Final Results
FIDELITY JAPANESE VALUES PLC
Preliminary Announcement of Unaudited Results
For the year ended 31 December 2005
The Year's Results:
NAV 123.56p (+73.4%)
The Share Price and the (PREMIUM)/Discount:
Price: 130.25p (+68.5p; +110.9%)
(PREMIUM)/Discount: (5.4)% (13.3% in 2004)
PERFORMANCE REVIEW
Given that for most of your Company's life the Net Asset Value (NAV) has been
less than the issue price due to the very disappointing performance of the
Japanese stock market, it is with some relief that I can report that at last
this situation has changed and the NAV rose by 73.4% to 123.56 pence at the
year end. Importantly this performance outshone our benchmark index - the
Russell Nomura Mid/Small Cap Index - which was up 45.5% and the broader market
TOPIX Index - up 40.7%.
By the year end the Company's share price had moved from a discount of 13.3% at
the beginning of the year to a premium of 5.4% resulting in a share price
increase of 110.9% during the year.
The Company's strong performance benefited from the Manager's bottom-up stock
selection. In particular, holdings in the services, information &
communication, and electrical machinery sectors contributed to the Company's
portfolio returns.
MARKET REVIEW
In 2005, Japan's economy expanded by 2.8% year-on-year. Growth in private
consumption and investment drove the momentum. Employment and income trends
showed further signs of improvement.
During the latter half of 2005, Japanese equities broke out of the holding
formation that had characterised the market since early 2004. Increasing
confidence in the health of the domestic economy, Prime Minister Koizumi's
dramatic election victory and better than expected corporate results spurred
the Tokyo Stock Exchange First Section (TOPIX) to a five-year high. Both the
value and volume of shares traded climbed to historical highs, with overseas
investors the dominant buyers. Resource related industries performed well with
their values rising in line with global commodity prices. Those closely tied to
the domestic economy, particularly banks and real estate, also enjoyed
significant gains due to rising expectations of a sustainable recovery in
domestic demand. Overall small cap stocks performed better than the large cap
sector, although large cap stocks rose sharply in the second half of 2005
narrowing the gap.
THE BOARD
As you are aware, Philip Kay and David Miller were both appointed to the Board
in October 2004 and, having now completed a full year's service, have
contributed enormously to the deliberations of your Board.
Nicholas Barber was appointed as Senior Independent Director on 10 March 2005.
As I heralded in last year's report Sir John Stanley retired on 31 March 2005.
We miss him and record our thanks for his extensive contribution.
The Board continues to review and monitor corporate governance issues on an
ongoing basis, refreshing and updating processes as appropriate.
In accordance with the Listing Rules, Simon Fraser, President of Fidelity
International's European Institutional Business, the Director on the Board
representing Fidelity, will retire and seek re-election at the forthcoming
Annual General Meeting. In accordance with the Company's Articles of
Association, which require that one third of Directors retire by rotation each
year, 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.
MANAGEMENT AGREEMENT
Following the annual review of the Management Agreement between the Company and
Fidelity we agreed with Fidelity that the notice by either party should reduce
from twelve months to six months. Your Board believes that this change is in
the interests of shareholders as a whole.
GEARING
The decision in 2004 to renew the Company's loans has, at least to date, proved
to be the correct one and during 2005 the Company's gearing contributed some
13.9 pence to the NAV.
The Board's policy is to maintain the two 5 year loans in place for their full
term until 2009. However, the resultant level of gearing is monitored regularly
and in the event that the Board believes at any particular time that the level
is no longer appropriate in the light of economic or stock market conditions in
the longer term, the level will be adjusted accordingly.
SHARE BUYBACKS
Purchases of shares for cancellation are made at the discretion of the 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
2005. The Board continues to believe that the ability to repurchase shares is a
valuable tool and therefore a resolution to renew the Company's authority to
repurchase shares will be proposed at the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING: 27 APRIL 2006
The Annual General Meeting will be held at midday on 27 April 2006 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 the Investment Manager, Asako Kibe.
You may have questions, comments or suggestions which we would welcome and
which all shareholders should have the benefit of hearing. Following the
meeting Asako Kibe will give a presentation on the past year and the prospects
for the current year.
THE MARKET AND OUTLOOK
After the very steep rise in the Japanese market during 2005 and into the first
two weeks of 2006 there was a correction, partially triggered by the Livedoor
scandal. As I write the relevant indices are slightly below those at 31
December 2005. Against this background the discount/premium at which our shares
stand has been fairly volatile but in recent days seems to have settled, at
least for the moment, moving in a narrow range around par.
Looking ahead, sustained growth, latterly encouraged in 2005 by key factors,
including housing, capital expenditure and personal consumption, suggests that
Japan's economy continues to recover, supported by buoyant private sector
demand. Meanwhile, easing deflationary trends, a turnaround in bank lending
(adjusted for loan write-offs and securitisations) and improving employment and
income trends indicate that the current recovery is broader and more
sustainable than in recent years.
Improving economic fundamentals have fostered an environment favourable to
corporate Japan. The Bank of Japan's quarterly business sentiment survey
revealed that Japanese companies are more confident in their ability to
accelerate top and bottom line growth. On an all-company basis, fiscal 2005/06
sales are expected to increase by 3.2% year-on-year versus an earlier forecast
of 2.8%. Recurring profit estimates point towards growth of 5.4% year-on-year
versus a previous forecast of 3.4%. Moreover, according to a survey conducted
by the Nihon Keizai financial newspaper, Japanese companies' (excluding
financials) return on equity will climb to a record high of 8.9% during the
current financial year. In particular, Japanese companies have repaired their
balance sheets by significantly reducing their excess debts. Free cash flow
generation is at record high levels, supporting increases in business
investment and merger and acquisitions, as well as higher dividend payouts.
With their balance sheets significantly strengthened, Japanese companies should
be able to shift their attention to pursuing new profit opportunities as
economic growth gains traction.
The surge in Japanese equities since the summer of 2005 has reduced their
undervaluation relative to other developed markets. However, interim results
exceeded consensus estimates and upward revisions are likely to characterise
the remainder of fiscal 2005/06. Moreover, forecasts for 2006/07 indicate that
earnings will increase for the fifth consecutive year which, if correct, will
be the first time that this will have occurred in a quarter of a century. The
main risk to this relatively benign outlook would be a significant rise in
Japanese interest rates following the recent announcement by the Bank of Japan.
William Thomson
Chairman
14 March 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.
CB26281
FIDELITY JAPANESE VALUES PLC
Income Statement
- unaudited - for the year ended 31 December (1)
2005 2004
restated
(2)
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 51,970 51,970 - 11,063 11,063
Income
- Dividend 822 - 822 701 - 701
- Interest 5 - 5 4 - 4
Investment management fee (1,174) - (1,174) (884) - (884)
Other expenses (369) - (369) (369) - (369)
Exchange gains/(losses) 3 28 31 (1) (141) (142)
Exchange gains on loans - 364 364 - 594 594
(Loss)/net return before (713) 52,362 51,649 (549) 11,516 10,967
finance costs and
taxation
Interest payable (227) - (227) (274) - (274)
(Loss)/net return on (940) 52,362 51,422 (823) 11,516 10,693
ordinary activities
before taxation
Taxation on return on (58) - (58) (48) - (48)
ordinary activities *
(Loss)/net return on (998) 52,362 51,364 (871) 11,516 10,645
ordinary activities after
taxation for the year
attributable to equity
shareholders
(Loss)/return per (1.02)p 53.32p 52.30p (0.89)p 11.73p 10.84p
ordinary share (3)
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 onlyFIDELITY JAPANESE VALUES PLC
Reconciliation of Movements in Shareholders' Funds
- unaudited - for the year ended 31 December(4)
Called Share Capital Other Other Warrant Capital Capital Revenue Total
up premium redemption reserve non-distributable reserve reserve reserve reserve shareholders'
share account reserve reserve realised unrealised funds
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening 24,551 40 1,780 60,369 2 10,198 (30,687) 2,410 (9,325) 59,338
shareholders'
funds: 1 January
2004
Net return/ - - - - - - 14,139 (2,623) (871) 10,645
(losses) as
recognised in the
Income Statement
Exercise of - - - - 2 (1) - - - 1
warrants
Gain on - - - - - (10,197) 10,197 - - -
expiration of
warrants
Transfer from - 4 - - (4) - - - - -
other
non-distributable
reserves to share
premium
Closing 24,551 44 1,780 60,369 - - (6,351) (213) (10,196) 69,984
shareholders'
funds:
31 December 2004
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
FIDELITY JAPANESE VALUES PLC
Balance Sheet
- unaudited - as at 31 December
2005 2004
£'000 £'000
Fixed assets
Investments held at fair value through profit or 136,508 85,376
loss
Current assets
Debtors 252 456
Cash at bank 1,710 673
1,962 1,129
Creditors - amounts falling due within one year
Other creditors (1,420) (455)
(1,420) (455)
Net current assets 542 674
Total assets less current liabilities 137,050 86,050
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (15,702) (16,066)
Total net assets 121,348 69,984
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 2,993 (6,351)
Capital reserve - unrealised 42,805 (213)
Revenue reserve (11,194) (10,196)
Total equity shareholders' funds 121,348 69,984
Net asset value per ordinary share: 123.56p 71.26p
FIDELITY JAPANESE VALUES PLC
Cash Flow Statement
- unaudited- for the year ended 31 December
2005 2004
£'000 £'000
Operating activities
Investment income received 783 629
Interest received 5 3
Investment management fee paid (1,007) (864)
Directors' fees paid (88) (68)
Other cash payments (280) (283)
Net cash outflow from operating activities (587) (583)
Returns on investments and servicing of finance
Interest paid (227) (275)
Net cash outflow from returns on investments and (227) (275)
servicing of finance
Financial investment
Purchase of investments (62,792) (76,801)
Disposal of investments 64,647 75,047
Net cash inflow/(outflow)from financial investment 1,855 (1,754)
Net cash inflow/(outflow)before financing 1,041 (2,612)
Financing
Exercise of warrants - 1
1.05% fixed rate unsecured loan repaid - (7,371)
2.155% fixed rate unsecured loan repaid - (8,678)
1.565% fixed rate unsecured loan drawn down - 7,371
1.34% fixed rate unsecured loan drawn down - 8,678
Net cash inflow from financing - 1
Increase/(decrease)in cash 1,041 (2,611)
1. The Statement of Total Return is now called the Income Statement and the
total column, as opposed to the revenue column, is now the profit and loss
account of the Company.
2. Restatement
In accordance with FRS25 the realised gain on warrants unexercised in the
previous year has now been reported in the Reconciliation of Movements in
Shareholders' Funds statement and not in the Income Statement. The effect of
this change has been to reduce the capital return for the year ended 31
December 2004 from £21,713,000 to £11,516,000 and the capital return per
ordinary share from 22.11p to 11.73p.
3. Returns per ordinary share are based on the net revenue loss on ordinary
activities after taxation of £998,000 (2004: loss £871,000) and the capital
return in the year of £52,362,000 (2004: £11,516,000) and on 98,207,453
ordinary shares (2004: 98,207,060) being the weighted average number of
ordinary shares in issue during the year.
4. The Reconciliation of Movements in Shareholders' Funds has been introduced
as a new primary statement.
The above statements have been prepared on the basis of the accounting policies
as set out in the financial statements to 31 December 2005. The figures for the
year to 31 December 2004 have been extracted from the financial statements for
the year ended 31 December 2004 which have been delivered to the Registrar of
Companies and on which the Auditors gave an unqualified report.
The annual report and financial statements will be posted to shareholders as
soon as is practicable and in any event no later than 27 March 2006.
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