Final Results
FIDELITY JAPANESE VALUES PLC
Preliminary Announcement of Results
For the year ended 31 December 2006
The Year's Results: NAV 79.59p -35.6%
The Share Price and the (Discount)/Premium:
Price: 73.50p (down 56.75p; -43.6%)
(Discount)/Premium: -7.7% (5.4% premium in 2005)
PERFORMANCE REVIEW
The Japanese stock market produced disappointing results in 2006. The
performance of small cap stocks, in which your Company invests, was
particularly adverse. As a result, it is with regret that I must report to you
that we could not achieve our primary objective of increasing shareholder
value. Further, we did not, this year, outperform the market - which is our
secondary but equally important objective. The net asset value of the Company
fell by 35.6%, underperforming the Russell Nomura Mid/Small Cap Index (-18.6%)
which is our benchmark index of mid and small cap stocks.
After last year's excellent results, it is naturally disappointing to report
such a reversal of fortunes. Investing in small companies does carry a degree
of risk and returns are inevitably volatile. Over the longer term, which we
believe to be a more realistic period to consider, returns are better - for
example over three years the NAV has increased by 31.7%, compared with 30.0%
for the Russell Nomura Mid/Small Cap Index (in sterling terms).
Your Company's performance is in part a result of its large exposure to mid and
small cap stocks, which fell on heavy profit taking after achieving strong
gains in 2005; for example the JASDAQ Index was down 34% in 2006 and some of
the smaller indices such as Mothers were down as much as 56% (in yen terms).
Given the exposure to these markets during 2006 the impact of stock picking on
the portfolio has been disappointing and has meant that we have given up the
strong stock selection results we saw in the previous two years. This was
compounded by the effects of gearing and adverse movements in the yen:sterling
exchange rate. Your Board keeps the level of borrowing under regular review
and, while gearing was detrimental to performance over the year, over the
longer term it has proven beneficial to shareholders. All borrowing is in yen,
and so this provides a natural hedge against currency movements for that part
of the portfolio funded by borrowing.
MARKET REVIEW
2006 proved not to be the year of continued growth in Japanese equity prices
which many anticipated at the start of the year. In January, the market was
forced to contend with the effects of the scandal at the internet company,
Livedoor. In May, the Japanese market faltered with the rest of the world's
major equity markets. While other markets rebounded from this setback, Japan
failed to do so. Japan's poor performance cannot be explained by a largescale
deterioration in economic and business fundamentals. Rather, several factors
compounded to damage confidence. Starting with the Livedoor scandal, the
Japanese corporate sector has been witness to a series of financial scandals
that undermined some investors' confidence. Further, some investors became
concerned about the economic cycle and the sustainability, at least in the
short term, of the Japanese economic recovery and corporate earnings growth.
The result is an investor base that is divided on its view of the
attractiveness of the Japanese market. Some have taken the tactical view that
the Japanese economy is quite exposed to a global slowdown and that assets
could be better placed elsewhere. Others believe that the structural reforms in
Japan not only make it attractive but also that the current weakness makes
shares more attractive than they have been for some time. A tug of war between
cyclical bears and structural bulls continued throughout the year, which
resulted in a series of rallies ending in sell-offs.
THE PORTFOLIO MANAGER
Having been with Fidelity since 1981, Asako Kibe, the Portfolio Manager, will
retire on 30 September 2007. Your Board, working closely with Fidelity, has
agreed that Shinji Higaki should be appointed as Portfolio Manager to your
Company. Shinji Higaki joined Fidelity as a research analyst in 1999, having
previously worked as an auditor in Tokyo. He holds a BA from Keio University
and an MBA from London Business School. Since joining Fidelity, he has gained a
wealth of experience, analysing companies in a range of sectors and is now one
of the most experienced analysts within Fidelity's Tokyo office. Shinji's
extensive sector coverage has equipped him with a broad and in-depth knowledge
of the Japanese stock market. Shinji Higaki and Asako Kibe will work together
over the next few months to ensure a smooth transition in the management of the
Company's investments and will continue to be supported by Fidelity's research
team which is one of the largest in Tokyo, comprising 30 analysts/research
associates. Your Board would like to take this opportunity to record our thanks
to Asako for her contribution to the Company and to welcome Shinji Higaki as
the new Portfolio Manager.
THE MARKET AND OUTLOOK
The Japanese stock market produced disappointing results in 2006. The
performance of small cap stocks, in which your Company invests, was
particularly adverse. This does not, however, reflect any wholesale
deterioration in either economic or corporate fundamentals within Japan, and
your Board therefore believes that we are nearing the end of a correction in
the share prices of small cap stocks. Company valuations have reduced
substantially and, on valuation grounds, the underperformance of Japanese small
cap stocks is increasingly hard to justify. Your Board and the Manager believe
that long term value is evident in the Japanese small cap universe where
earnings growth momentum remains healthy.
Looking ahead, while it is important to keep an eye on potential risk factors
that could derail the market recovery, a number of emerging trends suggest that
the Japanese equity market will go higher. We believe that the current slowdown
in personal consumption does not spell the end of Japan's economic recovery.
The current situation is somewhat similar to the soft patch that occurred in
the summer of 2004. More significant are the structural improvements which have
occurred including tighter supply/demand conditions in the labour market, a
rebound in asset prices, a healthier financial system and a sounder corporate
sector. The Japanese economy is now better able to withstand downside risks
than it has been for many years.
While it is still possible that a global slowdown will impact Japan, the Board
believes that any such slowdown would not reflect more than short term cyclical
issues. Conversely, the structural arguments for investing in Japan are longer
term in nature and remain intact.
CONTINUATION VOTE
Every three years your Board of Directors puts a resolution to shareholders
concerning the continuation of the Company as an investment trust. Your Board
takes this resolution most seriously and certainly does not take a
recommendation to continue for granted.
Your Board has considered the prospects for the economy of Japan, for the
corporate sector and its profits and finally for those of smaller companies, in
particular with a view to assessing whether or not there are good prospects for
a rise in the net asset value over the next three years. Your Board has also
met the Company's stockbrokers to discuss shareholders' views.
Finally, your Board has carefully considered the returns achieved by the
Company's portfolio over the three year period since the last continuation
vote. These are detailed in the Business Review within the annual report and
this Attribution Analysis is included, together with the Key Performance
Indicators, at the end of this statement; they confirm that the decision to
continue as an investment trust was positive for shareholders who have remained
invested over the past three years.
Your Board believes that it is in the best interests of all shareholders that
they should vote in favour of the Company continuing in business as an
investment trust at the Annual General Meeting.
THE BOARD
Your Board continues to monitor corporate governance issues, reviewing and
updating processes as appropriate.
In accordance with the Listing Rules, Simon Fraser, President of Fidelity
International's European Institutional Business, will retire and, following an
evaluation of his performance by his fellow Directors and on their
recommendation, will seek re-election at the forthcoming Annual General
Meeting. Having been on the Board for more than nine years I will also retire
and, following an evaluation of my performance by my fellow Directors and on
their recommendation, I will seek re-election at the forthcoming Annual General
Meeting. In accordance with the Company's Articles of Association, which
require that one third of the Directors retire by rotation each year, Nicholas
Barber will also retire and, following an evaluation of his performance by his
fellow Directors and on their recommendation, will seek re-election at the
forthcoming Annual General Meeting.
SHARE REPURCHASES
Purchases of shares for cancellation are made at the discretion of your Board
and within guidelines set from time to time by the Board in the light of
prevailing market conditions. Share repurchases will only be made when they
will result in an enhancement to NAV for the remaining shareholders. In recent
years share repurchases have been used sparingly due to their impact on
liquidity and gearing and no repurchases were made in the year to 31 December
2006. Your Board continues to believe that the ability to repurchase shares is
a valuable tool and therefore a resolution to renew your Company's authority to
repurchase shares will be proposed at the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING - 3 MAY 2007
The Annual General Meeting will be held at midday on 3 May 2007 at Fidelity's
offices at 25 Cannon Street in the City of London and all investors are
encouraged to attend. It is the one occasion in the year when shareholders can
meet all of the Directors as well as representatives from the Manager. You may
have questions, comments or suggestions which we would welcome. Following the
meeting the Portfolio Manager will give a presentation on the past year and the
prospects for the current year.
William Thomson
Chairman
8 March 2007
KEY PERFORMANCE INDICATORS ("KPIs")
Given the identification of the Company's objective and strategy, the Board has
identified KPIs against which performance can be measured, detailed below:
Year ended 3 Years ended 5 Years ended
31 December 2006 31 December 2006 31 December 2006
Net Asset Value Return -35.6% +31.7% +49.8%
Share Price Return -43.6% +44.1% +78.2%
Russell Nomura Mid/ -18.6% +30.0% +47.6%
Small Cap Index (in
sterling terms)
The Directors also monitor the various factors contributing to investment
results, as set out in the attribution analyses below (all data in pence per
share):
ATTRIBUTION ANALYSIS
31 December 2006 3 years to 31 December 2006
(pence) (pence)
Opening Net Asset Value 123.56 60.42
Impact of the Index -7.71 35.61
(in yen terms)
Impact of stock selection -14.81 -1.70
(in yen terms)
Impact of currency -15.19 -17.03
Impact of gearing (in yen -3.77 6.75
terms)
Impact of other costs -2.49 -4.46
Net Asset Value at 31 79.59 79.59
December 2006
Enquiries:
Stephen Westwood, Head of Investment Trusts, Fidelity Investments International
- 020 7961 4477
Tracey Bennett, Senior Company Secretary, Fidelity Investments International
- 01737 836 883
Issued by Fidelity Investments International. Authorised and regulated by the
Financial Services Authority.
CB20454
FIDELITY JAPANESE VALUES PLC
Income Statement
- for the year ended 31 December
2006 2005
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on - (44,456) (44,456) - 51,970 51,970
investments
Income
- Dividend 1,023 - 1,023 822 - 822
- Interest 4 - 4 5 - 5
Investment management fee (998) - (998) (1,174) - (1,174)
Other expenses (412) - (412) (369) - (369)
Exchange gains/(losses) 3 (130) (127) 3 28 31
Exchange gains on loans - 2,070 2,070 - 364 364
(Loss)/net return before (380) (42,516) (42,896) (713) 52,362 51,649
finance costs and
taxation
Interest payable (214) - (214) (227) - (227)
(Loss)/net return on (594) (42,516) (43,110) (940) 52,362 51,422
ordinary activities
before taxation
Taxation on return on (72) - (72) (58) - (58)
ordinary activities *
(Loss)/net return on (666) (42,516) (43,182) (998) 52,362 51,364
ordinary activities after
taxation for the year
attributable to equity
shareholders
(Loss)/return per (0.68p) (43.29p) (43.97p) (1.02p) 53.32p 52.30p
ordinary share (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. The
total column of the Income Statement is the profit and loss account of the
Company. 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 onlyFIDELITY JAPANESE VALUES PLC
Reconciliation of Movements in Shareholders' Funds
- for the year ended 31 December
Called up Share Capital Other Capital Capital Revenue Total
share premium redemption reserve reserve reserve reserve equity
capital account reserve realised unrealised
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening 24,551 44 1,780 60,369 (6,351) (213) (10,196) 69,984
shareholders'
funds: 1
January 2005
Net return/ - - - - 9,344 43,018 (998) 51,364
(losses) as
recognised in
the Income
Statement
Closing 24,551 44 1,780 60,369 2,993 42,805 (11,194) 121,348
shareholders'
funds:
31 December
2005
Net return/ - - - - 14,504 (57,020) (666) (43,182)
(losses) as
recognised in
the Income
Statement
Closing 24,551 44 1,780 60,369 17,497 (14,215) (11,860) 78,166
shareholders'
funds:
31 December
2006
FIDELITY JAPANESE VALUES PLC
Balance Sheet
- as at 31 December
2006 2005
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 91,617 136,508
Current assets
Debtors 417 252
Cash at bank 419 1,710
836 1,962
Creditors - amounts falling due within one year
Other creditors (655) (1,420)
(655) (1,420)
Net current assets 181 542
Total assets less current liabilities 91,798 137,050
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (13,632) (15,702)
Total net assets 78,166 121,348
Capital and reserves
Called up share capital 24,551 24,551
Share premium account 44 44
Capital redemption reserve 1,780 1,780
Other reserve 60,369 60,369
Capital reserve - realised 17,497 2,993
Capital reserve - unrealised (14,215) 42,805
Revenue reserve (11,860) (11,194)
Total equity shareholders' funds 78,166 121,348
Net asset value per ordinary share 79.59p 123.56p
FIDELITY JAPANESE VALUES PLC
Cash Flow Statement
- for the year ended 31 December
2006 2005
£'000 £'000
Operating activities
Investment income received 923 783
Interest received 4 5
Investment management fee paid (1,114) (1,007)
Directors' fees paid (99) (88)
Other cash payments (233) (280)
Net cash outflow from operating activities (519) (587)
Returns on investments and servicing of finance
Interest paid (218) (227)
Net cash outflow from servicing of finance (218) (227)
Financial investment
Purchase of investments (73,870) (62,792)
Disposal of investments 73,321 64,647
Net cash (outflow)/inflowfrom financial investment (549) 1,855
(Decrease)/increase in cash (1,286) 1,041
1. (Losses)/returns per ordinary share are based on the net revenue loss on
ordinary activities after taxation of £666,000 (2005: £998,000), the capital
loss in the year of £42,516,000 (2005: return £52,362,000) and the total loss
in the year of £43,182,000 (2005: return of £51,364,000) and on 98,207,453
ordinary shares (2005: 98,207,453) 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 statutory accounts for the year ended 31 December 2006 which
will be delivered to the Registrar of Companies 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 annual report and financial statements will be posted to shareholders as
soon as is practicable and in any event no later than 2 April 2007.
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