Interim Results
FIDELITY SPECIAL VALUES PLC
Preliminary Announcement of Unaudited Interim Results
for the six months ended 28 February 2006
INTERIM REPORT
Shareholder returns: NAV +15.8% to 533.9p per share
During the six month review period, the net asset value of our ordinary shares
has risen by 15.8% to 533.9p per share, achieving the Company's goal of capital
growth. The return also was higher than that of the stock market as measured by
our benchmark (the FTSE All Share Index), which rose by 11.2%. The share price
rose by 15.3% to 521.25p (total return figures, which include the effect of
dividends, are shown in the interim report).
The UK market made steady progress during the period. Small and medium-sized
companies continued to outperform their larger counterparts. At sector level,
industrials, non-life insurance and mining were among the best performers.
Conversely, the healthcare and oil & gas sectors, the latter adversely affected
by a fall in the oil price, lost money over the six month review period. Robust
market performance was, however, slightly at odds with economic data. Although
healthy corporate earnings and increasing merger and acquisitions activity had
a positive effect on the UK stockmarket, consumer confidence remained generally
fragile. Slowing economic growth in the UK economy saw the Chancellor cutting
his forecasts, while the Bank of England held interest rates at 4.5% as
inflation slowed (in spite of remaining above the Bank's 2.0% target). Despite
the economy expanding by 0.6% during the final three months of 2005 (exceeding
analysts' forecasts), economic growth of 1.8% for 2005 as a whole was the
lowest since 1992, and its weakness pressured companies into trimming their
labour costs. However, the economy has recently been showing signs of recovery,
with an improving housing market and a stronger forecast for consumer spending
underpinning the revival.
Analysis of NAV movement -->
Pence %
NAV at 31 August 2005 461.23
Impact of: Stockmarket +56.75 +12.30
Stock selection +11.30 +2.45
Share issues - -
Gearing +9.67 +2.10
Other, including costs -5.06 -1.10
NAV at 28 February 2006 533.89
During the six month review period, investment in the oil & gas producers
sector remained the portfolio's largest commitment; fortunately the lacklustre
performance in the sector in general was countered by the Manager's prudent
stock selection which added value. Among the Company's other positions were
investments in media, pharmaceutical & biotechnology and travel & leisure.
Conversely, at the end of the review period, the portfolio had no investments
in the general industrials, tobacco and aerospace & defence sectors.
Investment in FTSE 100 companies continued to rise during the period; given the
strength of small and medium-sized companies over recent years, the Manager was
able to identify attractively valued prospects within the larger segment of the
market. Meanwhile, a proportion of the Company's portfolio continues to be
invested outside of the UK stockmarket; the Manager continues to discover
selected opportunities in Europe and the Asia Pacific region.
Borrowings: £40 million
The total borrowings of the Company did not increase during the period under
review, remaining at £40 million, which represented approximately 11.5% of the
shareholders' funds at 28 February 2006.
Although it is the Board's policy under normal circumstances to have a gearing
level of between 15% and 20%, towards the end of March, against a cautious view
on the market, the Manager acquired a put option which gives the Company the
rights, for three months, to sell £91 million worth of FTSE100 shares at 5%
below the then Index levels. Simultaneously, the Manager has also sold
investments in the market with the effect that the net gearing level at today's
date has reduced to around zero.
Outlook
Prospects of an early cut in interest rates in the UK appear to have diminished
following the release of the minutes of the 9 February Monetary Policy
Committee meeting of the Bank of England. The recent pick-up in economic
activity and a recovery in the housing market are among the indicators that
suggest interest rates might remain on hold in the short term. Meanwhile,
merger and acquisition activity continues to gather pace.
At portfolio-specific level, the Manager sees value in large-cap stocks, which
have become increasingly attractive on a valuation basis. However, the number
of stocks that meet the Manager's investment criteria has fallen. This, in
part, reflects that fact that the range of valuations has been compressed; low
valued stocks have generally been re-rated upwards while the premium of more
highly valued stocks has fallen. Although the Manager focuses on stock picking
rather than taking a top-down macroeconomic approach to managing the Company's
portfolio, it believes that after three years, the bull market in the UK has
now entered its final stage. In addition, there are still risks in Middle
Eastern instability and avian influenza. Against this backdrop, the Manager is
searching for lower risk stocks that exhibit superior quality, higher growth or
that have an above average return on capital.
By order of the Board
Fidelity Investments International
4 May 2006
Enquiries: Miss Tracey A Bennett - Fidelity Investments International 01737
836883
Mr Stephen Westwood - Fidelity Investments International 020 7961 4477
CB26997
FIDELITY SPECIAL VALUES PLC
Income Statement
for the six months for the year for the six months
ended ended ended
28.02.06 31.08.05 28.02.05
unaudited audited unaudited
restated (2)
revenue capital total revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on - 50,947 50,947 - 75,213 75,213 - 43,941 43,941
investments
Dividend income 2,439 - 2,439 7,818 - 7,818 2,420 - 2,420
Interest income 116 - 116 209 - 209 153 - 153
Underwriting 7 - 7 30 - 30 5 - 5
commission income
Investment (2,082) - (2,082) (3,441) - (3,441) (1,611) - (1,611)
management fee
Other expenses (241) - (241) (460) - (460) (238) - (238)
Exchange (losses) (2) 5 3 2 (28) (26) - (11) (11)
/gains
Net return before 237 50,952 51,189 4,158 75,185 79,343 729 43,930 44,659
finance costs and
taxation
Interest payable (1,074) - (1,074) (2,246) - (2,246) (1,154) - (1,154)
(Loss)/return on (837) 50,952 50,115 1,912 75,185 77,097 (425) 43,930 43,505
ordinary
activities before
taxation
Taxation on 7 - 7 (126) - (126) 17 - 17
ordinary
activities*
(Loss)/return on (830) 50,952 50,122 1,786 75,185 76,971 (408) 43,930 43,522
ordinary
activities after
taxation for the
period
(Loss)/return per (1.27p) 77.96p 76.69p 2.76p 116.02p 118.78p (0.64p) 68.37p 67.73p
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. All
revenue and capital items in the Income Statement derive from continuing
operations. No operations were acquired or discontinued in the year.
* This relates to overseas taxation only.
Reconciliation of Movements in Shareholders' Funds
called-up share capital other capital capital revenue total
share premium redemption non-distributable reserve reserve reserve equity
capital account reserve reserve realised unrealised
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening 15,855 87,923 404 5,152 82,169 24,144 1,210 216,857
shareholders' funds
as previously
stated: 1 September
2004
Effect of prior - - - - - - 888 888
year adjustment as
a result of a
change in
accounting policy
regarding the
treatment of
proposed dividends
Opening 15,855 87,923 404 5,152 82,169 24,144 2,098 217,745
shareholders' funds
as restated: 1
September 2004
Net recognised - - - - 30,854 44,331 - 75,185
gains for the year
Issue of ordinary 484 7,135 - - - - - 7,619
shares
Revenue after - - - - - - 1,786 1,786
taxation
Dividend paid - - - - - - (896) (896)
Closing 16,339 95,058 404 5,152 113,023 68,475 2,988 301,439
shareholders' funds
as restated: 31
August 2005
Effect of changing - - - - - (833) - (833)
prices from middle
market to bid
market at 1
September 2005
Net recognised - - - - 36,881 14,071 - 50,952
gains for the
period
Revenue after - - - - - - (830) (830)
taxation
Dividend paid - - - - - - (1,797) (1,797)
Closing 16,339 95,058 404 5,152 149,904 81,713 361 348,931
shareholders'
funds: 28 February
2006
Balance Sheet
28.02.06 31.08.05 29.02.04
unaudited audited unaudited
restated
(2)
£'000 £'000 £'000
Fixed assets
Investments held at fair value through 384,930 338,982 306,298
profit or loss
Current assets
Debtors 3,515 9,604 3,450
Amounts held at futures clearing houses - 147 -
and brokers
Cash at bank 5,528 3,026 895
9,043 12,777 4,345
Creditors - amounts falling due within one
year
Other creditors (5,042) (10,320) (3,287)
Net current assets 4,001 2,457 1,058
Total assets less current liabilities 388,931 341,439 307,356
Creditors - amounts falling due after more
than one year
Fixed rate unsecured loans (40,000) (40,000) (40,000)
Total net assets 348,931 301,439 267,356
Capital and reserves
Called up share capital 16,339 16,339 16,301
Share premium account 95,058 95,058 94,462
Capital redemption reserve 404 404 404
Other non-distributable reserve 5,152 5,152 5,152
Capital reserve - realised 149,904 113,023 96,979
Capital reserve - unrealised 81,713 68,475 53,264
Revenue reserve 361 2,988 794
Total equity shareholders' funds 348,931 301,439 267,356
Net asset value per ordinary share: 533.89p 461.23p 410.02p
Cash Flow Statement
28.02.06 31.08.05 28.02.05
unaudited audited unaudited
£'000 £'000 £'000
Operating activities
Investment income received 1,081 3,990 1,193
Underwriting commission 7 30 5
received
Interest received 117 147 100
Investment management fee paid (2,920) (2,377) (1,532)
Directors' fees paid (49) (74) (30)
Other cash payments (99) (385) (136)
Net cash (outflow)/inflow from (1,863) 1,331 (400)
operating activities
Returns on investments and
servicing of finance
Interest paid (1,088) (2,235) (1,159)
Net cash outflow from returns (1,088) (2,235) (1,159)
on investments and servicing of
finance
Taxation
Overseas taxation recovered 27 81 -
Taxation recovered 27 81 -
Financial investment
Purchase of investments (132,286) (206,753) (107,810)
Disposal of investments 139,362 196,025 96,177
Net cash inflow/(outflow)from 7,076 (10,728) (11,633)
financial investment
Equity dividend paid (1,797) (896) (896)
Net cash inflow/(outflow)before 2,355 (12,447) (14,088)
financing
Financing
Fixed rate 5.435% unsecured - 27,000 27,000
loan drawn down
Fixed rate 7.82% unsecured loan - (10,000) (10,000)
repaid
Fixed rate 6.42% unsecured loan - (10,000) (10,000)
repaid
Issue of ordinary shares - 7,619 6,976
Net cash inflow from financing - 14,619 13,976
Increase/(decrease)in cash 2,355 2,172 (112)
1. The results for the six months to 28 February 2006 and 28 February 2005,
which are unaudited, constitute non-statutory financial statements within the
meaning of s240 of the Companies Act 1985. The figures and financial
information for the year ended 31 August 2005 are extracted from the latest
published accounts and have been restated as disclosed below. These accounts,
on which the auditors gave an unqualified report, have been delivered to the
Registrar of Companies.
2. Prior year adjustments and restatements caused by accounting policy changes
28.02.06 31.08.05
Shareholders' Shareholders'
funds funds
£'000 £'000
Opening balance as previously stated: 1 September 299,642 216,857
Effect of prior year adjustment as a result of a 1,797 888
change in accounting policy regarding the
treatment of proposed dividends ______________ ____________
Opening balance as restated: 1 September 301,439 217,745
Effect of changing prices from middle market to (833) -
bid market at 1 September 2005
Issue of ordinary shares - 7,619
Other recognised gains for the period 50,952 75,185
Revenue after taxation (830) 1,786
Dividend paid (1,797) (896)
Closing balance as restated: 348,931 301,439
3. These interim financial statements have been prepared on the basis of the
accounting policies set out in the Company's annual report and accounts dated
31 August 2005 except as stated below:
UK GAAP is converging with International Financial Reporting Standards ("IFRS")
and the following key changes have been made as a result of the introduction of
Financial Reporting Standards ("FRS") 26 and 21.
FRS26: "Financial Instruments: Measurement" requires that quoted investments
are measured at fair value which is deemed to be bid price. The Company's
investments have accordingly been revalued to bid price but no adjustments have
been made to the prior period's results as the Company has taken advantage of
paragraph 108D of the Standard and disclosed the effect of valuing the
investments at bid price as shown in the Reconciliation of Movements in
Shareholders' Funds.
FRS21: "Events after the Balance Sheet Date" states that dividends declared and
approved by the Company after the balance sheet date should not be recognised
as a liability of the Company at the balance sheet date. Prior year results
have accordingly been restated,
4. The Statement of Total Return is now called the Income Statement and the
total column, as opposed to the revenue column, is now the profit and loss
account of the Company.
5. The Reconciliation of Movements in Shareholders' Funds has been introduced
as a new primary statement. The dividends paid by the Company are now reported
through this statement.
6. 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 and the changes to the accounting policies as set out above.
7. Returns per ordinary share are based on the net revenue loss on ordinary
activities after taxation of £830,000 (31.08.05: return £1,786,000;
28.02.05: loss £408,000) and the capital appreciation in the period of £
50,952,000 (31.08.05: appreciation £75,185,000; 28.02.05: appreciation £
43,930,000) and on 65,356,053 ordinary shares (31.08.05: 64,801,722;
28.02.05: 64,251,041) being the weighted average number of ordinary shares
in issue during the period.
The interim report and financial statements will be posted to shareholders as
soon as is practicable. Copies will also be available to the public at the
Company's registered office, Beech Gate, Millfield Lane, Lower Kingswood,
Tadworth, Surrey KT20 6RP.
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