Half-yearly Report
FIDELITY JAPANESE VALUES PLC
Preliminary Announcement of Unaudited Half-Year Results
for the six months ended 30 June 2007
Performance
Japanese shares traded within a narrow range for much of the period under
review, lagging behind all other developed markets. From mid May onwards,
however, larger companies embarked upon a series of sharp gains in local
currency terms, as buoyant equity market conditions overseas, yen weakness and
the stabilisation of long term interest rates reassured investors. Larger
companies continued to outperform their medium and smaller counterparts (with
the larger-cap TOPIX Index up 5.6% and the small-cap JASDAQ Index down 4.7%
over the period), whilst value companies generally performed better than growth
companies. Shipping and commodity-related stocks achieved the most significant
gains, spurred on by higher resource prices, yen depreciation and expectations
of buoyant overseas demand. In contrast, consumer finance and staffing service
companies were among the worst performers. The outlook for earnings for
consumer finance companies deteriorated as a result of a mandatory reduction in
maximum lending rates, while compliance issues in the staffing service industry
had a negative impact on share prices.
During the six months under review, the Company's net asset value declined by
6.0%. This fall in net asset value was caused mainly by a weakening yen, which
declined relative to sterling over the period by 6.1%. In yen terms, the
Russell/Nomura Index rose 4% over the period while the Company's portfolio,
which is weighted towards smaller companies, rose by 1%. A breakdown of the
positive and negative impact of the varying elements of the portfolio on the
net asset value performance can be seen in the attribution analysis table.
With widening discounts in the investment trust sector in general, the share
price declined by more than the NAV resulting in the Company's discount
widening from 7.7% at the end of December 2006 to 10.5% at the end of June
2007. During the period 1,030,000 of the Company's shares were bought back for
cancellation, approximately 1% of the Company's issued share capital, which
added 0.1p to the underlying net asset value.
The Company's portfolio performance was constrained by disappointing stock
selection in the retail, electrical machinery and services sectors. We are in
the process of reducing positions in some companies where we are not confident
of a recovery. On a more positive note, certain sectors have seen some recovery
in the most recent two months. In particular, holdings in a number of
technology stocks, which detracted from performance, rebounded sharply. A
noticeable improvement in demand and product pricing bolstered share prices of
electronics parts and material producers in the liquid-crystal display and
semiconductor areas. Long term growth prospects for these companies are
supported by their technological leadership in markets characterised by high
barriers to entry.
The Company's Board keeps the level of borrowing under regular review and we
believe that gearing remains within a reasonable range given the long term
prospects for equity investments in Japan. Whilst net gearing, as can be seen
from the financial statements, was low at 30 June 2007, this was due to
portfolio movements in the period captured on that day; the policy remains to
be fully invested.
The Market & Outlook
The Japanese economy continues to follow a stable pattern of moderate growth.
Global economic conditions remain generally positive. For Japanese companies,
growing exports to Asiaand Europe are compensating for a decline in shipments
to the US. Private capital investment remains firm. Personal consumption, a
component of domestic demand that has been relatively weak for an extended
period of time, appears to be gradually recovering in line with improvements in
employment levels and incomes. We expect that an increasingly tight labour
market should exert upward pressure on wages, leading to a recovery in private
consumption and a gradual upturn in core price inflation.
The Japanese market has been a relative laggard over the past 12 months, but
corporate Japan is in good health and widely expected to report a sixth
consecutive year of profit growth in the current fiscal year. In the year to 31
March 2008, Japanese companies are forecasting a 5.3% rise in sales and a 7.6%
rise in recurring profits. These forecasts are widely regarded as conservative,
such conservatism being indicative of management's concerns about pricing,
uncertainty regarding the outlook for the US economy and higher depreciation
expenses stemming from revisions to the Japanese tax code. However, these
forecasts should not be interpreted as a sign that profit growth has peaked.
In recent years, Japanese companies have begun with extremely conservative
estimates which have subsequently been revised upwards. For example, according
to the Bank of Japan's March 2006 survey, Japanese firms forecasted recurring
profit growth of just 2.6% in fiscal year 2006, but the actual result was in
excess of 10%.
In the Japanese small cap universe, share prices have fallen over the last
sixteen months and an increasing number of small cap stocks appear to represent
good value relative to their larger counterparts. However, domestic individual
investors, who represent roughly 80% of the trading volume in the smaller
JASDAQ, TSE Mothers and Hercules markets, have remained on the sidelines; they
are still waiting for signs of earnings upgrades.
In this environment, our stock selection focuses on companies that are likely
to upgrade their earnings projections for the current fiscal year. Our
portfolio continues to seek benefits from a recovery in consumption, rising
capital spending and an upturn in the liquid-crystal display and semiconductor
cycles.
Attribution analysis
Net Asset Value @ 31 December 2006 79.6p
Impact of change in the Russell/Nomura Index (in yen terms) 3.4p
Impact of stock selection (in yen terms) -2.6p
Impact of currency & cash -4.9p
Impact of gearing nil
Impact of share repurchases 0.1p
Impact of other costs -0.8p
Net Asset Value @ 30 June 2007 74.8p
By order of the Board
Fidelity Investments International
1 August 2007
Enquiries:
Miss Tracey Bennett - Fidelity Investments International - 01737 836883
Mr Stephen Westwood - Fidelity Investments International - 0207 961 4477
Issued by Fidelity Investments International. Authorised and regulated in the
UK by the Financial Services Authority.
CB31900/0208/NA
FIDELITY JAPANESE VALUES PLC
Income Statement
for the six months for the year ended for the six months ended
ended
30.06.07 31.12.06 30.06.06
unaudited audited unaudited
revenue capital total revenue capital total revenue capital total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Losses on - (5,279) (5,279) - (44,456) (44,456) - (26,156) (26,156)
investments
Income 2 547 - 547 1,027 - 1,027 654 - 654
Investment (440) - (440) (998) - (998) (575) - (575)
management
fee
Other (160) - (160) (412) - (412) (252) - (252)
expenses
Exchange - (103) (103) 3 (130) (127) 1 (25) (24)
(losses)/
gains
Exchange - 790 790 - 2,070 2,070 - 585 585
gains on
loans
Loss before (53) (4,592) (4,645) (380) (42,516) (42,896) (172) (25,596) (25,768)
finance
costs and
taxation
Interest (96) - (96) (214) - (214) (111) - (111)
payable
Net loss on (149) (4,592) (4,741) (594) (42,516) (43,110) (283) (25,596) (25,879)
ordinary
activities
before
taxation
Taxation on 3 (38) - (38) (72) - (72) (46) - (46)
return on
ordinary
activities
Net loss on (187) (4,592) (4,779) (666) (42,516) (43,182) (329) (25,596) (25,925)
ordinary
activities
after
taxation
for the
period
Net loss 4 (0.19p) (4.68p) (4.87p) (0.68p) (43.29p) (43.97p) (0.34p) (26.06p) (26.40p)
per
ordinary
share
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.
These financial statements have been prepared in accordance with the AIC
Statement of Recommended Practice ("SORP") issued in January 2003 and revised
in December 2005.
FIDELITY JAPANESE VALUES PLC
Reconciliation of Movements in Shareholders' Funds
called share capital other capital capital revenue total
up premium redemption reserve reserve reserve reserve equity
share account reserve realised unrealised
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening 24,551 44 1,780 60,369 2,993 42,805 (11,194) 121,348
shareholders'
funds: 1
January 2006
Net recognised - - - - 11,342 (36,938) - (25,596)
gains/(losses)
for the period
Net revenue - - - - - - (329) (329)
loss for the
period
Shareholders' 24,551 44 1,780 60,369 14,335 5,867 (11,523) 95,423
funds 30 June
2006
Opening 24,551 44 1,780 60,369 2,993 42,805 (11,194) 121,348
shareholders'
funds: 1
January 2006
Net recognised - - - - 14,504 (57,020) - (42,516)
gains/(losses)
for the year
Net revenue - - - - - - (666) (666)
loss for the
year
Closing 24,551 44 1,780 60,369 17,497 (14,215) (11,860) 78,166
shareholders'
funds: 31
December 2006
Net recognised - - - - (8,038) 3,446 - (4,592)
(losses)/gains
for the period
Repurchase of (257) - 257 - (681) - - (681)
ordinary
shares (8)
Net revenue - - - - - - (187) (187)
loss for the
period
Closing 24,294 44 2,037 60,369 8,778 (10,769) (12,047) 72,706
shareholders'
funds: 30 June
2007
FIDELITY JAPANESE VALUES PLC
Balance Sheet
30.06.07 31.12.06 30.06.06
unaudited audited unaudited
Notes £'000 £'000 £'000
Fixed assets
Investments at fair value through 82,578 91,617 110,581
profit or loss
Current assets
Debtors 283 417 1,729
Cash at bank 3,520 419 -
3,803 836 1,729
Creditors - amounts falling due
within one year
Bank overdraft - - (146)
Other creditors (833) (655) (1,624)
(833) (655) (1,770)
Net current assets/(liabilities) 2,970 181 (41)
Total assets less current 85,548 91,798 110,540
liabilities
Creditors - amounts falling due
after more than one year
Fixed rate unsecured loans 6 (12,842) (13,632) (15,117)
Total net assets 72,706 78,166 95,423
Capital and reserves
Called up share capital 24,294 24,551 24,551
Share premium account 44 44 44
Capital redemption reserve 2,037 1,780 1,780
Other reserve 60,369 60,369 60,369
Capital reserve - realised 8,778 17,497 14,335
Capital reserve - unrealised (10,769) (14,215) 5,867
Revenue reserve (12,047) (11,860) (11,523)
Total equity shareholders' funds 72,706 78,166 95,423
Net asset value per ordinary share 7 74.82p 79.59p 97.16p
FIDELITY JAPANESE VALUES PLC
Cash Flow Statement
30.06.07 31.12.06 30.06.06
unaudited audited unaudited
£'000 £'000 £'000
Operating activities
Investment income 923 588
received 512
Interest received 2 4 2
Investment management fee (505) (1,114) (650)
paid
Directors' fees paid (40) (99) (41)
Other cash payments (115) (233) (109)
Net cash outflow from (146) (519) (210)
operating activities
Returns on investments
and servicing of finance
Interest paid (97) (218) (112)
Net cash outflow from (97) (218) (112)
returns on investments
and servicing of finance
Financial investment
Purchase of investments (30,934) (73,870) (39,437)
Disposal of investments 34,826 73,321 37,905
Net cash inflow/(outflow) 3,892 (549) (1,532)
from financial investment
Financing
Repurchase of ordinary (493) - -
shares
Net cash outflow from (493) - -
financing
Increase/(decrease) in 3,156 (1,286) (1,854)
cash
Notes to the Financial Statements
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 financial
statements dated 31 December 2006.
2. Income
30.06.07 31.12.06 30.06.06
unaudited audited unaudited
£'000 £'000 £'000
Overseas dividends 545 1,023 651
Deposit interest 2 4 3
547 1,027 654
3. Taxation on return on ordinary activities
30.06.07 31.12.06 30.06.06
unaudited audited unaudited
£'000 £'000 £'000
Overseas taxation suffered (38) (72) (46)
4. Net losses per ordinary share
30.06.07 31.12.06 30.06.06
unaudited audited unaudited
revenue capital total revenue capital total revenue capital total
Net losses per ordinary share (0.19p) (4.68p) (4.87p) (0.68p) (43.29p) (43.97p) (0.34p) (26.06p) (26.40p)
Net losses per ordinary share are based on the net revenue loss on
ordinary activities after taxation of £187,000 (31.12.06: £666,000; 30.06.06: £
329,000), the capital loss in the period of £4,592,000 (31.12.06: £42,516,000;
30.06.06: £25,596,000) and the total loss of £4,779,000 (31.12.06: £43,182,000;
30.06.06: £25,925,000) and on 98,115,796 ordinary shares (31.12.06: 98,207,453;
30.06.06: 98,207,453), being the weighted average number of shares in issue
during the period.
Cost of Investment Transactions
Included in the losses on investments are the following costs of investment
transactions:
30.06.07 31.12.06 30.06.06
unaudited audited unaudited
£'000 £'000 £'000
Purchases expenses 47 104 51
Sales expenses 53 104 51
100 208 102
6. Loan Facilities
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 loan is repayable on 13 August 2009.
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 loan is repayable on 25 November 2009.
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
below 39%. The release of the charge is contingent on the borrowing ratio of
the Company being reduced to 37% for a period of five consecutive days.
At 30 June 2007, there were no cash deposits with the bank subject to a
charge in favour of The Royal Bank of Scotland plc (31.12.06: nil; 30.06.06:
nil). As at the date of this report there were no cash deposits subject to
this charge (as per financial statements).
7. Net asset value per ordinary share
The basic net asset value per ordinary share is based on net assets of
£72,706,000 (31.12.06: £78,166,000; 30.06.06: £95,423,000) and on 97,177,453
(31.12.06: 98,207,453; 30.06.06: 98,207,453), being the number of ordinary
shares in issue at the period end.
8. Share repurchases
During the period 1,030,000 shares were repurchased for cancellation at
an average cost of 66.12p for a total consideration of £681,000 (31.12.06: nil;
30.06.06: nil).
9. The results for the six months to 30 June 2007 and 30 June 2006, which
are unaudited, constitute non-statutory accounts within the meaning of section
240 of the Companies Act 1985. The figures and financial information for the
year ended 31 December 2006are extracted from the latest published statements.
These financial statements, on which the auditors gave an unqualified report,
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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