Final Results
FIDELITY JAPANESE VALUES PLC
Preliminary Announcement of Results
For the year ended 31 December 2011
Chairman's Statement
For the year ended 31 December 2011
The Year's Results: NAV (undiluted) 64.17p (-4.27p; -6.2%)
The ordinary share price: 52.50p (-4.75p; -8.3%)
The subscription share price: 5.70p (-6.05p; -51.5%)
Discount: 18.2% (16.4% in 2010)
PERFORMANCE REVIEW
Over the year to 31 December 2011, your Company's net asset value fell by 4.27p
per share to 64.17p per share. The discount, although high, remained relatively
stable. The decline in value was primarily due to market performance (-9.97p
per share), and gearing detracted a further 1.31p. Although your Manager's
stock selection added 3.74p per share and the yen's appreciation against the
sterling pound accounted for an additional 3.70p per share, these could not
fully offset the negative market performance.
The decline in net asset value of 6.2% during 2011 represented an
outperformance of 3.1% relative to the Benchmark Index, the Russell Nomura Mid/
Small Cap Index (when expressed in sterling). Your Company's outperformance
relative to its Benchmark was largely attributable to holdings in the domestic
consumer sector, which is relatively insulated from a global economic downturn.
The emphasis on internet related consumer services was particularly rewarding.
Rapid penetration of smartphones and tablet PCs created new business
opportunities such as social networking and gaming services. Elsewhere, niche
producers of high end electronic materials and components used for smartphones
and fuel efficient vehicles fared well as they continued strong quarterly
earnings. Conversely, the Company's exposure to semiconductor component
producers detracted from relative performance due to weakening end demand for
PCs and yen appreciation.
Year ended
31 December
2011
Attribution Analysis (pence)
NAV at 31 December 2010 (undiluted) 68.44
Impact of the Index (in yen terms) -9.97
Impact of Index Income (in yen terms) 1.20
Impact of Stock Selection 3.74
Impact of Gearing -1.31
Impact of Exchange Rate 3.70
Impact of Charges -1.34
Impact of Share Issues -2.11
Cash/Residual 1.82
NAV at 31 December 2011 (undiluted) 64.17
MARKET REVIEW
In 2011, global financial markets were shaken by a series of natural disasters
and geopolitical shocks throughout the year. The Japanese earthquake and the
nuclear disaster in March, the Arab Spring uprisings, increased concerns about
the US and Eurozone debt crises in August and the floods in Thailand in October
precipitated a global flight to safety. Liquidity in global equity markets
quickly dried up, while bond yields continued to decline.
The Japanese equity market plummeted in the immediate aftermath of the
earthquake in March. We saw a widening of the return gap between sectors. This
reflected the steep declines suffered by power utilities and other companies
directly impacted by the disaster. Japanese equities staged a strong rebound
towards the beginning of July, as better than expected domestic macroeconomic
data underscored the resilience of Japanese companies in overcoming supply
chain disruptions and restoring production. This early summer rally, however,
was shortlived, as investor sentiment gave way to fears of contagion from the
Greek debt crisis. After the summer, weak market sentiment was compounded by
the yen's postwar high and disruptions to global supply chains caused to many
Japanese companies by the floods in Thailand.
Against the backdrop of the Eurozone debt crisis, financials suffered the
steepest declines in 2011. On the other hand, defensive segments, notably
consumer staples such as foods and agricultural products, held up well.
Retailers successfully implementing restructuring or overseas expansion
strategies also outperformed.
Overseas investors, who typically account for more than 60% of market turnover,
were net buyers of Japanese stocks in 2011. However, the bulk of purchases were
concentrated in the first half of the year, particularly in the period
immediately following the March earthquake. As anxiety about the European debt
crisis intensified, overseas investors pared back risk assets and sold more
than 2 trillion yen of Japanese equities in the second half of 2011,
contributing to a fall in share prices. Domestic financial institutions
continued to unwind shareholdings, but this was offset by significant corporate
buybacks and modest buying by individuals in search of yield. With around 70%
of the Japanese market (as measured by TOPIX) trading below book value and cash
reserves at an historical high, share buybacks conducted by non-financial
corporations reached a post-2008 high.
GEARING
The Company gears through the use of Contracts For Difference ("CFDs"). Total
portfolio exposure was £77.02m as at the year end, equating to gearing of
123.2%. Using CFDs continues to provide more flexibility for the Company's
needs at a much lower cost than traditional bank debt.
THE BOARD
As well as focusing on the strategy of the Company, your Board continues to
monitor corporate governance issues, reviewing and updating processes as
appropriate.
Having been on the Board for more than nine years, Nicholas Barber is subject
to re-election at the forthcoming Annual General Meeting. He has been a most
diligent member of the Board and has discharged his duties as Senior
Independent Director conscientiously. The Board recommends to shareholders that
they vote in favour of the proposal. Nicholas has announced his intention to
step down from the Board at the end of December 2012 as the final stage of the
phased change in Board composition.
Simon Fraser will seek re-election at the forthcoming Annual General Meeting.
I am stepping down from the Board at the conclusion of the business of this
year's Annual General Meeting and am therefore not seeking re-election. Having
joined the Board in 1997 and become Chairman at the end of 2004 I have to say
it has been a somewhat frustrating time. The level of the Index is much the
same as in 2003 due to a fundamental lack of confidence in the Japanese market
but in the most recent years it is satisfying that our Manager has been
outperforming the Benchmark. I would like to thank my colleagues on the Board
and in Fidelity for their dedication and support.
David Robins, who joined the Board on 1 February 2011, will be appointed as
Chairman of the Board at the same time as I retire from the Board. I have every
confidence that he will do an excellent job as he has experience of having
lived in Japan as well as a considerable exposure to the investment trust
arena.
The Directors have a wide range of appropriate skills and experience to make up
a balanced Board for your Company.
I have, together with representatives of the Manager (including Shinji Higaki)
and the Company's broker, continued to hold meetings with a number of
shareholders during the year.
SUBSCRIPTION SHARES
The rights attaching to a total of 1,763,455 subscription shares were exercised
in respect of the year ended 31 December 2011, at which point the total number
of subscription shares in issue was 17,244,859. Since the year end the rights
attaching to a further 4,188 subscription shares have been exercised. The final
date for exercising the rights attached to the subscription shares is 28
February 2013.
SHARE REPURCHASES
Purchases of ordinary and subscription shares for cancellation are made at the
discretion of your Board and within guidelines set from time to time by the
Board in the light of prevailing market conditions. Share repurchases will only
be made when they will result in an enhancement to the net asset value of
ordinary shares for the remaining shareholders. In past years share repurchases
have been used sparingly due to their impact on liquidity and gearing. Your
Board continues to believe that the ability to repurchase shares is a valuable
tool and therefore a resolution to renew your Company's authority to repurchase
shares will be proposed at the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING - 10 MAY 2012
The Annual General Meeting will be held at midday on 10 May 2012 at Fidelity's
offices at 25 Cannon Street in the City of London and all investors are
encouraged to attend. It is the one occasion in the year when shareholders can
meet the Directors and the Portfolio Manager. At the meeting the Portfolio
Manager will give a presentation on the past year and the prospects for the
current year.
OUTLOOK
Following a series of extreme events, Japanese equities were clear laggards
among major markets in 2011. The debt crises in Europe and currency
fluctuations are likely to remain key risks factors in 2012. However, economic
and earnings growth forecasts for Japan compare favourably with those for most
industrialised countries and there is the potential for share prices to catch
up with their global peers.
Sentiment among Japanese companies remains low in light of a persistently
strong yen, but post-quake reconstruction demand from both the public and
private sectors is expected to cushion against external headwinds in the first
half of 2012. Furthermore, we are seeing some signs of improvement in US
economic indicators, and China has started to shift away from its policy of
monetary tightening. As demand conditions - both domestic and overseas -
improve and Japanese companies regain ground lost in 2011, corporate earnings
should see a firm recovery through 2012.
Japanese equities continue to look cheap against a wide range of measures. The
market is good value relative to its own long term history on asset and
earnings based metrics such as price to book and cyclically adjusted price to
earnings ratios. Interestingly, a number of Japanese sectors are the cheapest
globally. The Japanese market has finally worked off its valuation premium and
now compares very favourably with its own long term history and its global
peers on virtually all main measures.
In the current environment, we need to differentiate undervalued stocks from
value traps. The key is to continue to be selective and to seek out those
quality companies that are well managed but about which the market, for
whatever reason, has become unjustifiably negative.
William Thomson
Chairman
16 March 2012
Enquiries:
Susan Platts-Martin, FIL Investments International - 01737 836 916
Rebecca Burtonwood, FIL Investments International,
Company Secretary - 01737 836 869
Income Statement for the year ended 31 December 2011
2011 2010
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on - (4,114) (4,114) - 10,584 10,584
investments designated at
fair value through profit
or loss
(Losses)/gains on - (312) (312) - 1,562 1,562
derivative instruments
held at fair value through
profit or loss
Income* 1,445 - 1,445 1,088 - 1,088
Investment management fee (830) - (830) (760) - (760)
Other expenses (441) - (441) (458) - (458)
Exchange gains/(losses) on 4 483 487 (24) 466 442
other net assets
Net return/(loss) before 178 (3,943) (3,765) (154) 12,612 12,458
finance costs and taxation
Finance costs (83) - (83) (75) - (75)
Net return/(loss) on 95 (3,943) (3,848) (229) 12,612 12,383
ordinary activities before
taxation
Taxation on return/(loss) (75) - (75) (58) - (58)
on ordinary activities**
Net return/(loss) on 20 (3,943) (3,923) (287) 12,612 12,325
ordinary activities after
taxation for the year
Return/(loss) per ordinary
share
Undiluted 0.02p (4.06p) (4.04p) (0.30p) 13.19p 12.89p
Diluted 0.02p (4.04p) (4.02p) n/a n/a n/a
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.
* Income
2011 2010
£'000 £'000
Income from investments designated at fair value through
profit or loss
Overseas dividends 1,099 838
Income from derivatives held at fair value through profit or
loss
Dividends on long CFDs 346 250
Total income 1,445 1,088
** This relates to overseas taxation only
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 December 2011
share capital
share premium redemption other capital revenue total
capital account reserve reserve reserve reserve equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening
shareholders'
funds:
1 January 24,850 44 2,437 57,955 (19,033) (13,149) 53,104
2010
Issue of 27 32 - - - - 59
ordinary
shares on the
exercise of
rights
attached to
subscription
shares
Exercise of (5) 5 - - - - -
rights
attached to
subscription
shares and
conversion
into ordinary
shares
Net return/ - - - - 12,612 (287) 12,325
(loss) on
ordinary
activities
after
taxation for
the year
Closing
shareholders'
funds:
31 December 24,872 81 2,437 57,955 (6,421) (13,436) 65,488
2010
Issue of 441 529 - - - - 970
ordinary
shares on the
exercise of
rights
attached to
subscription
shares
Exercise of (88) 88 - - - - -
rights
attached to
subscription
shares and
conversion
into ordinary
shares
Net (loss)/ - - - - (3,943) 20 (3,923)
return on
ordinary
activities
after
taxation for
the year
Closing
shareholders'
funds:
31 December 25,225 698 2,437 57,955 (10,364) (13,416) 62,535
2011
Balance Sheet as at 31 December 2011
2011 2010
£'000 £'000
Fixed assets
Investments designated at fair value through 58,807 62,564
profit or loss
Current assets
Derivative assets held at fair value through 2,202 2,339
profit or loss
Debtors 797 191
Cash at bank 4,056 1,237
7,055 3,767
Creditors
Derivative liabilities held at fair value (2,211) (363)
through profit or loss
Creditors (1,116) (480)
(3,327) (843)
Net current assets 3,728 2,924
Total net assets 62,535 65,488
Capital and reserves
Share capital 25,225 24,872
Share premium account 698 81
Capital redemption reserve 2,437 2,437
Other reserve 57,955 57,955
Capital reserve (10,364) (6,421)
Revenue reserve (13,416) (13,436)
Total equity shareholders' funds 62,535 65,488
Net asset value per ordinary share
Undiluted 64.17p 68.44p
Diluted 62.79p 66.21p
Cash Flow Statement for the year ended 31 December 2011
2011 2010
£'000 £'000
Operating activities
Investment income received 1,017 780
CFD dividends received 332 238
Investment management fee paid (870) (733)
Directors' fees paid (137) (104)
Other cash payments (227) (405)
Net cash inflow/(outflow) from operating 115 (224)
activities
Finance costs
Interest paid on long CFDs (85) (80)
Net cash outflow from servicing of finance (85) (80)
Financial investment
Purchase of investments (58,309) (76,205)
Disposal of investments 58,235 74,025
Net cash outflow from financial investment (74) (2,180)
Derivative activities
Proceeds from long CFD positions closed 1,673 1,176
Net cash inflow from derivative instruments 1,673 1,176
Net cash inflow/(outflow) before financing 1,629 (1,308)
Financing
Exercise of rights attached to subscription 971 58
shares
Net cash inflow from financing 971 58
Increase/(decrease) in cash 2,600 (1,250)
1. The undiluted return/(loss) per ordinary share is based on the revenue
return on ordinary activities after taxation in the year of £20,000 (2010:
loss £287,000), the capital loss in the year of £3,943,000 (2010: return £
12,612,000) and the total loss in the year of £3,923,000 (2010: return £
12,325,000) and on 97,224,897 ordinary shares (2010: 95,653,233) being the
weighted average number of ordinary shares in issue during the year.
The diluted return/(loss) per ordinary share is based on the revenue return on
ordinary activities after
taxation in the year of £20,000, the capital loss in the year of £3,943,000 and
the total loss in the year of
£3,923,000 and on 97,532,957 ordinary shares being the diluted weighted average
number of ordinary
shares in issue during the year. There was no diluted (loss)/return per
ordinary share for the year ended 31
December 2010 because the average ordinary share price for the year was below
the exercise price of the
rights attaching to the subscription shares.
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
2011. This preliminary statement, which has been agreed with the Auditor, was
approved by the Board on 16 March 2012. It is not the Company's statutory
financial statements. The statutory financial statements for the financial
year ended 31 December 2010 have been delivered to the Registrar of Companies.
The statutory financial statements for the financial year ended 31 December
2011 have been approved and audited but have not yet been filed. The statutory
financial statements for the financial years ended 31 December 2010 and 31
December 2011 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 10 April 2012.
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