TIDMFCSS
FIDELITY CHINA SPECIAL SITUATIONS PLC
Half-Yearly results for the six months ended 30 September 2021 (unaudited)
Financial Highlights:
* The net asset value ("NAV") of the Company decreased by -16.9% for the six
months ended 30 September 2021. The Benchmark Index decreased by -14.4%.
* The discount widened from 1.1% at the start of the reporting period to
9.2%, due to a share price total return of -23.7%.
* Recent regulatory events should be viewed as part of an overarching aim to
foster sustainable growth, boost social equality and ensure a balanced
economic model.
* History teaches us that these are usually the periods that offer the most
attractive opportunities. Corporate earnings for the market are forecast to
grow over 15% for the next twelve months, with the Company's portfolio
comfortably above this level.
Contacts
For further information, please contact:
Natalia de Sousa
Company Secretary
01737 837846
FIL Investments International
Portfolio Manager's Half-Yearly Review
THE PERIOD UNDER REVIEW - SOME COMMENTARY ON KEY EVENTS
Well-publicised concerns over increasing regulation were a major factor in the
Chinese markets' decline during the reporting period. However, the current
regulatory 'cycle' really began in the fourth quarter of 2020 when Ant
Financial unexpectedly cancelled its initial public offering (IPO). This was
followed by a series of anti-trust related measures in the internet sector,
including Alibaba paying a hefty fine of US$2.8 billion. The next area of focus
was on data and national security, culminating in a cybersecurity investigation
into Didi (which is still ongoing) and the suspension of new downloads of its
app. Outside the internet space, we saw policies focused on areas associated
with 'common prosperity', which affected the property, healthcare and education
industries - also dubbed China's 'Three Mountains'. The after-school tutoring
sector was most severely impacted with many businesses unable to survive the
restrictions imposed on certain core exam subjects and services.
Against this backdrop, the Company's NAV declined 16.9% in UK sterling terms,
while the MSCI China Index (the Benchmark Index) was down by 14.4% in the
six-month reporting period to 30 September 2021. The Company's share price fell
by 23.7% over the same period, reflecting a widening of the discount to NAV.
In trying to understand and analyse the government's actions, I believe it is
important to recognise some key points. First, the 'hand' of the government,
coupled with regulatory direction and implementation, is core to the investment
landscape in any market. This is particularly true in China. Therefore, one
needs to be aware of trends and the general direction of policy. We have
clearly had periods of tightening in the past, for example, government-imposed
restrictions around online gaming in 2018. In terms of future policy direction,
it is important to be cognisant of the long-term goals laid out in policy
documents like the Five-Year Plan when assessing how the regulatory landscape
could change and impact an industry's growth profile.
Second, many of these crackdowns are addressing problems that confront
countries globally. Big tech and related challenges around anti-trust and data
security are examples, as are the challenges around income inequality. While in
many cases we can trace the path of regulation, unlike in most other countries,
Beijing's implementation can be swift, which often roils markets.
The property sector has been under the spotlight of both policymakers and
investors for some time. Reining in property speculation is a crucial aspect of
President Xi's vision of a more equal society - think back to 2017 when he
commented that houses are 'for living in, not for speculation'. In this current
period of scrutiny, it is worth remembering the second half of 2020 when there
was a significant recovery in property sales in response to easy monetary
policy being rolled out to stave off an economic slowdown amidst the COVID-19
pandemic. After the strong rebound, new measures were announced to control
property developers. Of note, the 'three red lines policy' was imposed to limit
developers' leverage, with regulation targeting banks to control their overall
exposure to the property sector; and at the start of 2021, a centralised land
supply policy was implemented with the aim of controlling and lowering land
costs.
At the time of writing, the market remains nervous about the property segment
as no concrete plans have been announced by the authorities to assist with the
potential defaults of struggling developers - with Evergrande the leading
example of the sector's woes (the portfolio does not have any exposure to this
company). While it is likely that we will see some developers default, I feel
that the systemic risk remains low. Although comparisons to the situation in
the US around the financial crisis of 2008 can be drawn, they are very
different given the nature of the companies involved and the general control
Beijing has over the economy. In terms of Evergrande itself, it remains an
evolving situation. My base case is a government led restructuring, with a
focus on project completion and asset disposals to meet social obligations.
Broadly speaking, while I do not expect President Xi's drive towards a
healthier, less speculative property sector to be reversed anytime soon, one
should not be surprised to see some policy fine tuning in the near-term as both
property and land sales continue to slow down. All things considered; it is
reasonable to expect some level of policy normalisation in the form of faster
mortgage release in the not too distant future. More importantly, on the back
of a period of tightening, there is significant scope to loosen policy.
The slowdown in the property sector combined with weaker than expected credit
growth and the negative impact from the power shortage situation, have had a
detrimental effect on the wider economy with annualised gross domestic product
growth of only 4.9% in the third quarter of 2021. It should be noted that
economists and market commentators are broadly anticipating growth of around 8%
overall for the year as China's economy recovers from the effects of the
pandemic. Consequently, I believe there is good potential for greater monetary
and fiscal stimulus measures towards the end of this year.
PERFORMANCE AND PORTFOLIO REVIEW
Regulatory concerns weighed on technology-related shares over the period,
particularly in sectors such as communication services in the Company's
portfolio. Significant exposure in this sector was a key factor in the
Company's underperformance over the review period. In particular, the holding
in the Chinese short-video application company Kuaishou Technology detracted
from performance in light of negative regulatory news flow along with increased
competitive pressures which have resulted in higher-than-expected promotional
costs. Regulatory changes are also expected to impact its advertising network
business as data sharing with external parties becomes more difficult. However,
its short-video platform is still among the most popular social media companies
in China, ranking third in terms of total time spent online following Tencent's
Weixin and ByteDance's Douyin (both owned in the portfolio). It is also one of
the few internet companies that has robust growth in users. Also, in the same
sector, an exposure to Autohome, the largest auto internet platform in China,
detracted from returns. The slowdown in car sales, with chip shortages being a
major factor, have impacted promotional spend in the sector. However, I remain
positive given its value proposition to OEMs (original equipment manufacturers)
and dealers remains intact and would benefit from a recovery in car sales as
supply chain pressures alleviate.
21Vianet Group is one of the largest carrier-neutral internet data centre
("IDC") operators in China. However, its share price performance suffered with
concerns over growing competition in the IDC market and news of a large
shareholder announcing the sale of its stake. The latter is a short-term
overhang, and I remain positive on the mid-term outlook for the stock. IDC
demand is a structural growth story in China driven by factors such as
increasing usage of internet via mobile devices on the consumer side and
increasing demand for cloud and IT services on the enterprise side. Competitive
intensity is rising on the wholesale side of the business - mostly serving the
large internet companies - but this is now factored into forecasts and well
understood in the market. The company's management has been executing and
delivering on its ambitious growth plans and earnings have either been in-line
with or exceeded expectations.
The portfolio's materials exposure also proved unrewarding over the period. A
holding in Asia Cuanon Technology, a leading paint producer, underperformed as
rising input costs negatively impacted margins. On the positive side, this
company is pushing through price hikes and industry dynamics remain unchanged.
I believe that the long-term story around industry consolidation is in place,
and the company will continue to gain market share in this highly fragmented
industry.
In terms of positive contributors, an overweight position in the healthcare
space, coupled with an underweight real estate exposure, benefited the
Company's performance.
Within healthcare, an overweight position in WuXi AppTec Group supported
returns. Policy-wise, as one of the 'Three Mountains', investors appeared
overly cautious regarding potential regulatory changes in the healthcare
sector. While I believe that we need to be concerned over pricing pressures in
the generic drug sector, the continued emphasis from the government on
developing the innovative drug sector remains very much intact. WuXi is a key
facilitator in this area, especially as more Chinese companies increase their
global market share and also license their products to global players.
Furthermore, I believe the prospects for China establishing itself as a global
hub for innovation in drug development will gain traction. WuXi AppTec's
management is very focused on its key strengths in talent attraction and
retention. Long-term revenue/ earnings visibility remains compelling, with over
30% compound annual growth rate ("CAGR") likely over the next three years.
Similarly, Bio-pharmaceutical company Hutchison China MediTech also added value
over the six-month reporting period as it made progress on what continues to be
an exciting development pipeline. The company is also building out its
commercial platform in China with strong sales growth recently announced in its
interim results. The announcement of an in-licensing deal with Epizyme also
looks to be a positive step towards the company leveraging its growing domestic
sales operation.
Meanwhile, in the consumer discretionary sector, an overweight exposure to Xtep
International proved rewarding. Chinese sportswear brands benefit from the
secular tailwind of growing disposable income and rising awareness and interest
in sports and healthy lifestyles. With the sector growing at low-to-mid teens
CAGR and policymakers' focus on increased sporting and exercising activities,
top local brands (as well as top foreign labels) are outgrowing the industry.
Whilst the long-term structural growth story regarding Chinese sports brands
remains attractive, given where valuations reached during summer, I took profit
and sold out of the holding.
Within industrials, the Company's exposure to CIMC Enric, a manufacturer of gas
equipment and liquid tanks with leading technology was positive. It has a
product mix and strategy well aligned with China's environmental goals. Clean
energy equipment is leveraged to the increase in gas consumption, as its
proportion in China's primary energy mix grows, particularly with a higher
proportion of LNG (liquified natural gas). Hydrogen-related equipment has
long-term option value. The company's joint venture with Hexagon of Norway in
advanced hydrogen engines as well as its first-mover advantage in hydrogen
energy products (including hydrogen cylinder, container, compressors, which
incidentally also share some commonalities from its existing gas business)
allow CIMC Enric to tap into the tremendous long-term demand in the green
hydrogen market, although the current earnings contribution remains limited.
THE CONTINUED FOCUS ON ESG AND SUSTAINABILITY
The evaluation of environmental, social and governance ("ESG") factors is a
core part of Fidelity's investment process and I continue to see progress
regarding the level of engagement and transparency with Chinese companies. In
particular, much has improved in areas such as board diversity and the
environment. Sustainability factors are key topics of conversation with
corporates and many management teams are looking at ways to generate a more
sustainable outcome for their companies.
ESG market scores, such as Morningstar's Sustainability Atlas, report that
China continues to lag most other major markets. Despite this, we are
encouraged by the fast rates of improvement we are seeing with China's
regulatory commission engaging with companies to improve the disclosure of ESG
metrics to align themselves more with the standards in Hong Kong - Hong Kong
ranks fourth in Morningstar's Sustainability Atlas and is the most sustainable
non-European market (the US ranks 13th out of 48 countries, while the UK is
15th).
Not only is this a good outcome globally, but I also believe better ESG
practices are a key source of performance for the portfolio over the
longer-term. In the past, I have referred to Fidelity's proprietary ESG ratings
system whereby its internal analysts assign ESG ratings to investee companies.
For me, these ratings are far more 'up to date' than those of mainstream
ratings agencies and also better reflect the result of our direct engagement
with the companies that we invest in. Furthermore, I am pleased to highlight
that the scores of the companies in the portfolio are well ahead of the
Benchmark Index and continue to improve.
An ESG example in the portfolio is Beijing Oriental Yuhong Waterproof
Technology, a leading player in the waterproofing industry, which is a key
element in building construction. This company is extremely well managed, and
scores well across our key ESG metrics. It has a strong environmental
discipline, delivers high quality products, has good labour management, and
maintains strong interest alignment with a significant proportion of staff
being shareholders. By some measures, buildings are responsible for over 40% of
global emissions, and thus, building technology can be a major factor in
controlling and reducing emissions. It is also a major supplier of insulation -
a key area for potential reduction.
CURRENT POSITIONING
As discussed in the Annual Report for the year ended 31 March 2021, one of the
bigger shifts in the portfolio has been a reduction in holdings in the consumer
discretionary sector, mostly because of valuation levels, and an increase in
holdings in materials and industrials. The thesis around industry consolidation
in areas like building materials remains very much in place. However, I have
trimmed some positions given rising concerns over the residential property
slowdown and potential knock-on effects to the industry from the troubled
developers in the market.
In the financial space, I remain positive on the outlook for life insurance on
rising penetration over the mid-term. Near-term fundamentals generally remain
tepid, but I believe this is more than factored into what remain very
attractive valuations. Whilst I remain underweight the banking sector, I have
built a position in the Postal Savings Bank of China, which I believe is
undervalued given its strong, growing position in retail banking and wealth
management helping to drive superior returns relative to the sector. We are
encouraged by the clear focus of the new management team, including a strong
emphasis on growing its green financing.
After the significant recent correction in technology related names, I feel
that the risk/ reward payoff is now tipping much more in our favour in these
companies. While there is still risk of new regulation, as we think about what
could come next, there is a good chance that we are near or close to a "peak"
in terms of negative news flow. As discussed earlier, the government has
ambitious long-term goals in areas of economic development and innovation.
Clearly these will be difficult to achieve without a vibrant private sector. At
the same time, valuations for many companies have moved to historical lows and
look even more compelling when we compare them to global peers.
As is often the case with broad-based corrections, some stocks with lesser
regulatory risk have also been sold off, presenting opportunities.
Interestingly, this includes some smaller companies that could actually benefit
since most of the new regulation focuses on larger companies. As I have added
to some long positions, and closed some of the short positions, net gearing for
the portfolio has increased and, at the time of writing, was around 23%.
Also contributing to the higher leverage is the addition of three new unlisted
holdings. Tuhu Car is the number one brand for independent auto aftermarket
product and services in China. It greatly improves efficiency through an
Online-to-Offline model by combining its outstanding online platform to offline
branded franchisees. Cutia Therapeutics is an emerging leader in the
dermatology and medical aesthetics space in China, an area of great growth
potential. Beijing Beisen is a first-class HRM (human resource management)
software company. It is the clear leader and should continue to take market
share from its competitors due to its superior cloud and integrated solutions
for talent management. Despite the market correction, I still feel positive
about the outlook for the unlisted portion of the portfolio and the progress
being made in the respective businesses. I am pleased with and appreciative of
shareholders approval of the proposal at the AGM in July 2021 to raise the
limit on unlisted stocks to 15% of Net Assets plus Borrowings, given the
flexibility that this provides to capitalise on potential new opportunities. As
at 30 September 2021, the level of investment in unlisted securities was 11.3%.
The unlisted investments in the portfolio contributed 1.7% to the Company's NAV
return during the six month reporting period.
Looking forward, it is important to be focused on the risks in China and to
follow regulatory developments closely. In addition, developments in the
property sector will be keenly monitored as this has been a significant driver
of both economic growth and of local government finances, and a major component
of the health of the consumer balance sheet. Clearly, we are at a turning point
for the sector - lower levels of activity are a given, but any significant
correction in prices could clearly impact the consumers' mindset. Higher taxes,
including property taxes, are other possibilities that will need to be
considered. Having said this, and as mentioned earlier in my report, when
coming out of a period of tightening there is significant scope for Beijing to
adjust its policies.
It has been a volatile period, but we have seen times like this before, and
most likely will see them again. While the combination of the risks I have
outlined above is negatively impacting sentiment towards China currently,
history teaches us that these are usually the periods that offer the most
attractive opportunities. Corporate earnings for the market are forecast to
grow over 15% for the next twelve months, with the Company's portfolio
comfortably above this level. Meanwhile, the market overall is trading on a
price earnings multiple that is attractive relative to history and relative to
other stock markets globally. On the ground in the region, Fidelity continues
to place key emphasis on growing and developing its research team to help
identify and analyse the best investment opportunities - both in the listed and
unlisted areas of the market. Furthermore, as we engage with companies, we note
that even those in the regulatory cross hairs generally remain positive and
resilient as they navigate the changing environment.
Details of the Company's Top 5 Holdings can be found below and include my
theses for investing in these positions.
I have always disclosed in the Annual Report that I am a shareholder in the
Company and in line with recommendations around disclosing one's "skin in the
game", I can confirm that I currently own 96,742 shares.
DALE NICHOLLS
Portfolio Manager
29 November 2021
SPOTLIGHT ON THE TOP 5 HOLDINGS AS AT 30 SEPTEMBER 2021
The top five holdings comprise 28.9% of the Company's Net Assets.
Industry Information Tencent Holdings
Technology % of Net Assets 10.7%
The Portfolio Manager remains positive on the Company's
holding in Tencent given its strong position in running the
dominant social network in China and the attendant benefits
of powerful network effects. As China's internet user growth
slows down, Tencent has carefully nurtured and enriched its
user experience, and its enviable user base distinguishes it
from global peers. Tencent recently consolidated its leading
position in internet gaming by mediating a merger between
Chinese game broadcasting platforms Huya and DouYu, thereby
securing a controlling stake in the new company after the
completion of the merger. The recent sell-off has brought
valuations to attractive levels.
Industry Consumer Alibaba Group Holding
Discretionary % of Net Assets 8.5%
Alibaba holds a leading position in the e-commerce market.
The company has built a comprehensive ecosystem that has
superior breadth and depth and is the foundation of the
highly sticky merchants and consumers base, which ultimately
supports its pricing power. Furthermore, the company built an
environment of continuous innovation which has enabled it to
expand and increase its addressable market. The pandemic has
accelerated the trend towards digitalisation, which is a
long-term driver of Alibaba's growth in the e-commerce
business. Its cloud business is also likely to continue its
strong growth trajectory, as more corporates use its
infrastructure to become digital ready. We also saw
anti-trust regulation in the technology space, which resulted
in a fine for Alibaba. The extent of the fine was largely as
expected and Alibaba fully intends to comply and look at ways
to further strengthen the customer value creation and
experience and introduce new measures to lower entry barriers
and costs of operations on its platform. Valuations are now
very attractive, particularly compared with global peers.
Industry Information WuXi AppTec Group
Technology % of Net Assets 4.7%
The company is a long-term beneficiary from increasing
pharmaceutical and biotech contract research and
manufacturing ("CDMO/CMO") demand globally. China's CDMO/CMO
business has significant investment potential, driven by a
structural shift from generic to innovative drugs in the
country's pharmaceutical market. WuXi has established a
talent pool with strong technical skills which has helped to
drive a loyal client base. Looking ahead, there is exciting
potential upside from new technology developments, such as
its cell/gene therapy business.
Industry Financials Noah Holdings
% of Net Assets 2.6%
The company is a leading independent wealth management
service provider in China offering comprehensive one-stop
advisory services. It offers a long runway for growth and is
well positioned in China's booming wealth management and
private banking industry. The business is transitioning from
selling high credit risk/implicit guarantee products to
standard/equity-oriented products. Broadening interest in
mutual fund markets supports the transition, as will any
shift in household assets away from the property market.
Industry Information 21Vianet Group
Technology % of Net Assets 2.4%
The company is one of the largest carrier-neutral internet
data centre ("IDC") operators in China. IDC demand is a
structural growth story in China driven by factors such as
the increasing usage of internet via mobile devices on the
consumer side and the increasing demand for cloud and IT
services on the enterprise side. While building upon its
traditional retail market, 21Vianet has kickstarted its
wholesale business from 2019, and this dual engine strategy
should put it in a strong position in the coming years. The
stock was derated recently on competitive and regulatory
concerns which appear to be overstated.
TWENTY LARGEST HOLDINGS AS AT 30 SEPTEMBER 2021
The Asset Exposures shown below measure the exposure of the Company's portfolio
to market price movements in the shares, equity linked notes and convertible
bonds owned or in the shares underlying the derivative instruments. The Fair
Value is the value the portfolio could be sold for and is the value shown on
the Balance Sheet. Where a contract for difference ("CFD") is held, the fair
value reflects the profit or loss on the contract since it was opened and is
based on how much the share price of the underlying shares has moved.
Fair
Asset Exposure Value
£'000
£'000 %1
Long Exposures - shares unless otherwise stated
Tencent Holdings (shares and long CFDs)
Internet, mobile and telecommunications service provider 191,546 10.7 102,984
Alibaba Group Holding (shares and long CFDs)
e-commerce group 153,022 8.5 84,339
WuXi AppTec Group (long CFDs)
Pharmaceutical, biopharmaceutical and medical device 84,967 4.7 3,381
outsourcing provider
Noah Holdings
Asset managers 47,410 2.6 47,410
21Vianet Group
Internet and data center service provider 42,114 2.4 42,114
Hutchison China MediTech
Pharmaceutical and healthcare group 41,079 2.3 41,079
China Pacific Insurance Group (long CFDs)
Insurance company 35,969 2.0 439
Beijing Oriental Yuhong Waterproof Technology (shares and
equity linked notes)
Waterproof system provider 35,030 2.0 35,030
SKSHU Paint Company
Paint manufacturing company 34,620 1.9 34,620
Pony.ai (unlisted)
Developer of artificial intelligence and autonomous driving 32,596 1.8 32,596
technology solutions
Zhejiang Dahua Technology
Provider of video surveillance products and services 28,711 1.6 28,711
China Life Insurance (shares and long CFDs)
Insurance company 28,220 1.6 2,086
HollySys Automation Technologies
Provider of automation control system solutions 27,994 1.6 27,994
DJI International Company (unlisted)
Manufacturer of drones 27,971 1.6 27,971
Full Truck Alliance (ADS and unlisted)
Provider of specialised freight trucking services 27,785 1.6 27,785
Trip.com Group (long CFD)
Travel services provider 27,690 1.5 1,157
China Lesso Group Holdings (long CFD)
Manufacturer of building materials and interior decoration 27,278 1.5 (6,666)
products
Chime Biologics Convertible Bond (unlisted)
Contract Development and Manufacturing Organization (CDMO) 26,284 1.5 26,284
Venturous Holdings (unlisted)
Investment company 25,986 1.4 25,986
Crystal International Group
Clothing manufacturer 25,851 1.4 25,851
--------------- --------------- ---------------
Twenty largest long exposures 972,123 54.2 611,151
Other long exposures 1,433,369 80.0 1,152,631
--------------- --------------- ---------------
Total long exposures before hedges (155 holdings) 2,405,492 134.2 1,763,782
========= ========= =========
Less: hedging exposure
Hang Seng Index (future) (104,350) (5.8) (620)
Hang Seng China Enterprises Index (future) (65,488) (3.7) (1,086)
--------------- --------------- ---------------
Total hedging exposures (169,838) (9.5) (1,706)
========= ========= =========
Total long exposures after the netting of hedges 2,235,654 124.7 1,762,076
========= ========= =========
Add: short exposures
Short CFDs (6 holdings) 50,751 2.8 2,648
Put options (3 holdings) 615 - 94
--------------- ---------------
Gross Asset Exposure2 2,287,020 127.5
========= =========
Portfolio Fair Value3 1,764,818
Net current assets (excluding derivative instruments) less 28,409
non-current liabilities
---------------
Net Assets 1,793,227
=========
1 Asset Exposure is expressed as a percentage of Net Assets.
2 Gross Asset Exposure comprises market exposure to investments of £
1,775,879,000 plus market exposure to derivative instruments of £511,141,000.
3 Portfolio Fair Value comprises Investments of £1,775,879,000 plus
derivative assets of £15,652,000 less derivative liabilities of £26,713,000
(per the Balance Sheet below).
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT
UNLISTED COMPANIES
The Company is permitted to invest up to 15% of its Net Assets plus borrowings
in unlisted companies. The unlisted space in China continues to expand quite
markedly and offers excellent opportunities for patient and long-term
investors.
Since the year end, the Company has invested in three unlisted companies which
are Beijing Beisen, Tuhu Car and Cutia Therapeutics. As at 30 September 2021,
the Company had 11.3% of Net Assets plus borrowings in twelve unlisted
investments (31 March 2021: 7.4% of Net Assets plus borrowings in nine unlisted
investments).
GEARING
The Company has a three-year unsecured fixed rate facility agreement with
Scotiabank Europe PLC for US$100,000,000. The interest rate is fixed at 2.606%
per annum until the facility terminates on 14 February 2023.
To achieve further gearing, the Company uses contracts for difference ("CFDs")
on a number of holdings in its portfolio.
At 30 September 2021, the Company's Gross Gearing, defined as the Gross Asset
Exposure in excess of Net Assets, was 27.5% (31 March 2021: 26.2%). The level
of Gross Gearing is determined by the Manager within the limit set by the Board
of 30%. Net Gearing, which nets off short positions, was 21.9% (31 March 2021:
18.4%).
DISCOUNT MANAGEMENT
The Board believes that investors are best served when the Company's share
price trades close to its net asset value. The Board recognises that the share
price is affected by the interaction of supply and demand in the market based
on investor sentiment towards China and the performance of the NAV per share.
The Board has a discount control policy in place whereby it seeks to maintain
the discount in single digits in normal market conditions. Subject to market
conditions, it will authorise the repurchase of shares with the objective of
stabilising the share price discount within a single digit range.
The Company's discount widened from 1.1% at the start of the reporting period
to 9.2% at the end of the reporting period. In September 2021, the Board
authorised the repurchase of 440,000 ordinary shares into Treasury in an effort
to control the discount. Prior to that, the Company had not carried out any
share repurchases since September 2020. These share repurchases have benefited
remaining shareholders as the NAV per share has been increased by purchasing
shares at a discount. Since the end of the reporting period and as at the date
of this report, the Company has repurchased a further 576,229 ordinary shares
into Treasury. No shares have been repurchased for cancellation.
ONGOING CHARGE
The Ongoing Charge (the costs of running the Company) for the six months ended
30 September 2021 was 0.92% (31 March 2021: 0.97%). The variable element of the
management fee was a charge of 0.20% (31 March 2021: 0.12%). Therefore, the
Ongoing Charge including the variable element for the reporting period was
1.12% (31 March 2021: 1.09%).
MANAGEMENT FEES
With effect from 1 April 2021, the Board agreed a reduced management fee with
the Manager, FIL Investment Services (UK) Limited. The revised fee structure is
on a tiered basis of 0.90% on the first £1.5 billion of net assets, reducing to
0.70% on net assets over £1.5 billion. The variable element of +/- 0.20% from
the previous fee structure remains unchanged. At the same time, the fixed
annual fee of £100,000 for services other than portfolio management has been
removed. The revised fee will provide savings on the overall percentage costs
for shareholders assuming net assets remained constant.
BOARD OF DIRECTORS
Having served on the Board as a non-executive Director since 1 November 2011
and as a Senior Independent Director since 22 July 2016, Elisabeth Scott
stepped down from the Board at the conclusion of the Annual General Meeting
("AGM") on 20 July 2021. She was succeeded as a non-executive Director by
Alastair Bruce who was appointed to the Board on 1 July 2021 and as Senior
Independent Director by Linda Yueh from 20 July 2021.
As part of the Board's succession plan, Nicholas Bull will retire as Chairman
at the AGM in July 2022. Following a formal process, it was decided by the
Board that Mike Balfour will succeed him as Chairman at the conclusion of the
AGM. Mr Bruce will succeed Mr Balfour as Chairman of the Audit and Risk
Committee at the conclusion of the same AGM.
PRINCIPAL AND EMERGING RISKS
The Board, with the assistance of the Manager (FIL Investments Services (UK)
Limited), has developed a risk matrix which, as part of the risk management and
internal controls process, identifies the key existing and emerging risks and
uncertainties faced by the Company.
The Board considers that the principal risks and uncertainties faced by the
Company fall into the following categories: market, economic and geopolitical;
investment performance; pandemic; gearing; discount control; key person;
environmental, social and governance ("ESG"); and cybercrime risks. Other risks
facing the Company include tax and regulatory and operational (third party
service providers) risks. Information on each of these risks is given in the
Strategic Report section of the Annual Report for the year ended 31 March 2021
which can be found on the Company's pages of the Manager's website at
www.fidelity.co.uk/china.
These principal risks and uncertainties have not materially changed during the
six months to 30 September 2021 and are equally applicable to the remaining six
months of the Company's financial year.
Risks from emerging new variants of COVID-19 continue, including the
availability of suitable vaccines to tackle the new variants. Investors should
be prepared for market fluctuations and remember that holding shares in the
Company should be considered to be a long-term investment. These risks are
somewhat mitigated by the investment trust structure of the Company which means
that no forced sales need to take place to deal with any redemptions.
Therefore, investments in the Company's portfolio can be held over a longer
time horizon.
The Manager carries on reviewing its business continuity plans and its
operational resilience strategies on an ongoing basis. It continues to take all
reasonable steps in meeting its regulatory obligations and to assess
operational risks, the ability to continue operating and the steps it needs to
take to serve and support its clients, including the Board. The Manager has
appropriate business continuity plans in place and the provision of services
continued to be supplied without interruption during the pandemic and continues
to do so.
Investment team key activities, including those of portfolio managers, analysts
and trading/ support functions, have continued to perform well despite the
operational challenges posed when working from home or when split team
arrangements were in place.
The Company's other third party service providers have also implemented similar
measures to ensure that business disruption is kept to a minimum.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
The Manager has delegated the Company's investment management to FIL Investment
Management (Hong Kong) Limited and has delegated the role of company secretary
to FIL Investments International. Transactions with the Manager and related
party transactions with the Directors are disclosed in Note 15 to the Financial
Statements below.
GOING CONCERN STATEMENT
The Directors have considered the Company's investment objective, risk
management policies, liquidity risk, credit risk, capital management policies
and procedures, the nature of its portfolio and its expenditure and cash flow
projections. They have considered the liquidity of the Company's portfolio of
investments (being mainly securities which are readily realisable), the
projected income and expenditure and the loan facility agreement. The Directors
are satisfied that the Company is financially sound and has sufficient
resources to meet all of its liabilities and ongoing expenses and can continue
in operational existence for a period of at least twelve months from the date
of this Half-Yearly Report. Accordingly, they continue to adopt the going
concern basis in preparing these Financial Statements.
This conclusion also takes into account the Board's assessment of the ongoing
risks from COVID-19 and evolving variants as set out above.
By order of the Board.
FIL INVESTMENTS INTERNATIONAL
29 November 2021
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
a) the condensed set of Financial Statements contained within this
Half-Yearly Report has been prepared in accordance with the International
Accounting Standards 34: Interim Financial Reporting; and
b) the Portfolio Manager's Half-Yearly Review and the Interim Management
Report above, include a fair review of the information required by DTR 4.2.7R
and 4.2.8R.
The Half-Yearly Report has not been audited or reviewed by the Company's
Independent Auditor.
The Half-Yearly Report was approved by the Board on 29 November 2021 and the
above responsibility statement was signed on its behalf by Nicholas Bull,
Chairman.
INCOME STATEMENT FOR THE SIX MONTHSED 30 SEPTEMBER 2021
Six months ended 30 September 2021 Year ended 31 March 2021 Six months ended 30 September 2020
unaudited audited unaudited
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Investment income 4 26,069 - 26,069 21,012 - 21,012 17,614 - 17,614
Derivative income 4 10,815 - 10,815 11,689 - 11,689 10,967 - 10,967
Other income 4 15 - 15 80 - 80 70 - 70
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income 36,899 - 36,899 32,781 - 32,781 28,651 - 28,651
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
(Losses)/gains on - (323,838) (323,838) - 725,388 725,388 - 441,177 441,177
investments at fair value
through profit or loss
(Losses)/gains on - (59,921) (59,921) - 266,752 266,752 - 166,289 166,289
derivative instruments
Foreign exchange gains/ - 1,316 1,316 - (12,401) (12,401) - (4,397) (4,397)
(losses) on other net
assets
Foreign exchange (losses)/ - (1,771) (1,771) - 7,825 7,825 - 2,879 2,879
gains on bank loans
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income and (losses)/ 36,899 (384,214) (347,315) 32,781 987,564 1,020,345 28,651 605,948 634,599
gains
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Expenses
Investment management fees 5 (2,179) (8,600) (10,779) (4,119) (14,472) (18,591) (1,776) (5,337) (7,113)
Other expenses (732) (12) (744) (1,260) (108) (1,368) (594) - (594)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) before 33,988 (392,826) (358,838) 27,402 972,984 1,000,386 26,281 600,611 626,892
finance costs and taxation
Finance costs 6 (1,067) (3,202) (4,269) (2,253) (6,758) (9,011) (1,334) (4,001) (5,335)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) before 32,921 (396,028) (363,107) 25,149 966,226 991,375 24,947 596,610 621,557
taxation
Taxation 7 (1,579) 448 (1,131) (760) - (760) (1,164) 459 (705)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) after 31,342 (395,580) (364,238) 24,389 966,226 990,615 23,783 597,069 620,852
taxation for the period
========= ========= ========= ========= ========= ========= ========= ========= =========
Earnings/(loss) per 8 6.08p (76.74p) (70.66p) 4.70p 186.11p 190.81p 4.55p 114.20p 118.75p
ordinary share
========= ========= ========= ========= ========= ========= ========= ========= =========
The Company does not have any income or expenses that are not included in the
profit/(loss) after taxation for the period. Accordingly, the profit/(loss)
after taxation for the period is also the total comprehensive income for the
period and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the
Company. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
All the profit/(loss) and total comprehensive income is attributable to the
equity shareholders of the Company. There are no minority interests.
No operations were acquired or discontinued in the period and all items in the
above statement derive from continuing operations.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHSED 30 SEPTEMBER 2021
Share Capital
Share premium redemption Other Capital Revenue Total
capital account reserve reserve reserve reserve equity
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000
Six months ended 30 September 2021
(unaudited)
Total equity at 31 March 2021 5,710 211,569 917 248,491 1,676,791 39,499 2,182,977
Repurchase of ordinary shares 13 - - - (1,388) - - (1,388)
(Loss)/profit after taxation for the - - - - (395,580) 31,342 (364,238)
period
Dividend paid to shareholders 9 - - - - - (24,124) (24,124)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total equity at 30 September 2021 5,710 211,569 917 247,103 1,281,211 46,717 1,793,227
========= ========= ========= ========= ========= ========= =========
Year ended 31 March 2021 (audited)
Total equity at 31 March 2020 5,713 211,569 914 307,049 710,565 37,237 1,273,047
Repurchase of ordinary shares 13 - - - (58,558) - - (58,558)
Cancellation of ordinary shares from 13 (3) - 3 - - - -
Treasury
Profit after taxation for the year - - - - 966,226 24,389 990,615
Dividend paid to shareholders 9 - - - - - (22,127) (22,127)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total equity at 31 March 2021 5,710 211,569 917 248,491 1,676,791 39,499 2,182,977
========= ========= ========= ========= ========= ========= =========
Six months ended 30 September 2020
(unaudited)
Total equity at 31 March 2020 5,713 211,569 914 307,049 710,565 37,237 1,273,047
Repurchase of ordinary shares 13 - - - (58,558) - - (58,558)
Profit after taxation for the period - - - - 597,069 23,783 620,852
Dividend paid to shareholders 9 - - - - - (22,160) (22,160)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total equity at 30 September 2020 5,713 211,569 914 248,491 1,307,634 38,860 1,813,181
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET AS AT 30 SEPTEMBER 2021
Company number 7133583
30.09.21 31.03.21 30.09.20
unaudited audited unaudited
Notes £'000 £'000 £'000
Non-current assets
Investments at fair value through profit or loss 10 1,775,879 2,167,275 1,721,038
--------------- --------------- ---------------
Current assets
Derivative instruments 10 15,652 33,296 177,028
Amounts held at futures clearing houses and brokers 27,431 19,872 37,736
Other receivables 11 32,428 22,749 5,787
Cash at bank 53,778 66,404 6,320
--------------- --------------- ---------------
129,289 142,321 226,871
--------------- --------------- ---------------
Current liabilities
Derivative instruments 10 (26,713) (22,208) (50,724)
Other payables 12 (10,983) (31,937) (6,584)
--------------- --------------- ---------------
(37,696) (54,145) (57,308)
--------------- --------------- ---------------
Net current assets 91,593 88,176 169,563
========= ========= =========
Total assets less current liabilities 1,867,472 2,255,451 1,890,601
========= ========= =========
Non-current liabilities
Bank loan (74,245) (72,474) (77,420)
--------------- --------------- ---------------
Net assets 1,793,227 2,182,977 1,813,181
--------------- --------------- ---------------
Equity attributable to equity shareholders
Share capital 13 5,710 5,710 5,713
Share premium account 211,569 211,569 211,569
Capital redemption reserve 917 917 914
Other reserve 247,103 248,491 248,491
Capital reserve 1,281,211 1,676,791 1,307,634
Revenue reserve 46,717 39,499 38,860
--------------- --------------- ---------------
Total equity 1,793,227 2,182,977 1,813,181
========= ========= =========
Net asset value per ordinary share 14 348.18p 423.50p 351.76p
========= ========= =========
CASH FLOW STATEMENT FOR THE SIX MONTHSED 30 SEPTEMBER 2021
Six months Six months
ended Year ended ended
30 September 31 March 30 September
2021 2021 2020
unaudited audited unaudited
£'000 £'000 £'000
Operating activities
Cash inflow from investment income 22,289 20,241 14,444
Cash inflow from derivative income 9,511 11,794 11,079
Cash inflow from other income 15 80 70
Cash outflow from Directors' fees (91) (201) (120)
Cash outflow from other payments (11,729) (18,580) (6,855)
Cash outflow from the purchase of investments (443,154) (1,159,050) (529,431)
Cash outflow from the purchase of derivatives (701) (23,789) -
Cash outflow from the settlement of derivatives (282,358) (258,808) (27,290)
Cash inflow from the sale of investments 509,023 998,888 532,218
Cash inflow from the settlement of derivatives 219,747 539,536 62,383
Cash (outflow)/inflow from amounts held at futures clearing (7,559) 19,623 1,759
houses and brokers
--------------- --------------- ---------------
Net cash inflow from operating activities before servicing of 14,984 129,734 58,257
finance
========= ========= =========
Financing activities
Cash outflow from collateral, overdraft and loan interest (979) (2,140) (1,122)
paid
Cash outflow from CFD interest paid (1,320) (5,924) (3,758)
Cash outflow from short CFD dividends paid (1,716) (703) (465)
Cash outflow from the repurchase of ordinary shares (787) (58,558) (58,558)
Cash outflow from dividends paid to shareholders (24,124) (22,127) (22,160)
--------------- --------------- ---------------
Cash outflow from financing activities (28,926) (89,452) (86,063)
--------------- --------------- ---------------
(Decrease)/increase in cash at bank (13,942) 40,282 (27,806)
Cash at bank at the start of the period 66,404 38,523 38,523
Effect of foreign exchange movements 1,316 (12,401) (4,397)
--------------- --------------- ---------------
Cash at bank at the end of the period 53,778 66,404 6,320
========= ========= =========
NOTES TO THE FINANCIAL STATEMENTS
1 PRINCIPAL ACTIVITY
Fidelity China Special Situations PLC is an Investment Company incorporated in
England and Wales with a premium listing on the London Stock Exchange. The
Company's registration number is 7133583, and its registered office is Beech
Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company
has been approved by HM Revenue & Customs as an Investment Trust under Section
1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as
to continue to be approved.
2 PUBLICATION OF NON-STATUTORY ACCOUNTS
The Financial Statements in this Half-Yearly Report have not been audited or
reviewed by the Company's Independent Auditor and do not constitute statutory
accounts as defined in section 434 of the Companies Act 2006 (the "Act"). The
financial information for the year ended 31 March 2021 is extracted from the
latest published Financial Statements of the Company. Those Financial
Statements were delivered to the Registrar of Companies and included the
Independent Auditor's Report which was unqualified and did not contain a
statement under either section 498(2) or 498(3) of the Act.
3 ACCOUNTING POLICIES
(i) Basis of Preparation
On 31 December 2020, International Financial Reporting Standards as adopted by
the European Union at that date were brought into UK law and became UK-adopted
international accounting standards, with future changes being subject to
endorsement by the UK Endorsement Board. There was no impact or changes to the
accounting policies from the transition.
These Half-Yearly Financial Statements have been prepared in accordance with
UK-adopted International Accounting Standard 34: Interim Financial Reporting
and use the same accounting policies as set out in the Company's Annual Report
and Financial Statements for the year ended 31 March 2021. Those Financial
Statements were prepared in accordance with International Accounting Standards
("IAS") in conformity with the requirements of the Companies Act 2006, IFRC
interpretations and, as far as it is consistent with IAS, the Statement of
Recommended Practice: Financial Statements of Investment Trust Companies and
Venture Capital Trusts ("SORP") issued by the Association of Investment
Companies ("AIC") in October 2019.
The AIC updated the SORP in April 2021. The Directors have sought to prepare
these financial statements in accordance with this SORP where the
recommendations are consistent with IAS.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for a period of at least twelve
months from the date of approval of these Financial Statements. Accordingly,
the Directors consider it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements. This conclusion also takes
into account the Board's assessment of the continuing risks arising from
COVID-19 and evolving variants.
4 INCOME
Six months Six months
ended Year ended ended
30.09.21 31.03.21 30.09.20
unaudited audited unaudited
£'000 £'000 £'000
Investment income
Overseas dividends 25,063 20,257 16,964
Overseas scrip dividends 1,006 755 650
--------------- --------------- ---------------
26,069 21,012 17,614
========= ========= =========
Derivative income
Dividends received on long CFDs 10,764 11,444 10,776
Interest received on CFDs 51 245 191
--------------- --------------- ---------------
10,815 11,689 10,967
========= ========= =========
Other income
Interest received on collateral and deposits 15 80 70
--------------- --------------- ---------------
Total income 36,899 32,781 28,651
========= ========= =========
Special dividends of £nil (year ended 31 March 2021: £29,083,000 and six months
ended 30 September 2020: £nil) have been recognised in capital.
5 INVESTMENT MANAGEMENT FEES
Revenue Capital Total
£'000 £'000 £'000
Six months ended 30 September 2021 (unaudited)
Investment management fee - base 2,179 6,537 8,716
Investment management fee - variable* - 2,063 2,063
--------------- --------------- ---------------
2,179 8,600 10,779
========= ========= =========
Year ended 31 March 2021 (audited)
Investment management fee - base 4,119 12,356 16,475
Investment management fee - variable* - 2,116 2,116
--------------- --------------- ---------------
4,119 14,472 18,591
========= ========= =========
Six months ended 30 September 2020 (unaudited)
Investment management fee - base 1,776 5,328 7,104
Investment management fee - variable* - 9 9
--------------- --------------- ---------------
1,776 5,337 7,113
========= ========= =========
* For the calculation of the variable management fee element, the Company's
NAV return was compared to the Benchmark Index return on a daily basis. The
period used to assess the performance was from 1 July 2018 until a three year
history was established. From 1 July 2021 the performance period is now on a
rolling three year basis.
FIL Investment Services (UK) Limited (a Fidelity group company) is the
Company's Alternative Investment Fund Manager ("the Manager") and has delegated
portfolio management to FIL Investment Management (Hong Kong) Limited ("the
Investment Manager").
From 1 April 2021, the base investment management fee is charged at an annual
rate of 0.90% on the first £1.5 billion of net assets, reducing to 0.70% of net
assets over £1.5 billion. Prior to this date, the investment management fee was
charged at an annual rate of 0.90% of net assets. In addition, there is a +/
-0.20% variation fee based on the Company's NAV per share performance relative
to the Company's Benchmark Index. Fees are payable monthly in arrears and are
calculated on a daily basis.
6 FINANCE COSTS
Revenue Capital Total
£'000 £'000 £'000
Six months ended 30 September 2021 (unaudited)
Interest on bank loan, collateral and overdrafts 246 739 985
Interest paid on CFDs 392 1,176 1,568
Dividends paid on short CFDs 429 1,287 1,716
--------------- --------------- ---------------
1,067 3,202 4,269
========= ========= =========
Year ended 31 March 2021 (audited)
Interest on bank loan, collateral and overdrafts 529 1,585 2,114
Interest paid on CFDs 1,548 4,646 6,194
Dividends paid on short CFDs 176 527 703
--------------- --------------- ---------------
2,253 6,758 9,011
========= ========= =========
Six months ended 30 September 2020 (unaudited)
Interest on bank loan, collateral and overdrafts 278 834 1,112
Interest paid on CFDs 940 2,818 3,758
Dividends paid on short CFDs 116 349 465
--------------- --------------- ---------------
1,334 4,001 5,335
========= ========= =========
7 TAXATION
Revenue Capital Total
£'000 £'000 £'000
Six months ended 30 September 2021 (unaudited)
UK corporation tax 448 (448) -
Overseas taxation charge 1,131 - 1,131
--------------- --------------- ---------------
Taxation charge for the period 1,579 (448) 1,131
========= ========= =========
Year ended 31 March 2021 (audited)
UK corporation tax - - -
Overseas taxation charge 760 - 760
--------------- --------------- ---------------
Taxation charge for the year 760 - 760
========= ========= =========
Six months ended 30 September 2020 (unaudited)
UK corporation tax 459 (459) -
Overseas taxation charge 705 - 705
--------------- --------------- ---------------
Taxation charge for the period 1,164 (459) 705
========= ========= =========
8 EARNINGS/(LOSS) PER ORDINARY SHARE
Six months Six months
ended Year ended ended
30.09.21 31.03.21 30.09.20
unaudited audited unaudited
Revenue earnings per ordinary share 6.08p 4.70p 4.55p
Capital (loss)/earnings per ordinary share (76.74p) 186.11p 114.20p
--------------- --------------- ---------------
Total (loss)/earnings per ordinary share (70.66p) 190.81p 118.75p
========= ========= =========
The earnings/(loss) per ordinary share is based on the profit/(loss) after
taxation for the period divided by the weighted average number of ordinary
shares held outside Treasury during the period, as show below:
£'000 £'000 £'000
Revenue profit after taxation for the period 31,342 24,389 23,783
Capital (loss)/profit after taxation for the period (395,580) 966,226 597,069
--------------- --------------- ---------------
Total (loss)/profit after the taxation for the period (364,238) 990,615 620,852
========= ========= =========
Number Number Number
Weighted average number of ordinary shares held outside 515,457,308 519,159,905 522,836,127
Treasury
========== ========== ==========
9 DIVID PAID TO SHAREHOLDERS
Six months Six months
ended Year ended ended
30.09.21 31.03.21 30.09.20
unaudited audited unaudited
£'000 £'000 £'000
Dividend of 4.68 pence per ordinary share paid for the year 24,124 - -
ended 31 March 2021
Dividend of 4.25 pence per ordinary share paid for the year - 22,127 22,160
ended 31 March 2020
--------------- --------------- ---------------
24,124 22,127 22,160
========= ========= =========
No dividend has been declared for the six months ended 30 September 2021 (six
months ended 30 September 2020: £nil).
10 FAIR VALUE HIERARCHY
The Company is required to disclose the fair value hierarchy that classifies
its financial instruments measured at fair value at one of three levels,
according to the relative reliability of the inputs used to estimate the fair
values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical assets
Level 2 Valued by reference to inputs other than quoted prices included in
level 1 that are observable (i.e. developed using market data) for the
asset or liability, either directly or indirectly
Level 3 Valued by reference to valuation techniques using inputs that are not
based on observable market data
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset. The valuation techniques used by the Company are as disclosed
in the Company's Annual Report for the year ended 31 March 2021 (Accounting
Policies Notes 2(l) and (m) on pages 70 and 71). The table below sets out the
Company's fair value hierarchy:
Level 1 Level 2 Level 3 Total
30 September 2021 (unaudited) £'000 £'000 £'000 £'000
Financial assets at fair value through profit or
loss
Investments 1,492,804 69,754 213,321 1,775,879
Derivative instrument assets 87 15,565 - 15,652
--------------- --------------- --------------- ---------------
1,492,891 85,319 213,321 1,791,531
--------------- --------------- --------------- ---------------
Financial liabilities at fair value through profit
or loss
Derivative instrument liabilities (1,706) (25,007) - (26,713)
--------------- --------------- --------------- ---------------
Financial liabilities at fair value
Bank loan - (75,582) - (75,582)
========= ========= ========= =========
Level 1 Level 2 Level 3 Total
31 March 2021 (audited) £'000 £'000 £'000 £'000
Financial assets at fair value through profit or
loss
Investments 1,954,626 46,185 166,464 2,167,275
Derivative instrument assets 1,098 32,198 - 33,296
--------------- --------------- --------------- ---------------
1,955,724 78,383 166,464 2,200,571
--------------- --------------- --------------- ---------------
Financial liabilities at fair value through profit
or loss
Derivative instrument liabilities (4,205) (18,003) - (22,208)
--------------- --------------- --------------- ---------------
Financial liabilities at fair value
Bank loan - (74,224) - (74,224)
========= ========= ========= =========
Level 1 Level 2 Level 3 Total
30 September 2020 (unaudited) £'000 £'000 £'000 £'000
Financial assets at fair value through profit or
loss
Investments 1,628,744 3,518 88,776 1,721,038
Derivative instrument assets 2,482 174,546 - 177,028
--------------- --------------- --------------- ---------------
1,631,226 178,064 88,776 1,898,066
--------------- --------------- --------------- ---------------
Financial liabilities at fair value through profit
or loss
Derivative instrument liabilities (1,115) (49,609) - (50,724)
--------------- --------------- --------------- ---------------
Financial liabilities at fair value
Bank loan - (79,999) - (79,999)
========= ========= ========= =========
11 OTHER RECEIVABLES
30.09.21 31.03.21 30.09.20
unaudited audited unaudited
£'000 £'000 £'000
Amounts receivable on settlement of derivatives 21,835 11,627 -
Securities sold for future settlement 7,331 10,805 2,991
Accrued income 2,932 188 2,740
Overseas taxation recoverable 203 - -
Other receivables 127 129 56
--------------- --------------- ---------------
32,428 22,749 5,787
========= ========= =========
12 OTHER PAYABLES
30.09.21 31.03.21 30.09.20
unaudited audited unaudited
£'000 £'000 £'000
Amounts payable on settlement of derivatives 4,770 20,111 -
Securities purchased for future settlement 2,697 8,866 4,397
Investment management, secretarial and administration fees 1,617 2,103 1,628
Accrued expenses 780 587 559
Amounts payable for repurchase of shares 601 - -
Finance costs payable 518 270 -
--------------- --------------- ---------------
10,983 31,937 6,584
========= ========= =========
13 SHARE CAPITAL
30 September 2021 31 March 2021 30 September 2020
unaudited audited unaudited
Number of Number of Number of
shares £'000 shares £'000 shares £'000
Issued, allotted and fully paid
Ordinary shares of 1 pence each
held outside Treasury
Beginning of the period 515,463,483 5,155 538,809,043 5,388 538,809,043 5,388
Ordinary shares repurchased into (440,000) (4) (23,345,560) (233) (23,345,560) (233)
Treasury
--------------- --------------- --------------- --------------- --------------- ---------------
End of the period 515,023,483 5,151 515,463,483 5,155 515,463,483 5,155
========= ========= ========= ========= ========= =========
Ordinary shares of 1 pence each
held in Treasury*
Beginning of the period 55,590,997 555 32,545,437 325 32,545,437 325
Ordinary shares repurchased into 440,000 4 23,345,560 233 23,345,560 233
Treasury
Ordinary shares cancelled from - - (300,000) (3) - -
Treasury
--------------- --------------- --------------- --------------- --------------- ---------------
End of the period 56,030,997 559 55,590,997 555 55,890,997 558
--------------- --------------- --------------- --------------- --------------- ---------------
Total share capital 5,710 5,710 5,713
========= ========= =========
* The ordinary shares held in Treasury carry no rights to vote, to receive a
dividend or to participate in a winding up of the Company.
During the period, the Company repurchased 440,000 (year ended 31 March 2021
and six months ended 30 September 2020: 23,345,560) ordinary shares and held
them in Treasury. The cost of repurchasing these shares of £1,388,000 (year
ended 31 March 2021 and six months ended 30 September 2019: £58,558,000) was
charged to the Other Reserve.
14 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the
following:
30.09.21 31.03.21 30.09.20
unaudited audited unaudited
Net assets £ £ £
1,793,227,000 2,182,977,000 1,813,181,000
Ordinary shares held outside Treasury 515,023,483 515,463,483 515,463,483
Net asset value per ordinary share 348.18p 423.50p 351.76p
========= ========= =========
It is the Company's policy that shares held in Treasury will only be reissued
at net asset value per ordinary share or at a premium to net asset value per
ordinary share and, therefore, shares held in Treasury have no dilutive effect.
15 TRANSACTIONS WITH THE MANAGERS AND RELATED PARTIES
FIL Investment Services (UK) Limited is the Company's Alternative Investment
Fund Manager and has delegated portfolio management to FIL Investment
Management (Hong Kong) Limited. Both companies are Fidelity group companies.
Details of the current fee arrangements are given in Note 5 above. During the
period, management fees of £10,779,000 (year ended 31 March 2021: £18,591,000
and six months ended 30 September 2020: £7,113,000), and accounting,
administration and secretarial fees of £nil (year ended 31 March 2021: £100,000
and six months ended 30 September 2020: £50,000) were payable to Fidelity.
Fidelity also provides the Company with marketing services. The total amount
payable for these services was £117,000 (year ended 31 March 2021: £195,000 and
six months ended 30 September 2020: £109,000). Amounts payable at the Balance
Sheet date are included in other payables and are disclosed in Note 12 above.
At the date of this report, the Board consisted of five non-executive Directors
(as shown in the Half-Yearly Report) all of whom are considered to be
independent by the Board. None of the Directors has a service contract with the
Company.
The Chairman receives an annual fee of £45,000, the Audit and Risk Committee
Chairman receives an annual fee of £38,000, the Senior Independent Director
receives an annual fee of £36,000 and each other Director receives an annual
fee of £30,000. The following members of the Board hold ordinary shares in the
Company at the date of this report: Mike Balfour 65,000 shares, Alastair Bruce
7,300 shares, Nicholas Bull 110,804 shares, Vanessa Donegan 10,000 shares and
Linda Yueh 2,318 shares.
The financial information contained in this Half-Yearly Results Announcement
does not constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the six months ended 30
September 2020 and 30 September 2020 has not been audited or reviewed by the
Company's Independent Auditor.
The information for the year ended 31 March 2021 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies, unless otherwise stated. The report of the Auditor on
those financial statements contained no qualification or statement under
sections 498(2) or (3) of the Companies Act 2006.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
A copy of the Half-Yearly Report will shortly be submitted to the National
Storage Mechanism and will be available for inspection at www.morningstar.co.uk
/uk/NSM
The Half-Yearly Report will also be available on the Company's website at www.
fidelity.co.uk/china where up to date information on the Company, including
daily NAV and share prices, factsheets and other information can also be found.
END
(END) Dow Jones Newswires
November 30, 2021 02:00 ET (07:00 GMT)
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