Final Results
FIDELITY SPECIAL VALUES PLC
Preliminary Announcement of Audited Results
For the year ended 31 August 2007
Please note that past performance is not a guide to future returns. The value
of investments can go down as well as up.
THE END OF AN ERA - THE BEGINNING OF A NEW ONE
It was in October 1994, just over thirteen years ago, that Fidelity Special
Values was launched. It gave those investors, inclined to purchase investment
trusts, the opportunity to do so in a company designed to mirror the portfolio
of Fidelity Special Situations, the open ended investment company (OEIC) which
Anthony Bolton managed on behalf of Fidelity. Circa £35 million was raised to
launch the Company at £1 per share and by the end of our financial year, 31
August 2007, the share price had reached £5.92; that is a compound return of
circa 15% per annum or, put another way, double every five years. Add to that
the dividends that have been paid, worth in total 22.5p, and the total return
for those shareholders who subscribed and stayed as a shareholder amounts to
16% per annum. That's not at all bad and underlines the virtue of long term
investment. The chart in the annual report illustrates just how well Anthony's
stewardship of the portfolio has benefited shareholders and provides a
comparison with the return that might have been earned from an investment in a
government security and in the FTSE All-Share Index (our equity benchmark).
Anthony was 29 years old when Fidelity launched the Special Situations Fund in
1979. His great investment success over the last twenty eight years has
attracted a lot of attention and much has been written about him and his record
of achievement. It is by any standards both unusual and outstanding. That
success stems from a number of attributes that make up Anthony's persona,
including an uncanny sense of share price value, a thorough approach to
researching his stocks, the courage to back his convictions when others would
doubt them, calmness and a huge work ethic. To listen to him talk about the
stocks in his portfolio, as the Directors have over the years, has been truly
fascinating; he sees things differently to most people and he has, not
surprisingly, produced rather different and rather better returns than most
other portfolio managers.
Included in the annual report is a special section titled "Reflections of
Anthony Bolton", written by Anthony, looking back at the past thirteen years.
It is fascinating and I urge shareholders to read it. Of the many things that I
personally have learnt from working with him over these years is that by far
the simplest and most effective way for me personally to invest is through the
shares of an investment trust run by a talented and dedicated portfolio manager
- with shares in his/her own trust - through thick and thin (with good managers
there will always be more thicks than thins!). Having Anthony manage money for
me has been a rewarding privilege.
Sadly it is time to say goodbye to Anthony because he wishes, quite naturally,
to move on to other things. That day was always going to come and, at the end
of December, he will step down as the portfolio manager and will be succeeded
by Sanjeev Shah. As shareholders in the Company, my Director colleagues and I
would like to extend - on behalf of all shareholders - the greatest possible
thanks to Anthony for what he has achieved on our behalf and to wish him, Sarah
his wife and his family all the best for their future. Anthony - thank you very
much indeed.
Sanjeev's appointment came about as a result of a thorough process which
Fidelity undertakes when appointing portfolio managers. In particular his own
experience and suitability for the task of managing the Company with its
special situations investment remit were taken into account. Anthony took an
active role in the process and, having watched Sanjeev manage other portfolios,
believes he has those attributes necessary to manage our portfolio and to
continue to produce excellent returns for shareholders. The Board was involved
in the process and, although we have only just started working with Sanjeev, we
back Fidelity's judgment in believing that he will do a fine job.
THE YEAR'S RESULTS:
NAV +83.1p TO 630.8p (+15.2%)
SHARE PRICE +70.5p TO 592.0p (+13.5%)
Over the past year the net asset value has risen from 547.7p to 630.8p per
share, an increase of 15.2%; the total return amounted to 15.9%. It can be
regarded as a satisfactory result fulfilling our first and most important goal
of making money for shareholders. In absolute terms a 15% increase in the NAV
is always acceptable and happens to fit in with what has been achieved over the
life of the Company to date. However, I would caution shareholders not to
expect such increases as a matter of course; stock markets are volatile and we
will experience lesser increases, even decreases (though hopefully not too
often) from time to time.
As I mention each year - rather monotonously I am afraid - our primary purpose
in life is to make money for shareholders but secondarily it is also to achieve
rather better returns than either our competition (those investment trusts with
similar investment remits and goals to our own, the AIC UK Growth category, our
peer group) or with the stock market generally (as measured by the FTSE
All-Share Index, our equity benchmark). In respect of those goals I can say
that our peer group's (size weighted) total return was 12.7%, ranking us 6 out
of 16 and that of our benchmark was 11.8%. So in both those cases our secondary
goals were achieved.
The return that shareholders get, however, comes from the performance of the
share price and from the dividend paid. The share price rose by 70.5p and we
are proposing a dividend to shareholders of 7.50p per share. The table below
illustrates the estimated attribution of shareholders' return:
STARTING SHARE PRICE 521.5p
INCREASE IN NAV +83.1p (+ 15.9%)
INCREASE IN DISCOUNT -12.6p (- 2.4%)
ENDING SHARE PRICE +70.5p (+ 13.5%) 592.0p
PROPOSED DIVIDEND 7.50p
THE PORTFOLIO
The Manager's Review in the annual report covers a review of the UK economy and
stock market during the year, commentary on certain aspects of the portfolio
and an assessment of the outlook for the UK stock market. Having a somewhat
cautious short term disposition, we reduced our effective gearing to close to
zero and we invested in "put options" (investment contracts which would provide
us with a pool of cash for investment if the stock market fell by a specified
amount). In the event the strength of the market has surprised us and so we
suffered the small cost of the put options. I should make it clear that it is
not the purpose of such investment to reduce the volatility of the reported
NAV; the Company is managed for the benefit of the long term shareholder, for
whom such volatility should be less important.
THE MANAGER'S ASSESSMENT & THE LONG TERM RECORD
The objective of the Company is to make money for shareholders over the long
term and the Company is managed to that end. The Board of Directors takes the
view that five years is as short a period as can be defined as genuinely long
term. It is that period that it focuses on in considering its annual assessment
of the Manager and whether it should continue managing the Company. We set out
in the corporate governance statement the criteria we use in making that
assessment and shareholders will not be surprised to learn that we had no
difficulty in reaching the conclusion that Fidelity should continue as Manager.
The five year returns are as follows:
Shareholders' 31 Aug 2002 31 Aug 2007 Company's 31 Aug 2002 31 Aug 2007
Returns Returns
Share price 254.5p 592.0p NAV 249.6p 630.8p
Increase +337.5p Increase +381.1p
Dividends 10.3p Dividends 10.3p
Total Return +352.9p Total Return +397.3p
Total Return 19.0% pa Total Return 21.0% pa
Peer Group 15.7% pa Benchmark 13.4% pa
(FTSE
(share price All-Share
total return) Index total
return)
THE BOARD
During the year, the Directors, as always, considered the future composition of
the Board and decided that, in planning for succession, it would be appropriate
to appoint a new Director now and possibly another one within the next year or
two. A very strong field of candidates are being considered - all of whom would
undoubtedly contribute to the future success of the Company. Once the process
is complete and a decision made, details of that decision will be announced.
ANNUAL GENERAL MEETING: 11:30AM 13 DECEMBER 2007
The annual general meeting will be held at Fidelity's offices at 25 Cannon
Street in the City of London (the nearest tube stations being St Paul's and
Mansion House) at 11.30am on Thursday 13 December 2007. There are a number of
resolutions to be considered by shareholders, including that of the
continuation of the Company in business.
As shareholders will be aware, you have a resolution put to you every third
annual general meeting to vote on whether the Company should continue in
business as an investment trust. The Board gives careful consideration before
making a recommendation to shareholders, considering in particular:
- The outlook for the stock market over the next three years;
- The relevance of the investment remit (investing in special situations,
largely listed on the London Stock Exchange;
- The prospects of making money for shareholders over the period; and
- The Manager having the experience and resources to achieve excellent returns.
In all four of the above, we are of the view that the ingredients are there to
fulfil the goal of making money over the next three years and we do therefore
recommend that shareholders vote in favour of continuation (Resolution 14 on
the proxy form).
I would like to ask that all shareholders fill in theirproxy forms and vote on
the various resolutions. If yourshares are held in a nominee account by your
advisersplease ask them to vote on your behalf. Voting at annual general
meetings is very important - for without a reasonably large proxy count it is
difficult for the Board to gauge the real view of the shareholders, on the
issues put to them. We have had low counts in the past few years which is
disappointing - so please - fill in your proxy forms and vote. If you do not
have one, please contact the Fidelity helpline on free phone number 0800 414110
and a form will be sent to you. It is also important that as many shareholders
as possible join us at the annual general meeting. Not only does it give you
the chance to ask questions, make comments and even criticisms and to meet the
Directors and management but you can also hear the review of the past year and
future prospects which Anthony Bolton will present. At this AGM you will also
get the chance to meet Sanjeev Shah, our new Portfolio Manager. So please come
and join us on13 December.
TODAY'S INVESTMENT ENVIRONMENT
Another of the matters that the Board and management consider is the long term
investment environment. It is an important discipline because the investment
environment influences the investment policy of the portfolio, it gives the
Directors the chance to consider the relevance of the investment remit in
relation to that goal of making money for shareholders and finally it allows
them to consider the continuation vote recommendation when it comes up.
In summary we are all of the view that the longer term outlook for the UK stock
market is good, importantly because much of the sales and profits earned by
companies quoted on the London Stock Exchange are derived from the global
economy - somewhere around 60% of sales and profits come from outside the UK.
The global economy itself is being driven by the amazing economic advances in
many of the so-called emerging economies - notably China and India but also
countries such as Brazil, Chile, Mexico in Latin America and The Czech
Republic, Slovakia and Poland in Central Europe and Malaysia, Thailand and
Indonesia in Eastern Asia. UK companies to a greater or lesser extent are
exposed to these developments and their shareholders should benefit from them.
Furthermore, although there are pockets of overvaluation, the UK market overall
is reasonably priced on a longer term basis.
However as a group of individuals we are a little divided as to our shorter
term optimism. Anthony, as shareholders will be aware, is cautious - seeing the
stock market as a very mature bull market and concerned about the levels of
debt, the structure of credit in financial markets and the effect these issues
may have on economies - particularly those of the USA and the UK. It is one of
the reasons that he is relatively keen on the shares of bigger companies which
are less exposed to the UK economy. Some of us are in sympathy with his shorter
term outlook, others of us are rather more optimistic - noting the strength of
the global economy and its effect on the UK, particularly on larger UK
companies and seeing the valuation of the market's underlying shares as cheap
and the balance sheets of companies as strong. There you are - two perfectly
respectable views - which is why short term stock market predictions are
notoriously difficult.
OUR PROSPECTS
Given that investment in stocks and shares is likely to prove rewarding on a
longer term basis - which we all concluded was indeed likely - then how we do
and what returns we earn for shareholders is dependent on the Board and the
Manager. I return to the original theme of this statement, namely that we have
now reached the end of one era and are embarking on a new one. We will have
Sanjeev Shah at the helm of the management of the portfolio - that is what is
different. What is not different is that it is Fidelity with all its resources,
experience and skills who continue to look after us and, although the make up
of the Board will change in the coming years, it too has and will have all the
right experience and skills to look after shareholders' interests. My
colleagues and I have every confidence that in this new era we can continue to
make excellent long term returns for shareholders - as indeed we have in the
past.
Alex Hammond-Chambers
Chairman
1 November 2007
Enquiries:
Mrs Tracey Cousins - Fidelity Investments International, Company Secretary
01737 836 883
Richard Miles - Fidelity Investments International
01737 837 844
The Fidelity Individual Savings Account ("ISA") is offered and managed by
Financial Administration Services Limited. The Fidelity Investment Trust Share
Plan is managed by Fidelity Investments International. Both companies are
authorised and regulated by the Financial Services Authority. The Fidelity
Investment Trust Share Plan is administered by Equiniti Limited (formerly
Lloyds TSB Registrars) and shares will be held in the name of Lloyds TSB
Registrars Savings Nominees Limited. The value of savings and eligibility to
invest in an ISA will depend on individual circumstances and all tax rules may
change in the future. Fidelity investment trusts are managed by Fidelity
Investments International. Fidelity only gives information about its own
products and services and does not provide investment advice based on
individual circumstances. Should you wish to seek advice, please contact a
Financial Adviser. Issued by Fidelity Investments International, authorised and
regulated in the UK by the Financial Services Authority.
For the purposes of Sections 21 and 25 of the Financial Services and Markets
Act 2000, the content of this report has been approved by Fidelity Investments
International. Issued by Fidelity Investments International.
Reference in this document to specific securities should not be construed as a
recommendation to buy or sell these securities, but is included for the
purposes of illustration only. Investees should also note that the views
expressed may no longer be current and may have already been acted upon by
Fidelity.
Fidelity, Fidelity International and the Pyramid Logo are trademarks of
Fidelity International Limited.
FIDELITY SPECIAL VALUES PLC
Income Statement
- audited - for the year ended 31 August
2007 2006
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 49,999 49,999 - 56,746 56,746
Income
- Dividend 10,120 - 10,120 8,840 - 8,840
- Interest 1,301 - 1,301 692 - 692
- Other income 342 - 342 16 - 16
Investment management fee (4,577) - (4,577) (4,303) - (4,303)
Other expenses (461) - (461) (542) - (542)
Exchange gains/(losses) 3 - 3 (4) (17) (21)
Net return before finance 6,728 49,999 56,727 4,699 56,729 61,428
costs and taxation
Interest payable (2,165) - (2,165) (2,165) - (2,165)
Net return on ordinary 4,563 49,999 54,562 2,534 56,729 59,263
activities before
taxation
Taxation on return on (188) - (188) (149) - (149)
ordinary activities*
Net return on ordinary 4,375 49,999 54,374 2,385 56,729 59,114
activities after taxation
for the year
Return per ordinary share
-
Basic (1) 6.91p 78.94p 85.85p 3.65p 86.80p 90.45p
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 above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
* This relates to overseas taxation only.
The total column of the Income Statement is the profit and loss account of the
Company.
FIDELITY SPECIAL VALUES PLC
Balance Sheet
- audited - as at 31 August
2007 2006
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 383,826 376,383
Current assets
Debtors 4,303 2,491
Amounts held at futures clearing houses and 2,018 -
brokers
Fidelity Institutional Cash Fund plc 10,342 -
Cash at bank 19,269 22,852
35,932 25,343
Creditors - amounts falling due within one year
Fixed rate unsecured loan (5,000) -
Other creditors (3,168) (3,803)
(8,168) (3,803)
Net current assets 27,764 21,540
Total assets less current liabilities 411,590 397,923
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (35,000) (40,000)
Total net assets 376,590 357,923
Capital and reserves
Called up share capital 14,926 16,339
Share premium account 95,058 95,058
Capital redemption reserve 1,817 404
Other non-distributable reserve 5,152 5,152
Capital reserve - realized 232,390 193,393
Capital reserve - unrealised 21,733 44,001
Revenue reserve 5,514 3,576
Total equity shareholders' funds 376,590 357,923
Net asset value per ordinary share:
Basic 630.75p 547.65p
FIDELITY SPECIAL VALUES PLC
Reconciliation of Movements in Shareholders' Funds
- audited - for the year ended 31 August
other
non-
called share capital distri- capital capital revenue total
up premium redemption butable reserve reserve reserve equity
share account reserve reserve realised unrealised
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening shareholders' 16,339 95,058 404 5,152 113,023 68,475 2,988 301,439
funds:
1 September 2005
Net recognised gains/ - - - - 80,370 (24,474) - 55,896
(losses) for the year
Revenue after taxation - - - - - - 2,385 2,385
Dividend paid - - - - - - (1,797) (1,797)
Closing shareholders' 16,339 95,058 404 5,152 193,393 44,001 3,576 357,923
funds:
31 August 2006
Net recognised gains/ - - - - 72,267 (22,268) - 49,999
(losses) for the year
Repurchase of ordinary (1,413) - 1,413 - (33,270) - - (33,270)
shares
Revenue after taxation - - - - - - 4,375 4,375
Dividend paid - - - - - - (2,437) (2,437)
Closing shareholders' 14,926 95,058 1,817 5,152 232,390 21,733 5,514 376,590
funds:
31 August 2007
FIDELITY SPECIAL VALUES PLC
Cash Flow Statement
- audited- for the year ended 31 August
2007 2006
£'000 £'000
Operating activities
Investment income received 5,355 4,139
Underwriting commission received - 16
Deposit interest received 1,630 695
Investment management fee paid (4,594) (5,094)
Directors' fees paid (88) (85)
Other cash payments (321) (247)
Net cash inflow/(outflow) from operating activities 1,982 (576)
Returns on investments and servicing of finance
Interest paid (2,165) (2,163)
Net cash outflow from servicing of finance (2,165) (2,163)
Taxation
Overseas taxation recovered 71 50
Taxationrecovered 71 50
Financial investment
Purchase of investments (384,743) (280,761)
Disposal of investments 428,928 304,923
Net cash inflowfrom financial investment 44,185 24,162
Equity dividend paid (2,437) (1,797)
Net cash inflow before use of liquid resources and 41,636 19,676
financing
Net cash outflow from management of liquid resources (10,342) -
Net cash inflowbefore financing 31,294 19,676
Financing
Repurchase of ordinary shares (32,788) -
Net cash outflow from financing (32,788) -
(Decrease)/increasein cash (1,494) 19,676
1. Return per ordinary share
2007 2006
revenue capital total revenue capital total
Basic 6.91p 78.94p 85.85p 3.65p 86.80p 90.45p
Returns per ordinary share are based on the net revenue return on ordinary
activities after taxation of £4,375,000 (2006: £2,385,000), the net capital
return in the year of £49,999,000 (2006: £56,729,000) and the total return in
the year of £54,374,000 (2006: £59,114,000) and on 63,335,764 ordinary shares
(2006: 65,356,053) being the weighted average number of ordinary shares in
issue during the year.
The above statements have been prepared on the basis of the accounting policies
as set out in the annual financial statements to 31 August 2007. This
preliminary statement, which has been agreed with the auditors, was approved by
the Board on 1 November 2007. It is not the Company's statutory financial
statements. The statutory financial statements for the financial year ended 31
August 2006 have been delivered to the Registrar of Companies. The statutory
financial statements for the financial year ended 31 August 2007 have been
approved and audited but have not yet been filed. Neither of these statutory
financial statements 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
section 237(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 15 November 2007.
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