Final Results
FIDELITY EUROPEAN VALUES PLC
Preliminary Announcement of Audited Results
For the year ended 31 December 2012
Chairman's Statement
I have pleasure in presenting the Annual Report of Fidelity European Values PLC
for the year ended 31 December 2012.
PERFORMANCE
European equities advanced in 2012 following a volatile 2011. After a difficult
second quarter, in which anxieties were once again heightened by concerns over
the sovereign debt crisis, markets turned a corner in July when European
Central Bank ("ECB") President Mario Draghi stated that the ECB would do
"whatever it takes" to save the Eurozone. Sentiment improved further after the
ECB announced that it had agreed to an unlimited bond purchase programme to
lower borrowing costs for some indebted Eurozone nations. Towards the end of
the year, risk appetite increased on optimism that US lawmakers would reach an
agreement on budget talks to avert the so-called fiscal cliff.
Against this backdrop, I am pleased to report that the net asset value ("NAV")
per share of the Company returned 24.7% and outperformed its Benchmark, the
FTSE World Europe (ex UK) Index, which returned 17.8%. Stock selection was the
prime driver of performance. In particular, holdings in the financials,
industrials and healthcare sectors performed well. However, there were some
stock specific disappointments, especially in the energy sector, which held
back returns. Overall, the focus remains on companies with solid balance sheets
and growing dividends. Gearing which was held in a range of 5% - 15% during the
year, also aided performance. A detailed review of the performance of the
portfolio is provided in the Manager's Review in the Annual Report. (All
figures are in sterling and are on a total return basis).
PERFORMANCE OVER ONE YEAR, FIVE YEARS AND SINCE LAUNCH TO 31 DECEMBER 2012 (ON
A TOTAL RETURN BASIS) (%)
NAV Share FTSE
price World
Europe
(ex
UK)
Index1
One year +24.7 +31.3 +17.8
Five years +8.6 +6.6 -5.1
Since launch (1991) +1,608.6 +1,453.8 +474.3
1 Data prior to the year ended 31 December 2011 is on a net of tax basis
Sources: Fidelity and Datastream as at 31 December 2012
Past performance is not a guide to future returns
DISCOUNT MANAGEMENT
The Board continues to adopt an active discount management policy and share
buybacks have been made during the year. Whilst the primary purpose of our
policy is to reduce share price volatility in relation to net asset value,
buying in shares at a discount also results in an enhancement to NAV per share.
Your Board has sanctioned share buybacks over the course of 2012 amounting to
2.7% of the issued share capital of the Company, a much lower figure than the
11.6% repurchased in 2011. The great majority of the repurchases took place in
the first half of the year whilst markets were weak. Further details may be
found in the Directors' Report in the Annual Report.
I am pleased to report that the lower level of share price volatility relative
to the NAV apparent in the second half of 2011 has continued into 2012.
Furthermore, the level of discount has narrowed from 14.2% at the start of the
year to 9.9% at the year end. This has given rise to a share price total return
of 31.3% for 2012, ahead of the NAV total return of 24.7%.
Improved sentiment towards continental European equity markets has undoubtedly
been a factor behind the narrowing of the discount. Re-establishing our
historically good performance record against the Benchmark Index, under Sam
Morse's management, has likewise been important.
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 27.75 pence per share
for the year ended 31 December 2012 (2011: 26.50 pence). This dividend will be
payable on 24 May 2013 to shareholders on the register at close of business on
15 March 2013 (ex-dividend date 13 March 2013).
The proposed dividend increase for 2012 over 2011 is therefore 4.7%. Whilst we
emphasise that the increase is a function of stock selection and cannot be
extrapolated into the future, our Portfolio Manager, Sam Morse, continues to
focus 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.
GEARING
The Company gears through the use of long Contracts For Difference ("CFDs"). As
at 31 December 2012, the level of gearing was 11.1% and the Board has been
working within a range of 5% - 15%. Gearing made a positive contribution to
performance during the year, as can be seen from the attribution analysis in
the Annual Report.
It is pleasing to note that the move to using CFDs as a means of gearing the
portfolio, introduced in 2011 in place of traditional bank loans, has been
positive. Operationally it has worked smoothly and it has been significantly
cheaper for the Company, with finance costs reducing from £2,617,000 in 2011 to
just £326,000 in 2012; and this in spite of gearing levels actually on average
being higher in 2012.
PERFORMANCE FEES
Investment performance was strong during the year and a performance fee is
payable, all cumulative past underperformance against the Benchmark Index
having been made good. The base fee paid and payable to the Manager is charged
fully against revenue. The performance fee is charged against capital. Further
details are included in the Directors' Report in the Annual Report.
DIRECTORATE
Simon Duckworth will step down from the Board at the conclusion of the business
of the Annual General Meeting on 16 May 2013. Simon has served on the Board for
just over 10 years and on behalf of the Board I would like to take this
opportunity to thank him for his invaluable contribution to the Company. We
wish him well in his future endeavours. In preparation for this, I am delighted
to confirm that Marion Sears was appointed a non-executive Director of the
Company on 17 January 2013 following a search using an external agency. Marion
has extensive commercial and investment experience and is currently the Senior
Independent non-executive Director of Dunelm Group plc, and a non-executive
Director of Octopus AIM VCT plc and Persimmon plc. Further details are included
in her biography in the Annual Report.
In accordance with the UK Corporate Governance Code for Directors of FTSE 350
companies the entire Board is subject to annual election and 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.
In line with good corporate governance, the Board had an independent,
externally facilitated assessment of its performance during 2012. The
evaluation reported that the performance and contribution of the Board was
effective and all Directors were committed to their roles. There were no areas
of concern reported.
The Board has considered the proposals for the election and 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 this year's Annual General Meeting. The Company's
performance record has been excellent since launch with a NAV increase of
1,608.6% compared to an increase in the Benchmark Index of 474.3% (on a total
return basis). During the past 12 months the Company's NAV has outperformed the
Index by 6.9% on a total return basis and is also ahead of the Index over 3, 5
and 10 years. Therefore your Board recommends that shareholders vote in favour
of the continuation vote. A further continuation vote will take place at the
Annual General Meeting in 2015.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at Fidelity's offices at
25 Cannon Street, London EC4M 5TA (St Paul's or Mansion House tube stations) on
Thursday 16 May 2013 at midday. 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
Investors who stayed the course in continental European equities have been
rewarded with an excellent year. Indeed, Europe was one of the strongest areas
for equity investment in 2012.
There are a large number of high quality companies quoted on continental
European bourses, many also with extensive businesses in Asia and around the
world. Value will `out'; such stocks had become overly depressed by the waves
of poor sentiment surrounding the political situation in Europe, low economic
growth and budget deficits which have to be financed, high unemployment
especially in Southern Europe and of course the Euro.
Whilst equities have regained poise, the outlook for earnings and dividend
growth is generally muted and one cannot pretend that the underlying political
and economic situation in Europe has improved dramatically. It does seem likely
that at some point in 2013 some of the worries will once again come to the
fore; and it follows that we may well see setbacks and volatility ahead. Our
response is to continue to focus on finding and investing in strong companies
which offer fundamental value and the prospect of making decent returns from
current valuation levels. We are fortunate to have a wide choice of investment
opportunities across the region.
Humphrey van der Klugt
Chairman
26 February 2013
Enquiries:
Susan Platts-Martin - Head of Investment Trusts, FIL Investments International
- 01737 836916
Keren Holland - Corporate Communications, FIL Investments International - 0207
074 5262
Christopher Pirnie - Head of UK Company Secretariat, FIL Investment
International - 01737 837929
Income Statement for the year ended 31 December 2012
2012 2011
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on - 93,403 93,403 - (94,320) (94,320)
investments
designated at fair
value through profit
or loss
Gains on derivative - 19,630 19,630 - 3,201 3,201
instruments held at
fair value through
profit or loss
Income* 18,518 - 18,518 22,831 - 22,831
Investment (4,929) (2,243) (7,172) (5,127) - (5,127)
management and
performance fees
Other expenses (629) - (629) (710) - (710)
Exchange losses on (76) (153) (229) (73) (2,639) (2,712)
other net assets
Exchange gains on - - - - 1,394 1,394
loans
---------- ---------- ---------- ---------- ---------- ----------
Net return/(loss) 12,884 110,637 123,521 16,921 (92,364) (75,443)
before finance costs
and taxation
Finance costs (326) - (326) (2,617) - (2,617)
---------- ---------- ---------- ---------- ---------- ----------
Net return/(loss) on 12,558 110,637 123,195 14,304 (92,364) (78,060)
ordinary activities
before taxation
Taxation on return/ (503) - (503) (1,511) 50 (1,461)
(loss) on ordinary
activities**
---------- ---------- ---------- ---------- ---------- ----------
Net return/(loss) on 12,055 110,637 122,692 12,793 (92,314) (79,521)
ordinary activities
after taxation for
the year
========== ========== ========== ========== ========== ==========
Return/(loss) per 27.78p 254.97p 282.75p 26.94p (194.42p) (167.48p)
ordinary share
========== ========== ========== ========== ========== ==========
2012 2011
£'000 £'000
*INCOME
Income from investments designated at fair value
through profit or loss
Overseas dividends 15,301 20,518
Overseas scrip dividends 1,435 1,987
UK dividends 570 244
---------- ----------
17,306 22,749
Income from derivative instruments held at fair value
through profit or loss
Dividends on long CFDs 1,162 -
---------- ----------
18,468 22,749
Other income
Deposit interest 50 46
Income from Fidelity Institutional Liquidity Fund plc - 36
---------- ----------
Total income 18,518 22,831
========== ==========
** Relates to overseas taxation only
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.
Reconciliation of Movements in Shareholders' Funds for the year ended 31 December 2012
share share capital capital revenue total
capital premium redemption reserve reserve equity
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Opening shareholders' 12,362 58,615 3,463 572,985 13,117 660,542
funds: 1 January 2011
Net (loss)/return on - - - (92,314) 12,793 (79,521)
ordinary activities after
taxation for the year
Repurchase of ordinary (1,289) - 1,289 (55,664) - (55,664)
shares
Dividend paid to - - - - (7,740) (7,740)
shareholders
---------- ---------- ---------- ---------- ---------- ----------
Closing shareholders' funds: 11,073 58,615 4,752 425,007 18,170 517,617
31 December 2011
Net return on ordinary - - - 110,637 12,055 122,692
activities after taxation
for the year
Repurchase of ordinary (292) - 292 (12,457) - (12,457)
shares
Dividend paid to - - - - (11,578) (11,578)
shareholders
---------- ---------- ---------- ---------- ---------- ----------
Closing shareholders' funds: 10,781 58,615 5,044 523,187 18,647 616,274
31 December 2012
========== ========== ========== ========== ========== ==========
Balance Sheet as at 31 December 2012
Company number 2638812
2012 2011
£'000 £'000
Fixed assets
Investments designated at fair value through 583,938 504,409
profit or loss
---------- ----------
Current assets
Derivative assets held at fair value through 16,448 4,423
profit or loss
Debtors 1,940 887
Fidelity Institutional Liquidity Fund plc 30 31
Cash at bank 20,450 12,371
---------- ----------
38,868 17,712
---------- ----------
Creditors - amounts falling due within one
year
Derivative liabilities held at fair value (2,747) (1,314)
through profit or loss
Other creditors (3,785) (3,190)
---------- ----------
(6,532) (4,504)
---------- ----------
Net current assets 32,336 13,208
---------- ----------
Total net assets 616,274 517,617
========== ==========
Capital and reserves
Share capital 10,781 11,073
Share premium account 58,615 58,615
Capital redemption reserve 5,044 4,752
Capital reserve 523,187 425,007
Revenue reserve 18,647 18,170
---------- ----------
Total equity shareholders' funds 616,274 517,617
========== ==========
Net asset value per ordinary share 1,428.97p 1,168.57p
========== ==========
Cash Flow Statement for the year ended 31 December 2012
2012 2011
£'000 £'000
Operating activities
Investment income received 13,165 16,783
Income received on long CFDs 1,162 -
Deposit interest received 53 78
Investment management fee paid (4,721) (5,384)
Directors' fees paid (161) (107)
Other cash payments (675) (494)
---------- ----------
Net cash inflow from operating activities 8,823 10,876
---------- ----------
Finance costs
Interest paid on long CFDs and bank loans (335) (2,606)
---------- ----------
Net cash outflow from finance costs (335) (2,606)
---------- ----------
Overseas taxation recovered 1,106 2,608
---------- ----------
Financial investments
Purchase of investments (129,219) (278,237)
Disposal of investments 144,451 372,990
---------- ----------
Net cash inflow from financial investments 15,232 94,753
---------- ----------
Derivative activities
Proceeds of long CFD positions closed 9,038 92
---------- ----------
Net cash inflow from derivative activities 9,038 92
---------- ----------
Dividend paid to shareholders (11,578) (7,740)
---------- ----------
Net cash inflow before use of liquid 22,286 97,983
resources and financing
---------- ----------
Cash flow from management of liquid resources
Fidelity Institutional Liquidity Fund plc 1 21,502
---------- ----------
Net cash inflow from management of liquid 1 21,502
resources
---------- ----------
Net cash inflow before financing 22,287 119,485
---------- ----------
Financing
Repurchase of ordinary shares (14,055) (54,354)
Loans repaid - (54,418)
---------- ----------
Net cash outflow from financing (14,055) (108,772)
---------- ----------
Increase in cash 8,232 10,713
========== ==========
The above statements have been prepared on the basis of the accounting policies
as set out in the annual financial statements to 31 December 2012. This
preliminary statement, which has been agreed with the Auditor, was approved by
the Board on 26 February 2013 and agreed by the Auditor on 27 February 2013. It
is not the Company's statutory financial statements. The statutory financial
statements for the financial year ended 31 December 2011 have been delivered to
the Registrar of Companies. The statutory financial statements for the
financial year ended 31 December 2012 have been approved and audited but have
not yet been filed. The statutory financial statements for the financial years
ended 31 December 2011 and 31 December 2012 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 13 April 2013.
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