Preliminary Announcement of Annual Results
FIDELITY SPECIAL VALUES PLC
Preliminary Announcement of Unaudited Results
for the year ended 31 August 2005
Please note that past performance is not a guide to future returns. The value
of investments can go down as well as up.
The Year's Results: from NAV 341.9p to 458.5p (+34.1%)
We emphasise in the annual report each year that the primary purpose of our
business is to make money for shareholders. Once again I am in the happy
position of being able to report to shareholders another increase in the net
asset value - on this occasion the increase to 458.5p being 116.6p per share,
or 34.1%. Indeed it is the tenth occasion in eleven annual reports that an
increase in the net asset value has been achieved.
We reported to shareholders after the first six months that the net asset value
had risen by 19.9%; the increase in the second half was a little more modest,
albeit a satisfactory 11.8%. March and April were weak months for the markets,
concerned as they were with a slow down in economies generally; however
confidence subsequently returned with the reporting of good company profits.
The single most important contribution to returns of the market came from the
shares of oil companies - particularly from BP and the reconstituted Royal
Dutch Shell Group, which now account for circa 16% of the FTSE All-share Index.
Our attribution analysis shows that over and above the market rise stock
selection added 23.3p (6.8%) while gearing contributed 20.1p (5.9%) Our
investment in oil shares added 30.2p (8.8%) and five of the top ten
contributors were oil and gas companies. It was very much the year of the Oil
and Gas Sector.
We are also aware that shareholders invest in the Company's shares because they
expect us to outperform our peer group investment trusts and the market
generally (as represented by our benchmark). While both of these criteria are
of secondary significance, they are nevertheless important. During the past
year we ranked 3rd out of 16 in the AITC's UK Growth Sector; our benchmark the
FTSE All-share Index rose 20.1%. So I believe we can say that those two
criteria have been largely fulfilled. On behalf of shareholders I would like to
thank once again Anthony Bolton and his colleagues for another year's
outstanding performance
Shareholders may be aware that we have been advised by Fidelity that Anthony
Bolton will be giving up portfolio management at the end of 2007. At this time
Mr Bolton will move into a new role at Fidelity including the mentoring and
development of its UK and European fund management and research teams. The
Board will work with Fidelity to ensure an appropriate and smooth handover to a
new portfolio manager during 2007.
The Dividend, the Share Price: Dividend: 2.75p (v. 1.40p)
Share Price: 452.25p (+30.0%)
Discount: 1.4% (v. pm of 1.8%)
During the course of the year we have tended to have a rather greater portion
of our portfolio in large companies, not for any deliberate tactical reason but
rather because that is where the opportunities were. One of the consequences of
it was that we earned a rather higher level of dividend income; in fact our net
income available to pay our dividend doubled and as a consequence we are
recommending a dividend of 2.75p per share, up from 1.40p per share paid a year
ago. If approved, the dividend will be paid on 9 December 2005 to those on the
register on 18 November 2005. I would like to reiterate the dividend policy
which is to pay out whatever net income is earned by the portfolio in the year;
it will mean - and indeed it has in the past - that the dividend is likely to
fluctuate from year to year.
The share price rose by 30.0% over the course of the year, ending at 452.25p.
It represented a discount to the underlying net asset value of 1.8%. While such
a small discount should not be of concern to shareholders, we would like to
assure you that the Board is mindful of the buyback facilities which it is
prepared to use if the discount widens.
The Five Year Record: NAV up from 238.93p to 458.5p per share (+91.9%)
The nature of equities is that their share prices are volatile; in any given
year it is therefore quite possible that our net asset value will be lower at
the end than at the beginning. Although it has not happened often before, it
will happen again and it is for that reason that the Board believes that a
rather longer time period is required to make a judgement of how well we have
done and that it uses the five year record to make such judgement.
The Board is now required by the Stock Exchange's Listing Rules to make an
annual assessment and state to shareholders that it is in their interests to
continue with the Manager in situ (if indeed it is). It should be stressed that
the Board monitors all aspects of the Manager's performance continually and not
just once a year. The annual performance evaluation gives us the chance to step
back from day to day issues and consider longer-term issues and make a
longer-term assessment. We had no difficulty whatsoever in doing so and we do
indeed report to shareholders that we believe that it is very much in your
interests that Fidelity Investments International should continue as Manager.
The scope of the Management Engagement Committee's assessment is set out in the
Company's Corporate Governance Statement. It included looking at the five year
record, a remarkably fine one, which can be summarised as follows:
I should emphasise that our opinion is not based - nor ever would be based - on
the five year record alone. We regard the quality of the team that looks after
the Company to be the most important issue and the standards of administration
to be very important. In both cases we are happy to confirm that quality and
standards are high.
The Annual General Meeting:
The AGM: The annual general meeting of the Company will be held at 11.30am on
December 8th at Fidelity's offices at 25 Cannon Street, near St Paul's
Cathedral. Our Corporate Governance Statement stresses the importance of the
shareholders' annual general meeting, it being the pivotal point in the
relationship between shareholders and the Board of Directors; it is the
occasion when the Board accounts for itself in general meeting. We do therefore
urge as many shareholders as possible to come and attend the meeting; it is
your chance to question us, to make comments and suggestions and to hear what
other fellow shareholders have to say. At the meeting Anthony Bolton will make
a presentation on the year past and his view of the prospects for the Company.
Please come and join us.
The Board of Directors: Very sadly James Laurenson has decided that he and his
wife are going to live in New Zealand - sadly that is for us but not of course
for the two of them. He will therefore not be standing for re-election. By any
standards he has been an outstanding director and he has made a considerable
contribution to the working of the Board over the past eleven years. His skills
and experience - he is a chartered accountant, was a fund manager at Ivory &
Sime and was the founder chief executive at Adam & Company - have been of great
benefit to us but, as is always the case for any director, character is the
single most important key to his/her contribution. His forthrightness, his
courage and his wisdom have made all the difference and he will be a hard act
to follow. James, on behalf of shareholders, thank you very much for your
contribution to the successful workings of a successful board and company.
I reported last year that Simon Haslam would not be standing for re-election at
the 2004 AGM and that we would be appointing a replacement for him shortly
thereafter. We duly did, appointing Nicky McCabe, Chief Operating Officer,
Investment Management as Simon's successor and as the director from Fidelity on
the Board. Sad as it was to lose Simon, I can say we are fortunate to have
Nicky, who has already made a good contribution to the governance of the
Company.
I am also pleased to be able to tell you that we have appointed Lynn Ruddick as
a director. Lynn has considerable experience in investment management generally
and investment trusts particularly; like James she is an accountant and started
her investment career at Ivory & Sime; she retired from full time City life,
having been the Managing Director in charge of investment trusts at Merril
Lynch Investment Managers. We look forward to her contribution. The process
that we used for her appointment is outlined in the Company's Corporate
Governance Statement.
As shareholders are aware all of the Directors stand for re-election every
year. As part of our board evaluation, there is an independence assessment made
of each director, covering character, competence, board room performance and
conflicts of interest. That too is outlined in the Application of Corporate
Governance report.
Please may I ask any shareholder who has any concern about any of the
resolutions set out in the notice calling the annual general meeting to contact
me so that we have a chance to discuss them with you. We believe that, as is
emphasised in the Combined Code's Preamble, dialogue between shareholders and
directors is a vital part of good corporate governance.
Outlook:
The last year has been a rather strange one. If someone had said that the oil
price would rise above $60 per barrel, that interest rates in the UK would rise
to as high as 4¾%, that house price inflation would all but cease, that the UK
consumer would begin to retrench his/her spending and that the stock market
would rise by 20%, we would surely have doubted the wisdom of his/her
prediction. And yet it happened. It is a strange world and it makes it
difficult to make predictions about the future with any confidence.
At the macro economic level, it seems to be a time of increasing concern. It
now costs many if not most motorists nearly £50 to fill up their cars with
petrol; consumers' energy bills are going through the roof; interest rates are
much higher than they have been in quite some time; faced with three serious
natural disasters insurance companies are hiking insurance premia; local taxes
are rising; the profligate Chancellor of the Exchequer looks to be short of the
necessary tax revenues to pay for his public sector excesses and is faced, so
our media informs us, with having to raise taxes considerably; the Pound, which
seems to be a very overvalued currency by most standards, has started to fall;
and finally, despite figures which purport otherwise, inflation must be rising.
This would all seem to add up to a vicious circle, which this Government needs
somehow to address. It doesn't look good.
However at the micro corporate level, things look a lot better. Companies in
the UK have a great deal more freedom to manage their affairs in the interest
of profitability than their counterparts in the European Union; cash flow is
strong, corporate profits (most of which are generated outside the UK) and
dividends are rising; equities do not appear to be unduly expensive. It may be
that, like the corporate sectors in Japan and Germany, things look much better
when viewed from the bottom up. In this changing world and in volatile markets,
there will always be good opportunities to make money. I believe that Anthony
Bolton and the team behind him have proved that they can achieve this and I
believe they will continue to do so.
Alex Hammond-Chambers
25 October 2005
Enquiries: Stephen Westwood - Fidelity Investments International
0207 961 4477
Issued by Fidelity Investments International. Authorised and regulated by the
Financial Services Authority.
CB24516
FIDELITY SPECIAL VALUES PLC
STATEMENT OF TOTAL RETURN (incorporating the revenue account) (unaudited)
of the Company for the year ended 31 August
2005 2004
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 75,213 75,213 - 30,404 30,404
Dividends 7,818 - 7,818 5,362 - 5,362
Interest from 57 - 57 83 - 83
securities
Other income 182 - 182 146 - 146
Investment management (3,441) - (3,441) (2,238) - (2,238)
fee
Other expenses (460) - (460) (434) - (434)
Exchange gains/ 2 (28) (26) - (43) (43)
(losses)
Net return before 4,158 75,185 79,343 2,919 30,361 33,280
finance costs and
taxation
Interest payable (2,246) - (2,246) (1,965) - (1,965)
Return on ordinary 1,912 75,185 77,097 954 30,361 31,315
activities before
taxation
Taxation on return on (126) - (126) (68) - (68)
ordinary activities
Return on ordinary 1,786 75,185 76,971 886 30,361 31,247
activities after
taxation for the year
attributable to
equity shareholders
Dividends (1,805) - (1,805) (890) - (890)
Transfer (from)/to (19) 75,185 75,166 (4) 30,361 30,357
reserves
Return per ordinary
share
Basic* 2.76p 116.02p 118.78p 1.55p 52.98p 54.53p
The revenue column of this 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.
* Returns per ordinary share are based on the weighted average number of
ordinary shares in issue during the year, being 64,801,722 (2004: 57,306,860).
The number of shares in issue at the year end was 65,356,053 (2004:
63,419,923).
BALANCE SHEET (unaudited) as at 31 August
2005 2004
£'000 £'000
Fixed assets
Investments 338,982 251,138
Current assets
Debtors 9,604 3,470
Amounts held at futures clearing houses and 147 -
brokers
Cash at bank 3,026 1,007
12,777 4,477
Creditors - amounts falling due within one year
Fixed rate unsecured loans - (20,000)
Other creditors (12,117) (5,758)
(12,117) (25,758)
Net current assets/(liabilities) 660 (21,281)
Total assets less current liabilities 339,642 229,857
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (40,000) (13,000)
Total net assets 299,642 216,857
Capital and reserves
Called up share capital 16,339 15,855
Share premium account 95,058 87,923
Capital redemption reserve 404 404
Other non-distributable reserve 5,152 5,152
Capital reserve - realised 113,023 82,169
Capital reserve - unrealised 68,475 24,144
Revenue reserve 1,191 1,210
Total equity shareholders' funds 299,642 216,857
Net asset value per ordinary share: Basic 458.48p 341.94p
CASH FLOW STATEMENT (unaudited) of the Company for the year ended 31 August
2005 2004
£'000 £'000
Operating activities
Investment income received 3,990 2,903
Underwriting commission received 30 17
Deposit interest received 147 134
Investment management fee paid (2,377) (2,080)
Directors' fees paid (74) (64)
Other cash payments (385) (468)
Net cash inflow from operating activities 1,331 442
Returns on investments and servicing of
finance
Interest paid (2,235) (1,905)
Net cash outflow from servicing of finance (2,235) (1,905)
Taxation
Overseas taxation recovered 81 -
Taxation recovered 81 -
Financial investment
Purchase of investments (206,753) (194,591)
Disposal of investments 196,025 175,555
Net cash outflow from financial investment (10,728) (19,036)
Equity dividend paid (896) (457)
Net cash outflow before financing (12,447) (20,956)
Financing
Exercise of warrants - 3,309
Fixed rate 5.655% unsecured loan drawn down - 8,000
Fixed rate 5.435% unsecured loan drawn down 27,000 -
Fixed rate 7.82% unsecured loan repaid (10,000) -
Fixed rate 6.42% unsecured loan repaid (10,000) -
Issue of ordinary shares 7,619 8,495
Cash element from issue of shares to - 931
shareholders of Govett Strategic and Derby
Trust
Issue costs relating to issue of shares to - (454)
shareholders of Govett Strategic and Derby
Trust
Net cash inflow from financing 14,619 20,281
Increase/(decrease) in cash 2,172 (675)
Statement of changes in equity (unaudited)
Share Capital Other non Capital Capital Revenue
premium redemption distributable reserve reserve reserve
account reserve reserve realised unrealised
£'000
£'000 £'000 £'000 £'000 £'000
Beginning of year 87,923 404 5,152 82,169 24,144 1,210
Exchange losses on - - - (22) (6) -
other net assets
Net gain on - - - 30,876 - -
realisation of
investments
Increase in - - - - 44,337 -
unrealised
appreciation
Issue of ordinary 7,135 - - - - -
shares
Retained net - - - - - (19)
revenue for the
year
End of year 95,058 404 5,152 113,023 68,475 1,191
The above statements have been prepared on the basis of the accounting policies
as set out in the most recently published set of annual financial statements.
The figures for the year to 31.08.04 have been extracted from the accounts for
the year ended 31.08.04 which have been delivered to the Registrar of Companies
and on which the Auditors gave an unqualified report.
The annual report and accounts will be posted to shareholders in November 2005.
Copies will also be available from the Company's registered office at
Beechgate, Millfield Lane, Tadworth, Surrey KT20 6RP.
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