Final Results
FIDELITY EUROPEAN VALUES PLC
For the year ended 31 December 2011
Announcement of Year End Results
I have pleasure in presenting the Preliminary Announcement of Fidelity European
Values PLC for the year ended 31 December 2011.
PERFORMANCE
Investors entered 2011 in an upbeat mood following a pick up of economic growth
and positive stockmarket returns in 2010. However, the Arab spring, Japanese
tsunami, continued sovereign debt issues in Europe and concerns over global
economic growth swept aside this wave of optimism and pessimism prevailed. In
Europe, the sovereign debt crisis, fears that Greece will leave the euro and
the contagion effects on other indebted nations, such as Italy, dominated the
headlines and investor sentiment. As a result, European equities proved to be
volatile throughout the year and underperformed other asset classes.
Against this backdrop, the net asset value ("NAV") per share of the Company
returned -11.5%, but it outperformed its benchmark, the FTSE World Europe (ex
UK) Index, which returned -14.7%, both figures being on a total return basis.
Overall, companies with defensive characteristics whose earnings are less
correlated to economic growth outperformed companies with more cyclical
business models; and financials struggled once again. The Company benefited
from holdings in the healthcare, food producers and tobacco sectors. However,
returns were held back by positions in the financials sector. A more detailed
review of the performance of the portfolio is provided in the Manager's Review.
Whilst the NAV total return was -11.5%, the share price total return was -8.6%
over 2011, with the share price discount to NAV having narrowed slightly over
the period. It is of course unattractive to see negative returns, but, to look
at the situation more positively, there are many fine and strong companies with
wide international businesses quoted on the European stock exchanges and it is
encouraging to see this loss limited to 8.6%, against a tumultuous and largely
negative political backdrop.
DISCOUNT MANAGEMENT
The Board remains active in discount management, including buying back shares
at a discount. This is a practice it has adopted since launch and buybacks have
continued during the year, during which the level of discount has narrowed. The
purpose of buybacks is to reduce share price volatility and it also results in
an enhancement to the NAV per share. Further details of share buybacks made
during the year may be found in the Directors' Report in the annual report.
In summary, your Board has sanctioned share buybacks over the course of 2011
amounting to just over 10% of the issued share capital of the Company. Yet the
discount remained at 14.2% at the year end. In part, this is a reflection on
European equities being out of favour in relation to other asset classes.
Whilst it is frustrating that the discount remains wide for the time being, we
have been able to help dampen the level of share price volatility against net
asset value; and this we believe is strongly in the interests of shareholders
and it will continue to be an objective of the Board.
DIVIDENDS
The Board intends to continue with its practice of paying out earnings in full.
The objective is one of long term capital growth and we will not seek to
influence the Manager to determine the level of income of your Company's
portfolio in any particular year.
The Board has decided to recommend a final dividend of 26.50 pence per share
for the year ended 31 December 2011 (2010: final dividend 15.75p). This
dividend will be payable on 25 May 2012 to shareholders on the register at
close of business on 16 March 2012 (ex-dividend date 14 March 2012).
The proposed dividend increase for 2011 over 2010 is therefore 68%. Whilst we
would continue emphasising that the increase is a function of stock selection
and cannot be extrapolated into the future, there are two positive factors
shareholders may like to note. Firstly, the fall in European share prices has
taken place even as underlying earnings and dividend growth has been positive,
thereby enhancing the yield on the market. The dividend yield on the FTSE World
Europe (ex UK) index at 31 December 2011 was 4.38% Secondly, your Portfolio
Manager, Sam Morse, who took over management of the portfolio from 1 January
2011, focuses on companies which are able to grow their dividends as being one
of the underlying factors in his stock selection. A further explanation of the
investment process can be found in the annual report.
Performance over one year, five years and since launch to 31 December 2011
(on a total return basis)
NAV Share price FTSE World Europe
(ex UK) Index1
One year -11.5% -8.6% -14.7%
Five years -1.3% -9.1% -7.3%
Since launch (1991) +1,269.8% +1,083.3% +390.0%
Source: Fidelity and Datastream as at 31 December 2011
Basis: bid-bid with net income reinvested
Past performance is not a guide to future returns
1 Data prior to the year ended 31 December 2011 is on a net of tax basis
INVESTMENT POLICY AND GEARING
During the year, shareholders approved a change in investment policy
predominantly to allow the introduction of Contracts For Difference ("CFDs")
for gearing purposes. Following the repayment of the drawn down variable rate
unsecured credit facility from Lloyds TSB Bank plc on 18 November 2011 and the
unsecured bank loan from Barclays Bank PLC on 15 December 2011, the Company has
no loans. However, the Company has obtained equivalent exposure, on a
significantly more cost effective basis, to the market through the use of CFDs.
As at 31 December 2011 the total portfolio exposure represented 108.6% of
Shareholders' funds.
Additional disclosures to the financial statements have been added explaining
the Company's geared position through the use of CFDs, including details of how
they are measured and how they are reported. Further details on the use of CFDs
can be found in the Directors' Report in the annual report.
CURRENCY HEDGING
Shareholders will be aware that there are inevitably heightened risks in
holding a portion of the portfolio in euro denominated shares at a time of
considerable stresses for the euro. Although the portfolio has never been
hedged out of European currencies into sterling since the Company was first
formed in 1991, this is allowable and the Board has considered this option
carefully.
We continue to believe on balance that shareholders are looking for continental
European exposure, including currency exposure, in making an investment choice;
and on this basis euro exposure has not been hedged back into sterling.
It should be noted that a large number of the underlying investments have
significantly diversified businesses and non-euro income streams. Companies are
also carrying out their own hedging operations, which may or may not be
disclosed to the marketplace. Furthermore, from an operational standpoint, your
Board has discussed arrangements and contingency plans with your Manager,
should the Euro run into further difficulty.
As a result of our overweight position in a number of non-Eurozone markets, the
Company has a 14.1% underweight position in euro denominated stocks.
PERFORMANCE FEES
With effect from 1 January 2012 the Board entered into a newly negotiated
performance fee arrangement with the Manager. We are pleased to inform you that
the performance fee element has been reduced from 20% to 15%; and the upper
limit of the performance related fee payable in any one year has been reduced
from 1.5% to 1% of net asset value. It remains the case that the Manager must
recoup any underperformance against the benchmark before any subsequent
outperformance can be rewarded. Further details are included in the Directors'
Report in the annual report.
DIRECTORATE
In accordance with the UK Corporate Governance Code for Directors of FTSE 350
companies the entire Board is subject to annual re-election. The Directors'
biographies can be found in the annual report. The Directors have a wide range
of appropriate skills and experience to make up a balanced board for your
Company. With the exception of Simon Fraser, in the opinion of the Board, all
other Directors are independent.
Simon Fraser, due to his previous employment relationship with the Manager and
his directorship of another investment trust managed by Fidelity, namely
Fidelity Japanese Values PLC, is deemed non-independent by the UK Corporate
Governance Code. The Board is convinced that Simon Fraser's experience serves
the Company well; and the Directors support unanimously his continued position
as a Director of the Company.
It may interest shareholders to know that, again in line with good corporate
governance, the Board has arranged for an independent, externally facilitated
assessment of its performance to take place during 2012.
The Board has considered the proposals for the re-election of all of the
Directors and recommends to shareholders that they vote in favour of the
proposals.
CONTINUATION VOTE
In accordance with the Articles of Association of the Company, an ordinary
resolution that the Company continue as an investment trust for a further two
years was passed at the 2011 Annual General Meeting. A further continuation
vote will take place at next year's Annual General Meeting.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company is due to take place on 16 May 2012
at midday at Fidelity's offices at 25 Cannon Street. Full details of the
meeting are given in the annual report and I look forward to talking with as
many shareholders as possible on this occasion.
CONCLUSION
European equities will have to contend with a wide range of complex factors in
2012, ranging from a lack of economic growth and high budget deficits and debt
in the periphery, to the continued possibilities of a disorderly Greek exit
from the euro and the consequences for the Eurozone as a whole of such an
event. There also remains a worrying lack of competitiveness mainly in southern
Europe, resulting in a `two speed' Eurozone, which has yet to be addressed
satisfactorily in the political arena.
There is a risk that aggregate earnings may fall in 2012. However, as already
mentioned, there are many fine companies quoted on the continental European
bourses, with strong and internationally competitive businesses. We support
your Manager's view that overall valuations look attractive.
Humphrey van der Klugt
Chairman
6 March 2012
INCOME STATEMENT
for the year ended 31 December 2011
2011 2010
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (94,320) (94,320) - 33,621 33,621
designated at fair value
through profit or loss
Gains on derivative - 3,201 3,201 - - -
instruments held at fair
value through profit or loss
Income* 22,831 - 22,831 18,883 - 18,883
Investment management fee (5,127) - (5,127) (5,036) - (5,036)
Other expenses (710) - (710) (664) - (664)
Exchange (losses)/gains on (73) (2,639) (2,712) 65 (4,808) (4,743)
other net assets
Exchange gains on loans - 1,394 1,394 - 4,153 4,153
Net return/(loss) before 16,921 (92,364) (75,443) 13,248 32,966 46,214
finance costs and taxation
Finance costs (2,617) - (2,617) (3,025) - (3,025)
Net return/(loss) on ordinary 14,304 (92,364) (78,060) 10,223 32,966 43,189
activities before taxation
Taxation on return/(loss) on (1,511) 50 (1,461) (2,262) (60) (2,322)
ordinary activities**
Net return/(loss) on ordinary 12,793 (92,314) (79,521) 7,961 32,906 40,867
activities after taxation for
the year
Return/(loss) per ordinary 26.94p (194.42p) (167.48p) 15.95p 65.91p 81.86p
share
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.
* Income
2011 2010
£'000 £'000
Income from investments designated at fair value through
profit or loss
Overseas dividends 20,518 18,344
Overseas scrip dividends 1,987 352
UK dividends 244 -
22,749 18,696
Other income
Deposit interest 46 55
Income from Fidelity Institutional Liquidity Fund plc 36 132
Total income 22,831 18,883
** Relates to overseas taxation only.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2011
share share capital capital revenue total
capital premium redemption reserve reserve equity
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Opening shareholders' 12,779 58,615 3,046 558,047 16,448 648,935
funds: 1 January 2010
Net return on ordinary - - - 32,906 7,961 40,867
activities after taxation
for the year
Repurchase of ordinary (417) - 417 (17,968) - (17,968)
shares
Dividend paid to - - - - (11,292) (11,292)
shareholders
Closing shareholders' 12,362 58,615 3,463 572,985 13,117 660,542
funds: 31 December 2010
Net (loss)/return on
ordinary activities after
taxation for the year - - - (92,314) 12,793 (79,521)
Repurchase of ordinary (1,289) - 1,289 (55,664) - (55,664)
shares
Dividend paid to - - - - (7,740) (7,740)
shareholders
Closing shareholders' 11,073 58,615 4,752 425,007 18,170 517,617
funds: 31 December 2011
Balance Sheet as at 31 December 2011
2011 2010
£'000 £'000
Fixed assets
Investments designated at fair value through 504,409 693,547
profit or loss
Current assets
Derivative assets held at fair value through 4,423 -
profit or loss
Debtors 887 2,106
Fidelity Institutional Liquidity Fund plc 31 21,533
Cash at bank 12,371 3,976
17,712 27,615
Creditors - amounts falling due within one
year
Derivative liabilities held at fair value (1,314) -
through profit or loss
Other creditors (3,190) (4,808)
Fixed rate unsecured loan - (55,812)
(4,504) (60,620)
Net current assets/(liabilities) 13,208 (33,005)
Total net assets 517,617 660,542
Capital and reserves
Share capital 11,073 12,362
Share premium account 58,615 58,615
Capital redemption reserve 4,752 3,463
Capital reserve 425,007 572,985
Revenue reserve 18,170 13,117
Total equity shareholders' funds 517,617 660,542
Net asset value per ordinary share 1,168.57p 1,335.78p
Cash Flow Statement
for the year ended 31 December 2011
2011 2010
£'000 £'000
Operating activities
Investment income received 16,783 14,713
Deposit interest received 78 188
Investment management fee paid (5,384) (4,958)
Directors' fees paid (107) (112)
Other cash payments (494) (735)
Net cash inflow from operating activities 10,876 9,096
Servicing of derivatives and bank loans
Interest paid on long CFDs and bank loans (2,606) (3,054)
Net cash outflow from servicing of finance (2,606) (3,054)
Taxation
Taxation recovered 2,608 1,485
Taxation recovered 2,608 1,485
Financial investment
Purchase of investments (278,237) (555,131)
Disposal of investments 372,990 554,223
Net cash inflow/(outflow) from financial investment 94,753 (908)
Derivative activities
Proceeds of long CFD positions closed 92 -
Net cash inflow from derivative activities 92 -
Dividend paid to shareholders (7,740) (11,292)
Net cash inflow/(outflow) before use of liquid resources 97,983 (4,673)
and financing
Cash flow from management of liquid resources
Fidelity Institutional Liquidity Fund plc 21,502 24,290
Net cash inflow from management of liquid resources 21,502 24,290
Net cash inflow before financing 119,485 19,617
Financing
Repurchase of ordinary shares (54,354) (19,590)
Loans repaid (54,418) (33,147)
Net cash outflow from financing (108,772) (52,737)
Increase/(decrease) in cash 10,713 (33,120)
The above statements have been prepared on the basis of the accounting policies
as set out in the financial statements in the annual report to 31 December
2011. This preliminary statement, which has been agreed with the Auditor, was
approved by the Board on 6 March 2012. It is not the Company's statutory
financial statements. The statutory financial statements for the financial
year ended 31 December 2010 have been delivered to the Registrar of Companies.
The statutory financial statements for the financial year ended 31 December
2011 have been approved and audited but have not yet been filed. The statutory
financial statements for the financial years ended 31 December 2010 and 31
December 2011 received unqualified audit reports, did not include a reference
to any matters to which the Auditor 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 12 April 2012.
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