Final Results
FIDELITY EUROPEAN VALUES PLC
Preliminary Announcement of Results
For the year ended 31 December 2007
I have pleasure in presenting the annual report of Fidelity European Values PLC
for the year ended 31 December 2007.
PERFORMANCE
Continental European equities delivered another year of strong returns during
2007, as takeover activity and generally strong corporate results pushed
markets higher. Positive economic indicators, including strong domestic demand
and falling unemployment, continued to support the markets despite prevailing
inflationary pressures. However, the period will doubtless be remembered for
the credit crunch, the result of high default rates in the risky US sub-prime
mortgage market. Towards the end of the year, there was evidence of a downturn
in housing markets in various European economies, while oil prices picked up
and consumer expenditure waned. Over the review period, the net asset value
("NAV") per share of the Company returned 13.4%, underperforming the benchmark
FTSE World Europe (ex UK) Index, which returned 15.1%. Although the absolute
return was strong, performance was slightly disappointing relative to the
Index. This was partly due to a lack of exposure to the consumer goods,
telecommunications and technology sectors, while the zero weighting in Nokia
also affected returns. Overall, the portfolio's gearing had a positive impact
on returns. However, during November the Board decided to reduce the net
gearing from over 10% to zero, as a result of concerns about the investment
outlook. The shares ended the year trading at a discount of 6.9% to their
underlying asset value. (All figures are in sterling and are on a total return
basis.) A detailed review of the performance of the portfolio is provided in
the Manager's Review in the annual report.
GEARING
The Company has fixed term loans of €140m in aggregate with a further €25m
available by way of a revolving credit facility. During the year ended 31
December 2007 €15m of the revolving credit facility was drawn down and rolled
over periodically until it was repaid on 28 December 2007, the facility being
retained. The Board is responsible for the level of gearing in the Company and
continues to review it on a regular basis. At the year end the level of net
gearing was -1.0% and as at the date of this Statement, the Company's level of
net gearing was 1.43%. The Board will ensure that in normal circumstances net
gearing is below 20%. It is estimated that, excluding the impact of cash,
gearing enhanced the NAV by 0.22p per share over the year and the Board
believes that gearing will continue to benefit shareholders in the long term.
DISCOUNT MANAGEMENT
The Board will be active in issuing shares at a premium and buying back shares
at a discount; a continuation of practice since launch. The purpose of this is
to reduce share price volatility and results in an enhancement to the NAV. Over
the last six months share buybacks have been made, further details of which may
be found in the Directors' Report in the annual report.
DIVIDEND
The Board believes very strongly in increasing total return (income and
capital) on investment for shareholders. It is the Board's policy to pay out
earnings in full, however I wish to reiterate that the Board will not influence
the Manager in any way to determine the level of income. The Board has decided
to recommend a final dividend of 13.75 pence per share for the year ended 31
December 2007 (2006: 5.25 pence). This dividend will be payable on 27 May 2008
to shareholders on the register at close of business on 7 March 2008
(ex-dividend date 5 March 2008).
PORTFOLIO MANAGER
We have been extremely fortunate over the years to have had outstanding
Portfolio Managers, namely Tim McCarron and, prior to him, Anthony Bolton. Mr
McCarron has managed the portfolio for some six years and it is believed that a
change at this time for the Company is appropriate. The Board has been working
closely with Fidelity and we wish to welcome Sudipto Banerji, who will succeed
Tim McCarron as the next Portfolio Manager. Mr Banerji will become co-Portfolio
Manager in April, working alongside Tim McCarron to ensure a smooth transition
of the portfolio. From the end of June, Mr Banerji will have full
responsibility for the Company's portfolio management.
Mr Banerji qualified as an accountant with Ernst & Young following a degree
from the University of Delhi. He then worked for Perpetual and joined Fidelity
in 2000. He worked as the European retail analyst for two years and then became
a continental European Financial analyst. For the past three years he has been
a member of the Fidelity Global team, managing Fidelity's Industrials Fund. The
Board has every confidence that Mr Banerji will continue to produce the level
of performance that shareholders expect. Mr Banerji's investment style is a
bottom up stock picking approach. This approach is very similar to Mr
McCarron's and we look forward to working with him. We would like to thank Mr
McCarron for his huge contribution to the performance of the Company over the
past six years.
DIRECTORATE
Following the unexpected death of Mr Björkman, a further two new Directors were
appointed to the Board with effect from 1 June 2007. Please join me in
welcoming Mr James Robinson and Mr Humphrey van der Klugt as Directors to the
Board. They have made significant contributions to the running of the Company
during their short tenure due to their experience of the industry and their
financial experience as chartered accountants.
All of the Company's Directors will retire and, being eligible, offer
themselves for election or re-election. As detailed in the biographies in the
annual report the Directors have a wide range of appropriate skills and
experience to make up a balanced Board for your Company.
Messrs Robinson and van der Klugt are subject to election and Mr Simpson and I
are subject to annual re-election due to our tenure on the Board exceeding nine
years. Mr Fraser is subject to annual re-election under the Listing Rules due
to his employment relationship with the Manager. This relationship with a
senior member of the Company's Manager who assumes the responsibility of being
a Director of the Company is considered important. All Directors with the
exception of Mr Fraser are totally independent and this provides an appropriate
balance. Pursuant to the Company's Articles of Association, if there are fewer
than three Directors eligible to retire by rotation, then all shall retire and
therefore Mr Duckworth is subject to re-election again this year. Mr Duckworth
brings experience from his service on the City of London Corporation's Finance
and Investment Committees as well as his other public and charitable
appointments. The Board recognises the importance of continuity on the Board as
well as the need for refreshment from time to time. The Board has considered
the proposal for the election and re-election of the Directors and recommends
to shareholders that they vote in favour of the proposals.
Due to Mr Simpson's and my tenure on the Board exceeding nine years our fellow
Directors have met in our absence and considered our eligibility for
re-election. In my case, they considered that my experience, my independence of
mind and the manner in which I have filled the role of Chairman over the last
six years have been beneficial to the Company and they confirmed that they wish
me to continue as Chairman. In particular the Board believes that my input into
discussions on the introduction of the performance element to the management
fee, VAT issues and the proposed change in Portfolio Manager illustrated my
independence well. In Mr Simpson's case his investment experience, appointment
as Senior Independent Director and Chairmanship of the Company's Audit
Committee have remained extremely valuable. The Board is recommending that Mr
Simpson and I be re-elected as Directors at the forthcoming Annual General
Meeting.
The Board has given some thought to succession planning; it had been our
intention that David Simpson should retire at this year's AGM and that I should
retire one year later. In view of the change in Portfolio Manager we feel that
continuity is particularly important at this time and have therefore agreed
that both these retirements should be deferred.
MANAGEMENT FEES
With effect from 1 January 2007 the Board entered into a newly negotiated fee
with the Manager including a performance fee element. Further details of this
are included in the Directors' Report.
CONTINUATION VOTE
In accordance with the Articles of Association of the Company, an ordinary
resolution that the Company continue as an investment trust for a further two
years was passed at the 2007 Annual General Meeting. A further continuation
vote will take place at the Annual General Meeting in 2009.
AUDITORS
During the year a merger took place between RSM Robson Rhodes LLP and Grant
Thornton, resulting in the new firm Grant Thornton UK LLP. As a matter of
process, RSM Robson Rhodes LLP resigned as Auditors of the Company and the
Board appointed Grant Thornton UK LLP to fill the casual vacancy arising. The
Board is happy to report that the audit partner and manager remain the same and
the Board is recommending to shareholders that they vote in favour of the
re-appointment of Grant Thornton UK LLP.
DIRECTORS' REMUNERATION
Each year the Board reviews Directors' fees in the light of increases in
workload and the responsibilities of being a non-executive director. Fees paid
by companies in its peer group and elsewhere in the industry are considered.
With effect from 1 January 2008 my fees were increased to £27,500 pa (from £
25,000), the Chairman of the Audit Committee's fees to £21,000 pa (from £
20,000) and that of the other Directors to £19,000 pa (from £18,000). The total
payable is within the £150,000 maximum aggregate laid down in the Company's
Articles of Association.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company is due to take place on 16 May 2008
at midday at Fidelity's offices at 25 Cannon Street. Full details of the
meeting are given in the annual report and I look forward to meeting you then.
INVESTMENT POLICY
Shareholders will note a further restructuring and expansion of the contents of
this year's annual report due to changes in regulatory requirements. The main
change this year is the addition of the full text of the Company's Investment
Policy (forming part of the Directors' Report). As I wrote last year, my view
is that the annual report is now too lengthy and most of the detail of the
Business Review is not of interest or use to the majority of shareholders.
Therefore an attempt has been made to pull together the key issues and any
contentious matters in the Chairman's Statement and the Manager's Review so
that only the most assiduous of shareholders need read the extra detail. I
would like shareholders to convey their thoughts on this approach to me to see
if it is favoured or whether a different approach would be preferred.
VAT ON MANAGEMENT FEES
Following the decision of the European Court of Justice in the JPMorgan
Claverhouse Investment Trust/AIC case (C-363/05) which confirmed that the VAT
exemption applicable to the management of special investment funds should also
extend to investment trust companies, investment trust companies are entitled
to recover VAT previously charged on such management fees and HM Revenue and
Customs has withdrawn its appeal to the VAT tribunal.
There are uncertainties surrounding the recovery process and therefore no
payment has been anticipated in the Company's NAV. The Company expects to
receive a certain amount of VAT paid over past years which is estimated to be
in the order of magnitude of around £5 million. However it is not certain to
what extent the full recovery of VAT beyond this amount will be possible.
Discussions are on-going with Fidelity with regard to further recovery and the
Company has not sought to estimate or disclose this. The Company is no longer
paying VAT on its management fees.
OUTLOOK
As you will see in the Manager's Review, our Manager believes that markets
continue to present some good value opportunities, despite the prevailing
headwinds of a more challenging economic backdrop. For our part, we believe
that good stock selection based on in-depth company analysis should continue to
be the key to outperforming the Index over the coming years.
Robert Walther
Chairman
27 February 2008
Enquiries:
Richard Miles, Corporate Communications, Fidelity Investments International
- 020 7961 4921
Rebecca Burtonwood, Company Secretary, Fidelity Investments International
- 01737 836 869
Issued by Fidelity Investments International. Authorised and regulated by the
Financial Services Authority.
CB33314/N/A
FIDELITY EUROPEAN VALUES PLC
Income Statement
- for the year ended 31 December
2007 2006
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 98,812 98,812 - 115,258 115,258
Income
- Dividend 23,322 - 23,322 21,305 - 21,305
- Interest 983 - 983 326 - 326
Investment management fee (8,002) - (8,002) (9,961) - (9,961)
Other expenses (898) - (898) (986) - (986)
Exchange gains/(losses) 18 5,011 5,029 55 (311) (256)
Exchange (losses)/gains - (9,692) (9,692) - 2,260 2,260
on loans
Net return before finance 15,423 94,131 109,554 10,739 117,207 127,946
costs and taxation
Interest payable (4,275) - (4,275) (4,976) - (4,976)
Net return on ordinary 11,148 94,131 105,279 5,763 117,207 122,970
activities before
taxation
Taxation on return on (2,812) (97) (2,909) (2,407) (482) (2,889)
ordinary activities*
Return on ordinary 8,336 94,034 102,370 3,356 116,725 120,081
activities after taxation
for the year
Return per ordinary share 13.79p 155.60p 169.39p 5.34p 185.68p 191.02p
(1)
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 EUROPEAN VALUES PLC
Reconciliation of Movements in Shareholders' Funds
- for the year ended 31 December
called share capital capital capital revenue total
up premium redemption reserve reserve reserve equity
share account reserve realised unrealised
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening 15,725 58,615 100 424,750 183,734 5,684 688,608
shareholders' funds:
1 January 2006
Net recognised gains - - - 148,343 (31,618) - 116,725
/(losses) for the
year
Repurchase of (114) - 114 (5,453) - - (5,453)
ordinary shares
Revenue after - - - - - 3,356 3,356
taxation
Dividend paid - - - - - (1,573) (1,573)
Closing 15,611 58,615 214 567,640 152,116 7,467 801,663
shareholders' funds:
31 December 2006
Net recognised gains - - - 127,956 (33,922) - 94,034
/(losses) for the
year
Repurchase of (874) - 874 (46,145) - - (46,145)
ordinary shares
Revenue after - - - - - 8,336 8,336
taxation
Dividend paid - - - - - (3,243) (3,243)
Closing 14,737 58,615 1,088 649,451 118,194 12,560 854,645
shareholders' funds:
31 December 2007
FIDELITY EUROPEAN VALUES PLC
Balance Sheet
- as at 31 December
2007 2006
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 848,119 901,497
Current assets
Debtors 4,543 3,506
Cash at bank 111,233 4,718
115,776 8,224
Creditors - amounts falling due within one year
Fixed rate unsecured loan (25,755) (10,104)
Other creditors (6,230) (3,652)
(31,985) (13,756)
Net current assets/(liabilities) 83,791 (5,532)
Total assets less current liabilities 931,910 895,965
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (77,265) (94,302)
Total net assets 854,645 801,663
Capital and reserves
Called up share capital 14,737 15,611
Share premium account 58,615 58,615
Capital redemption reserve 1,088 214
Capital reserve - realised 649,451 567,640
Capital reserve - unrealised 118,194 152,116
Revenue reserve 12,560 7,467
Total equity shareholders' funds 854,645 801,663
Net asset value per ordinary share 1,449.76p 1,283.77p
FIDELITY EUROPEAN VALUES PLC
Cash Flow Statement - for the year ended 31 December
2007 2006
£'000 £'000
Operating activities
Investment income received 19,971 16,969
Interest received 628 302
Investment management fee paid (8,841) (9,671)
Directors' fees paid (62) (94)
Other cash payments (1,084) (675)
Net cash inflow from operating activities 10,612 6,831
Returns on investments and servicing of finance
Interest paid (4,265) (4,977)
Net cash outflow from servicing of finance (4,265) (4,977)
Taxation
Overseas taxation recovered 1,232 874
Taxationrecovered 1,232 874
Financial investment
Purchase of investments (995,838) (724,793)
Disposal of investments 1,152,214 738,088
Net cash inflowfrom financial investment 156,376 13,295
Equity dividend paid (3,243) (1,573)
Net cash inflowbefore financing 160,712 14,450
Financing
Repurchase of ordinary shares (45,361) (5,435)
4.335% credit facility drawn down 10,191 -
4.595% credit facility drawn down 10,109 -
5.165% credit facility drawn down 10,462 -
4.38% fixed rate unsecured loan drawn down - 43,783
4.1465% credit facility drawn down - 10,104
4.1465% credit facility repaid (10,191) -
4.335% credit facility repaid (10,109) -
4.595% credit facility repaid (10,462) -
5.165% credit facility repaid (11,078) -
4.96% fixed rate unsecured loan repaid - (33,679)
5.54% fixed rate unsecured loan repaid - (26,943)
Net cash outflowfrom financing (56,439) (12,170)
Increasein cash 104,273 2,280
1. Returns per ordinary share are based on the net revenue return on ordinary
activities after taxation of £8,336,000 (2006: £3,356,000), the net capital
return in the year of £94,034,000 (2006: £116,725,000) and the total return in
the year of £102,370,000 (2006: £120,081,000) and on 60,434,721 ordinary shares
(2006: 62,864,314) 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 December 2007. This
preliminary statement, which has been agreed with the auditors, was approved by
the Board on 27 February 2008. It is not the Company's statutory financial
statements. The statutory financial statements for the financial year ended 31
December 2006 have been delivered to the Registrar of Companies. The statutory
financial statements for the financial year ended 31 December 2007 have been
approved and audited but have not yet been filed. The statutory financial
statements for the financial years ended 31 December 2006 and 31 December 2007
received unqualified audit reports, 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 April 2008.
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