Interim Results
FIDELITY JAPANESE VALUES PLC
Preliminary Announcement of Unaudited Interim Results
for the six months ended 30 June 2006
Interim report
Performance
During the first half of 2006, stock markets in Japan suffered a series of
sharp declines, relinquishing some of the gains accumulated in 2005. The
Livedoor probe inevitably hurt investor sentiment towards fast growing
internet-related companies and triggered profit taking on small cap stocks
which had posted significant gains in 2005. In addition to the Livedoor case,
a spate of scandals undermined investor confidence during the review period.
Furthermore, concerns about a contraction in global liquidity, Japanese
companies' 2006/07 earnings forecasts, and a strengthening of the yen against
the US dollar fuelled negative sentiment.
The Company's own performance followed the trends of the markets, with its net
asset value declining by 21.4%. Regrettably it did not match that of the
Russell/Nomura Smaller Companies Index, which fell by 11.1%. The returns for
the first six months of this year should be considered in the context of a
sharp rise in values, particularly in the second half of 2005. In the 12 months
to 30 June 2006 the Company's NAV has increased by 18.3% compared with a return
of 22.4% by the benchmark index. Indeed since the start of 2005 the Company's
NAV increased by 36.4%, compared with a return of 29.3% by the benchmark
index.
A number of holdings that had achieved strong gains in 2005 - and ranked among
the largest contributors to the Company's relative returns - declined sharply
during the first half of this year. In particular, positions in internet-based
services companies including Livedoor, Cyber Communications, Cyber Agent, Usen,
and Index proved detrimental, as their share prices fell sharply in the wake of
the Livedoor scandal. Livedoor aside, these companies remain promising
investments as we continue to believe in their fundamentals which do not appear
to have changed. The top ten holding, Sodick, was the single largest detractor
from relative returns. It was one of last year's best performing stocks in the
portfolio on the back of strong exports mainly to Asian countries. However, its
share price retreated on concerns about re-financing. We believe that its
growth potential remains strong with the current share price representing good
value.
Weak portfolio performance was compounded by the effects of exchange rate
movements and gearing (see the attribution analysis below). The yen declined
relative to sterling over the period by 3.9%. The Board keeps the level of
borrowing under regular review and, while this was detrimental to returns over
the six month period, we believe that gearing remains within a reasonable range
given the long term prospects for equity investments in Japan.
The share price declined by more than the NAV, with the rating moving from a
premium at the end of December to a discount of 9.4% at the end of June. At
the time of writing, the rating has recovered and the shares are trading at
prices closer to net asset value.
On a positive note, we have been encouraged by improving gains in several of
our stocks particularly in companies benefiting from rising domestic
consumption and capital expenditure. An example of the latter was Fujikura,
one of our top ten holdings, which was the largest individual contributor to
relative returns during the period under review.
The Market & Outlook
Japanese equities have seen a substantial correction during the period. While
there are geopolitical risks we are nonetheless positive about the economic
outlook for Japan.
We believe it is important to remain focused on Japan's micro and macro
fundamentals, irrespective of short term currency fluctuations and market
speculation. Japan's economy is now well into its fourth year of recovery and
there are a number of factors which point towards this continuing; including
increased consumer confidence, signs of an end to deflation and strong capital
spending growth.
Against this background, the Bank of Japan ("BOJ") upgraded its assessment of
the domestic economy, replacing the view 'recovering steadily' with 'expanding
moderately'. It highlighted well-balanced growth in both domestic and external
demand, and commented that recent developments have been in line with its
projections. In a widely anticipated move, the BOJ has now terminated its
five-year policy of holding short term interest rates near zero, raising the
target for the uncollateralized overnight call rate to 0.25%.
Despite concerns about the interest rate rise and the yen appreciation against
the US dollar, corporate Japan is now far healthier than at any time since the
collapse of the asset bubble in the early 1990s and, as a result, less
sensitive to both higher interest rates and a stronger yen. For the year to 31
March 2007, Japanese companies (TSE First Section excluding financials) are
forecasting a 5.3% year-on-year increase in sales and a 2% rise in recurring
profits. It is generally considered that current profit projections by
Japanese companies are overly conservative in the light of encouraging economic
prospects.
In the small cap markets, represented by the Jasdaq and TSE Mothers Section,
prices have fallen over the last six months and small cap stocks represent good
value relative to their larger counterparts.
In this environment, we continue to find good earnings growth among
beneficiaries of strong capital spending, improving consumer sentiment and
reflation. Market consolidation should provide excellent opportunities to
invest in high quality companies at cheaper prices and our research continues
to focus on uncovering long term growth potential which is either
underestimated or overlooked by the market.
In conclusion, while we are disappointed by the fall in asset value over the
last six months and remain concerned that the market may continue to be
volatile in the short term, we remain optimistic that economic recovery in
Japan will continue leading to further earnings growth and attractive
opportunities in the stock market.
Attribution analysis:
Net Asset Value @ 31 December 2005 123.6p
Impact of change in the Russell Nomura Index -14.3p
Impact of stock selection -4.4p
Impact of currency -4.7p
Impact of gearing -2.1p
Impact of expenses -0.9p
Net Asset Value @ 30 June 2006 97.2p
By order of the Board
Fidelity Investments International
3 August 2006
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 by the
Financial Services Authority.
CB27834/NA
FIDELITY JAPANESE VALUES PLC
Income Statement
for the six months ended for the year ended for the six months ended
30.06.06 31.12.05 30.06.05
unaudited audited unaudited
revenue capital total revenue capital total revenue capital total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/ - (26,156) (26,156) - 51,970 51,970 - 10,857 10,857
gains on
investments
Income 2 654 - 654 827 - 827 530 - 530
Investment
management
Fee (575) - (575) (1,174) - (1,174) (470) - (470)
Other (252) - (252) (369) - (369) (194) - (194)
expenses
Exchange 1 (25) (24) 3 28 31 - 19 19
gains/
(losses)
Exchange - 585 585 - 364 364 - 51 51
gains on
loans
(Loss)/
return
before
finance
costs and
taxation (172) (25,596) (25,768) (713) 52,362 51,649 (134) 10,927 10,793
Interest (111) - (111) (227) - (227) (115) - (115)
payable
(Loss)/
return on
ordinary
activities
before (283) (25,596) (25,879) (940) 52,362 51,422 (249) 10,927 10,678
taxation
Taxation on
return on
ordinary 3 (46) - (46) (58) - (58) (37) - (37)
activities
Net (loss)/
return on
ordinary
activities
after
taxation for
the period
attributable
to equity
shareholders (329) (25,596) (25,925) (998) 52,362 51,364 (286) 10,927 10,641
Net (loss)/
return per
ordinary 4 (0.34p) (26.06p) (26.40p) (1.02p) 53.32p 52.30p (0.29p) 11.13p 10.84p
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 revenue account of the Company.
These financial statements have been prepared in accordance with the AITC
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 (6,351) (213) (10,196) 69,984
shareholders'
funds: 1
January 2005
Net recognised - - - - 3,265 7,662 - 10,927
gains for the
period
Net revenue - - - - - - (286) (286)
loss for the
period
24,551 44 1,780 60,369 (3,086) 7,449 (10,482) 80,625
Opening 24,551 44 1,780 60,369 (6,351) (213) (10,196) 69,984
shareholders'
funds: 1
January 2005
Net recognised - - - - 9,344 43,018 - 52,362
gains for the
year
Net revenue - - - - - - (998) (998)
loss for the
year
Closing 24,551 44 1,780 60,369 2,993 42,805 (11,194) 121,348
shareholders'
funds: 31
December 2005
Net recognised - - - - 11,342 (36,938) - (25,596)
gains/(losses)
for the period
Net revenue - - - - - - (329) (329)
loss for the
period
Closing 24,551 44 1,780 60,369 14,335 5,867 (11,523) 95,423
shareholders'
funds: 30 June
2006
FIDELITY JAPANESE VALUES PLC
Balance Sheet
30.06.06 31.12.05 30.06.05
unaudited audited unaudited
Notes £'000 £'000 £'000
Fixed assets
Investments held at fair value 110,581 136,508 95,283
through profit or loss
Current assets
Debtors 1,729 252 330
Cash at bank - 1,710 1,871
1,729 1,962 2,201
Creditors - amounts falling due
within one year
Bank overdraft (146) - -
Other creditors (1,624) (1,420) (844)
(1,770) (1,420) (844)
Net current (liabilities)/assets (41) 542 1,357
Total assets less current 110,540 137,050 96,640
liabilities
Creditors - amounts falling due
after more
than one year
Fixed rate unsecured loans 6 (15,117) (15,702) (16,015)
Total net assets 95,423 121,348 80,625
Capital and reserves
Called up share capital 24,551 24,551 24,551
Share premium account 44 44 44
Capital redemption reserve 1,780 1,780 1,780
Other reserve 60,369 60,369 60,369
Capital reserve - realised 14,335 2,993 (3,086)
Capital reserve - unrealised 5,867 42,805 7,449
Revenue reserve (11,523) (11,194) (10,482)
Total equity shareholders' funds 95,423 121,348 80,625
Net asset value per ordinary share 7 97.16p 123.56p 82.10p
FIDELITY JAPANESE VALUES PLC
Cash Flow Statement
30.06.06 31.12.05 30.06.05
unaudited audited unaudited
£'000 £'000 £'000
Operating activities
Investment income received 588 783 484
Interest received 2 5 2
Investment management fee paid (650) (1,007) (449)
Directors' fees paid (41) (88) (49)
Other cash payments (109) (280) (194)
Net cash outflow from
operating activities (210) (587) (206)
Returns on investments and
servicing of finance
Interest paid (112) (227) (114)
Net cash outflow from returns
on investments and servicing of (112) (227) (114)
finance
Financial investment
Purchase of investments (39,437) (62,792) (28,014)
Disposal of investments 37,905 64,647 29,542
Net cash (outflow)/inflow from
financial investment (1,532) 1,855 1,528
(Decrease)/increase in cash (1,854) 1,041 1,208
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 2005.
2. Income
30.06.06 31.12.05 30.06.05
unaudited audited unaudited
£'000 £'000 £'000
Overseas dividends 651 822 528
Deposit interest 3 5 2
654 827 530
3. Taxation on return on ordinary activities
30.06.06 31.12.05 30.06.05
unaudited audited unaudited
£'000 £'000 £'000
Overseas taxation (46) (58) (37)
4. Net (loss)/return per ordinary share
30.06.06 31.12.05 30.06.05
unaudited audited unaudited
revenue capital total revenue capital total revenue capital total
Basic (0.34p) (26.06p) (26.40p) (1.02p) 53.32p 52.30p (0.29p) 11.13p 10.84p
Basic returns per ordinary share are based on the loss on ordinary
activities after taxation of £329,000 (31.12.05: loss £998,000; 30.06.05: loss
£286,000), the capital loss in the period of £25,596,000 (31.12.05: return £
52,362,000; 30.06.05 return £10,927,000) and on 98,207,453 ordinary shares
(31.12.05: 98,207,453; 30.06.05: 98,207,453), being the weighted average number
of shares in issue during the period.
Cost of Investment Transactions
Included in the gains on investments are the following costs of investment
transactions
30.06.06 31.12.05 30.06.05
unaudited audited unaudited
£'000 £'000 £'000
Purchase expenses 51 91 43
Sales expenses 51 90 45
102 181 88
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 37%
for a period of five consecutive business days.
At 30 June 2006, there were no cash deposits with the bank subject to a
charge in favour of The Royal Bank of Scotland plc (31.12.05: £nil; 30.06.05: £
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 2006 was £nil (31.12.05: £56,000; 30.06.05: £
300,000).
7. Net asset value per ordinary share
The basic net asset value per ordinary share is based on net assets of
£95,423,000 (31.12.05: £121,348,000; 30.06.05: £80,625,000) and on 98,207,453
(31.12.05: 98,207,453; 30.06.05: 98,207,453), being the number of ordinary
shares in issue.
8. Share repurchases
No shares were repurchased for cancellation during the period.
9. Unaudited Financial Statements
The results for the six months to 30 June 2006 and 30 June 2005, 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 2005are 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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