Fidelity Asian Values Regulatory News (FAS)

FIDELITY ASIAN VALUES PLC

Final Results for the year ended 31 July 2023

Financial Highlights:

Contacts

For further information, please contact:

Nira Mistry

Company Secretary

FIL Investments International

07778 354517

Chairman’s Statement

This is my last Annual Report for the Company, having served as your Chairman for nine years this December. During that time, your Company has gone through significant changes. Having begun as a large-cap Asia fund, it now operates in a very different area, primarily investing in smaller companies with a focus on value stocks. As I prepare to retire from the Board, I have taken the opportunity to look back at the impact of these changes, beginning with the selection of Nitin Bajaj as your Portfolio Manager in April 2015. From Nitin’s appointment until 31 July 2023, your Company has produced a Net Asset Value (“NAV”) total return of 112.6% and a share price total return of 129.0%, outperforming the Comparative Index (MSCI All Countries Asia ex Japan Small Cap Index (net) total return (in sterling terms)) of 72.9% and also the peer group average total returns of 87.5% (NAV) and 117.1% (share price). During this time, the discount to NAV has narrowed from the mid-teens to low single digits (occasionally trading at a premium, which is testament to a very clear and well-supported investment proposition), and we have also been able to deliver a significant increase in the dividend, both of which have been to the long-term benefit of shareholders.

Coming back to the year just ended, it is pleasing to report a year of strong performance, in which your Portfolio Manager’s strong stock selection has been complemented by a market environment that has favoured the Company’s quality and value-focused investment approach. In the year to 31 July 2023, the NAV total return was 11.4%, while the Comparative Index total return was 7.5% over the same period. After experiencing negative performance in the last financial year, the share price has rebounded strongly, producing a total return of 17.3% as the discount to NAV has narrowed from 9.8% at the start of the year to 5.3% at the end. This is particularly notable given the general widening in investment trust discounts during the year. Nitin talks more on the drivers for the positive performance in his Portfolio Manager’s Review below.

Due Diligence 2023In March 2023, your Board took an in-person due diligence trip to Asia for the first time since 2018. We travelled first to Singapore, where the portfolio management team is based, and spent time with Nitin, Ajinkya Dhavale, who has now been the Assistant Portfolio Manager of the Company for three years, and colleagues, including Fidelity’s Head of Equities for the Asia Pacific region. We also met with some locally based companies to see how Fidelity’s meetings with them are run and how they form part of the stock picking process. We then went to South Korea for three days of company visits. What stood out to us as a Board was the quality of the management teams we met in Korea and the depth and calibre of the businesses; although these companies are not the largest, their global presence was really startling. One example was Hankook Tire, a provider of e-vehicle tyres and a growing contributor to profits. It has recently taken over from Michelin as the official supplier for the Formula E motor racing competition. It was most interesting to observe Nitin and Ajinkya as they interviewed companies, and to see during a process of incisive questioning, the very obvious mutual respect in which they hold both management and each other. This really underpins our continued confidence in the team that manages your – and our – investment in the Company.

Discount management and share repurchasesAfter the spike in market volatility seen in the first half of 2022 when Russia invaded Ukraine, conditions continued to be unsettled into the first half of the Company’s financial year ended 31 July 2023. Between August and November 2022, the Board approved the repurchase of 569,000 ordinary shares (0.8% of the issued share capital) for holding in Treasury, at a cost of £2,618,000. Since then and up to the date of this report, no shares have been repurchased, given an encouraging narrowing of the Company’s discount even as peers’ and broader investment trust average discounts have widened.

Your Board closely monitors the Company’s share price discount to NAV and will undertake active discount management where necessary, the primary purpose of which is to limit discount volatility. Repurchases of ordinary shares are made at the discretion of the Board, within guidelines set by it and considering prevailing market conditions. Shares will only be repurchased in the market at prices below the prevailing NAV per ordinary share, thereby resulting in an enhancement to the NAV per ordinary share. In order to assist in managing the discount, the Board has shareholder approval to hold in Treasury any ordinary shares repurchased by the Company, rather than cancelling them. Any shares held in Treasury would only be reissued at NAV per ordinary share or at a premium to NAV per ordinary share.

DividendYour Portfolio Manager invests principally for capital growth, but his value-oriented investment style tends to lead him towards unleveraged, cash-generative businesses that may themselves be able to pay rising dividends. As such, the Company’s revenue return was 15.17 pence per ordinary share (an increase of 6.8% from the prior year revenue return of 14.21 pence per ordinary share). Last year your Board declared a substantially increased dividend of 14.00 pence per share (2021: 8.80 pence). While we noted at the time that shareholders should not assume that such dividends would continue in the future, we are very pleased to be able to recommend another increase in the dividend for 2023, to 14.50 pence per share which will be paid to shareholders on 6 December 2023. The Board is again recommending that almost all of the income earned be paid out as a dividend. We would reiterate, however, that income is an output rather than an aim of the investment process, and that no guarantees can be offered as to the level of any future dividends.

GearingAs I noted in last year’s Annual Report, the Company’s level of gross gearing is directly proportional to the investment opportunities that your Portfolio Manager sees. When Nitin is optimistic about opportunities and he and his team generate ideas in response to market conditions, then the Company will be more geared. As such, it is notable that gearing during the year reached the highest level we have seen during Nitin’s tenure, ending the year with gross gearing at 11.7%, up from 4.4% as at 31 July 2022; net gearing was 4.9% (2022: nil). As Nitin notes in his review below, gearing has been increased largely in response to a number of particularly interesting investment opportunities in China, which have been out of favour with investors. The Company’s gearing is achieved using contracts for difference (“CFDs”); we have no bank borrowings or structural long-term debt. We regularly review the use of CFDs and have again concluded that they remain a more efficient and flexible form of financing than either secured or unsecured debt, as well as enabling your Portfolio Manager to be fleet of foot in the deployment of gearing. We are fortunate that Fidelity has the infrastructure and capability to allow the use of CFDs in the portfolio; few other management groups can offer this.

Use of Short positionsA few years ago, the Board approved giving your Portfolio Manager the ability to ‘short’ stocks, and we are pleased to report that this approach is adding value and has been a positive contributor during the year. A short position is taken on the view that the price of a stock or the value of an index will go down rather than up. Ajinkya has extensive experience in shorting, and Nitin is encouraged by the availability of such opportunities in the market today, given a real disparity between the prospects of the smaller value stocks that he favours and some of the large and mega-cap stocks in Asia that he thinks are vulnerable. Short positions are limited to a maximum of 10% of the portfolio and do not usually exceed ten stocks. While there is no intention to increase the limit, the combination of Ajinkya’s (and Fidelity’s) competence and the current market environment means that Nitin may maintain and even opportunistically increase the short exposure, within the investment limits. Total short exposure as at 31 July 2023 was 3.4% (2022: 2.2%).

Environmental, Social & Governance (ESG)There has been something of an ESG backlash in recent times. Your Company is not an ‘ESG fund’, but good governance and social behaviour and a strong regard for the environment have always been fundamental to the way Nitin invests. Assessing ESG in Asia can be quite different from that in developed economies. Smaller Asian companies may not have the resources to report on ESG as companies do in the West, so the strength and depth of Fidelity’s large analyst team in the region is invaluable in making properly thought-through assessments in the process, both on a fundamental and an ESG basis.

In the Portfolio Manager’s Review, Nitin shares the example of Shriram Finance as a position that has not only added value to the portfolio, but is also a well-governed company doing social good as well as mitigating environmental impact. Shriram Finance was formed from the merger of two companies offering affordable finance on used commercial vehicles and two-wheelers. It serves communities and micro, small and medium enterprises that would otherwise face high interest costs from unregulated lending, enabling them to grow their businesses without the unaffordable expense or the environmental impact of scrapping old vehicles and building new ones.

Board of Directors and Board SuccessionGrahame Stott, having served nine years on the Board, retired as a non-executive Director and Chairman of the Audit Committee at the Company’s AGM in November 2022. At the same time, we welcomed Hussein Barma as a new non-executive Director and Chairman of the Audit Committee. Hussein is both a qualified lawyer and a chartered accountant and has considerable experience in the listed company sector in the UK and long familiarity with Asia, as well as a good eye for detail. Clare Brady will be stepping up as Chairman as I step down and will continue to bring her invaluable experience and skills to the Board. She will be replaced as Senior Independent Director by Matthew Sutherland.

As noted in last year’s Annual Report, Michael Warren will shortly have served nine years on the Board, but as part of the Board’s succession plan, he has agreed to stay on until the 2024 AGM in order to ensure a good handover of the institutional and historical knowledge of the Company. We have already begun the process of selecting his replacement and will make a further announcement in due course. We will continue to maintain a Board with a diversity of backgrounds and an appropriate mix of skills to ensure the Company’s continued good governance.

Market outlookThe outlook for financial markets globally remains uncertain in light of the ongoing war in Ukraine and US/China tensions. However, while the Western world continues to struggle with the highest levels of inflation and interest rates in nearly a generation, in many Asian markets, the economic environment is very different, and on a relative basis there are particularly good opportunities compared to the West. The structural case for investing in developing economies remains extremely strong: attractive demographics, a burgeoning middle class providing new markets for goods and services, and economies that can grow more rapidly. This is the backdrop against which your Portfolio Manager looks to buy companies, but it is not what drives the investment process, which is fundamentally to buy good companies, run by good people and at attractive valuations. As we enter our new financial year, Nitin continues to find good companies he wants to buy and I am therefore optimistic that this, combined with a positive market backdrop in Asia will continue to provide opportunities for investors in the coming year.

I wish him, the team and the Board every success for the future and would also like to thank all our shareholders for their continued support.

Annual General MeetingThe AGM of the Company will be held at 11.00 am on Wednesday, 29 November 2023 at 4 Cannon Street, London EC4M 5AB (nearest tube stations are St Paul’s or Mansion House) and virtually via the online Lumi AGM meeting platform. Full details of the meeting are given in the Notice of Meeting in the Annual Report.

For those shareholders who are unable to attend in person, we will live-stream the formal business and presentations of the meeting online.

Nitin Bajaj, the Portfolio Manager, will be making a presentation to shareholders highlighting the achievements and challenges of the year past and the prospects for the year to come. He and the Board will be very happy to answer any questions that shareholders may have. Copies of his presentation can be requested by email at investmenttrusts@fil.com or in writing to the Secretary at FIL Investments International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP.

Properly registered shareholders joining the AGM virtually, will be able to vote on the proposed resolutions. Please see Note 9 to the Notes to the Notice of Meeting in the Annual Report for details on how to vote virtually. Investors viewing the AGM online will be able to submit live written questions to the Board and the Portfolio Manager and we will answer as many of these as possible at an appropriate juncture during the meeting.

Further information and links to the Lumi platform may be found on the Company’s website at www.fidelity.co.uk/asianvalues. On the day of the AGM, in order to join electronically and ask questions via the Lumi platform, shareholders will need to connect to the website https://web.lumiagm.com.

Please note that investors on platforms, such as Fidelity Personal Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest, will need to request attendance at the AGM in accordance with the policies of your chosen platform. They may request that you submit electronic votes in advance of the meeting. If you are unable to obtain a unique IVC and PIN from your nominee or platform, we would welcome your online participation as a guest. Once you have accessed https://web. lumiagm.com from your web browser on a tablet or computer, you will need to enter the Lumi Meeting ID which is 109-975-634. You should then select the ‘Guest Access’ option before entering your name and who you are representing, if applicable. This will allow you to view the meeting and ask questions, but you will not be able to vote.

Kate BolsoverChairman11 October 2023

 Portfolio Manager’s Review

QuestionHow has the investment Company performed in the year to 31 July 2023?

AnswerOver the year ended 31 July 2023, the Company’s net asset value (“NAV”) total return was +11.4%, outperforming the Comparative Index, the MSCI All Countries Asia ex Japan Small Cap Index (net) total return (in sterling terms) which rose by +7.5%. The share price total return for the year was +17.3% due to a narrowing of the Company’s discount.

Performance for the reporting year can be attributed primarily to stock picking, with our country allocation being a headwind to performance.

Our investment process is driven by owning good businesses which are run by management teams whom we trust and investing in them only when we have ample margin of safety. This often leads us to take contrarian positions as it is easier to find undervalued businesses in countries which are out of favour with investors. Following this philosophy, we have a significant percentage of the Company’s portfolio in China and are underweight in Taiwan and India compared to the Index. Accordingly, while country selection would be a headwind to performance, this was more than offset by good stock selection in line with our investment philosophy, especially in our three key markets of China, India and Indonesia.

Over the longer-term (since 2015 when the Board changed the strategy of the Company to invest more in smaller companies), the NAV (post fees) has risen by +112.6% versus the MSCI All Countries Asia ex Japan Small Cap Index’s (net) total return of +72.9% and the MSCI Asia ex Japan Large Cap Index’s total return of +62.2%, both in sterling terms.

QuestionChina’s reopening from COVID lockdowns has had a significant impact on the performance of global markets this year. How do you feel about China and the economic recovery?

AnswerWhen China reopened, there was a lot of optimism in the market, but it turned out that the recovery has been uneven and softer than expected in many areas. The property downcycle, geopolitics, the reining in of local government spending and increasing centralisation of political power has resulted in China being one of the few markets where profitability has not recovered post COVID. Consequently, there is a heightened perception of risks around Chinese companies, leading to a decline in stock prices. We agree with some of the reasons for negative sentiment around China and understand that it is difficult to predict when the economy will turn around.

However, we should also be cognisant of the strengths of the country’s economy, its people and its businesses. It is the second largest economy in the world and consumption is expanding as a share of its GDP. It houses a significant part of the global supply chains of most products we use in our daily lives. Hence, we feel that these negative macro factors are transitory (as they were in the US post the housing crises of 2007-10 or in India post the policy paralysis of 2012-13). Good businesses will not only survive but are likely to be in a stronger competitive position post this downturn and by taking market share from their weaker peers. This is probably the best time to be investing in China as we are able to buy good businesses when both expectations and valuations are low.

Thus, there are good opportunities in China at the moment, which in turn has seen our combined exposure to China and Hong Kong increase to about 38%.

QuestionLooking beyond China, where do you see value in stocks in the Asian region and how are you reflecting this in the Company’s portfolio?

AnswerOur investments are based on our bottom-up fundamental analysis of companies and their businesses and our exposure to countries is primarily a result of our stock selection.

Looking at the portfolio beyond China, we are excited about the opportunities we see in Indonesia (around 14% exposure). Our holdings there are a mix of banks and consumer-facing companies which are best-in-class operators with high Returns on Equity (“ROEs”) and reasonable valuations. For example, we own shares in two banks - Bank Mandiri (Persero) and Bank Negara Indonesia (Persero). The former has seen a sustained improvement in asset quality through better underwriting and risk management since 2016 under a new management, while the latter is going through restructuring with the same team of people who turned around Bank Mandiri (Persero). The portfolio is invested in the country’s leading ceramic tiles manufacturer Arwana Citramulia, a business with long-term growth potential and a strong management team. Among a few other positions, we also have exposure to the country’s KFC master franchisee, Fastfood Indonesia, which again has structural growth opportunity to expand as well as enhance operational efficiencies.

In India, while it has not been easy to find businesses with a suitable margin of safety, we are still able to identify specific stocks that fit our criteria. Our positions in India centre around financial sector companies as they are growing more quickly, have strong balance sheets and are available at prices which offer a good margin of safety.  We have studied these businesses for over 15 years and trust the management teams who have delivered substantial shareholder value over time. 

QuestionYour mandate is to look for smaller companies to invest in. Can you give some examples of how smaller companies outperform?

AnswerWe invest in a subset of these smaller companies – in what are popularly called ‘value’ stocks. Value stocks are classified as companies that are currently trading below what they are worth and are thus expected to provide superior returns. Almost 80% of the portfolio is invested in companies which fit this description.

As shown in the charts in the Annual Report, over the long-term, this has been an attractive place to invest as small value stocks have grown earnings faster than the market and hence have delivered superior returns.

Despite this performance, the cohort of small value companies continues to trade at a significant discount to the rest of the market and looks very attractive today.

QuestionHow has the Company’s portfolio’s exposure to unlisted companies changed during the year under review?

AnswerWe have not added or sold any unlisted securities in the past year. It continues to be a small part of the portfolio at less than 0.5% of the Company’s invested assets. We believe that there are sufficient opportunities in the listed space in Asia and, therefore, would only want to invest in an unlisted company in exceptional circumstances.

QuestionYou have increased gearing within the Company’s portfolio in the reporting year. What is the reason behind this?

AnswerWe have always maintained that gearing is a function of the number of investment ideas we find. The level of gearing increases when we find more ideas to invest in than we have money and it reduces (or we keep a higher cash balance) when we do not find as many ideas.

Over the past year, gearing has increased as we have found particularly interesting investments in China given the market has fallen out of favour. At the year end, gross gearing was 11.7% (2022: 4.4%) and net gearing was 4.9% (2022: nil). See the charts in the Annual Report on the Company’s gearing history over my tenure.

QuestionThe rising cost of living continues to pressure consumers. How has higher inflation and rising interest rates impacted Asian markets?

AnswerInflation dynamics are different from country to country in Asia. China is now in deflation whilst some of the South East Asian countries have seen a moderate rise in inflation (albeit lower than that observed in Europe or the US). This has led to higher interest rates and weakening consumption as governments have behaved responsibly and not expanded fiscal spending (unlike the US).

We believe, therefore, that while there has been some consumer price inflation in Asia, it is not as big an issue as it is in the West.

QuestionCan you give an example of how your active management has added value to the Company’s portfolio this year?

AnswerAs discussed earlier, our process is focused on finding misunderstood situations where we can own a good business with a margin of safety. Shriram Finance is a good example of this. It has become the largest retail non-banking financial company (NBFC) in India caused by the merger of Shriram Transport Finance Company, the largest financier of used commercial vehicles, and Shriram City Union Finance, the largest financier of two-wheelers and the underserved micro, small, and medium enterprises (MSME).

We have owned Shriram Transport Finance Company since late 2016 when we bought it at an attractive valuation when Indian non-banking financials saw short-term pressures due to tight liquidity. Over several decades, the company created its niche in a segment where banks did not compete due to difficulty in valuing and underwriting loans for second-hand trucks. It owned a quarter of the market share in the segment while the rest of the market was dominated by local money lenders, outside of the banking system, charging very high interest rates. We also owned Shriram City Union Finance for its strong track record in segments that have semi-formal and irregular sources of income and hence were credit starved.

The merger last year has created a lender with a more diversified book while also bringing benefits from synergies between the two businesses. The stock rerated as a result.

QuestionCan you explain to us how you integrate ESG considerations into the Company’s portfolio?

AnswerThe Company’s primary objective for shareholders is to achieve capital growth. In order to achieve the best possible returns, we have always looked to invest in good businesses, managed by efficient management teams and available at reasonable valuations. Good businesses are those that solve a problem for their consumers, and which are managed by efficient teams who are competent and which respect laws, their employees, customers, the environment and shareholders, as well as managing their businesses responsibly. ESG considerations have, therefore, always been at the heart of our investment thinking, and well before it became a buzz word.

Investing in smaller companies in Asia using the strength of Fidelity’s research team has always offered us the opportunity to identify quality companies on fundamentals and ESG considerations ahead of other investors. Regulations are constantly evolving and ESG is no exception to this. We believe this presents us with opportunities. The development of ESG ratings covered by the external rating agencies has not yet evolved to cover many of the smaller companies in which we invest. This provides an exciting opportunity as the ESG credentials of many of the smaller companies are best in class. They are in fact ‘double gems’: companies with good prospects, strong management and well-priced alongside their strong ESG credentials.

Additionally, Fidelity as a firm is committed to principles that are consistent with the stage of economic development of countries. As part of this process, we have regular engagements with companies in the portfolio.

Examples of our ESG case studies are in the Annual Report.

QuestionWhat do you view as the biggest risks and opportunities for the next twelve months?

AnswerWe think macro risks will eventually pass, especially if we own a diversified set of leading businesses and own them at valuations which are below intrinsic value. However, this does not mean that these stocks cannot decline in value – to the contrary, forecasting price movements is impossible. But we believe that the quality of our portfolio gives us holding power to go through head winds as they emerge and come out stronger on the other side.

As can be seen from the chart in the Annual Report, the ROE of our portfolio is at a premium to the market while the Price to Earnings ratio of our holdings is at a significant discount. We own businesses which are of a better quality and at cheaper market valuations. This has been the bedrock of our investment process for over a decade and has served us well.

Our skills lie in business analysis, finding best in class management teams and mispriced stocks. We are known to repeat the phrase below often and it is fair to say that it has become known as something of a mantra for the Company:

Find good businesses run by good management and buy them at prices with a good margin of safety.

We continue to focus on this.

NITIN BAJAJ    AJINKYA DHAVALEPortfolio Manager   Assistant Portfolio Manager

11 October 2023

PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MANAGEMENTAs required by provisions 28 and 29 of the 2018 UK Corporate Governance Code, the Board has a robust ongoing process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency and liquidity. 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 existing and emerging risks and uncertainties that the Company faces. The Audit Committee continues to identify any new emerging risks and take any action necessary to mitigate their potential impact. The risks identified are placed on the Company’s risk matrix and appropriately graded. This process, together with the policies and procedures for the mitigation of existing and emerging risks, is updated and reviewed regularly in the form of comprehensive reports by the Audit Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.

Climate change, which refers to a large scale shift in the planet’s weather patterns and average temperatures, continues to be a key emerging issue as well as a principal risk 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. Further details are in the Annual Report. The Board will continue to monitor how this may impact the Company as a risk to investment valuations and potentially to shareholder returns.

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 UK corporate governance obligations.

The Board considers the risks listed below as the principal risks and uncertainties faced by the Company.

Other risks facing the Company include:

TAX AND REGULATORY RISKSThere is a risk of the Company not complying with tax and regulatory requirements. A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status resulting in the Company being subject to tax on capital gains.

The Board monitors tax and regulatory changes at each Board meeting and through active engagement by the Manager with regulators and trade bodies.

The Company has a full risk register which includes less material risks which the Board reviews at least annually.

GOING CONCERN STATEMENTThe 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. 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 continue in operational existence for the foreseeable future. The Board has, therefore, concluded that the Company has adequate resources to continue to adopt the going concern basis for the period to 31 October 2024 which is at least twelve months from the date of approval of the Financial Statements. This conclusion also takes into account the Board’s assessment of the ongoing risks from the war in Ukraine, China’s tensions with the US and Taiwan and significant market events.

Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.

The prospects of the Company over a period longer than twelve months can be found in the Viability Statement below.

VIABILITY STATEMENTIn accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the “Going Concern” basis above. The Company is an investment trust with the objective of achieving long-term capital growth. 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.

In making an assessment on the viability of the Company, the Board has considered the following:

- The ongoing relevance of the investment objective in prevailing market conditions;

- The Company’s level of gearing;

- The Company’s NAV and share price performance versus its Comparative Index;

- The principal and emerging risks and uncertainties facing the Company and their potential impact as set out above;

- The future demand for the Company’s shares;

- The Company’s share price discount to the NAV;

- The liquidity of the Company’s portfolio;

- The level of income generated by the Company; and

- Future income and expenditure forecasts.

The Company’s performance for the five year reporting period to 31 July 2023 lagged the Comparative Index, with a NAV total return of +45.4%, a share price total return of +41.1% compared to the Comparative Index total return of +50.7%. The Board regularly reviews the investment policy and considers it remains appropriate. The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years based on the following considerations:

- The Investment Manager’s compliance with the Company’s investment objective and policy, its investment strategy and asset allocation;

- The Company’s portfolio mainly comprises readily realisable securities which can be sold to meet funding requirements if necessary;

- The Board’s discount management policy; and

- The ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets.

In preparing the Financial Statements, the Directors have considered the impact of climate change, as detailed above. The Board has also considered the impact of regulatory changes, continuing tensions between the US and China, tensions with Taiwan and the ongoing global implications of the Ukraine and Russia war, and how this may affect the Company.

In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement above.

A continuation vote takes place every five years. There is a risk that shareholders do not vote in favour of the continuation of the Company during periods when performance of the Company’s NAV and share price is poor. The last continuation vote was at the Company’s AGM held on 3 December 2021. The next continuation vote will take place at the AGM in 2026.

PROMOTING THE SUCCESS OF THE COMPANY

Under Section 172(1) of the Companies Act 2006, the Directors of a company must act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the likely consequences of any decision in the long-term; the need to foster relationships with the Company’s suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company.

As an externally managed Investment Trust, the Company has no employees or physical assets, and a number of the Company’s functions are outsourced to third parties. The key outsourced function is the provision of investment management services by the Manager, but other professional service providers support the Company by providing administration, custodial, banking and audit services. The Board considers the Company’s key stakeholders to be the existing and potential shareholders, the external appointed Manager and other third-party professional service providers. The Board considers that the interest of these stakeholders is aligned with the Company’s objective of delivering long-term capital growth to investors, in line with the Company’s stated investment objective and strategy, while providing the highest standards of legal, regulatory and commercial conduct.

The Board, with the Portfolio Manager, sets the overall investment strategy and reviews this at an annual strategy day which is separate from the regular cycle of board meetings. In order to ensure good governance of the Company, the Board has set various limits on the investments in the portfolio, whether in the maximum size of individual holdings, the use of derivatives, the level of gearing and others. These limits and guidelines are regularly monitored and reviewed and are set out in the Annual Report.

The Board places great importance on communication with shareholders. The Annual General Meeting (“AGM”) provides the key forum for the Board and the Portfolio Manager to present to the shareholders on the Company’s performance and future plans and the Board encourages all shareholders to attend either in person or virtually and raise any questions or concerns. The Chairman and other Board members are available to meet shareholders as appropriate. Shareholders may also communicate with Board members at any time by writing to them at the Company’s registered office at FIL Investments International, Beech Gate, Millfield Lane, Tadworth, Surrey KT20 6RP or via the Company Secretary in writing at the same address or by email at investmenttrusts@fil.com. The Portfolio Manager meets with major shareholders, potential investors, stock market analysts, journalists and other commentators during the year. These communication opportunities help inform the Board in considering how best to promote the success of the company over the long-term.

The Board seeks to engage with the Manager and other service providers and advisers in a constructive and collaborative way, promoting a culture of strong governance, while encouraging open and constructive debate, in order to ensure appropriate and regular challenge and evaluation. This aims to enhance service levels and strengthen relationships with service providers, with a view to ensuring shareholders’ interests are best served, by maintaining the highest standards of commercial conduct while keeping cost levels competitive.

Whilst the Company’s direct operations are limited, the Board recognises the importance of considering the impact of the Company’s investment strategy on the wider community and environment. The Board believes that a proper consideration of ESG issues aligns with the investment objective to deliver long-term capital growth, and the Board’s review of the Manager includes an assessment of their ESG approach, which is set out in detail in the Annual Report.

In addition to ensuring that the Company’s investment objective was being pursued, key decisions and actions taken by the Directors during the reporting year, and up to the date of this report, have included:

- As part of the Board’s succession plans:

– The appointment of Hussein Barma to the Board as Chairman of the Audit Committee and non-executive Director with effect from 24 November 2022;

– The decision to appoint Clare Brady as Chairman of the Board when the current Chairman, Kate Bolsover, steps down at the conclusion of the AGM on 29 November 2023; and

– The decision to appoint Matthew Sutherland as Senior Independent Director with effect from 29 November 2023 from the change in Clare Brady’s role from Senior Independent Director to Chairman.

- Authorising the repurchase of 569,000 ordinary shares up to the date of this Annual Report when the Company’s discount widened, in line with the Board’s discount management policy;

- The decision to recommend the payment of a final dividend of 14.50 pence per ordinary share; and

- The decision to once again hold a hybrid AGM in 2023 in order to make it more accessible to those investors who are unable to or prefer not to attend in person.

 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial period. Under that law they have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), including Financial Reporting Standard FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”). Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the reporting period.

In preparing these Financial Statements, the Directors are required to:

- Select suitable accounting policies in accordance with Section 10 of FRS 102 and then apply them consistently;

- Make judgements and accounting estimates that are reasonable and prudent;

- Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

- State whether applicable UK Accounting Standards, including FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

- Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time, the financial position of the Company and to enable them to ensure that the Company and the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Corporate Governance Statement and a Directors’ Remuneration Report that comply with that law and those regulations.

The Directors have delegated to the Manager the responsibility for the maintenance and integrity of the corporate and financial information included on the Company’s pages of the Manager’s website at www.fidelity.co.uk/asianvalues. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Financial Statements may differ from legislation in their own jurisdictions.

The Directors confirm that to the best of their knowledge:

- The Financial Statements, prepared in accordance with UK Generally Accepted Accounting Practice, including FRS 102, give a true and fair view of the assets, liabilities, financial position and profit of the Company;

- The Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces; and

- The Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.

The Statement of Directors’ Responsibilities was approved by the Board on 11 October 2023 and signed on its behalf by:

KATE BOLSOVERChairman

 FINANCIAL STATEMENTS

Income Statement for the year ended 31 July 2023

The Company does not have any other comprehensive income. Accordingly, the net return on ordinary activities after taxation for the year is also the total comprehensive income for the year and no separate Statement of Comprehensive Income has been presented.

The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.

No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.

The Notes below form an integral part of these Financial Statements.

Statement of Changes in Equity for the year ended 31 July 2023

The Notes below form an integral part of these Financial Statements.

 Balance Sheet as at 31 July 2023 Company number 3183919

The Financial Statements above and below were approved by the Board of Directors on 11 October 2023 and were signed on its behalf by:

KATE BOLSOVERChairman

The Notes below form an integral part of these Financial Statements.

 Notes to the Financial Statements

1 Principal ActivityFidelity Asian Values PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 3183919, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.

2 Accounting PoliciesThe Company has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, issued by the Financial Reporting Council (“FRC”). The Financial Statements have also been prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”), in July 2022. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investments are highly liquid and are carried at market value.

a) Basis of accounting – The Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the measurement at fair value of investments and derivative instruments. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence up to 31 October 2024 which is at least twelve months from the date of approval of these Financial Statements. In making their assessment the Directors have reviewed income and expense projections, reviewed the liquidity of the investment portfolio and considered the Company’s ability to meet liabilities as they fall due. This conclusion also takes into account the Director’s assessment of the risks faced by the Company as detailed in the Going Concern Statement above.

In preparing these Financial Statements the Directors have considered the impact of climate change risk as a principal and an emerging risk as set out above, and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with FRS 102 investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the balance sheet date. Investments which are unlisted are priced using market-based valuation approaches. All investments, therefore, reflect the market participants’ view of climate change risk on the investments held by the Company.

The Company’s Going Concern Statement above takes account of all events and conditions up to 31 October 2024 which is at least twelve months from the date of approval of these Financial Statements.

b) Significant accounting estimates and judgements – The preparation of the Financial Statements requires the use of estimates and judgements. These estimates and judgements affect the reported amounts of assets and liabilities at the reporting date. While estimates are based on best judgement using information and financial data available, the actual outcome may differ from these estimates.

The key sources of estimation and uncertainty relate to the fair value of the unlisted investments.

JudgementsThe Directors consider whether each fair value is appropriate following detailed review and challenge of the pricing methodology. The judgement applied in the selection of the methodology used (see Note 2 (k) below) for determining the fair value of each unlisted investment can have a significant impact upon the valuation.

EstimatesThe key estimate in the Financial Statements is the determination of the fair value of the unlisted investments by the Manager’s Fair Value Committee (“FVC”), with support from an external valuer and Fidelity’s unlisted investments specialist, for detailed review and appropriate challenge by the Directors. This estimate is key as it significantly impacts the valuation of the unlisted investments at the Balance Sheet date. When no recent primary or secondary transaction in the company’s shares have taken place, the fair valuation process involves estimation using subjective inputs that are unobservable (for which market data is unavailable). The estimates involved in the valuation process may include the following:

(i) the selection of appropriate comparable companies. Comparable companies are chosen on the basis of their business characteristics and growth patterns;

(ii) the selection of a revenue metric (either historical or forecast);

(iii) the selection of an appropriate illiquidity discount factor to reflect the reduced liquidity of unlisted companies versus their listed peers;

(iv) the estimation of the likelihood of a future exit of the position through an initial public offering (“IPO”) or a company sale;

(v) the selection of an appropriate industry benchmark index to assist with the valuation; and

(vi) the calculation of valuation adjustments derived from milestone analysis and future cash flows (i.e. incorporating operational success against the plans/forecasts of the business into the valuation).

As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in Note 17 below to illustrate the effect on the Financial Statements of an over or under estimation of fair value.

The risk of an over or under estimation of fair value is greater when methodologies are applied using more subjective inputs.

c) Segmental reporting – The Company is engaged in a single segment business and, therefore, no segmental reporting is provided.

d) Presentation of the Income Statement – In order to reflect better the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The net revenue return after taxation for the year is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.

e) Income – Income from equity investments is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. Overseas dividends are accounted for gross of any tax deducted at source. Amounts are credited to the revenue column of the Income Statement. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised in the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital column of the Income Statement. Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case.

Derivative instrument income received from dividends on long contracts for difference (“CFDs”) are accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. The amount net of tax is credited to the revenue column of the Income Statement.

Interest received on CFDs, collateral and bank deposits are accounted for on an accruals basis and credited to the revenue column of the Income Statement. Interest received on CFDs represent the finance costs calculated by reference to the notional value of the CFDs.

f) Investment management fees and other expenses – Investment management fees and other expenses are accounted for on an accruals basis and are charged as follows:

- The base investment management fee is allocated in full to revenue;

- The variable investment management fee, is charged/credited to capital as it is based on the performance of the net asset value per share relative to the Benchmark Index; and

- All other expenses are allocated in full to revenue with the exception of those directly attributable to share issues or other capital events.

g) Functional currency and foreign exchange – The functional and reporting currency of the Company is UK sterling, which is the currency of the primary economic environment in which the Company operates. Transactions denominated in foreign currencies are reported in UK sterling at the rate of exchange ruling at the date of the transaction. Assets and liabilities in foreign currencies are translated in the rates of exchange ruling at the Balance Sheet date. Foreign exchange gains and losses arising on the translation are recognised in the Income Statement as a revenue or a capital item depending on the nature of the underlying item to which they relate.

h) Finance costs – Finance costs comprise interest on bank overdrafts and collateral and finance costs paid on CFDs, which are accounted for on an accruals basis, and dividends paid on short CFDs, which are accounted for on the date on which the obligation to incur the cost is established, normally the ex-dividend date. Finance costs are charged in full to the revenue column of the Income Statement.

i) Taxation – The taxation charge represents the sum of current taxation and deferred taxation.

Current taxation is taxation suffered at source on overseas income less amounts recoverable under taxation treaties. Taxation is charged or credited to the revenue column of the Income Statement, except where it relates to items of a capital nature, in which case it is charged or credited to the capital column of the Income Statement. Where expenses are allocated between revenue and capital any tax relief in respect of the expenses is allocated between revenue and capital returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period. The Company is an approved Investment Trust under Section 1158 of the Corporation Tax Act 2010 and is not liable for UK taxation on capital gains.

Deferred taxation is the taxation expected to be payable or recoverable on timing differences between the treatment of certain items for accounting purposes and their treatment for the purposes of computing taxable profits. Deferred taxation is based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable. Deferred tax assets are only recognised if it is considered more likely than not that there will be sufficient future taxable profits to utilise them.

j) Dividend paid – Dividends payable to equity shareholders are recognised when the Company’s obligation to make payment is established.

k) Investments – The Company’s business is investing in financial instruments with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided on that basis to the Company’s Board of Directors. Investments are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of investments is initially taken to be their cost and is subsequently measured as follows:

- Listed investments are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed; and

- Unlisted investments are not quoted, or are not frequently traded, and are stated at the best estimate of fair value. The Manager’s Fair Value Committee (“FVC”), which is independent of the Portfolio Manager’s team, meets quarterly to determine the fair value of unlisted investments. These are based on the principles outlined in Note 2 (b) above.

The unlisted investments are valued at fair value following a detailed review and appropriate challenge by the Directors of the pricing methodology proposed by the FVC.

The FVC provide a recommendation of fair values to the Directors based on recognised valuation techniques that take account of the cost of the investment, recent arm’s length transactions in the same or similar investments and financial performance of the investment since purchase. Consideration is given to the input received from the Fidelity International analyst that covers the company, the external valuer and Fidelity’s unlisted investments specialist.

In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within gains on investments in the capital column of the Income Statement and has disclosed these costs in Note 10 below.

l) Derivative instruments – When appropriate, permitted transactions in derivative instruments are used. Derivative transactions into which the Company may enter include long and short CFDs, futures, options and forward currency contracts. Derivatives are classified as other financial instruments and are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:

- Long and short CFDs – the difference between the strike price and the value of the underlying shares in the contract;

- Futures – the difference between the contract price and the quoted trade price;

- Forward currency contracts – valued at the appropriate quoted forward foreign exchange rate ruling at the Balance Sheet date; and

- Options – the quoted trade price for the contract.

Where transactions are used to protect or enhance income, if the circumstances support this, the income and expenses derived are included in net income in the revenue column of the Income Statement. Where such transactions are used to protect or enhance capital, if the circumstances support this, the income and expenses derived are included in gains on derivative instruments in the capital column of the Income Statement. Any positions on such transactions open at the year end are reflected on the Balance Sheet at their fair value within current assets or current liabilities.

m) Debtors – Debtors include securities sold for future settlement, amounts receivable on the settlement of derivatives, accrued income, taxation recoverable and other debtors and prepayments incurred in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer) they are classified as current assets. If not, they are presented as non-current assets. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.

n) Amounts held at futures clearing houses and brokers – These are amounts held in segregated accounts as collateral on behalf of brokers and are carried at amortised cost.

o) Other creditors – Other creditors include securities purchased for future settlement, amounts payable on share repurchases, capital gains tax payable, investment management fees, secretarial and administration fees and other creditors and expenses accrued in the ordinary course of business. If payment is due within one year or less (or in the normal operating cycle of the business, if longer) they are classified as current liabilities. If not, they are presented as non-current liabilities. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.

p) Capital reserve – The following are accounted for in the capital reserve:

- Gains and losses on the disposal of investments and derivative instruments;

- Changes in the fair value of investments and derivative instruments held at the year end;

- Foreign exchange gains and losses of a capital nature;

- Variable investment management fees;

- Dividends receivable which are capital in nature;

- Other expenses which are capital in nature; and

- Taxation charged or credited relating to items which are capital in nature.

Technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/17BL, guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, states that changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms at the Balance Sheet date, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as capital reserve in the Statement of Changes in Equity and the Balance Sheet. At the Balance Sheet date, the portfolio of the Company consisted of investments listed on a recognised stock exchange and derivative instruments contracted with counterparties having an adequate credit rating, and the portfolio was considered to be readily convertible to cash, with the exception of the level 3 investments which had unrealised investment holding losses of £899,000 (2022: losses of £188,000). See Note 17 below for further details on the level 3 investments.

3. Income

A special dividend of £420,000 has been recognised in capital during the year (2022: £97,000).

4 INVESTMENT MANAGEMENT FEES

1 For the calculation of the variable management fee, the Company’s NAV return was compared to the Benchmark Index return on a rolling three year basis.

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.

The Company charges base investment management fees to revenue at an annual rate of 0.70% of net assets. In addition, there is +/-0.20% variation fee based on the Company’s NAV per ordinary share performance relative to the Company’s Benchmark Index which is charged/credited to capital. Fees are payable monthly in arrears and are calculated on a daily basis.

5 Other Expenses

1 Details of the breakdown of Directors’ fees are disclosed in the Directors’ Remuneration Report in the Annual Report.

6 FINANCE COSTS

1 Increased compared to prior year due to an increase in both exposure to CFDs and interest rates.

7 Taxation on Return on Ordinary Activities

b) Factors affecting the taxation charge for the yearThe taxation charge for the year is lower than the standard rate of UK corporation tax for an investment trust company of 25.00% (2022: 19.00%). A reconciliation of the standard rate of UK corporation tax to the taxation charge for the year is shown below:

1 The Company is exempt from UK corporation tax on capital gains as it meets the HM Revenue & Customs criteria for an investment company set out in Section 1159 of the Corporation Tax Act 2010.

c) Deferred taxationA deferred tax asset of £8,626,000 (2022: £7,858,000), in respect of excess management expenses of £32,235,000 (2022: £29,162,000) and excess interest paid of £2,271,000 (2022: £2,271,000), has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.

The UK corporation tax rate increased from 19.00% to 25.00% from 1 April 2023. The rate of 25.00% has been applied to calculate the unrecognised deferred tax asset for the current year (2022: 25.00%).

8 Return per Ordinary Share

The return per ordinary share is based on the net return on ordinary activities after taxation for the year divided by the weighted average number of ordinary shares in issue during the year, as shown below:

9 Dividends Paid to Shareholders

The Directors have proposed the payment of a dividend for the year ended 31 July 2023 of 14.50 pence per ordinary share which is subject to approval by shareholders at the Annual General Meeting on 29 November 2023 and has not been included as a liability in these Financial Statements. The dividend will be paid on 6 December 2023 to shareholders on the register at the close of business on 3 November 2023 (ex-dividend date 2 November 2023).

10 Investments at Fair Value through Profit or Loss

The Company received £199,658,000 (2022: £179,551,000) from investments sold in the year. The book cost of these investments when they were purchased was £171,632,000 (2022: £150,549,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

Investment transaction costsTransaction costs incurred in the acquisition and disposal of investments, which are included in the gains on the investments above, were as follows:

The portfolio turnover rate of the year was 56.6% (2022: 49.6%).

11 Derivative Instruments

12 Debtors

13 Other Creditors

14 Share Capital

1 Ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.

The cost of ordinary shares repurchased into Treasury during the year was £2,618,000 (2022: £3,527,000).

15 Capital and Reserves

The capital reserve balance at 31 July 2023 includes investment holding gains of £3,117,000 (2022: gains of £2,118,000) as detailed in Note 10 above. See Note 2 (p) above for further details. The revenue and capital reserves are distributable by way of dividend.

16 Net Asset Value per Ordinary ShareThe calculation of the net asset value per ordinary share is based on the total shareholders’ funds divided by the number of ordinary shares held outside of Treasury.

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.

17 Financial InstrumentsManagement of riskThe Company’s investing activities in pursuit of its investment objective involve certain inherent risks. The Board confirms that there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Board with the assistance of the Manager, has developed a risk matrix which, as part of the internal control process, identifies the risks that the Company faces. Principal risks identified are: economic, political and market; investment performance (including the use of derivatives and gearing); cybercrime and information security; discount management; key person; environmental, social and governance (“ESG”); business continuity and operational; and shareholder relationships. Other risks identified are tax and regulatory risks. Risks are identified and graded in this process, together with steps taken in mitigation, and are updated and reviewed on an ongoing basis. These risks and how they are identified, evaluated and managed are shown above.

This Note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments. The Company’s financial instruments comprise:

- Equity shares (listed and unlisted), equity linked notes and corporate bonds held in accordance with the Company’s investment objective and policies;

- Derivative instruments which comprise CFDs, forward currency contracts, futures and options on listed stocks and equity indices; and

- Cash, liquid resources and short-term debtors and creditors that arise from its operations.

The risks identified arising from the Company’s financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instruments risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies are consistent with those followed last year.

Market price riskInterest rate riskThe Company finances its operations through its share capital and reserves. In addition, the Company has gearing through the use of derivative instruments. The level of gearing is reviewed regularly by the Board and the Portfolio Manager. The Company is exposed to a financial risk arising as a result of any increases in interest rates associated with the funding of the derivative instruments.

Interest rate risk exposureThe values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:

Foreign currency riskThe Company’s net return on ordinary activities after taxation for the year and its net assets can be affected by foreign exchange rate movements because the Company has income, assets and liabilities which are denominated in currencies other than the Company’s functional currency which is UK sterling. The Portfolio Manager may seek to manage exposure to currency movements by using forward and spot foreign exchange contracts. The Company can also be subject to short-term exposure to exchange rate movements, for example, between the date when an investment is purchased or sold and the date when settlement of the transaction occurs.

Three principal areas have been identified where foreign currency risk could impact the Company:

- Movements in currency exchange rates affecting the value of investments and derivative instruments;

- Movements in currency exchange rates affecting short-term timing differences; and

- Movements in currency exchange rates affecting income received.

Currency exposure of financial assetsThe currency exposure profile of the Company’s financial assets is shown below:

1 The exposure to the market of long CFDs, long futures and put options.

2 Debtors include amounts held at futures clearing houses and brokers.