Final Results
FIDELITY SPECIAL VALUES PLC
Preliminary Announcement of Unaudited Results
For the year ended 31 August 2006
Please note that past performance is not a guide to future returns. The value
of investments can go down as well as up.
THE YEAR'S RESULTS:
(CAPITAL ONLY)
NAV: + 86.4p TO 547.7p (+ 18.7%)
SHARE PRICE: + 69.3p TO 521.5p (+ 15.3%)
I am pleased to be able to report another year of good returns for
shareholders. It is our express purpose to make money for shareholders and,
although we may not do so every year, we would expect to do so over a longer
time period. We have done this in all but one year of the Company's twelve year
life and this year, in which the net asset value rose by 18.7% to 547.7p and
the share price by 15.3%, was no exception.
As I have said in these statements in the past, although our main focus must be
to make money for shareholders, we also aim to do better than our peer group
investment trusts and than the market as a whole. It is important, otherwise
why would shareholders want to invest in the Company? In respect of our peer
group we did not fare as well as we have in the past. The size weighted average
net asset value of the Association of Investment Companies (our trade group has
changed its name recently) of the UK Growth sector rose by 23.0% (on a total
return basis) and we ranked seventh out of fifteen. However our net asset value
did outperform the market, as measured by our benchmark, the FTSE All-Share
Index, which rose 13.1% (on a capital return basis).
The main event in the portfolio during the course of the year was the decision
to raise the level of cash for a period so that it effectively reduced our
borrowings and to buy a three month put option on the market with an exposure
equivalent to one quarter of the Company's assets. The Manager was concerned
that the market might fall for a period and so took out the insurance of the
put option, which in the light of market movements worked well during the
period it was held. Other details of activity in the Company's portfolio are
contained in the Manager's Review and the contribution of individual stocks and
sectors to the year's returns are shown in the Annual Report.
The change in the share price of course is the capital return that shareholders
actually experience. The main influence on it is the change in the net asset
value but the other important influence is the change in the premium or
discount at which the shares sell in relation to the underlying net asset
value. During the course of the year the discount rose from 1.9% to 4.8%, which
accounted for the fact that shareholders' capital return was 3.4% less than
that of the net asset value, being 15.3%. The Board believes that the main
reason for the rise in the discount is the quite natural concern by investors
about who will succeed Anthony Bolton as the investment manager of the
Company's portfolio (more of which later).
LONGER TERM: 5 YEAR RETURNS:
(CAPITAL ONLY)
NAV: +276.9p TO 547.7p (+ 102.3%)
SHARE PRICE:+231.5p TO 521.5p (+ 79.8%)
For reasons explained later, the Board of Directors believes that the
appropriate period over which to judge the performance of the Company is five
years. Over the last five years - which started just 11 days before what is
popularly referred to as 9/11 and which presaged a sharp short term fall in
stock markets around the world - the net asset value of the ordinary shares
rose by over 100% while the share price rose by nearly 80%. One and a half
years of the period overlapped with the last part of the dot.com bear market,
leading up to the invasion of Iraq, while since then there has been a
considerable recovery in stock markets around the world. These returns, which
amount to 15.1% per annum and 12.4% per annum respectively, are excellent in
their own right. Compared to what one might have received on a bank deposit
(4.6%), with our peer group (10.7% pa (NAV) and 11.2% pa (share price)) and
with the market (6.4%) these returns are also good. The Board would like once
again to pay tribute to the Manager, Anthony Bolton and to his colleagues who
are responsible for this performance. Well done and on behalf of shareholders:
thank you.
DIVIDEND: 3.75p PER SHARE
Your Board is recommending a dividend of 3.75p per share to shareholders,
which, if approved, will be paid on 18 December 2006 to those on the register
on 17 November 2006. As outlined in the Board's Policies detailed in the Annual
Report, the dividend depends on the net income earned in any given year and
that in turn depends on what stocks happen to be in the portfolio that year; no
attempt is made to invest in stocks just because of their dividend yield. This
last year net income amounted to £2,385,000 which allows the Board to recommend
the dividend mentioned above.
CHANGE OF PORTFOLIO MANAGER
Shareholders may have read about the portfolio management changes of the
Fidelity Special Situations Fund, the open ended investment company that
Anthony Bolton manages. It is of interest to us because Anthony manages both
its and our portfolio on a like for like basis and because he will be stepping
down from portfolio management at the end of 2007. The Fund has been split into
two parts with Anthony managing one of the two halves; initially, its portfolio
will be different from that of your Company but he intends to bring them back
into line gradually. Your Board will have an involvement in that appointment
and it has every confidence that his successor will do an excellent job in
managing the portfolio.
ANNUAL REPORT CHANGES
As detailed in the Company's interim report and in Note 1 to the financial
statements contained in the Annual Report, UK Generally Accepted Accounting
Practice is converging with International Financial Reporting Standards. The
key changes are: (i) holdings of shares are now valued at their bid prices
whereas before they were valued at the mid price, half way between the bid and
offer prices; (ii) the dividend the Board is recommending to shareholders is no
longer treated as a liability in the balance sheet.
The Business Review
New company law requires public companies to produce a Business Review within
the Annual Report, forming part of the Directors' Report. In simple terms it
requires the Board to provide a fair review of the business of the Company, a
description of its principal risks and uncertainties, an analysis of its
performance and development and those key performance indicators ("KPIs") that
give both the Board and shareholders a guide to the performance of the Company.
The fair review of the business and an analysis of its performance has always
been and continues to be provided in the Chairman's Statement, the Manager's
Review and the accompanying tables and charts which show details of the
portfolio, its distribution amongst different sectors, the Company's ten year
record and the main influences on the returns earned for shareholders
(contained in the Attribution Analysis). These appear in the Annual Report.
Earlier this year the Board and Management attended an Away Day Board meeting,
the main purpose of which was the consideration of longer term issues without
the need for the red tape formalities which so dominate regular Board meetings
these days. Amongst other issues the Board considered the longer term
investment environment, the Business Review generally and the issues of risk
and KPIs in particular. In the most general of terms the Board viewed the
progress and effects of globalisation and of technology and the development of
the emerging economies as being forces that were bullish for stocks and shares
on a long term basis although there were risks attached.
In assessing risks the Board divided them into two parts - those risks external
to the business over which the Board had no measure of influence or control and
the internal risks over which it did have some influence or control. In
relation to the external risks the Board identified a number of risks which
could affect the value of stocks and shares generally and the returns that
shareholders earn specifically. They included the possibility of recession and
its effect on corporate profits (particularly in America), rising inflation
associated with easy money policies and rising commodity prices, protectionism,
a disease pandemic, further destabilisation in the Middle East, and finally
financial crises which could emerge out of mishandling monetary policy,
something going very wrong in China or India, a collapse of the American dollar
and/or a banking crisis born from excesses in the worlds of property, hedge
funds and/or private equity. The best way of mitigating these risks is to have
a well diversified portfolio, which, with just under 150 different stocks and
no sector excessively weighted, we have. In relation to internal risks, these
can be subdivided into those of mismanagement of the portfolio and those of
maladministration. Our investment policies should provide some protection
against the former and our governance procedures against the latter.
In addressing the matter of KPIs the Board has broken them into two parts -
those by which shareholders will judge the Company, reflecting the returns that
they have earned and those which reflect the internal management of the
Company. First of all the Board has assumed that the choice of KPIs is based on
the interests of long term shareholders and in that respect it views five years
to be as short a period as can be argued to be long term. So although the
Business Review requires that KPIs illustrate progress and returns on an annual
basis, the Board regards five years as a better indication of performance. In
fact the section on KPIs in the Directors' Report contained in the Annual
Report illustrates them on a one, three and five year basis.
In looking at the reasons lying behind shareholders' returns, the Board
monitors the progress of the net asset value, the change in the discount, and
the dividend, which together account for the return that shareholders earn. In
the first place it compares what a shareholder could have safely made with a
deposit in a bank and then with those made by competitors and the market. In
reviewing the performance of the Company the most important KPI is clearly the
return of the net asset value per share and it too is compared with the latter
two benchmarks.
Annual General Meeting
The Annual General Meeting of Shareholders will be held this year at 11.30am on
14 December at Fidelity's offices at 25 Cannon Street, near St Paul's
Cathedral. May I repeat what is written in our Corporate Governance Statement,
namely that "the Annual General Meeting is the pivotal point in the
relationship between the Board of Directors and shareholders and is the
occasion when the Board accounts for itself in public meeting". We do therefore
encourage as many shareholders as possible to attend - both individual and
institutional - as it gives you the chance to air your views, hear other
shareholders' views or ask any questions you may wish in front of the body of
shareholders. At the formal meeting Anthony Bolton will review the past year
and look at the prospects for the current one.
OUTLOOK: ENCOURAGING
The world's economy is undergoing a development not unlike that which it
experienced during the latter part of the nineteenth century as the two
powerful forces of globalisation and technological advance created a surge in
the living standards around the world and in the creation of wealth. They have
been the main driving forces over the last twenty-five or so years, with the
fall of the Berlin Wall in 1989 resulting in the abandonment of global
socialism as well as the inclusion of a large number of countries in the global
economy, most notably of all China. Both forces have had a marked effect on the
rate of inflation in the world, driving down the cost of producing and thence
the prices of goods and services. It is thus that the world has been able to
experience good economic growth in a low inflationary and low interest rate
environment. In terms of the longer term span of economic history, we can be
said to be living in a sweet spot.
There are and always have been risks associated with such progress and some of
them were outlined earlier in this statement. They are not insignificant and
not to be brushed aside. But to add to the effects of globalisation and
technological advance has been the development of corporate governance.
Although it has unquestionably become heavy-handed and costly in recent times,
it has focused boards of directors on the importance of corporate profits not
only to shareholders but also to economies and investment in people, research
and infrastructure. So it is that the combination of these three forces has
helped produce good returns for investors in equities in most countries. It is
the bullish long term scenario to which we subscribe but with caution in the
short term.
The course of progress will not always run smoothly. There is reason to be
cautious about the immediate future as the world, including the UK, copes with
some of the consequences of success (including higher indebtedness, inflation
and interest rates), of religious rivalry (with armed conflict involved) and
frankly of a fairly mature economic cycle. To add to global uncertainties, the
UK has the added uncertainty of the future of its political parties and thence
leadership. For these amongst other reasons our cautiousness has led us to our
prudent investment policy. Central banks are reining in their easy money
policies of the post dot.com boom/bust era and it may be that for a little
while markets will tread water. However the long term story remains a powerful
one, one that should provide excellent opportunities for investment and profit.
Your Company has a good and experienced Manager and - much as we have in the
past - we would expect good returns from it in the medium to longer term.
Alex Hammond-Chambers
Chairman
2 November 2006
Enquiries:
Stephen Westwood - Fidelity Investments International
0207 961 4477
Miss Tracey Bennett - Fidelity Investments International, Company Secretary
01737 836 883
Issued by Fidelity Investments International. Authorised and regulated in the
UK by the Financial Services Authority.
CB28945/NA
FIDELITY SPECIAL VALUES PLC
Income Statement
- unaudited - for the year ended 31 August
2006 2005
restated(
2)
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 56,746 56,746 - 75,213 75,213
Income
- Dividend 8,840 - 8,840 7,875 - 7,875
- Interest 692 - 692 152 - 152
- Other income 16 - 16 30 - 30
Investment management fee (4,303) - (4,303) (3,441) - (3,441)
Other expenses (542) - (542) (460) - (460)
Exchange (losses)/gains (4) (17) (21) 2 (28) (26)
Net return before finance 4,699 56,729 61,428 4,158 75,185 79,343
costs and taxation
Interest payable (2,165) - (2,165) (2,246) - (2,246)
Net return on ordinary 2,534 56,729 59,263 1,912 75,185 77,097
activities before
taxation
Taxation on return on (149) - (149) (126) - (126)
ordinary activities*
Net return on ordinary 2,385 56,729 59,114 1,786 75,185 76,971
activities after taxation
for the year
Return per ordinary share
-
Basic (3) 3.65p 86.80p 90.45p 2.76p 116.02p 118.78p
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 SPECIAL VALUES PLC
Balance Sheet
- unaudited - as at 31 August
2006 2005
restated (2)
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 376,383 338,982
Current assets
Debtors 2,491 9,604
Amounts held at futures clearing houses and - 147
brokers
Cash at bank 22,852 3,026
25,343 12,777
Creditors - amounts falling due within one year
Other creditors (3,803) (10,320)
Net current assets 21,540 2,457
Total assets less current liabilities 397,923 341,439
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (40,000) (40,000)
Total net assets 357,923 301,439
Capital and reserves
Called up share capital 16,339 16,339
Share premium account 95,058 95,058
Capital redemption reserve 404 404
Other non-distributable reserve 5,152 5,152
Capital reserve - realised 193,393 113,023
Capital reserve - unrealised 44,001 68,475
Revenue reserve 3,576 2,988
Total equity shareholders' funds 357,923 301,439
Net asset value per ordinary share:
Basic 547.65p 461.23p
FIDELITY SPECIAL VALUES PLC
Reconciliation of Movements in Shareholders' Funds
- unaudited - for the year ended 31 August (4)
called share capital other non- capital capital revenue total
up premium redemption distributable reserve reserve reserve equity
share account reserve reserve realised unrealised
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening shareholders' 15,855 87,923 404 5,152 82,169 24,144 1,210 216,857
funds as previously
stated: 1 September 2004
Effect of prior year - - - - - - 888 888
adjustment as a result of
a change in accounting
policy regarding the
treatment of dividends
Opening shareholders' 15,855 87,923 404 5,152 82,169 24,144 2,098 217,745
funds as restated: 1
September 2004
Net recognised gains for - - - - 30,854 44,331 - 75,185
the year
Issue of ordinary shares 484 7,135 - - - - - 7,619
Revenue after taxation - - - - - - 1,786 1,786
Dividend paid - - - - - - (896) (896)
Closing shareholders' 16,339 95,058 404 5,152 113,023 68,475 2,988 301,439
funds as restated: 31
August 2005
Effect of changing prices - - - - - (833) - (833)
from middle market to bid
market at 1 September
2005
Net recognised gains/ - - - - 80,370 (23,641) - 56,729
(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
FIDELITY SPECIAL VALUES PLC
Cash Flow Statement
- unaudited- for the year ended 31 August
2006 2005
£'000 £'000
Operating activities
Investment income received 4,139 3,990
Underwriting commission received 16 30
Deposit interest received 695 147
Investment management fee paid (5,094) (2,377)
Directors' fees paid (85) (74)
Other cash payments (247) (385)
Net cash (outflow)/inflow from operating activities (576) 1,331
Returns on investments and servicing of finance
Interest paid (2,163) (2,235)
Net cash outflow from servicing of finance (2,163) (2,235)
Taxation
Overseas taxation recovered 50 81
Taxationrecovered 50 81
Financial investment
Purchase of investments (280,761) (206,753)
Disposal of investments 304,923 196,025
Net cash inflow/(outflow)from financial investment 24,162 (10,728)
Equity dividend paid (1,797) (896)
Net cash inflow/(outflow)before financing 19,676 (12,447)
Financing
5.435% fixed rate unsecured loan drawn down - 27,000
7.82% fixed rate unsecured loan repaid - (10,000)
6.42% fixed rate unsecured loan repaid - (10,000)
Issue of ordinary shares - 7,619
Net cash inflow from financing - 14,619
Increasein cash 19,676 2,172
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. Prior year adjustments and restatements
2006 2005
Shareholders' Shareholders'
funds funds
£'000 £'000
Opening balance as previously stated: 1 September 299,642 216,857
2005
Effect of prior year adjustment as a result of a 1,797 888
change in accounting policy regarding the treatment
of proposed dividends
Opening balance as restated: 1 September 2005 301,439 217,745
Effect of changing prices from middle market to bid (833) -
market at 1 September 2005
Issue of ordinary shares - 7,619
Other recognised gains for the year 56,729 75,185
Revenue after taxation 2,385 1,786
Dividend paid (1,797) (896)
Closing balance as restated: 31 August 2006 357,923 301,439
3. Return per ordinary share
2006 2005
revenue capital total revenue capital total
Basic 3.65p 86.80p 90.45p 2.76p 116.02p 118.78p
Returns per ordinary share are based on the net revenue return on ordinary
activities after taxation of £2,385,000 (2005: £1,786,000) and the capital
return in the year of £56,729,000 (2005: £75,185,000) and on 65,356,053
ordinary shares (2005: 64,801,722) 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 dividends paid by the Company are now reported
through this statement.
The above statements have been prepared on the basis of the accounting policies
as set out in annual financial statements to 31 August 2006. The figures for
the year to 31 August 2005 have been extracted from the financial statements
for the year ended 31 August 2005 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 15 November 2006.
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