Half-yearly Report

Fidelity Special Values PLC Half-Yearly Report For the 6 months ended 28 February 2014 Contents Directors Reports Investment Objective and Financial Highlights 1 Chairman's Statement 2 Manager's Half-Yearly Review 4 Twenty Largest Investments 7 Principal Risks and Uncertainties 9 Related Party Transactions 9 Going Concern 9 Directors' Responsibility Statement 9 Financial Statements Income Statement 10 Reconciliation of Movements in Shareholders' Funds 12 Balance Sheet 14 Cash Flow Statement 15 Notes to the Financial Statements 16 Information for Shareholders Shareholder Information 20 Warning to Shareholders 22 Glossary of Terms 23 Investment Objective and Financial Highlights The investment objective of the Company is to achieve long term capital growth from an actively managed portfolio of special situation investments, consisting primarily of securities listed or traded on the London Stock Exchange. 28 February 31 August 2014 2013 Assets Shareholders' funds £538.9m £478.5m Net Asset Value ("NAV") per share 995.60p 883.93p Number of ordinary shares of 25 pence each 54,128,896 54,128,896 Share price and discount data Share price at period end 962.00p 840.00p Share price period high1 964.00p 848.00p Share price period low1 825.00p 523.00p Discount at period end2 3.0% 3.1% Discount period high1,2 5.3% 15.0% Discount period low1,2 1.5% 3.1% Total returns (includes reinvested income) for the 2014 2013 six months to end February NAV per share +14.6% +22.3% Share price +16.6% +29.5% FTSE All-Share Index3 +8.8% +14.2% 1 For the six month period to 28 February 2014 and for the year to 31 August 2013 2 Discount is stated on an ex-income basis 3 The Company's Benchmark Index Sources: Fidelity and Datastream Past performance is not a guide to future returns Chairman's Statement RESULTS FOR THE SIX MONTHS TO 28 FEBRUARY 2014 NAV PER SHARE: +14.6% SHARE PRICE: +16.6% BENCHMARK INDEX: +8.8% (All figures on a total return basis which includes reinvested income) We are pleased to report that the performance of our Company over the last six months has continued to produce net asset value ("NAV") appreciation and deliver strong returns from stock picking. Over the last year or so, we have reaped the rewards of the contrarian positions that the Company took in a difficult market environment when investors had become very negative on the prospects for a recovery in the UK economy. Positions in retailers, homebuilders and secondary property stocks have all helped the Company to keep ahead of the Benchmark Index during the reporting period. Many of these stocks have risen substantially and the Company has reduced its positions in the portfolio, as their share prices reflect a good deal of optimism regarding future performance. After a strong performance in 2013, the UK equity market seems to have taken a pause for breath as it waits for corporate earnings to justify the somewhat extended valuations in some companies. In other areas, valuations do not reflect such positive expectations, and it is these areas that the Portfolio Manager, Alex Wright, is finding most attractive. He discusses this subject in more detail in his investment commentary later in the report. Total 1 year 3 years 5 years Since return (%) launch NAV per share +35.8 +63.9 +190.4 +1,223.3 Share price +46.9 +76.9 +208.1 +1,213.0 FTSE All-Share Index +13.3 +31.2 +126.2 +337.5 The attribution analysis of the Company's NAV per share return for the six months to 28 February 2014 is detailed in the table below. Attribution Analysis pence NAV as at 31 August 2013 883.93 Impact of Index (Ungeared) +88.35 Impact of Portfolio Management1 +55.62 Impact of other derivatives2 -10.67 Operational Costs -5.17 Cash/Residual +1.15 NAV (total return) 1,013.21 Dividend paid -16.25 Impact of reinvestment of dividend paid -1.36 NAV as at 28 February 2014 995.60 1 Equities purchased via cash or long CFDs 2 Futures and short CFDs GEARING The Company continues to use derivatives for gearing purposes and the Board believe that this provides more flexibility for the Company's requirements and currently at a much lower cost than traditional bank debt. As at 28 February 2014, the level of net gearing was 10.3%. TREASURY SHARES AND SHARE REPURCHASES At the Annual General Meeting on 12 December 2013, Shareholders approved the use of Treasury shares by the Company. Ordinary shares repurchased by the Company will either be held in Treasury (up to a maximum of 10% of the issued ordinary share capital of the Company) or cancelled. During the six months to 28 February 2014, no ordinary shares were repurchased for holding in Treasury or cancellation. ALTERNATIVE INVESTMENT FUND MANAGER DIRECTIVE ("AIFMD") This is a European Directive affecting many investment funds, including the Company, which are managed or promoted within the European Union. You may recall from the Annual Report for the year ended 31 August 2013 that the Board is required to appoint an Alternative Investment Fund Manager ("AIFM") and has decided in principle to appoint a Fidelity group company. In practice, portfolio management will continue to be delegated to FIL Investments International (our current Manager). An additional requirement of the AIFMD is to appoint a depositary on behalf of the Company to oversee the custody and cash arrangements of the Company. To this end the Board have agreed in principle to appoint J.P. Morgan Europe Limited to act as the Company's depositary. J.P. Morgan Europe Limited is part of the same group of companies as JPMorgan Chase Bank who act as the Company's current banker and custodian and will continue to do so. OUTLOOK In keeping with the Company's contrarian heritage, Alex views the extended valuations we are now seeing in many areas with a degree of caution. Whilst we are undoubtedly pleased with the performance generated under Alex's tenure over the last 18 months, the Board is cognisant of the fact that in a market characterised by extended periods of excessive optimism and high expectations for the future, the Company's performance may not be as strong as it has been. Having sounded a cautious note, it is also appropriate to say that looking at the current portfolio, it is still possible to see good value in absolute terms, whether it is in defensive giants such as Shell and HSBC, or reliable mid-caps such as fuel distributor DCC, or the smaller cap McColls, the recently floated convenience store operator. Lynn Ruddick Chairman 23 April 2014 Manager's Half-Yearly Review The performance of the Company over the six month period has been very encouraging, delivering a net asset value ("NAV") return of 14.6% compared to 8.8% for the Benchmark Index (both figures on a total return basis). This report explains the reasons for the strong performance over the review period. Stock Market & Portfolio Review The UK stock market recorded positive returns over the six months, rising by 8.8%. The period was marked by further improvements in the UK economy, driven by a strengthening housing market, improving consumer confidence and stabilising employment trends. The UK GDP expanded 0.7% in the fourth quarter of 2013, and 1.9% over the whole of 2013, the best annual rate of economic expansion since 2007. Inflation also remained under control, with the annual inflation rate, as measured by the Consumer Price Index falling below the Bank of England's 2.0% target in January 2014, for the first time in more than four years. Policy announcements from global central banks, particularly speculation about the US Federal Reserve's ("Fed") monetary tapering, remained in focus. But there were some concerns that the Fed's plans to reduce its monthly bond purchases, albeit moderately, could slow down the recovery. Nevertheless, strong economic data releases helped to assuage most of these worries and the Fed's decision in December to start tapering its asset purchases was seen as a sign of faith in the strength of the US economy. In tandem with this notable improvement in economic performance, the last 12 months have seen market leadership change dramatically. Domestic UK stocks, which were almost universally unloved a couple of years ago, have performed strongly over the period. This trend led to an increasing focus on medium and small sized companies that are expected to benefit from a recovery in the domestic economy, and reflected in their outperformance over larger companies by a considerable margin. This has provided a favourable platform for the performance of Special Values, which had taken positions in these stocks when they were firmly out of favour. The Company's NAV rose during the period, and outperformed the Benchmark Index. Many of our high conviction positions in medium sized companies showed particular strength, including wealth management firm Brewin Dolphin, whose shares were supported by an increase in the company's funds under management and progress in its internal cost-cutting programme. Other key contributors included Irish support services firm DCC, which reported a strong increase in half yearly revenues, with consolidation of the fuel distribution sector providing opportunities for low risk and earnings' enhancing deals for the company. The healthcare company NMC Health, which has a strong presence in Dubai, also added value as the Dubai government made healthcare insurance mandatory for all residents and visitors. Expectations are that the reform will lead to increased demand from higher utilisation of healthcare services by those who were previously uninsured. Both of these companies remain key positions in the Company and show potential for further contribution to performance. Meanwhile, as the UK housing market improved, house builder Redrow made good progress, buoyed by the increased availability of first time buyer mortgages. Many of the housebuilders and UK-consumer stocks now have relatively high expectations expressed by their share prices, so I am less confident on the outlook for performance in some of these companies. However, some key portfolio holdings fell due to stock specific reasons. Notable among these were baby product retailer Mothercare which was hurt by a profit warning owing to Christmas price discounting and weak trading conditions. The holding in international games retailer Games Workshop also fell after it announced a drop in first half year profits, although I am confident about the long-term growth potential of both these companies. I remain cautious about staples stocks with emerging markets exposure, which have not yet de-rated, despite a worsening outlook for emerging markets. This results in a continuing underweight position to consumer staples, and materials, where I am still wary of significant uncertainty in the supply/ demand dynamic that drives the sector. The Company continued to make use of derivative instruments to manage risk and gear the portfolio. Outlook Looking at the market today, I think it is appropriate to strike a note of caution over average valuations while noting that attractive opportunities still exist across different company size and industry categories. Value investors today have to work a little harder to find their next idea, and in this environment, the support I receive from our analysts is vital. The more companies we can meet and analyse, the higher the chances of finding the next stock that is going to drive performance for the Company over the rest of 2014 and beyond. Headline valuations of the FTSE 250 and Small Cap indices are at small premiums to historical averages, meaning that expectations are now relatively high in many stocks. By contrast, many of the largest stocks in the FTSE 100 are very cheap compared to their own histories and cash generating ability. I am holding a number of positions in these very large stocks, including Shell, HSBC and Sanofi, where I see significant potential for latent shareholder value to be unlocked. In the meantime, I can count on a healthy dividend yield to support the share price. Elsewhere in the market, I continue to see attractive returns available in a number of defensive mid caps which can reinvest in their businesses in a relatively low risk way whilst simultaneously paying a generous dividend to shareholders. Companies like DCC, UDG Healthcare and McColls fall into this category and constitute a significant proportion of the portfolio. Otherwise, a number of riskier stocks with high exposure to the UK consumer recovery still look interesting, although many of the better quality companies in this area now look fully valued. Following very strong performances in the equity market over the last couple of years, I think another bumper year in 2014 is unlikely. Additionally, a value investor will naturally underperform on a relative basis if the market prefers fashionable `jam tomorrow' stocks. On the other hand, aside from a style headwind, low macroeconomic volatility tends to work in favour of stockpickers, as the market focuses on company fundamentals. In summary, I would say that my outlook for the rest of 2014 is fairly balanced. I certainly see good value and latent performance in the Special Values portfolio today. Alex Wright Portfolio Manager 23 April 2014 Twenty Largest Investments as at 28 February 2014 Investments including derivatives Exposure1 Fair value2 Exposure £'000 £'000 % Brewin Dolphin 28,082 28,082 4.7 Financial Services Royal Dutch Shell 26,823 26.823 4.5 Oil & Gas Producers UDG Healthcare 26,821 7,622 4.5 Food & Drug Retailers DCC 25,351 10,467 4.3 Support Services Sanofi 24,927 3,214 4.2 Pharmaceuticals & Biotechnology Lloyds Banking Group 22,571 7,066 3.8 Banks SSE 22,475 274 3.8 Electricity Electronic Arts 18,730 18,730 3.2 Leisure Goods HSBC 16,683 16,683 2.8 Banks Carnival 16,090 16,090 2.7 Travel & Leisure Resolution 15,256 4,006 2.6 Life Insurance ICAP 14,889 14,889 2.5 Financial Services WPP 14,412 14,412 2.4 Media Barclays 14,255 14,255 2.4 Banks CLS Holdings 14,101 14,101 2.4 Real Estate Investment & Services Speedy Hire 13,145 13,145 2.2 Support Services GlaxoSmithKline 12,989 12,989 2.2 Pharmaceuticals & Biotechnology Smurfit Cappa 12,246 1,655 2.1 General Industrials Ladbrokes 11,625 11,625 1.9 Travel & Leisure TDC 10,983 2,187 1.8 Fixed Line Telecommunications Twenty Largest Investments including 362,454 238.315 61.0 derivatives Other Investments including 232,068 292,753 39.0 derivatives3 Total Investments including derivatives 594,522 531,068 100.0 1 The value of the portfolio exposed to market price movements. It is made up of the fixed asset investments at fair value, plus the fair value of the underlying securities within the long CFDs, less the fair value of the underlying securities within the short CFDs and less the value offset by the short FTSE 250 Index future hedge 2 The fair value of £531,068,000 is recognised in the Balance Sheet on page 14 and is made up of: - Fixed asset investments of £491,092,000 plus derivative assets of £45,325,000 less derivative liabilities of £5,349,000 3 The derivatives include a short FTSE 250 Index future hedge with a negative exposure value of £40,626,000 and a negative fair value of £3,422,000 Interim Management Report The Company is required to make the following disclosures in its Half-Yearly Report: PRINCIPAL RISKS AND UNCERTAINTIES The Board believes that the principal risks and uncertainties faced by the Company continue to fall into two broad categories. The first, external risks comprising of market, share price and discount risks and the second, internal risks comprising of investment management and governance, operational, financial, compliance, administration etc. Information on each of these risks is given in the Business Review section of the Annual Report for the year ended 31 August 2013. RELATED PARTY TRANSACTIONS There have been no related party transactions during the six months to 28 February 2014, and therefore there is nothing to report on any material effect by such a transaction on the financial position or the performance of the Company. GOING CONCERN The Board receives regular reports from the Manager and the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements as outlined in the Annual Report for the year ended 31 August 2013. DIRECTORS' RESPONSIBILITY STATEMENT The Directors confirm to the best of their knowledge that: a) the condensed set of financial statements contained within the Half-Yearly Financial Report has been prepared in accordance with the UK Accounting Standards Board's Statement `Half-Yearly Financial Reports'; and gives a true and fair view of the assets, liabilities, financial position and net return of the Company as required by the UK Listing Authority Disclosure and Transparency Rules ("DTR") 4.2.4R; and b) the Interim Management Report (which incorporates the Chairman's Statement and the Manager's Half-Yearly Review on pages 3 to 6) includes a fair review of the information required by DTR Rules 4.2.7R and 4.2.8R. The Half-Yearly Financial Report has not been audited or reviewed by the Company's Independent Auditor. The Half-Yearly Financial Report was approved by the Board on 23 April 2014 and the above responsibility statement was signed on its behalf by Lynn Ruddick, Chairman. Income Statement six year six months ended months ended 31 ended 28 August 28 February 2013 February 2014 audited 2013 unaudited unaudited revenue capital total revenue capital total revenue capital total Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains on - 52,275 52,275 - 120,875 120,875 - 68,488 68,488 investments Gains on - 21,117 21,117 - 25,387 25,387 - 9,190 9,190 long CFDs Losses on - (5,778) (5,778) - (6,740) (6,740) - (5,749) (5,749) short CFDs, futures and options 2 Net income 4,783 - 4,783 14,187 - 14,187 4,669 - 4,669 Investment (2,581) - (2,581) (4,269) - (4,269) (1,964) - (1,964) management fee Other (326) - (326) (635) - (635) (294) - (294) expenses Exchange - (244) (244) - 19 19 - (191) (191) (losses)/ gains on other net assets ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net return 1,876 67,370 69,246 9,283 139,541 148,824 2,411 71,738 74,149 on ordinary activities before taxation 3 Taxation on (4) - (4) (44) - (44) (29) - (29) return on ordinary activities ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net return 1,872 67,370 69,242 9,239 139,541 148,780 2,382 71,738 74,120 on ordinary activities after taxation for the period ========== ========== ========== ========== ========== ========== ========== ========== ========== 4 Return per 3.46p 124.46p 127.92p 17.02p 257.01p 274.03p 4.38p 131.93p 136.31p 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. The total column of this Income Statement is the profit and loss account of the Company. All items in this Income Statement derive from continuing operations. No operations were acquired or discontinued in the period. These financial statements have been prepared in accordance with the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") issued in January 2009. Reconciliation of Movements in Shareholders' Funds Notes share share capital other capital revenue total capital premium redemption non- reserve reserve equity £'000 account reserve distributable £'000 £'000 £'000 £'000 £'000 reserve £'000 Opening 13,594 95,767 3,194 5,152 212,058 8,859 338,624 Shareholders' funds: 1 September 2012 Repurchase of (12) - 12 - (329) - (329) ordinary shares Net return on - - - - 71,738 2,382 74,120 ordinary activities after taxation for the period 5 Dividend paid - - - - - (7,069) (7,069) to Shareholders ---------- ---------- ---------- ---------- ---------- ---------- ---------- Closing 13,582 95,767 3,206 5,152 283,467 4,172 405,346 Shareholders' funds: 28 February 2013 ========== ========== ========== ========== ========== ========== ========== Opening 13,594 95,767 3,194 5,152 212,058 8,859 338,624 Shareholders' funds: 1 September 2012 Repurchase of (62) - 62 - (1,875) - (1,875) ordinary shares Net return on - - - - 139,541 9,239 148,780 ordinary activities after taxation for the year 5 Dividend paid - - - - - (7,069) (7,069) to Shareholders ---------- ---------- ---------- ---------- ---------- ---------- ---------- Closing 13,532 95,767 3,256 5,152 349,724 11,029 478,460 Shareholders' funds: 31 August 2013 Net return on - - - - 67,370 1,872 69,242 ordinary activities after taxation for the period 5 Dividend paid - - - - - (8,796) (8,796) to Shareholders ---------- ---------- ---------- ---------- ---------- ---------- ---------- Closing 13,532 95,767 3,256 5,152 417,094 4,105 538,906 Shareholders' funds: 28 February 2014 ========== ========== ========== ========== ========== ========== ========== Balance Sheet Company number 2972628 28.02.14 31.08.13 28.02.13 unaudited audited unaudited Notes £'000 £'000 £'000 Fixed assets Investments 491,092 424,387 392,934 ---------- ---------- ---------- Current assets Derivative assets 45,325 31,333 14,188 Debtors 4,353 2,515 2,117 Amounts held at futures 4,307 - 5,950 clearing houses and brokers Cash at bank 7,253 25,715 4,580 ---------- ---------- ---------- 61,238 59,563 26,835 ---------- ---------- ---------- Creditors Derivative liabilities (5,349) (1,864) (7,094) Other creditors (8,075) (3,626) (7,329) ---------- ---------- ---------- (13,424) (5,490) (14,423) ---------- ---------- ---------- Net current assets 47,814 54,073 12,412 ---------- ---------- ---------- Total net assets 538,906 478,460 405,346 ========== ========== ========== Capital and reserves 6 Share capital 13,532 13,532 13,582 Share premium account 95,767 95,767 95,767 Capital redemption reserve 3,256 3,256 3,206 Other non-distributable 5,152 5,152 5,152 reserve Capital reserve 417,094 349,724 283,467 Revenue reserve 4,105 11,029 4,172 ---------- ---------- ---------- Total equity Shareholders' 538,906 478,460 405,346 funds ========== ========== ========== 7 Net asset value per 995.60p 883.93p 746.10p ordinary share ========== ========== ========== Cash Flow Statement six year six months ended months ended 31.08.13 ended 28.02.14 28.02.13 unaudited audited unaudited £'000 £'000 £'000 Operating activities Investment income received 2,975 10,335 4,071 Net derivative income 537 1,596 147 Deposit interest received 12 22 29 Investment management fee paid (2,492) (4,064) (1,865) Directors' fees paid (69) (137) (66) Other cash payments (273) (617) (274) ---------- ---------- ---------- Net cash inflow from operating 690 7,135 2,042 activities ---------- ---------- ---------- Taxation Overseas taxation recovered - 27 1 ---------- ---------- ---------- Taxation recovered - 27 1 ---------- ---------- ---------- Financial investments Purchase of investments (149,637) (369,725) (251,439) Disposal of investments 139,000 400,121 263,168 ---------- ---------- ---------- Net cash (outflow)/inflow from (10,637) 30,396 11,729 financial investments ---------- ---------- ---------- Derivative activities Receipts/(payments) on CFDs 5,243 (7,778) (4,928) Payments on futures (411) (4,415) - Movements on amounts held at (4,307) 1,236 (4,714) futures clearing houses and brokers ---------- ---------- ---------- Net cash inflow/(outflow) from 525 (10,957) (9,642) derivative activities ---------- ---------- ---------- Dividend paid to Shareholders (8,796) (7,069) (7,069) ---------- ---------- ---------- Net cash (outflow)/inflow before (18,218) 19,532 (2,939) financing ---------- ---------- ---------- Financing Repurchase of ordinary shares - (2,287) (741) ---------- ---------- ---------- Net cash outflow from financing - (2,287) (741) ---------- ---------- ---------- (Decrease)/increase in cash (18,218) 17,245 (3,680) ========== ========== ========== Reconciliation of net cash movements to movements in net funds Net funds at the beginning of the 25,715 8,451 8,451 period ---------- ---------- ---------- (Decrease)/increase in cash (18,218) 17,245 (3,680) Foreign exchange movements (244) 19 (191) ---------- ---------- ---------- Change in net funds (18,462) 17,264 (3,871) ---------- ---------- ---------- Net funds at the end of the period* 7,253 25,715 4,580 ========== ========== ========== *Net funds consist entirely of cash at bank Notes to the Financial Statements 1 ACCOUNTING POLICIES The half-yearly financial statements have been prepared on the basis of the accounting policies set out in the Company's annual report and financial statements for the year ended 31 August 2013. 28.02.14 31.08.13 28.02.13 unaudited audited unaudited £'000 £'000 £'000 2 INCOME Income from investments UK dividends 2,885 9,454 3,317 UK scrip dividends 366 737 503 Overseas dividends 226 1,049 475 Overseas scrip dividends 639 1,194 151 ---------- ---------- ---------- 4,116 12,434 4,446 Income from derivative instruments Dividends received on long CFDs 1,726 3,209 687 Interest received on short CFDs 25 43 15 ---------- ---------- ---------- 5,867 15,686 5,148 Other income Deposit interest 10 24 28 ---------- ---------- ---------- Total income 5,877 15,710 5,176 ---------- ---------- ---------- Expenses of derivative instruments Interest paid on long CFDs (649) (789) (314) Dividends paid on short CFDs (445) (734) (193) ---------- ---------- ---------- (1,094) (1,523) (507) ---------- ---------- ---------- Net income 4,783 14,187 4,669 ========== ========== ========== 28.02.14 31.08.13 28.02.13 unaudited audited unaudited £'000 £'000 £'000 3 TAXATION ON RETURN ON ORDINARY ACTIVITIES Analysis of the taxation charge for the period Overseas taxation recovered - (41) (28) Overseas taxation charged 4 85 57 ---------- ---------- ---------- 4 44 29 ========== ========== ========== 4 RETURN PER ORDINARY SHARE The return per ordinary share is based on the net return on ordinary activities after taxation for the period divided by the weighted average number of ordinary shares in issue during the period. 28.02.14 31.08.13 28.02.13 unaudited audited unaudited £'000 £'000 £'000 Net revenue return on ordinary 1,872 9,239 2,382 activities after taxation Net capital return on ordinary 67,370 139,541 71,738 activities after taxation ---------- ---------- ---------- Net total return on ordinary 69,242 148,780 74,120 activities after taxation ========== ========== ========== Weighted average number of 54,128,896 54,294,786 54,374,752 ordinary shares in issue during the period ========== ========== ========== 28.02.14 31.08.13 28.02.13 unaudited audited unaudited pence pence pence Revenue return per ordinary share 3.46 17.02 4.38 Capital return per ordinary share 124.46 257.01 131.93 ---------- ---------- ---------- Total return per ordinary share 127.92 274.03 136.31 ========== ========== ========== 5 DIVIDENDS No dividend has been declared in respect of the current period. The dividend payment of £8,796,000 shown in the Reconciliation of Movements in Shareholders' Funds for the half-year ended 28 February 2014, is the final dividend of 16.25 pence per ordinary share paid for the year ended 31 August 2013, which was paid on 16 December 2013. The dividend payment of £7,069,000 shown in the Reconciliation of Movements in Shareholders' Funds for the half-year ended 28 February 2013 and for the year ended 31 August 2013, is the final dividend of 13.00 pence per ordinary share paid for the year ended 31 August 2012, which was paid on 17 December 2012. 6 SHARE CAPITAL 28.02.14 31.08.13 28.02.13 unaudited audited unaudited shares shares shares Issued, allotted and fully paid: Ordinary shares of 25 pence each Beginning of the period 54,128,896 54,378,896 54,378,896 Ordinary shares repurchased and - (250,000) (50,000) cancelled ---------- ---------- ---------- End of the period 54,128,896 54,128,896 54,328,896 ========== ========== ========== 28.02.14 31.08.13 28.02.13 unaudited audited unaudited £'000 £'000 £'000 Issued, allotted and fully paid: Ordinary shares of 25 pence each Beginning of the period 13,532 13,594 13,594 Ordinary shares repurchased and - (62) (12) cancelled ---------- ---------- ---------- End of the period 13,532 13,532 13,582 ========== ========== ========== 7 NET ASSET VALUE PER ORDINARY SHARE The net asset value per ordinary share is based on net assets of £538,906,000 (31.08.13: £478,460,000; 28.02.13: £405,346,000) and on 54,128,896 (31.08.13: 54,128,896; 28.02.13: 54,328,896) ordinary shares, being the number of ordinary shares in issue at the period end. 8 INVESTMENT TRANSACTION COSTS Transaction costs are incurred on the acquisition and disposal of investments. These are included in gains on investments in the capital column of the Income Statement and are summarised below: 28.02.14 31.08.13 28.02.13 unaudited audited unaudited £'000 £'000 £'000 Purchases 712 2,009 1,279 Sales 187 446 270 ---------- ---------- ---------- 899 2,455 1,549 ========== ========== ========== 9 UNAUDITED FINANCIAL STATEMENTS The results for the six months to 28 February 2014 and 28 February 2013, which are unaudited, constitute non-statutory accounts within the meaning of Section 435 of the Companies Act 2006. The figures and financial information for the year ended 31 August 2013 are extracted from the latest published financial statements. These financial statements, on which the Independent Auditor gave an unqualified report, have been delivered to the Registrar of Companies. Shareholder Information CONTACT INFORMATION Private Investors: call free on: 0800 41 41 10, 9am to 6pm, Monday to Saturday. Financial advisers: call free on: 0800 41 41 81, 8am to 6pm, Monday to Friday. www.fidelity.co.uk/its Existing shareholders who have a specific query regarding their holding or need to provide updated information, for example a change of address, should contact the appropriate administrator. Holders of ordinary shares Capita Asset Services, Registrars to Fidelity Special Values PLC, 40 Dukes Place, London EC3A 7NH. Telephone: 0871 664 0300 (calls cost 10p per minute plus network extras. Lines are open from 8.30am to 5.30pm, Monday to Friday). Email: shareholderenquiries@capita.co.uk. Details of individual shareholdings and other information can also be obtained from the Registrars' website: www.capitaassetservices.com Fidelity Share Plan investors Fidelity Investment Trust Share Plan, PO Box 24035, 12 Blenheim Palace, Edinburgh EH7 9DD. Telephone: 0845 358 1107 (calls to this number are charged at 3.95p per minute from a BT landline. Other telephone providers' costs may vary). Fidelity ISA investors Fidelity, using the freephone numbers given opposite, or by writing to: UK Customer Service, Fidelity Worldwide Investment, Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge, Kent TN11 9DZ. www.fidelity.co.uk/its General enquiries should be made to Fidelity, the Investment Manager and Secretary, at the Company's registered office: FIL Investments International, Investment Trusts, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP. Telephone: 01732 36 11 44 Fax: 01737 83 68 92 www.fidelity.co.uk/its Fidelity Special Values PLC - Newsletter The Company's first Newsletter can be found on the Company's pages of the Manager's website (www.fidelity.co.uk/its). FINANCIAL CALENDAR 2014 28 February - Half-Yearly period end April - Announcement of Half-Yearly results May - Publication of Half-Yearly Report July - Interim Management Statement (as at 31 May 2014) 31 August - Financial year end November - Publication of Annual Report December - Annual General Meeting BOARD, MANAGER AND ADVISORS BOARD OF DIRECTORS Lynn Ruddick (Chairman) Ben Thomson (Senior Independent Director) Sharon Brown (Chairman of the Audit Committee) Andy Irvine Douglas Kinloch Anderson Nicky McCabe MANAGER, SECRETARY AND REGISTERED OFFICE FIL Investments International Beech Gate Millfield Lane Lower Kingswood Tadworth Surrey KT20 6RP INDEPENDENT AUDITOR Grant Thornton UK LLP Chartered Accountants and Registered Auditor 30 Finsbury Square London EC2P 2YU LAWYERS Dickson Minto W.S. Broadgate Tower 20 Primrose Street London EC2A 2EW BANKERS AND CUSTODIAN JPMorgan Chase Bank (London Branch) 125 London Wall London EC2Y 5AJ FINANCIAL ADVISERS AND STOCKBROKERS Cenkos Securities plc 6,7,8 Tokenhouse Yard London EC2R 7AS REGISTRARS Capita Asset Services 40 Dukes Place London EC3A 7NH Warning to Shareholders SHARE FRAUD WARNING Share fraud includes scams where investors are called out of the blue and offered shares that often turn out to be worthless or non-existent, or an inflated price for shares they own. These calls come from fraudsters operating in `boiler rooms' that are mostly based abroad. While high profits are promised, those who buy or sell shares in this way usually lose their money. The Financial Conduct Authority ("FCA") has found most share fraud victims are experienced investors who lose an average of £20,000, with around £200m lost in the UK each year. PROTECT YOURSELF If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports, you should take these steps before handing over any money: 1. Get the name of the person and organisation contacting you. 2. Check the FCA Register at www.fca.org.uk/register to ensure they are authorised. 3. Use the details on the FCA Register to contact the firm. 4. Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date. 5. Search the FCA's website for a list of unauthorised firms and individuals to avoid doing business with. 6. REMEMBER: if it sounds too good to be true, it probably is! If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong. REPORT A SCAM If you are approached about a share scam you should tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out about the latest investment scams. You can also call the Consumer Helpline on 0845 606 1234. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040 Glossary of Terms BENCHMARK INDEX FTSE All-Share Index against which the performance of the Company is measured. CONTRACT FOR DIFFERENCE (CFD) A Contract For Difference is a derivative. It is a contract between the Company and an investment house at the end of which the parties exchange the difference between the opening price and the closing price of the underlying asset of the specified financial instrument. It does not involve the Company buying or selling the underlying asset, only agreeing to receive or pay the movement in its share price. A Contract For Difference allows the Company to gain access to the movement in the share price by depositing a small amount of cash known as margin. The Company may reason that the asset price will rise, by buying ("long" position) or fall, by selling ("short" position). If the Company trades long, dividends are received and interest is paid. If the Company trades short, dividends are paid and interest is received. DERIVATIVES Financial instruments (such as futures, options and Contracts For Difference) whose value is derived from the value of an underlying asset. DISCOUNT If the share price of the Company is lower than the net asset value per share, the Company is said to be trading at a discount. The discount is shown as a percentage of the net asset value. The opposite of a discount is a premium. EXPOSURE The value of the portfolio exposed to market price movements. It is made up of the fixed asset investments at fair value, plus the fair value of the underlying securities within the long Contracts For Difference, less the fair value of the underlying securities within the short Contracts For Difference and less the value offset by the short FTSE 250 Index future hedge. FAIR VALUE The fair value is the best estimate of the value of the investments, including derivatives, at a point in time and this is measured as: • Listed and AIM quoted investments valued at bid prices, or last market prices, where available otherwise at published price quotations; • Unlisted investments valued using an appropriate valuation technique in the absence of an active market; • Futures and options valued at the quoted trade price for the contract; and • Contracts For Difference valued as the difference between the settlement price and the value of the underlying shares in the contract (unrealised gains or losses). FUTURE OR FUTURE CONTRACT An agreement to buy or sell a stated amount of an asset at a specific future date and at a pre-agreed price. GEARING Gearing describes the level of the Company's exposure and is expressed as a percentage of shareholders' funds. It reflects the amount of exposure the Company uses to invest in the market. It can be obtained through the use of bank loans, bank overdrafts or derivatives, in order to increase the Company's exposure to investments. The Company uses two key measures of gearing: • Gross gearing is the total of all long exposures, plus the total of all short exposures and less the total of all exposures hedging the portfolio, expressed as a percentage of Shareholders' funds; and • Net gearing is the total of all long exposures, less the total of all short exposures and less the total of all exposures hedging the portfolio, expressed as a percentage of Shareholders' funds. GEARING RATIO In a simple example, if the Company has £100 million of net assets and £8 million of borrowings (either via bank loans or long Contracts For Difference) then the Shareholders' funds are 8% geared. Normally, the higher the gearing ratio, the more sensitive the Company's shares will be to the movements up and down in the value of the investment portfolio. HEDGING A strategy aimed at minimising or eliminating the risk or loss through adverse price movements, normally involving taking a position in a derivative such as a future or an option. NET ASSET VALUE (NAV) Net asset value is sometimes also described as "Shareholders' funds", and represents the total value of the Company's assets less the total value of its liabilities. For valuation purposes it is common to express the net asset value on a per share basis. OPTIONS An option is a contract which gives the right but not the obligation to buy or sell an underlying asset at a specific price on or before a specific date. Options (call or put) are used to gain or reduce exposure to the underlying asset on a conditional basis, for example, the purchase of a call option provides exposure to the upside potential of an underlying stock, with the downside risk being limited to the premium paid. PREMIUM If the share price of the Company is higher than the net asset value per share, the Company is said to be trading at a premium. The premium is shown as a percentage of the net asset value. The opposite of a premium is a discount. RETURN The return generated in a given period from the investments: • Revenue Return reflects the dividends and interest from investments and other income net of expenses, finance costs and taxation; • Capital Return reflects the return on capital, excluding any revenue returns; and • Total Return reflects the aggregate of revenue and capital returns. SHAREHOLDERS' FUNDS Shareholders' funds are also described as "net asset value" and represent the total value of the Company's assets less the total value of its liabilities. TOTAL RETURN PERFORMANCE The return on the share price or net asset value per share taking into account the rise and fall of share prices and the dividends paid to Shareholders. Any dividends received by the Shareholder are assumed to have been reinvested in additional shares (for share price total return) or the Company's assets (for net asset value total return). TREASURY SHARES Ordinary shares of the Company that have been repurchased by the Company and not cancelled but held in Treasury. These shares do not pay dividends, have no voting rights and are excluded from the net asset value calculation. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and symbol are trademarks of FIL Limited Printed on FSC® certified paper. 100% of the inks used are vegetable oil based 95% of press chemicals are recycled for further use and on average 99% of any waste associated with this production will be recycled. The FSC® logo identifies products which contain wood from well-managed forests certified in accordance with the rules of the Forest Stewardship Council®. This document is printed on Cocoon Silk; a paper made using 50% recycled fibre from genuine waste paper and 50% virgin fibre. The unavoidable carbon emissions generated during the manufacture and delivery of this document, have been reduced to net zero through a verified, carbon offsetting project.

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