Final Results
FIDELITY EUROPEAN VALUES PLC
Preliminary Announcement of Results
For the year ended 31 December 2006
I have pleasure in presenting the annual report of Fidelity European Values PLC
for the year ended 31 December 2006. However, at the time of writing this
report, everything is overshadowed by the sudden and tragic death of Johan
Björkman. Johan was a delightful and charming man and a totally professional
colleague. He had a fine sense of judgement, and of humour, and was always a
constructive and challenging Director. Both I and all my colleagues on the
Board pay tribute to him. We shall miss him both from a professional and a
personal point of view.
PERFORMANCE
Continental European equities delivered another year of strong returns during
2006, despite experiencing a correction in May and June. Stock markets were
buoyed by takeover activity, strong corporate results and positive economic
data. Concerns about the direction of energy prices and rising interest rates
globally did little to halt the progression of market movements. During the
review period, the net asset value ("NAV") per share of the Company returned
17.5%, underperforming the benchmark FTSE World Europe (ex UK) Index, which
returned 19.5%. Although the absolute return was strong, performance was
slightly disappointing relative to the Index. This was primarily due to
holdings in the oil & gas sector, as well as a lack of exposure to financials
at the start of the year. Overall, the portfolio's gearing had a positive
impact on the total return of the NAV. The shares ended the year trading at a
discount of 5.7% to the underlying asset value per share. (All figures are in
sterling and are on a total return basis.) A detailed review of the performance
of the portfolio is provided in the Manager's Review.
GEARING
A total of €90 million in loans (€50m and €40m from The Royal Bank of Scotland
plc and National Australia Bank Limited respectively) matured on 29 December
2006. After careful consideration of the options available the loans were
repaid using the funds drawn down on 29 December 2006 from €80m of new loan
facilities entered into on 20 December 2006 (comprising a €65m 4.38% fixed
interest rate loan with Barclays Bank PLC and €15m of a €25m revolving credit
facility with Lloyds TSB Bank plc) together with an amount of cash already
held. The Board is responsible for the level of gearing in the Company and
continues to review it on a regular basis. As at the date of this Statement,
the Company's level of net gearing was 12.8% and the Board will ensure that in
normal circumstances net gearing is below 20%. It is estimated that gearing
enhanced the NAV by 3.6 per cent over the year. The Board continues to believe
that gearing will continue to benefit shareholders in the long term.
DISCOUNT MANAGEMENT
We will be active in issuing shares at a premium and buying back shares at a
discount; a continuation of practice since launch. The purpose of this is to
reduce share price volatility and over the last six months a number of share
buybacks have been made.
DIVIDEND
It is the Board's policy to pay out earnings in full but it has no control over
earnings and will not influence the Manager in any way to determine these.
Your Board has decided to recommend a final dividend of 5.25 pence per share
for the year ending 31 December 2006 (2005: 2.50 pence). This dividend will be
payable on 22 May 2007 to shareholders on the register at close of business on
23 March 2007 (ex-dividend date 21 March 2007). The Board believes very
strongly in increasing total return (income and capital) on investment for
shareholders.
DIRECTORATE
This year all of the Company's Directors retire and, being eligible, offer
themselves for re-election. As detailed in the biographies in the Annual Report
the Directors have a wide range of appropriate skills and experience to make up
a balanced Board for your Company. Mr Simpson and I are subject to annual
re-election due to our tenure on the Board exceeding nine years and Mr Fraser
is subject to annual re-election under the Listing Rules due to his employment
relationship with the Manager. This relationship with a senior member of the
Company's Manager who assumes the responsibility of being a Director of the
Company is considered important. All Directors with the exception of Mr Fraser
are totally independent and this provides an appropriate balance. Pursuant to
the Company's Articles of Association, if there are fewer than three Directors
eligible to retire by rotation, then all shall retire. Therefore Mr Duckworth
is subject to re-election this year. Although the Board recognises the
importance of continuity provided by longer serving Directors, it also
recognises the need for refreshment from time to time and, prior to the death
of Mr Björkman, the Board had already commenced the process of recruiting an
additional Director. The Board now believes that we should recruit a further
Director and details will be announced in due course.
The Board has considered the proposal for the re-election of all of the
Directors and recommends to shareholders that they vote in favour of the
proposals. Due to Mr Simpson's and my tenure on the Board exceeding nine years
our fellow Directors have met in our absence and considered our eligibility for
re-election. In my case, they considered that my experience, my independence of
mind and the manner in which I have filled the role of Chairman over the last
five years have been beneficial to the Company and they confirmed that they
wish me to continue as Chairman. In Mr Simpson's case his investment experience
and Chairmanship of the Company's Audit Committee have remained extremely
valuable. The Board is recommending that Mr Simpson and I be re-elected as
Directors at the forthcoming Annual General Meeting.
MANAGEMENT FEES
The Board recognises the importance of ensuring that the terms of the
Management Agreement are fair, competitive and reasonable for shareholders. In
the course of its consideration of the Management Agreement the Board has come
to the conclusion that the introduction of performance related fees would be in
the interests of shareholders and, accordingly, the independent Directors are
in negotiations with the Manager. Details of the newly negotiated performance
fees will be announced shortly and will take effect from 1 January 2007.
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 will be proposed at the forthcoming Annual General Meeting. In view of
the Company's excellent performance record (a NAV increase of 1,287.4% since
launch compared to an increase in the benchmark Index of 428.7%), your Board
recommends that shareholders vote in favour of the resolution. A further
continuation vote will take place at the Annual General Meeting in 2009.
AUDITORS
During the year a review of audit services was carried out and a change of
Auditors was agreed. The retained Auditors of the Company resigned and the
Board appointed RSM Robson Rhodes LLP to fill the casual vacancy arising.
DIRECTORS' REMUNERATION
Each year the Board reviews Directors' fees in the light of increases in
workload and the risks of being a non-executive director. Fees paid by
companies in its peer group and elsewhere in the industry are considered. With
effect from 1 January 2007 my fee has been increased to £25,000 pa (2006: £
24,000), the Chairman of the Audit Committee's to £20,000 pa (2006: £18,000)
and that of the other Directors to £17,000 pa (2006: £16,000). The total
payable is within the £150,000 maximum aggregate laid down in the Company's
Articles of Association.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company is due to take place on 18 May 2007
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 meeting you then.
BUSINESS REVIEW
Shareholders will note a restructuring and expansion of the contents of this
year's Annual Report due to changes in regulatory requirements. The main
changes are the addition of a Business Review (forming part of the Directors'
Report) and the listing of the Company's complete portfolio as at 31 December
2006. My view is that the annual report is now too lengthy and most of the
detail of the Business Review is not of interest or use to the majority of
shareholders. Therefore an attempt has been made to pull together the key
issues and any contentious matters in the Chairman's Statement and the
Manager's Review so that only the most assiduous of shareholders need read the
extra detail. I would like shareholders to convey their thoughts on this
approach to me to see if it is favoured or whether a different approach would
be preferred.
VAT ON MANAGEMENT FEES
At the time of writing this Statement, we have just been made aware of the
European Advocate General's views, which were generally supportive of the
Association of Investment Companies in its claim that Her Majesty's Revenue and
Customs has been incorrect in requiring investment trusts domiciled in the UK
to pay VAT on their management fees. While the final judgment on the JPMorgan
Claverhouse/AIC test case from the European Court of Justice is not due until
June, it is encouraging to see such progress. If the case is ultimately
successful, it will result in a substantial reduction in your Company's overall
running costs.
OUTLOOK
As you will see in the Manager's Review, our Manager believes that markets
continue to present good value opportunities.
For our part we believe that stock selection based on in-depth company analysis
will continue to be the key in outperforming the Index over the coming years.
Robert Walther, Chairman
1 March 2007
Enquiries:
Stephen Westwood, Head of Investment Trusts, Fidelity Investments International
- 020 7961 4477
Rebecca Burtonwood, Company Secretary, Fidelity Investments International
- 01737 836 869
Issued by Fidelity Investments International. Authorised and regulated by the
Financial Services Authority.
CB30278/N/A
FIDELITY EUROPEAN VALUES PLC
Income Statement
- for the year ended 31 December
2006 2005
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 115,258 115,258 - 175,905 175,905
Income
- Dividend 21,305 - 21,305 16,842 - 16,842
- Interest 326 - 326 123 - 123
Investment management fee (9,961) - (9,961) (8,252) - (8,252)
Other expenses (986) - (986) (920) - (920)
Exchange gains/(losses) 55 (311) (256) 54 (213) (159)
Exchange gains on loans - 2,260 2,260 - 702 702
Net return before finance 10,739 117,207 127,946 7,847 176,394 184,241
costs and taxation
Interest payable (4,976) - (4,976) (3,801) - (3,801)
Net return on ordinary 5,763 117,207 122,970 4,046 176,394 180,440
activities before
taxation
Taxation on return on (2,407) (482) (2,889) (2,274) (65) (2,339)
ordinary activities*
Return on ordinary 3,356 116,725 120,081 1,772 176,329 178,101
activities after taxation
for the year
Return per ordinary share 5.34p 185.68p 191.02p 2.82p 280.32p 283.14p
(1)
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. All
revenue and capital items in the Income Statement derive from continuing
operations. No operations were acquired or discontinued in the year.
* This relates to overseas taxation only.FIDELITY EUROPEAN VALUES PLC
Reconciliation of Movements in Shareholders' Funds
- for the year ended 31 December
called share capital capital capital revenue total
up premium redemption reserve reserve reserve equity
share account reserve realised unrealised
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening shareholders' 15,725 58,615 100 305,447 127,785 5,013 512,685
funds: 1 January 2005
Effect of changing - - - - (1,077) - (1,077)
prices from middle to
bid market at 1
January 2005
Net recognised gains - - - 119,303 57,026 - 176,329
for the year
Revenue after - - - - - 1,772 1,772
taxation
Dividend paid - - - - - (1,101) (1,101)
Closing shareholders' 15,725 58,615 100 424,750 183,734 5,684 688,608
funds: 31 December
2005
Net recognised gains/ - - - 148,343 (31,618) - 116,725
(losses) for the year
Repurchase of shares (114) - 114 (5,453) - - (5,453)
Revenue after - - - - - 3,356 3,356
taxation
Dividend paid - - - - - (1,573) (1,573)
Closing shareholders' 15,611 58,615 214 567,640 152,116 7,467 801,663
funds:
31 December 2006
FIDELITY EUROPEAN VALUES PLC
Balance Sheet
- as at 31 December
2006 2005
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 901,497 800,634
Current assets
Debtors 3,506 1,712
Cash at bank 4,718 3,259
8,224 4,971
Creditors - amounts falling due within one year
Fixed rate unsecured loans (10,104) (61,855)
Other creditors (3,652) (3,596)
(13,756) (65,451)
Net current liabilities (5,532) (60,480)
Total assets less current liabilities 895,965 740,154
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (94,302) (51,546)
Total net assets 801,663 688,608
Capital and reserves
Called up share capital 15,611 15,725
Share premium account 58,615 58,615
Capital redemption reserve 214 100
Capital reserve - realised 567,640 424,750
Capital reserve - unrealised 152,116 183,734
Revenue reserve 7,467 5,684
Total equity shareholders' funds 801,663 688,608
Net asset value per ordinary share 1,283.77p 1,094.71p
FIDELITY EUROPEAN VALUES PLC
Cash Flow Statement
- for the year ended 31 December
2006 2005
£'000 £'000
Operating activities
Investment income received 16,969 13,882
Interest received 302 117
Investment management fee paid (9,671) (7,496)
Directors' fees paid (94) (75)
Other cash payments (675) (921)
Net cash inflow from operating activities 6,831 5,507
Returns on investments and servicing of finance
Interest paid (4,977) (3,673)
Net cash outflow from returns on investments and (4,977) (3,673)
servicing of finance
Taxation
Overseas taxation recovered 874 874
Taxationrecovered 874 874
Financial investment
Purchase of investments (724,793) (557,685)
Disposal of investments 738,088 504,390
Net cash inflow/(outflow)from financial investment 13,295 (53,295)
Equity dividend paid (1,573) (1,101)
Net cash inflow/(outflow)before financing 14,450 (51,688)
Financing
Repurchase of ordinary shares (5,435) -
4.38% fixed rate unsecured loan drawn down 43,783 -
4.1465% credit facility drawn down 10,104 -
3.23% fixed rate unsecured loan drawn down - 26,625
3.54% fixed rate unsecured loan drawn down - 23,919
4.96% fixed rate unsecured loan repaid (33,679) -
5.54% fixed rate unsecured loan repaid (26,943) -
Net cash (outflow)/inflow from financing (12,170) 50,544
Increase/(decrease)in cash 2,280 (1,144)
1. Returns per ordinary share are based on the net revenue return on ordinary
activities after taxation of £3,356,000 (2005: £1,772,000), the capital return
in the year of £116,725,000 (2005: £176,329,000) and the total return in the
year of £120,081,000 (2005: £178,101,000) and on 62,864,314 ordinary shares
(2005: 62,903,233) being the weighted average number of ordinary shares in
issue during the year.
This preliminary statement is not the Company's statutory accounts. The
statutory accounts for the year ended 31 December 2005 have been delivered to
the Registrar of Companies and received an audit report which was unqualified,
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 s237(2) and (3) of the Companies Act 1985. The statutory
accounts for the year ended 31 December 2006 have been approved and audited but
not yet filed.
The annual report and financial statements will be posted to shareholders as
soon as is practicable and in any event no later than 18 April 2007.
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