Final Results
FIDELITY SPECIAL VALUES PLC
Preliminary Announcement of Audited Results
For the year ended 31 August 2008
CHAIRMAN'S STATEMENT
The Financial Crisis:
This year's statement is rather like describing the scene of a hurricane while
it is still blowing but before it has blown out; something else seems to get
blown over every passing moment. The course of events over the past few weeks
has been unfolding with new drama almost on a day to day basis. It has made
reporting on last year's results seem almost irrelevant. I will comment on them
below but suffice it to say that, at the time of writing, the UK stockmarket
has quite literally collapsed; it, as measured by the FTSE All-Share Index, our
benchmark, has declined by circa 26% in just under 9 weeks since our year end
and represents a stockmarket crash not experienced by many people working in
the investment business today.
It would be pointless of me to go into the detail of the events or indeed of
the underlying causes of them as more than enough has been written about them
in our newspapers and spoken about them on our television sets. The fact that
it is ending up with the effective nationalisation of a number of our banks
underlines how very serious a state of affairs it is; at times it has been a
very frightening one too. Our financial system, which thrives and survives on
trust and confidence, has been abused and discredited and has flirted with
complete destruction. Hardly anyone involved in it can escape some sort of
blame - whether it be large in the case of the Government, the banks,
consultants and professional investors - or even the consumers who have
increased their debts to unsustainable levels. Meanwhile, the stockmarket is
being used by a number of professional investors, including many hedge fund
managers, as a casino, forgetting the important concepts of prudence and
preservation of capital and gambling with other people's money on short term
share price movements for the sake of their performance fees. The consequence
of enormous greed and some dishonesty within the financial sector is this
horrendous financial hurricane.
Before commenting on the results for the year below, which, I am afraid, are
now of rather academic interest, I think it would be appropriate to bring
shareholders up to date with the net asset value at the time of writing this
statement on 29 October 2008. As I mentioned above the market, as measured by
our benchmark, has declined by 26% since our year end; our own net asset value
has fallen by 28.5% to 402.1p per share and our share price by 24% to 367.0p
(where it stands on a discount of 8.7%).
I should also make an important observation about very severe bear markets. The
share prices of good, well managed, financially sound companies can fall just
as far as those of bad companies because those investors needing to raise cash
in such circumstances may have little other option but to sell their
shareholdings in these companies. So the short term net asset value of a
portfolio of good companies may not reflect the underlying performance of the
companies invested in. In time however the good companies' share prices will
reflect their quality and then outperform the market.
The Results Summary and the Long Term Record in the Annual Report contain the
bare facts.
The Year's Results: NAV: 562.1p - 10.9%;
Share price: 481.5p - 18.7%;
Benchmark: - 12.0%;
Dividends: 17.0p (2007:7.5p)
The net asset value declined by 68.6p from 630.7p to 562.1p per share, a fall
of 10.9%. The causes behind it were, in summary, the fall in the UK stockmarket
- it declined 12.0% - and our modest gearing; the combined effect of these were
offset by the buying back of our own shares and our own portfolio management.
In that respect shareholders will be aware that we have hedged the portfolio
against stockmarket declines in the past. In recent times we have extended our
hedging activity to include selling shares short and making other derivative
investments. It should be noted that this has and continues to be on a
relatively small scale.
These portfolio activities, which added to our net asset value (+11.5p per
share), have offset the effect of the bear market on our own net asset value.
The selection of individual stocks and shares in the portfolio, however,
detracted very slightly from our returns (-7.0p per share); we benefited from
our exposure to oil and gas producers but our exposure to holdings in the
banking and media more than offset such gains. The numerical details,
reflecting all these factors, are contained in the Annual Report.
The share price fared rather worse, declining by 110.5p or 18.7% from 592.0p to
481.5p. The uncertainties concerning the stockmarket meant that the discount of
investment trust shares in general (to their underlying net asset value)
widened and that of our own proved to be no exception; that normally happens
during bear markets. Thus our discount at the end of our financial year had
risen from 6.1% to 14.3%. During the last few weeks of ultra turbulent
stockmarkets the discount has been very volatile and, as noted earlier, it
stood at 8.7% at 29 October. Your Directors are keeping a close watch on it and
maintain a policy of trying to keep a low discount during normal and stable
times.
The income earned from the portfolio continues to remain at a high level, in
large part because we have had a large commitment to the shares of higher
yielding, large capitalisation companies. Our net income amounted to £9.9
million (17.2p per share), a very large increase on the £4.4 million (6.9p per
share) earned the year before; circa £2 million arose from much higher levels
of income earned from the portfolio, while the management fee fell by
approximately £1 million; £2.3 million of the increase is accounted for by the
accrual for the recovery of VAT. The Directors are recommending to you the
payment of a dividend of 17.0p per share payable on 18 December 2008, to
shareholders on the share register on 14 November 2008. The ex dividend date is
12 November 2008.
It is important to remember that the portfolio is managed for capital growth,
so that the income earned each year will vary according to its make up. There
will be years when the dividend rises and others when it falls.
The Long Term Returns (over five years): NAV: + 97.0%
Share price: + 60.2%
Benchmark: + 38.9%
Time and again we have made the point that we are in business to make money for
shareholders over the longer term which we regard as being at least five years.
Given the state of stockmarkets that hasn't been easy in recent times. However
over the last five years to 31 August 2008 the net asset value has increased by
97.0%, the share price by 60.2% and the stockmarket by 38.9%, so at least that
goal has been achieved. It is an important assessment that your Directors make
each year because it is this record that we use in our annual assessment of our
manager, Fidelity International. Both because of the long term record and
because of the other aspects of its performance, the Board had no difficulty in
concluding that Fidelity should remain as the manager of the Company.
Outlook and Prospects: Uncertain in the shorter term;
Optimistic in the longer term.
There can be little doubt that we are at an historical watershed and that the
future course of the global economy and of its stockmarkets will be quite
different from that experienced in the last fifteen or so years. The economic
fall-out from years of overindulgence is what we will have to live with; in the
first instance it will be one of recession, possibly quite severe and on a
world wide basis - most notably in the United States and in Europe, quite
probably in Japan and just possibly in China and India. Thereafter there is
likely to be an era rather similar to that experienced by Japan in the fifteen
or so years following its financial collapse at the beginning of the 1990s -
one of low economic growth, of deflation and low interest rates, of reduced
company profits and cut dividends. We should be able to solve our own problems
rather more quickly than the Japanese did but we do not have the benefit of the
huge savings rate that they had and have.
It will be a brave new world but, having said all of that, I believe there are
reasons to be quite optimistic in the longer term - two important reasons in
particular. Firstly - recessions are unfortunately a necessary evil in that,
while they are unpleasant experiences, they clean up the economic system,
causing poorly managed companies and businesses either to go out of business or
to change their ways. From recessions emerge financially sounder and better
managed companies and thence a much more sound economy with good growth
potential. Secondly - crises are times of both great risk and great
opportunity. The likely longer term consequences of our current financial
crisis and its attendant recession include:
* better economic and corporate management,
* sounder banking practices, accompanied by much more regulation,
* greater levels of personal savings and lower levels of consumer debt,
* longer term horizons for business decisions, particularly investment
decisions,
* some very good investment opportunities.
Tomorrow's investment world is likely to be very different from the past,
focusing on longer term returns. Because economic growth is also likely to be
low and slow and because valuations will be suppressed, investors will focus on
growth companies (whether large, medium sized or small), investing will be
about choosing the right sector by economic assessment (not from index
weightings); because times will be tough it will also be about investing in
companies with good management and sound finances, not about business models.
The UK's economy is likely to be one of the less robust and so investment will
have to focus increasingly on companies with significant overseas business,
particularly on those exposed to the growth economies of the emerging market
countries.
Ultimately our prospects depend on ourselves. In that respect we have one of
the leading investment management companies of the world, Fidelity, looking
after our affairs; it has huge and talented resources; our portfolio manager
Sanjeev Shah has made a good start relative to our benchmark and your Board is
impressed with his calm and his confidence. Tracey Cousins, who acts as the
Company Secretary, and her colleagues do a good job in supporting your Company.
If I may be allowed to say so, I believe that you have an excellent Board of
Directors with a good blend of experience - experience of your Company, of
Fidelity, of sound investing and of stockmarkets, including crashes; experience
is certainly the most important attribute of any board of directors at this
time. Your Company is in good hands.
Your Directors are of the view that, over the next five years, which is - to
repeat - the time scale we use, the net asset value is likely to rise and, in
turn, shareholders are likely to make money from this point in time. Share
prices generally may not have reached lows in the stockmarket but excellent
money making opportunities are being thrown up - once a long term time scale is
taken into account. It is difficult to see opportunities during times of crisis
but they are always there. I am sure that five years from now we will have
identified them and, more importantly, profited from them.
The Annual General Meeting: Thursday 11December at 11.30 am
The Annual General Meeting will be held at Fidelity's offices at 25 Cannon
Street (St Paul's or Mansion House tube stations) at 11.30am. It is the most
important meeting that we, the Directors of your Company have each year and we
do urge as many of you as possible to come and join us for the occasion. With
stockmarkets in such a state of chaos, Sanjeev Shah's presentation to
shareholders will be of particular interest. He took over the management of the
portfolio from Anthony Bolton at the beginning of January and he has so far
made a good start - relative to the performance of the market. In the eight
months up until our year end the net asset value under his stewardship fell by
7.2% against a fall in the market of 12.7% - an outperformance of 6.3%.
As shareholders know, each Director puts his or her name up for re-election
each year. This year shareholders will be asked to approve for the first time
the appointment of Ben Thomson who joined the Board earlier in the year. Ben is
chairman of Noble Group, an Edinburgh based investment bank and is also a
director of a number of other organisations, including other investment trust
companies. He has already made a good and thought provoking contribution to the
Board's governance and we are confident that he will make a considerable
difference to the Company over the years.
Alex Hammond-Chambers
Chairman
30 October 2008
Enquiries:
Mrs Tracey Cousins - FIL Investments International, Company Secretary
01737 836 883
Anne Read - FIL Investments International
020 7961 4409
Issued by FIL Investments International. Authorised and regulated by the
Financial Services Authority.
FIDELITY SPECIAL VALUES PLC
Income Statement - audited - for the year ended 31 August 2008
2008 2007
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on - (46,807) (46,807) - 49,999 49,999
investments
Income
- Franked investment 5,051 - 5,051 3,403 - 3,403
income
- UK unfranked investment 60 - 60 8 - 8
income
- UK scrip dividends 6,009 - 6,009 4,922 - 4,922
- Overseas scrip 275 - 275 - - -
dividends
- Overseas dividends 1,144 - 1,144 1,787 - 1,787
- Property income 197 - 197 - - -
distribution
- Deposit interest 632 - 632 1,301 - 1,301
- Income from Fidelity 352 - 352 342 - 342
Institutional Cash Fund
plc
- Other income 38 - 38 - - -
Investment management fee (3,507) - (3,507) (4,577) - (4,577)
VAT on investment 2,300 - 2,300 - - -
management fee
recoverable
Other expenses (490) - (490) (461) - (461)
Exchange (losses)/gains - (46) (46) 3 - 3
Net return/(loss)before 12,061 (46,853) (34,792) 6,728 49,999 56,727
finance costs and
taxation
Interest payable (2,033) - (2,033) (2,165) - (2,165)
Net return/(loss)on 10,028 (46,853) (36,825) 4,563 49,999 54,562
ordinary activities
before taxation
Taxation on (loss)/return (121) - (121) (188) - (188)
on ordinary activities*
Net return/(loss)on 9,907 (46,853) (36,946) 4,375 49,999 54,374
ordinary activities after
taxation for the year
Return/(loss)per ordinary
share
Basic (1) 17.13p (81.03p) (63.90p) 6.91p 78.94p 85.85p
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 above 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 - audited - as at 31 August 2008
2008 2007
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 331,312 383,826
Current assets
Debtors 6,994 4,303
Amounts held at futures clearing houses and 1,573 2,018
brokers
Fidelity Institutional Cash Fund plc 9,091 10,342
Cash at bank 14,994 19,269
32,652 35,932
Creditors - amounts falling due within one year
Fixed rate unsecured loan (8,000) (5,000)
Other creditors (9,707) (3,168)
(17,707) (8,168)
Net current assets 14,945 27,764
Total assets less current liabilities 346,257 411,590
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (27,000) (35,000)
Total net assets 319,257 376,590
Capital and reserves
Called up share capital 14,198 14,926
Share premium account 95,058 95,058
Capital redemption reserve 2,545 1,817
Other non-distributable reserve 5,152 5,152
Capital reserve - realised 225,470 232,390
Capital reserve - unrealised (34,161) 21,733
Revenue reserve 10,995 5,514
Total equity shareholders' funds 319,257 376,590
Net asset value per ordinary share
Basic 562.13p 630.75p
FIDELITY SPECIAL VALUES PLC
Reconciliation of Movements in Shareholders' Funds - audited - for the year
ended 31 August 2008
called share capital other non-
distributable
reserve capital capital revenue total
up premium redemption reserve reserve reserve equity
share account reserve realised unrealised
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening shareholders' 16,339 95,058 404 5,152 193,393 44,001 3,576 357,923
funds:
1 September 2006
Net recognised capital - - - - 72,267 (22,268) - 49,999
gains/(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
Net recognised capital - - - - 9,041 (55,894) - (46,853)
gains/(losses) for the
year
Repurchase of ordinary (728) - 728 - (15,961) - - (15,961)
shares
Revenue after taxation - - - - - - 9,907 9,907
Dividend paid - - - - - - (4,426) (4,426)
Closing shareholders' 14,198 95,058 2,545 5,152 225,470 (34,161) 10,995 319,257
funds:
31 August 2008
FIDELITY SPECIAL VALUES PLC
Cash Flow Statement - audited- for the year ended 31 August 2008
2008 2007
£'000 £'000
Operating activities
Investment income received 5,639 5,355
Deposit interest received 947 1,630
Investment management fee paid (3,704) (4,594)
Directors' fees paid (108) (88)
Other cash payments (620) (321)
Net cash inflow from operating activities 2,154 1,982
Returns on investments and servicing of finance
Interest paid (2,057) (2,165)
Net cash outflow from returns on investments and (2,057) (2,165)
servicing of finance
Taxation
Overseas taxation recovered 13 71
Net cash inflow from taxation 13 71
Financial investment
Purchase of investments (318,920) (384,743)
Disposal of investments 338,703 428,928
Net cash inflowfrom financial investment 19,783 44,185
Equity dividend paid (4,426) (2,437)
Net cash inflow before use of liquid resources and 15,467 41,636
financing
Net cash inflow/(outflow) from management of liquid 1,251 (10,342)
resources
Net cash inflowbefore financing 16,718 31,294
Financing
Repurchase of ordinary shares (16,442) (32,788)
4.91% fixed rate unsecured loan repaid (5,000) -
Net cash outflow from financing (21,442) (32,788)
Decreasein cash (4,724) (1,494)
1. Return/(loss)per ordinary share
2008 2007
revenue capital total revenue capital total
Basic 17.13p (81.03p) (63.90p) 6.91p 78.94p 85.85p
Returns per ordinary share are based on the net revenue return on ordinary
activities after taxation of £9,907,000 (2007: £4,375,000), the capital loss in
the year of £46,853,000 (2007: return £49,999,000) and the total loss in the
year of £36,946,000 (2007: return £54,374,000) and on 57,823,165 ordinary
shares (2007: 63,335,764) 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 2008. This
preliminary statement, which has been agreed with the auditor, was approved by
the Board on 30 October 2008. It is not the Company's statutory financial
statements. The statutory financial statements for the financial year ended 31
August 2007 have been delivered to the Registrar of Companies. The statutory
financial statements for the financial year ended 31 August 2008 have been
approved and audited but have not yet been filed. The statutory financial
statements for the financial years ended 31 August 2007 and 31 August 2008
received unqualified audit reports, did not include a reference to any matters
to which the auditor 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 13 November 2008 and will
be made available on www.fidelity.co.uk/its at that time.
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