Annual Financial Report
FIDELITY SPECIAL VALUES PLC
Annual Financial Report, Proxy Form and Additional Disclosures
to the Preliminary Results for the year ended 31 August 2009
Further to the voluntary disclosure of the Company's annual results for the
year ended 31 August 2009 by way of a preliminary announcement dated 4 November
2009, in accordance with the Disclosure and Transparency Rules ("the Rules")
4.1.3 and 6.3.5(2) this announcement contains the text of the preliminary
announcement dated 4 November 2009 together with the additional text in
compliance with the Rules.
The Company's annual report and financial statements for the year ended 31
August 2009 together with the accompanying proxy form have been filed with the
UK Listing Authority Document Disclosure team and will shortly be available for
inspection at the UK Listing Authority's Document Viewing Facility which is
situated at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS
Tel: 020 7676 1000
(Documents will usually be available for inspection within six normal business
hours of this notice being given).
The annual report and financial statements will shortly be available on the
Company's website at www.fidelity.co.uk/its
Christopher Pirnie, FIL Investments International, Company Secretary - 01737
837929
13 November 2009
Chairman's Statement
Changed Times: Fifteen Years since Launch
On 17 November 1994 Fidelity Special Values was launched in a time of somewhat
turbulent stock markets so that investment trust investors would have a vehicle
which would invest alongside Fidelity Special Situations, a unit trust (as it
was then) managed by Anthony Bolton - already a rising star in the world of
portfolio management. The price at the time of the launch was £1 per share but
the new shareholders also received a warrant to acquire another share for every
five they bought - at the same price. By the time that Anthony bowed out as the
portfolio manager - on 31 December 2007 - £100 invested had become worth £549 -
a return of circa 13¾% per annum over those 13 plus years. I am happy to report
that further progress has been made since then with Sanjeev Shah taking on
Anthony's portfolio management role, much like the proverbial duck to water.
Back in 1994 the world's economy was emerging from a financial crisis (not
unlike today's but of much less severity); it was enjoying the economic
benefits of Thatcherism and Reaganism, including good growth, low inflation and
sound national finances, of the baby boomers consumer spending and of the
emergence of global capitalism following the fall of the Berlin Wall. The stock
market barometer was set "very fair" and indeed it turned out that its reading
was entirely accurate. Between our launch and the end of 1999 the FTSE
All-Share Index rose by 109% to 3,242. It seems however to be human nature that
people get carried away in good times; fuelled with easy money, excessive debt
creation, insatiable greed and incompetent government, it all turned into an
out-of-control boom followed by the inevitable bust: the financial crisis, with
which we are now all too familiar, erupted.
The Investment Policy
The point of reminding ourselves of the economic and financial course of events
(above) is that, between the launch of the Company and now, things have changed
enormously; no longer can it be said that the stock market barometer is "set
fair" - certainly not for Great Britain at least. Your Board of Directors, as
is the duty of an investment trust board, has undertaken a thorough review of
the investment policy to consider whether, in the light of different
circumstances, it should be changed in order to give us a better chance of
earning really good returns - if possible to match those that have been earned
in the past fifteen years. We know that it is a big ask - to use a modern idiom
- but it has always been our goal to strive for excellence, most particularly
in the returns that we earn for our shareholders.
At both our annual away day and at another specially convened meeting, working
with Cenkos (our investment banker) and with Fidelity, the Board of Directors
considered different possible future investment policies. After much thought,
discussion and debate we concluded that the option which suit shareholders the
best and should be capable of producing the excellent returns we aim to earn
because:
* the vast majority of our shareholders have invested in the shares of
Fidelity Special Values in part because of its exposure to the UK stock
market;
* the UK stock market itself is dominated by companies whose sales and
profits are earned largely overseas;
* we have considerable confidence that, in Sanjeev Shah, we have a talented
portfolio manager, capable of earning good returns from stocks and shares
quoted on the London Stock Exchange; furthermore his style of investment is
suited to investment in derivatives (see below);
* and finally we believe that Fidelity's skills in the area of derivatives
gives us the chance to put that icing on the cake which will allow us to
reproduce those excellent returns that we have earned in the past.
And so it is that our investment policy remains that of investment in mispriced
conventional stocks and shares (the main body of the portfolio) with two
additional but much smaller components - investment outside the UK where there
may be more attractive investments within a particular mispriced sector (for
instance our holding in Carnival, the American cruise liner company) and
investment in derivatives, both of which form a much smaller commitment and
help to put the icing on the cake to which I referred earlier.
Investing in Derivatives
Although we have written at length in the past about investment in mispriced
stocks and shares both here in the UK and, to a much smaller extent, outside
the UK, we have not articulated our approach to investing in derivatives
before; so I thought it worthwhile to say something about it. It is important
to understand that it is but a small component of the portfolio and, more
importantly, it is just another way of investing in mispriced stocks.
The investment style that Sanjeev uses in order to achieve the appreciation of
capital that is our corporate objective - in other words positive returns - is
the identification of mispriced stocks. He has identified those areas in which
he looks for such opportunities - undervalued corporate assets, for instance -
at the same time as identifying a catalyst which might correct the mispricing.
It is a style involving shorter-term return objectives, the share price
appreciation coming from a revaluation of the shares within a relatively short
period of time - typically a year or so; the turnover of the portfolio during
the past year, for instance, was 98%. The point of highlighting his approach to
investing is that it is one that is very compatible with that of making
successful investments in derivatives, themselves investments of a shorter-term
nature. Investors with much longer time scales often find making successful
shorter-term derivative investments difficult. To repeat what I said earlier,
it is our view that Sanjeev, with his investment style, is well suited to make
derivative investments and thereby carrying out the investment policy.
It is important to understand why the Board believes that investment in
derivatives makes sense for Fidelity Special Values. Such investments give us
the chance to add value to our investment returns without changing the
investment policy. They allow us:
* to gear the returns that we make, being alternative to straight borrowing;
* to take advantage of the revaluation of mispriced stocks - both up and
down;
* it allows us to protect the portfolio if we become concerned about stock
market levels generally.
Gearing, investment in mispriced stocks and protecting the portfolio are all
things we do in the normal course of managing the portfolio, have done in the
past and will continue to do so in the future. It should be emphasised that
investment is not made in any derivatives other than those that are relevant to
and directly enhance the Company's investment policy.
Investment in derivatives is not new to the portfolio but we have been
increasing our commitment in recent years, most noticeably in the last two
years. We have strict guidelines on what can be invested in and how much - just
as we do for investment in conventional stocks and shares. Finally I am happy
to report that these investments have been adding value to the returns we make
for shareholders - having added circa £11 million to the net asset value over
the last year and circa £8½ million in the previous financial year - very
worthwhile returns we believe.
The Year's Results:
NAV: 587.5p + 4.5%;
Share price: 550.0p + 14.2%;
Benchmark: - 12.1%;
Dividend: 9.0p
This past year has proved to be quite extraordinary. It started off with -
arguably the worst financial crisis in 80 years. Stock markets crashed as
sectors all over the world had to be rescued by their respective governments;
during the first half of our financial year the British stock market lost
approximately one third of its value, as indeed did Fidelity Special Values'
net assets.
However governments and central bankers worked overtime on plans to rescue
their banks and thence their economies by - in effect - getting their tax
payers to underwrite the creditworthiness of the banks and by pumping
"squillions" of dollars, pounds, euros, yen etc into the global financial
system. For now at least economies have been stabilised and global stock
markets have rebounded - in huge relief that the worst is over, for the moment
at least. The British stock market rose by circa 30% over the course of our
second half. The chart below illustrates the tale of two halves. (Please note
that the chart is not included in this announcement but will appear in the
Chairman's statement in the Annual Report for 31 August 2009)
The real story for shareholders is that our own net asset value recovered quite
magnificently - rising by no less than 56½% in the six month period, leaving
the net asset value 4½% ahead of where it was a year ago. Given that interest
on a bank account earned most depositors next to nothing, the rise in the net
asset value is certainly worthwhile; given that our benchmark declined by circa
12% it can be said that Sanjeev Shah did a fabulous job of managing the
portfolio in very difficult circumstances and in his first full year at the
portfolio management helm. Well done Sanjeev.
Better still news is that the share price staged an even better recovery. At
the end of last year it stood at 481½p, selling at a discount of circa 14¼% to
the underlying net asset value. As the year wore on, as the markets began to
recover their poise and importantly as Sanjeev became better known to both
shareholders and to investors generally, the market began to recognise the
excellence of the returns being earned; investors started to buy, many thereby
becoming new shareholders and the discount started to narrow. By the end of the
year the share price had risen to 550p and the discount had narrowed to circa 6
½%. These results are the sort of results that earn the attribute of excellent,
being what we aim to earn for shareholders.
It is worth observing that the discount narrowed during the year - despite the
fact that we bought back very few shares and indeed we were able to issue some
shares at a premium to the underlying net asset value - for a net addition to
the number of shares of circa 150,000. The fact is that all the buying back of
shares will not protect the discount of poorly performing investment trusts,
whereas buybacks are not normally necessary if the returns being earned are
good. While we will buy back shares if there is advantage to long-term
shareholders to do so - the increase in the net asset value - it should not be
necessary to do so if we are doing a good job.
The tables on page 17 in the annual report illustrate where last year's returns
came from. Most particularly they illustrate the tremendous contribution made
by Sanjeev's stock picking. Rather strangely two of the three best returns came
from holdings in bank shares (the Royal Bank of Scotland + 8½p and Standard
Chartered +5½p) and likewise two of the worst returns (HBOS -19p and Barclays
-6p).
Dividend
The level of income earned during the year fell from £13.8 million to £10.4
million. This was because the portfolio did not generate as much income - in
part because it was a different portfolio, in part as we did not receive a VAT
repayment this year and in part because stocks suffered from dividend cuts. As
I have mentioned many times in the past, the objective of Fidelity Special
Values is to generate positive returns for shareholders, so that the income
generated will be a function of the portfolio and its yield during the course
of the year. Nevertheless enough was earned to be able to recommend a dividend
of 9p per share to shareholders, itself the second highest ever paid.
While I have used statistics which refer to the change in the net asset value
only, the dividend paid to shareholders makes a contribution to the overall
returns that shareholders receive. Over the longer term it probably won't be
that significant when compared with that of the capital return but in any given
year it can make a meaningful difference. It certainly did last year when we
paid a dividend of 17p per share while losing money on our capital account.
This year the 9p dividend is in addition to an increase in the share price of
68½p - so it is still very welcome.
Year Share Price Dividend Total
Gain/Loss Return
2008 -18.7% +2.9% -15.8%
2009 +14.2% +1.9% +16.1%
*NB Simple return (dividends not reinvested)
Statistics elsewhere refer to the "total return", which assume that
shareholders reinvest their dividends back into the Company's shares at the
time that they are received. Some shareholders do, others do not.
The Long term Returns (over five years): NAV: + 71.8%
Share price: + 58.0%
Benchmark: + 13.8%
I have tried to emphasise in my statement each year that Fidelity Special
Values is in business to make money for shareholders over the longer term. That
means making positive returns - money that can be spent. But because the nature
of stock markets is volatile and because the reinvestment of corporate profits
takes time to bear fruit, I have stressed that we regard "long term" as being
at least five years. So I thought I would look at the five year record that the
Company has produced since its inception - both the net asset value and the
share price (plus the dividends received). The chart below illustrates that
record and I think it is fair to say that - given that in most cases the five
year returns are over 10% per annum (above the horizontal bold line) for most
of the Company's life - the long term objectives have been achieved and that we
can pat our Manager, Fidelity, on the back and say "well done". These long term
returns are indeed excellent and on behalf of shareholders - thank you,
Fidelity. (Please note that the chart is not included in this announcement but
will appear in the Chairman's statement in the Annual Report for 31 August
2009)
I would like also to commend those at Fidelity for their hard work and
excellent administration, not least of all compiling this annual report. Again
thank you.
The Annual General Meeting: Wednesday 16 December at 11.30 am
The Annual General Meeting will be held at Fidelity's offices at 25 Cannon
Street (St Paul's or Mansion House tube stations) on Wednesday 16 December 2009
at 11.30am. It is the most important meeting that we, the Directors of your
Company, have each year and we do urge as many of you as possible come and join
us for the occasion. Sanjeev Shah will be making his annual presentation to
shareholders, highlighting the achievements of the year past and the prospects
for the year to come. The meeting provides shareholders with the opportunity to
ask questions, make comments and recommendations; most importantly it gives the
Board of Directors the chance to meet you and get to know your own views and
concerns.
At the launch of the Company in 1994 five Directors were appointed to the
Board. Three of those Directors still serve the Company and - without speaking
for myself - I can say that their length of service, as well as their own
performance as Directors, has made an important contribution to the successful
governance of the Company over the fifteen years. We have been addressing the
task of renewing and refreshing the Board over the last few years - with the
appointments of Nicky McCabe, Lynn Ruddick and Ben Thomson in recent times.
Very sadly Sir Richard Brooke feels that it is time for him to step down and he
will not be seeking re-election at the forthcoming AGM. He is a wonderfully
wise person and, with his great knowledge and experience of the financial world
generally and of investment trusts particularly, he has made an important
contribution to the success of the Company during his tenure as a Director. A
huge thank you is also due to him.
We are in the process of appointing at least one more Director to the Board.
During the course of next year, I will step down as a Director of the Company
and indeed as Chairman of the Board of Directors; the Directors - other than
myself - will decide on who it is that will succeed me. I have been greatly
honoured to serve as both a Director and as Chairman and indeed most fortunate
to have been associated with some wonderful people - my fellow Directors and
many people at Fidelity, including the talented and successful Anthony Bolton.
Part of working with great people is that the work is fun and the last fifteen
years - despite one or two downs to go with the many ups - it has been;
successful governance is team work and should be fun; if not, it is unlikely to
be successful. While I can claim little individual credit for the great long
term success of Fidelity Special Values, being part of the team that made it
has made it wonderfully worthwhile.
Corporate Governance
There seems to be a never-ending stream of new corporate governance guidelines
and rules and regulations that boards have to deal with each year. This year
there are additional requirements emanating from the European Union's
Disclosure and Transparency Rules Requirements (" the DTR") Much of it is not
about the principles and practice of good governance but rather information
about facts and statistics pertaining to the year in question which have always
formed part of the Directors' Report. We have continued to provide that
information in the Directors' Report but, at the end of the Corporate
Governance Statement, we have cross referenced that information which the DTR
requires.
I would like to make an important point about corporate governance and the
statements that are traditionally made about compliance - namely concerning a
board's determination to apply the highest of governance standards. Compliance
with guidelines and rules and regulations does not of itself result in high
standards of governance; it merely sets a minimum base. It is the success or
otherwise of the leadership of a board in directing and guiding management in
the pursuit of the goals of the business that ultimately sets the standards of
the best governance. An old quote, attributed to anonymous, says it all:
Management is about doing things right.
Leadership is about doing the right things.
As a board of directors, we have always tried to do the right things and I
would like to think that the success of Fidelity Special Values over the years
is in a small part due to that.
Outlook and Prospects: Difficult to tell
I am not going to dwell at length on the prospects for the British stock market
or for that of Fidelity Special Values because - in all truth - it is very
difficult to make any sort of forecast with a great deal of certainty. While in
the past there has always been some sense of unanimity about what lies ahead, I
detect that opinions are quite divided. It is difficult to believe that the
most severe financial crisis in almost 80 years is suddenly over in a matter of
months and that there are not going to be some longer term consequences of the
mess we found ourselves in. The history of banking crises does not suggest that
it will.
However the banking system has now been put under the care of the tax payers -
whether he or she likes it or not. Huge quantities of money have been thrown
into the financial system and into the economy in an effort to avert a
depression. The cost of avoiding the necessary changes that a crisis usually
brings about means the major causes of the catastrophe - regulatory
incompetence, insatiable greed and living beyond our means appear to me to be
alive and well. Still the likelihood is that in time we will adopt better ways
- perhaps a change of government will see to that - and that a healthier
financial system will emerge, that we will start to save more as a nation and
that our individual ambitions will be satisfied a little less avariciously. We
do eventually learn from our mistakes.
The reason for buying shares in an investment trust company is that the
professional management brought to bear on the management of the portfolio and
the guidance and governance of a board of directors will earn shareholders a
proper return that they might not otherwise be able to do for themselves. It
seems to me that between the Board of Directors and Fidelity - there is an
excellent team which should be capable of earning those excellent returns I
have been referring to in this statement. The much longer term prospects would
therefore seem bright.
Alex Hammond-Chambers
Chairman
3 November 2009
Manager's Review
UK MARKET REVIEW
• GDP growth deteriorated over the year, culminating in negative growth of 5.5%
annualised in the 2nd quarter of 2009.
• Inflation subsided in conjunction with the economic slowdown, with August CPI
reaching 1.6%.
• The Bank of England cut the base rate several times to reach 0.5% in March
2009, the lowest ever rate.
• The UK market fell very sharply in the first half of the financial year
before recovering strongly from early March 2009.
The UK stock market declined 8.2% over the year as the full impact of the
financial crisis spread to all parts of the world economy. However it was very
much a year of two halves. The first half of our accounting year to 31 August
2009 was characterised by poor news flow and high uncertainty, which led to
enormous volatility. The market fell by 31.3% during this period, more than any
similar period in several decades. During the second half however, the first
tentative signs of improvement appeared, as the actions of governments and
Central Banks started to gain traction. The market rose 34.0% in the latter
half.
Over the year, the best performing sectors were technology stocks and general
retailers, which rebounded from very low valuations. Basic materials, where the
Company had little exposure, was the worst performing sector overall, as
commodity prices tumbled from inflated levels. Financial services were also
among the worst performing stocks, however there was a very wide dispersion, as
the winners such as London Stock Exchange and Standard Chartered performed
strongly, while others collapsed. Careful stock selection was essential.
During the period, sterling weakened against the dollar from $1.83 to $1.38 in
March before rallying to end the year at $1.63.
PORTFOLIO MANAGER'S REVIEW
During the 12 months to 31 August 2009, the Company's portfolio returned +9.0%
(total return basis), outperforming the FTSE All-Share Index at -8.2%.
Following a disappointing year to 31 August 2008 when the Company NAV fell by
9.8% (total return basis) %, it is very pleasing to report that most of that
has been recouped, despite a volatile year during which the benchmark fell
further.
Strong stock selection in the travel and leisure sector was the biggest
contributor to performance. Online gaming companies such as Sportingbet and
PartyGaming prospered as a result of solid revenue growth and an improving
regulatory environment. Compass Group, the outsourced catering company, rallied
as new management delivered on the business plan.
Despite the volatile environment, holdings in financials also added to
performance. While exposure to HBOS detracted prior to their takeover by
Lloyds, holdings in Credit Suisse, Standard Chartered and SEB (Sweden) rose
strongly as policy action averted the crisis deepening even further. A wide
selection of positions in other financial services also supported returns, such
as London & Stamford Property, London Stock Exchange and Novae, the insurance
company.
Given the widespread concerns over the consumer, it was interesting to note
that some of the best performers in the market were in retailing. Kingfisher,
the DIY specialist, was up 64% as it recovered from very low valuations.
Inchcape, the international auto distributor, also recovered strongly.
Media stocks have been a mainstay in the Company for some time and Pearson, a
leader in educational programs and testing, and British Sky Broadcasting both
contributed to the rise in NAV. Technology stocks were also a strong
contributor to performance, with smaller companies such as Computacenter and
Intec Telecom doubling during the year. CSR, a producer of mobile phone
components also rose sharply.
Among stocks that performed poorly were Eurotunnel, where a reduction in
traffic and financing concerns impacted, and HBOS, where the reliance on
wholesale funding led to severe liquidity problems for the bank and its
eventual rescue takeover by Lloyds.
While I increased exposure to large companies ahead of the crisis, I have been
steadily rotating into mid sized companies as the year progressed, and was
overweight this segment at the year end. While there are always opportunities
in large companies, the mid sized companies tend to be a more fertile hunting
ground for special situations.
THE USE OF DERIVATIVES
The Company is able to selectively use derivatives to generate returns and
these activities, which form only a small part of the portfolio, have once
again delivered a positive result.
The primary motive for using derivatives is to create a wider opportunity set
to deliver returns from stock picking. Thus overall portfolio performance
continued to be primarily explained by stock selection and market returns. I
continued to use derivatives to meet specific objectives with respect to risk
exposure management, return enhancement and shorting companies which I assess
to be overvalued.
Derivative exposures continued to be restricted to modest levels, for example
at no time during the year did short or hedge exposures exceed 5% of the
Company's net assets and total gross long exposures never exceeded 122%.
The use of derivatives contributed a positive return.
OUTLOOK
While the economic news remains mixed, there are signs of improvement in the
housing market and the financial system has recovered from the paralysis of
2008. The rally since March has been led by the cyclical parts of the market
and not necessarily the highest quality companies. Recently I have started to
reduce exposure to interest rate sensitive stocks such as retailers and
housebuliders and increase exposure to areas of defensive growth such as
GlaxoSmithKline and British Sky Broadcasting. I continue to believe that
although the economic environment is stabilising, the medium term growth
outlook is modest.
Sanjeev Shah
FIL Investments International
3 November 2009
PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MANAGEMENT
Due to the current economic climate, shareholders will have concerns about the
direction of some markets.
The Board confirms that there is an ongoing process for identifying, evaluating
and managing the principal risks faced by the Company. The Board, with the
assistance of the Manager, has developed a risk matrix which, as part of the
internal control process, identifies the operational risks that the Company
faces. The matrix has identified strategic, marketing, investment management,
statutory and administrative and operational and support function risks. The
Board reviews and agrees policies, which have remained broadly unchanged since
the beginning of the accounting period, for managing these risks. The process
is regularly reviewed by the Board in accordance with the FRC's "Internal
Control: Revised Guidance for Directors on the Combined Code". Risks are
identified, introduced and graded in this process, together with the policies
and procedures for the mitigation of risks, and are updated and reviewed twice
a year in the form of a comprehensive internal controls report considered by
the Audit Committee. The key risks identified within this matrix are:
External risks
Market risk
The Company's assets consist mainly of listed securities and the principal
risks are therefore market related
such as market recessions, interest rate movements, deflation/inflation,
terrorism and protectionism. Risks to
which the Company is exposed and which form part of the market risks category
are included in Note 20 to the financial statements on pages 51 to 56 of the
annual report together with summaries of the policies for managing these risks.
These comprise: market price risk; foreign currency risk; interest rate risk;
liquidity risk; counterparty risk and credit risk. The Company has a fixed
term, fixed rate loan facility in place which is due for repayment at the
beginning of next year. The extent to which any loan facilities will be
retained or renewed will be kept under the most careful scrutiny. At the
present time, cash is being held against the loan to reduce the level of net
gearing. In addition a day to day overdraft facility can be used if required.
The impact of limited finance from counterparties including suppliers has not
impacted the Company to date, however there are alternative suppliers available
in the market place should the need arise. The Company relies on a number of
main counterparties, namely the Manager, Registrar, Custodian and Auditor. The
Manager is the member of a privately owned group of companies on which a
regular report is provided to the Board. The Manager, Registrar and Custodian
are subject to regular audits by Fidelity's internal controls team and the
counterparties' own internal controls reports are received by the Board and any
concerns investigated
Share price risk
Although it is usually the case that the longer a share is owned the less the
risk of losing money, share prices are volatile and for the short term
shareholder, likely to want to sell in the near future, volatility is a risk.
The Board does not regard volatility as a significant risk for the long term
shareholder.
Discount risk
The Board cannot control the discount at which the Company's share price trades
to net asset value. However, it can influence this through its share buyback
policy and through creating demand for shares through good performance and an
active investor relations programme.
Internal risks
Investment management
The Board relies on the Manager's skills and judgement to make investment
decisions based on research and
analysis of individual stocks and sectors. The Board reviews the performance of
the asset value of the portfolio against the Company's benchmark and
competitors and the outlook for the market with the Manager at each Board
meeting. The emphasis is on long term investment performance and the Board
accepts that by targeting long term results the Company risks volatility in the
shorter term.
Governance, operational, financial, compliance, administration etc
While it is believed that the likelihood of poor governance, compliance and
operational administration by other third party service providers is low, the
financial consequences could be serious, including the associated reputational
damage to the Company. Your Board is responsible for the Company's system of
internal control and for reviewing its effectiveness. Details of this process
are provided in the Corporate Governance Statement within the annual report.
Financial and financial instrument risks
The financial instrument risks faced by the Company are shown in Note 20 to the
financial statements on pages 51 to 56 of the annual report. Other risks
monitored on a regular basis include loan covenants, which are subject to daily
monitoring, together with the Company's cash position, and the continuation
vote (at a time of poor performance).
Environmental, employee, social and community matters
The Company is an investment trust which is managed by FIL Investments
International. The Company has no Employees and all of its Directors are
non-executive, the Company's day to day activities being carried out
by third parties. There are therefore no disclosures to be made in respect of
employees. The Board fully endorses Fidelity's strong procedures which are
involved in the making of its investments.
The Company's financial reports are printed by a company which has won awards
for its environmental
awareness and further details of this may be found on the back cover of its
report. Financial reports and other
publicly available documentation are also available on the Company's website
www.fidelity.co.uk/its. Details
about Fidelity's own community involvement may be found on its website
www.fidelity.co.uk
Related Party Transactions
No Director is under a contract of service with the Company and no contracts
existed during or at the end of the financial period in which any Director was
materially interested and which was significant in relation to the Company's
business, except as disclosed in relation to Ms McCabe's interests in the
Management Agreement. There have been no other related party transactions
requiring disclosure under Financial Reporting Standard ("FRS") 8.
Directors' Responsibility Statement
The Directors are responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
Under that law they have elected to prepare the financial statements in
accordance with UK Generally Accepted Accounting Practice. The financial
statements are required by law to give a true and fair view of the state of
affairs of the Company and of the profit or loss for the period. In preparing
these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for ensuring that proper accounting records are
kept which disclose with reasonable accuracy at any time the financial position
of the Company and to enable them to ensure that its financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations the Directors are also responsible for
preparing a Directors' Report, including a Business Review, a Directors'
Remuneration Report and a Corporate Governance Statement that comply with that
law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website
www.fidelity.co.uk/its. Visitors to the website need to be aware that
legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge: the financial statements,
prepared in accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position and profit or
loss of the Company; and the Directors' Report includes a fair review of the
development and performance of the business and the position of the Company
together with a description of the principal risks and uncertainties it faces.
Approved by the Board on 3 November 2009 and signed on its behalf.
Alex Hammond Chambers
Chairman
3 November 2009
Enquiries:
Enquiries:
Chris Davies - Head of Investment Trusts, FIL Investments International - 01737
837 723
Anne Read - Corporate Communications, FIL Investments International - 0207 961
4409
Mr Christopher Pirnie - Company Secretary, FIL Investment International, -
01737 837929
Issued by FIL Investments International. Authorised and regulated by the
Financial Services Authority.
Income Statement for the
year end 31 August 2009
2009 2008
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on - 8,423 8,423 - (55,293) (55,293)
investments designated at
fair value through profit
and loss
Gains on derivative - 10,756 10,756 - 8,486 8,486
instruments held at fair
value through profit and
loss
Franked investment income 2,477 - 2,477 5,051 - 5,051
UK unfranked investment - - - 60 - 60
income
UK scrip dividends 5,340 - 5,340 6,009 - 6,009
Overseas dividends 628 - 628 1,144 - 1,144
Overseas scrip dividends 736 - 736 275 - 275
Property income 574 - 574 197 - 197
distribution
Other income - - - 38 - 38
Deposit interest 134 - 134 632 - 632
Income from Fidelity 28 - 28 352 - 352
Institutional Cash Fund plc
Interest on VAT recovered 407 - 407 - - -
on investment management
fees(²)
Underwriting commission 97 - 97 - - -
Net derivative expense (375) - (375) - - -
Investment management fee (2,862) - (2,862) (3,507) - (3,507)
VAT on investment 6 - 6 2,300 - 2,300
management fee recovered
Other expenses (513) - (513) (490) - (490)
Exchange gains/(losses) on - 123 123 - (46) (46)
other net assets
Net return/(loss) before 6,677 19,302 25,979 12,061 (46,853) (34,792)
finance costs and taxation
Interest payable (1,637) - (1,637) (2,033) - (2,033)
Net return/(loss) on 5,040 19,302 24,342 10,028 (46,853) (36,825)
ordinary activities before
taxation
Taxation on return/(loss) (57) - (57) (121) - (121)
on ordinary activities(¹)
Net return/(loss) on 4,983 19,302 24,285 9,907 (46,853) (36,946)
ordinary activities after
taxation for the year
Return/(loss) per ordinary 8.76p 33.92p 42.68p 17.13p (81.03p) (63.90p)
share
(¹) This relates to overseas taxation only.
(²) This interest received on VAT on investment management fees reclaimed
following the decision of the European Court of Justice in the JPMorgan
Claverhouse Investment Trust case (C-365/05)
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
continued operations. No operations were acquired or discontinued during the
year.
FIDELITY SPECIAL VALUES PLC
Balance Sheet for the year end 31 August 2009
2009 2008
£'000 £'000
Fixed assets
Investments designated at fair value through 355,379 331,312
profit or loss
Current assets
Derivative assets held at fair value through 4,186 -
profit or loss
Debtors 9,135 6,994
Amounts held at futures clearing houses and 843 1,573
brokers
Fidelity Institutional Cash Fund plc - 9,091
Cash at bank 8,087 14,994
22,251 32,652
Creditors - amounts falling due within one
year
Derivative liabilities held at fair value (1,238) -
through profit or loss
Fixed rate unsecured loans (27,000) (8,000)
Other creditors (14,874) (9,707)
(43,112) (17,707)
Net current (liabilities)/assets (20,861) 14,945
Total assets less current liabilities 334,518 346,257
Creditors - amounts falling due after more
than one year
Fixed rate unsecured loans - (27,000)
Total net assets 334,518 319,257
Capital and reserves
Called up share capital 14,234 14,198
Share premium account 95,767 95,058
Capital redemption reserve 2,554 2,545
Other non-distributable reserve 5,152 5,152
Capital reserve 210,488 191,309
Revenue reserve 6,323 10,995
Total equity shareholders' funds 334,518 319,257
Net asset value per ordinary share 587.50p 562.13p
FIDELITY SPECIAL VALUES PLC
Reconciliation of Movements in Shareholders' Funds for the year ended 31 August
2009
called share capital other capital revenue total
up share premium redemption non-distributable reserve reserve equity
capital account reserve reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening 14,926 95,058 1,817 5,152 254,123 5,514 376,590
shareholders'
funds: 1
September 2007
Net recognised - - - - (46,853) - (46,853)
capital losses
for the year
Repurchase of (728) - 728 - (15,961) - (15,961)
ordinary shares
Net revenue - - - - - 9,907 9,907
return after
taxation for the
year
Dividend paid to - - - - - (4,426) (4,426)
shareholders
Closing 14,198 95,058 2,545 5,152 191,309 10,995 319,257
shareholders'
funds: 31 August
2008
Net recognised - - - - 19,302 - 19,302
capital gains
for the year
Issue of 45 709 - - - - 754
ordinary shares
Repurchase of (9) - 9 - (123) - (123)
ordinary shares
Net revenue - - - - - 4,983 4,983
return after
taxation for the
year
Dividend paid to - - - - (9,655) (9,655)
shareholders
Closing 14,234 95,767 2,554 5,152 210,488 6,323 334,518
shareholders'
funds: 31 August
2009
FIDELITY SPECIAL VALUES PLC
Cash Flow Statement for the year ended 31 August 2009
2009 2008
£'000 £'000
Operating activities
Investment income received 4,232 5,639
Net derivative expenses paid (377) -
Underwriting commission received 97 -
Deposit interest received 216 947
Investment management fee paid (497) (3,704)
Directors' fees paid (112) (108)
Other cash payments (684) (620)
Net cash inflow from operating activities 2,875 2,154
Returns on investments and servicing of finance
Interest paid (1,692) (2,057)
Net cash outflow from returns on investments and (1,692) (2,057)
servicing of finance
Taxation
Overseas taxation recovered 38 13
Taxation recovered 38 13
Financial investment
Purchase of investments (263,308) (318,920)
Disposal of investments 254,390 338,703
Net cash (outflow)/inflow from financial investment (8,918) 19,783
Derivative activities
Premium received on options 3,441 -
Premium paid on options (1,365) -
Proceeds of derivative instruments 5,923 -
Net cash inflow from derivative activities 7,999 -
Dividend paid to shareholders (9,655) (4,426)
Net cash (outflow)/inflow before use of liquid (9,353) 15,467
resources and financing
Net cash inflow from management of liquid resources 9,091 1,251
Net cash (outflow)/inflow before financing (262) 16,718
Financing
Issue of ordinary shares 754 -
Repurchase of ordinary shares (124) (16,442)
5.655% fixed rate unsecured loan repaid (8,000) -
4.91% fixed rate unsecured loan repaid - (5,000)
Net cash outflow from financing (7,370) (21,442)
Decrease in cash (7,632) (4,724)
FIDELITY SPECIAL VALUES PLC
Return/(Loss) per Ordinary Share
revenue 2009 total revenue 2008 total
capital capital
Basic 8.76p 33.92p 42.68p 17.13p (81.03p) (63.90p)
Returns/(losses) per ordinary share are based on the net revenue return on
ordinary activities after taxation of £4,983,000 (2008: £9,907,000), the
capital return in the year of £19,302,000 (2008: capital loss £46,853,000) and
the total return in the year of £24,285,000 (2008: total loss £36,946,000) and
on 56,899,410 ordinary shares (2008: 57,823,165) 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 annual financial statements to 31 August 2009. This preliminary
statement, which has been agreed with the auditor, was approved by the Board on
3 November 2009. It is not the Company's statutory financial statements. The
statutory financial statements for the financial year ended 31 August 2008 have
been delivered to the Registrar of Companies. The statutory financial
statements for the financial year ended 31 August 2009 have been approved and
audited but have not yet been filed. The statutory financial statements for the
financial years ended 31 August 2008 and 31 August 2009 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 16 November 2009.
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