Final Results
FIDELITY EUROPEAN VALUES PLC
For the year ended 31 December 2010
Announcement of Year End Results
Chairman's Statement
Humphrey van der Klugt
Chairman
I have pleasure in presenting the annual report of Fidelity European Values PLC
for the year ended 31 December 2010, my first as Chairman.
PERFORMANCE
In 2010, global economic growth rebounded, following the end of a deep
recession in the advanced economies, whilst China and India continued to expand
at a rapid pace. In Europe, there was a divergence between the stronger
so-called "core" economies such as Germany, which benefited from a weaker euro
and strong consumption in Asia, and the "peripheral" countries, which were
encumbered by debt issues. Indeed, equity market performance in Europe proved
volatile, as the focus of attention turned to the sovereign risk crisis and its
impact on eurozone economies and the Euro itself.
Against this backdrop, the net asset value (NAV) per share of the Company
increased by 7.1%, outperforming its benchmark, the FTSE World Europe (ex UK)
Index, which rose by 5.1%. Overall, companies with exposure to emerging markets
performed well, whereas those in the financial sector struggled. Selecting
financials with stronger balance sheets whilst avoiding commercial banks which
came under particular pressure, helped returns for the portfolio. In addition,
exposure to selected basic materials companies, particularly in the chemicals
sector, also proved positive. Returns were held back by a lack of exposure to
industrial cyclical companies, which benefited from a strong rally towards the
end of the year.
A detailed review of the performance of the portfolio is provided in the
Manager's Review. (All figures are in sterling and are on a total return
basis).
DISCOUNT MANAGEMENT
The Board remains active in discount management, including buying back shares
at a discount. This is a practice it has adopted since launch and buybacks have
continued during the year. The purpose of this is to reduce share price
volatility and it also results in an enhancement to the net asset value per
share. Further details of share buybacks made during the year may be found in
the Directors' Report.
It is disappointing to note that the level of discount has nonetheless widened
over the year, causing the share price return to lag the NAV return. Indeed,
the share price showed a small decline over the period. To some extent this is
because continental European equity markets have been out of fashion with
investors, capital having flowed more towards emerging markets. I can assure
you it is a situation which the Board continues to monitor carefully.
Performance over one year, five years and since launch
to 31 December 2010 (on a total return basis)
NAV Share price FTSE World Europe
(ex UK) Index
One year +7.1% -1.3% +5.1%
Five years +31.0% +7.9% +29.8%
Since launch (1991) +1,447.0% +1,194.3% +474.5%
Source: Fidelity and Datastream as at 31 December 2010
Basis: bid-bid with net income reinvested
Past performance is not a guide to future returns
DIVIDENDS
The Board intends to continue with its practice of paying out earnings in full.
The objective is one of long term capital growth and we will not seek to
influence the Manager to determine the level of income of your Company's
portfolio in any particular year.
The Board has decided to recommend a final dividend of 15.75 pence per share
for the year ended 31 December 2010 (2009: final dividend: nil; interim
dividend: 22.50 pence). This dividend will be payable on 27 May 2011 to
shareholders on the register at close of business on 18 March 2011 (ex-dividend
date 16 March 2011).
The decrease in the level of income and thus the dividend payment in comparison
to last year is a function of stock selection, but it is important to note that
the NAV return has been positive and ahead of its benchmark.
PORTFOLIO MANAGER
During the year, we announced that Sam Morse would take over management of the
portfolio with effect from
1 January 2011. Sam replaces Sudipto Banerji who was appointed to new portfolio
management responsibilities within Fidelity's global equity team.
With more than 20 years of successful investment experience, I am sure that Sam
Morse will build on the hard work of Sudipto Banerji. Sam follows a strong
stock selection process which the Board believes is closely aligned to what
shareholders expect from their investment in the Company. We hope that further
improved performance and signs of better sentiment towards Continental European
equities will also be reflected in a narrowing of the discount level.
Sam's investment approach is focused on generating long term outperformance, in
particular through investment in companies with the prospect of continuing
dividend growth, positive fundamentals, cash generation, a robust balance sheet
and an attractive valuation. As such, his method is closely aligned with the
Company's objective.
The Board watched Sam's success in transferring his approach from the
management of UK equities to the Fidelity European Fund and, as a result,
considered this to be a good opportunity to bring both the open and
closed-ended European vehicles under the same manager. This mirrors the
management responsibilities during the tenures of both Anthony Bolton
(1991-2001) and Tim McCarron (2001-2008).
INVESTMENT POLICY
The broad thrust of investment policy continues without significant change.
This being said, the Board is always looking for new ways of enhancing the way
in which your Company operates.
Shareholders will have received a circular with the Annual Report detailing the
Board's recommendation to change the Company's investment policy to permit the
use of Contracts for Difference ("CFD"s) for gearing purposes.
A full explanation is provided in the circular. The Board believes that it is
in the best interests of shareholders for the Company to continue to have the
ability to employ gearing. The ability to use CFDs will increase gearing
flexibility and add to the range of options available to the Board and FIL
Investments International.
We continue to monitor and review the Company's gearing level, which currently
stands at 8%, reflecting the broadly positive view of the Manager towards
opportunities in European equities, fully endorsed by your Board.
DIRECTORATE
Following the Annual General Meeting held on 18 May 2010, Robert Walther, who
had been a Director of the Company since launch and Chairman for nine years,
retired. We are grateful to Robert for the strong leadership he provided and
his sound judgement over the many years of his involvement in your Company.
I was appointed Chairman and James Robinson was appointed Chairman of the Audit
Committee and Senior Independent Director with effect from that date. As
previously detailed, Robin Niblett was appointed a Director on 14 January 2010
following a search using an external agency and was duly re-elected at the AGM.
Simon Fraser is subject to annual re-election under the Listing Rules due to
his recent employment relationship with the Manager and his directorship of
another investment trust managed by Fidelity, namely Fidelity Japanese Values
PLC. The Board is convinced that Simon Fraser's experience serves the Company
well, and the Directors voted unanimously that he should remain a Director when
he left the employment of Fidelity.
The Board supports the proposal in the new UK Corporate Governance Code for
Directors of FTSE 350 companies to be subject to annual re-election. The Board
has therefore decided to introduce such annual re-election at this year's AGM,
a year ahead of the proposed schedule. 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. With the exception of
Simon Fraser, all other Directors are totally independent.
The Board has considered the proposal for the re-election of all of the
Directors and recommends to shareholders that they vote in favour of the
proposals.
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 2009 Annual General Meeting. A further continuation
vote will take place at this year's Annual General Meeting. The Company's
performance record has been excellent since launch with a NAV increase of
1447.3% compared to an increase in the benchmark Index of 474.5%. During the
past 12 months the Company's NAV has outperformed the Index by 2% and is also
ahead of the Index over 3, 5 and 10 years. Therefore your Board recommends that
shareholders vote in favour of the continuation vote. A further continuation
vote will take place at the Annual General Meeting in 2013.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company is due to take place on 18 May 2011
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 talking with as
many shareholders as possible at this occasion.
CONCLUSION
Investment markets will have to contend with a wide range of complex factors in
2011, not least, now, political unrest in the Middle East and North Africa and
increasing inflationary pressures, induced largely by rising commodity prices.
In addition, peripheral eurozone economies will most likely face growth
headwinds in the coming year, due to austerity measures introduced by their
governments. However, the more stable core eurozone economies, including
Germany, continue to benefit from the global recovery and are even now seeing
signs of improving domestic confidence. With global economic growth forecasts
remaining positive and, we hope, the political will to tackle the sovereign
debt issues in Europe, the future looks reasonably bright for continental
European equities. Equity valuations in the region continue to be attractive
and companies are in a more robust financial position than a year ago, giving
rise to good stock picking opportunities.
Humphrey van der Klugt
Chairman
7 March 2011
Income Statement for the year ended 31 December 2010
2010 2009
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 33,621 33,621 - 46,288 46,288
designated at fair value
through profit or loss
Income* 18,883 - 18,883 23,261 - 23,261
Investment management fee (5,036) - (5,036) (4,582) - (4,582)
VAT recovered on investment - - - 37 - 37
management fee
Other expenses (664) - (664) (793) - (793)
Exchange gains/(losses) on 65 (4,808) (4,743) 161 (8,056) (7,895)
other net assets
Exchange gains on loans - 4,153 4,153 - 6,867 6,867
Net return before finance 13,248 32,966 46,214 18,084 45,099 63,183
costs and taxation
Finance costs (3,025) - (3,025) (3,768) - (3,768)
Net return on ordinary 10,223 32,966 43,189 14,316 45,099 59,415
activities before taxation
Taxation on return on (2,262) (60) (2,322) (3,434) 506 (2,928)
ordinary activities**
Net return on ordinary 7,961 32,906 40,867 10,882 45,605 56,487
activities after taxation for
the year
Return per ordinary share 15.95p 65.91p 81.86p 20.59p 86.27p 106.86p
*INCOME
2010 2009
£'000 £'000
Income from investments designated at fair value through
profit or loss
Overseas dividends 18,344 20,954
Overseas scrip dividends 352 1,730
18,696 22,684
Other income
Deposit interest 55 165
Income from Fidelity Institutional Liquidity Fund plc 132 412
Total income 18,883 23,261
** Relates to overseas taxation only.
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.
Reconciliation of Movements in Shareholders' Funds for the year ended 31
December 2010
share capital
share premium redemption capital revenue total
capital account reserve reserve reserve equity
£'000 £'000 £'000 £'000 £'000 £'000
Opening shareholders'
funds:
1 January 2009 13,728 58,615 2,097 550,355 25,186 649,981
Net recognised capital - - - 45,099 - 45,099
gains for the year
Repurchase of ordinary (949) - 949 (37,913) - (37,913)
shares
Taxation credited to - - - 506 - 506
capital
Net revenue return - - - - 10,882 10,882
after taxation for the
year
Dividends paid to - - - - (19,620) (19,620)
shareholders
Closing shareholders'
funds:
31 December 2009 12,779 58,615 3,046 558,047 16,448 648,935
Net recognised capital - - - 32,966 - 32,966
gains for the year
Repurchase of ordinary (417) - 417 (17,968) - (17,968)
shares
Taxation charged to - - - (60) - (60)
capital
Net revenue return - - - - 7,961 7,961
after taxation for the
year
Dividend paid to - - - - (11,292) (11,292)
shareholders
Closing shareholders'
funds:
31 December 2010 12,362 58,615 3,463 572,985 13,117 660,542
Balance Sheet as at 31 December 2010
2010 2009
£'000 £'000
Fixed assets
Investments designated at fair value through profit or
loss 693,547 658,771
Current assets
Debtors 2,106 7,760
Fidelity Institutional Liquidity Fund plc* 21,533 45,823
Cash at bank 3,976 40,973
27,615 94,556
Creditors - amounts falling due within one year
Fixed rate unsecured loan (55,812) (35,471)
Other creditors (4,808) (11,280)
(60,620) (46,751)
Net current (liabilities)/assets (33,005) 47,805
Total assets less current liabilities 660,542 706,576
Creditors - amounts falling due after more than one year
Fixed rate unsecured loan - (57,641)
Total net assets 660,542 648,935
Capital and reserves
Share capital 12,362 12,779
Share premium account 58,615 58,615
Capital redemption reserve 3,463 3,046
Capital reserve 572,985 558,047
Revenue reserve 13,117 16,448
Total equity shareholders' funds 660,542 648,935
Net asset value per ordinary share 1,335.78p 1,269.52p
* Fidelity Institutional Cash Fund plc was renamed Fidelity Institutional
Liquidity Fund plc on 5 July 2010.
Cash Flow Statement for the year ended 31 December 2010
2010 2009
£'000 £'000
Operating activities
Investment income received 14,713 17,088
Deposit interest received 188 657
Investment management fee paid (4,958) (4,602)
Performance fee paid - (7,458)
VAT recovered on investment management fee paid - 37
Directors' fees paid (112) (113)
Other cash payments (735) (659)
Net cash inflow from operating activities 9,096 4,950
Servicing of finance
Interest paid on bank loans (3,054) (3,794)
Net cash outflow from servicing of finance (3,054) (3,794)
Taxation
Overseas taxation recovered 1,485 1,218
Taxation recovered 1,485 1,218
Financial investment
Purchase of investments (555,131) (834,557)
Disposal of investments 554,223 882,130
Net cash (outflow)/inflow from financial investment (908) 47,573
Dividends paid to shareholders (11,292) (19,620)
Net cash (outflow)/inflow before use of liquid resources
and financing (4,673) 30,327
Cash flow from management of liquid resources
Fidelity Institutional Liquidity Fund plc 24,290 2,941
Net cash inflow from management of liquid resources 24,290 2,941
Net cash inflow before financing 19,617 33,268
Financing
Repurchase of ordinary shares (19,590) (36,004)
3.23% fixed rate unsecured loan repaid (33,147) -
Net cash outflow from financing (52,737) (36,004)
Decrease in cash (33,120) (2,736)
The above statements have been prepared on the basis of the accounting policies
as set out in the financial statements in the annual report to 31 December
2010. This preliminary statement, which has been agreed with the Auditor, was
approved by the Board on 7 March 2011. It is not the Company's statutory
financial statements. The statutory financial statements for the financial
year ended 31 December 2009 have been delivered to the Registrar of Companies.
The statutory financial statements for the financial year ended 31 December
2010 have been approved and audited but have not yet been filed. The statutory
financial statements for the financial years ended 31 December 2009 and 31
December 2010 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 498(2) and
(3) of the Companies Act 2006.
The annual report and financial statements will be posted to shareholders as
soon as is practicable and in any event no later than 8 April 2011.
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