Final Results

FIDELITY SPECIAL VALUES PLC Preliminary Announcement of Audited Results For the year ended 31 August 2011 Chairman's Statement RESULTS FOR THE YEAR ENDED 31 AUGUST 2011 NAV: -4.1% SHARE PRICE: -5.0% BENCHMARK: +7.3% DIVIDEND: 11.25p I have pleasure in presenting the Annual Report for Fidelity Special Values PLC. PERFORMANCE This has been a difficult and disappointing year for Fidelity Special Values PLC ("FSV") with a Net Asset Value total return of -4.1% (compared to a total return of +7.3% from the FTSE All-Share Index). The poor performance has dragged the two year return into negative territory with a total return of -2.8%. The five year total return remains positive at 10.9%, 0.3% behind that of the FTSE All-Share Index total return of +11.2% for the same period. The behaviour of the UK equity market during the year ended 31 August 2011 was in many respects a repeat of last year's. The year started with markets still concerned that the initial 'V' shaped recovery following the crisis of 2008 was about to revert to a further period of recession - the much feared 'double dip'. In fact, prompted by a further round of quantitative easing in the US starting in November 2010, together with improving economic indicators, equity markets recovered sharply during the first half of the year, with the UK market 16.5% ahead by the time of the Company's Half-Yearly report at the end of February 2011. However, the second half of the year again saw much less benign market conditions, with a broadly sideways market during spring and early summer correcting sharply downwards in August, leaving the whole year ahead by 7.3%. Two significant contributors to FSV's underperformance in this period were that the portfolio was substantially underweight mining and commodity-related stocks, while retaining an overweight to UK retail banks, and in particular Lloyds and RBS. Sanjeev Shah, the Portfolio Manager, has addressed his reasoning behind these and other positive and negative contributors to performance in his Manager's Review. Given the poor recent returns the Board has reviewed whether FSV's investment philosophy and strategy is right in the current market environment. The underlying philosophy of the Board is that over time the return from equities will be better than that achieved from cash and that a well managed and active approach to investment will produce better returns than an investment in an index tracker fund. The strategy of FSV is to deliver enhanced or "special" value in two main ways. First, the investment strategy is not unduly influenced by the benchmark, and the objective is to only invest in companies that Sanjeev, with the benefit of the Fidelity research team, believes represent good value, ie a bottom up approach to investment. Second, to invest in sectors which are under-represented in the portfolios of other institutional investors and are at low relative historic valuations. This is both a contrarian and a value approach to fund management and requires an active and knowledgeable portfolio manager who makes investments by not following the crowd. We have always made clear that we will judge ­­­­­ success over the long term and that Sanjeev should not feel obligated to try to participate in shorter term trends which may be driven by fear or unrealistic optimism rather than by fundamental value. We believe that over time this will produce better returns than both cash and our benchmark index. Since the inception of FSV the NAV has increased by 593.2% on a total return basis compared to the benchmark of 207.0%. However, this approach means that in any single year performance can - and does - vary significantly from that of the market as a whole and we have seen this, both positively and negatively, over the last five individual years and, indeed, since the inception of FSV in 1994. The last five years' performance is set out in the table below. As a Board we review at each Board meeting the performance, particularly over rolling five year periods. We challenge Sanjeev and probe his positions and underlying thinking. What we are looking for is depth of knowledge, clarity of thinking, consistency of application, conviction, fearlessness in taking strong views and honesty in admitting misjudgements. Looking at the performance over the last two years, a large element of the negative contribution has been due to conviction that mining and commodity-related stocks are overvalued and that some banks are undervalued. Sanjeev has been consistent in these and other convictions and has explained his views on these areas in his Review. We continue to believe that this contrarian strategy will produce better returns in the longer term and that the strategy of FSV is valid in these markets. Year to 31 August NAV and Index total return % 2011 2010 2009 2008 2007 5 years Fidelity Special Values PLC -4.1 +1.3 +9.0 -9.8 +15.9 +10.9 FTSE All-Share Index +7.3 +10.6 -8.2 -8.7 +11.8 +11.2 Difference -11.4 -9.3 +17.2 -1.1 +4.1 -0.3 OUTLOOK Stock markets around the world remain uncertain and highly volatile and this is likely to continue whilst the US runs high public and trade deficits and Europe enters the throes of a political and banking crisis. As a counter to the bad news, despite weakness in the US and Europe, the world economy as a whole continues to show reasonable growth. In addition, major central banks are starting to ease policy and many UK companies have strong balance sheets and healthy cash flows to cover dividends. The volatility of stock markets over the last year has produced significant opportunities to invest in sectors that should suit contrarian investment. Both the Investment Manager and the Board acknowledge that this is a pivotal year in working to rebuild the good returns expected by our shareholders. There is much to be done but we have every confidence that the Investment Manager has the skills and commitment to achieve this. OTHER MATTERS Performance has clearly been the critical issue for our shareholders over the last year but there are some other matters which I need to touch on in this Annual Report. Discount The Board is very mindful of the importance of the level of discount to our shareholders and we have conducted a number of share repurchases during the year to help prevent the discount from widening further. Gearing The Board believes that using Contracts For Difference for gearing purposes continues to provide more flexibility for the Company's needs at a much lower cost than traditional bank debt. At the time of writing the gross level of gearing is somewhat below the 115% to 120% range we would consider "normal" owing to the uncertain outlook, discussed above. Dividend The Board has decided to recommend a final dividend of 11.25 pence per share for the year ended 31 August 2011, an increase of more than 7% over the 10.50 pence paid in 2010. This dividend will be payable on 19 December 2011 to shareholders on the register at close of business on 18 November 2011 (ex-dividend date 16 November 2011). Board of Directors It is my belief that the Board has the relevant skills and experience to serve the Company well in to the future. In common with our practice since 2004, all Directors are subject to annual re-election and their biographical details are included in the Annual Report to assist shareholders when considering their votes. Retail Distribution Review ("RDR") With effect from 31 December 2012, independent financial advisers will be required to offer advice to investors after considering a full range of investment options. Commission for advice will not be payable and fees will have to be agreed with the client rather than commission based payments being used. RDR should open up the opportunity to a greater number of private investors to invest in investment trusts when these have not been considered previously due in part to lack of commission, limited platform availability and less understanding within the IFA industry. The Annual General Meeting: Thursday 15 December 2011 at 11.00am The Annual General Meeting will be held at Fidelity's offices at 25 Cannon Street, London EC4M 5TA (St Paul's or Mansion House tube stations) on Thursday 15 December 2011 at 11.00am. It is the most important meeting that we, the Directors of your Company, have each year. Sanjeev will be making his annual presentation to shareholders, highlighting the achievements and challenges of the year past and the prospects for the year to come. We do urge as many of you as possible to come and join us for the occasion. Lynn Ruddick Chairman 4 November 2011 Enquiries: Chris Davies - Head of Investment Trusts, FIL Investments International - 01737 837 723 Anne Read - Corporate Communications, FIL Investments International - 0207 961 4409 Rebecca Burtonwood - Company Secretary, FIL Investment International, - 01737 836 869 FIDELITY SPECIAL VALUES PLC Income Statement for the year ended 31 August 2011 2011 2010 revenue capital total revenue capital total £'000 £'000 £'000 £'000 £'000 £'000 (Losses)/gains on investments - (17,846) (17,846) - 3,613 3,613 designated at fair value through profit or loss Losses on investments via long CFDs - (6,642) (6,642) - (5,046) (5,046) held at fair value through profit or loss Gains/(losses) on options and short - 5,147 5,147 - (173) (173) CFDs held at fair value through profit or loss Franked investment income 4,413 - 4,413 3,671 - 3,671 UK scrip dividends 5,499 - 5,499 5,531 - 5,531 Overseas dividends 178 - 178 764 - 764 Overseas scrip dividends - - - 320 - 320 Income from REIT investments 481 - 481 273 - 273 Interest received on short CFDs 41 - 41 11 - 11 Dividends received on long CFDs 727 - 727 680 - 680 Deposit interest 57 - 57 18 - 18 Underwriting commission - - - 28 - 28 Interest paid on long CFDs (452) - (452) (329) - (329) Dividends paid on short CFDs (427) - (427) (92) - (92) Expenses on futures and equity - - - (9) - (9) forwards Investment management fee (3,711) - (3,711) (3,515) - (3,515) Other expenses (562) - (562) (587) - (587) Exchange gains/(losses) on other net 1 (67) (66) (4) (117) (121) assets Net return/(loss) before finance 6,245 (19,408) (13,163) 6,760 (1,723) 5,037 costs and taxation Finance costs - - - (591) - (591) Net return/(loss) on ordinary 6,245 (19,408) (13,163) 6,169 (1,723) 4,446 activities before taxation Taxation on return on ordinary 250 - 250 (56) - (56) activities(¹) Net return/(loss) on ordinary 6,495 (19,408) (12,913) 6,113 (1,723) 4,390 activities after taxation for the year Return/(loss) per ordinary share 11.43p (34.17p) (22.74p) 10.74p (3.03p) 7.71p (¹) This relates to overseas taxation only. 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 as at 31 August 2011 2011 2010 £'000 £'000 Fixed assets Investments designated at fair value through profit or loss 301,931 323,663 Current assets Derivative assets held at fair value through profit or loss 1,553 1,995 Debtors 3,077 2,451 Amounts held at futures clearing houses and brokers 5,359 2,470 Cash at bank 7,716 11,165 17,705 18,081 Creditors - amounts falling due within one year Derivative liabilities held at fair value through profit or loss (4,881) (4,180) Other creditors (2,234) (3,781) (7,115) (7,961) Net current assets 10,590 10,120 Total net assets 312,521 333,783 Capital and reserves Share capital 14,131 14,234 Share premium account 95,767 95,767 Capital redemption reserve 2,657 2,554 Other non-distributable reserve 5,152 5,152 Capital reserve 186,987 208,765 Revenue reserve 7,827 7,311 Total equity shareholders' funds 312,521 333,783 Net asset value per ordinary share 552.85p 586.21p FIDELITY SPECIAL VALUES PLC Reconciliation of Movements in Shareholders' Funds for the year ended 31 August 2011 share share capital other capital revenue total capital premium redemption non-distributable reserve reserve equity account reserve reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 Opening shareholders' 14,234 95,767 2,554 5,152 210,488 6,323 334,518 funds: 1 September 2010 Net (loss)/return on - - - - (1,723) 6,113 4,390 ordinary activities after taxation for the year Dividend paid to - - - - - (5,125) (5,125) shareholders Closing shareholders' 14,234 95,767 2,554 5,152 208,765 7,311 333,783 funds: 31 August 2010 Repurchase of ordinary (103) - 103 - (2,370) - (2,370) shares Net (loss)/return on - - - - (19,408) 6,495 (12,913) ordinary activities after taxation for the year Dividend paid to - - - - - (5,979) (5,979) shareholders Closing shareholders' 14,131 95,767 2,657 5,152 186,987 7,827 312,521 funds: 31 August 2011 FIDELITY SPECIAL VALUES PLC Cash Flow Statement for the year ended 31 August 2011 2011 2010 £ £'000 '000 Operating activities Investment income received 4,093 4,823 Net derivative (expenses)/income (54) 236 Underwriting commission received - 28 Deposit interest received 57 17 Investment management fee paid (2,790) (3,518) Directors' fees paid (121) (122) Other cash (payments)/receipts (367) 52 Net cash inflow from operating activities 818 1,516 Servicing of finance Interest paid - (736) Net cash outflow servicing of finance - (736) Taxation Overseas taxation recovered 290 25 Taxation recovered 290 25 Financial investment Purchase of investments (197,893) (187,551) Disposal of investments 204,937 223,444 Net cash inflow from financial investment 7,044 35,893 Derivative activities Premium paid on options (810) (1,390) Premium received on options 2,134 1,111 (Payments)/proceeds of derivative instruments (1,676) 406 Movements on amounts held at futures clearing houses (2,889) (1,627) and brokers Net cash outflow from derivative activities (3,241) (1,500) Dividend paid to shareholders (5,979) (5,125) Net cash (outflow)/inflow before financing (1,068) 30,073 Financing Repurchase of ordinary shares (2,370) - Fixed rate unsecured loan repaid - (27,000) Net cash outflow from financing (2,370) (27,000) (Decrease)/increase in cash (3,438) 3,073 The above statements have been prepared on the basis of the accounting policies as set out in the annual financial statements to 31 August 2011. This preliminary statement, which has been agreed with the Auditor, was approved by the Board on 4 November 2011. It is not the Company's statutory financial statements. The statutory financial statements for the financial year ended 31 August 2010 have been delivered to the Registrar of Companies. The statutory financial statements for the financial year ended 31 August 2011 have been approved and audited but have not yet been filed. The statutory financial statements for the financial years ended 31 August 2010 and 31 August 2011 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 15 November 2011.

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