Fidelity Emerging Markets Ltd - Half-year Report
Half Year Report for the six months ended 31
-- Fidelity Emerging Markets Limited31 December 2023
-- The Company’s benchmark index, the MSCI Emerging Markets Index, rose
+4.4% over the same timeframe
-- During the period, the Company’s short book added over 100bps to
relative returns
-- The portfolio managers remain focused on looking for well capitalised
businesses with under-levered balance sheets in the long book and making
use of the Company’s flexible investment capabilities
Financial Highlights
31December 30 June
2023 2023
Assets
USD
Gross Asset Exposure1 $1,220.2m $1,185.0m
Equity Shareholders’ Funds $800.9m $796.7m
NAV per Participating Preference Share2 $8.85 $8.75
Gross Gearing2,3 52.3% 48.7%
Net Gearing2,4 (1.7)% (3.9)%
GBP
Gross Asset Exposure1,5 £957.2m £932.1m
Equity Shareholders’ Funds5 £628.3m £626.7m
NAV per Participating Preference Share2,5 £6.94 £6.88
Participating Preference Share Price and Discount Data
Participating Preference Share Price at the period end £6.16 £5.88
Discount to NAV per Participating Preference Share at 11.29% 14.61%
period end2
Number of Participating Preference Shares in issue 90,462,891 91,100,066
Earning for the six months ended 31December 2023 2022
Revenue Earnings per Participating Preference Share6 $0.06 $0.09
Capital Earnings/(Loss) per Participating Preference $0.23 ($0.45 )
Share6
Total Earnings/(Loss) per Participating Preference Share6 $0.29 ($0.36 )
Ongoing charges ratio2 0.82% 0.84%
1 The value of the portfolio exposed to market price movements.
2
Alternative Performance Measures. See Glossary of Terms in the Half Year Report for the six months ended 31
3 Gross Asset Exposure less Equity Shareholders’ Funds expressed as a percentage of Equity Shareholders’ Funds.
4 Net Market Exposure less Equity Shareholders’ Funds expressed as a percentage of Equity Shareholders’ Funds.
5 The conversion from USD to GBP is based on exchange rates prevailing at the reporting dates.
6 Calculated based on weighted average number of participating preference shares in issue during the period.
Contacts
For further information please contact:
Company Secretary
07778 354 517
Chairman’s Statement
I am pleased to present your Company’s half-year report, covering a period in which portfolio performance has been encouraging with the share price total return increasing by 7.5% in spite of continued geopolitical volatility.
Overview
In the six months under review,
Against this backdrop, net asset value (‘NAV’) total return performance for the six months ended 31
Fundamental to this is Fidelity’s unique investment process. The managers’ ability to hold short as well as long positions – investing in well financed, well managed businesses that can drive growth, while also making money from identifying those at risk of disruption – is a key differentiating factor that is increasingly feeding into positive performance for the Company. While we are yet to reach a three-year track record under the management of Fidelity’s
At Board level, your Directors and I have continued to focus on building awareness of the strength of Fidelity’s approach, as well as keeping costs in check (our ongoing charges ratio is the lowest in the AIC Global Emerging Markets sector, at 0.82%) and taking deliberate action to limit the discount to NAV. During the period under consideration, the discount narrowed from 14.6% to 11.3%. While a 3.3% narrowing is not inconsiderable, the discount remains wider than we would like. We have the authority to repurchase up to 14.99% of the issued share capital each year in order to manage the discount, and in
2023 AGM and final dividend
The Company held its Annual General Meeting (‘AGM’) on 7
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.
Board changes
Following the
Outlook
Although developed markets (particularly the US, driven by the ‘magnificent seven’ major technology stocks) once again performed better than emerging markets in 2023, we continue to believe there are compelling reasons to consider a long-term allocation to emerging markets. In contrast with many Western economies, emerging nations largely did not undertake massive fiscal support programmes during the Covid pandemic, and as such they have not been subject to the same inflationary pressures as restrictions have eased. Away from
With an improving trend of performance, solid action to manage the discount, continued efforts to raise your Company’s profile and decent prospects for investment returns in an arena that boasts significant hidden value, your Board and I are hopeful that the remainder of the financial year will build further on the progress the Company has achieved over the last year.
Chairman
Investment Manager’s Half Year Review
Macroeconomic Review
Emerging markets rose over the second half of 2023, closing out the first calendar year of positive performance for the index since 2020. Sentiment oscillated over the period as emerging markets continued to grapple with tighter monetary policy and continued weakness in
Performance across regions was mixed.
We also saw dispersion between sectors. Technology stocks continued to perform well, enjoying the tailwind from the improved outlook for AI-related demand, while energy stocks also rallied in a relatively high oil price environment. Returns across other sectors were more varied, with the communication services and real estate sectors impacted by weakness in
Portfolio performance for the six
months to 31
December 2023
Over the six-month period ending 31
The portfolio’s small underperformance relative to the index over the last six months of the year followed a strong first half of the year, which meant the portfolio outperformed the index over the calendar year in aggregate. While the long book detracted overall, the short book performed well, and added over 100bps to relative returns over the six-month period.
Weakness in the second half of the year was largely due to the continued derating of the high-quality Chinese consumer names we hold. This was despite our underweight exposure to
There was marked dispersion among consumer companies, however, and some of the strong performers over the period included consumer discretionary names outside of
Top five contributors and detractors, six months ending 31
December 2023
Actual
Relative
Order Security Sector CRR
(%)
(bps)
Top 5
1 MakeMyTrip Limited Consumer Discretionary 1.56 73
2 Short position Information Technology -0.36 66
3 Tencent Holdings Ltd Communication Services -3.97 65
4 Kaspi.KZ JSC Financials 4.84 64
5 Short position Consumer Discretionary -0.33 62
Bottom 5
1 Li Ning Co Ltd Consumer Discretionary 1.64 -138
2 China Mengniu Dairy Co Consumer Staples 2.89 -126
3 First Quantum Minerals Ltd Materials 1.40 -90
4 AIA Group Ltd Financials 3.36 -80
5 PDD Holdings Inc Consumer Discretionary -0.89 -61
Source:
High-quality Chinese consumer stocks derate
A persistent feature of the last six months has been continued weakness in Chinese consumption as the economic reopening remains lacklustre and the property market continues to come under pressure, which has significant implications for consumer confidence. The portfolio’s weakest performers over the period were largely
Stock specific weakness in the materials sector
One of the weaker performers over the period was the
Dispersion among financials holdings
The performance of the portfolio’s financials positions was mixed. The weakest performer was
More positive was the performance of Kazakhstan’s ecommerce and payments platform Kaspi, which has continued to deliver very strong earnings growth, and has kept paying out dividends and buying back shares. Russia’s TCS Group, a provider of online retail financial services, also contributed after we partially exited the position in Q4.
A positive six months for the short book
It was a strong period for the short book. This was in part due to the market backdrop during the first part of the period, with several highly shorted stocks unwinding after an unprecedented squeeze in June and July. However, strong stock picking was also in evidence, with short positions accounting for two of the portfolio’s top five contributors to performance, a notable achievement given that short positions are capped at 100bps.
The best performer was a US-listed Indian technology company that carried out an unsuccessful equity raise and later filed for bankruptcy. A short position in a
Consumer discretionary names outside China rally
As inflation moderates and rates come down, the backdrop for the consumer has improved in many emerging economies. Several consumer holdings outside of
Portfolio positioning as of 31
December 2023
In the long book we continue to look for well capitalised businesses with under-levered balance sheets. We are conservatively positioned, meaning that the companies we own should be better prepared for what could remain a challenging environment. Although the long book remains quality focused, a deliberate, continued search for value (without compromising on quality) has remained central to our thinking.
Looking to the portfolio’s extended toolkit, the ability to venture further down the market cap spectrum remains vital, allowing us to gain exposure to companies benefiting from excellent structural growth drivers, including those in smaller, frontier markets such as
When identifying ideas for the short book, we continue to make use of our excellent research team to identify companies with characteristics such as poor corporate governance, weak balance sheets, or deteriorating competitive positions.
Regional positioning
Positioning changes in
The derating in Chinese stocks has largely been driven by multiple compression rather than earnings downgrades and has been much more extreme in H shares given their high foreign ownership. We do see significant value in the
We do, however, remain conscious of the more muted backdrop for the consumer. It is likely that China’s property market will not be the strong driver of economic growth that it has been in the past, which has a knock-on effect on consumer confidence. With an eye on managing risk and country level exposures, we have looked to reduce our aggregate position in the country (which we view as
We see a multitude of opportunities beyond
While the portfolio has an underweight exposure to
We increased exposure to
Sector positioning
Financials remains the largest sector overweight for the portfolio. A significant portion of this exposure is not interest-rate sensitive, and we have looked to add exposure to banks that are beneficiaries of falling rates – including those that should benefit from improving loan growth or investment banking activity as interest rates come down. Here, our ability to look for ideas across a broad investable universe and examine underexplored areas of the market is important, with names such as Kazakhstan’s ecommerce and payments platform Kaspi and Brazilian challenger bank Nu Holdings being two examples of stocks that were unearthed through our intense, bottom-up research process.
The portfolio also has an overweight exposure to consumer companies, which is well diversified across markets. Although the consumer recovery in
Outlook
Interest rates are coming down across emerging markets…
Although emerging markets continued to underperform developed markets over 2023, with weakness in
…Although rates will likely remain higher over the long term
Falling interest rates should provide a measure of support for longer-duration growth assets over 2024. However, rates will likely remain more elevated than they have been over the past 15 years – which continues to underpin our view that some form of value exposure has a continued role to play in actively managed portfolios. In an environment where structurally higher inflation continues to challenge the outlook for growth, evidence of companies returning cash to shareholders also remains vital. One key aspect of the portfolio’s enhanced toolkit is the ability to short companies, and in a higher interest-rate environment this has the potential to offer a particularly good source of alpha, as the unsustainable debt levels of many companies come into focus, and they pay the price of carrying too much leverage.
Weakness in China , but signs of shareholder-friendly activity
As the largest single constituent of the emerging market universe,
A diverse opportunity set, with dispersion apparent
Elsewhere, we see pockets of the market overlooked, while dispersion is very broad, as valuations differ significantly across regions. This throws up some interesting opportunities and offers the potential to unlock attractive shareholder returns in the year ahead. 2024 will be a busy election year for emerging markets, with polls due in
While valuations have derated significantly, as the rally throughout November and December showed, bouts of stronger performance can result in rapid re-rating, underlining the importance of active management and disciplined position size management. Given the derating in Chinese H shares, the extent of any market move in this area could be significant, for example.
The emerging market universe still presents compelling opportunities and the relative attractiveness of emerging market valuations compared to developed markets, particularly the US market, is clear. However, discipline is critical, as not all markets and not all sectors and regions are (or will remain) cheap, making an active approach vital.
Strong fundamentals and attractive valuations
The macroeconomic backdrop is uncertain, and it remains to be seen whether the US will achieve a soft landing or when consumer confidence in
A go-anywhere approach to emerging markets
The extent of the derating within emerging markets over the last few years means that there are many high-quality names trading at very attractive valuations. In the portfolio’s long book, we continue to look for companies that should be better prepared for what could remain a challenging environment. We are also focused on putting to work the portfolio’s extended toolkit, scouring the entire breadth of the market cap spectrum for ideas, and making use of our excellent team of global research analysts to identify candidates for the short book – taking a truly ‘go anywhere’ approach to ensure we maximise our ability to profit from businesses of all kinds.
Portfolio Managers
In 2023 we transacted in the shares of two Russian companies,
TCS Group Holdings
and
Detsky Mir
. The contribution from these stocks reflects the realisation of value. In
Spotlight on the Top 5 Holdings
as at 31
The top five holdings comprise 28.7% of the Company’s Net Assets.
Taiwan Semiconductor Manufacturing
Industry: Information Technology
Country:
% of Net Assets 10.4%
TSMC is a Taiwanese semiconductor foundry with leading-edge technology, which reinforces the company’s competitive position and ability to generate incremental return on invested capital. The company has built a technological moat over the past three decades and occupies an especially dominant position at the forefront of the industry as competitors have dropped from the race due to technical hurdles and the barrier of high required capital expenditures. TSMC’s ability to hire the best talent while continuously improving its know-how keeps it ahead of the competition and able to generate cashflow to feed back into investing in R&D and capacity.
HDFC Bank
Industry: Financials
Country:
% of Net Assets 5.1%
Samsung Electronics
Industry: Information Technology
Country:
% of Net Assets 4.8%
Samsung Electronics is a technology powerhouse with products spanning upstream manufacturing to downstream consumer products. The company’s device experience division produces product such as mobile handsets, tablets, business networks and medical and health equipment, while its device solutions segment captures its memory and foundry business. Innovations in artificial intelligence, 5G and 6G, automotive electronics and a wide range of robotics are also core to Samsung’s strategy.
Kaspi.KZ
Industry: Financials
Country:
% of Net Assets 4.7%
Kaspi is the dominant consumer finance, e-commerce, and payments platform in
Axis Bank
Industry: Financials
Country:
% of Net Assets 3.7%
Axis Bank is the third largest private sector bank in
Twenty Largest Investments
as at 31
The Asset Exposures shown below measure the exposure of the Company’s portfolio to market price movements in the shares and equity linked notes owned or in the shares underlying the derivative instruments. The Fair Value is the value the portfolio could be sold for and is the value shown on the Statement of Financial Position. 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 price of the underlying shares has moved (in effect, the unrealised gain or loss on the exposed positions). Where the Company only holds shares, the Fair Value and Asset Exposure will be the same.
Fair
Asset Exposure
value
$’000 %1 $’000
Taiwan Semiconductor Manufacturing 83,264 10.4 67,435
(shares and long CFD)
Information Technology
HDFC Bank 40,982 5.1 40,982
Financials
Samsung Electronics (shares and long CFD) 38,366 4.8 9,842
Information Technology
Kaspi.KZ 37,909 4.7 37,909
Financials
Axis Bank (shares and long CFD) 29,511 3.7 5,776
Financials
NU Holdings (long CFD) 28,133 3.4 (408)
Financials
ICICI Bank (shares and long CFD) 27,055 3.4 6,233
Financials
AIA Group (shares, option and long CFD) 26,971 3.4 5,515
Financials
Bank Central Asia 25,393 3.2 25,393
Financials
Naspers 25,332 3.2 25,332
Consumer Discretionary
Grupo Mexico (long CFD) 24,357 3.1 1,718
Materials
Samsonite International (shares and long CFD) 20,725 2.6 10,566
Consumer Discretionary
MakeMyTrip (long CFD) 20,616 2.6 18
Consumer Discretionary
China Mengniu Dairy (shares and long CFD) 20,305 2.5 1,723
Consumer Staples
AlKhorayef Water & Power Technologies 19,748 2.5 19,748
Utilities
SK Hynix (long CFD) 16,289 2.0 1,550
Information Technology
Grupo Aeroportuario del Pacifico 15,400 1.9 15,400
Industrials
National Bank of Greece 15,359 1.9 15,359
Financials
Banco BTG Pactual 15,151 1.9 15,151
Financials
Auto Partner 14,419 1.8 14,419
Consumer Discretionary
Twenty largest long exposures 545,285 68.1 319,661
Other long exposures 580,245 72.4 452,982
Total long exposures before long futures and hedges 1,125,530 140.5 772,643
Add: long future contracts
Hang Seng China Enterprises Index 24,049 3.0 429
Total long futures contracts 24,049 3.0 429
Less: hedging exposures
MSCI Emerging Markets Index (future contract) (145,390) (18.2) (6,414)
Total hedging exposures (145,390) (18.2) (6,414)
Total long exposures after the netting of hedges 1,004,189 125.3 766,658
Short exposures
Short CFDs 203,570 25.4 (5,776)
Short futures 9,605 1.2 (377)
Short options 2,810 0.4 (173)
Total short exposures 215,985 27.0 (6,326)
Gross Asset Exposure2 1,220,174 152.3
Portfolio Fair Value3 760,332
Net current assets (excluding derivative assets 40,568
andliabilities)
Total Shareholders’ Funds/Net Assets 800,900
1
Asset Exposure (as defined in the Glossary of Terms in the Half Year Report for the six months ended
2
Gross Asset Exposure comprises market exposure to investments of
3
Portfolio Fair Value comprises investments of
Interim Management Report
Principal and Emerging Risks and Uncertainties, Risk Management
In accordance with the AIC Code, the Board has in place a robust process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. The Board, with the assistance of the
The Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal and emerging risks and uncertainties and to ensure that the Board can continue to meet its Corporate Governance obligations.
Key emerging issues that the Board has identified include; rising geopolitical tensions, including contagion of the
The Board seeks to ensure high standards of business conduct are adhered to by all of the Company’s service providers and that agreed service levels are met. The Board is responsible for promoting the long-term success of the Company for the benefit of all stakeholders and in particular its shareholders. Although the majority of the day-to-day activities of the Company are delegated to the Manager, the Investment Manager, and other third-party service providers, the responsibilities of the Board are set out in the schedule of matters reserved for the Board and the relevant terms of reference of its committees, all of which are reviewed regularly by the Board.
Transactions with the Alternative Investment Fund Manager and Related Parties
Going Concern
In accordance with provision 35 of the 2019 AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the “Going Concern” basis. The Company is an investment fund with the objective of achieving long-term capital growth by investing in emerging markets. The Board considers long-term to be at least five years, and accordingly, the Directors believe that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.
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 and its expenditure and cash flow projections. In preparing the Financial Statements, the Directors have measured the impacts of the war in
The Board has also assessed the ongoing risks posed on the Company by continued evolving variants of COVID such as liquidity risks to markets, risks associated with the maintenance of the current dividend policy and business continuity risks for the Company’s key service providers. The Board continues to review emerging risks that could have a potential impact on the operational capability of the Investment Manager and the Company’s other key service providers. During the year under review, the Board received updates from Fidelity and other key service providers confirming that they continued to service the Company in line with service level agreements and have suitable arrangements in place to ensure that they can continue to provide their services to the Company during the ongoing pandemic.
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 Year Report.
Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.
Responsibility Statement
In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, the Directors confirm that to the best of their knowledge:
-- the condensed set of financial statements contained within the Half Year
Report has been prepared in accordance with IAS 34 ‘Interim Financial
Reporting’ and gives a true and fair view of the assets, liabilities,
financial position and return of the Company;
-- the Half Year Report includes a fair review of the development and
performance of the Company and important events that have occurred
during the first six months of the financial year and their impact on
the condensed financial statements;
-- the Half Year Report includes a description of the principal risk and
uncertainties for the remaining six months of the financial year; and
-- the Half Year Report includes a fair review of the information
concerning related party transactions.
The Half Year Report has not been audited or reviewed by the Company’s Independent Auditor.
For and on behalf of the Board
Chairman
Statement of Comprehensive Income
for the six months ended 31
Six months ended Year ended 30 June 2023 Six months ended 31
31December 2023 December 2022
audited
unaudited unaudited
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Revenue
Investment 4 9,449 – 9,449 22,272 – 22,272 8,476 – 8,476
income
Derivative 4 7,656 – 7,656 17,709 – 17,709 7,653 – 7,653
income
Other income 4 596 – 596 620 – 620 344 – 344
Total Income 17,701 – 17,701 40,601 – 40,601 16,473 – 16,473
Net gains/
(losses) on
financial
assets at – 39,483 39,483 – 36,553 36,553 – (2,843) (2,843)
fair value
through
profit or
loss1
Net losses on
derivative – (15,667) (15,667) – (37,809) (37,809) – (34,477) (34,477)
instruments
Net foreign
exchange – (522) (522) – (933) (933) – (686) (686)
losses
Total income
and gains/ 17,701 23,294 40,995 40,601 (2,189) 38,412 16,473 (38,006) (21,533)
(losses)
Expenses
Management 5 (469) (1,875) (2,344) (923) (3,690) (4,613) (452) (1,810) (2,262)
fees
Other (860) – (860) (1,619) – (1,619) (910) – (910)
expenses1
Profit/(loss)
before 16,372 21,419 37,791 38,059 (5,879) 32,180 15,111 (39,816) (24,705)
finance costs
andtaxation
Finance costs 6 (10,201) – (10,201) (15,653) – (15,653) (6,443) – (6,443)
Profit/(loss)
before 6,171 21,419 27,590 22,406 (5,879) 16,527 8,668 (39,816) (31,148)
taxation
Taxation (1,022) (270) (1,292) (2,622) 644 (1,978) (724) (797) (1,521)
Profit/(loss)
after
taxation for
the period
attributable 5,149 21,149 26,298 19,784 (5,235) 14,549 7,944 (40,613) (32,669)
to
Participating
Preference
Shares
Earnings/
(loss) per
Participating 7 $0.06 $0.23 $0.29 $0.22 ($0.06 ) $0.16 $0.09 ($0.45 ) ($0.36 )
Preference
Share (basic
and diluted)
1
Transaction costs directly associated with purchases and sales of non-derivative securities changed presentation in the annual financial statements for the year ended 30
The total column of this statement represents the Company’s Statement of Other Comprehensive Income prepared in accordance with IFRS. The supplementary information on the allocation between the revenue account and the capital reserve is presented under guidance published by the AIC.
All the profit/(loss) and total comprehensive income is attributable to the equity shareholders of the Company. There are no minority interests.
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 31
Share
Capital Revenue Total
premium
Note reserve reserve equity
account
$’000 $’000 $’000
$’000
Six months ended 31December 2023
(unaudited)
Total equity at 30June 2023 6,291 735,860 54,583 796,734
Profit after taxation for the period – 21,149 5,149 26,298
Repurchase of Participating 9 – (4,827) – (4,827)
Preference Shares
Dividend paid to shareholders 8 – – (17,305) (17,305)
Total equity at 31December 2023 6,291 752,182 42,427 800,900
Year ended 30June 2023
(audited)
Total equity at 30June 2022 6,291 741,095 49,375 796,761
(Loss)/profit after taxation for the – (5,235) 19,784 14,549
year
Dividend paid to shareholders 8 – – (14,576) (14,576)
Total equity at 30June 2023 6,291 735,860 54,583 796,734
Six months ended 31December 2022
(unaudited)
Total equity at 30June 2022 6,291 741,095 49,375 796,761
(Loss)/profit after taxation for the – (40,613) 7,944 (32,669)
period
Dividend paid to shareholders 8 – – (14,576) (14,576)
Total equity at 31December 2022 6,291 700,482 42,743 749,516
Statement of Financial Position
as at 31
31December 30 June 31 December
2023 2023 2022
Note
unaudited audited unaudited
$’000 $’000 $’000
Non-current assets
Financial assets at fair value through 10 768,579 778,608 720,229
profit and loss
Current assets
Derivative assets 10 12,766 9,468 10,736
Amounts held at futures clearing houses and 28,400 18,210 23,308
brokers
Other receivables 1,989 6,480 2,697
Cash at bank 16,435 18,057 14,277
59,590 52,215 51,018
Current liabilities
Derivative liabilities 10 21,013 12,847 13,709
Other payables 6,256 21,242 8,022
27,269 34,089 21,731
Net current assets 32,321 18,126 29,287
Net assets 800,900 796,734 749,516
Equity
Share premium account 6,291 6,291 6,291
Capital reserve 752,182 735,860 700,482
Revenue reserve 42,427 54,583 42,743
Total Equity Shareholders’ Funds 800,900 796,734 749,516
Net asset value per Particpating Preference 11 $8.85 $8.75 $8.23
Share
Statement of Cash Flows
for the six months ended 31
Six months Year Six months
ended ended ended
31December 30 June 31 December
2023 2023 2022
unaudited audited unaudited
$’000 $’000 $’000
Operating activities
Cash inflow from investment income 13,179 24,214 12,298
Cash inflow from derivative income 3,890 6,184 2,560
Cash inflow from other income 20 33 –
Cash outflow from taxation paid (1,022) (1,063) (724)
Cash outflow from the purchase of investments1 (242,310) (928,894) (570,158)
Cash inflow from the sale of investments1 276,557 930,627 576,904
Cash outflow from net proceeds from settlement (5,742) (4,819) (5,401)
of derivatives
Cash outflow from amounts held at futures (10,190) (6,309) (11,407)
clearing houses and brokers
Cash outflow from bank charges – – (80)
Cash outflow from operating expenses1 (3,231) (5,150) (2,641)
Net cash inflow from operating activities 31,151 14,823 1,351
Financing activities
Cash outflow from CFD interest paid (8,599) (10,111) (3,061)
Cash outflow from short CFD dividends paid (1,539) (5,564) (3,169)
Cash outflow from dividends paid to (17,305) (14,576) (14,576)
shareholders
Cash outflow from repurchase of Participating (4,808) – –
Preference Shares
Net cash outflow from financing activities (32,251) (30,251) (20,806)
Net decrease in cash at bank (1,100) (15,428) (19,455)
Cash at bank at the start of the period 18,057 34,418 34,418
Effect of foreign exchange movements (522) (933) (686)
Cash at bank at the end of the period 16,435 18,057 14,277
1
Transaction costs directly associated with purchases and sales of non-derivative securities changed presentation in the annual financial statements for the year ended 30
Notes to the Financial Statements
for the six months ended 31
1. Principal Activity
The Company’s registered office is at Level 3, Mill Court La Charroterie,
The Company’s investment objective is to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging market companies, both listed and unlisted.
2. Publication of Non-statutory Accounts
The financial statements in this half year report have not been audited by the Company’s Independent Auditor. The financial information for the year ended 30
3. Accounting Policies
(i) Basis of Preparation
The interim financial statements for the six months period ended 31
The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of these financial statements. In making their assessment the Directors have reviewed the income and expense projections, the liquidity of the investment portfolio, stress testing performed and considered the Company’s ability to meet liabilities as they fall due. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these financial statements.
4. Income
Six months Six months
Year ended
ended ended
30 June
31December 31 December
2023
2023 2022
audited
unaudited unaudited
$’000
$’000 $’000
Investment income
UK dividends 325 798 542
Overseas dividends 9,109 21,474 7,934
UK and overseas scrip dividends 15 – –
9,449 22,272 8,476
Derivative income
Dividends received on long CFDs 2,325 5,220 1,774
Interest received on CFDs 1,014 1,414 519
Option income 4,317 11,075 5,360
7,656 17,709 7,653
Other income
Interest income from cash and cash equivalents 576 587 344
and collateral
Fee rebate 20 33 –
596 620 344
Total income 17,701 40,601 16,473
5. Management Fees
Revenue Capital Total
$’000 $’000 $’000
Six months ended 31December 2023 (unaudited)
Management fees 469 1,875 2,344
Year ended 30June 2023 (audited)
Management fees 923 3,690 4,613
Six months ended 31December 2022 (unaudited)
Management fees 452 1,810 2,262
Under the Investment Management Agreement (‘the IMA’),
Management fees incurred by collective investment schemes or investment companies managed or advised by the Investment Manager are reimbursed.
6. Finance Costs
Revenue Capital Total
$’000 $’000 $’000
Six months ended 31December 2023 (unaudited)
Dividends paid on short CFDs 1,517 – 1,517
Interest paid on CFDs 8,684 – 8,684
10,201 – 10,201
Year ended 30June 2023 (audited)
Dividends paid on short CFDs 5,270 – 5,270
Interest paid on CFDs 10,383 – 10,383
15,653 – 15,653
Six months ended 31December 2022 (unaudited)
Bank charges 80 – 80
Dividends paid on short CFDs 2,979 – 2,979
Interest paid on CFDs 3,384 – 3,384
6,443 – 6,443
7. Earnings/(Loss) per Participating Preference Share
Six months Six months
Year ended
ended ended
30 June
31December 31 December
2023
2023 2022
audited
unaudited unaudited
$’000
$’000 $’000
Revenue earnings per Participating Preference $0.06 $0.22 $0.09
Share
Capital earnings/(loss) per Participating $0.23 $(0.06) $(0.45)
Preference Share
Total earnings/(loss) per Participating $0.29 $0.16 $(0.36)
Preference Share – basic and diluted
The earnings/(loss) per Participating Preference Share is based on the profit/(loss) after taxation for the period divided by the weighted average number of Participating Preference Shares in issue during the period, as shown below:
Six months Six months
Year ended
ended ended
30 June
31December 31 December
2023
2023 2022
audited
unaudited unaudited
$’000
$’000 $’000
Revenue profit after taxation for the period 5,149 19,784 7,944
Capital profit/(loss) after taxation for the 21,149 (5,235) (40,613)
period
Total profit/(loss) after taxation for the
period attributable to Participating 26,298 14,549 (32,669)
PreferenceShares
Number Number Number
Weighted average number of Participating 90,985,735 91,100,066 91,100,066
Preference Shares in issue
8. Dividend Paid to Shareholders
Six months Six months
Year ended
ended ended
30 June
31December 31 December
2023
2023 2022
audited
Unaudited unaudited
$’000
$’000 $’000
Dividend Paid
Dividend of 19.00 cents pence per ordinary 17,305 – –
share paid for the year ended 30 June 2023
Dividend of 16.00 cents pence per ordinary – 14,576 14,576
share paid for the year ended 30 June 2022
No dividend has been declared in respect of the six months ended 31
9. Share Capital
31December 30 June 31 December
2023 2023 2022
Number of Number of Number of
shares shares shares
Authorised
Founder shares of no par value 1,000 1,000 1,000
Issued
Participating Preference Shares held
outsideTreasury
Beginning of the period 91,100,066 91,100,066 91,100,066
Participating Preference Shares repurchased (637,175) – –
into Treasury
End of the period 90,462,891 91,100,066 91,100,066
Participating Preference Shares held
inTreasury*
Beginning of the period – – –
Participating Preference Shares repurchased 637,175 – –
into Treasury
End of the year period 637,175 – –
Total Participating Preference Shares 91,100,066 91,100,066 91,100,066
including held inTreasury
*
The ordinary shares held in
The Board of Directors is mindful that the Company’s shares have traded at a discount to NAV for some time, and frequently deliberates appropriate discount control mechanisms to address the imbalance between the demand and supply of the Company’s shares. In recognition of this, on 13
The costs associated with the repurchase of the shares of
The Company may issue an unlimited number of Shares of no par value.
Founder Shares
All of the Founder Shares were issued on 6
The Founder Shares are not redeemable. At the Extraordinary General Meeting of the Company on 30
The Founder Shares confer no rights upon holders other than at general meetings, on a poll, every holder is entitled to one vote in respect of each Founder Share held.
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 | |______________|_______________________________________________________________| | |Valued by reference to inputs other than quoted prices included| |Level 2 |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 table below sets out the Company’s fair value hierarchy:
Level 1 Level 2 Level 3 Total
31December 2023 (unaudited)
$’000 $’000 $’000 $’000
Financial assets at fair value throughprofit or
loss
Investments in equity securities 760,349 – 810 761,159
Equity linked notes – 2,334 – 2,334
Investee funds – – 5,086 5,086
Derivative instrument assets – Futures contracts 429 – – 429
Derivative instrument assets – CFDs – 12,337 – 12,337
760,778 14,671 5,896 781,345
Financial liabilities at fair value through
profit or loss
Derivative instrument liabilities – Futures 6,791 – – 6,791
contracts
Derivative instrument liabilities – Options 200 42 – 242
Derivative instrument liabilities – CFDs – 13,980 – 13,980
6,991 14,022 – 21,013
Level 1 Level 2 Level 3 Total
30June 2023 (audited)
$’000 $’000 $’000 $’000
Financial assets at fair value throughprofit or
loss
Investments in equity securities 751,117 – 1,009 752,126
Equity linked notes – 17,433 – 17,433
Investee funds – 3,943 5,106 9,049
Derivative instrument assets – Futures contracts 849 – – 849
Derivative instrument assets – Options 13 241 – 254
Derivative instrument assets – CFDs – 8,365 – 8,365
751,979 29,982 6,115 788,076
Financial liabilities at fair value through
profit or loss
Derivative instrument liabilities – Options 1,516 425 – 1,941
Derivative instrument liabilities – CFDs – 10,906 – 10,906
1,516 11,331 – 12,847
Level 1 Level 2 Level 3 Total
31December 2022 (unaudited)
$’000 $’000 $’000 $’000
Financial assets at fair value throughprofit or
loss
Investments in equity securities 697,189 – – 697,189
Equity linked notes – 13,603 – 13,603
Investee funds – 3,641 5,796 9,437
Derivative instrument assets – Futures contracts 982 – – 982
Derivative instrument assets – Options 14 – – 14
Derivative instrument assets – CFDs – 9,740 – 9,740
698,185 26,984 5,796 730,965
Financial liabilities at fair value through
profit or loss
Derivative instrument liabilities – Options 599 90 – 689
Derivative instrument liabilities – CFDs – 13,020 – 13,020
599 13,110 – 13,709
Two
holdings in Investee Funds were valued using the most recently available valuation statements as received from the respective general partner/manager/administrator, updated to include subsequent cash flows (year ended 30
As the key input into the valuation of Level 3 investments is official valuation statements from the Investee Funds, we do not consider it appropriate to put forward a sensitivity analysis on the basis that insufficient value is likely to be derived by the end users of this report.
The following table summarises the change in value associated with Level 3 financial instruments carried at fair value for the six months ended 31
31December 30 June 31 December
Movements in level 3 investments during the 2023 2023 2022
period/year
unaudited audited unaudited
$’000 $’000 $’000
Opening balance 6,115 5,809 5,809
Sales (4,178) (4,045) (415)
Transfers into level 3 – 1,009 –
Realised (losses)/gains (8,900) 3,112 302
Net change in unrealised gains 12,859 230 100
Closing balance 5,896 6,115 5,796
During the period the Company participated in a tender offer which was being undertaken in Detsky Mir’s restructuring from being a public listed company to a private company. The Company’s application was successful and it received proceeds of
The Company’s retained holdings in Russian entities have been written down to $Nil.
11. Net Asset Value per Participating Preference Share
31December 30 June 31 December
2023 2023 2022
unaudited audited unaudited
Net assets $800,900,000 $796,734,000 $749,516,000
Participating Preference Shares in issue 90,462,891 91,100,066 91,100,066
Net Asset Value per Participating $8.85 $8.75 $8.23
Preference Share
12. Transactions with the Manager and Related Parties
Details of the current fee arrangements are given in Note 5 above. During the period, management fees of
At the date of this report, the Board consisted of five non-executive Directors (as shown in the Half Year Report for the six months ended
The Chairman receives an annual fee of £50,000, the Chairman of the Audit Committee and Senior Independent Director receives an annual fee of £38,000 and a Director receives an annual fee of £36,000.
The following members of the Board hold Participating Preference Shares in the Company at the date of this report:
* Appointed 17
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
The information for the year ended
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/emergingmarkets where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.
