Interim Results
FIDELITY JAPANESE VALUES PLC
Preliminary Announcement of Unaudited Interim Results
for the six months ended 30 June 2005
Interim report
Performance
During the first half of 2005, the Company continued to perform well with an
increase in net asset value of 15.2%. This represents a significant
outperformance when compared with the Russell Nomura Mid-Small Cap Index, the
Company's benchmark, which grew by 5.0% in the same period. (Please note that
past performance is not a guide to future returns. The value of investments can
go down as well as up, and may be affected by exchange rate fluctuations.)
The main source of this outperformance was stock selection in the services
sector, in which advertising agencies catering for the internet, including Opt
and Cyber Agent, contributed to relative performance. These companies are
benefiting from a structural shift in corporate advertising campaigns towards
the internet. Another contributor in the service sector was Gendai Agency, a
niche advertising agency specialising in the 'Pachinko' (Japanese pinball/slot
machine game) market. The company is enjoying strong demand for advertising due
to increasing competition among Pachinko arcades. In addition, the Company's
exposure to Davinci Advisors, which operates in the field of property
acquisition and management, added value.
Stock selection was also successful in the electrical machinery, information &
communication, and nonferrous metals sectors. In the electrical machinery
sector, share prices of Shinko Electric and Chiyoda Integre rose on
expectations that they would benefit from a cyclical recovery in the global
demand for electronics parts. The Company's holdings contributing to
performance in the information & communication sector represent a diverse range
of businesses, such as software and system development, media, internet
services and on-line entertainment. These companies are reaping the benefits of
internet penetration, on business-to-business and business-to-consumer bases.
In the nonferrous metals sector, the share price of Sumitomo Titanium rose as a
result of tightening demand for titanium sponge due to increasing aerospace
deliveries.
The market and outlook
It appears that domestic investors are increasingly confident in their home
market, based on the premise that the best performers in the Tokyo Stock
Exchange Second Section and the Jasdaq Market (formerly known as the
Over-the-Counter market) seem capable of increasing their sales and
profitability, regardless of the global economic trend. The growth in these
markets is mainly driven by demand for new products and services or by internal
structural changes.
We believe the strong performance of medium sized and smaller companies is a
secular trend rather than a bubble. The key difference between the previous
bubble in 1999 and the current rally lies in Japan's macro-economic
environment. Despite a short term lull in the economic cycle, there is good
reason to believe that Japan's rate of economic growth is gaining momentum and
that the recovery will be fairly broad-based, encompassing domestic sectors as
well as technology exporters. Relatively strong economic growth in the first
quarter of 2005 was supported by private consumption and capital spending,
although weak exports and inventory growth continued to fuel fears of a
slowdown going forward. Meanwhile, the electronic parts & devices sector, which
played a major role in last year's economic slowdown, is showing signs of
bottoming; both output and shipments have improved and inventories have
declined for five of the past six months. Furthermore, ongoing improvements in
the labour market bode well for growth in consumption.
While consumer price deflation remains an issue, mainly as a result of cuts to
utility charges, land prices are showing signs of recovery. The Ministry of
Land, Infrastructure & Transport's annual land-price survey recently indicated
that a recovery in Tokyo has started to spread to other urban areas. An end to
land price deflation should give rise to significant economic benefits for
associated industries. It should also help to alleviate balance sheet erosion
problems.
Developments at the micro level also warrant optimism. We believe corporate
fundamentals continue to improve as evidenced by Japanese companies'
historically low break-even ratios, rising profit margins, and their
elimination of excess debt. For the year to March 2006, medium sized and
smaller companies listed on the TSE second section and the Jasdaq market expect
their recurring profits to grow by 14.7% and 19.9% year on year respectively.
In this environment, we continue to find attractive growth opportunities,
particularly among beneficiaries of improving domestic demand in the services,
wholesale, information & communication, and retail sectors. This theme is
represented by the Company's top ten holdings, including Telewave, Otsuka,
Ryohin Keikaku and Doshisha. Another key investment theme is internet-related
service providers, such as Usen, Opt, Livedoor and Cyber Agent, which we expect
to maintain strong growth momentum into next year.
However, we remain cautious when picking stocks. Whilst we have recently seen a
rerating of Japanese smaller companies' stocks, we can still find many
attractive smaller companies with growth opportunities. This environment is
still conducive to the stock-picking approach that the Manager adopts for
Fidelity Japanese Values.
DIVIDEND
The Company is not proposing to pay an interim dividend.
By order of the Board
Fidelity Investments International
28 July 2005
Enquiries:
Barbara Powley - Fidelity Investments International
01737 836883
Issued by Fidelity Investments International. Authorised and regulated by the
Financial Services Authority.
CB23491
FIDELITY JAPANESE VALUES PLC
Statement of Total Return
for the six months for the year ended for the six months
ended ended
30.06.05 31.12.04 30.06.04
unaudited audited unaudited
restated* restated*
Revenue Capital Total Revenue Capital Total Revenue Capital Total
notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on - 10,945 10,945 - 11,295 11,295 - 20,869 20,869
investments
Cost of
investment
transactions - (88) (88) - (232) (232) - (159) (159)
Income 3 530 - 530 705 - 705 408 - 408
Investment
management (470) - (470) (884) - (884) (459) - (459)
fee
Other (194) - (194) (369) - (369) (139) - (139)
expenses
Exchange
gains/
(losses) - 19 19 (1) (141) (142) - (136) (136)
Exchange
gains on
loans - 51 51 - 594 594 - 544 544
Net (loss)/
return
before
finance
costs,
realisation
of
warrant
reserve and
taxation (134) 10,927 10,793 (549) 11,516 10,967 (190) 21,118 20,928
Interest (115) - (115) (274) - (274) (131) - (131)
payable
Realised
gain on
warrants - - - - 10,197 10,197 - 10,197 10,197
unexercised
(Loss)/r
eturn on
ordinary a
ctivities
before tax (249) 10,927 10,678 (823) 21,713 20,890 (321) 31,315 30,994
ation
Taxation on
ordinary
activities (37) - (37) (48) - (48) (27) - (27)
(Loss)/r
eturn on
ordinary
activities
after tax
ation for
the
period
attributable
to equity
shareholders (286) 10,927 10,641 (871) 21,713 20,842 (348) 31,315 30,967
Return per
ordinary 5 10.84p 10.84p 31.54p
share
* See Note 9.
These financial statements have been prepared in accordance with the AITC
Statement of Recommended Practice (SORP) issued in January 2003 and the changes
to the accounting policies set out in Note 1.
FIDELITY JAPANESE VALUES PLC
Balance Sheet
as at 30 June 2005
30.06.05 31.12.04 30.06.04
unaudited audited unaudited
notes £'000 £'000 £'000
Fixed assets
Investments 95,283 85,376 95,079
Current assets
Debtors 330 456 250
Cash at bank 1,871 673 2,432
2,201 1,129 2,682
Creditors - amounts falling due
within one year
Fixed rate unsecured loans 6 - - (16,117)
Other creditors (844) (455) (1,536)
(844) (455) (17,653)
Net current assets/(liabilities) 1,357 674 (14,971)
Total assets less current liabilities 96,640 86,050 80,108
Creditors - amounts falling due after
more
than one year
Fixed rate unsecured loans 6 (16,015) (16,066) -
Total net assets 80,625 69,984 80,108
Capital and reserves
Called up share capital 24,551 24,551 24,551
Share premium account 44 44 40
Capital redemption reserve 1,780 1,780 1,780
Other reserve 60,369 60,369 60,369
Other non-distributable reserve - - 3
Capital reserve - realised (3,086) (6,351) (11,835)
Capital reserve - unrealised 7,449 (213) 14,873
Revenue reserve (10,482) (10,196) (9,673)
Total equity shareholders' funds 80,625 69,984 80,108
Net asset value per ordinary share 7 82.10p 71.26p 81.57p
FIDELITY JAPANESE VALUES PLC
Cash Flow Statement
for the six months ended 30 June 2005
30.06.05 31.12.04 30.06.04
unaudited audited unaudited
£'000 £'000 £'000
Operating activities
Investment income received 484 629 362
Interest received 2 3 2
Investment management fee paid (449) (864) (420)
Directors' fees paid (49) (68) (47)
Other cash payments (194) (283) (83)
Net cash outflow from
operating activities (206) (583) (186)
Returns on investments and
servicing of finance
Interest paid (114) (275) (132)
Net cash outflow from returns
on
investments and servicing of (114) (275) (132)
finance
Financial investment
Purchase of investments (28,014) (76,801) (50,932)
Disposals of investments 29,542 75,047 50,382
Net cash inflow/(outflow) from
financial investment 1,528 (1,754) (550)
Net cash inflow/(outflow) 1,208 (2,612) (868)
before financing
Financing
Exercise of warrants - 1 -
1.05% fixed rate unsecured - (7,371) -
loan repaid
2.155% fixed rate unsecured - (8,678) -
loan repaid
1.565% fixed rate unsecured - 7,371 -
loan drawn down
1.34% fixed rate unsecured - 8,678 -
loan drawn down
Net cash inflow from financing - 1 -
Increase/(decrease) in cash 1,208 (2,611) (868)
Notes to the Accounts
1. Accounting policies
The interim financial statements have been prepared on the basis of the
accounting policies set out in the Company's annual report and accounts dated
31 December 2004 except as stated below.
UK GAAP has been modified to include the following Financial Reporting
Standards ('FRS') which have impacted the Company's results for the period as
follows:
Valuation of investments
FRS 26: 'Financial Instruments: Measurement' requires that investments are
valued at fair value which is deemed to be bid price. As the Company invests in
Japan, the investments have, in accordance with common market practice, been
valued at last trade price. As a consequence adoption of this standard has had
no impact on the valuation of investments.
Cost of investment transactions
FRS 26 also requires that where investments are held at 'fair value through the
profit and loss account' the transaction costs should be recognised as a
separate item from gains and losses on investments and prior period results
have accordingly been restated as disclosed in the Statement of Total Return.
2. Statement of Total Return
The total column on this statement is the profit and loss account of the
Company.
3. Income
30.06.05 31.12.04 30.06.04
unaudited audited unaudited
Overseas dividends 528 701 406
Deposit interest 2 4 2
530 705 408
4. Taxation on return on ordinary activities
30.06.05 31.12.04 30.06.04
unaudited audited unaudited
Overseas taxation (37) (48) (27)
5. (Loss)/return per ordinary share
30.06.05 31.12.04 30.06.04
revenue capital total revenue capital total revenue capital total
Before (0.29p) 11.13p 10.84p (0.89p) 11.73p 10.84p (0.35p) 21.50p 21.15p
realisation
of the
warrant
reserve
After (0.29p) 11.13p 10.84p (0.89p) 22.11p 21.22p (0.35p) 31.89p 31.54p
realisation
of the
warrant
reserve
Basic returns per ordinary share are based on the loss on ordinary activities
after taxation of £286,000 (31.12.04: £871,000; 30.06.04: £348,000) and the
capital appreciation in the period before realisation of its warrant reserve of
£10,927,000 (31.12.04: £11,516,000; 30.06.04: £21,118,000) and on 98,207,453
ordinary shares (31.12.04: 98,207,060; 30.06.04: 98,206,662), being the
weighted average number of shares in issue during the period.
6. Loan Facility
The fixed rate unsecured loan from The Royal Bank of Scotland plc of yen
1,499,040,000 was drawn down on 13 August 2004 for a period of five years at a
fixed rate of 1.565% per annum.
The fixed rate unsecured loan from The Royal Bank of Scotland plc of yen
1,680,000,000 was drawn down on 25 November 2004 for a period of five years at
a fixed rate of 1.34% per annum.
The Company has entered into agreements with The Royal Bank of Scotland plc
whereby, if total borrowings exceed 39% of the Company's assets, sufficient
money is placed in a charged account with the bank to reduce borrowings to 37%
for a period of five consecutive business days.
At 30 June 2005, there were no cash deposits with the bank subject to a charge
in favour of The Royal Bank of Scotland plc (31.12.04: nil; 30.06.04: nil). As
at the date of this report there were no cash deposits subject to this charge.
Redemption costs may be payable in the event of the Directors electing to
prepay these loans and swaps. The estimated cost of cancellation of these loans
and swaps at 30 June 2005 was £300,000 (31.12.04: £150,000).
7. Net asset value per share
The basic net asset value per ordinary share is based on net assets of £
80,625,000 (31.12.04: £69,984,000; 30.06.04: £80,108,000) and on 98,207,453
(31.12.04: 98,207,453; 30.06.04: 98,207,453) ordinary shares being in issue.
8. Share repurchases
No shares were repurchased for cancellation during the period.
9. Restatement
The capital net return before finance costs, realisation of the warrant reserve
and taxation for the six months ended 30 June 2004 has been restated from £
20,574,000 to £21,118,000. This restatement has been necessary as exchange
gains/(losses) have been included as part of the net return before finance
costs at 31 December 2004 and subsequently rather than as a finance cost. This
restatement has no impact on the Company's return on ordinary activities for
the six months ended 30 June 2004.
10. Statement of changes in equity
for the six months ended 30 June 2005
Share Share Capital Other Capital Capital Revenue
capital premium redemption reserve reserve reserve reserve
£'000 account reserve £ £'000 realised unrealised £'000
£'000 '000 £'000 £'000
At 1 January 2005: 24,551 44 1,780 60,369 (6,351) (213) (10,196)
as previously
stated
Net recognised - - - - 3,265 7,662 (286)
gains for the
period
At 30 June 2005 24,551 44 1,780 60,369 (3,086) 7,449 (10,482)
11. Results
The results for the six months to 30 June 2005 and 30 June 2004, which are
unaudited, constitute non-statutory accounts within the meaning of s240 of the
Companies Act 1985. The figures and financial information for the year ended 31
December 2004 are extracted from the latest published accounts and have been
restated as disclosed in Note 9. The latest published accounts for the year
ended 31 December 2004, on which the auditors gave an unqualified report and
did not contain a statement under either section 237(2) or 237(3) of the
Companies Act 1985 have been delivered to the Registrar of Companies.
Copies of the interim report will be posted to shareholders as soon as
practicable. Copies will also be available to the public from the Company's
registered office, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth,
Surrey KT20 6RP.
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