FIDELITY SPECIAL VALUES PLC
Preliminary Announcement of Unaudited Results
for the year ended 31 August 2003
CHAIRMAN'S STATEMENT
The Year's Performance: NAV (diluted): 285.9p +19.7%
The last six months have brought about a considerable recovery in the level of
stock markets world wide and in the UK in particular, as the various concerns
that were unsettling markets at the time of our half year report have abated.
The war in Iraq has happened and it appears that for the time being at least
the threat of SARS is no longer with us. Perhaps most importantly the doubts
about the robustness of the US economy have receded as improving economic
statistics have emerged from America. From your own Company's point of view it
really has been a tale of two halves with the net asset value having fallen by
14.5% in the first half and then having risen by no less than 40.0% in the
second half. The overall result is that for the year it rose from 238.9p to
285.9p per share, an increase of 19.7%. I think that it can be considered an
excellent result and it underscores our main goal of capital growth.
Not only do we want to make money for our shareholders but, as secondary
objectives, we want to do better than the market and our competitors. The UK
Stock Market, as measured by our benchmark, the FTSE All Share Index rose by
just 0.9% during the year, having fallen by 14.0% in the first half and then
risen by 17.4% in the second half. The AITC's statistics show that within the
UK Growth sector of 17 investment trust companies, your Company's performance
over the year ranked it fourth while over five years it was number one, so I
believe we can say that we have discharged that objective too. Once again our
able team at Fidelity led by Anthony Bolton, has produced performance which is
excellent and on behalf of shareholders I would like to thank them for their
efforts and success. The chart below illustrates the progress made during the
year.
The share price rose by 18.1% to 300.5p, ending the year on a premium to net
asset value of 5.1%, down a little from the start of the year when it stood at
6.0%. For most of the year the premium stood above 2%, the level that the Board
has established as the base for issuing new shares. As a consequence we were
able to continue to do so; and during the year we issued 3.2 million shares at
an average premium of 4.6% thus enabling us to enhance the net asset value by
approximately 1p per share. In addition to issuing new shares, we also raised
the level of our debt during February by borrowing a further �5 million, taking
it to �25 million. It is difficult to quantify what contribution that made to
the year's performance but the new funds were invested during February and
March when the stock market was depressed; the timing proved to be good and the
profits on the new borrowings will also have enhanced the net asset value. The
table below shows an estimate of how the net asset value changed during the
course of the year.
Starting NAV 239p
Effect of the market +2p
Effect of stock selection +37p
Effect of gearing +7p
Effect of issuing new +1p
shares
Change in NAV +47p
Ending NAV 286p
At the end of the year our gross assets, having been increased by the proceeds
of our new borrowings and of issuing new shares and by portfolio growth, stood
at �161.2 million, of which �25 million was financed by borrowings, resulting
in a gearing ratio of 17.1%. While our banking covenants allow us to go to 40%,
our own guidelines when establishing new levels of gearing are for a maximum of
25% of Shareholders' funds.
GovettStrategic Investment Trust plc
Shareholders will be aware that, after consultation with your Board, the board
of Govett Strategic Investment Trust selected your Company to be the rollover
vehicle for those of their shareholders wishing to continue to invest in an
investment trust. The terms of the deal are such that it will result in a small
uplift in our own net asset value because we will issue our shares at a small
premium to such net asset value, much in the same way that we get small
increases when we issue new shares in the normal course of business.
Shareholders will have the opportunity to vote on the proposals and a circular
will be sent to Shareholders at about the same time as the Annual Report.
Dividend: 1.00p per share
We are recommending a dividend of 1.00p per share to Shareholders at the
forthcoming Annual General Meeting. As we have stressed in all of our annual
reports, the amount of the dividend that we recommend for shareholders'
consideration depends on the amount that has been earned from the portfolio and
other assets during the year and that in turn is a function of the shares it
has owned during the period. The portfolio is run with the express purpose of
achieving capital growth and not to generate income, although we would expect
such income to grow over the years as the portfolio grows. The dividend will be
payable on 16 December 2003 to shareholders on the register on 7 November 2003
(ex dividend date 5 November 2003).
Corporate Governance
During the last twelve months there have been yet more reviews on the way
companies are governed by their boards of directors. Provoked by corporate
scandals in America and despite the fact that such incidents did not happen in
this country, the Government decided that Britain's corporate governance should
be overhauled yet again. Mr Higgs in conjunction with civil servants at the
Department of Trade and Industry set about producing yet more guidelines and
rules for how boards of directors conduct their business. Their report, to
which Mr Higgs gave his name, was published earlier in the year and, after
further consideration and some changes, has been written into the listing
requirements for companies quoted on the London Stock Exchange. It is on the
whole sensible enough but does contain a few misguided provisions; it will
without doubt add to the laboriousness of corporate governance - making British
business focus more and more on not doing anything wrong procedurally at the
expense of the primary purpose of business - the taking of appropriate risks
for the pursuit of progress. In order for it to work properly the guidelines
rely on careful and thoughtful voting by institutions at AGMs; but it is highly
likely that instead we will get mindless, rules based and thoughtless voting.
There is nothing in it which will encourage the emergence of new world class
companies such as have emerged in numbers in the US in the last thirty or so
years. Too much of Britain's business growth comes from mergers and
acquisitions which may explain why only two new major British companies have
emerged from start-up in recent times: Vodafone and BSkyB.
The investment trust industry has had its own set of problems as the bear
market unravelled many of the so called split capital investment trusts
("splits"). The huge investor need for current income from the investments that
they make, the overzealous promotion of new splits, the greed and speculative
fervour in markets generally by the end of the 1990s and the lack of
understanding of the dynamics of highly geared investment trust balance sheets
by boards of directors, promoters and investors alike have all played a part in
the investment trust sector's own bubble. The Financial Services Authority,
under pressure from a select committee of the House of Commons, has put in
place further rules and regulations covering all investment trust companies,
adding to those already included in the new Combined Code. Your Board of
Directors will be obliged to comply with all of these new rules and guidelines
and a statement on how we do so will form part of next year's annual report.
Meanwhile we have decided to define our policy on investing in other investment
trusts which is that we do not intend to invest more than 15% of our gross
assets in the shares of other investment companies including investment trusts.
Annual General Meeting
The Annual General Meeting will be held at 12 noon on 11 December 2003 at
Fidelity's offices at 25 Cannon Street, near St Paul's Cathedral. In our report
on corporate governance we state that "the Annual General Meeting is the
pivotal point in the relationship between the Board of Directors and
Shareholders and is the occasion when the Board accounts for itself in public
meeting". We do ask as many Shareholders as possible to attend - both
individual and institutional - as it gives you the opportunity to air your
views, hear other Shareholders' views or ask any questions you may wish in
front of the body of Shareholders. Following the formal meeting Anthony Bolton
will give a review of the past year and look at the prospects for the current
one.
On this year's AGM agenda is one new resolution, the approval of the Directors'
Remuneration Report which covers the role of the Nomination and Remuneration
Committee, the basis on which levels of remuneration are determined and the
actual levels of remuneration paid last year.
At this AGM we are proposing that two of the Directors, Sir Richard Brooke and
Douglas Kinloch Anderson, who retire by rotation, are re-elected as Directors
for another three years. Their backgrounds, together with those of the rest of
the Directors, are outlined in the Annual Report. I would however like to add
to their summaries. Sir Richard has had a life long career in the City and
brings his enormous experience of investment banking, investment management and
investment trusts to the workings and the competence of the Board. As an
individual he knows his own mind and speaks out when a matter of importance
arises; he has an independent mind and character and performs the role of an
independent director well; I believe him to be an excellent guardian of
Shareholders' interests. Douglas runs his own family business, being Scotland's
leading producer and retailer of highland dresswear, including kilts, which are
sold all over the world. His experience in manufacturing and marketing brings
an added dimension to the Board's deliberations, particularly on investment and
marketing matters. I can and will say the same as I said about Sir Richard,
that he is in every sense, in mind and in behaviour, an independent director
and that he too is an excellent guardian of Shareholders' interests. Their
respective nominations were carefully considered, taking into account matters
raised by the new Combined Code; in particular the Nomination and Remuneration
Committee concluded that their length of service and experience on the Board
added to the ability of each of them to perform their directorial roles with
absolute independence. As a consequence your Board of Directors thoroughly
recommend their re-elections.
Exercise of Warrants
Warrantholders should note that the final opportunity to exercise warrants is
on 1 January 2004. If any warrants are not exercised at this time the Company
shall, within seven days, appoint a trustee who, provided that in his opinion
the net proceeds of sale after deduction of all costs and expenses incurred by
him will exceed the costs of subscription, shall within the period of fourteen
days following 1 January 2004, either (i) exercise all the subscription rights
which have not been exercised on the terms on which the same could have been
exercised on the final 1 January 2004 and sell in the market the ordinary
shares acquired on such subscription, or (ii) (if it appears to the trustee
that doing so is likely to realise greater net proceeds for Warrantholders)
accept any offer available to Warrantholders for the purchase of the Warrants.
The trustee shall distribute pro rata the proceeds less such subscription costs
and such other costs and expenses to the persons entitled thereto, provided
that entitlements of less than �3.00 shall be retained for the benefit of the
Company. If the trustee does not exercise the subscription rights the
outstanding warrants will lapse on 15 January 2004.
Outlook
I think that the outlook for the UK stock market is really quite a lot better
than it was a year ago when I last wrote this statement. Two key elements to
the level of the stock market are the level of corporate profits and the basis
of valuation of them. Importantly, the starting point in any such assessment,
is what is happening in the United States. There is no doubt that the
statistics emerging out of America are improving all the time and, perhaps most
encouragingly of all, this is being reflected in the acceleration of the growth
of corporate profits. That will help capital investment and the level of share
prices there and both will have a knock-on effect in the rest of the world. The
global economy is also being helped by the strong economic growth that is
occurring in China and the knock-on effect that it is having in East Asia,
notably in Japan. Although both of these forces will help the European Union,
it has its own special problems brought about by its politics, by the evolution
of the European Union generally and by the euro particularly; it will be a drag
on global economic growth.
Our own economy seems to be doing a little bit better than the other large ones
but there continues to be cause for concern. The driving force behind our
domestic growth is government expenditure, its monies being largely spent on
employing more and more bureaucrats in an effort to improve the quantity and
quality of our public services. Not surprisingly it is having much the opposite
effect; their management and thence their services continue to deteriorate.
Likewise the Government's own budget balances continue to deteriorate, putting
pressure on interest rates and taxation. Consumer spending has held up
remarkably well given Mr Brown's stealth taxation, which has in effect been
financed by consumers borrowing to pay their tax bills, a most unhealthy state
of affairs. The economy is in a rather more fragile state than Mr Brown would
have us believe.
However the outlook for the growth of the UK's corporate profits is still
reasonable, particularly as a high percentage of them are earned overseas.
Despite legislation designed to discourage it, UK companies are still able to
cut costs and down-size when necessary; furthermore I believe that at board
level there remains a respect for the importance of dividends, which means that
they can grow and that is an important consideration in a low interest
environment. I believe interest rates are unlikely to increase significantly.
Certainly a combination of yet further increases in taxation and higher
interest rates could have a devastating effect on our economy, a fact I believe
the Bank of England understands. So there is no reason to fear a marked
diminution of price/earnings ratios for the moment at least. Most importantly
our team at Fidelity headed by Anthony Bolton has done an outstanding job of
picking the right shares to own in the past and I believe will do so in the
future; it gives your Directors cause for optimism.
Alex Hammond-Chambers
Chairman
24 October 2003
Enquiries: Barbara Powley - Fidelity Investments International
01737 836883
FIDELITY SPECIAL VALUES PLC
STATEMENT OF TOTAL RETURN (unaudited)
(incorporating the revenue account) of the Company for the year ended31 August
2003
2003 2002
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Gains/(losses) on - 23,027 23,027 - (14,511) (14,511)
investments
Dividends 3,766 - 3,766 3,595 - 3,595
Interest from 81 - 81 31 - 31
securities
Other income 9 - 9 133 - 133
Investment management (1,458) - (1,458) (1,404) - (1,404)
fee
Other expenses (408) - (408) (388) - (388)
Exchange gains/ - 48 48 - (163) (163)
(losses)
Net return/(loss) 1,990 23,075 25,065 1,967 (14,674) (12,707)
before finance costs
and taxation
Interest payable (1,560) - (1,560) (1,409) - (1,409)
Return/(loss) on 430 23,075 23,505 558 (14,674) (14,116)
ordinary activities
before tax
Tax on ordinary (31) - (31) (9) - (9)
activities
Return/(loss) on 399 23,075 23,474 549 (14,674) (14,125)
ordinary activities
after tax
attributable to
equity shareholders
Dividends (466) - (466) (600) - (600)
Transfer (from)/to (67) 23,075 23,008 (51) (14,674) (14,725)
reserves
Return per ordinary
share
Basic 0.91p 52.64p 53.55p 1.39p (37.08p) (35.69p)
Diluted 0.85p 48.79p 49.64p 1.35p (36.16p) (34.81p)
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.
BALANCE SHEET (unaudited)
as at 31 August 2003
2003 2002
�'000 �'000
Fixed assets
Investments 160,678 125,652
Current assets
Debtors - amounts falling due within one year 2,060 446
Cash at bank 1,677 1,917
3,737 2,363
Creditors - amounts falling due within one year
Other creditors (3,191) (2,640)
(3,191) (2,640)
Net current assets/(liabilities) 546 (277)
Total assets less current liabilities 161,224 125,375
Creditors - amounts falling due after more than
one year
Fixed rate unsecured loans (25,000) (20,000)
Total net assets 136,224 105,375
Capital and reserves
Called up share capital 11,373 10,526
Share premium account 44,611 37,731
Capital redemption reserve 404 404
Other reserves
Warrant exercise reserve 1,742 1,586
Warrant reserve 928 970
Capital reserve - realised 62,519 69,265
Capital reserve - unrealised 13,433 (16,388)
Revenue reserve 1,214 1,281
Total equity shareholders' funds 136,224 105,375
Net asset value per ordinary share:
Basic 299.46p 250.28p
Diluted 285.93p 238.87p
CASH FLOW STATEMENT (unaudited)
for the year ended 31 August 2003
2003 2002
�'000 �'000
Operating activities
Investment income received 2,387 2,424
Underwriting commission received 9 15
Deposit interest received 57 117
Investment management fee paid (1,382) (1,412)
Directors' fees paid (61) (59)
Other cash payments (256) (334)
Net cash inflow from operating activities 754 751
Returns on investments and servicing of
finance
Interest paid (1,544) (1,376)
Net cash outflow from servicing of finance (1,544) (1,376)
Taxation
UK income tax recovered - 9
Tax recovered - 9
Financial investment
Purchase of investments (90,221) (78,730)
Exchange gains/(losses) 48 (163)
Disposals of investments 78,514 61,925
Net cash outflow from financial investment (11,659) (16,968)
Equity Dividend paid (600) (950)
Net cash outflow before financing (13,049) (18,534)
Financing
Exercise of warrants 151 816
Fixed rate 6.42% unsecured loan drawn down - 10,000
Repayment of fixed rate 5.65% unsecured - (4,000)
loan
Repayment of fixed rate 5.9704% unsecured - (6,000)
loan
Fixed rate 4.91% unsecured loan drawn down 5,000 -
Issue of ordinary shares 7,658 10,222
Net cash inflow from financing 12,809 11,038
Decrease in cash (240) (7,496)
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 31.08.02 have been extracted from the accounts for
the year ended 31.08.02 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 2003.
Copies will also be available from the Company's registered office at
Beechgate, Millfield Lane, Tadworth, Surrey KT20 6RP.
END