management and the role of Company Secretary to FIL Investments International. Transactions with the Manager and related party transactions with the Directors are disclosed in Note 13 to the Financial Statements below.

Going Concern
The Directors have considered the Company’s investment objective, policy, strategy, the Company’s projected income and expenditure and noted that the portfolio of investments is considered to be mainly readily realisable securities. Therefore, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing these Financial Statements.

Continuation votes are held every three years and the next continuation vote will be put to Shareholders at the Annual General Meeting to be held in December 2019.

By order of the Board
FIL Investments International
30 April 2019

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 Interim Management Report, together with the Portfolio Manager’s Half-Yearly Review above, includes 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 30 April 2019 and the above responsibility statement was signed on its behalf by Andy Irvine, Chairman.

Twenty Largest Investments

as at 28 February 2019

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 Balance Sheet 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.




Long Exposures – shares unless otherwise stated


Gross Asset Exposure 
Balance 
Sheet 
Value 
£’000 
£’000  %1 
CRH (long CFD)
Construction & Materials 34,003  4.9  1,781 
Royal Dutch Shell (shares and long CFD)
Oil & Gas Producers 33,200  4.8  16,577 
Roche Holdings
Pharmaceuticals & Biotechnology 32,597  4.8  32,597 
John Laing Group
Financial Services 30,621  4.5  30,621 
BP
Oil & Gas Producers 30,494  4.4  30,494 
Pearson
Media 29,732  4.3  29,732 
Phoenix Group Holdings
Life Insurance 28,797  4.2  28,797 
Citigroup
Banks 28,569  4.2  28,569 
RBS Group
Banks 25,414  3.7  25,414 
Meggitt
Aerospace & Defense 21,437  3.1  21,437 
Serco Group
Support Services 19,290  2.8  19,290 
Aviva (long CFD)
Life Insurance 17,238  2.5  (1,739)
AIB Group (long CFD)
Banks 16,347  2.4  (1,692)
C&C Group
Beverages 14,910  2.2  14,910 
Lloyds Banking Group
Banks 14,777  2.2  14,777 
CLS Holdings
Real Estate Investment & Services 14,535  2.1  14,535 
Legal & General Group
Life Insurance 14,393  2.1  14,393 
International Personal Finance (shares and fixed interest bond)
Financial Services 13,003  1.9  13,003 
Micro Focus International
Software & Computer Services 12,009  1.8  12,009 
Bank of Ireland Group (long CFD)
Banks 11,985  1.7  (3,721)
Twenty largest long exposures 443,351  64.6  341,784 
Other long exposures 319,615  46.6  261,569 
---------------  ---------------  --------------- 
Total long exposures before hedges (97 holdings) 762,966  111.2  603,353 
---------------  ---------------  --------------- 
Less: hedging exposure
FTSE 250 Index Future March 2019 (34,138) (5.0) (2,038)
---------------  ---------------  --------------- 
Total long exposures after the netting of hedges 728,828  106.2  601,315 
=========  =========  ========= 

   

Add: short exposures
Short CFDs (2 holdings) 4,394  0.7  (191)
Gross Asset Exposure2 733,222  106.9 
---------------  --------------- 
Portfolio Fair Value3 601,124 
--------------- 
Net current assets (excluding derivative assets and liabilities) 85,022 
Shareholders' Funds 686,146 
========= 

1.  Gross Asset Exposure is expressed as a percentage of Shareholders’ Funds.

2.  Gross Asset Exposure comprises market exposure to investments of £611,412,000 plus market exposure to derivative instruments of £121,810,000.

3.  Portfolio Fair Value comprises investments of £611,412,000 plus derivative assets of £2,373,000 less derivative liabilities of £12,661,000 (per the Balance Sheet below).

FINANCIAL STATEMENTS

Income Statement

for the six months ended 28 February 2019




 



Notes 
six months ended 28 February 2019 
unaudited 
year ended 31 August 2018 
audited 
six months ended 28 February 2018 
unaudited 
revenue 
£’000 
capital 
£’000 
total 
£’000 
revenue 
£’000 
capital 
£’000 
total 
£’000 
revenue 
£’000 
capital 
£’000 
total 
£’000 
(Losses)/gains on investments –  (40,506) (40,506) –  48,288  48,288  –  13,627  13,627 
(Losses)/gains on long CFDs –  (11,464) (11,464) –  (3,022) (3,022) –  1,459  1,459 
Gains/(losses) on short CFDs,futures and options –  2,794  2,794  –  (2,718) (2,718) –  1,417  1,417 
Investment and derivative income* 8,372  –  8,372  23,468  –  23,468  6,927  –  6,927 
Other interest 141  –  141  366  –  366  116  –  116 
Derivative expenses* (48) –  (48) (860) –  (860) (417) –  (417)
Investment management fees (2,845) –  (2,845) (6,707) –  (6,707) (3,294) –  (3,294)
Other expenses (342) (88) (430) (640) –  (640) (322) –  (322)
Foreign exchange (losses)/gains –  (357) (357) –  618  618  –  (781) (781)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Net return/(loss) on ordinary activities before finance costs and taxation 5,278  (49,621) (44,343) 15,627  43,166  58,793  3,010  15,722  18,732 
Finance costs (389) –  (389) (342) –  (342) (131) –  (131)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Net return/(loss) on ordinary activities before taxation 4,889  (49,621) (44,732) 15,285  43,166  58,451  2,879  15,722  18,601 
Taxation on return on ordinary activities (113) –  (113) (177) –  (177) (40) –  (40)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Net return/(loss) on ordinary activities after taxation for the period 4,776  (49,621) (44,845) 15,108  43,166  58,274  2,839  15,722  18,561 
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Return/(loss) per ordinary share 1.78p  (18.48p) (16.70p) 5.70p  16.29p  21.99p  1.07p  5.94p  7.01p 
=========  =========  =========  =========  =========  =========  =========  =========  ========= 

*    Derivative expenses in the prior periods have been reallocated from investment and derivative income. There is no effect on the net return/(loss) on ordinary activities after taxation for the period.

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 2019




 
 
 
 
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 2019 (unaudited)
Total Shareholders’ funds at 31 August 2018 13,532  95,940  3,256  5,152  591,842  15,248  724,970 
Issue of ordinary shares from Treasury 11    65    –  9,821    9,886 
New ordinary shares issued 11  93  4,475    –  –    4,568 
Net (loss)/return on ordinary activities after taxation for the period       –  (49,621) 4,776  (44,845)
Dividend paid to Shareholders       –  –  (8,433) (8,433)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Total Shareholders’ funds at 28 February 2019 13,625  100,480  3,256  5,152  552,042  11,591  686,146 
=========  =========  =========  =========  =========  =========  ========= 
Year ended 31 August 2018 (audited)
Total Shareholders’ funds at 31 August 2017 13,532  95,896  3,256  5,152  543,218  12,448  673,502 
Issue of ordinary shares from Treasury 11  –  44  –  –  5,458  –  5,502 
Net return on ordinary activities after taxation for the year –  –  –  –  43,166  15,108  58,274 
Dividend paid to Shareholders –  –  –  –  –  (12,308) (12,308)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Total Shareholders’ funds at 31 August 2018 13,532  95,940  3,256  5,152  591,842  15,248  724,970 
=========  =========  =========  =========  =========  =========  ========= 
Six months ended 28 February 2018 (unaudited)
Total Shareholders’ funds at 31 August 2017 13,532  95,896  3,256  5,152  543,218  12,448  673,502 
Net return on ordinary activities after taxation for the period –  –  –  –  15,722  2,839  18,561 
Dividend paid to Shareholders –  –  –  –  –  (7,406) (7,406)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Total Shareholders’ funds at 28 February 2018 13,532  95,896  3,256  5,152  558,940  7,881  684,657 
=========  =========  =========  =========  =========  =========  ========= 

Balance Sheet

at 28 February 2019

Company number 2972628



 
 
 
Notes 
28.02.19 
unaudited 
£’000 
31.08.18 
audited 
£’000 
28.02.18 
unaudited 
£’000 
Fixed assets
Investments 10  611,412  704,997  657,239 
=========  =========  ========= 
Current assets
Derivative instruments 10  2,373  4,939  10,205 
Debtors 2,525  4,043  1,314 
Amounts held at futures clearing houses and brokers 13,585  2,235  1,858 
Fidelity Institutional Liquidity Fund 61,450  14,588  16,306 
Cash at bank 8,417  2,303  2,559 
---------------  ---------------  --------------- 
88,350  28,108  32,242 
=========  =========  ========= 
Creditors
Derivative instruments 10  (12,661) (5,371) (1,695)
Other creditors (955) (2,764) (3,129)
---------------  ---------------  --------------- 
(13,616) (8,135) (4,824)
=========  =========  ========= 
Net current assets 74,734  19,973  27,418 
=========  =========  ========= 
Net assets 686,146  724,970  684,657 
=========  =========  ========= 
Capital and reserves
Share capital 11  13,625  13,532  13,532 
Share premium account 100,480  95,940  95,896 
Capital redemption reserve 3,256  3,256  3,256 
Other non-distributable reserve 5,152  5,152  5,152 
Capital reserve 552,042  591,842  558,940 
Revenue reserve 11,591  15,248  7,881 
---------------  ---------------  --------------- 
Total Shareholders' funds 686,146  724,970  684,657 
=========  =========  ========= 
Net asset value per ordinary share 12  251.80p  271.98p  258.85p 
=========  =========  ========= 

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 financial 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 2018 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 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 November 2014 and updated in February 2018 with consequential amendments. 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 2018.

4 Income





 
six months 
ended 
28.02.19 
unaudited 
£’000 
 
year ended 
31.08.18 
audited 
£’000 
six months 
ended 
28.02.18 
unaudited 
£’000 
Investment income
UK dividends 3,968  13,273  3,433 
UK scrip dividends 405  403  41 
Overseas dividends 2,344  4,282  1,607 
Overseas scrip dividends 236  990  700 
Debt security interest 108  299  160 
---------------  ---------------  --------------- 
7,061  19,247  5,941 
=========  =========  ========= 
Derivative income
Dividends received on long CFDs 1,311  4,221  986 
---------------  ---------------  --------------- 
Investment and derivative income 8,372  23,468  6,927 
=========  =========  ========= 
Other interest
Interest received on CFDs 16  79  46 
Interest received on deposits and money market funds 125  287  70 
---------------  ---------------  --------------- 
141  366  116 
=========  =========  ========= 
Total investment and derivative income and other interest* 8,513  23,834  7,043 
=========  =========  ========= 

*    Derivative expenses have been reallocated to Note 5.

Special dividends of £3,779,000 (year ended 31 August 2018: £7,023,000 and six months ended 28 February 2018: £6,152,000) have been recognised in capital.

5 Derivative Expenses





 
six months 
ended 
28.02.19 
unaudited 
£’000 
 
year ended 
31.08.18 
audited 
£’000 
six months 
ended 
28.02.18 
unaudited 
£’000 
Dividends paid on short CFDs (6) (695) (285)
Interest paid on short CFDs (42) (165) (132)
---------------  ---------------  --------------- 
Total derivative expenses (48) (860) (417)
=========  =========  ========= 

6 Investment Management Fees





 
six months 
ended 
28.02.19 
unaudited 
£’000 
 
year ended 
31.08.18 
audited 
£’000 
six months 
ended 
28.02.18 
unaudited 
£’000 
Portfolio management services 2,795  6,107  2,994 
Non-portfolio management services* 50  600  300 
---------------  ---------------  --------------- 
Investment management fees 2,845  6,707  3,294 
=========  =========  ========= 

*    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 September 2018, the Company adopted a new fee arrangement which reduced the previous fee of 0.875% of net assets to a new tiered fee basis of 0.85% on the first £700 million of net assets and 0.75% of net assets in excess of £700 million.

In addition, the fixed annual fee for services other than portfolio management was reduced from £600,000 to £100,000 per annum.

7 Taxation on Return on Ordinary Activities

six months 
ended 
28.02.19 
unaudited 
£’000 
 
year ended 
31.08.18 
audited 
£’000 
six months 
ended 
28.02.18 
unaudited 
£’000 
Overseas taxation 113  177  40 
---------------  ---------------  --------------- 
Total taxation charge for the period 113  177  40 
=========  =========  ========= 

8 Return/(loss) per Ordinary Share




 
six months 
ended 
28.02.19 
unaudited 
 
year ended 
31.08.18 
audited 
six months 
ended 
28.02.18 
unaudited 
Revenue return per ordinary share 1.78p  5.70p  1.07p 
Capital (loss)/return per ordinary share (18.48p) 16.29p  5.94p 
---------------  ---------------  --------------- 
Total (loss)/return per ordinary share (16.70p) 21.99p  7.01p 
=========  =========  ========= 

The return/(loss) per ordinary share is based on the net return/(loss) on ordinary activities after taxation for the period divided by the weighted average number of ordinary shares held during the period, as shown below:

£’000  £’000  £’000 
Net revenue return on ordinary activities after taxation 4,776  15,108  2,839 
Net capital (loss)/return on ordinary activities after taxation (49,621) 43,166  15,722 
---------------  ---------------  --------------- 
Net total (loss)/return on ordinary activates after taxation (44,845) 58,274  18,561 
=========  =========  ========= 
number  number  number 
Weighted average number of ordinary shares held 268,482,436  265,040,439  264,499,480 
============  ============  ============ 

9 Dividends Paid to Shareholders

six months 
ended 
28.02.19 
unaudited 
£’000 
 
year ended 
31.08.18 
audited 
£’000 
six months 
ended 
28.02.18 
unaudited 
£’000 
Final dividend of 3.15 pence per ordinary share paid for the year ended 31 August 2018 8,433  –  – 
Interim dividend of 1.85 pence per ordinary share paid for the year ended 31 August 2018 –  4,902  – 
Final dividend of 2.80 pence per ordinary share paid for the year ended 31 August 2017 –  7,406  7,406 
---------------  ---------------  --------------- 
Total dividends paid 8,433  12,308  7,406 
=========  =========  ========= 

The Company has declared an interim dividend for the six month period to 28 February 2019 of 2.10 pence per ordinary share (2018: 1.85 pence). The interim dividend will be paid on  26 June 2019 to Shareholders on the register at 17 May 2019 (ex-dividend date 16 May 2019). The total cost of this interim dividend, which has not been included as a liability in these Financial Statements, is £5,768,000 (2018: £4,902,000). This amount is based on the number of ordinary shares in issue held at the date of this report.

10 Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.

Classification Input
Level 1 Valued using quoted prices in active markets for identical assets
Level 2 Valued by reference to 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 table below sets out the Company’s fair value hierarchy:

28 February 2019 (unaudited) level 1 
£’000 
level 2 
£’000 
level 3 
£’000 
total 
£’000 
Financial assets at fair value through profit or loss
Investments 605,985  3,494  1,933  611,412 
Derivative instrument assets –  2,373    2,373 
---------------  ---------------  ---------------  --------------- 
605,985  5,867  1,933  613,785 
=========  =========  =========  ========= 
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (2,038) (10,623)   (12,661)
=========  =========  =========  ========= 
31 August 2018 (audited) level 1 
£’000 
level 2 
£’000 
level 3 
£’000 
total 
£’000 
Financial assets at fair value through profit or loss
Investments 699,052  4,489  1,456  704,997 
Derivative instrument assets 1,058  2,845  1,036  4,939 
---------------  ---------------  ---------------  --------------- 
700,110  7,334  2,492  709,936 
=========  =========  =========  ========= 
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities –  (5,371) –  (5,371)
=========  =========  =========  ========= 
28 February 2018 (unaudited) level 1 
£’000 
level 2 
£’000 
level 3 
£’000 
total 
£’000 
Financial assets at fair value through profit or loss
Investments 641,088  4,477  11,674  657,239 
Derivative instrument assets –  10,205  –  10,205 
---------------  ---------------  ---------------  --------------- 
641,088  14,682  11,674  667,444 
=========  =========  =========  ========= 
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities –  (1,695) –  (1,695)
=========  =========  =========  ========= 

11 Share Capital

28 February 2019
unaudited 
31 August 2018
audited 
28 February 2018
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 266,549,480  13,328  264,499,480  13,225  264,499,480  13,225 
Ordinary Shares issued out of Treasury 4,095,000  204  2,050,000  103  –  – 
New Ordinary Shares issued 1,850,000  93  –  –  –  – 
End of the period 272,494,480  13,625  266,549,480  13,328  264,499,480  13,225 
============  ============  ============  ============  ============  ============ 
Held in Treasury*
Beginning of the period 4,095,000  204  6,145,000  307  6,145,000  307 
Ordinary Shares issued out of Treasury (4,095,000) (204) (2,050,000) (103) –  – 
============  ============  ============  ============  ============  ============ 
End of the period –  –  4,095,000  204  6,145,000  307 
============  ============  ============  ============  ============  ============ 

Total share capital

272,494,480 

13,625 

270,644,480 

13,532 

270,644,480 

13,532 
============  ============  ============  ============  ============  ============ 

*    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 a total of 5,945,000 ordinary shares (year ended 31 August 2018: 2,050,000 shares and six months to 28 February 2018: nil) were issued. The proceeds from the issue of ordinary shares out of Treasury of £9,821,000 (year ended 31 August 2018: £5,458,000 and six month period to 28 February 2018: nil) was credited to capital reserve. The total premium received in the period on the issue of new ordinary shares of £4,475,000 and on the issue of ordinary shares out of Treasury of £65,000 was credited to the share premium account (year ended 31 August 2018: £44,000 and six month period to 28 February 2018: nil).

12 Net Asset Value per Ordinary Share
The net asset value per ordinary share is based on net assets of £686,146,000 (31 August 2018: £724,970,000 and 28 February 2018: £684,657,000) and on 272,494,480 (31 August 2018: 266,549,480 and 28 February 2018: 264,499,480) ordinary shares, being the number of ordinary shares of 5 pence each held at the period end.

It is the Company’s policy that any shares held in Treasury will only be reissued at a premium to net asset value per share and, therefore, shares held in Treasury have no dilutive effect. As at 23 January 2019, there were no shares held in Treasury.

13 Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management and the role of company secretary to FIL Investments International (“FII”). Both companies are Fidelity group companies. Details of the fee arrangements are given in Note 6. During the period, fees for portfolio management services of £2,795,000 (year ended 31 August 2018: £6,107,000 and six months ended 28 February 2018: £2,994,000) and fees for non-portfolio management services of £50,000 (year ended 31 August 2018: £600,000 and six months ended 28 February 2018: £300,000) 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 (31 August 2018: £1,083,000 and 28 February 2018: £967,000) and fees for non-portfolio management services of £17,000 (31 August 2018: £100,000 and 28 February 2018: £100,000) 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 £79,000 (year ended 31 August 2018: £139,000 and 28 February 2018: £65,000). At the Balance Sheet date, marketing services of £9,000 (31 August 2018: £7,000 and 28 February 2018: £23,000) were accrued and included in other creditors.

As at 28 February 2019, the Board consisted of five Non-Executive Directors (as shown in the Directory in the Half-Yearly Report), all of whom are considered to be independent by the Board apart from Nicky McCabe who was employed by FIL Limited until 31 December 2017. 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. The following members of the Board hold ordinary shares in the Company: Andy Irvine 75,000 shares, Sharon Brown 15,600 shares, Dean Buckley 30,000 shares, Nigel Foster 70,000 shares and Nicky McCabe 31,926 shares.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

ENDS

A copy of the Half-Yearly Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM.

The Half-Yearly Report will also be available on the Company's website at www.fidelity.co.uk/specialvalues where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.


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Half-year Report - RNS