REG-Fidelity China Special Situations Plc: Half-year Report
09/12/2024 07:15
FIDELITY CHINA SPECIAL SITUATIONS PLC
Half-Yearly results for the six months ended 30 September 2024 (unaudited)
Financial Highlights:
* During the six months ended 30 September 2024, Fidelity China Special
Situations PLC reported a Net Asset Value (NAV) total return of +16.1% and an
ordinary share price total return of +13.3%.
* The Benchmark Index, the MSCI China Index, returned (in UK sterling terms)
+24.5% over the same period.
* The trend of increasing shareholder returns through dividends and buybacks
remains strong.
* There are signs of confidence growing among domestic investors who recognise
the fundamental change in the level of commitment by the government to
tackling economic challenges.
Contacts
For further information, please contact:
George Bayer
Company Secretary
FIL Investments International
0207 961 4240
PORTFOLIO MANAGER’S HALF-YEARLY REVIEW
MACRO AND MARKET BACKDROP
The current year began as a continuation of the challenges seen in the Chinese
equity market last year, with ongoing uncertainty over the macroeconomic
outlook, negative headlines in the property sector and consumer confidence
remaining fragile. This was the picture for much of the six month period under
review. However, a raft of stimulus measures announced by the Chinese
authorities in late September saw the stock market surge in the last few days
of the half-year.
In brief, the announcement from the People’s Bank of China on 24 September
2024 included rate cuts and other monetary policy measures to support capital
markets. This was followed two days later by positive rhetoric from the
Politburo meeting signalling policymakers’ willingness to accelerate
necessary fiscal spending to achieve the aims of revitalising the economy,
stabilising the property market and boosting consumption and employment.
Key among the factors underlying these announcements is an increasing focus on
the risk of deflation. Consumer price inflation in China has been muted, while
producer prices have been falling for some time. Importantly, further progress
has been made on easing purchasing restrictions and having programmes to
address housing inventories. While lacking specific numbers, the Ministry of
Finance briefing on 12 October 2024 confirmed a commitment to incremental
fiscal stimulus, with expanded government debt limits and local government
debt resolutions. In my mind, broadening the scope of local government special
bond proceeds to help address the problem of excess housing inventories is
probably the most positive outcome, given the property sector’s importance
in the economy and funding challenges faced at the local level.
Weak consumer confidence has been a feature of the Chinese economy since the
pandemic, partly driven by the troubled property market, but also by
employment and wage concerns. Our sense from discussions with many companies
on the ground is that we have now most likely seen the worst of the job cuts,
particularly in areas like the big technology companies. Coupled with the
policy support for the real estate sector, there is meaningful scope for
confidence to gradually improve.
Meanwhile, savings rates remain elevated and consumer balance sheets are
relatively healthy, suggesting that there is buying power to support any
recovery in consumer sentiment.
PERFORMANCE AND PORTFOLIO REVIEW
The surge in Chinese equities in the last week of the review period masks the
broader picture, where the best performance for most of the period came from
traditionally defensive sectors such as energy, utilities, telecoms and
state-owned banks. From January to August 2024, market returns were relatively
flat against a backdrop of economic uncertainty with investors favouring
large-cap national champions, and companies with more stable earnings and cash
flows that provide a higher share of their returns through dividends.
Following the announcement of the stimulus measures, money flowed into sectors
that were seen as the direct beneficiaries or had been sold off the most,
leading to a strong rally in real estate, consumer stocks (both staples and
discretionary) and healthcare in late September and early October 2024.
The trend of increasing shareholder returns through dividends and buybacks
remains strong, supported by favourable government policies and investor
demand. This year, total dividends and buybacks across all companies listed in
China are expected to reach around 3 trillion renminbi. This trend has also
contributed to the Company receiving significantly higher investment income
over the review period.
In the context of this mixed picture, the Company’s NAV rose by 16.1% in the
six-month reporting period to 30 September 2024, underperforming the MSCI
China Index (the Benchmark Index) which saw a gain of 24.5%, mostly generated
in September alone. The Company’s share price rose by 13.3% over the same
period, reflecting a widening in the discount to NAV, which moved from 10.2%
at the start of the period to end at 12.4%. (All performance data on a total
return basis.)
For the first half of the financial year, an overweight in financials, through
insurers and financial services, contributed positively to performance. An
underweight position in the utilities and energy sectors and security
selection within the information technology space also enhanced relative
returns. Meanwhile, selected consumer discretionary holdings detracted from
performance.
The top stock contributors include insurers Ping An Insurance Company and
China Life Insurance. Their shares advanced strongly amid a lift in sentiment
post China’s recent stimulus announcement. Ping An also reported
better-than-expected earnings for the first half of 2024, with robust growth
in the value of new business in its life and health insurance segments,
reflecting strong demand and effective sales strategies. Elsewhere within
financials, Qifu Technology, a credit-tech platform provider, benefitted from
strong business execution and better-than-expected results, successfully
navigating the weak macroeconomic environment.
Elsewhere among the top contributors, we saw good performance from VNET Group,
a technology company involved in the provision of data centre services, which
is experiencing significant demand growth from increasing adoption of
digitalisation and artificial intelligence (AI). Demand from wholesale clients
remains strong, with ByteDance serving as a prime example. The company has
secured several key contracts and is primarily focused on providing cloud
services and infrastructure to support its vast user base across various
platforms. Our investment in VNET was trimmed slightly after its recent share
price strength.
In addition, Cutia Therapeutics, a long-standing holding that has been in the
portfolio since before it was listed, also advanced. Investor confidence in
the dermatology-focused biopharmaceutical company was underpinned by its solid
product pipeline execution, sales ramp up and cost control measures.
Meanwhile, an underweight position in consumer-related Chinese internet
players, including Alibaba Group Holding, Meituan and JD.com, which received a
big boost in sentiment post the stimulus announcement, weighed on relative
returns.
Exposure to unlisted names were also a meaningful factor in the Company’s
underperformance, especially positions in Pony.ai, Venturous Holdings and
ByteDance. While moves in the price of listed equities are immediately
reflected in portfolio performance, unlisted companies are revalued on a
periodic rather than a real-time basis. Given the difficult market backdrop,
we marked down the valuations of these assets during the period under review.
However, we believe that the solid business performance of many of the listed
companies bodes well for more positive valuations for these companies going
forward.
CURRENT PORTFOLIO POSITIONING
Industrials remain the Company’s largest sector overweight compared to the
Benchmark Index. Significant domestic innovation continues to take place
across various sub-sectors, reflecting companies’ focus on building
competitiveness and improving pricing power. Despite a relatively weak
domestic environment, we are seeing companies remain committed to investing in
research and development. This includes areas such as renewables, automation
and the electric vehicle value chain. In my view, this will only reinforce the
trend of domestic players in taking market share from foreign players.
A key holding in the sector is Tuhu Car, the leading auto maintenance service
franchise in China. With rising automobile penetration in China in recent
years, maintenance is a growing market, resulting from an aging car fleet, and
we see great potential for Tuhu Car to gain further market share through
industry consolidation. The company should also be a beneficiary of any
improvement in consumer confidence. Tuhu Car, previously one of our unlisted
holdings which went public in September 2023, was our biggest purchase in the
reporting period following share price weakness post its stock market listing.
The Company also remains overweight in consumer discretionary and staples. The
weakness in consumption in recent months has been reflected in lacklustre
performance for many consumer-related stocks, and this is where we have been
allocating more capital. Staples is an interesting area – although it is
usually seen as being more defensive, it was not immune from the poor market
sentiment earlier in the year, and in fact posted the second-worst performance
of all the MSCI China Index sectors in the period from the start of 2024 to
the end of August, before the stimulus measures were introduced. As is often
the case with broad-based corrections, this created opportunities in some very
strong franchises spanning areas such as beer, condiments and dairy products,
where we saw depressed valuations making these some of the cheapest companies
globally in their respective sectors.
Sell-offs in structural growth stories in the consumer discretionary space
such as sportswear and household appliances also created opportunities.
We added to PDD Holdings to take advantage of its very attractive valuation in
absolute terms versus its e-commerce competitors, its generally higher growth
trajectory and superior returns profile. We also purchased shares in Man Wah,
a leading mattress maker and retailer, with a strong record of market share
gains both domestically and overseas. Its valuation had been depressed to an
attractive level on concerns over its property-related exposure, the risk of
which we felt to be priced in. These purchases were funded by profit-taking in
long-held names such as Hisense Home Appliances Group and Crystal
International Group as their valuations became less attractive. We also closed
the position in JD.com in order to capitalise on better risk/reward
opportunities elsewhere.
More broadly, our positioning in other consumer focused segments such as
travel, education, consumer finance and insurance, stands to benefit from any
improvement in consumer sentiment. For example, we increased our
high-conviction position in Ping An Insurance. The insurance market in China
has had a tough few years; nonetheless, life insurance remains at much lower
levels of penetration than in the West and offers significant scope to grow
which is not reflected in what in our view are still attractive valuation
levels. Ping An is targeting further growth through continued expansion of its
financial services offerings, diversifying life insurance products, tightening
risk management, and improving service quality. We also added to our stake in
ByteDance, an unlisted holding. It is an important benefit of our closed-ended
structure that we are able to hold a portion of our assets in private
investments, particularly in names such as ByteDance, which is among the most
valuable private companies globally.
In addition to industrial and consumer staples stocks, we remain overweight in
healthcare, broadly neutral versus the Index in information technology, and
underweight in communication services and financials, the latter mainly
through being underweight in banks, where we see fewer opportunities and
greater risk.
We have outlined our five largest holdings below.
GEARING
As with the ability to hold unlisted stocks, gearing is an important benefit
of the investment trust structure, and we continue to believe that the prudent
use of gearing can be accretive to long-term capital and income returns. Our
gearing is currently deployed using contracts for difference (CFDs), which are
relatively low cost and represent a flexible way of increasing investment
exposure. The Company repaid its fixed term loan in February 2024 and did not
renew it given prevailing interest rate levels, so 100% of the gearing in the
six months to 30 September 2024 has been via CFDs. During the period, the
level of net market exposure averaged around 120%, with net gearing falling to
17.0% at the end of the period from 20.8% at the start of the year. Total
gearing impact contributed positively over the six months, adding 4.5% to
relative returns.
OUTLOOK
Despite the rally in Chinese equities following the stimulus measures
announced in late September, sentiment towards the market remains quite mixed.
This has been evident in the early days of the second half of our financial
year, with something of a retrenchment as investors await further details of
the scale and deployment of some of the stimulus programmes. That said, there
are signs of confidence growing among domestic investors who recognise the
fundamental change in the level of commitment by the government to tackling
economic challenges.
The widely anticipated China National People's Congress (NPC) Standing
Committee meeting on 8 November approved another series of stimulus measures,
though their scale and detail may have fallen short of lofty market
expectations. Key policies included raising the ceiling for local government
special bonds and targets to reduce local government implicit debt by 2029.
But the forward-looking signals from the Finance Minister were encouraging,
particularly the emphasis on more proactive fiscal policy planning for 2025,
suggesting a path of further easing. I anticipate more concrete actions in
upcoming policy meetings, which will be important in addressing China’s
domestic demand challenges. While the earnings outlook for China in aggregate
is not weak in a global context, and we see improvement in areas like
technology, until very recently the general trend of earnings revisions has
been downward. The hope is that supportive policies can help drive a turn in
economic fundamentals, leading to an improved earnings outlook. Such a
virtuous circle would almost certainly drive a sustained improvement in market
sentiment and further re-rating. Meanwhile, the announcements in late
September have only moved the valuation needle in Chinese equities from
‘historically cheap’ to ‘still pretty cheap’ versus other global
markets, and I believe there is still ample room for valuation multiples to
expand further.
Of course, geopolitical worries persist, especially around US tariffs on
Chinese goods, which are likely to increase following the US Presidential
election. However, investors and companies are well aware of this prospect.
Chinese companies have been dealing with tariffs and import barriers for some
time now. In fact, some of the export-focused companies we see on the ground
have remained extremely competitive and have been taking pre-emptive actions
for years, with many of them moving production offshore. The Company is
already focused on companies that generate the vast majority of their revenues
domestically, but I continue to pay close attention to the different scenarios
and assess how these risks are reflected in valuations.
With so much focus on the macro considerations, it can be easy for investors
to forget that what really drives superior returns are great companies
executing well in growing industries where they have strong competitive
advantages. While the headwinds – and indeed the tailwinds, given the impact
of the recent stimulus measures on the stock market – are well recognised,
your Company remains focused on finding opportunities amidst the volatility
where fundamental value and value-creation should be recognised by the market
over the medium-term.
DALE NICHOLLS
Portfolio Manager
6 December 2024
SPOTLIGHT ON THE TOP 5 HOLDINGS AS AT 30 SEPTEMBER 2024
The top five holdings comprise 31.3% of the Company’s Net Assets.
Industry Communication Services
Tencent Holdings
% of Net Assets 12.9%
Tencent Holdings has a dominant position in social networking in China and
benefits from a sizeable user base. As China’s internet user growth slows
down and the internet industry focuses increasingly on monetisation, Tencent
is one of the best-positioned companies because of its very sticky user base
and strong ecosystem which should lead to overall margin expansion.
Furthermore, an increasing revenue mix from new higher-margin business
segments, including short-form video, mini program games and e-commerce
services underpins a robust outlook. Growth from its gaming segment is
expected to accelerate, and its increasing shareholder returns also underpin
its long-term investment thesis.
Industry Financials
Ping An Insurance Company of China
% of Net Assets 6.1%
Ping An Insurance Company of China is a financial services holding company
whose subsidiaries provide insurance, banking, asset management, and financial
services. It has a strong presence in China, Hong Kong, and Macau, with
expanding operations overseas. It has a robust structural growth outlook.
Within the broader sector, its operations are of relatively better quality,
with strong distribution channels, earnings quality, and a strong management
team. It trades at an attractive valuation in comparison to its historical
averages and the broader index.
Industry Consumer Discretionary
Alibaba Group Holding
% of Net Assets 5.1%
Alibaba Group Holding has a leading position in the e-commerce market. Its
core e-commerce categories, including apparel and makeup, stand to benefit
from any recovery in consumption. Its new management team is focused on a
clearer strategy by investing in technology and user experiences, including
logistics, product return, and customer service. Strategic focus on core
e-commerce services, investment in cloud technology, exit from non-core
businesses, and commitment to improving shareholder returns, underpin a strong
growth outlook.
Industry Consumer Discretionary
PDD Holdings
% of Net Assets 4.3%
PDD Holdings is the third largest e-commerce platform by Gross Merchandise
Value (GMV) in China, with outstanding efficiency in supply chain management
and cost control. With its unique traffic distribution method, PDD is able to
offer the cheapest version of products and continuously gains market share.
The company is also expanding internationally to more than 50 countries
through its shopping app called Temu by leveraging domestic supply chains in
order to meet offshore demand.
Industry Consumer Discretionary
Meituan
% of Net Assets 2.9%
Meituan is a leading online shopping platform that offers a wide range of
locally sourced consumer products and retail services, including
entertainment, dining, delivery, travel, etc. It has a long-term penetration
story (bringing ‘service online’) which will drive revenue growth and
market share expansion. It has delivered a strong margin improvement with the
stabilisation of competitive pressures. Despite macro headwinds (which has
particularly impacted tier 1-2 cities), Meituan has been actively penetrating
in lower tier cities and using Shen Hui Yuan membership to cross sell delivery
and local services. Its management is implementing strategic changes to reduce
losses in non-core businesses and return cash to shareholders.
Twenty Largest Holdings as at 30 September 2024
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.
Asset Exposure Fair Value
£’000
£’000 % 1
Long Exposures – shares unless otherwise stated
Tencent Holdings (shares and long CFDs)
Internet, mobile and telecommunications service provider 167,788 12.9 111,815
Ping An Insurance Company of China (long CFD)
Provider of insurance, banking and investment products 79,380 6.1 19,060
Alibaba Group Holding (call option and long CFDs)
e-commerce group 66,804 5.1 13,504
PDD Holdings (long CFD)
e-commerce group 55,778 4.3 23,343
Meituan (shares and long CFDs)
Shopping platform for locally found consumer products and retail services 38,004 2.9 19,133
ByteDance (unlisted)
Technology company 35,451 2.7 35,451
Pony.ai (unlisted)
Developer of artificial intelligence and autonomous driving technology solutions 30,934 2.4 30,934
Tuhu Car
Provider of automobile parts and services 27,368 2.1 27,368
Chime Biologics Convertible Bond (unlisted)
Contract Development and Manufacturing Organization 25,627 2.0 25,627
Crystal International Group
Clothing manufacturer 25,600 2.0 25,600
China Foods (shares and long CFDs)
Processor and distributor of food and beverages 24,786 1.9 4,135
VNET Group (shares and long CFD)
Internet data center services provider 24,346 1.9 21,367
Hisense Home Appliances Group
Developer, manufacturer and distributor of household appliances 24,026 1.9 24,026
Sinotrans (shares and long CFD)
Logistics, storage and terminal services provider 22,711 1.7 14,248
Venturous Holdings (unlisted)
Investment company 21,303 1.6 21,303
Lenovo Group (long CFDs)
Multinational technology company 20,087 1.5 543
Noah Holdings
Wealth management company 18,489 1.4 18,489
Precision Tsugami (China)
High precision machine tool manufacturer 18,309 1.4 18,309
China Merchants Bank
Commercial bank 16,810 1.3 16,810
HUTCHMED China
Biopharmaceutical company 16,181 1.3 16,181
--------------- --------------- ---------------
Twenty largest long exposures 759,782 58.4 487,246
Other long exposures 972,940 74.7 804,754
--------------- --------------- ---------------
Total long exposures before hedges (149 companies) 1,732,722 133.1 1,292,000
========= ========= =========
Less: hedging exposures
Hang Seng Index (future) (112,598) (8.6) (8,558)
Hang Seng China Enterprises Index (future) (72,386) (5.6) (5,077)
Hang Seng China Enterprises Index (put option) (1,274) (0.1) 132
--------------- --------------- ---------------
Total hedging exposures (186,258) (14.3) (13,503)
========= ========= =========
Total long exposures after the netting of hedges 1,546,464 118.8 1,278,497
========= ========= =========
Short exposures
Short CFDs (3 holdings) 22,442 1.7 (2,966)
--------------- --------------- ---------------
Gross Asset Exposure 2 1,568,906 120.5
========= =========
Portfolio Fair Value 3 1,275,531
Net current liabilities (excluding derivative instruments) 26,586
---------------
Net Assets 1,302,117
=========
1 Asset Exposure expressed as a percentage of Net Assets.
2 Gross Asset Exposure comprises market exposure to investments of
£1,188,207,000 plus market exposure to derivative instruments of
£380,699,000.
3 Portfolio Fair Value comprises investments of £1,188,207,000 plus
derivative assets of £104,457,000 less derivative liabilities of
£17,133,000.
Interim Management Report
UNLISTED INVESTMENTS
The Company can invest up to 15% of its Net Assets plus Borrowings in unlisted
securities which carry on business, or have significant interests, in China.
The limit is applied at the time of purchase.
The Directors believe that the ability to invest in unlisted securities is a
differentiating factor for the Company and can be a source of additional
investment performance. It allows the Portfolio Manager to take advantage of
the growth trajectory of early-stage companies before they potentially become
listed and this can offer good opportunities for patient and long-term
investors.
In the reporting period, the following changes were made in the Company’s
unlisted holdings. The D shares held in DJI International were sold in April
2024 at a profit of £960,000. A purchase of ordinary shares was made in
ByteDance (already held in the portfolio as preference shares) in August 2024
at a cost of £12,414,000. No companies listed from those held in the
Company’s portfolio at the last year end.
At the period end, the Company had six unlisted investments valued at
£128,905,000 being 9.9% of its Net Assets (31 March 2024: six unlisted
investments valued at £151,212,000 being 12.8% of Net Assets).
Overview of the Unlisted Investments Valuation Process
Unlisted investments in the Company’s portfolio are held at fair value,
which is defined as the value that would be paid for a holding in an
open-market transaction. The Manager’s Fair Value Committee (“FVC”),
which is independent of the Portfolio Manager, provides recommended fair
values to the Directors.
Twice yearly, ahead of the Company’s interim and year end, the Audit and
Risk Committee receives a detailed presentation from the FVC, Fidelity’s
unlisted investments specialist and Kroll (independent third-party valuers),
in order to satisfy itself that the unlisted investments in the Company’s
portfolio are carried at an appropriate value in accordance with Accounting
Policies Notes 2 (e) and (l) on pages 66 to 68 of the Annual Report for the
year ended 31 March 2024 which can be found on the Company’s pages of the
Manager’s website at www.fidelity.co.uk/china. The external Auditor will
attend the unlisted valuations meeting held ahead of the Company’s year end.
Workings of the Fair Value Committee
The valuation of each unlisted investment is set by the Manager’s FVC and
includes input from Fidelity’s analysts that cover the unlisted securities
as well as Fidelity’s unlisted investments specialist. Kroll, as independent
third-party valuers, undertake a detailed review of each of the unlisted
investments on a quarterly basis and provide advise on the valuations.
The Board is provided with the quarterly updates from the FVC, which includes
recommendations from Fidelity’s analysts and its unlisted investments
specialist, enabling the Board to have oversight of and confidence in the
valuation process. Outside of the normal quarterly cycle, the unlisted
investments are monitored daily for trigger events such as funding rounds or
news of fundamentals which may require the FVC to adjust the valuation price
as soon as the Fidelity analyst has been consulted. In addition to this, the
unlisted investments are monitored on a weekly basis within a comparable
movement model. If the average movement of the selected proxies is +/-15%, a
revaluation of the relevant investment is considered.
GEARING
The Board continues to believe that the judicious use of gearing (a benefit of
the investment trust structure) can enhance long-term capital and income
returns, although being more than 100% invested does mean that the NAV and
share price may be more volatile and can accentuate losses in a falling
market. The Company has no bank loans and uses contracts of differences (CFDs)
for gearing purposes. Net gearing at the period end was 17.1% compared to
20.8% as at 31 March 2024. The average net gearing in the six month reporting
period was 19.7%.
DISCOUNT MANAGEMENT
The Board believes that investors are best served when the share price trades
close to its NAV per share. However, 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, as well as the performance of the
Company’s portfolio. A discount control mechanism is in place whereby the
Board seeks to maintain the Company’s discount in single digits in normal
market conditions. Historically, shares repurchased were held in Treasury and
could be issued at a later date should the share price move to a premium to
NAV per share. As the number of shares equated to 15% of the issued share
capital by 11 May 2023, shares repurchased since then have been cancelled. At
the last Annual General Meeting (“AGM”), shareholders authorised the
Directors to repurchase up to 14.99% of the Company’s shares.
The Board undertook active discount management in the reporting period, the
primary purpose of which was to reduce discount volatility. Despite this
intervention, the Company’s discount widened from 10.2% at the start of the
reporting period to end the period at 12.4%. Over the six months, the Board
authorised the repurchase of 9,332,287 shares for cancellation at a cost of
£18,509,000, representing 1.55% of the issued share capital of the Company as
at 30 September 2024. As well as helping to limit discount volatility, these
share repurchases have benefited remaining shareholders as the NAV per share
has been increased by purchasing shares at a discount. Subsequent to the
period end and up to latest practicable date of 3 December 2024, the Company
has repurchased 8,906,838 shares for cancellation.
ONGOING CHARGE
The ongoing charge (the costs of running the Company) for the six months ended
30 September 2024 was 0.89% (31 March 2024: 0.98%). The variable element of
the management fee was a credit of 0.18% (31 March 2024: charge of 0.15%).
Therefore, the ongoing charge, including the variable element, for the
reporting period was 0.71% (31 March 2024: 1.13%).
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, which 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 continue to fall into the following risk categories: geopolitical;
market and economic (including currency risk); investment performance
(including gearing risk); discount management; unlisted securities; climate
change; environmental, social and governance (ESG); key person; cybercrime and
information security; business continuity; operational (including those of
third-party service providers); variable interest entity structures; and tax
and regulatory risks. Information on each of these risks is given in the
Strategic Report section of the Annual Report on pages 25 to 29 for the year
ended 31 March 2024 which can be found on the Company’s pages of the
Manager’s website at www.fidelity.co.uk/china.
The principal risks and uncertainties remain the same as those at the last
year end. There continue to be increased geopolitical risks facing the
company, including political and trade tensions between China and the US
including trade sanctions and a challenging regulatory environment hindering
foreign investment. Global economic uncertainty is raised by the ongoing
Ukraine/Russia conflict, the escalation of the Middle East conflict, the risk
of a South China Sea dispute, and tensions in the Taiwan Strait include
potential military conflict. The Board and the Manager remain vigilant in
monitoring such risks.
Climate change continues to be a key principal risk confronting asset managers
and their investors. Globally, climate change effects are already being
experienced in the form of a changing pattern of weather events. Climate
change can potentially impact the operations of investee companies, their
supply chains and their customers. Additional risks may also arise from
increased regulations, costs and net-zero programmes which can all impact
investment returns. The Board notes that the Manager has integrated ESG
considerations, including climate change, into the Company’s investment
process. The Board will continue to monitor how this may impact the Company as
a risk, the main risk being the impact on investment valuations and
potentially shareholder returns.
The Board and the Manager are also monitoring the emerging risks and rewards
posed by the rapid advancement of artificial intelligence (AI) and technology
and how this may threaten the Company’s activities and its potential impact
on the portfolio and investee companies. AI can provide asset managers
powerful tools, such as enhancing data analysis risk management, trading
strategies, operational efficiency and client servicing, all of which can lead
to better investment outcomes and more efficient operations. However, with
these advances in computer power that will impact society, there are risks
from its increasing use and manipulation with the potential to harm, including
a heightened threat to cybersecurity.
Investors should be prepared for market fluctuations and remember that holding
shares in the Company should be considered to be a long-term investment. Risks
are mitigated by the investment trust structure of the Company which means
that the Portfolio Manager is not required to trade to meet investor
redemptions. Therefore, investments in the Company’s portfolio can be held
over a longer-time horizon.
The Manager has appropriate business continuity and operational resilience
plans in place to ensure the continued provision of services. This includes
investment team key activities, including those of portfolio managers,
analysts and trading/support functions. The Manager reviews its operational
resilience strategies on an ongoing basis and continues to take all reasonable
steps in meeting its regulatory obligations, assess its ability to continue
operating and the steps it needs to take to serve and support its clients,
including the Board.
The Company’s other third-party service providers also have similar measures
in place 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 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. The Directors, having considered the liquidity of the Company’s
portfolio of investments (being mainly securities which are readily
realisable) and the projected income and expenditure, are satisfied that the
Company is financially sound and has adequate 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.
This conclusion also takes into account the Board’s assessment of the
ongoing risks as outlined above.
Accordingly, the Financial Statements of the Company have been prepared on a
going concern basis.
Following the completion of the transaction with abrdn China Investment
Company Limited, the Board has introduced a continuation vote. The first vote
will be held at the AGM in 2029 and every five years thereafter.
By Order of the Board
FIL INVESTMENTS INTERNATIONAL
6 December 2024
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 6 December 2024 and the
above responsibility statement was signed on its behalf by Mike Balfour,
Chairman.
FINANCIAL STATEMENTS
Income Statement for the six months ended 30 September 2024
Six months ended 30 September 2024 Year ended 31 March 2024 Six months ended 30 September 2023
unaudited audited unaudited
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Revenue
Investment income 4 40,731 – 40,731 26,123 – 26,123 22,274 – 22,274
Derivative income 4 11,720 – 11,720 11,154 – 11,154 9,709 – 9,709
Other income 4 676 – 676 1,659 – 1,659 800 – 800
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income 53,127 – 53,127 38,936 – 38,936 32,783 – 32,783
========= ========= ========= ========= ========= ========= ========= ========= =========
Gains/(losses) on investments at fair value through profit or loss – 72,009 72,009 – (155,001) (155,001) – (119,622) (119,622)
Gains/(losses) on derivative instruments – 73,226 73,226 – (54,790) (54,790) – (36,505) (36,505)
Foreign exchange losses – (3,263) (3,263) – (3,858) (3,858) – (1,975) (1,975)
Foreign exchange gains/(losses) on bank loans – – – – 1,517 1,517 – (1,013) (1,013)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income and gains/(losses) 53,127 141,972 195,099 38,936 (212,132) (173,196) 32,783 (159,115) (126,332)
========= ========= ========= ========= ========= ========= ========= ========= =========
Expenses
Investment management fees 5 (1,108) (2,267) (3,375) (2,430) (8,991) (11,421) (1,293) (5,056) (6,349)
Other expenses (593) (5) (598) (1,203) (35) (1,238) (669) (3) (672)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) before finance costs and taxation 51,426 139,700 191,126 35,303 (221,158) (185,855) 30,821 (164,174) (133,353)
Finance costs 6 (2,901) (8,703) (11,604) (6,699) (20,098) (26,797) (3,426) (10,279) (13,705)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) before taxation 48,525 130,997 179,522 28,604 (241,256) (212,652) 27,395 (174,453) (147,058)
Taxation 7 (1,341) 322 (1,019) (812) – (812) (1,177) 383 (794)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) after taxation for the period 47,184 131,319 178,503 27,792 (241,256) (213,464) 26,218 (174,070) (147,852)
========= ========= ========= ========= ========= ========= ========= ========= =========
Earnings/(loss) per ordinary share 8 9.05p 25.20p 34.25p 5.78p (50.18p) (44.40p) 5.43p (36.06p) (30.63p)
========= ========= ========= ========= ========= ========= ========= ========= =========
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 months ended 30 September 2024
Notes Share Share Capital Other Capital Revenue Total
capital premium redemption reserve reserve reserve equity
£’000 account reserve £’000 £’000 £’000 £’000
£’000 £’000
Six months ended 30 September 2024 (unaudited)
Total equity at 31 March 2024 6,113 338,167 1,104 140,861 636,526 53,243 1,176,014
Contribution in respect of the transaction with ACIC by the Manager – 100 – – – – 100
Costs relating to the ACIC transaction and issuance of shares – (636) – – – – (636)
Repurchase of ordinary shares for cancellation 13 (93) – 93 (18,509) – – (18,509)
Profit after taxation for the period – – – – 131,319 47,184 178,503
Dividend paid to shareholders 9 – – – – – (33,355) (33,355)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total equity at 30 September 2024 6,020 337,631 1,197 122,352 767,845 67,072 1,302,117
========= ========= ========= ========= ========= ========= =========
Year ended 31 March 2024 (audited)
Total equity at 31 March 2023 5,710 211,569 917 186,794 877,782 55,649 1,338,421
New ordinary shares issued in respect of the transaction with ACIC 13 590 126,198 – – – – 126,788
Contribution in respect of the transaction with ACIC by the Manager – 400 – – – – 400
Repurchase of ordinary shares into Treasury 13 – – – (6,965) – – (6,965)
Repurchase of ordinary shares for cancellation 13 (187) – 187 (38,968) – – (38,968)
(Loss)/profit after taxation for the year – – – – (241,256) 27,792 (213,464)
Dividend paid to shareholders 9 – – – – – (30,198) (30,198)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total equity at 31 March 2024 6,113 338,167 1,104 140,861 636,526 53,243 1,176,014
========= ========= ========= ========= ========= ========= =========
Six months ended 30 September 2023 (unaudited)
Total equity at 31 March 2023 5,710 211,569 917 186,794 877,782 55,649 1,338,421
Repurchase of ordinary shares into Treasury 13 – – – (6,965) – – (6,965)
Repurchase of ordinary shares for cancellation 13 (89) – 89 (18,930) – – (18,930)
(Loss)/profit after taxation for the period – – – – (174,070) 26,218 (147,852)
Dividend paid to shareholders 9 – – – – – (30,198) (30,198)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total equity at 30 September 2023 5,621 211,569 1,006 160,899 703,712 51,669 1,134,476
========= ========= ========= ========= ========= ========= =========
Balance Sheet as at 30 September 2024
Company number 7133583
Notes 30.09.24 31.03.24 30.09.23
unaudited audited unaudited
£’000 £’000 £’000
Non-current assets
Investments at fair value through profit or loss 10 1,188,207 1,162,265 1,147,456
--------------- --------------- ---------------
Current assets
Derivative instruments 10 104,457 7,103 3,739
Amounts held at futures clearing houses and brokers 29,585 24,589 24,438
Other receivables 11 14,450 10,066 10,390
Cash and cash equivalents 8,827 7,858 51,258
--------------- --------------- ---------------
157,319 49,616 89,825
========= ========= =========
Current liabilities
Derivative instruments 10 (17,133) (13,307) (10,298)
Bank loan – – (81,870)
Other payables 12 (4,068) (9,802) (10,637)
Bank overdraft (22,208) (12,758) –
--------------- --------------- ---------------
(43,409) (35,867) (102,805)
--------------- --------------- ---------------
Net current assets/(liabilities) 113,910 13,749 (12,980)
========= ========= =========
Net assets 1,302,117 1,176,014 1,134,476
========= ========= =========
Equity attributable to equity shareholders
Share capital 13 6,020 6,113 5,621
Share premium account 337,631 338,167 211,569
Capital redemption reserve 1,197 1,104 1,006
Other reserve 122,352 140,861 160,899
Capital reserve 767,845 636,526 703,712
Revenue reserve 67,072 53,243 51,669
--------------- --------------- ---------------
Total equity 1,302,117 1,176,014 1,134,476
========= ========= =========
Net asset value per ordinary share 14 252.18p 223.71p 238.07p
========= ========= =========
Cash Flow Statement for the six months ended 30 September 2024
Six months Year Six months
ended ended ended
30 September 31 March 30 September
2024 2024 2023
unaudited audited unaudited
£’000 £’000 £’000
Operating activities
Cash inflow from investment income 37,082 26,240 18,806
Cash inflow from derivative income 9,593 10,891 8,129
Cash inflow from other income 676 1,659 800
Cash outflow from Directors’ fees (107) (236) (125)
Cash outflow from other payments (3,755) (13,104) (7,337)
Cash outflow from costs relating to the ACIC transaction and issuance of shares (636) – –
Cash outflow from the purchase of investments (308,988) (592,266) (315,682)
Cash outflow from the purchase of derivatives (1,137) (1,910) (1,910)
Cash outflow from the settlement of derivatives (172,503) (301,285) (152,776)
Cash inflow from the sale of investments 349,903 703,150 356,034
Cash inflow from the settlement of derivatives 153,184 260,351 132,953
Cash (outflow)/inflow from amounts held at futures clearing houses and brokers (4,996) 10,224 10,375
-------------- -------------- --------------
Net cash inflow from operating activities before servicing of finance 58,316 103,714 49,267
========= ========= =========
Financing activities
Cash inflow from the issuance of ordinary shares in respect of the transaction with ACIC – 5,156 –
Cash inflow from the Fidelity contribution in respect of the transaction with ACIC 100 400 –
Cash outflow from bank loan and overdraft interest paid (48) (5,138) (2,561)
Cash outflow from the settlement of the bank loan – (79,340) –
Cash outflow from CFD interest paid (11,274) (22,695) (11,245)
Cash outflow from short CFD dividends paid (287) – –
Cash outflow from the repurchase of ordinary shares into Treasury – (7,095) (7,095)
Cash outflow from the repurchase of ordinary shares for cancellation (18,670) (38,789) (17,878)
Cash outflow from dividends paid to shareholders (33,355) (30,198) (30,198)
--------------- --------------- ---------------
Cash outflow from financing activities (63,534) (177,699) (68,977)
========= ========= =========
Decrease in cash at bank (5,218) (73,985) (19,710)
Cash at bank at the start of the period 7,858 72,943 72,943
Bank overdraft at the start of the period (12,758) – –
Effect of foreign exchange movements (3,263) (3,858) (1,975)
--------------- --------------- ---------------
Cash at bank at the end of the period (13,381) (4,900) 51,258
========= ========= =========
Represented by:
Cash at bank 8,826 7,858 51,258
Amount held in Fidelity Institutional Liquidity Fund 1 – –
Bank overdraft (22,208) (12,758) –
========= ========= =========
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 2024, 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
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 2024. Those
Financial Statements were prepared in accordance with UK-adopted International
Accounting Standards (“IFRS”) in conformity with the requirements of the
Companies Act 2006, IFRC interpretations and, as far as it is consistent with
IFRS, 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 July 2022.
(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 ongoing risks as disclosed in the
Going Concern Statement above.
4 INCOME
Six months Year Six months
ended ended ended
30.09.24 31.03.24 30.09.23
unaudited audited unaudited
£’000 £’000 £’000
Investment income
Overseas dividends 40,459 26,052 22,274
Overseas scrip dividends 272 – –
Interest on securities – 71 –
--------------- --------------- ---------------
40,731 26,123 22,274
========= ========= =========
Derivative income
Dividends received on long CFDs 11,375 10,525 9,405
Interest received on CFDs 345 629 304
--------------- --------------- ---------------
11,720 11,154 9,709
========= ========= =========
Other income
Interest received on collateral and deposits 676 1,659 800
--------------- --------------- ---------------
Total income 53,127 38,936 32,783
========= ========= =========
Special dividends of £1,493,000 have been recognised in capital during the
period (year ended 31 March 2024: £1,458,000 and six months ended 30
September 2023: £1,458,000).
5 INVESTMENT MANAGEMENT FEES
Revenue Capital Total
£’000 £’000 £’000
Six months ended 30 September 2024 (unaudited)
Investment management fee – base 1,242 3,727 4,969
Investment management fee – variable – (1,058) (1,058)
Investment management fee waived in respect of ACIC combination (134) (402) (536)
--------------- --------------- ---------------
1,108 2,267 3,375
========= ========= =========
Year ended 31 March 2024 (audited)
Investment management fee – base 2,430 7,289 9,719
Investment management fee – variable – 1,702 1,702
--------------- --------------- ---------------
2,430 8,991 11,421
========= ========= =========
Six months ended 30 September 2023 (unaudited)
Investment management fee – base 1,293 3,879 5,172
Investment management fee – variable – 1,177 1,177
--------------- --------------- ---------------
1,293 5,056 6,349
========= ========= =========
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”).
The base investment management fee for the period from 1 April to 30 June 2023
was 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. Since 1 July 2023,
it has been charged at an annual reduced rate of 0.85% on the first £1.5
billion of Net Assets and remained unchanged at 0.70% on Net Assets over £1.5
billion until 14 March 2024, when on completion of the transaction with ACIC,
it reduced to 0.65% on Net Assets over £1.5 billion.
The Manager agreed to a contribution of £715,000, representing eight months
of management fees, in respect of the assets transferred by ACIC to the
Company, that would otherwise be payable by the enlarged Company to the
Manager being recognised in the year to 31 March 2025. In the period to 30
September 2024, an initial £536,000 has been recognised and an additional
£179,000 will be recognised in the final six months of the year.
In addition, there is a +/-0.20% variable fee based on the Company’s NAV per
share performance relative to the Company’s Benchmark Index measured daily
over a three-year rolling basis.
Fees are payable monthly in arrears and are calculated on a daily basis.
The base management fee has been allocated 75% to capital reserve in
accordance with the Company’s accounting policies.
6 FINANCE COSTS
Revenue Capital Total
£’000 £’000 £’000
Six months ended 30 September 2024 (unaudited)
Interest on overdrafts 12 36 48
Interest paid on CFDs 2,817 8,452 11,269
Dividends paid on short CFDs 72 215 287
--------------- --------------- ---------------
2,901 8,703 11,604
========= ========= =========
Year ended 31 March 2024 (audited)
Interest on bank loan and overdrafts 1,117 3,352 4,469
Interest paid on CFDs 5,582 16,746 22,328
Dividends paid on short CFDs – – –
--------------- --------------- ---------------
6,699 20,098 26,797
========= ========= =========
Six months ended 30 September 2023 (unaudited)
Interest on bank loan and overdrafts 642 1,927 2,569
Interest paid on CFDs 2,784 8,352 11,136
Dividends paid on short CFDs – – –
--------------- --------------- ---------------
3,426 10,279 13,705
========= ========= =========
Finance costs have been allocated 75% to capital reserve in accordance with
the Company’s accounting policies.
7 TAXATION
Revenue Capital Total
£’000 £’000 £’000
Six months ended 30 September 2024 (unaudited)
UK corporation tax 322 (322) –
Overseas taxation charge 1,019 – 1,019
Taxation charge for the period 1,341 (322) 1,019
--------------- --------------- ---------------
Year ended 31 March 2024 (audited)
UK corporation tax – – –
Overseas taxation charge 812 – 812
--------------- --------------- ---------------
Taxation charge for the year 812 – 812
--------------- --------------- ---------------
Six months ended 30 September 2023 (unaudited)
UK corporation tax 383 (383) –
Overseas taxation charge 794 – 794
--------------- --------------- ---------------
Taxation charge for the period 1,177 (383) 794
========= ========= =========
8 EARNINGS/(LOSS) PER ORDINARY SHARE
Six months Year Six months
ended ended ended
30.09.24 31.03.24 30.09.23
unaudited audited unaudited
Revenue earnings per ordinary share 9.05p 5.78p 5.43p
Capital earnings/(loss) per ordinary share 25.20p (50.18p) (36.06p)
--------------- --------------- ---------------
Total earnings/(loss) per ordinary share 34.25p (44.40p) (30.63p)
========= ========= =========
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 shown below:
£’000 £’000 £’000
Revenue profit after taxation for the period 47,184 27,792 26,218
Capital profit/(loss) after taxation for the period 131,319 (241,256) (174,070)
--------------- --------------- ---------------
Total profit/(loss) after the taxation for the period 178,703 (213,464) (147,852)
========= ========= =========
Number Number Number
Weighted average number of ordinary shares held outside of Treasury 521,153,833 480,806,725 482,649,498
========== ========== ==========
9 DIVIDEND PAID TO SHAREHOLDERS
Six months Year Six months
ended ended ended
30.09.24 31.03.24 30.09.23
unaudited audited unaudited
£’000 £’000 £’000
Dividend of 6.40 pence per ordinary share paid for the year ended 31 March 2024 33,355 – –
Dividend of 6.25 pence per ordinary share paid for the year ended 31 March 2023 – 30,198 30,198
--------------- --------------- ---------------
33,355 30,198 30,198
========= ========= =========
No dividend has been declared for the six months ended 30 September 2024 (six
months ended 30 September 2023: £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 2024 (Accounting
Policies Notes 2 (e), (l) and (m) on pages 66 to 68). The table below sets out
the Company’s fair value hierarchy:
30 September 2024 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 1,045,496 13,806 128,905 1,188,207
Derivative instrument assets 132 104,325 – 104,457
--------------- --------------- --------------- ---------------
1,045,628 118,131 128,905 1,292,664
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (13,635) (3,498) – (17,133)
========= ========= ========= =========
31 March 2024 (audited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 980,975 24,282 157,008 1,162,265
Derivative instrument assets – 7,103 – 7,103
--------------- --------------- --------------- ---------------
980,975 31,385 157,008 1,169,368
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (475) (12,832) – (13,307)
========= ========= ========= =========
30 September 2023 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 915,517 45,802 186,137 1,147,456
Derivative instrument assets 956 2,783 – 3,739
--------------- --------------- --------------- ---------------
916,473 48,585 186,137 1,151,195
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (10,298) – (10,298)
--------------- --------------- --------------- ---------------
Financial liabilities at fair value
Bank loan – (81,790) – (81,790)
========= ========= ========= =========
The table below sets out the movements in level 3 investments during the
period:
30.09.24 31.03.24 30.09.23
unaudited audited unaudited
£’000 £’000 £’000
Level 3 investments at the beginning of the period 157,008 192,878 192,878
Purchases at cost – ByteDance 12,414 – –
Sales proceeds – DJI International D and Venturous Holdings (14,410) (2,943) –
Sales gains – DJI International D and Venturous Holdings 960 615 –
Transfers into level 3 at cost 1 – 17,316 17,316
Transfers out of level 3 – at cost 2 (17,316) 3 (35,153) (11,758)
Unrealised gains recognised in the Income Statement (9,751) (15,705) (12,299)
--------------- --------------- ---------------
Level 3 investments at the end of the period 128,905 157,008 186,137
========= ========= =========
1 Financial instruments are transferred into level 3 on the date they are
suspended, delisted or when they have not traded for thirty days.
2 Financial instruments are transferred out of level 3 when they become
listed.
3 China Renaissance Holdings following it relisting on the Hong Kong Stock
Exchange on 11 September 2024.
No income has been recognised from the unlisted investments during the period
(year ended 31 March 2024 and six months ended 30 September 2023: £nil). No
additional disclosures have been made in respect of the unlisted investments
as the underlying financial information is not publicly available.
11 OTHER RECEIVABLES
30.09.24 31.03.24 30.09.23
unaudited audited unaudited
£’000 £’000 £’000
Securities sold for future settlement 6,834 5,957 703
Amounts receivable on settlement of derivatives 1,237 2,161 3,788
Accrued income 6,212 1,726 5,768
Taxation recoverable 11 12 12
Other receivables 156 210 119
--------------- --------------- ---------------
14,450 10,066 10,390
========= ========= =========
12 OTHER PAYABLES
30.09.24 31.03.24 30.09.23
unaudited audited unaudited
£’000 £’000 £’000
Securities purchased for future settlement 2,296 6,843 1,624
Amounts payable on settlement of derivatives – 1,078 5,175
Investment management fees payable 563 678 974
Accrued expenses 604 414 944
Finance costs payable 605 610 868
Amounts payable for repurchase of shares for cancellation – 179 1,052
--------------- --------------- ---------------
4,068 9,802 10,637
========= ========= =========
13 SHARE CAPITAL
30 September 2024 31 March 2024 30 September 2023
unaudited audited unaudited
Number of £’000 Number of £’000 Number of £’000
shares shares shares
Issued, allotted and fully paid
Ordinary shares of 1 pence each held outside of Treasury
Beginning of the period 525,681,434 5,258 488,325,628 4,884 488,325,628 4,884
New ordinary shares issued in respect of the transaction with ACIC – – 59,005,997 590 – –
Ordinary shares repurchased into Treasury – – (2,900,696) (29) (2,900,696) (29)
Ordinary shares repurchased for cancellation (9,332,287) (93) (18,749,495) (187) (8,900,641) (89)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
End of the period 516,349,147 5,165 525,681,434 5,258 476,524,291 4,766
========== ========== ========== ========== ========== ==========
Ordinary shares of 1 pence each held in Treasury*
Beginning of the period 85,629,548 855 82,728,852 826 82,728,852 826
Ordinary shares repurchased into Treasury – – 2,900,696 29 2,900,696 29
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
End of the period 85,629,548 855 85,629,548 855 85,629,548 855
========== ========== ========== ========== ========== ==========
Total share capital 6,020 6,113 5,621
========== ========== ==========
* 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 9,332,287 (year ended 31 March
2024: 18,749,495 shares and six months ended 30 September 2023: 8,900,641
shares) ordinary shares for cancellation. The cost of repurchasing these
shares of £18,509,000 (year ended 31 March 2024: £38,968,000 and six months
ended 30 September 2023: £18,930,000) was charged to the Other Reserve.
No ordinary shares were repurchased and held in Treasury during the period
(year ended 31 March 2024: 2,900,696 shares and six months ended 30 September
2023: 2,900,696 shares). The cost of repurchasing these shares in the year to
31 March 2024 of £6,965,000 was charged to the Other Reserve.
On 13 March 2024, the Company acquired £126.8 million of Net Assets from
ACIC, in consideration for the issue of 59,005,997 new shares to ACIC
shareholders in accordance with the Scheme.
14 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the net
assets divided by the number of ordinary shares held outside of Treasury.
30.09.24 31.03.24 30.09.23
unaudited audited unaudited
Net assets £1,302,117,000 £1,176,014,000 £1,134,476,000
Ordinary shares held outside of Treasury 516,349,147 525,681,434 476,524,291
Net asset value per ordinary share 252.18p 223.71p 238.07p
============ ============ ============
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 £3,375,000 (year ended 31 March 2024: £11,421,000
and six months ended 30 September 2023: £6,349,000) were payable to Fidelity.
Fidelity also provides the Company with marketing services. The total amount
payable for these services was £128,000 (year ended 31 March 2024: £269,000
and six months ended 30 September 2023: £132,000). Amounts payable at the
Balance Sheet date are included in other payables and are disclosed in Note 12
above.
FIL Investment Services (UK) Limited agreed to contribute towards the costs of
the transaction with ACIC and an amount equal to eight months of management
fees in the year to 31 March 2025, that would otherwise be payable by the
enlarged Company to the Manager, in respect of the assets transferred by ACIC
to the Company pursuant to the Scheme will be waived. In the period to 30
September 2024, an initial £536,000 has been recognised and an additional
£179,000 will be recognised in the final six months of the year.
Additionally, the Manager agreed to make a contribution of £500,000 in
respect of the transaction with ACIC. The Company recognised an initial
contribution of £400,000 in the year to 31 March 2024, and have subsequently
recognised a further £100,000 in the period to 30 September 2024.
At the date of this report, the Board consisted of six non-executive Directors
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 £54,000, the Chairman of the Audit and
Risk Committee receives an annual fee of £45,500, the Senior Independent
Director receives an annual fee of £42,500 and each other Director receives
an annual fee of £36,000. 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 43,800 shares, Vanessa Donegan 10,000 shares, Georgina Field
2,250 shares, Gordon Orr nil shares and Edward Tse nil shares.
16 POST BALANCE SHEET EVENT
On 27 November 2024 following an initial public offering ("IPO"), Pony.ai
listed on the Nasdaq Global Select Market at an IPO price of US$13 which was
similar to the valuation in the Company's portfolio.
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 2024 and 30 September 2023 has not been audited or reviewed by the
Company’s Independent Auditor.
The information for the year ended 31 March 2024 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.
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