Annual Financial Report
FIDELITY ASIAN VALUES PLC
ANNUAL FINANCIAL REPORT, PROXY FORM AND ADDITIONAL DISCLOSURES
TO THE PRELIMINARY RESULTS FOR THE YEAR TO 31 July 2010
Further to the voluntary disclosure of the Company's annual results for the
year ended 31 July 2010 by way of a preliminary announcement dated 23 September
2010, in accordance with the Disclosure and Transparency Rules ("the Rules")
4.1.3 and 6.3.5(2) this announcement contains the text of the preliminary
announcement dated 23 September 2010 together with the additional text in
compliance with the Rules.
The Company's annual report and financial statements for the year ended 31 July
2010 together with the accompanying proxy form have been submitted to the UK
Listing Authority, and will shortly be available for inspection on the National
Storage Mechanism (NSM):
www.hemscott.com/nsm.do
(Documents will usually be available for inspection within two business days of
this notice being given)
The annual report and financial statements will shortly be available on the
Company's website at www.fidelity.co.uk/its
Rebecca Tyerman, FIL Investments International, Company Secretary - 01737 837
758
14 October 2010
Chairman's Statement
PERFORMANCE
The year under review has been positive for the Company. The undiluted net
asset value increased by 27.8%, compared to the performance of the MSCI All
Countries (Combined) Far East ex Japan Index which returned 19.8% over the same
period. (All figures in sterling terms and on a total return basis). At the
time of writing, the Company's ordinary share price is 189.25p.
SUBSCRIPTION SHARE ISSUE
During the year, a General meeting of the Company was held on 4 March 2010 and
a resolution was passed authorising a Bonus Issue of one subscription share for
every five ordinary shares held by qualifying shareholders. Each subscription
share gives the holder the right, but not the obligation, to subscribe for one
ordinary share at the end of each month from the end of May 2010 until the end
of May 2013 inclusive. Each subscription share may be exercised only once. The
exercise price is 191.00 pence per share based on the Company's NAV at 5.00 pm
on 4 March 2010, plus a 1% premium to such NAV, rounded up to the nearest whole
penny. A total of 12,188,212 subscription shares were allotted to the
qualifying shareholders and dealings commenced in these shares on 8 March 2010.
A total of 36,342 ordinary shares have been allotted following the exercise of
the rights attached to these subscription shares at the end of each month from
May to July 2010.
ARTICLES OF ASSOCIATION
At the General Meeting of the Company held on 4 March 2010 shareholders
approved the adoption of new Articles of Association of the Company, required
largely to reflect the implementation of the Companies Act 2006 and the rights
attaching to the subscription shares.
GEARING
The Company entered into a 364 day revolving credit facility with ING Bank N.V.
on 3 February 2010 for an amount of up to US$15 million. This followed the
repayment of the Lloyds TSB Bank PLC loan of US$11 million on 25 September
2009. The Company announced on 12 April 2010 that US$9 million had been drawn
down. The Board continues to review the gearing position on a regular basis and
believes the ability to gear will add value over the long term. As at 31 July
2010 gross gearing was 4.9% of shareholders' funds and net gearing (after
deducting cash held) was 3.8%. The current net gearing parameters set by the
Board are between 0% and 10%.
DIRECTORATE AND GOVERNANCE
During the year, Sir Robin McLaren and Sir Victor Garland both retired from the
Board. It is with great sadness that I record the recent death of Sir Robin who
retired from the Board following the 2009 Annual General Meeting. Sir Robin's
extensive Far Eastern experience contributed greatly to the Company and he will
be missed both professionally and personally.
Sir Victor retired from the Board on 3 June 2010. A Director of the Company
since launch, Sir Victor served as Chairman of the Board from 2000 to 2010. The
Board wishes to thank him for his committed stewardship of the Company whilst
Chairman and important contribution to the Company's business during his 15
years of service. His colleagues wish him well in his retirement. To ensure the
Board continues to strengthen its skills and experience, two new non-executive
Directors of the Company were appointed with effect from 1 January 2010. Mrs
Kate Bolsover and Mr Philip Smiley both have extensive experience in the
financial services industry and the Far East. In accordance with the Company's
Articles of Association, Kate Bolsover and Philip Smiley will seek formal
appointment to the Board at the forthcoming Annual General Meeting.
Following Sir Victor's retirement, I was appointed as Chairman of the Board
with effect from 3 June 2010. Kate Bolsover was, in turn, appointed Chairman of
the Audit Committee and William Knight was appointed Senior Independent
Director on 3 June 2010, both roles having previously been held by me. In
accordance with the Listing Rules, Kathryn Matthews, following an evaluation of
her performance by her fellow Directors and on their recommendation, will seek
re-election at the forthcoming Annual General Meeting. Kathryn Matthews retired
from her executive responsibilities at Fidelity in October 2009 and seeks
annual re-election due to her recent employment relationship with the Manager.
Both William Knight and I are subject to retirement by rotation and we will
both also be seeking re-election at the forthcoming Annual General Meeting.
The Directors have a wide range of appropriate skills and experience to make up
a balanced Board for your Company. The Board continues to monitor corporate
governance issues, reviewing and updating processes as appropriate.
DIVIDEND
In accordance with the Company's objective for long term capital growth, the
Board has agreed that there will be no dividend paid for the year ended 31 July
2010.
ANNUAL GENERAL MEETING
The 2010 Annual General Meeting will be held on Monday 29 November 2010 at
Fidelity's Cannon Street office commencing at 11.00 am. All shareholders and
Fidelity Savings Plan and ISA Scheme investors are invited to attend. The
Portfolio Manager will be making a presentation on the year under review and
immediate prospects for the Company.
OUTLOOK
Relative to the rest of the world, Asia remains a region with potential for
sustainable earnings growth. The region continues to attract investors thanks
to its substantial stimulus measures introduced in 2009 and healthy financial
systems. Central banks continue to maintain a vigilant stance against inflation
with precautionary tightening measures in place. Further capital raisings could
trigger market volatility; however stocks with quality earnings should perform
well. Earnings to date have been encouraging and investment performance is
expected to remain strong as prospects improve.
Mr Hugh Bolland
Chairman
22 September 2010
Enquiries:
Chris Davies - Head of Investment Trusts, FIL Investments International - 01737
837 723
Anne Read - Corporate Communications, FIL Investments International - 0207 961
4409
Rebecca Tyerman - Assistant Company Secretary, FIL Investments International -
01737 837 758
MANAGER'S REVIEW
MARKETS
Stock markets in Far East ex Japan rose over the twelve month review period,
underpinned by growing confidence about the prospects of a sustainable global
economic recovery. Credit markets began to thaw and the outlook for Asia and
the world economy improved. At the same time, positive earnings from a number
of regional companies led to an upward revision in forecasts.
Indonesia and Thailand equity markets were among the best performing in the
region, favoured for their robust domestic activity. Indonesia generated
positive returns, helped by a ratings upgrade by Moody's and growth in consumer
demand. Thai equities were resilient after the government overcame some of its
political problems. Malaysian stocks rose as Chinese investment funds were
allowed to flow into its capital market. However, Chinese equities
underperformed average regional returns, as a strong recovery raised concerns
about monetary tightening. Investors were also wary of a slow down in lending
growth and increased share supply on account of several initial public offers.
Meanwhile, fears about a default on debt obligations by Dubai briefly impacted
share prices. The persistent debt crisis in Europe, mixed economic data from
the US and China's steps to curb speculative activity in the property market
also dampened investor sentiment in Asia. However, information technology
companies in South Korea and Taiwan benefited from restocking demand. The surge
in consumer confidence and continued fiscal incentives were supportive of
companies related to consumer and household spending. Investors favoured
sectors whose earnings are directly linked to strong economic growth.
Consequently, while all sectors posted double digit returns, telecommunications
stocks lagged due to the defensive nature of their earnings.
Manufacturing data, including China's Purchasing Managers' Index, pointed to an
upbeat momentum. Improved consumer confidence, a result of increased
employment, translated into higher retail sales across the region, even as
inflation edged higher albeit from low levels. China boosted the reserve
requirement for banks, while interest rates were increased in Taiwan, Korea,
Malaysia and India.
PORTFOLIO REVIEW
The Company's exposure to internet related businesses has had a significant
positive influence on relative returns. The Manager favours this sector due to
rapidly increasing internet penetration and consumerism in China. Over the
period, a non-benchmark position in Chinese-language online search engine Baidu
was the single largest contributor. The company benefited from growing market
share, partly due to Google's exit from the Chinese market and increased
advertising revenue.
Similarly, the overweight position in online social networking company Tencent
Holdings benefited Company returns due to solid earnings given the increased
monetisation of services, new games for children and a loyal user base. Both
stocks were also favoured for their new deals to develop middleware
applications for 3G mobile phones. In addition, the new acquisition of Korea
based internet and television shopping firm CJ O Shopping boosted the position,
supported by improving consumer confidence. Within the consumer sector, strong
profits and good brand recognition led to improved performance by ladies'
footwear manufacturer in China, Belle International. Hong Kong listed global
merchandise trader Li & Fung, which is the largest supplier to Walmart and
Tesco, proved rewarding due to new contracts at the company.
Korean cosmetics company AmorePacific Corporation, Indonesia based tobacco
company Gudang Garam and noodle producer Indofood Sukses Makmur were also
favoured for their resilient businesses. In addition, selected positions in the
materials sector such as nonbenchmark exposure to Lock&Lock and Indocement
Tunggal Prakarsa made impressive gains.
Whilst all sectors contributed to relative returns over the period, performance
in the energy sector lagged. Stock selection in demand driven technology
hardware and consumer apparel companies also succumbed to valuation concerns
after valuations rose significantly. Stocks, specifically holdings in LCD panel
manufacturer AU Optronics, fell despite rising demand. A number of positions
were added from the travel and tourism industry; in particular, Korea based
Hotel Shilla, a Samsung Group affiliate with a strong revenue potential. The
Company also invested in Malaysia listed casino operator Genting in view of
greater recognition of the strong operational performance of Resorts World
Singapore, also owned by the Genting Group.
Selected names were added in the industrials sector, while maintaining the
underweight position at the aggregate level. An investment was made in Sarin
Technologies, which is engaged in the development and manufacture of precision
technology products for processing diamonds and gems. Shares were purchased in
Hong Kong listed commodity trader Noble Group and gold producer Zhaojin Mining
Industry in China. However, holdings in financials became increasingly
underweight. Holdings in Hong Kong based property developer Sun Hung Kai
Properties and Cheung Kong were also sold off due to limited upside
opportunities. Some of the proceeds were used to buy a stake in China Overseas
Land and Investment which exhibits strong execution capability and has access
to a large land bank in China. It also has the highest earnings visibility
among its peers.
OUTLOOK FOR THE REGION
Asia has not yet felt any significant impact from fiscal austerity nor the
strains on Eurozone banking systems. The region remains attractive due to its
generally healthy financial systems and solid fundamentals. Domestic demand
remains robust, supported by low debt and high savings, all of which are likely
to support a multi-year growth cycle. Regional equities are likely to remain
volatile in the near term as the region is not completely immune from a
potential Eurozone or global downturn. Inflation could squeeze the profit
margins of firms that are unable to pass on rising costs. Far East ex Japan
markets could, however, outperform their global counterparts on the strength of
their superior corporate performance and superior economic fundamentals.
Companies with strong balance sheets and healthy valuations are favoured,
notably in selected stocks in economies that are growing at a rapid pace, where
we are beginning to see more attractive valuations emerge. Overall, the Manager
remains cautiously optimistic given the strong market rise last year and
stimulus withdrawal.
FIL Investments International
22 September 2010
PRINCIPAL RISKS AND UNCERTAINTIES
The Board confirms that there is an ongoing process for identifying, evaluating
and managing or monitoring the principal risks which fall under the general
headings of strategic, operational and management. This process is regularly
reviewed by the Board in accordance with the Financial Reporting Council's
document Internal Control: Revised Guidance for Directors on the Combined Code.
An internal controls report, which includes a risk matrix and the assessment of
risks applicable to the Company, is prepared by the Manager and considered by
the Audit Committee. Risks are identified, introduced and graded and this
process, together with the policies and procedures for the mitigation of risks,
is updated and the report is reviewed twice a year.
The Board reviews and agrees policies, which have remained unchanged since the
beginning of the accounting period, for managing risks and summaries of these
are set out below.
Market risks
The Company's assets consist mainly of listed securities and the principal
risks are therefore market related such as market recessions, interest rate
movements, deflation/inflation, terrorism and protectionism. Risks to which the
Company is exposed and which form part of the market risks category are
included in Note 17 to the financial statements on pages 44 to 49 together with
summaries of the policies for managing these risks. These comprise: market
price risk (made up of other price risk, interest rate risk and foreign
currency risk); liquidity risk; counterparty risk and credit risk. The Company
has a 364 day revolving credit facility in place with ING Bank N.V. The extent
to which any loan facilities are retained or renewed is always kept under the
most careful scrutiny. The impact of limited finance from counterparties
including suppliers has not impacted the Company to date, however there are
alternative suppliers available in the market place should the need arise.
The Company relies on a number of main service providers, namely the Manager,
Registrar and Custodian. The Manager is a member of a privately owned group of
companies on which a regular report is provided to the Board. The Manager,
Registrar and Custodian are subject to regular audits by Fidelity's internal
audit team and the counterparties' own internal controls reports are received
by the Board and any concerns investigated. Performance risks
The achievement of the Company's performance objective relative to the market
involves risk. Strategy, asset allocation and stock selection might lead to
under performance of the benchmark Index and target. Monitoring of these risks
is carried out by the Board which, at each Board meeting, considers the asset
allocation of the portfolio and the risks associated with particular countries
and industry sectors within the parameters of the investment objective.
The Portfolio Manager is responsible for actively managing the portfolio
selected in accordance with the asset allocation parameters and seeks to ensure
that individual stocks meet an acceptable risk-reward profile. The NAV of the
Company is published each working day.
Income - dividends risks
The Company's objective of long term capital growth relies less on income to
support dividends than investment trust companies with a more income oriented
target. Nevertheless, generating income to meet expenses and provide adequate
reserves is subject to the risk that income generation from its investments
fails to meet the level required. The Board monitors this risk through the
receipt of detailed income reports and forecasts which are considered at each
meeting.
Share price risks
The price of the Company's shares relative to the benchmark Index and in
absolute terms, as well as its discount to NAV, are not factors the Company is
able to control. Some short term influence over the discount may be exercised
by the use of share repurchases at acceptable prices.
The Company's ordinary share price, subscription share price, NAV and discount
volatility are monitored daily by the Manager and considered by the Board at
each of its meetings.
Gearing risks
The Company has the option to invest up to the total of its loan facility in
equities. In a rising market the Company would benefit but in a falling market
the impact would be detrimental. In order to manage the level of gearing the
Board regularly considers this item and sets gearing limits accordingly. The
Portfolio Manager follows these and may invest part of the loan facility in
Fidelity Institutional Liquidity Fund plc and short term cash deposits to
control the level of net gearing.
Control systems risks
The Company is dependent on the Manager's control systems and those of its
Custodian and Registrars, both of which are monitored and managed by the
Manager in the context of the Company's assets and interests on behalf of the
Board. The security of the Company's assets, dealing procedures and the
maintenance of investment trust status under s1158 of the Corporation Tax Act
2010, among other things, rely on the effective operation of such systems.
These are regularly tested and a programme of internal audits is carried out by
the Manager to maintain standards.
Other risks
Other risks monitored on a regular basis include loan covenants, which are
subject to daily monitoring, together with the Company's cash position, and the
continuation vote (at a time of poor performance).
RELATED PARTIES
All of the Directors are considered by the Board to be independent of
management with the exception of Kathryn Matthews due to her recent
relationship with the manager.
No Director is under a contract of service with the Company and no contracts
existed during or at the end of the financial period in which any Director was
materially interested and which was significant in relation to the Company's
business. There have been no other related party transactions requiring
disclosure under Financial Reporting Standard ("FRS") 8.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
Under that law they have elected to prepare the financial statements in
accordance with UK Generally Accepted Accounting Practice.
The financial statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss for the period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards 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 ensuring that adequate accounting records are
kept which disclose with reasonable accuracy at any time the financial position
of the Company and to enable them to ensure that its 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 Directors' Report, including a Business Review, a Directors'
Remuneration Report and a Corporate Governance Statement that comply with that
law and those regulations. The Directors are responsible for the maintenance
and integrity of the corporate and financial information included on the
Company's website www.fidelity.co.uk/its. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
We confirm that to the best of our knowledge: the financial statements,
prepared in accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position and profit or
loss of the Company; and the Directors' 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.
Approved by the Board on 22 September 2010 and signed on its behalf by
Hugh Bolland
Chairman
FIDELITY ASIAN VALUES PLC
Income Statement for the year ended 31 July 2010
2010 2009
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments designated - 25,432 25,432 - 9,210 9,210
at fair value through profit or
loss
Income
- Overseas dividends 2,256 - 2,256 2,626 - 2,626
- Overseas scrip dividends 190 - 190 84 - 84
- Deposit interest - - - 55 - 55
- Interest on VAT recovered on - - - 2 - 2
investment management fee
Investment management fee (1,161) - (1,161) (861) - (861)
Other expenses (799) - (799) (402) - (402)
Exchange gains on other net 9 181 190 153 1,972 2,125
assets
Exchange losses on loan - (178) (178) - (1,409) (1,409)
Net return before finance costs 495 25,435 25,930 1,657 9,773 11,430
and taxation
Interest payable on loan (131) - (131) (444) - (444)
Net return on ordinary 364 25,435 25,799 1,213 9,773 10,986
activities before taxation
Taxation on return on ordinary (200) - (200) (233) - (233)
activities*
Net return on ordinary 164 25,435 25,599 980 9,773 10,753
activities after taxation for
the year
Return per ordinary share 0.27p 41.73p 42.00p 1.49p 14.85p 16.34p
A Statement of Total Recognised Gains and Losses has not been prepared as there
are no gains and losses other than those reported in this Income Statement.
The total column of the Income Statement is the profit and loss account of the
Company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
* this relates to overseas taxation only
FIDELITY ASIAN VALUES PLC
Reconciliation of Movements in Shareholders' Funds for the year ended 31 July
2010
share capital other non-
share premium redemption distributable other capital revenue total
capital account reserve reserve reserve reserve reserve equity
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening shareholders' 25,789 15,359 5,034 7,367 44,143 37,750 499 135,941
funds: 1 August 2008
Net recognised - - - - - 9,773 - 9,773
capital gains for the
year
Share premium account - (15,359) - - 15,359 - - -
cancelled
Capital redemption - - (13,803) - 13,803 - - -
reserve cancelled
Repurchase of (238) - 238 - (988) - - (988)
ordinary shares
Ordinary shares (10,316) - 10,316 - (52,153) - - (52,153)
cancelled on
completion of the
Tender Offer
Costs associated with - - - - (842) - - (842)
the Tender Offer
Loan redemption costs - - - - (83) - - (83)
Net revenue after - - - - - - 980 980
taxation for the year
Dividend paid to 7 - - - - - - (494) (494)
shareholders
Closing shareholders' 15,235 - 1,785 7,367 19,239 47,523 985 92,134
funds: 31 July 2009
Net recognised 13 - - - - - 25,435 - 25,435
capital gains for the
year
Bonus issue of 13 609 - - - (609) - - -
subscription shares
Exercise of rights 13 (2) 2 - - - - - -
attached to
subscription shares
and conversion into
ordinary shares
Issue of ordinary 13 9 60 - - - - - 69
shares on exercise of
rights attached to
subscription shares
Net revenue after 13 - - - - - - 164 164
taxation for the year
Dividend paid to 7 - - - - - - (609) (609)
shareholders
Closing shareholders' 15,851 62 1,785 7,367 18,630 72,958 540 117,193
funds: 31 July 2010
FIDELITY ASIAN VALUES PLC
Balance Sheet as at 31 July 2010
2010 2009
Notes £'000 £'000
Fixed assets
Investments designated at fair value through 9 121,786 98,131
profit or loss
Current assets
Debtors 10 1,187 1,161
Cash at bank 1,272 425
2,459 1,586
Creditors - amounts falling due within one year
Fixed rate unsecured loan 11 (5,729) (6,584)
Other creditors 11 (1,323) (999)
(7,052) (7,583)
Net current liabilities (4,593) (5,997)
Total net assets 117,193 92,134
Capital and reserves
Share capital 12 15,851 15,235
Share premium account 13 62 -
Capital redemption reserve 13 1,785 1,785
Other non-distributable reserve 13 7,367 7,367
Other reserve 13 18,630 19,239
Capital reserve 13 72,958 47,523
Revenue reserve 13 540 985
Total equity shareholders' funds 117,193 92,134
Net asset value per ordinary share
Basic 14 192.19p 151.18p
Diluted 14 191.99p n/a
The financial statements were approved by the Board of Directors on 22
September 2010 and were signed on its behalf by:
Hugh Bolland,
Chairman
FIDELITY ASIAN VALUES PLC
Cash Flow Statement for the year ended 31 July 2010
2010 2009
Notes £'000 £'000
Operating activities
Investment income received 2,257 2,655
Deposit interest received - 68
Investment management fee paid (1,145) (1,268)
Directors' fees paid (93) (93)
Other cash payments (720) (337)
Net cash inflow from operating activities 15 299 1,025
Returns on investments and servicing of finance
Interest paid (215) (495)
Net cash outflow from returns on investments and (215) (495)
servicing of finance
Financial investment
Purchase of investments (91,819) (47,992)
Disposal of investments 94,199 97,560
Net cash inflow from financial investment 2,380 49,568
Dividend paid to shareholders 7 (609) (494)
Net cash inflow before use of financing 1,855 49,604
Financing
Exercise of subscription share rights 52 -
Repurchase of ordinary shares - (988)
Ordinary shares cancelled on completion of the - (52,995)
Tender Offer
Loan redemption costs on completion of the Tender - (83)
Offer
2.65% fixed rate unsecured credit facility drawn 16 5,857 -
down
5.60% fixed rate unsecured loan repaid 16 (6,890) (3,912)
Net cash outflow from financing (981) (57,978)
Increase/(decrease) in cash 16 874 (8,374)
The above statements have been prepared on the basis of the accounting policies
as set out in annual financial statements to 31 July 2010. This preliminary
statement, which has been agreed with the Auditor, was approved by the Board on
22 September 2010. It is not the Company's statutory financial statements. The
statutory financial statements for the financial year ended 31 July 2009 have
been delivered to the Registrar of Companies. The statutory financial
statements for the financial year ended 31 July 2010 have been approved and
audited but have not yet been filed. The statutory financial statements for the
financial years ended 31 July 2009 and 31 July 2010 received unqualified audit
reports, did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying the report and did not contain
statements under section 498 (2) and (3) of the Companies Act 2006. The annual
report and financial statements will be posted to shareholders as soon as is
practicable and in any event no later than 28 October 2010.
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