FIDELITY CHINA SPECIAL
SITUATIONS PLC
Final Results for the year ended 31 March
2024
Financial
Highlights:
-
The Board
of Fidelity China Special Situations PLC (the “Company”) recommends
an annual dividend of 6.40 pence per
share.
-
During the
year ended 31 March 2024, the Company
reported a Net Asset Value (“NAV”) total return of -16.3% and an
ordinary share price total return of -16.4%.
-
This was
ahead of the Benchmark Index, the MSCI China Index, which returned
a total return of -18.8% (in UK sterling terms) over the same
period.
-
Four of
the top ten relative performers were in the consumer discretionary
space, while the Portfolio Manager continues to find opportunities
in the industrials sector.
Contacts
For further information, please
contact:
George Bayer
Company Secretary
0207 961 4240
FIL Investments International
CHAIRMAN’S STATEMENT
With global uncertainties and geopolitical concerns remaining
heightened, as well as a softer-than-expected economy recovery in
the wake of COVID restrictions being lifted, investors in
China have once more faced a
challenging year. Overall returns were negative during the year
with the small consolation that your Company did manage again to
outperform its Benchmark Index, the MSCI China Index (in UK
sterling terms).
In the reporting year to 31 March
2024, the net asset value (“NAV”) per share total return of
your Company was -16.3%, while the Benchmark Index returned -18.8%.
The share price total return was -16.4%. After widening during the
previous financial year, the share price discount to NAV was
relatively stable beginning the period at 9.7% and ending it at
10.2%. Noticeably Chinese companies – even in the state-owned
sector – are becoming increasingly focused on rewarding minority
shareholders, including through the payment of dividends. While we
have always expected your Company to generate the majority of its
returns from capital, dividends from underlying companies also make
a meaningful contribution to the total return. This has helped us
to grow the dividend paid each year since launch.
The current Chinese Year of the Dragon marks Dale Nicholls’ 10th
anniversary as your Portfolio Manager. While there have undoubtedly
been ups and downs for investors during this time (particularly
during 2021 and 2022), Dale has built an impressive record, with
the NAV outperforming the Benchmark Index over one, five and 10
years. Over his tenure, he has generated a total shareholder return
of 125.7% (NAV total return of 123.0%), some 75 percentage points
ahead of the Benchmark Index return of 49.3%.
A notable event during the year was the transaction by your Company
with the abrdn China Investment Company Limited (“ACIC”). The
transaction was concluded on 14 March
2024 and provides benefits to both existing shareholders of
Fidelity China Special Situations PLC (“FCSS”) and former holders
of ACIC. Upon conclusion of the transaction (which was supported by
99.9% of ACIC shareholders voting at their shareholders meeting)
the Company’s assets grew by £126m, which brings greater liquidity
to our shares and a larger asset base (now well over £1 billion)
over which to spread the Company’s fixed costs, helping to
otherwise reduce the level of ongoing charges for all investors. As
part of the transaction, the Manager (FIL Investment Services (UK)
Limited) contributed to the transaction costs, waiving eight months
of management fees on the assets transferred from ACIC, thereby
offsetting direct expenses to the Company. It also reduced the fee
level at the higher tier of assets (above £1.5 billion) from 0.70%
to 0.65%. This is expected to lower the ongoing costs of the
Company further as it grows over the longer-term. We welcome the
former ACIC shareholders and look forward to their continued
support being rewarded. The very short-term experience since the
transaction has been encouraging for both new and existing
shareholders with the share price rising from 197.40 pence on 14 March
2024 to 222.00 pence per share
on 31 May 2024, an increase of
12.5%.
The main driving force of the Chinese economy in the past 10 years
has been investment – whether at the government, business or
household level – leading to improvements in infrastructure, strong
export growth and a property boom. In the current environment,
export growth has weakened as a result of
global supply chain diversification away from China as well as US trade reluctance
(expressed via tariffs and sanctions), and infrastructure is now
developed to the point where the marginal impact of additional
investment is reduced. Concerns in the property market –
particularly in the new-build sector, which has a stronger
contribution to overall growth – have been well documented in
recent years. With these three stalwarts of economic growth
curtailed a 5% GDP growth target – would be a good outcome that
underscores China’s resilience. While a US plan to further restrict
sales of advanced semiconductors to China adds an element of uncertainty,
particularly in some areas of technology and automation, it is
leading to a wave of Chinese invention and investment to
compensate. So far, China has
surprised in its ability to keep innovating in microchips in
particular. It is also leading the world in electric vehicles,
green energy technologies and battery technology and is making
strong progress with AI. All these are becoming increasingly
important industries that China
could seek to lead globally in the future.
Meanwhile, the Chinese stock market remains one of the most
lowly-valued large, liquid markets in the world. Market-level
performance has been disappointing for three years now, and it is
always difficult to know when share prices will start to reflect
intrinsic value rather than being marked down on poor sentiment.
However, the companies in the portfolio continue to show strong
earnings growth, and we remain confident that the market will come
to appreciate the value on offer in the future; it may already have
started to happen. As ever, having a large research team on the
ground in China is fundamental to
success in seeking out the best opportunities, particularly among
smaller and medium-sized companies, where the relatively higher
growth potential has yet to be reflected in share prices, and
investor awareness is low.
Being structured as a closed-ended investment company means that
your Company does not have the liquidity constraints of an
open-ended fund, and it can use this flexibility to invest in less
liquid assets with a longer-term view of returns. Up to 15% of Net
Assets plus Borrowings may be invested in unquoted companies (those
not yet listed on a stock exchange), allowing the Manager to take
advantage of the faster growth trajectory of earlier-stage
businesses before they are potentially listed on the public
markets. During the period under review, the number of unquoted
companies held in the portfolio reduced from nine to six, following
the IPOs of Beisen, Cutia Therapeutics and Tuhu Car in April, June
and September 2023 respectively.
Unlisted holdings now make up 12.8% of Net Assets, compared with
13.6% on 31 March 2023. If the
Company were to reach the 15% limit in unquoted companies, it does
not preclude us from further investment in existing holdings if
fresh capital was required by them. However, with valuations in the
listed equity market currently at historically low levels, Dale has
said that any potential new private investments would have to be
very attractive in order to win a place in the
portfolio.
We have confidence in the strength of the detailed process for the
valuation of our unlisted holdings. They are assessed regularly by
Fidelity’s dedicated Fair Value Committee (“FVC”), with advice from
Kroll, a third-party valuation specialist, as well as from the
Fidelity analysts who follow the companies and the sectors in which
they operate. The valuation process is set out in more detail in
the Annual Report. The Board receives regular updates from the FVC,
with Alastair Bruce, our Audit and
Risk Committee Chairman, also providing expertise in the area,
having for many years been involved professionally in private
equity investing.
The Board is mindful of the risks of investing in a single emerging
market, however large and diverse it may be, and monitors both
current risks and its perception of emerging risks. Dale’s focus on
consumption and the domestic economy mitigates much of the
geopolitical risk that has increased in the last few years. In
particular, a greater focus on the opportunities in the domestic
market generated by industrial and technology companies is helping
Chinese businesses continue to innovate and grow, even in a period
of continued strain in the relationship between China and the US.
ESG
While your Company is not a ‘green’ or ‘ethical’ fund, ESG factors
remain an important part of the work of the Portfolio Manager, as
continuing deterioration in the climate and other social and
governance concerns present a potential investment risk to your
portfolio. Chinese businesses are under increasing pressure to
ensure that their activities are environmentally sustainable and
demonstrate social responsibility and good corporate governance.
Although there is progress in the form of commitments and
initiatives across a wide range of areas, more needs to be done.
Fidelity has a sustainable investing approach, including engagement
and voting principles and guidelines, as well as having developed
its own proprietary forward-looking ESG ratings. The ratings of the
companies in the portfolio are ahead of the broader market and
continue to improve. Details of ESG engagements by the management
team in the year under review are included in the Portfolio
Manager’s Review below, and an explanation of how Fidelity has
embedded ESG factors in its investment decision-making can be found
in the Annual Report.
GEARING
During the year, the Company repaid its US$100m loan from The Bank of Nova Scotia and replaced it with additional
gearing by way of contracts for difference (“CFDs”). Previously
CFDs accounted for around two-thirds of gearing and for the time
being this has risen to 100% to control costs. We continue to
believe that the judicious use of gearing (another benefit of the
investment trust structure) can enhance long-term capital and
income returns, although being more than 100% invested also means
that the NAV and share price may be more volatile and can
accentuate losses in a falling market. The overall level of gearing
remains broadly unchanged, with net gearing beginning the year at
21.1% and ending it at 20.8%. Gearing in the past has typically
been in the range of 10% to 25%, and the current level reflects
Dale’s view that the low valuation of the Chinese equity market
means that there are many attractive investment opportunities
available on a bottom-up basis. Going forward, the upper limit for
net gearing will be 20% of Net Assets. Your Board will continue to
monitor the cost of fixed term debt, with the ambition of
reinstating an element of it in the future.
DIVIDEND
Although the Company’s investment objective is to achieve long-term
capital growth, it has paid an increased dividend each year since
its inception, growing from 0.25
pence per share in 2011 to 6.25
pence per share in 2023, which is a compound annualised
growth rate of 25.8%.
The Board is pleased to recommend once again an increased final
dividend of 6.40 pence per share for
the year ended 31 March 2024 for
approval by shareholders at the Annual General Meeting (“AGM”) to
be held on 23 July 2024.
This represents an increase of 2.4% over the 6.25 pence paid in respect of the prior year. The
dividend will be payable on 31 July
2024 to shareholders on the register on 21 June 2024 (ex-dividend date 20 June 2024).
The revenue per share earned by the Company during the year was
5.78 pence, which is a decrease of
18.0% compared with the 7.05 pence
earned in the prior year. This is primarily due to the higher cost
of gearing. This revenue per share does not fully cover the
recommended dividend for the year and as a result Revenue Reserves,
which have been built up over the years, will be used to cover the
shortfall. Following this, there will remain 3.78 pence per share in Revenue
Reserves.
DISCOUNT MANAGEMENT
The Board believes that investors are best served when the share
price trades close to the Company’s NAV per share. However, we
recognise 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 we seek to maintain the Company’s discount in single
digits in normal market conditions. Historically, shares bought
back 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 held in Treasury equated to 15% of the issued
share capital by 11 May 2023, shares
repurchased since then have been cancelled.
The Company’s discount was broadly stable during the reporting
year, widening marginally from 9.7% on 31
March 2023 to 10.2% at the end of the period. This is
perhaps notable in a period in which many investment trusts saw
their discounts widen, sometimes materially. With sentiment towards
China in particular and investment
trusts in general remaining challenging, the Board authorised the
repurchase of 21,650,191 shares (the majority for cancellation) at
a cost of £45,933,000, representing 3.5% of the issued share
capital of the Company. Just under half of the repurchases (by
number of shares) took place between August and November 2023. As well as helping to limit
discount volatility, share repurchases are of benefit to the
remaining shareholders, as the NAV per share is increased by
purchasing shares at a discount. Since the year end and as at the
latest practicable date of this report, the Company has repurchased
a further 2,696,249 shares for cancellation. The graph in the in
the Annual Report shows the movement of the Company’s discount
during the year.
At the forthcoming AGM, the Board is seeking to renew the annual
authority to repurchase up to 14.99% of the Company’s shares, to be
either cancelled or held in Treasury, as it has done each year
previously.
ONGOING CHARGES RATIO
The Ongoing Charges Ratio (the costs of running the Company) for
the year was 0.98% (2023: 0.98%). The variable element of the
management fee (due to outperformance of the Benchmark Index) was a
charge of 0.15% (2023: 0.20%). Therefore, the Ongoing Charges
Ratio, including this variable element, for the year was 1.13%
(2023: 1.18%).
MANAGEMENT FEE
Your Board continues to focus on achieving good value for the
Company’s shareholders. During the year under review, the
management fee paid to the Manager, FIL Investment Services (UK)
Limited, on the first £1.5 billion of Net Assets was reduced from
0.90% to 0.85% (effective 1 July
2023). As mentioned above, in tandem with the transaction
with ACIC, the fee payable on Net Assets should they exceed £1.5
billion has also been renegotiated, falling from 0.70% to 0.65%.
The variable element of the fee of +/-0.20% remains
unchanged.
CONTINUATION VOTE
Following the completion of the transaction with abrdn China
Investment Company Limited, your Board has committed to give
shareholders the opportunity to vote on the continuation of the
Company. The first vote will be at the AGM in 2029 and every five
years thereafter.
BOARD OF DIRECTORS
After a programme of Board refreshment in recent years (with all
the Directors, including myself, having been appointed since 2020
as the Company’s founding Directors retired), there have been no
changes to the Board of Directors in the year under review. We are
pleased that your Company’s Board includes a real diversity and
balance of relevant skills and experience, covering China itself, accountancy, investment
management (including private equity and private equity valuations)
and marketing expertise. I noted in last year’s Annual Report that
with two women and four men, our Board currently falls short of the
voluntary target of 40% of FTSE 350 board members to be women, as
set by the new FCA Listing Rules. It should, however, be noted that
from July 2019 to January 2023 at least 40% of the Board was
comprised of women. In order to meet this target in the near term,
we would need to increase the number of Directors from six to
seven, a move that we have carefully assessed – in consultation
with some of our larger shareholders – and concluded that it would
not currently represent the best value for shareholders. It remains
our longer-term ambition to move closer to gender parity as and
when any of our current Directors retire from the Board.
In accordance with the UK Corporate Governance Code for Directors
of FTSE 350 companies, all Directors are subject to annual
re-election at the AGM on 23 July
2024. The Directors’ biographies can be found in the Annual
Report, and, between them, they have a wide range of appropriate
skills and experience to form a balanced Board to support and
oversee the Company in the best interests of all
shareholders.
ANNUAL GENERAL MEETING
The Company’s AGM is at 11.00 am on
Tuesday, 23 July 2024. While
the meeting will once again be hybrid in format, with online
attendance available, the Board and I hope to see as many of you as
possible in person on the day to mark Dale’s 10-year record of
outperformance. Details of the AGM are below.
OUTLOOK
While the Chinese economy remains sluggish, having failed to reap
fully the benefits from the post-COVID reopening, there are
undoubtedly signs of improvement. The March PMI figure – a measure
of the economic health of the manufacturing sector – moved into
positive territory (a reading above 50) for the first time in six
months, reaching its highest level since March 2023 and potentially signalling a more
sustained period of improvement. April trade data was good and
showed a rise in imports, indicating a possible rise in domestic
demand. At the same time, it is heartening to see that the Chinese
authorities have not been panicked into implementing one-off large
measures to boost the economy. They are going about things in a
gradually stimulating fashion on both the fiscal and the monetary
side, which will hopefully lead to a more balanced outcome.
Meanwhile, with Chinese equity market valuations at particularly
low levels, both relative to their own history and in a global
context, there should be many opportunities for investors to
participate profitably in the recovery.
Perhaps the major risk to our cautiously positive outlook is the
forthcoming US Presidential election. US relations with
China have stabilised somewhat,
although increasing tariffs and trade restrictions remain a
concern. There is a significant risk that relations could worsen
and US may implement measures such as raising tariffs on imports
from China to 60%, which would
significantly harm Chinese exporters and would depress global trade
and exacerbate US inflation trends.
In Chinese culture, the Year of the Dragon is associated with great
change, good fortune and prosperity, to such an extent that Dragon
years have historically experienced ‘baby booms’. While there can
be no certainty that the Chinese equity market is itself on the
verge of a boom, the structural trends at play in the economy,
coupled with Dale and his team’s focus on selecting the stocks best
positioned to deliver value to shareholders, should continue to
support our positive medium to long-term view.
Meanwhile, we hope to see you, in person or virtually, at our
Annual General Meeting on 23 July
2024.
MIKE
BALFOUR
Chairman
10 June 2024
ANNUAL GENERAL MEETING – TUESDAY, 23
JULY 2024 AT 11.00
AM
The AGM of the Company will be held at
11.00 am on Tuesday,
23 July 2024
at 4 Cannon Street, London EC4M
5AB (nearest tube stations are St Paul’s or Mansion House) and
virtually via the online Lumi AGM meeting platform. Full details of
the meeting are given in the Notice of Meeting in the Annual
Report.
For those shareholders who are unable to attend in person, we will
live-stream the formal business and presentations of the meeting
online.
Dale Nicholls, the Portfolio
Manager, will be making a presentation to shareholders highlighting
the achievements and challenges of the year past and the prospects
for the year to come. He and the Board will be very happy to answer
any questions that shareholders may have. Copies of his
presentation can be requested by email at
investmenttrusts@fil.com
or in writing to the Secretary at FIL Investments International,
Beech Gate, Millfield Lane, Lower
Kingswood, Tadworth, Surrey KT20
6RP.
Properly registered shareholders joining the AGM virtually will be
able to vote on the proposed resolutions. Please see Note 9 to the
Notes to the Notice of Meeting in the Annual Report for details on
how to vote virtually. Investors viewing the AGM online will be
able to submit live written questions to the Board and the
Portfolio Manager and we will answer as many of these as possible
at an appropriate juncture during the meeting.
Further information and links to the Lumi platform may be found on
the Company’s website at
www.fidelity.co.uk/china.
On the day of the AGM, in order to join electronically and ask
questions via the Lumi platform, shareholders will need to connect
to the website
https://web.lumiagm.com.
Please note that investors on platforms, such as Fidelity Personal
Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell
Youinvest, will need to request attendance at the AGM in accordance
with the policies of your chosen platform. They may request that
you submit electronic votes in advance of the meeting. If you are
unable to obtain a unique IVC and PIN from your nominee or
platform, we will also welcome your online participation as a
guest. Once you have accessed
https://web.lumiagm.com
from your web browser on a tablet or computer, you will need to
enter the
Lumi Meeting ID
which is
134-206-210.
You should then select the ‘Guest Access’ option before entering
your name and who you are representing, if applicable. This will
allow you to view the meeting and ask questions, but you will not
be able to vote.
PORTFOLIO MANAGER’S REVIEW
QUESTION
How has the investment company performed in the year to
31 March 2024?
ANSWER
The Company’s NAV delivered a total return of -16.3% for the
financial year ended 31 March 2024,
outperforming the MSCI China Index (the Benchmark Index), which
returned -18.8%. While overall returns were negative, the biggest
contributors to outperformance were stock selection in the consumer
discretionary (our largest sector weighting), industrials and
consumer staples sectors. We were overweight in all these sectors
compared to the Benchmark. In absolute terms, our energy stocks
were the best performers, although their weighting is a very small
part of the portfolio (c. 2% of total net assets), and is
underweight versus the Benchmark. Our overweight exposures to
financials and materials were the biggest drag on relative returns,
while the worst absolute performance was in real estate – perhaps
unsurprisingly, given another year of negative headlines – although
our exposure did outperform the Benchmark. This is another small
weighting, at only around 3% of total net assets.
QUESTION
What stocks have been the main drivers of performance
during the period and why?
ANSWER
Four of our top 10 relative performers are consumer discretionary
stocks, the best of which has been Hisense Home Appliances Group.
While the ‘white collar’ area of the consumer market has had a
tougher time, the lower end has been much more resilient, supported
by government stimulus in the case of home appliances. Hisense has
executed well in the mass-market segment, growing its market share
and margins in both 2023 and so far in 2024. It had also been
trading at a very cheap valuation. The market began to recognise
the value on offer with the share price almost doubling in the year
under review. It is also among our best performing shares over the
past 10 years.
Elsewhere in the consumer space, two clothing companies – Crystal
International Group and JNBY Design – were also notable
contributors. Crystal International is an apparel manufacturer,
with strong growth in sportswear, supported by excellent
relationships with the likes of Adidas and lululemon. JNBY is a
designer fashion brand offering a good value proposition for its
niche higher-end customers, and has been posting resilient sales
numbers despite economic headwinds. Its loyal and sophisticated
customer base with high fashion awareness helps mitigate macro
risks.
Logistics firm Sinotrans falls into the industrial sector, but also
benefits from consumer trends, with an increase in international
e-commerce transportation leading to strong performance. Disruption
in the Red Sea has also provided some support as air transportation
freight rates have increased.
HollySys Automation Technologies, a firm engaged in industrial
automation, was also among the largest contributors to positive
returns in the year. The company is in the process of being taken
private after a bid from a Hong
Kong-based private equity group. We decided to exit the
position following its share price strength prompted by the
bid.
The portfolio does not have heavy exposure to Chinese auto makers,
mostly on the back of competition concerns, but, as a global leader
in the electric vehicle (EV) market, China offers many opportunities to participate
in growth. Our two biggest detractors have exposure to the autos
value chain. Hesai Group is a global leader in three-dimensional
LiDAR (laser range determining) sensors, which are an important
component in the development of autonomous vehicles. While Hesai’s
stock price suffered over the reporting period, and was the largest
detractor to performance, we still see this as a structural growth
opportunity over the long-term. Intron Technology’s automotive
electronic components are applied in new energy, body control,
safety and power train systems. It detracted from performance amid
a tough market environment, with a price war in auto parts putting
pressure on margins.
Relative returns were also hurt by not holding state-owned banks,
China Construction Bank and Bank of China. We preferred not to own these stocks
given a poor outlook for their net interest margins, due to falling
lending rates, weak loan growth and the potential impact on credit
quality, if the government steps up policies to encourage more
lending. The portfolio did include China Merchants Bank to mitigate
this risk and for its consumer lending franchise.
QUESTION
The expected recovery of the Chinese consumer has been
somewhat disappointing. Could 2024 see a change in both consumer
confidence and retail sales?
ANSWER
Consumer confidence has indeed been weak but there are reasons to
anticipate an improvement. Bank deposits saw huge growth during
COVID and household balance sheets are very strong, so there is
spending power available, but people need confidence to unlock it.
Deposit growth has slowed down more recently, which suggests a more
optimistic outlook on spending. There has been a bifurcation in
confidence, with the white-collar area suffering most, presumably
hurt by bigger redundancies. In general, lower-end products have
performed better. Job cuts by the big technology companies may now
be largely behind us, and a slowly improving employment picture
could bring back some confidence.
Consumer services have also outperformed consumer goods, for
example in the growth of travel since the lifting of COVID
restrictions. For now, we believe service-led consumption will
continue to dominate the recovery in China. Recent data has shown that Chinese
tourists spent more per trip now than the pre-pandemic era. Railway
travel has doubled year-to-date, and air travel has almost tripled
compared with 2023. Sectors such as Macau gaming, tourism and internet platforms
related to services are well positioned to benefit. On the consumer
goods side, the government has announced measures to encourage
durable goods upgrades through subsidies or targeted credit
support, such as lowering the down payment requirement for car
purchases. We believe this should support increased industrial
production and manufacturing opportunities.
Weakness in the property sector has clearly been a significant drag
on overall economic growth, including the obvious impact on
consumer sentiment. Although retail sales have been more volatile
in the post-COVID period than previously, they continue on a
broadly upward trend, indicating some resilience in the face of
falling property sales. We feel confident that we will continue to
see ongoing policy loosening to support the property
sector.
QUESTION
We are reading about challenges in the region with
potential higher tariffs being explored in the US and Europe, along with other domestic challenges.
How are you managing this risk, and does this bring with it
opportunities?
ANSWER
With regard to US executive orders and sanctions, we are working
closely with Fidelity International’s legal and regulatory experts
to understand the policy direction and potential policy response.
In general, we believe that China
would be keen to have better relations with the US, and the greater
dialogue between Presidents Xi and Biden is encouraging. There is
no denying, however, that strategic competition between the two
countries is going to be a factor that will be with us for decades.
The good thing is that the market is becoming more comfortable with
this reality. China has been
dealing with US tariffs for years, and companies are well aware of
the prospect that they might be higher in the future. Former
President Trump has even suggested raising import tariffs to 60%,
although one has to think that stickier inflation in the US could
mean it will be harder for the government there to implement hikes
of this magnitude.
In terms of corporate-level geopolitical risk, it is something we
look at on a stock by stock basis. For example, we try to
incorporate sanction risks on companies with any significant
technology exporting from China to
the US into our analysis. In general, within our portfolio, revenue
exposure to the US is limited and any risk would appear to be
mostly priced in. While the video platform TikTok has again been in
the headlines because of a new US bill that would require it to be
sold off or risk being banned, it is important to remember that as
a percentage of its parent company ByteDance’s operations, TikTok
is relatively small and also loss-making, whereas the domestic
business is highly profitable and growing strongly. Meanwhile, the
vast majority of companies are largely unaffected by such
geopolitical concerns.
QUESTION
How have you utilised the investment company structure this
year? Has it been beneficial?
ANSWER
Our approach to managing the gearing of the Company mostly reflects
the opportunity set that we see at any one time. Gearing will
naturally be higher when that opportunity set is plentiful and vice
versa. Given the significant swings in sentiment towards the
China market, we tend to see
better risk-reward prospects when sentiment is weak and valuations
are lower. Gearing is primarily deployed using contracts for
difference (“CFDs”), which are low-cost and represent a flexible
way of increasing investment exposure. During the year, we repaid
the fixed-term loan facility, and all gearing is currently via
CFDs. However, this is something we continue to evaluate and may
look to reinstate an element of fixed-term borrowing in the future
if the terms are attractive.
We like to utilise all the tools the investment company structure
gives us, with historically a working maximum net exposure of
around 25% and a hard limit of 30% of gross assets. At the start of
the period under review, net gearing was 21.1%, which rose over the
following months, peaking at 25.5% by the end of August 2023 before falling slightly. At
31 March 2024, the portfolio’s net
market exposure was 120.8% (net gearing of 20.8%), which, while
marginally lower than at the start of the period, is still a
notable increase since late 2021, reflecting the compellingly
attractive valuations of the Chinese market and, therefore, the
relative appeal of greater levels of gearing to take advantage of
opportunities on offer. It is not anticipated that net gearing will
materially exceed 20% in the future, following a change of the
Board’s policy.
Because gearing increases market exposure, it magnifies returns in
strong market conditions, but also acts as a drag in times of poor
returns. As such, it was a negative contributor to relative
performance in the period under review, detracting by 3.75
percentage points. Nevertheless, we continue to believe that the
judicious use of gearing can be accretive to long-term capital and
income returns, allowing us the opportunity to capitalise on the
volatility in the Chinese market.
QUESTION
Looking longer-term, what do you see as the drivers of
returns for China
equities?
ANSWER
At a basic level, returns will be driven by a Company’s earnings
and the multiple that the market is willing to put on those
earnings. As mentioned, this multiple can swing significantly
depending on sentiment, which is often influenced by factors such
as geopolitics, which in many cases bear little influence on a
company’s earnings outlook. This is why we spend most of our
efforts analysing company fundamentals, and looking to capitalise
at times when these fundamentals are underappreciated.
While China’s economy is forecast to slow from its current growth
rate of around 5%, it is expected to remain one of the fastest
growing major economies in the world. Its gradual shift towards
consumption-driven growth, fuelled by an expanding middle class,
rising incomes and technological innovation, provides a solid
backdrop for companies to thrive.
However, China’s financial markets in the shorter-term are often
heavily influenced by geopolitics and macro decisions, which have
been more of an issue in the last few years, amid one of the
longest and harshest regulatory environments. Despite this,
regulation trends are typically somewhat cyclical, and the
government is now increasingly focused on economic
growth.
What is often not appreciated is the level of change that is
apparent on the ground, with winners emerging and innovation
flourishing across sectors, reflecting companies’ commitment to
building a competitive edge. Coupled with trends such as rapid
automation implementation driven by an aging population and the
energy transition, this continues to create interesting investment
opportunities. Consumer trends like experience-based spending,
health consciousness and premiumisation continue to grow. There is
also an increasing preference among Chinese consumers and
corporates for Chinese brands and local suppliers, resulting in
domestic companies taking ever greater market share in what remains
one of the world’s largest markets.
At the same time, and importantly, companies are increasingly
rewarding shareholders through dividends and share buybacks,
supported by recent government policy reforms and shareholders
demands. This trend is particularly prominent in the financial
sector, where state-owned enterprise companies have increased
dividend payout ratios, while smaller financial companies have
engaged in buybacks or boosted dividends.
Companies have started to recognise the potential value accretion
when valuations are at extreme levels. Internet companies like
Alibaba Group Holding and Tencent
Holdings have been some of the most aggressive in hiking both
dividends and buybacks. For many of these companies, we are seeing
shares outstanding decline for the first time.
The Japanese equity market has been in the headlines in the past
year as a similar focus on boosting shareholder returns has helped
the main index to finally regain highs last seen more than 30 years
ago. We have been closely monitoring Chinese companies’ dividend
payouts, buybacks and restricted share units (RSU) for many years
and believe that across the board – be it state-owned or private
companies, large or small-cap, utilities, internet stocks or
consumer names – management teams are emphasising returns for
minority shareholders.
In addition to this encouraging trend towards increasing
shareholder value, the Chinese stock markets also offer earnings
growth opportunities that compare well to other markets. However,
there will be differences across sectors and companies, which
underscores the importance of bottom-up stock selection.
Identifying companies with good long-term growth prospects, that
are cash generative and have strong management teams, remains key
to constructing a resilient portfolio that compounds growth over
the long-term.
QUESTION
Which sectors are you particularly excited
about?
ANSWER
We continue to find companies offering compelling long-term growth
prospects within the industrial sector, driven by factors such as
ongoing industry consolidation and the continued fast pace of
innovation. China’s share of global patent applications is
approaching 50%, and companies are investing ever more into
research and development (R&D), which over time should feed
through into improved competitiveness, pricing power and returns on
capital. This is clear in areas like robotics and the related
supply chain. Fragmented industries like building materials,
including paint, pipes and waterproofing, are poised for further
consolidation, following the trajectory seen in more developed
markets. Moreover, many businesses are also benefiting from the
re-orientation of global supply chains and an increasing preference
for local suppliers.
In emerging sectors such as EVs and renewable energy, we are
finding opportunities among enablers in the EV value chain,
particularly those providing key components and services, such as
EV battery manufacturers or auto parts suppliers. Healthcare also
presents opportunities, especially in areas with low penetration
like medical devices. Chinese companies also now have the
third-largest number of innovative drugs in development globally,
and are fast catching up with Europe, which currently lies second behind the
US.
In addition, despite macroeconomic challenges, many companies will
continue to benefit from China’s long-term shift from export and
investment-led growth towards higher-quality growth driven by
consumption. Urbanisation and a growing middle class are important
factors underlying stronger consumer purchasing power, offering
notable structural growth opportunities for under-penetrated
products and services. Therefore, we are equally excited about
long-term structural beneficiaries in the consumption space, with
an abundance of investment opportunities given many companies have
seen their valuations dragged down by weak overall market
sentiment.
QUESTION
You have just reached the milestone of 10 years managing
the Trust. With strong NAV and share price comparative performance
versus the Benchmark Index, outperforming by over 76% since your
tenure, what has been the key to that success over the
longer-term?
ANSWER
For me, the past 10 years has underlined how important it is for us
to stay focused on company level fundamentals. We operate in a
volatile market with significant swings in sentiment. Even through
tough markets of the last few years, we have had huge winners
driven by great market opportunities supported by great management
execution.
Supporting this is the calibre of the team of people we have on the
ground in China. Our analysts
understand the DNA of companies; they have long-standing
relationships with the companies they cover, and they understand
the nuances of trends. The ‘challenge’ of stock price volatility is
also the opportunity, and we are now finding many great companies
trading at bargain valuations. As long as our earnings forecasts
are accurate, we believe share prices will reflect the delivery of
those growth opportunities in the long-term.
The main driver of the Company’s performance has always been – and
will always be – the individual stocks that we invest in, the
ability to choose from the whole market cap spectrum, from tech
giants through to entrepreneurial small and medium-sized companies,
and even new businesses yet to launch on the stock market. This
all-cap strategy allows me to unearth and invest in a multitude of
stocks that play into the growth and development of the domestic
consumer. While confidence remains weak, spending power is
significant, and we see the ongoing emergence of strong domestic
brands leveraging a deep understanding of the local consumer and
operating environment.
QUESTION
Environmental, social and governance (“ESG”) themes are
very topical among investors. How do you approach ESG, and can you
outline specific examples where engagement has resulted in good
outcomes for stakeholders?
ANSWER
Fidelity International integrates ESG factors into its investment
process, with research analysts incorporating ESG into company
assessments using proprietary Sustainability Rating and Climate
Rating frameworks. We also actively engage with companies to
improve their ESG practices.
Chinese companies have not historically performed well in
third-party ESG assessments, but a great deal of this is about
disclosure. If a company is not transparent about its supply chains
or its emissions, then the market will tend to assume the worst. We
have been working with the companies in our portfolio to improve
their disclosures, and this is resulting in good progress on the
governance front.
One such example through the review period was our engagement with
Medlive Technology, one of the largest online physician platforms.
The engagement focused on their cybersecurity and data privacy
practices, which had been lacking in the past. We found that while
the company places a strong emphasis on data systems and policies,
this was not adequately reflected in their disclosures. Therefore,
we recommended that the company improves its transparency for all
stakeholders, strengthens cybersecurity privacy practices and
increases engagements with rating agencies. Subsequently, Medlive
took proactive steps, leading to enhanced cybersecurity, privacy
management and disclosures. These efforts were recognised by rating
agencies, contributing to an upgrade of the company’s ESG rating.
Additionally, Medlive established a board-level committee to
oversee key areas of information and data security.
Other noteworthy progress included our multi-year engagement with
leading Chinese sports equipment company ANTA Sports Products. We
encouraged enhancements in sustainable supply chain management, an
area that we identified as lagging global best practices. By
explaining essential aspects of industry leading supply chain
practices during our discussions, the company was open to
suggestions and proactively made improvements and new commitments.
For example, the company committed to further measures for
improving labour supply chain management, workforce disclosure,
publishing health and safety practices, and supporting suppliers in
obtaining ISO/Bluesign certifications.
As discussed in the question above on the drivers of returns for
China equities, better capital
management is a key aspect of improving governance. We actively
engaged with many of the companies we hold, and it is positive to
see increased buyback and dividend activity across the whole
market. For example, we encouraged wealth management firm Noah
Holdings to improve its capital allocation, for which, in our view,
returns have been held back by an over-capitalised balance sheet.
Over the past year, the company has made some improvements,
including the removal of dual share classes and the introduction of
a (small) dividend. In its most recent earnings release, it
announced a 50% payout ratio (which was at the top end of the newly
announced policy), as well as an additional 50% special dividend
payout.
QUESTION
Finally, with the completion of the combining of assets
with abrdn China Investment Company Limited (ACIC), how have you
allocated these assets within the portfolio?
ANSWER
The transaction of with ACIC was a real team effort and thank you
to all involved. From a portfolio management perspective, I was
involved in the transition of assets throughout the transaction
process, making sure individual companies that I already owned or
would own came across ‘in-specie’ and the residual cash from the
ACIC portfolio was implemented into my best ideas. This cash was
invested as soon as the transaction was completed.
The key benefits of the transaction for the Company were greater
scale, an enhanced profile and increased liquidity. While we were
already by some way the largest in our Association of Investment
Companies (AIC) sector, the increased scale and liquidity should
help to bring Fidelity China Special Situations PLC to the
attention of more professional fund buyers, many of whom may not
consider investing in a portfolio below £1 billion.
DALE
NICHOLLS
Portfolio Manager
10 June 2024
Principal Risks and Uncertainties and Risk
Management
As required by provisions 28 and 29 of the 2018 UK Corporate
Governance Code, the Board has a robust ongoing process for
identifying, evaluating and managing the principal risks and
uncertainties faced by the Company, including those that could
threaten its business model, future performance, solvency or
liquidity. The Board, with the assistance of the Alternative
Investment Fund Manager (FIL Investment Services (UK) Limited/the
“Manager”), 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 that the Company
faces. The Audit and Risk Committee continues to identify any new
emerging risks and take any action necessary to mitigate their
potential impact. The risks identified are placed on the Company’s
risk matrix and graded appropriately. This process, together with
the policies and procedures for the mitigation of existing and
emerging risks, is updated and reviewed regularly in the form of
comprehensive reports by the Audit and Risk Committee. The Board
determines the nature and extent of any risks it is willing to take
in order to achieve its strategic objectives.
Climate change, which refers to a large scale shift in the planet’s
weather patterns and average temperatures, continues to be a key
emerging as well as a principal risk confronting asset managers and
their investors. Globally, climate change effects are already being
experienced in the form of changing weather patterns. Extreme
weather events can potentially impact the operations of investee
companies, their supply chains and their customers. The Board notes
that the Manager has integrated ESG considerations, including
climate change, into the Company’s investment process. Further
details are in the Annual Report. The Board will continue to
monitor how this may impact the Company as a risk to investment
valuations and potentially shareholder returns.
Other emerging risks may continue to evolve from unforeseen
geopolitical and economic events.
The Board, together with the Manager, is also monitoring the
emerging risks posed by the rapid advancement of artificial
intelligence (“AI”) and technology and how it may threaten the
Company’s activities and its potential impact on the portfolio and
investee companies. Although advances in computing power mean that
AI is a powerful tool that will impact society, there are risks
from its increasing use and manipulation with the potential to
harm, including a heightened threat to cybersecurity.
The Manager also has responsibility for risk management for the
Company. It works with the Board to identify and manage the
principal and emerging risks and uncertainties and to ensure that
the Board can continue to meet its UK corporate governance
obligations.
The Board considers the risks listed below as the principal risks
and uncertainties faced by the Company.
|
Principal Risks
|
Risk Description and Impact
|
Risk Mitigation
|
Trend
|
|
Geopolitical
Risk
|
· Impact
on the value of investments and the Manager’s ability to access
markets freely.
· Continuing
political and trade tensions between China and the US, e.g. trade
sanctions.
· Challenging
regulatory environment hindering foreign investment, including US
Executive Orders prohibiting transactions by US persons in certain
publicly traded Chinese companies.
· The
ongoing Ukraine/Russia conflict remains a driver of uncertainty
impacting the global geopolitical landscape, consumer spending and
industrial activity with the potential for increased energy costs,
rising food prices and currency instability.
· The
escalation of the Middle East conflict has added another source of
geopolitical risks and economic instability, elevating oil supply
concerns and driving prices upwards. China is a major trading
partner with countries in the region and any disruption in trade
may have an impact on exports/imports and the shipping
sector.
· A
South China Sea dispute could have a negative impact on Chinese
companies, including reduced access to global markets and
technology, potential sanctions and retaliatory measures and
possible weakening of investment and confidence in Chinese
companies.
· Implications
of tensions in the Taiwan Strait region for China include potential
military conflict and increased tensions over trade and economic
issues over competing territorial claims.
|
· The
Board receives insights and information, including research notes,
from the Manager and independent sources on a regular
basis.
· The
portfolio is tilted to domestic Chinese markets.
· The
Board receives and reviews reports from the Portfolio Manager on a
regular basis.
· Major
adverse market events are stress-tested for operational resilience
and financial impact.
|
Increasing
|
|
Market and Economic Risks (including Currency
Risk)
|
· Whilst
China’s outlook for “controlled stabilisation” is supported by
targeted policy measures, the property sector is a source of
increased uncertainty. Growth in consumption remains
subdued.
· The
momentum from the growth in size and wealth of the middle class
depends on China’s ability to generate sustained productivity
gains.
· China’s
economy is vulnerable to uncertain world growth prospects,
tightening in global financial conditions, energy costs, rising
food prices, currency instability and challenging regulatory
environment.
· China
faces several economic headwinds, including an aging population,
environmental pollution, isolation of the financial system and debt
concerns in its corporate and local government sectors.
· China’s
economy is vulnerable to uncertain world growth prospects,
tightening in global financial conditions, energy costs, rising
food prices and currency instability.
· The
ability of China’s centralised government system to enact
regulation rapidly can adversely affect sectors or individual
companies and as a result affect their stock market prices
negatively.
· The
currency in which the Company reports its results is sterling and
its ordinary shares trade in sterling, whilst the underlying
investments are in different currencies. The Company does not hedge
currencies.
|
· Growth
may still exceed economic targets as the stable policy setting may
help restore private sector confidence after a policy-induced
slowdown in the prior year.
· The
Portfolio Manager and the Manager’s ability to understand and
predict events in China. Independent risk management insight is
provided on a regular basis.
· The
Company holds a diversified portfolio emphasising sectors of
strategic importance to China.
· Current
projections are for China’s GDP to continue to grow at above the
global average.
|
Stable
|
|
Investment
Performance
Risk (including
Gearing Risk)
|
· The
Portfolio Manager may fail to outperform the Benchmark Index and
peers over the longer-term.
· High
gearing levels in a falling market accentuates share price
weakness. NAV performance can be affected by selling stock in a
falling market to keep the gearing level within pre-agreed
limits.
|
· An
investment strategy overseen by the Board to optimise returns from
investing in China.
· Diversification
of investments through investment restrictions and guidelines which
are monitored and reported upon by the Investment
Manager.
· A
well-resourced team of experienced analysts covering the
market.
· Board
scrutiny of the Manager and the ability in extreme circumstances to
change the Manager.
· Limit
on gearing and oversight of the Manager’s use of gearing by the
Board.
|
Stable
|
|
Discount
Management
Risk
|
· The
Board may fail to implement its discount management policy
successfully to keep the level of the discount in single digits and
in the face of heavy selling pressure, may exhaust its authorised
buyback facility. The impact of excessive market volatility on the
Company’s NAV may also lead to a widening of the
discount.
· If
investor perception towards China is negative, then the shares in
the Company may trade at an increasing discount to its underlying
NAV.
|
· The
Company’s discount management policy is aimed at keeping the
discount in single digits during normal market
conditions.
· Continuing
scrutiny by the Board, the Manager and the Company’s Broker within
parameters set.
· Maintaining
a reputation for standing in the marketplace when required in order
to keep the discount in single digits.
· Maintaining
close communications with major shareholders.
|
Stable
|
|
Unlisted
Securities Risk
|
· Valuations
of unlisted securities may be adversely affected by market
conditions.
· Initial
public offering (IPO) of the unlisted companies may face delays
leading to longer holding periods.
· Potential
for less stringent standards of governance compared with those of
listed entities.
· The
valuation of unlisted shares relies on third-party
judgements.
|
· The
Company has set a limit on the level of investments in unlisted
companies and the Manager has a track record of identifying
profitable opportunities.
· The
Board’s Audit and Risk Committee scrutinises the carrying value of
unlisted investments, and this is supported by the Manager,
Fidelity’s unlisted investments specialist and an external
advisor.
|
Stable
|
|
Climate Change
Risk
|
· Impact
on investment valuations, business operations, the supply chain of
investee companies and shareholder expectations.
· China’s
climate change credentials are likely to be less favourable when
compared to similar economies in developed western
markets.
· Reputational
impact may arise by being invested in a company with poor climate
change performance.
|
· The
Board is provided with insights and reports by the investment
management team.
· Fidelity
uses a proprietary climate rating designed to complement broader
sustainability ratings and is considered in the investment process
where appropriate.
· Fidelity’s
climate rating analyses companies in three core areas - net zero
target alignment, climate governance and capital allocation to the
transition - which are in line with the guidance from the Task
Force on Climate-related Financial Disclosures (TCFD) and the
Institutional Investors Group on Climate Change (IIGCC).
|
Stable
|
|
Environmental,
Social and
Governance
(“ESG”) Risk
|
· Investor
expectations and/or regulatory requirements related to ESG factors
of the underlying investee companies and the portfolio are not
perceived to be met.
· Reputational
damage to the Company may arise from perception in the
marketplace.
|
· Whilst
the investment portfolio does not target or employ any set limit on
ESG investments, the Manager is expected to engage with companies
where sustainability issues arise.
· Fidelity
carries out ESG considerations at the fundamental research
level.
· The
Portfolio Manager and analysts carry out additional quantitative
and qualitative analysis of potential investments to form a view on
ESG characteristics of every investee company.
· The
Manager has developed an ESG investment risk oversight framework to
reinforce its Investment Risk Policy to set minimum
controls.
|
Stable
|
|
Key Person Risk
|
· Loss
of the Portfolio Manager or other key individuals could lead to
potential performance and/or operational issues.
|
· The
Manager has succession plans for key dependencies.
· The
depth of the team within Fidelity.
· The
experience of the analysts covering China.
|
Stable
|
|
Cybercrime and
Information
Security Risks
|
· Cybersecurity
risk from cyberattacks or threats to the functioning of global
markets and to the Manager’s own business model, including its and
the Company’s outsourced suppliers.
· Risk
of cybercrime such as phishing, remote access threats, extortion
and denial-of-services attacks from geopolitically motivated
attacks.
|
· The
risk is monitored by the Board with the help of the Manager’s
global cybersecurity team and their extensive Strategic Cyber and
Information Security program and assurances from outsourced
suppliers.
· Key
performance indicators and metrics have been developed by the
Manager to monitor the overall efficacy of cybersecurity processes
and controls and to further enhance the Manager’s cybersecurity
strategy and operational resilience.
|
Stable
|
|
Business
Continuity Risk
|
· Business
process disruption risk from continued threats of cyberattacks,
geopolitical threats and natural events, such as earthquakes,
resulting in financial and/or reputational impact to the Company
affecting the functioning of the business.
|
· Fidelity
has Business Continuity and Crisis Management Frameworks in place
to deal with business disruption and assure operational
resilience.
|
Stable
|
|
Operational Risk
|
· Financial
losses or reputational
damage from inadequate or failed internal processes, people and
systems or from external parties and events.
|
· Fidelity’s
Operational Risk Management Framework is designed to pro-actively
prevent, identify and manage operational risks inherent in most
activities.
· Fidelity
uses robust systems and procedures dedicated to its operational
processes. Its risk management structure is designed according to
the FCA’s three lines of defence model.
|
Decreasing
|
|
Variable Interest
Entity Structures
Risk
|
· The
Company’s exposure to a number of companies with all or part of
their businesses in Variable Interest Entities (“VIEs”) is expected
to remain significant. The ability of overseas investors to invest
in VIEs could be amended.
· Regulatory
risk from the China Security Regulatory Commission (“CSCR”)
guidelines that companies with VIE structures require CSCR approval
to list overseas and are required to comply with Chinese
laws.
|
· Whilst
it is not expected that China will change the rules to the extent
that it will ban foreign investment, this risk is closely
monitored.
|
Stable
|
Other risks facing the Company include:
Tax and Regulatory Risks
There is a risk of the Company not complying with the tax and
regulatory requirements in the UK and China. A breach of Section 1158 of the
Corporation Tax Act 2010 could lead to a loss of investment trust
status, resulting in the Company being subject to tax on capital
gains.
The Board monitors tax and regulatory changes at each Board meeting
and through active engagement with regulators and trade bodies by
the Manager.
Third-Party Operational Risks
The Company relies on a number of third-party service providers,
principally the Manager, Registrar, Custodian and Depositary. It is
dependent on the effective operation of the Manager’s control
systems and those of its service providers with regard to the
security of the Company’s assets, dealing procedures, accounting
records and the maintenance of regulatory and legal requirements.
The Registrar, Custodian and Depositary are all subject to a
risk-based programme of internal audits by the Manager. In
addition, service providers’ own internal control reports are
received by the Board on an annual basis and any concerns are
investigated. Risks associated with these service providers is
rated as low, but the financial consequences could be serious,
including reputational damage to the Company.
Viability Statement
In accordance with provision 31 of the 2018 UK Corporate Governance
Code, the Directors have assessed the prospects of the Company over
a longer period than the twelve month period required by the “Going
Concern” basis. The Company is an investment trust with the
objective of achieving long-term capital growth. The Board
considers long-term to be at least five years, and accordingly, the
Directors believe that five years is an appropriate investment
horizon to assess the viability of the Company, although the life
of the Company is not intended to be limited to this or any other
period.
In making an assessment on the viability of the Company, the Board
has considered the following:
· The
ongoing relevance of the investment objective in prevailing market
conditions;
· The
Company’s level of gearing;
· The
Company’s NAV and share price performance compared to its Benchmark
Index;
· The
principal and emerging risks and uncertainties facing the Company
and their potential impact, as set out above;
· The
future demand for the Company’s shares;
· The
Company’s share price discount to the NAV;
· The
liquidity of the Company’s portfolio;
· The
level of income generated by the Company;
· Future
income
and expenditure forecasts; and
· Introduction
of a continuation vote with effect from 2029 and every five years
thereafter.
The Company’s performance for the five year reporting period to
31 March 2024 was a NAV total return
of -4.3% and a share price total return of -5.9%, both
outperforming the Benchmark Index total return of -25.6%. The Board
regularly reviews the investment policy and considers whether it
remains appropriate. The Board has concluded that there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the next
five years based on the following considerations:
· The
Investment Manager’s compliance with the Company’s investment
objective and policy, its investment strategy and asset
allocation;
· The
portfolio comprises sufficient readily realisable securities which
can be sold to meet funding requirements if necessary;
and
· The
ongoing processes for monitoring operating costs and income which
are considered to be reasonable in comparison to the Company’s
total assets.
In preparing the Financial Statements, the Directors have
considered the impact of climate change as detailed above. The
Board has also considered the impact of regulatory changes,
continuing tensions between the US and China, and China and Taiwan, unforeseen market events and also the
ongoing global implications of the Russia and Ukraine war and the Middle East conflict, and how this may affect
the Company.
In addition, the Directors’ assessment of the Company’s ability to
operate in the foreseeable future is included in the Going Concern
Statement which is included 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), stress
testing performed, 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
continue in operational existence for the foreseeable future. The
Board has therefore concluded that the Company has adequate
resources to continue to adopt the going concern basis for the
period to 30 June 2025 which is at
least twelve months from the date of approval of the Financial
Statements. This conclusion also takes into account the Board’s
assessment of the ongoing risks from the war in Ukraine, the Middle
East conflict, China’s tensions with the US and Taiwan and significant market
events.
Accordingly, the Financial Statements of the Company have been
prepared on a going concern basis.
The prospects of the Company over a period longer than twelve
months can be found in the Viability Statement above.
PROMOTING THE SUCCESS OF THE COMPANY
Under Section 172(1) of the Companies Act 2006, the Directors of a
company must act in a way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit
of its members as a whole, and in doing so have regard (amongst
other matters) to the likely consequences of any decision in the
long-term; the need to foster relationships with the Company’s
suppliers, customers and others; the impact of the Company’s
operations on the community and the environment; the desirability
of the Company maintaining a reputation for high standards of
business conduct; and the need to act fairly as between members of
the Company.
As an externally managed Investment Trust, the Company has no
employees or physical assets, and a number of the Company’s
functions are outsourced to third parties. The key outsourced
function is the provision of investment management services by the
Manager, but other professional service providers support the
Company by providing administration, custodial, banking and audit
services. The Board considers the Company’s key stakeholders to be
the existing and potential shareholders, the externally appointed
Manager (FIL Investment Services (UK) Limited) and other
third-party professional service providers. The Board considers
that the interest of these stakeholders is aligned with the
Company’s objective of delivering long-term capital growth to
investors, in line with the Company’s stated objective and
strategy, while providing the highest standards of legal,
regulatory and commercial conduct.
The Board, with the Portfolio Manager, sets the overall investment
strategy and reviews this at an annual strategy day which is
separate from the regular cycle of board meetings. In order to
ensure good governance of the Company, the Board has set various
limits on the investments in the portfolio, whether in the maximum
size of individual holdings, the use of derivatives, the level of
gearing and others. These limits and guidelines are regularly
monitored and reviewed and are set out in the Annual
Report.
The Board receives regular reports from the Company’s Broker which
covers market activity, how the Company compares with its peers in
the China sector on performance,
discount and share repurchase activity, an analysis of the
Company’s share register and market trends.
The Board places great importance on communication with
shareholders. The Annual General Meeting provides the key forum for
the Board and the Portfolio Manager to present to the shareholders
on the Company’s performance and future plans and the Board
encourages all shareholders to attend in person or virtually and
raise any questions or concerns. The Chairman and other Board
members are available to meet shareholders as appropriate.
Shareholders may also communicate with Board members at any time by
writing to them at the Company’s registered office at FIL
Investments International, Beech Gate, Millfield Lane, Tadworth, Surrey KT20 6RP
or via the Company Secretary at the same address or by email
at
investmenttrusts@
fil.com.
The Portfolio Manager meets with major shareholders, potential
investors, stock market analysts, journalists and other
commentators throughout the year. These communication opportunities
help inform the Board in considering how best to promote the
success of the Company over the long-term.
The Board seeks to engage with the Manager and other service
providers and advisers in a constructive and collaborative way,
promoting a culture of strong governance, while encouraging open
and constructive debate, in order to ensure appropriate and regular
challenge and evaluation. This aims to enhance service levels and
strengthen relationships with service providers, with a view to
ensuring shareholders’ interests are best served, by maintaining
the highest standards of commercial conduct while keeping cost
levels competitive.
Whilst the Company’s direct operations are limited, the Board
recognises the importance of considering the impact of the
Company’s investment strategy on the wider community and
environment. The Board believes that a proper consideration of ESG
issues aligns with the Company’s investment objective to deliver
long-term growth in both capital and income, and the Board’s review
of the Manager includes an assessment of their ESG approach, which
is set out in the Annual Report.
In addition to ensuring that the Company’s investment objective was
being pursued, key decisions and actions taken by the Directors
during the reporting year, and up to the date of this report, have
included:
· The
decision to combine assets with abrdn China Investment Company
Limited on 14 March 2024 (see further
details in the Chairman’s Statement above and Note 2 (a)
below);
· The
decision to introduce a continuation vote with effect from 2029 and
every five years thereafter;
· The
decision to hold a hybrid AGM in 2023 (and again this year) in
order to make the AGM more accessible and improve the shareholder
experience;
· Authorising
the repurchase of 2,900,696 shares into Treasury and 18,749,495
shares for cancellation in the reporting year when the Company’s
discount widened, in line with the Board’s intention that the
ordinary share price should trade at a level close to the
underlying NAV. Since the year ended 31
March 2024 and up to the latest practicable date of this
report, a further 2,696,249 shares have been
repurchased;
· The
decision not to renew the Company’s credit facility for
US$100,000,000 and to use contracts
for difference for gearing purposes as they are generally a cheaper
finance option and offer more flexibility;
· Following
discussions with the Manager, the reduction in the first tier of
the management fee from 0.90% to 0.85% with effect from
1 July 2023, and from 14 March 2024, the reduction of the second tier
management fee from 0.70% to 0.65% for Net Assets over £1.5
billion;
· The
decision to carry out an external Board evaluation using the
services of Lintstock Ltd in accordance with the UK Corporate
Governance Code; and
· The
decision to pay a final dividend of 6.40
pence per ordinary share.
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the Annual Report and
the Financial Statements in accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare Financial Statements
for each financial period. Under that law they have elected to
prepare the Financial Statements in accordance with UK-adopted
International Accounting Standards (“IFRS”) in conformity with the
requirements of the Companies Act 2006 and IFRIC interpretations.
Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss for the reporting period.
In preparing these Financial Statements the Directors are required
to:
· Select
suitable accounting policies in accordance with IAS 8: Accounting
Policies, Changes in Accounting Estimates and Errors, and then
apply them consistently;
· Make
judgements and estimates that are reasonable and
prudent;
· Present
information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
· Provide
additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Company’s financial position and financial
performance;
· State
whether applicable IFRS and IFRIC interpretations have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
· Prepare
the Financial Statements on the going concern basis unless it is
inappropriate to assume that the Company will continue in
business.
The Directors are responsible for ensuring that adequate accounting
records are kept which disclose with reasonable accuracy at any
time the financial position of the Company and to enable them to
ensure that the Financial Statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors’ Report,
a Corporate Governance Statement and a Directors’ Remuneration
Report that comply with that law and those regulations.
The Directors have delegated to the Manager the responsibility for
the maintenance and integrity of the corporate and financial
information included on the Company’s pages of the Manager’s
website at
www.fidelity.co.uk/china.
Visitors to the website need to be aware that legislation in the UK
governing the preparation and dissemination of the Financial
Statements may differ from legislation in their own
jurisdictions.
The Directors confirm that to the best of their
knowledge:
· The
Financial Statements, prepared in accordance with UK-adopted
International Accounting Standards (“IFRS”) and IFRIC
interpretations, give a true and fair view of the assets,
liabilities, financial position and loss of the Company;
and
· The
Annual Report includes a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties it faces.
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
Approved by the Board on 10 June 2024
and signed on its behalf
MIKE
BALFOUR
Chairman
FINANCIAL STATEMENTS
INCOME STATEMENT for the year ended 31 March 2024
|
|
|
Year ended 31 March 2024
|
Year ended 31 March 2023
|
|
|
Notes
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
Revenue
|
|
|
|
|
|
|
|
|
Investment income
|
3
|
26,123
|
–
|
26,123
|
32,704
|
–
|
32,704
|
|
Derivative income
|
3
|
11,154
|
–
|
11,154
|
11,566
|
–
|
11,566
|
|
Other income
|
3
|
1,659
|
–
|
1,659
|
409
|
–
|
409
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total income
|
|
38,936
|
–
|
38,936
|
44,679
|
–
|
44,679
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Losses on investments at fair value through profit or
loss
|
10
|
–
|
(155,001)
|
(155,001)
|
–
|
(6,912)
|
(6,912)
|
|
(Losses)/gains on derivative instruments
|
11
|
–
|
(54,790)
|
(54,790)
|
–
|
14,971
|
14,971
|
|
Foreign exchange (losses)/gains
|
|
–
|
(3,858)
|
(3,858)
|
–
|
8,167
|
8,167
|
|
Foreign exchange gains/(losses) on bank loan
|
|
–
|
1,517
|
1,517
|
–
|
(4,814)
|
(4,814)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total income and (losses)/gains
|
|
38,936
|
(212,132)
|
(173,196)
|
44,679
|
11,412
|
56,091
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Expenses
|
|
|
|
|
|
|
|
|
Investment management fees
|
4
|
(2,430)
|
(8,991)
|
(11,421)
|
(3,012)
|
(11,715)
|
(14,727)
|
|
Other expenses
|
5
|
(1,203)
|
(35)
|
(1,238)
|
(1,097)
|
(4)
|
(1,101)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Profit/(loss) before finance costs and
taxation
|
|
35,303
|
(221,158)
|
(185,855)
|
40,570
|
(307)
|
40,263
|
|
Finance costs
|
6
|
(6,699)
|
(20,098)
|
(26,797)
|
(3,956)
|
(11,869)
|
(15,825)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Profit/(loss) before taxation
|
|
28,604
|
(241,256)
|
(212,652)
|
36,614
|
(12,176)
|
24,438
|
|
Taxation
|
7
|
(812)
|
–
|
(812)
|
(1,149)
|
–
|
(1,149)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Profit/(loss) after taxation for the
year
|
|
27,792
|
(241,256)
|
(213,464)
|
35,465
|
(12,176)
|
23,289
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Earnings/(loss) per ordinary share
|
8
|
5.78p
|
(50.18p)
|
(44.40p)
|
7.05p
|
(2.42p)
|
4.63p
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The Company does not have any income or expenses that are not
included in the profit/(loss) after taxation for the year.
Accordingly, the profit/(loss) after taxation for the year is also
the total comprehensive income for the year 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.
On 13 March 2024, the Company
combined assets with abrdn China Investment Company Limited
(“ACIC”), following a Guernsey scheme of reconstruction. No other
operations were acquired or discontinued during the
year.
The Notes below form an integral part of these Financial
Statements.
Statement of Changes in Equity for the year ended
31 March 2024
|
|
Notes
|
Share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Other
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
equity
£’000
|
|
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
|
15
|
590
|
126,198
|
–
|
–
|
–
|
–
|
126,788
|
|
Contribution in respect of the transaction with ACIC by the
Manager
|
|
–
|
400
|
–
|
–
|
–
|
–
|
400
|
|
Repurchase of ordinary shares into Treasury
|
15
|
–
|
–
|
–
|
(6,965)
|
–
|
–
|
(6,965)
|
|
Repurchase of ordinary shares for cancellation
|
15
|
(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
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Total equity at 31 March 2022
|
|
5,710
|
211,569
|
917
|
244,043
|
889,958
|
48,424
|
1,400,621
|
|
Repurchase of ordinary shares
|
15
|
–
|
–
|
–
|
(57,249)
|
–
|
–
|
(57,249)
|
|
(Loss)/profit after taxation for the year
|
|
–
|
–
|
–
|
–
|
(12,176)
|
35,465
|
23,289
|
|
Dividend paid to shareholders
|
9
|
–
|
–
|
–
|
–
|
–
|
(28,240)
|
(28,240)
|
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total equity at 31 March 2023
|
|
5,710
|
211,569
|
917
|
186,794
|
877,782
|
55,649
|
1,338,421
|
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The Notes below form an integral part of these Financial
Statements.
Balance Sheet as at 31 March
2024
Company number 7133583
|
|
Notes
|
31 March
2024
£’000
|
31 March
2023
£’000
|
|
Non-current assets
|
|
|
|
|
Investments at fair value through profit or loss
|
10
|
1,162,265
|
1,318,764
|
|
|
---------------
|
---------------
|
---------------
|
|
Current assets
|
|
|
|
|
Derivative instruments
|
11
|
7,103
|
22,313
|
|
Amounts held at futures clearing houses and brokers
|
|
24,589
|
34,813
|
|
Other receivables
|
12
|
10,066
|
11,939
|
|
Cash at bank
|
|
7,858
|
72,943
|
|
|
|
---------------
|
---------------
|
|
|
|
49,616
|
142,008
|
|
|
|
=========
|
=========
|
|
Current liabilities
|
|
|
|
|
Derivative instruments
|
11
|
(13,307)
|
(20,892)
|
|
Bank loan
|
13
|
–
|
(80,857)
|
|
Other payables
|
14
|
(9,802)
|
(20,602)
|
|
Bank overdrafts
|
|
(12,758)
|
–
|
|
|
|
---------------
|
---------------
|
|
|
|
(35,867)
|
(122,351)
|
|
|
|
=========
|
=========
|
|
Net current assets
|
|
13,749
|
19,657
|
|
|
|
=========
|
=========
|
|
Net assets
|
|
1,176,014
|
1,338,421
|
|
|
|
=========
|
=========
|
|
Equity attributable to equity
shareholders
|
|
|
|
|
Share capital
|
15
|
6,113
|
5,710
|
|
Share premium account
|
16
|
338,167
|
211,569
|
|
Capital redemption reserve
|
16
|
1,104
|
917
|
|
Other reserve
|
16
|
140,861
|
186,794
|
|
Capital reserve
|
16
|
636,526
|
877,782
|
|
Revenue reserve
|
16
|
53,243
|
55,649
|
|
|
|
---------------
|
---------------
|
|
Total equity
|
|
1,176,014
|
1,338,421
|
|
|
|
=========
|
=========
|
|
Net asset value per ordinary share
|
17
|
223.71p
|
274.08p
|
|
|
=========
|
=========
|
=========
|
The Financial Statements above and below were approved by the Board
of Directors on 10 June 2024 and were
signed on its behalf by:
MIKE
BALFOUR
Chairman
The Notes below form an integral part of these Financial
Statements.
Cash Flow Statement for the year ended 31 March 2024
|
|
Year ended
31 March
2024
£’000
|
Year ended
31 March
2023
£’000
|
|
Operating activities
|
|
|
|
Cash inflow from investment income
|
26,240
|
30,352
|
|
Cash inflow from derivative income
|
10,891
|
11,484
|
|
Cash inflow from other income
|
1,659
|
409
|
|
Cash outflow from Directors’ fees
|
(236)
|
(195)
|
|
Cash outflow from other payments
|
(13,104)
|
(15,638)
|
|
Cash outflow from the purchase of investments
|
(592,266)
|
(429,715)
|
|
Cash outflow from the purchase of derivatives
|
(1,910)
|
(7,957)
|
|
Cash outflow from the settlement of derivatives
|
(301,285)
|
(485,760)
|
|
Cash inflow from the sale of investments
|
703,150
|
480,407
|
|
Cash inflow from the settlement of derivatives
|
260,351
|
510,263
|
|
Cash outflow from amounts held at futures clearing houses and
brokers
|
10,224
|
(2,593)
|
|
|
---------------
|
---------------
|
|
Net cash inflow from operating activities before servicing
of finance
|
103,714
|
91,057
|
|
|
=========
|
=========
|
|
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
|
400
|
–
|
|
Cash outflow from loan interest paid
|
(5,138)
|
(2,242)
|
|
Cash outflow from the settlement of the bank loan
|
(79,340)
|
–
|
|
Cash outflow from CFD interest paid
|
(22,695)
|
(12,099)
|
|
Cash outflow from short CFD dividends paid
|
–
|
(254)
|
|
Cash outflow from the repurchase of ordinary shares into
Treasury
|
(7,095)
|
(57,119)
|
|
Cash outflow from the repurchase of ordinary shares for
cancellation
|
(38,789)
|
–
|
|
Cash outflow from dividends paid to shareholders
|
(30,198)
|
(28,240)
|
|
|
---------------
|
---------------
|
|
Cash outflow from financing activities
|
(177,699)
|
(99,954)
|
|
|
=========
|
=========
|
|
Decrease in cash at bank
|
(73,985)
|
(8,897)
|
|
Cash at bank at the start of the year
|
72,943
|
73,673
|
|
Effect of foreign exchange movements
|
(3,858)
|
8,167
|
|
|
---------------
|
---------------
|
|
Cash at bank at the end of the year
|
(4,900)
|
72,943
|
|
|
=========
|
=========
|
|
Represented by:
|
|
|
|
Cash at bank
|
7,858
|
72,943
|
|
Bank overdrafts
|
(12,758)
|
–
|
|
|
---------------
|
---------------
|
|
|
(4,900)
|
72,943
|
|
|
=========
|
=========
|
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. Accounting Policies
The Company’s Financial Statements have been prepared in accordance
with UK-adopted International Accounting Standards (“IFRS”), IFRIC
interpretations and as far as it is consistent with IFRS, with 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. The accounting policies
adopted in the preparation of these Financial Statements are
summarised below.
a) Basis of accounting
– The Financial Statements have been prepared on a going concern
basis and under the historical cost
convention, except for the measurement at fair value of investments
and derivative instruments. The Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence up to 30 June
2025 which is at least twelve months from the date of
approval of these Financial Statements. In making their assessment
the Directors have reviewed income and expense projections, the
liquidity of the investment portfolio, stress testing performed and
considered the Company’s ability to meet liabilities as they fall
due. This conclusion also takes into account the Director’s
assessment of the risks faced by the Company as detailed in the
Going Concern Statement above.
In preparing these Financial Statements the Directors have
considered the impact of climate change risk as an emerging and a
principal risk as set out above, and have concluded that there was
no further impact of climate change to be taken into account as the
investments are valued based on market pricing. In line with IFRS
13, investments are valued at fair value, which for the Company are
quoted bid prices for investments in active markets at the balance
sheet date. Investments which are unlisted are priced using
market-based valuation approaches. All investments therefore
reflect the market participants view of climate change risk on the
investments held by the Company.
The Company’s Going Concern Statement above takes account of all
events and conditions up to 30 June
2025 which is at least twelve months from the date of
approval of these Financial Statements.
Issue of Ordinary Shares in respect of the transaction with
abrdn China Investment Company Limited (“ACIC”)
On 13 March 2024, the Company issued
New ordinary shares which were provided to shareholders of ACIC, in
connection with the combination of the assets of the Company with
the assets of ACIC.
The Directors have considered the substance of the assets and
activities of ACIC in determining whether the acquisition
represents the acquisition of a business. In this case, the
acquisition is not considered to be an acquisition of a business,
and therefore, has not been treated as a business combination.
Rather, the cost to acquire the assets and liabilities of ACIC has
been allocated between the acquired identifiable assets and
liabilities based on their relative fair values on the acquisition
date without attributing any amount to goodwill or to deferred
taxes. A
total of £126,789,000 of assets were acquired as a result of the
transaction with ACIC. This comprised investments (£120,754,000),
cash (£5,156,000) and receivables (£879,000).
The Manager agreed to contribute towards the transaction with ACIC,
as described below.
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 in the year to 31 March
2025.
Additionally, the Manager agreed to make a cash contribution to the
Company equal to £500,000. In the year to 31
March 2024, the Company has recognised an initial
contribution of £400,000, with a further £100,000 being recognised
in the year to 31 March 2025, to
align with the reduction of management fees and the recognition of
expenses relating to the transaction and issuance of
shares.
The Company has recognised the contribution from the Manager in the
Share premium account as described in Note 16.
Furthermore, the Manager has agreed that following the transaction
with ACIC, the base management fee payable by the Company under the
Management Agreement will reduce from 0.70% to 0.65% on the
Company’s Net Assets in excess of £1.5 billion. This is expected to
lower the ongoing costs of the Company as it grows over the
longer-term.
b) Adoption of new and revised International Accounting
Standards
– the accounting policies adopted are consistent with those
of the previous financial year.
At the date of authorisation of these Financial Statements, the
following revised IAS were in issue but not yet
effective:
· IAS
1 Presentation of Financial Statements (amendments);
· IAS
7 Statement of Cash Flows;
· IAS
8 Accounting Policies, Changes in Accounting estimates and errors
(amendments); and
· IAS
12 Income Taxes (amendments).
The Directors do not expect that the adoption of the above
Standards will have a material impact on the Financial Statements
of the Company in future periods.
c) Segmental reporting
– The Company is engaged in a single segment business and,
therefore, no segmental reporting is
provided.
d) Presentation of the Income Statement
– In order to reflect better the activities of an investment
company and in accordance with
guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and
capital nature has been prepared alongside the Income Statement.
The revenue profit after taxation for the year is the measure the
Directors believe appropriate in assessing the Company’s compliance
with certain requirements set out in Section 1159 of the
Corporation Tax Act 2010.
e) Significant accounting estimates, assumptions and
judgements
– The preparation of the Financial Statements requires the
use
of estimates, assumptions and judgements. These estimates,
assumptions and judgements affect the reported amounts of assets
and liabilities at the reporting date. While estimates are based on
best judgement using information and financial data available, the
actual outcome may differ from these estimates.
The key sources of estimation and uncertainty relate to the fair
value of the unlisted investments.
Judgements
The Directors consider whether each fair value is appropriate
following detailed review and challenge of the pricing methodology.
The judgement applied in the selection of the methodology used (see
Note 2 (l) below) for determining the fair value of each unlisted
investment can have a significant impact upon the
valuation.
Estimates
The key estimate in the Financial Statements is the determination
of the fair value of the unlisted investments by the Manager’s Fair
Value Committee (“FVC”), with support from an external valuer and
Fidelity’s unlisted investments specialist, for detailed review and
appropriate challenge by the Directors. This estimate is key as it
significantly impacts the valuation of the unlisted investments at
the Balance Sheet date. When no recent primary or secondary
transaction in the company’s shares have taken place, the fair
valuation process involves estimation using subjective inputs that
are unobservable (for which market data is unavailable). The
estimates involved in the valuation process may include the
following:
(i) The
selection of appropriate comparable companies. Comparable companies
are chosen on the basis of their business characteristics and
growth patterns;
(ii) The
selection of a revenue metric (either historical or
forecast);
(iii) The
selection of an appropriate illiquidity discount factor to reflect
the reduced liquidity of unlisted companies versus their listed
peers;
(iv) The
estimation of the likelihood of a future exit of the position
through an initial public offering (“IPO”) or a company
sale;
(v) The
selection of an appropriate industry benchmark index to assist with
the valuation; and
(vi) The
calculation of valuation adjustments derived from milestone
analysis and future cash flows (i.e. incorporating operational
success against the plans/forecasts of the business into the
valuation).
As the valuation outcomes may differ from the fair value estimates
a price sensitivity analysis is provided in Other Price Risk
Sensitivity in Note 18 to illustrate the effect on the Financial
Statements of an over or under estimation of fair value.
The risk of an over or under estimation of fair value is greater
when methodologies are applied using more subjective
inputs.
Assumptions
The determination of fair value by the FVC involves key assumptions
dependent upon the valuation techniques used. The valuation process
recognises that the price of a recent investment may be an
appropriate starting point for estimating fair value. The Multiples
approach involves subjective inputs and therefore presents a
greater risk of over or under estimation, particularly in the
absence of a recent transaction.
f) Income
–
Income from equity investments and long contracts for difference
(“CFDs”) is credited to the revenue column of the
Income Statement on the date on which the right to receive the
payment is established, normally the ex-dividend date. Overseas
dividends are accounted for gross of any tax deducted at source.
Where the Company has elected to receive its dividends in the form
of additional shares rather than cash, the amount of the cash
dividend foregone is recognised as income. Any excess in the value
of the shares received over the amount of the cash dividend
foregone is recognised as a gain in the capital column of the
Income Statement. Special dividends are treated as a revenue
receipt or a capital receipt depending on the facts and
circumstances of each particular case.
Interest on securities, interest for CFDs, collateral and bank
deposits are accounted for on an accruals basis and credited to the
revenue column of the Income Statement. Interest received on CFDs
represent the finance costs calculated by reference to the notional
value of the CFDs.
g) Functional currency and foreign exchange
– The functional and reporting currency of the Company is UK
sterling, which is the
currency of the primary economic environment in which the Company
operates. Transactions denominated in foreign currencies are
reported in UK sterling at the rate of exchange ruling at the date
of the transaction. Assets and liabilities in foreign currencies
are translated at the rates of exchange ruling at the Balance Sheet
date. Foreign exchange gains and losses arising on translation are
recognised in the Income Statement as a revenue or a capital item
depending on the nature of the underlying item to which they
relate.
h) Investment management and other expenses
– These are accounted for on an accruals basis and are charged as
follows:
· The
base investment management fee is allocated 25% to revenue and 75%
to capital;
· The
variable investment management fee is charged/credited to capital
as it is based on the performance of the net asset value per share
relative to the Benchmark Index; and
· All
other expenses are allocated in full to revenue with the exception
of those directly attributable to share issues or other capital
events.
i) Finance costs
– Finance costs comprise interest on the bank loan and overdrafts
and finance costs paid on CFDs, which are
accounted for on an accruals basis, and dividends paid on short
CFDs, which are accounted for on the date on which the obligation
to incur the cost is established, normally the ex-dividend date.
Finance costs are allocated 25% to revenue and 75% to
capital.
j) Taxation
– The taxation charge represents the sum of current taxation and
deferred taxation.
Taxation currently payable is based on the taxable profit for the
year. Taxable profit differs from profit before taxation, as
reported in the Income Statement, because it excludes items of
income or expense that are taxable or deductible in other years and
items that are never taxable or deductible. The Company’s liability
for current taxation is calculated using taxation rates that have
been enacted or substantially enacted by the Balance Sheet
date.
Deferred taxation is the taxation expected to be payable or
recoverable on differences between the carrying amounts of assets
and liabilities in the Financial Statements and the corresponding
taxation bases used in the computation of taxable profit based on
tax rates that have been enacted or substantively enacted when the
taxation is expected to be payable or recoverable, and is accounted
for using the balance sheet liability method. Deferred taxation
liabilities are recognised for all taxable temporary differences
and deferred taxation assets are recognised to the extent that it
is probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Taxation is charged or credited to the revenue column of the Income
Statement, except where it relates to items of a capital nature, in
which case it is charged or credited to the capital column of the
Income Statement. Where expenses are allocated between revenue and
capital any tax relief in respect of the expenses is allocated
between revenue and capital returns on the marginal basis using the
Company’s effective rate of corporation tax for the accounting
period. The Company is an approved Investment Trust under Section
1158 of the Corporation Tax Act 2010 and is not liable for UK
taxation on capital gains.
k) Dividend paid to shareholders
– Dividends payable to equity shareholders are recognised when the
Company’s obligation to
make payment is established.
l) Investments
– The portfolio of financial assets is managed and its performance
evaluated on a fair value basis, in accordance with
a documented investment strategy, and information about the
portfolio is provided on that basis to the Company’s Board of
Directors. Under IFRS 9 investments are held at fair value through
profit or loss, which is initially taken to be their cost, and is
subsequently measured at bid or last traded prices, depending upon
the convention of the exchange on which they are listed, where
available, or otherwise at fair value based on published price
quotations.
Investments which are not quoted, or are not frequently traded, are
stated at the best estimate of fair value. The Manager’s Fair Value
Committee (“FVC”), which is independent of the Portfolio Manager’s
team, and with support from the external valuer and Fidelity’s
unlisted investments specialist, provides recommended fair values
to the Directors. These are based on the principles outlined in
Note 2 (e). The unlisted investments are valued at fair value
following a detailed review and appropriate challenge by the
Directors of the pricing methodology proposed by the
FVC.
The techniques applied by the FVC when valuing the unlisted
investments are predominantly market-based approaches. The
market-based approaches are set out below and are followed by an
explanation of how they are applied to the Company’s unlisted
portfolio:
· Multiples;
· Industry
Valuation Benchmarks; and
· Available
Market Prices.
The nature of the unlisted investment will influence the valuation
technique applied. The valuation approach recognises that the price
of a recent investment, if resulting from an orderly transaction,
generally represents fair value as at the transaction date and may
be an appropriate starting point for estimating fair value at
subsequent measurement dates. However, consideration is given to
the facts and circumstances as at the subsequent measurement date,
including changes in the market or performance of the investee
company. Milestone analysis and future cash flows are used where
appropriate to incorporate the operational progress of the investee
company into the valuation. Consideration is also given to the
input received from the Fidelity International analyst that covers
the company, Fidelity’s unlisted investments specialist and from an
external valuer. Additionally, the background to the transaction
must be considered. As a result, various multiples-based techniques
are employed to assess the valuations particularly in those
companies with established revenues. An absence of relevant
industry peers may preclude the application of the Industry
Valuation Benchmarks technique and an absence of observable prices
may preclude the Available Market Prices approach.
The unlisted investments are valued according to a three month
cycle of measurement dates. The fair value of the unlisted
investments will be reviewed before the next scheduled three
monthly measurement date on the following occasions:
· At
the year end and half year end of the Company; and
· Where
there is an indication of a change in fair value (commonly referred
to as ‘trigger’ events).
In accordance with the AIC SORP, the Company includes transaction
costs, incidental to the purchase or sale of investments within
losses on investments held at fair value through profit or loss in
the capital column of the Income Statement and has disclosed them
in Note 10 below.
m) Derivative instruments
– When appropriate, permitted transactions in derivative
instruments are used. Derivative transactions into
which the Company may enter include CFDs, futures, options,
warrants and forward currency contracts. Under IFRS 9 derivatives
are classified at fair value through profit or loss – held for
trading, and are initially accounted and measured at fair value on
the date the derivative contract is entered into and subsequently
measured at fair value as follows:
· CFDs
– the difference between the strike price and the value of the
underlying shares in the contract, calculated in accordance with
accounting policy 2 (l);
· Futures
– the difference between contract price and the quoted trade price;
and
· Options
– the quoted trade price for the contract.
Where such transactions are used to protect or enhance income, if
the circumstances support this, the income derived is included in
derivative income in the revenue column of the Income Statement.
Where such transactions are used to protect or enhance capital, if
the circumstances support this, the gains and losses derived are
included in (losses)/gains on derivative instruments held at fair
value through profit or loss in the capital column of the Income
Statement. Any positions on such transactions open at the year end
are reflected on the Balance Sheet at their fair value within
current assets or current liabilities.
The Company obtains equivalent exposure to equities through the use
of CFDs. All gains and losses in the fair value of the CFDs are
included in (losses)/gains on derivative instruments held at fair
value through profit or loss in the capital column of the Income
Statement.
n) Amounts held at futures clearing houses and
brokers
– Cash deposits are held in segregated accounts on behalf of
brokers as
collateral against open derivative contracts. These are carried at
amortised cost.
o) Other receivables
– Other receivables include securities sold for future settlement,
amounts receivable on settlement of derivatives,
accrued income, taxation recoverable and other debtors and
prepayments incurred in the ordinary course of business. If
collection is expected in one year or less (or in the normal
operating cycle of the business, if longer) they are classified as
current assets. If not, they are presented as non-current assets.
Other receivables are recognised initially at fair value and, where
applicable, subsequently measured at amortised cost using the
effective interest rate method and as reduced by appropriate
allowance for estimated irrecoverable amounts.
p) Bank loans
– Loans are initially included in the Financial Statements at cost,
being the fair value of the consideration received
net of any issue costs relating to the borrowing. After initial
recognition, the loans are measured at amortised cost using the
effective interest rate method. The amortised cost is calculated by
taking into account any issue costs and any discount or premium on
settlement.
q) Other payables
– Other payables include securities purchased for future
settlement, amounts payable on settlement of derivatives,
investment management fees, loan interest payable, amounts payable
for repurchase of shares, finance costs payable and expenses
accrued in the ordinary course of business. Other payables are
classified as current liabilities if payment is due within one year
or less (or in the normal operating cycle of the business, if
longer). If not, they are presented as non-current liabilities.
Other payables are recognised initially at fair value and, where
applicable, subsequently measured at amortised cost using the
effective interest rate method.
r) Other reserve
– The full cost of ordinary shares repurchased and held in Treasury
and ordinary shares repurchased for cancellation
is charged to the other reserve.
s) Capital reserve
– The following are transferred to capital reserve:
· Gains
and losses on the disposal of investments and derivatives
instruments;
· Changes
in the fair value of investments and derivative instruments, held
at the year end;
· Foreign
exchange gains and losses of a capital nature;
· Variable
investment management fees;
· 75%
of base investment management fees;
· 75%
of finance costs;
· Dividends
receivable which are capital in nature;
· Taxation
charged or credited relating to items which are capital in nature;
and
· Other
expenses which are capital in nature.
Technical guidance issued by the Institute of Chartered Accountants
in England and Wales in TECH 02/17BL, guidance on the
determination of realised profits and losses in the context of
distributions under the Companies Act 2006, states that changes in
the fair value of investments which are readily convertible to
cash, without accepting adverse terms at the Balance Sheet date,
can be treated as realised. Capital reserves realised and
unrealised are shown in aggregate as capital reserve in the
Statement of Changes in Equity and the Balance Sheet. At the
Balance Sheet date, the portfolio of the Company consisted of
investments listed on a recognised stock exchange and derivative
instruments contracted with counterparties having adequate credit
rating, and the portfolio was considered to be readily convertible
to cash, with the exception of the level 3 investments which had
unrealised investment holding gains of £10,288,000 (2023:
unrealised investment holding gains of £25,993,000). See Note 18
below for further details on the level 3 investments.
3. INCOME
|
|
Year ended
31 March
2024
£’000
|
Year ended
31 March
2023
£’000
|
|
Investment income
|
|
|
|
Overseas dividends
|
26,052
|
31,949
|
|
Overseas scrip dividends
|
–
|
755
|
|
Interest on securities
|
71
|
–
|
|
|
---------------
|
---------------
|
|
|
26,123
|
32,704
|
|
|
=========
|
=========
|
|
Derivative income
|
|
|
|
Dividends received on long CFDs
|
10,525
|
11,282
|
|
Interest received on CFDs
|
629
|
284
|
|
|
---------------
|
---------------
|
|
|
11,154
|
11,566
|
|
|
=========
|
=========
|
|
Other income
|
|
|
|
Interest received on collateral, deposits and money market
funds
|
1,659
|
409
|
|
|
---------------
|
---------------
|
|
Total income
|
38,936
|
44,679
|
|
|
=========
|
=========
|
Special dividends of £1,458,000 (2023: £1,155,000) have been
recognised in capital.
4. INVESTMENT MANAGEMENT FEES
|
|
Year ended 31 March 2024
|
Year ended 31 March 2023
|
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
Investment management fee – base
|
2,430
|
7,289
|
9,719
|
3,012
|
9,037
|
12,049
|
|
Investment management fee – variable
|
–
|
1,702
|
1,702
|
–
|
2,678
|
2,678
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
2,430
|
8,991
|
11,421
|
3,012
|
11,715
|
14,727
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
FIL Investment Services (UK) Limited 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.
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 investment management fee has been allocated 75% to
capital reserve in accordance with the Company’s accounting
policies.
Further details of the terms of the Management Agreement are given
in the Directors’ Report in the Annual Report.
5. OTHER EXPENSES
|
|
Year ended
31 March
2024
£’000
|
Year ended
31 March
2023
£’000
|
|
Allocated to revenue:
|
|
|
|
AIC fees
|
21
|
21
|
|
Custody fees
|
101
|
157
|
|
Depositary fees
|
52
|
57
|
|
Directors’ expenses
|
79
|
13
|
|
Directors’ fees1
|
240
|
202
|
|
Legal and professional fees
|
143
|
77
|
|
Marketing expenses
|
269
|
263
|
|
Printing and publication expenses
|
39
|
50
|
|
Registrars’ fees
|
63
|
69
|
|
Other expenses
|
125
|
131
|
|
Fees payable to the Company’s Independent Auditor for the audit of
the Financial Statements
|
71
|
57
|
|
|
---------------
|
---------------
|
|
|
1,203
|
1,097
|
|
|
=========
|
=========
|
|
Allocated to capital:
|
|
|
|
Legal and professional fees
|
35
|
4
|
|
|
---------------
|
---------------
|
|
Other expenses
|
1,238
|
1,101
|
|
|
=========
|
=========
|
1 Details
of the breakdown of Directors’ fees are provided within the
Directors’ Remuneration Report in the Annual Report.
6. Finance Costs
|
|
Year ended 31 March 2024
|
Year ended 31 March 2023
|
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
Interest paid on bank loan and overdrafts
|
1,117
|
3,352
|
4,469
|
663
|
1,989
|
2,652
|
|
Interest paid on CFDs
|
5,582
|
16,746
|
22,328
|
3,230
|
9,689
|
12,919
|
|
Dividends paid on short CFDs
|
–
|
–
|
–
|
63
|
191
|
254
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
6,699
|
20,098
|
26,797
|
3,956
|
11,869
|
15,825
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Finance costs have been allocated 75% to capital reserve in
accordance with the Company’s accounting policies.
7. TAXATION
|
|
Year ended 31 March 2024
|
Year ended 31 March 2023
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
a) Analysis of the taxation charge for the
year
|
|
|
|
|
|
|
|
Overseas taxation
|
812
|
–
|
812
|
1,149
|
–
|
1,149
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Taxation charge for the year (see Note
7b)
|
812
|
–
|
812
|
1,149
|
–
|
1,149
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
b) Factors affecting the taxation charge for the
year
The taxation charge for the year is lower than the standard rate of
UK corporation tax for an investment trust company of 25% (2023:
19%). A reconciliation of the standard rate of UK corporation tax
to the taxation charge for the year is shown below:
|
|
Year ended 31 March 2024
|
Year ended 31 March 2023
|
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
Profit/(loss) before taxation
|
28,604
|
(241,256)
|
(212,652)
|
36,614
|
(12,176)
|
24,438
|
|
Profit/(loss) before taxation multiplied by the standard rate of UK
corporation tax of 25% (2023: 19%)
|
7,151
|
(60,314)
|
(53,163)
|
6,957
|
(2,313)
|
4,644
|
|
Effects of:
|
|
|
|
|
|
|
|
Capital losses/(gains) not taxable1
|
–
|
53,033
|
53,033
|
–
|
(2,168)
|
(2,168)
|
|
Income not taxable
|
(6,406)
|
–
|
(6,406)
|
(6,116)
|
–
|
(6,116)
|
|
Expenses not deductible
|
–
|
4,604
|
4,604
|
–
|
1,987
|
1,987
|
|
Excess expenses
|
(745)
|
2,677
|
1,932
|
(841)
|
2,494
|
1,653
|
|
Overseas taxation
|
812
|
–
|
812
|
1,149
|
–
|
1,149
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Taxation charge (Note 7a)
|
812
|
–
|
812
|
1,149
|
–
|
1,149
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
Company is exempt from UK corporation tax on capital gains as it
meets the HM Revenue & Customs criteria for an investment
company set out in Section 1159 of the Corporation Tax Act
2010.
c)
Deferred taxation
A deferred tax asset of £39,515,000 (2023: £37,583,000), in respect
of excess expenses of £158,059,000 (2023: £150,330,000) has not
been recognised as it is unlikely that there will be sufficient
future taxable profits to utilise these expenses.
The UK corporation tax rate increased from 19% to 25% from
1 April 2023. The rate of 25% has
been applied to calculate the unrecognised deferred tax asset for
the current year (2023: 25%).
8. Earnings/(Loss) per Ordinary Share
|
|
Year ended
31 March
2024
|
Year ended
31 March
2023
|
|
Revenue earnings per ordinary share
|
5.78p
|
7.05p
|
|
Capital loss per ordinary share
|
(50.18p)
|
(2.42p)
|
|
|
---------------
|
---------------
|
|
Total (loss)/earnings per ordinary share
|
(44.40p)
|
4.63p
|
|
|
=========
|
=========
|
The earnings/(loss) per ordinary share is based on the
profit/(loss) after taxation for the year divided by the weighted
average number of ordinary shares held outside of Treasury during
the year, as shown below:
|
|
£’000
|
£’000
|
|
Revenue profit after taxation for the year
|
27,792
|
35,465
|
|
Capital loss after taxation for the year
|
(241,256)
|
(12,176)
|
|
|
---------------
|
---------------
|
|
Total (loss)/profit after taxation for the year
|
(213,464)
|
23,289
|
|
|
=========
|
=========
|
|
|
Number
|
Number
|
|
Weighted average number of ordinary shares held outside of
Treasury
|
480,806,725
|
503,045,428
|
|
|
=========
|
=========
|
9. Dividends Paid to Shareholders
|
|
Year ended
31 March
2024
£’000
|
Year ended
31 March
2023
£’000
|
|
Dividend paid
|
|
|
|
Dividend of 6.25 pence per ordinary share paid for the year ended
31 March 2023
|
30,198
|
–
|
|
Dividend of 5.50 pence per ordinary share paid for the year ended
31 March 2022
|
–
|
28,240
|
|
|
---------------
|
---------------
|
|
|
30,198
|
28,240
|
|
|
=========
|
=========
|
|
Dividend proposed
|
|
|
|
Dividend proposed of 6.40 pence per ordinary share for the year
ended 31 March 2024
|
33,471
|
–
|
|
Dividend proposed of 6.25 pence per ordinary share for the year
ended 31 March 2023
|
–
|
30,199
|
|
|
---------------
|
---------------
|
|
|
33,471
|
30,199
|
|
|
=========
|
=========
|
The Directors have proposed the payment of a dividend for the year
ended 31 March 2024 of 6.40 pence per ordinary share which is subject to
approval by shareholders at the Annual General Meeting on
23 July 2024 and has not been
included as a liability in these Financial Statements. The dividend
will be paid on 31 July 2024 to
shareholders on the register at the close of business on
21 June 2024 (ex-dividend date
20 June 2024).
10. Investments at Fair Value through Profit or
Loss
|
|
2024
£’000
|
2023
£’000
|
|
Total investments1
|
1,162,265
|
1,318,764
|
|
Opening book cost
|
1,514,572
|
1,630,492
|
|
Opening investment holding losses
|
(195,808)
|
(265,007)
|
|
Opening fair value of investments
|
1,318,764
|
1,365,485
|
|
|
---------------
|
---------------
|
|
Movements in the year
|
|
|
|
Purchases at cost
|
586,707
|
440,666
|
|
Assets acquired in respect of the transaction with ACIC
|
120,754
|
–
|
|
Sales – proceeds
|
(708,959)
|
(480,475)
|
|
Losses on investments
|
(155,001)
|
(6,912)
|
|
|
---------------
|
---------------
|
|
Closing fair value
|
1,162,265
|
1,318,764
|
|
|
=========
|
=========
|
|
Closing book cost
|
1,398,894
|
1,514,572
|
|
Closing investment holding losses
|
(236,629)
|
(195,808)
|
|
|
---------------
|
---------------
|
|
Closing fair value of investments
|
1,162,265
|
1,318,764
|
|
|
=========
|
=========
|
1 The
fair value hierarchy of the investments is shown in Note
18.
The Company received £708,959,000 (2023: £480,475,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £823,139,000 (2023: £556,586,000).
These investments have been revalued over time and until they were
sold any unrealised gains/losses were included in the fair value of
the investments.
Investment transaction costs incurred in the acquisition and
disposal of investments, which are included in the losses on
investments were as follows:
|
|
Year ended
31 March
2024
£’000
|
Year ended
31 March
2023
£’000
|
|
Purchases transaction costs
|
720
|
599
|
|
Sales transaction costs
|
740
|
742
|
|
|
---------------
|
---------------
|
|
|
1,460
|
1,341
|
|
|
=========
|
=========
|
The portfolio turnover rate for the year was 57.7%, excluding the
ACIC transaction (2023: 35.5%). The portfolio turnover rate
measures the Company’s trading activity. It is calculated by taking
the average of the total amount of securities purchased and the
total amount of securities sold in the reporting year divided by
the average fair value of investments.
11. DERIVATIVE INSTRUMENTS
|
|
Year ended
31 March
2024
£’000
|
Year ended
31 March
2023
£’000
|
|
Net change to (losses)/gains on derivative
instruments
|
|
|
|
Realised (losses)/gains on CFDs
|
(74,311)
|
6,913
|
|
Realised gains on futures
|
27,951
|
16,590
|
|
Realised losses on options
|
(4,632)
|
(2,645)
|
|
Movement in investment holding (losses)/gains on CFDs
|
(11,900)
|
353
|
|
Movement in investment holding gains/(losses) on futures
|
6,382
|
(4,466)
|
|
Movement in investment holding gains/(losses) on options
|
1,720
|
(1,774)
|
|
|
---------------
|
---------------
|
|
|
(54,790)
|
14,971
|
|
|
=========
|
=========
|
|
|
2024
Fair value
£’000
|
2023
Fair value
£’000
|
|
Fair value of derivative instruments recognised on the
Balance Sheet1
|
|
|
|
Derivative instrument assets
|
7,103
|
22,313
|
|
Derivative instrument liabilities
|
(13,307)
|
(20,892)
|
|
|
---------------
|
---------------
|
|
|
(6,204)
|
1,421
|
|
|
=========
|
=========
|
1 The
fair value hierarchy of the derivative instruments is shown in Note
18.
|
|
Fair value
£’000
|
2024
Asset
exposure
£’000
|
Fair value
£’000
|
2023
Asset
exposure
£’000
|
|
At the year end the Company held the following derivative
instruments
|
|
|
|
|
|
Long CFDs
|
(4,483)
|
412,237
|
7,409
|
512,674
|
|
Short CFDs
|
(1,246)
|
14,766
|
(1,238)
|
19,086
|
|
Futures (hedging exposure)
|
(475)
|
(138,402)
|
(6,857)
|
(172,890)
|
|
Call options
|
–
|
–
|
204
|
2,161
|
|
Put options (long exposure)
|
–
|
–
|
(414)
|
5,097
|
|
Put options (short exposure)
|
–
|
–
|
29
|
188
|
|
Put options (hedging exposure)
|
–
|
–
|
2,288
|
(26,013)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
(6,204)
|
288,601
|
1,421
|
340,303
|
|
|
=========
|
=========
|
=========
|
=========
|
12. OTHER RECEIVABLES
|
|
2024
£’000
|
2023
£’000
|
|
Securities sold for future settlement
|
5,957
|
148
|
|
Amounts receivable on settlement of derivatives
|
2,161
|
10,135
|
|
Accrued income
|
1,726
|
1,513
|
|
Taxation recoverable
|
12
|
13
|
|
Other receivables
|
210
|
130
|
|
|
---------------
|
---------------
|
|
|
10,066
|
11,939
|
|
|
=========
|
=========
|
13. Bank Loan – repayable within one
year
|
|
2024
£’000
|
2023
£’000
|
|
Fixed rate unsecured US dollar loan
|
|
|
|
US dollar 100,000,000 fixed at a rate of 6.335%1
|
–
|
80,857
|
|
|
---------------
|
---------------
|
|
|
–
|
80,857
|
|
|
=========
|
=========
|
1 The
unsecured loan with The Bank of Nova
Scotia, London Branch was
repaid on 13 February
2024.
14. OTHER PAYABLES
|
|
2024
£’000
|
2023
£’000
|
|
Securities purchased for future settlement
|
6,843
|
12,402
|
|
Amounts payable on settlement of derivatives
|
1,078
|
4,731
|
|
Investment management fees
|
678
|
1,266
|
|
Finance costs payable
|
610
|
977
|
|
Accrued expenses
|
414
|
1,096
|
|
Amounts payable for repurchase of shares for
cancellation
|
179
|
–
|
|
Amounts payable for repurchase of shares into Treasury
|
–
|
130
|
|
|
---------------
|
---------------
|
|
|
9,802
|
20,602
|
|
|
=========
|
=========
|
15. SHARE CAPITAL
|
|
2024
|
2023
|
|
|
Number of
shares
|
Nominal
value
£’000
|
Number of
shares
|
Nominal
value
£’000
|
|
Issued, allotted and fully paid
|
|
|
|
|
|
Ordinary shares of 1 pence each held outside of
Treasury
|
|
|
|
|
|
Beginning of the year
|
488,325,628
|
4,884
|
513,957,409
|
5,140
|
|
New ordinary shares issued in respect of the transaction with
ACIC
|
59,005,997
|
590
|
–
|
–
|
|
Ordinary shares repurchased into Treasury
|
(2,900,696)
|
(29)
|
(25,631,781)
|
(256)
|
|
Ordinary shares repurchased for cancellation
|
(18,749,495)
|
(187)
|
–
|
–
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
End of the year
|
525,681,434
|
5,258
|
488,325,628
|
4,884
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Ordinary shares of 1 pence each held in
Treasury1
|
|
|
|
|
|
Beginning of the year
|
82,728,852
|
826
|
57,097,071
|
570
|
|
Ordinary shares repurchased into Treasury
|
2,900,696
|
29
|
25,631,781
|
256
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
End of the year
|
85,629,548
|
855
|
82,728,852
|
826
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Total share capital
|
|
6,113
|
|
5,710
|
|
|
|
=========
|
|
=========
|
1 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.
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.
During the year, the Company repurchased 2,900,696 (2023:
25,631,781) ordinary shares and held them in Treasury. The cost of
repurchasing these shares of £6,965,000 (2023: £57,249,000) was
charged to the Other Reserve.
The Company also repurchased 18,749,495 (2023: nil shares) ordinary
shares for cancellation. The cost of repurchasing these shares of
£38,968,000 (2023: £nil) was charged to the Other
Reserve.
16. Capital and Reserves
|
|
Share
capital
£’000
|
Share
Premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Other
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
equity
£’000
|
|
At 1 April 2023
|
5,710
|
211,569
|
917
|
186,794
|
877,782
|
55,649
|
1,338,421
|
|
Losses on investments (see Note 10)
|
–
|
–
|
–
|
–
|
(155,001)
|
–
|
(155,001)
|
|
Losses on derivative instruments (see Note 11)
|
–
|
–
|
–
|
–
|
(54,790)
|
–
|
(54,790)
|
|
Foreign exchange losses
|
–
|
–
|
–
|
–
|
(3,858)
|
–
|
(3,858)
|
|
Foreign exchange gains on bank loan
|
–
|
–
|
–
|
–
|
1,517
|
–
|
1,517
|
|
Investment management fees (see Note 4)
|
–
|
–
|
–
|
–
|
(8,991)
|
–
|
(8,991)
|
|
Other expenses (see Note 5)
|
–
|
–
|
–
|
–
|
(35)
|
–
|
(35)
|
|
Finance costs (see Note 6)
|
–
|
–
|
–
|
–
|
(20,098)
|
–
|
(20,098)
|
|
Revenue profit after taxation for the year
|
–
|
–
|
–
|
–
|
–
|
27,792
|
27,792
|
|
Dividend paid to shareholders (see Note 9)
|
–
|
–
|
–
|
–
|
–
|
(30,198)
|
(30,198)
|
|
New ordinary shares issued in respect of the transaction with ACIC
(see Note 15)
|
590
|
126,198
|
–
|
–
|
–
|
–
|
126,788
|
|
Contribution in respect of the transaction with
|
|
|
|
|
|
|
|
|
ACIC by the Manager (see Note 2 (a))
|
–
|
400
|
–
|
–
|
–
|
–
|
400
|
|
Repurchase of ordinary shares into Treasury (see Note
15)
|
–
|
–
|
–
|
(6,965)
|
–
|
–
|
(6,965)
|
|
Repurchase of ordinary shares for cancellation (see Note
15)
|
(187)
|
–
|
187
|
(38,968)
|
–
|
–
|
(38,968)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
At 31 March 2024
|
6,113
|
338,167
|
1,104
|
140,861
|
636,526
|
53,243
|
1,176,014
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
At 1 April 2022
|
5,710
|
211,569
|
917
|
244,043
|
889,958
|
48,424
|
1,400,621
|
|
Losses on investments (see Note 10)
|
–
|
–
|
–
|
–
|
(6,912)
|
–
|
(6,912)
|
|
Gains on derivative instruments (see Note 11)
|
–
|
–
|
–
|
–
|
14,971
|
–
|
14,971
|
|
Foreign exchange gains
|
–
|
–
|
–
|
–
|
8,167
|
–
|
8,167
|
|
Foreign exchange losses on bank loan
|
–
|
–
|
–
|
–
|
(4,814)
|
–
|
(4,814)
|
|
Investment management fees (see Note 4)
|
–
|
–
|
–
|
–
|
(11,715)
|
–
|
(11,715)
|
|
Other expenses (see Note 5)
|
–
|
–
|
–
|
–
|
(4)
|
–
|
(4)
|
|
Finance costs (see Note 6)
|
–
|
–
|
–
|
–
|
(11,869)
|
–
|
(11,869)
|
|
Revenue profit after taxation for the year
|
–
|
–
|
–
|
–
|
–
|
35,465
|
35,465
|
|
Dividend paid to shareholders (see Note 9)
|
–
|
–
|
–
|
–
|
–
|
(28,240)
|
(28,240)
|
|
Repurchase of ordinary shares (see Note 15)
|
–
|
–
|
–
|
(57,249)
|
–
|
–
|
(57,249)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
At 31 March 2023
|
5,710
|
211,569
|
917
|
186,794
|
877,782
|
55,649
|
1,338,421
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The capital reserve balance at 31 March
2024 includes investment holding losses on investments of
£236,629,000 (2023: losses of £195,808,000) as detailed in Note 10
above. See Note 2 (s) for further details. The revenue, capital and
other reserves are distributable by way of dividend.
17. 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.
|
|
2024
|
2023
|
|
Net assets
|
£1,176,014,000
|
£1,338,421,000
|
|
Ordinary shares held outside of Treasury at year end
|
525,681,434
|
488,325,628
|
|
Net asset value per ordinary share
|
223.71p
|
274.08p
|
|
|
=========
|
=========
|
It is the Company’s policy that shares held in Treasury will only
be reissued at net asset value per share or at a premium to net
asset value per share so that shares held in Treasury have no
dilutive effect.
18. Financial Instruments
Management of risk
The Company’s investing activities in pursuit of its investment
objective involve certain inherent risks. The Board confirms that
there is an ongoing process for identifying, evaluating and
managing the risks faced by the Company. The Board with the
assistance of the Investment Manager, has developed a risk matrix
which, as part of the internal control process, identifies the
risks that the Company faces. Principal risks identified are
geopolitical, market and economic (including currency), investment
performance (including gearing), discount management, unlisted
securities, climate change, environmental, social and governance
(“ESG”), key person, cybercrime and information security, business
continuity, operational and variable interest entity structures.
Other risks identified are tax and regulatory and operational
risks, including those relating to third-party service providers
covering investment management, marketing and business development,
company secretarial, fund administration and operations and support
functions. Risks are identified and graded in this process,
together with steps taken in mitigation, and are updated and
reviewed on an ongoing basis. Risks identified are shown
above.
This Note is incorporated in accordance with IFRS 7: Financial
Instruments: Disclosures and refers to the identification,
measurement and management of risks potentially affecting the value
of financial instruments.
The Company’s financial instruments may comprise:
· Equity
shares (listed and unlisted), equity linked notes, convertible
bonds and rights issues;
· Derivative
instruments including CFDs, warrants, futures and options written
or purchased on stocks and equity indices and forward currency
contracts;
· Cash,
liquid resources and short-term receivables and payables that arise
from its operations; and
· Bank
borrowings.
The risks identified by IFRS 7 arising from the Company’s financial
instruments are market price risk (which comprises interest rate
risk, foreign currency risk and other price risk), liquidity risk,
counterparty risk, credit risk and derivative instrument risk. The
Board reviews and agrees policies for managing each of these risks,
which are summarised below. These policies are consistent with
those followed last year.
Market price risk
Interest rate risk
The Company finances its operations through its share capital and
in addition, the Company has derivative instruments. The unsecured
fixed rate loan facility for US$100,000,000 expired on 13 February 2024 as disclosed in Note
13.
Interest rate risk exposure
The values of the Company’s financial instruments that are exposed
to movements in interest rates are shown below:
|
|
2024
£’000
|
2023
£’000
|
|
Exposure to financial instruments that bear
interest
|
|
|
|
Long CFDs – exposure less fair value
|
416,720
|
505,265
|
|
Bank overdrafts
|
12,758
|
–
|
|
Bank loan
|
–
|
80,857
|
|
|
---------------
|
---------------
|
|
|
429,478
|
586,122
|
|
|
=========
|
=========
|
|
Exposure to financial instruments that earn
interest
|
|
|
|
Short CFDs – exposure plus fair value
|
13,520
|
17,848
|
|
Amounts held at futures clearing houses and brokers
|
24,589
|
34,813
|
|
Cash at bank
|
7,858
|
72,943
|
|
|
---------------
|
---------------
|
|
|
45,967
|
125,604
|
|
|
=========
|
=========
|
|
Net exposure to financial instruments that bear
interest
|
383,511
|
460,518
|
|
|
=========
|
=========
|
Foreign currency risk
The Company’s profit/(loss) after taxation and its net assets can
be affected by foreign exchange movements because the Company has
income, assets and liabilities which are denominated in currencies
other than the Company’s functional currency which is UK
sterling.
Three principal areas have been identified where foreign currency
risk could impact the Company:
· Movements
in currency exchange rates affecting the value of
investments;
· Movements
in currency exchange rates affecting short-term timing differences,
for example, between the date when an investment is bought or sold
and the date when settlement of the transaction occurs;
and
· Movements
in currency exchange rates affecting income received.
Currency exposure of financial assets
The Company’s financial assets comprise of investments, long
positions on derivative instruments, short-term debtors and cash at
bank. The currency exposure profile of these financial assets is
shown below:
|
Currency
|
Investments
held at
fair value
through
profit or loss
£’000
|
Asset
exposure of
long
derivative
instruments1
£’000
|
Other
receivables2
£’000
|
Cash
at bank
£’000
|
2024
Total
£’000
|
|
Chinese renminbi
|
92,336
|
–
|
–
|
1,372
|
93,708
|
|
Euro
|
10,903
|
–
|
–
|
–
|
10,903
|
|
Hong Kong dollar
|
704,175
|
148,557
|
18,153
|
–
|
870,885
|
|
Japanese yen
|
5,787
|
22,134
|
125
|
341
|
28,387
|
|
Taiwan dollar
|
7,603
|
–
|
12
|
–
|
7,615
|
|
Thai baht
|
439
|
–
|
–
|
–
|
439
|
|
UK sterling
|
17,752
|
–
|
209
|
–
|
17,961
|
|
US dollar
|
323,270
|
103,144
|
16,156
|
6,145
|
448,715
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
1,162,265
|
273,835
|
34,655
|
7,858
|
1,478,613
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
asset exposure of long CFDs after the netting of hedging
exposures.
2 Other
receivables include amounts held at futures clearing houses and
brokers.
|
|
Investments
held at
fair value
through
profit or loss
|
Asset
exposure of
long
derivative
instruments1
|
Other
receivables2
|
Cash
at bank
|
2023
Total
|
|
Currency
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
|
Chinese renminbi
|
170,913
|
–
|
–
|
21,221
|
192,134
|
|
Euro
|
10,432
|
–
|
–
|
–
|
10,432
|
|
Hong Kong dollar
|
601,107
|
270,181
|
34,483
|
24,043
|
929,814
|
|
Japanese yen
|
35,111
|
–
|
84
|
–
|
35,195
|
|
South Korean won
|
–
|
–
|
–
|
1
|
1
|
|
Taiwan dollar
|
19,621
|
–
|
72
|
8
|
19,701
|
|
UK sterling
|
16,221
|
–
|
130
|
–
|
16,351
|
|
|
|
|
|
|
|
|
US dollar
|
465,359
|
50,848
|
11,983
|
27,670
|
555,860
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
1,318,764
|
321,029
|
46,752
|
72,943
|
1,759,488
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
asset exposure of long CFDs and options after the netting of
hedging exposures.
2 Other
receivables include amounts held at futures clearing houses and
brokers.
Currency exposure of financial
liabilities
The Company finances its investment activities through its ordinary
share capital, reserves and borrowings. The Company’s financial
liabilities comprise short positions on derivative instruments,
other payables, bank overdrafts and US dollar denominated bank
loan. The currency profile of these financial liabilities is shown
below:
|
Currency
|
Asset
exposure of
short
derivative
instruments1
£’000
|
Other
payables
£’000
|
Bank
overdrafts
£’000
|
2024
Total
£’000
|
|
Hong Kong dollar
|
–
|
5,994
|
12,744
|
18,738
|
|
UK sterling
|
–
|
1,271
|
14
|
1,285
|
|
US dollar
|
14,766
|
2,537
|
–
|
17,303
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
14,766
|
9,802
|
12,758
|
37,326
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Currency
|
Asset
exposure of
short
derivative
instruments1
£’000
|
Other
payables
£’000
|
US dollar
bank loan
£’000
|
2023
Total
£’000
|
|
Hong Kong dollar
|
13,842
|
13,658
|
–
|
27,500
|
|
UK sterling
|
–
|
1,823
|
–
|
1,823
|
|
US dollar
|
5,432
|
5,121
|
80,857
|
91,410
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
19,274
|
20,602
|
80,857
|
120,733
|
|
|
=========
|
=========
|
=========
|
=========
|
1 The
asset exposure of short derivative instruments excluding hedging
exposures.
Other price risk
Other price risk arises mainly from uncertainty about future prices
of financial instruments. It represents the potential loss the
Company might suffer through price movements in its investment
positions. The Board meets quarterly to consider the asset
allocation of the portfolio and the risk associated with particular
industry sectors within the parameters of the investment
objective.
The Investment Manager is responsible for actively monitoring the
portfolio selected in accordance with the overall asset allocation
parameters and seeks to ensure that individual stocks also meet an
acceptable risk/reward profile. Other price risks arising from
derivative positions, mainly due to the underlying exposures, are
assessed by the Investment Manager’s specialist derivative
instruments team.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in meeting obligations associated with financial
liabilities. The Company’s assets mainly comprise readily
realisable securities and derivative instruments which can be sold
easily to meet funding commitments if necessary. Short-term
flexibility is achieved by the use of a bank overdraft, if
required.
Counterparty risk
Certain derivative instruments in which the Company may invest are
not traded on an exchange but instead will be traded between
counterparties based on contractual relationships, under the terms
outlined in the International Swaps and Derivatives Association’s
(“ISDA”) market standard derivative legal documentation. These are
known as Over The Counter (“OTC”) trades. As a result, the Company
is subject to the risk that a counterparty may not perform its
obligations under the related contract. In accordance with the risk
management process which the Investment Manager employs, this risk
is minimised by only entering into transactions with counterparties
which are believed to have an adequate credit rating at the time
the transaction is entered into, by ensuring that formal legal
agreements covering the terms of the contract are entered into in
advance, and through adopting a counterparty risk framework which
measures, monitors and manages counterparty risk by the use of
internal and external credit agency ratings and evaluates
derivative instrument credit risk exposure.
Collateral
For OTC and exchange traded derivative transactions, collateral is
used to reduce the risk of both parties to the contract. Collateral
is managed on a daily basis for all relevant transactions. At
31 March 2024, £2,811,000 (2023:
£15,601,000) was held by the brokers in cash denominated in US
dollars in a segregated collateral account, on behalf of the
Company, to reduce the credit risk exposure of the Company. This
collateral comprised: Goldman Sachs International Ltd £2,613,000
(2023: £5,814,000), HSBC Bank plc £198,000 (2023: £5,397,000) and
UBS AG £nil (2023: £4,390,000). As at 31
March 2024, £24,589,000 (2023: £34,813,000), shown as
amounts held at futures clearing houses and brokers on the Balance
Sheet, was held by the Company, in a segregated collateral account
on behalf of the brokers, to reduce the credit risk exposure of the
brokers. The collateral comprised: UBS AG £15,689,000 (2023:
£24,694,000) in cash, J.P. Morgan Securities plc £5,186,000 (2023:
£7,273,000) in cash and Morgan Stanley & Co. International Ltd
£3,714,000 (2023: £2,846,000) in cash.
Offsetting
To mitigate counterparty risk for OTC derivative transactions, the
ISDA legal documentation is in the form of a master agreement
between the Company and the broker. This allows enforceable netting
arrangements in the event of a default or termination event.
Derivative instrument assets and liabilities that are subject to
netting arrangements have not been offset in preparing the Balance
Sheet.
The Company’s derivative instrument financial assets and
liabilities recognised in the Balance Sheet and amounts that could
be subject to netting in the event of a default or termination are
shown below:
|
Financial assets
|
Gross
amount
£’000
|
Gross amount
of recognised
financial
liabilities
set off on
the balance
sheet
£’000
|
Net amount
of financial
assets
presented on
the balance
sheet
£’000
|
Related amounts not set off
on balance sheet
|
2024
Net
amount
£’000
|
|
Financial
instruments
£’000
|
Margin
account
received as
collateral
£’000
|
|
CFDs
|
7,103
|
–
|
7,103
|
(3,844)
|
(2,389)
|
870
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Financial liabilities
|
Gross
amount
£’000
|
Gross amount
of recognised
financial
assets
set off on
the balance
sheet
£’000
|
Net amount
of financial
liabilities
presented on
the balance
sheet
£’000
|
Related amounts not set off
on balance sheet
|
2024
Net
amount
£’000
|
|
Financial
instruments
£’000
|
Margin
account
pledged as
collateral
£’000
|
|
CFDs
|
(12,832)
|
–
|
(12,832)
|
3,844
|
8,900
|
(88)
|
|
Futures (exchange traded)
|
(475)
|
–
|
(475)
|
–
|
475
|
–
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
(13,307)
|
–
|
(13,307)
|
3,844
|
9,375
|
(88)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Financial assets
|
Gross
amount
£’000
|
Gross amount
of recognised
financial
liabilities
set off on
the balance
sheet
£’000
|
Net amount
of financial
assets
presented on
the balance
sheet
£’000
|
Related amounts not set off
on balance sheet
|
2023
Net
amount
£’000
|
|
Financial
instruments
£’000
|
Margin
account
received as
collateral
£’000
|
|
CFDs
|
19,792
|
–
|
19,792
|
(9,040)
|
(9,704)
|
1,048
|
|
Options
|
2,521
|
–
|
2,521
|
(414)
|
(2,107)
|
–
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
22,313
|
–
|
22,313
|
(9,454)
|
(11,811)
|
1,048
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Financial liabilities
|
Gross
amount
£’000
|
Gross amount
of recognised
financial
assets
set off on
the balance
sheet
£’000
|
Net amount
of financial
liabilities
presented on
the balance
sheet
£’000
|
Related amounts not set off
on balance sheet
|
2023
Net
amount
£’000
|
|
Financial
instruments
£’000
|
Margin
account
pledged as
collateral
£’000
|
|
CFDs
|
(13,621)
|
–
|
(13,621)
|
9,040
|
4,581
|
–
|
|
Futures (exchange traded)
|
(6,857)
|
–
|
(6,857)
|
–
|
6,857
|
–
|
|
Options
|
(414)
|
–
|
(414)
|
414
|
–
|
–
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
(20,892)
|
–
|
(20,892)
|
9,454
|
11,438
|
–
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Credit risk
Financial instruments may be adversely affected if any of the
institutions with which money is deposited suffer insolvency or
other financial difficulties. All transactions are carried out with
brokers that have been approved by the Investment Manager and are
settled on a delivery versus payment basis. Limits are set on the
amount that may be due from any one broker and are kept under
review by the Investment Manager. Exposure to credit risk arises on
outstanding security transactions and derivative instrument
contracts and cash at bank.
Derivative instrument risk
A Derivative Instrument Charter, including an appendix entitled
Derivative Risk Measurement and Management, details the risks and
risk management processes used by the Investment Manager. This
Charter was approved by the Board and allows the use of derivative
instruments for the following purposes:
· To
gain exposure to equity markets, sectors or individual
investments;
· To
hedge equity market risk in the Company’s investments with the
intention of mitigating losses in the events market
falls;
· To
enhance portfolio returns by writing call and put options;
and
· To
take short positions in equity markets, which would benefit from a
fall in the relevant market price, where the Investment Manager
believes the investment is overvalued. These positions distinguish
themselves from other short exposures held for hedging purposes
since they are expected to add risk to the portfolio.
The risk and investment performance of these instruments are
managed by an experienced, specialist derivative team of the
Investment Manager using portfolio risk assessment tools for
portfolio construction.
RISK SENSITIVITY ANALYSIS
Interest rate risk sensitivity analysis
Based on the financial instruments held and interest rates at the
Balance Sheet date, an increase of 1.00% in interest rates
throughout the year, with all other variables held constant, would
have increased the loss after taxation for the year and decreased
the net assets of the Company by £3,835,000 (2023: decreased the
profit after taxation and decreased the net assets by £3,797,000).
A decrease of 1.00% in interest rates throughout the year would
have had an equal but opposite effect.
Foreign currency risk sensitivity
analysis
Based on the financial assets and liabilities held and currency
exchange rates ruling at the Balance Sheet date, a strengthening of
the UK sterling exchange rate by 10% against other currencies, with
all other variables held constant, would have increased the loss
after taxation for the year and decreased the net assets of the
Company (2023: decreased the profit after taxation and decreased
the net assets) by the following amounts:
|
Currency
|
2024
£’000
|
2023
£’000
|
|
Chinese renminbi
|
8,519
|
17,467
|
|
Euro
|
991
|
948
|
|
Hong Kong dollar
|
77,468
|
82,028
|
|
Japanese yen
|
2,581
|
3,200
|
|
Taiwan dollar
|
692
|
1,791
|
|
Thai baht
|
40
|
–
|
|
US dollar
|
39,219
|
42,223
|
|
|
---------------
|
---------------
|
|
|
129,510
|
147,657
|
|
|
=========
|
=========
|
Based on the financial assets and liabilities held and the exchange
rates ruling at the Balance Sheet date, a weakening of the UK
sterling exchange rate by 10% against other currencies would have
decreased the loss after taxation for the year and increased the
net assets of the Company (2023: increased the profit after
taxation and increased the net assets) by the following
amounts:
|
Currency
|
2024
£’000
|
2023
£’000
|
|
Chinese renminbi
|
10,412
|
21,348
|
|
Euro
|
1,211
|
1,159
|
|
Hong Kong dollar
|
94,683
|
100,257
|
|
Japanese yen
|
3,154
|
3,911
|
|
Taiwan dollar
|
846
|
2,189
|
|
Thai baht
|
49
|
–
|
|
US dollar
|
47,935
|
51,606
|
|
|
---------------
|
---------------
|
|
|
158,290
|
180,470
|
|
|
=========
|
=========
|
Other price risk sensitivity analysis
Changes in market prices affect the profit/(loss) after taxation
for the year and the net assets of the Company. Details of how the
Board sets risk parameters and performance objectives are disclosed
in the Strategic Report in the Annual Report.
An increase of 10% in the share prices of the listed investments
held at the Balance Sheet date would have decreased the loss after
taxation for the year and increased the net assets of the Company
by £100,526,000 (2023: increased the profit after taxation and
increased the net assets by £112,588,000). A decrease of 10% in
share prices of the investments designated at fair value through
profit or loss would have had an equal but opposite
effect.
An increase of 10% in the valuation of unlisted investments held at
the Balance Sheet date would have decreased the loss after taxation
for the year and increased the net assets of the Company by
£15,701,000 (2023: increased the profit after taxation and
increased the net assets by £19,288,000). A decrease of 10% in the
valuation would have had an equal but opposite effect.
Derivative instruments exposure sensitivity
analysis
The Company invests in derivative instruments to gain or reduce
exposure to the equity market. An increase of 10% in the share
prices of the investments underlying the derivative instruments at
the Balance Sheet date would have decreased the loss after taxation
for the year and increased the net assets of the Company by
£25,907,000 (2023: increased the profit after taxation and
increased the net assets by £30,176,000). A decrease of 10% in
share prices of the investments underlying the derivative
instruments would have had an equal but opposite effect.
Fair Value of Financial Assets and
Liabilities
Financial assets and liabilities are stated in the Balance Sheet at
values which are not materially different to their fair values. As
explained in Notes 2 (l) and (m), investments and derivative
instruments are shown at fair value. In the case of cash at bank,
book value approximates to fair value due to the short maturity of
the instruments. The exception is the US dollar denominated bank
loan, its fair value having been calculated by discounting future
cash flows at current US dollar interest rates.
|
|
Fair value
£’000
|
2024
Book value
£’000
|
Fair value
£’000
|
2023
Book value
£’000
|
|
Fixed rate unsecured loan of US dollar
100,000,0001
|
–
|
–
|
81,092
|
80,857
|
|
|
=========
|
=========
|
=========
|
=========
|
1 The
unsecured fixed rate loan facility for US$100,000,000 was repaid on 13 February 2024 as disclosed in Note
13.
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 explained in Notes 2 (e), (l) and (m). The
table below sets out the Company’s fair value hierarchy:
|
Financial assets at fair value through profit or loss
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
2024
Total
£’000
|
|
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)
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Financial assets at fair value through profit or loss
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
2023
Total
£’000
|
|
Investments
|
1,081,458
|
44,428
|
192,878
|
1,318,764
|
|
Derivative instrument assets
|
2,492
|
19,821
|
–
|
22,313
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
|
1,083,950
|
64,249
|
192,878
|
1,341,077
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Financial liabilities at fair value through profit or
loss
|
|
|
|
|
|
Derivative instrument liabilities
|
(7,271)
|
(13,621)
|
–
|
(20,892)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Financial liabilities at fair value
|
|
|
|
|
|
Bank loan
|
–
|
(81,092)
|
–
|
(81,092)
|
|
|
=========
|
=========
|
=========
|
=========
|
Level 3 investments (unlisted and delisted
investments)
|
|
2024
£’000
|
2023
£’000
|
|
Pony.ai
|
42,805
|
48,272
|
|
DJI International
|
30,769
|
30,475
|
|
Chime Biologics
|
27,312
|
29,064
|
|
Venturous Holdings
|
25,602
|
26,015
|
|
ByteDance
|
24,724
|
24,035
|
|
Tuhu Car (moved into Level 1)
|
–
|
14,024
|
|
Cutia Therapeutics (moved into Level 1)
|
–
|
11,575
|
|
Beisen (moved into Level 1)
|
–
|
9,418
|
|
Shanghai Yiguo
|
–
|
–
|
|
4 listed investments whose listings are currently
suspended
|
5,796
|
–
|
|
|
---------------
|
---------------
|
|
|
157,008
|
192,878
|
|
|
=========
|
=========
|
Pony.ai
Pony.ai develops artificial intelligence and autonomous driving
technology solutions for transportation and is an unlisted company.
The valuation at 31 March 2024 is
based on the company’s financial performance, the macro-environment
and benchmarking the position to a range of comparable market data.
As at 31 March 2024, its fair value
was £42,805,000 (book cost: £24,892,000).
DJI International
DJI International is a manufacturer of drones and is an unlisted
company. The valuation at 31 March
2024 is as follows: the D shares valuation is based on the
strike price of the put option in place and the B shares valuation
is based on the company’s performance, the macro-environment,
product development and benchmarking the position to a range of
comparable market data. As at 31 March
2024, its fair value was £30,769,000 (book cost:
£22,416,000).
Chime Biologics
Chime Biologics is a China-based
Contract Development and Manufacturing Organization (CDMO) that
provides a solution supporting customers from early-stage
biopharmaceutical development through late-stage clinical and
commercial manufacturing and is an unlisted company. The valuation
at 31 March 2024 is based on analysis
of the company performance, the terms of the convertible note and
benchmarking the position to a range of comparable market data. As
at 31 March 2024, its fair value was
£27,312,000 (book cost: £25,227,000).
Venturous Holdings
Venturous Holdings is an investment company with a focus in smart
city technology companies and is an unlisted company. The valuation
at 31 March 2024 is based on a review
of the company’s portfolio including performance, the wider
macro-environment and benchmarking the position to a range of
comparable market data. As at 31 March
2024, its fair value was £25,602,000 (book cost:
£23,701,000).
ByteDance
ByteDance develops applications for smart phones and is an unlisted
company. The valuation at 31 March
2024 is based on the company’s financial performance, the
macro-environment and benchmarking the position to a range of
comparable market data. As at 31 March
2024, its fair value was £24,724,000 (book cost:
£7,361,000).
Shanghai Yiguo
Shanghai Yiguo operates an e-commerce platform, selling fruit and
vegetables online to customers in China and is an unlisted company. The company
has commenced liquidation proceedings and following internal
review, the valuation at £nil remained appropriate as at
31 March 2024 (book cost:
£11,806,000).
Companies whose listings are suspended
Four listed companies in the portfolio have had their listing
suspended: DBA Telecommunication (Asia) Limited (suspended July 2014), China Animal Healthcare Limited
(suspended March 2015), BNN
Technology Limited (suspended September
2017) and China Renaissance Holdings (suspended April 2023). All holdings have been valued at
£nil, apart from China Renaissance Holdings which has been valued
at £5,796,000.
Significant holdings
Details of significant holdings are noted below in accordance with
the disclosure requirements of paragraph 82 of the AIC SORP. The
Company is required to provide a list of all investments at the
balance sheet date with a value greater than 5% of its portfolio
and at least the ten largest investments, including the value of
each investment and for unlisted investments included in the list,
additional detail is required as shown below. This disclosure
includes turnover, pre-tax profits and net assets attributable to
investors, as reported within the most recently audited financial
statements of the investee companies.
|
|
Latest
Financial
Statements
|
Income
recognised
from the
holding in
the year
|
Turnover
£’000
|
Pre-tax
profit/(loss)
£’000
|
Net assets
attributable to
shareholders
£’000
|
|
Pony.ai
|
n/a
|
nil
|
Information not publicly available
|
|
DJI International
|
n/a
|
nil
|
Information not publicly available
|
|
Chime Biologics
|
n/a
|
nil
|
Information not publicly available
|
|
|
=========
|
=========
|
=========
|
|
Movements in level 3 investments during the year
|
2024
Level 3
£’000
|
2023
Level 3
£’000
|
|
Level 3 investments at the beginning of the year
|
192,878
|
194,650
|
|
Purchases at cost
|
–
|
–
|
|
Sales proceeds - Venturous Holdings
|
(2,943)
|
–
|
|
Sales gain - Venturous Holdings
|
615
|
–
|
|
Transfers into level 3 at cost – China Renaissance
Holdings
|
17,316
|
–
|
|
Transfers out of level 3 at cost1
|
(35,153)
|
(9,971)
|
|
Unrealised (loss)/profit recognised in the Income
Statement
|
(15,705)
|
8,199
|
|
|
---------------
|
---------------
|
|
Level 3 investments at the end of the
year
|
157,008
|
192,878
|
|
|
=========
|
=========
|
1 Financial
instruments are transferred out of level 3 when they become listed.
See above for more information.
19. Capital Resources and Gearing
The Company does not have any externally imposed capital
requirements. The financial resources of the Company comprise its
share capital, reserves and gearing, which are disclosed on the
Balance Sheet. The Company is managed in accordance with its
investment policy and in pursuit of its investment objective, both
of which are detailed in the Strategic Report on in the Annual
Report. The principal risks and their management are disclosed
above and in Note 18 above.
The Company’s gearing at the year-end is set out below:
|
|
2024
|
|
|
Gross gearing
|
Net gearing
|
|
|
Exposure
£’000
|
%1
|
Exposure
£'000
|
%1
|
|
Investments
|
1,162,265
|
98.8
|
1,162,265
|
98.8
|
|
Long CFDs
|
412,237
|
35.1
|
412,237
|
35.1
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total long exposures before hedges
|
1,574,502
|
133.9
|
1,574,502
|
133.9
|
|
|
=========
|
=========
|
=========
|
=========
|
|
less: short derivative instruments hedging the above
|
(138,402)
|
(11.8)
|
(138,402)
|
(11.8)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total long exposures after the netting of
hedges
|
1,436,100
|
122.1
|
1,436,100
|
122.1
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Short CFDs
|
14,766
|
1.3
|
(14,766)
|
(1.3)
|
|
Gross Asset Exposure/net market
exposure*
|
1,450,866
|
123.4
|
1,421,334
|
120.8
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Net Assets
|
1,176,014
|
|
1,176,014
|
|
|
|
=========
|
|
=========
|
|
|
Gearing
2
|
|
23.4%
|
|
20.8%
|
|
|
|
=========
|
|
=========
|
|
|
2023
|
|
|
Gross gearing
|
Net gearing
|
|
|
Exposure
£’000
|
%1
|
Exposure
£'000
|
%1
|
|
Investments
|
1,318,764
|
98.5
|
1,318,764
|
98.5
|
|
Long CFDs
|
512,674
|
38.3
|
512,674
|
38.3
|
|
Call options
|
2,161
|
0.2
|
2,161
|
0.2
|
|
Put options (long exposure)
|
5,097
|
0.4
|
5,097
|
0.4
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total long exposures before hedges
|
1,838,696
|
137.4
|
1,838,696
|
137.4
|
|
|
=========
|
=========
|
=========
|
=========
|
|
less: short derivative instruments hedging the above
|
(198,903)
|
(14.9)
|
(198,903)
|
(14.9)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Total long exposures after the netting of hedges
|
1,639,793
|
122.5
|
1,639,793
|
122.5
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Short CFDs
|
19,086
|
1.4
|
(19,086)
|
(1.4)
|
|
Put options (short exposure)
|
188
|
–
|
(188)
|
–
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
|
Gross Asset Exposure/net market exposure*
|
1,659,067
|
123.9
|
1,620,519
|
121.1
|
|
|
=========
|
=========
|
=========
|
=========
|
|
Net Assets
|
1,338,421
|
|
1,338,421
|
|
|
|
---------------
|
|
---------------
|
|
|
Gearing2
|
|
23.9%
|
|
21.1%
|
|
|
|
=========
|
|
=========
|
* Defined
in the Glossary of Terms in the Annual Report.
1 Exposure
to the market expressed as a percentage of Net Assets.
2 Gearing
is the amount by which Gross Asset Exposure/net market exposure
exceeds Net Assets expressed as a percentage of Net
Assets.
20 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 the Directors’
Report in the Annual Report. During the year, management fees of
£11,421,000 (2023: £14,727,000) were payable to Fidelity. At the
Balance Sheet date, management fees of £678,000 (2023: £1,266,000)
were accrued and included in other payables. Fidelity also provides
the Company with marketing services. The total amount payable for
these services was £269,000 (2023: £263,000). At the Balance Sheet
date, marketing services of £91,000 (2023: £43,000) were accrued
and included in other payables.
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 AIFM in respect of the assets transferred by ACIC to
the Company pursuant to the Scheme was waived. In the financial
period ended 31 March 2024, the
Company has recognised an initial contribution of £400,000 in
respect of the transaction with ACIC, with the balance being
recognised in the year ending 31 March
2025.
Disclosures of the Directors’ interests in the shares of the
Company and fees and taxable expenses, relating to reasonable
travel expenses, payable to the Directors are given in the
Directors’ Remuneration Report in the Annual Report. In addition to
the fees and taxable expenses disclosed in the Directors’
Remuneration Report, £23,000 (2023: £22,000) of employers’ National
Insurance contributions were paid by the Company. At the Balance
Sheet date, Directors’ fees of £26,000 (2023: £22,000) were accrued
and payable.
ALTERNATIVE PERFORMANCE MEASURES
Discount/Premium
The discount/premium is considered to be an Alternative Performance
Measure. It is the difference between the Net Asset Value (“NAV”)
per Ordinary Share of the Company and the Ordinary Share price
expressed as a percentage of the NAV per Ordinary Share. Details of
the Company’s discount/premium are in the Financial Highlights in
the Annual Report and are both defined in the Glossary of Terms in
the Annual Report.
Gearing
Gearing (both gross and net) is considered to be an Alternative
Performance Measure. See Note 19 above for details of the Company’s
gearing.
Net Asset Value (“NAV”) per Ordinary
Share
The NAV per Ordinary Share is considered to be an Alternative
Performance Measure. See the Balance Sheet and Note 17 above for
further details.
Ongoing Charges Ratio
The ongoing charges ratio is considered to be an Alternative
Performance Measure. It has been calculated in accordance with
guidance issued by the AIC as the total of management fees and
other expenses expressed as a percentage of the average net assets
throughout the year.
|
|
2024
|
2023
|
|
Investment management fees (£’000)
|
9,719
|
12,049
|
|
Other expenses (£’000)
|
1,238
|
1,101
|
|
|
---------------
|
---------------
|
|
Ongoing charges (£’000)
|
10,957
|
13,150
|
|
|
=========
|
=========
|
|
Variable management fees (£’000)
|
1,702
|
2,678
|
|
Average net assets (£’000)
|
1,122,589
|
1,338,770
|
|
|
---------------
|
---------------
|
|
Ongoing charges ratio
|
0.98%
|
0.98%
|
|
|
---------------
|
---------------
|
|
Ongoing charges ratio including variable management
fees
|
1.13%
|
1.18%
|
|
|
=========
|
=========
|
The ongoing charges ratio represents the total expenses of the
Company, excluding transaction costs, interest payments, tax and
non-recurring expenses expressed, as a percentage of the average
daily net asset value, in accordance with guidance issued by the
AIC. The ongoing charges ratio, excluding the variable management
fee, for the year ended 31 March 2024
was 0.98%. It is estimated that the ongoing charges ratio for the
year ending 31 March 2025 will be
0.88%, the significant reduction reflecting the management fees
waived by the Manager in lieu of its contribution to the costs of
the Company’s transaction with ACIC.
Revenue, Capital and Total Earnings per
Share
Revenue, capital and total earnings per share are considered to be
Alternative Performance Measures. See the Income Statement and Note
8 above for further details.
Total Return Performance
Total return performance is considered to be an Alternative
Performance Measure. NAV per share total return includes
reinvestment of the dividend in the NAV of the Company on the
ex-dividend date. Share price total return includes the
reinvestment of the net dividend in the month that the share price
goes ex-dividend.
The tables below provide information relating to the NAV per share
and share prices of the Company, the impact of the dividend
reinvestments and the total returns for the years ended
31 March 2024 and 31 March 2023.
|
2024
|
Net asset
value per
share
|
Share
price
|
|
31 March 2023
|
274.08p
|
247.50p
|
|
31 March 2024
|
223.71p
|
201.00p
|
|
Change in the year
|
-18.4%
|
-18.8%
|
|
Impact of dividend reinvestment
|
+2.1%
|
+2.4%
|
|
|
---------------
|
---------------
|
|
Total return for the year
|
-16.3%
|
-16.4%
|
|
|
=========
|
=========
|
|
2023
|
Net asset
value per
share
|
Share
Price
|
|
31 March 2022
|
272.52p
|
252.00p
|
|
31 March 2023
|
274.08p
|
247.50p
|
|
Change in the year
|
+0.6%
|
-1.8%
|
|
Impact of dividend reinvestment
|
+2.0%
|
+2.1%
|
|
|
---------------
|
---------------
|
|
Total return for the year
|
+2.6%
|
+0.3%
|
|
|
=========
|
=========
|
The Annual Financial Report Announcement is not the Company's
statutory accounts. The above results for the year ended
31 March 2024 are an abridged version
of the Company's full Annual Report and Financial Statements, which
have been approved and audited with an unqualified report. The 2023
and 2024 statutory accounts received unqualified reports from the
Company's Auditor and did not include any reference to matters to
which the Auditor drew attention by way of emphasis without
qualifying the reports and did not contain a statement under s.498
of the Companies Act 2006. The financial information for 2023 is
derived from the statutory accounts for 2023 which have been
delivered to the Registrar of Companies. The 2024 Financial
Statements will be filed with the Registrar of Companies in due
course.
A copy of the above results announcement will be available on the
Company's website at
www.fidelity.co.uk/china
within two working days.
A copy of the Annual Report will shortly be submitted to the
National Storage Mechanism and will be available for inspection at:
www.morningstar.co.uk/uk/NSM
The Annual Report will be posted to shareholders later this month
and additional copies will be available from the registered office
of the Company and on the Company's website:
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.
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.
ENDS
