Interim Financial Report
FIDELITY CHINA SPECIAL SITUATIONS PLC
Interim Financial Report for the 6 months ended 30 September 2011
Contents
The Investment Objective
Summary of Results
Chairman's Statement
Investment Manager's Report
Directors' Responsibility Statement
Twenty Largest Holdings
Financial Statements
Directory
Investor Information
The Investment Objective
The investment objective of the Company is to achieve long term capital growth
from an actively managed portfolio made up primarily of securities issued by
companies listed in China or Hong Kong and Chinese companies listed elsewhere.
It may also invest in listed companies with significant interests in China and
Hong Kong.
Returns (%)
Returns for the 6 month period ended 30 September 2011 were as follows:
6 months to
30 September 2011
NAV per share total return (1) -28.9%
Share price total return (1) -31.2%
MSCI China Index total return -24.5%
1 Includes Dividend
Source: Fidelity and Datastream
Past performance is not a guide to future returns
Summary of Results
30 September 31 March2011 % change
2011
Assets
Gross Assets (1) £585.56m £745.98m -21.5
Net Assets £489.54m £683.96m -28.4
Net Asset Value per Share 73.93p 104.20p -29.0
Gross Asset Exposure (2) £608.82m £791.89m
Gross Asset Exposure to Net Assets 124.4% 115.8%
Revenue earnings per Share (3) 1.20p 0.47p
Number of ordinary shares in issue 662,204,480 656,404,480
Stockmarket Data (4)
MSCI China Index-UK sterling equivalent 77.97 103.30 -24.5
(5)
Share Price period end 75.50p 110.00p -31.4
period 114.30p 128.70p
high
period low 72.80p 92.25p
Premium/(discount) period end 2.12% 5.57%
period 8.80% 13.11%
high
period low (8.80%) (1.70%)
Earnings/(losses) per ordinary share
6 months to 19.04.10 to
30.09.11 30.09.10
Revenue (3) 1.20p 0.83p
Capital (3) (31.30p) 6.55p
Total (3) (30.10p) 7.38p
1 Total assets less current liabilities, excluding bank loans
2 Total portfolio exposure whether through direct or indirect investment
(including through derivatives)
3 Based on the weighted average number of ordinary shares in issue during the
period
4 Source: Fidelity and Datastream
5 Rebased to 100 at launch
Chairman's Statement
Results
The results contained in this report make for disappointing reading for
shareholders of the Company, with the net asset value down by 28.9% (total
return) compared with a decline in the Company's benchmark index, MSCI China of
24.5%.
The returns for the six months to 30 September 2011 and prior reporting
periods:-
Period from Period from
Six months 19.04.10 to 19.04.10 to
to 30.09.11 31.03.11 30.09.10
Revenue 1.20p 0.47p 0.83p
Capital (31.30p) 3.67p 6.55p
Total (30.10p) 4.14p 7.38p
The results and the performance of the Portfolio over the six month period to
30 September 2011 are explained in more detail in the Investment Manager's
report on page 5 of this report.
Dividend
The Board has decided not to declare an interim dividend. The Board will decide
on any dividend payment on the basis of the results for the year and bearing in
mind the Company's obligations under the Corporation Tax Act 2010.
Share Issues and Repurchases
During the six month period to 30 September 2011, the Company issued 6,250,000
shares at a premium to net asset value and bought back 450,000 shares at a
discount to net asset value.
The Board has adopted an approach whereby the level of premium/discount is
actively managed by attempting to ensure the share price of the Company tracks
as closely as possible the underlying net asset value of the Portfolio. The
Board has no rigid premium management or discount control policy but will
exercise its authority to issue or repurchase the Company's shares if deemed to
be in the best interests of shareholders at the time.
New Director
The Board is pleased to announce that Elisabeth Scott was appointed as a
non-executive director of the Company on 1 November 2011. Ms Scott worked in
the asset management industry in Hong Kong from 1992 to 2008, where she was
managing director and country head of Schroder Investment Management (Hong
Kong) Limited and chair of the Hong Kong Investment Funds Association. Ms Scott
is also a non-executive director of Pacific Horizon Investment Trust PLC.
The China Story
There has been considerable focus in the media on a possible "hard landing" for
the Chinese economy and a consequent derailing of the China growth story. By
contrast, there have been comparatively few stories from commentators who have
witnessed for themselves the transformation of the Chinese economy and its
continuing dynamism.
The Board witnessed this vitality first hand in late October, visiting the
Chinese cities of Chongqing, Tianjin and Shanghai. The sheer size and ambition
of the commercial, residential and industrial initiatives in these cities were
impressive. Our meetings with senior government officials, company boards and
their senior management teams demonstrated the high quality of corporate
leadership in China, a belief in the current government's policies and an
infectious sense of optimism about the future.
The Board acknowledges that the results for the six month period to 30
September 2011 are unsatisfactory, but it remains confident that the
portfolio's continuing focus on domestic consumption remains the best strategy
for providing long-term capital growth to shareholders.
John Owen CMG MBE DL
Chairman
10 November 2011
Investment Manager's Report
The few weeks leading up to the end of September have been a brutal period for
Asian markets - as difficult a time to be running money as I can remember. My
optimism on markets generally and China specifically has been severely tested.
I will argue below why I remain optimistic although many take a much more
cautious view. Over and over again I have asked myself whether I should revise
my view in light of the deteriorating position in Europe and potentially also
in the U.S., but I have concluded that the world is not in such a bad position
as many think. It may still end up there at some stage over the next year or so
but I believe the balance of probabilities is against such an outcome.
I am sorry to report that the combination of the very difficult stock market
background, the Company's exposure to the more volatile medium and smaller
capitalisation Chinese stocks and the Company's gearing has produced some very
poor performance figures with the net asset value down by 28.9% (total return)
over the six month period to 30 September 2011. This compares with a decline in
the value of the Company's benchmark, MSCI China Index of 24.5% (total return).
The number of commentators looking for a hard landing in China has increased
over the last few months. This together with negative views about the property
market and the unofficial lending market has led to Chinese shares performing
worse than those in other markets. Asian markets in general have fared less
well than developed markets as investors have reduced risk and I have been
wrong so far in my expectation that China's stock market could decouple from
the West.
Risks
In the Annual Report I wrote about some of the risks in China, including
inflation, bank bad debts and falling residential property prices. Let me
update you on my views on these three topics:
· The inflation news is starting to improve. Although food inflation
remains volatile and difficult to predict I believe China should be
experiencing significantly lower official inflation in future months (even
though real inflation is above official figures). This is one area where
weakness in the rest of the world is helpful because of falls in commodity
prices. This better environment should allow the Chinese authorities to stop
their monetary tightening and this may have already taken place. Whether they
now loosen will depend partially on how the domestic situation develops from
here and whether the developed world returns to recession. I still think GDP
growth is headed back to around 8% (above the 5 year plan target of 7%). If the
world goes into an economic downturn I would need to revise this down to, say,
5-6%. One should remember that, although exports are important to China
relative to many other Asian economies, China is less exposed to exports to the
rest of the world. The destiny of its economy is more in its own hands.
· On bank bad debts. I remain of the view that there are real issues due
to lending via the Local Government Finance Vehicles in the credit expansion
period. We could see up to 20% of this debt below water. However, I remain of
the view that this is more of a 2013/14 problem than an immediate one and, in
any case, the Central Government has ample resources to solve this problem and
debts could be rolled over. In the past the Central Government has generally
taken bad debts off the banks' balance sheets at face value and guaranteed
them. I expect something similar to happen again in two or three years' time
when the new political leadership will be able to blame its predecessors.
· The area where I was least optimistic shorter term was residential
property. Here the supply/demand relationship looks very unattractive. The
Government has been criticised in the past for letting the upward movement in
property prices get out of hand and I think it wants to see prices fall. This
is now taking place. Unless policy changes I expect a difficult 12-18 months
but without substantial debt being held against property (unlike in the
developed world) and with good long term supply/demand dynamics I am more
optimistic longer term. This is completely different from the American
sub-prime crisis. For the moment the Company does not hold any mainland Chinese
property developers and the Company has at times been short of some names
(although the Company does have some exposure to Hong Kong developers).
A newer worry for investors is the growth of the unofficial loan market in
China. This market has always been there but during the tightening phase over
the last 12 months or so it has grown at a very fast rate as banks restricted
loans to borrowers and these borrowers have had to look elsewhere for funds.
There have been a number of conduits for this lending including entrusted
loans, trust products, peer to peer lending etc. With bank deposit rates
controlling lending at very high rates, the unofficial market has appeared
attractive for those with surplus funds. Although most loans are secured, the
big expansion in volumes and the monetary tightening means there is the
potential for loan losses which could impact some lenders particularly in
certain cities. I don't believe, however, that this is a major national problem
that will have a big impact on the economy.
Another issue that has concerned investors is a structure that many Chinese
companies have used to list businesses particularly in the U.S. when the
business is one that can't be owned directly by foreigners. This results in the
listed company having an economic interest in the Chinese business but not a
legal one. These structures have been widely used for a number of years and
include some Hong Kong-listed companies. The Chinese regulators are reviewing
these structures. The general view is that existing structures will not need to
change but new structures will need to be approved.
US and Europe
I think I should say a few words about the global situation. Many are starting
to compare the situation today with the post-Lehman situation. However,
although I believe there are some similarities there are also some significant
differences. Post-Lehman, industrial activity across the globe collapsed. Today
markets have fallen in anticipation that activity will fall and the West will
have another recession. Although it is possible that the pessimism in financial
markets may actually create the downturn, I think the odds are against this.
Firstly, most recessions follow periods of above trend activity which has not
been experienced this cycle. Secondly, the economic evidence coming out of the
U.S. is mixed. On balance I believe there are more positive factors than
negative ones. Lastly, in light of the way the U.S. economy is currently
managed, I believe the authorities there will try everything in their power to
avoid a near term recession.
I believe an interesting contrast exists between how investors are reacting to
the current crisis and how I think industrialists will generally react. With
the 2008 post-Lehman scenario still fresh in their minds investors are reacting
by reducing exposures. I believe industrialists may take a different approach.
Many companies cut investment, working capital and staff in 2008 only to have
to reverse these decisions in 2009. This time I think they will be more
reluctant to react quickly.
Moving on to the situation in Europe, which is very much the epicentre of the
current crisis. I think everything is summed up by a meeting I had a few weeks
ago with one of the best sell-side China strategists - a significant section of
his presentation was about Europe rather than China, his argument being that
the future for China is completely tied up with the future of Europe.
I have never been a fan of the euro and today we are fully exposed to all the
risks of that misguided experiment. Ultimately the politicians will have to
decide between political union or breakup, but I believe this is still a few
years away. In the short term, it remains to be seen whether the latest package
is enough to calm markets. That said even with a cloud hanging over Europe, it
does not mean a major recession is inevitable and the idea that it is imminent
for the whole of Europe is, I believe, wrong.
Investors' timescales and real world timescales are often mismatched. Investors
expecting events to have an immediate influence on activity, but this process
often takes many months. Many compare the situation at European banks with the
investment banks after the subprime crisis. I think it is different. Those were
mainly investment banks: now it is commercial banks. Then it was subprime and
collateralised debt obligations, now it is the debt of peripheral countries
that is the risk - these are quite different risks. The way authorities will
treat them will also be different. I think all the major European banks who
need a combination of capital, guarantees and liquidity will be supported by
their Governments, who could be more generous to shareholders as this crisis is
much less due to bank mismanagement than the last one. I do not think any
country will let one of its major banks default even if it means a downgrade of
that nation's credit rating. My strongest view is that with a black cloud
looming over Europe for several years to come, investors in those markets will
look elsewhere for growth, provided exchange controls do not stop them doing
so.
Korea
In the last report I mentioned that I was concerned about the situation between
North and South Korea. During August, the Americans restarted a dialogue with
North Korea which is a significant positive development. In September I closed
the KOSPI put option position at a significant profit.
Portfolio
The strategy I have pursued in running the Company from the start remains
unchanged in that the portfolio is mainly exposed to Chinese companies in the
consumption and services sectors. It remains significantly underweight in
exporters, commodities, infrastructure companies and mainland banks and
property companies. Within consumption, the Company has exposure to department
stores, ladies fashion, electricals, jewellery, watches, shoes, cosmetics and
sportswear retailing as well as supermarkets. The Company is also invested in
manufacturers of soft drinks, beer, wine & spirits, food & cooking oils,
manufacturers of luxury cars, personal products, household textiles &
appliances. The portfolio includes owners of hotels, restaurants, airports &
railways; operators of lotteries, advertising companies, magazine publishers
and an owner of popular children's cartoon characters. There are internet
companies selling games, second hand cars and property information. In the
services area the Company's exposure is to pharmaceutical companies, medical
device companies; distributors of pharmaceuticals, electronic equipment & parts
and fertilizers, I.T. services, mobile phone operators, securities brokerage,
estate agents, insurance and education companies, Hong Kong-based banks,
property, telecoms, T.V. and newspaper companies. Outside these two main areas
the Company holds two investments in goldmines and some high value
manufacturers making automation equipment, process control equipment, optical
equipment and credit card readers. Finally it holds a regional insurance
company, a satellite operating company, a conglomerate and a Chinese carton
paper producer. A characteristic of many of the companies that I have invested
in is that they have similar business models to those that I have come across
in the UK or Europe but I am finding that these stocks can be brought at a much
earlier stage in their development.
Consumption & services are not immune to any slowdown in China but I believe
these are the areas with the best longer term outlook where structural trends
favour them. Even with a slowdown in GDP growth, I expect these areas to
outperform the general economy. If I am wrong about the world outlook, and a
new recession were to commence leading to China embarking on another stimulus
programme, these areas would likely be direct beneficiaries.
The Company is mainly exposed to China through companies listed on the Hong
Kong exchange with 13.3% in 'A' and 'B' shares, 11% in US-listed shares and
4.6% in China exposed shares listed on other markets. Medium and small
capitalisation stocks (under US1$bn market capitalisation) represent 40.1% of
the portfolio.
Gearing
The Company remains geared through a bank debt facility and also via contracts
for difference (CFDs) on individual positions. The bank debt of US$150m has
been recently reduced to US$100m and at the same time the CFD exposure was
increased from US$50m to US$100m as it is cheaper and more flexible. At the end
of the reporting period the total gearing was 24.4%.
An Optimistic Contrarian
The most important reason that I remain optimistic about stock markets is my
contrarian nature. At the beginning of October sentiment became about as
negative as I've seen it. However, valuations are very attractive versus
history and Hong Kong directors' purchases of shares are the second highest
they've been in the last 11 years (only higher in 2008). Everywhere risk is
off. Markets normally move to prove the majority wrong. I believe a strong
market recovery likely over the next few months.
Outlook
The last six months has been a most disappointing period for everyone involved
in this Company. I have outlined my optimism above and I believe that once the
dust settles, investors will recognise the superior growth prospects in markets
like China and the decoupling which has not been experienced to date will
finally occur. Although markets remain volatile, they have started to recover
in the last few weeks leading to an improvement in the net asset value of the
Company.
The next 12 months should be a defining moment for Chinese investment when
investors realise the economy is not about to collapse and the tightening
period is over. In the meantime I can only assure shareholders that I will make
the upmost effort to reverse the recent under performance of the Company's
assets and in turn of the share price. Much of this report has been devoted to
my assessment of the Global and Chinese macro situation. I hope in future
reports to focus in more detail on the companies in which the Company is
invested.
Anthony Bolton
Portfolio Manager
10 November 2011
Directors' Responsibility Statement
Principal Risks And Uncertainties
The Board believes that the principal risks and uncertainties faced by the
Company fall into two broad categories. The first, external risks, being stock
market, share price and discount and the second, internal risks, being
portfolio and governance, operational, financial, compliance, and
administration. Information on each risk and a risk matrix listing the specific
top risks identified by the Board is contained in the Annual Report which is
available for inspection on the Company's pages of its website
www.fidelity.co.uk/china.
Responsibility Statement
The Directors confirm to the best of their knowledge that:
a) the condensed set of financial statements contained within the Interim
Financial Report has been prepared in accordance with the International
Accounting Standards 34; "Interim Financial Reporting"
b) the Interim Financial Reporting (constituting the interim management report)
includes a fair review of the information required by Rule 4.2.7R of the FSA's
Disclosure and Transparency Rules and their impact on the condensed set of
financial statements and a description of the principal risks and uncertainties
for the remaining six months of the financial year; and
c) in accordance with Disclosure and Transparency Rule 4.2.8R there have been
no reportable related party transactions during the six month period to 30
September 2011 and therefore nothing to report on any material effect by such a
transaction on the financial position or the performance of the Company during
that period.
The Interim Financial Report was approved by the Board on 10 November 2011 and
the above responsibility statement was signed on its behalf by John Owen,
Chairman.
By order of the Board
John Owen CMG MBE DL
Chairman
Enquiries
Anne Read - Corporate Communication, FIL Investments International - 0207 961
4409
Christopher Pirnie - Company Secretary, FIL Investments International - 01737
837929
Twenty Largest Holdings as at 30 September 2011
Holdings Fair Fair
Value & Value
Gross as a %
Asset of
Exposure Gross
£'000 Assets
#
China Unicom (Hong Kong) Limited
An integrated telecommunications provider 41,917 7.2
HSBC Holdings Plc (Hong Kong listed)
A global banking and financial services company 28,409 4.9
Ping An Insurance (Group) Company of China*
Insurance company 25,562 4.4
Bank Of China Hong Kong Limited
A subsidiary of the Bank of China based in Hong Kong 23,809 4.1
Tencent Holdings Limited
Provides internet, mobile and telecommunications value-added 21,636 3.7
services
PCCW Limited
A Hong Kong-based telecommunications company 18,288 3.1
TVB
Hong Kong television broadcaster 16,927 2.9
CITIC Securities Company Limited*
Broker and asset manager 16,743 2.9
AIA Group
Insurance company based in Hong Kong 16,143 2.7
China Minsheng Bank
Chinese bank 15,926 2.7
Brilliance China Automotive Holdings Limited
Auto company that is BMW's Chinese partner 15,251 2.6
Zhaojin Mining Industry Company Limited
Gold mining company 14,398 2.4
Gome Electrical Appliances Holdings
Retails electrical appliances and consumer electronic products 11,675 2.0
Little Sheep Group Limited
Operates hot pot restaurants and processes condiments and meat 9,953 1.7
Jardine Matheson Holdings
A holding company with interests in engineering, transport
services, insurance broking, property investment and mining 8,059 1.4
TsingtaoBrewery
China's second largest brewery 7,676 1.3
Suning Appliances Company Limited*
One of the largest electrical appliance retailers in China 7,225 1.2
Silver Base Group Holdings
A leading distributor of alcoholic beverages 7,173 1.2
Ports Design
Designs, manufactures and retails fashion clothing 7,154 1.2
United Laboratories International Holdings
Pharmaceutical company 7,069 1.2
Twenty Largest Holdings 320,993 54.8
# % is based on Gross Assets which represent total assets less current
liabilities, excluding bank loans
* includes investment via Equity Linked Notes ("ELNs")
Income Statement
Period from 19.04.10 to Period from 19.04.10 to
Six months to 30.09.11 31.03.11 30.09.10
unaudited audited unaudited
revenue capital total revenue capital total revenue capital total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Investment 11,291 - 11,291 9,447 - 9,447 6,981 - 6,981
income
Other 4 - 4 23 - 23 18 - 18
income
Net 407 - 407 30 - 30 741 - 741
derivative
income
Total 2 11,702 - 11,702 9,500 - 9,500 7,740 - 7,740
income
(Losses)/ - (214,259) (214,259) - 32,177 32,177 - 44,653 44,653
gains on
investments
designated
at fair
value
through
profit or
loss
Gains/ - 12,169 12,169 - (12,211) (12,211) - (13,837) (13,837)
(losses) on
derivative
instruments
held at
fair value
through
profit or
loss
Foreign 16 615 631 (39) (513) (552) 59 1,619 1,678
exchange
gains/
(losses) on
other net
assets
Foreign - (3,178) (3,178) - 3,004 3,004 - 1,503 1,503
exchange
(losses)/
gains on
bank loans
Total 11,718 (204,653) (192,935) 9,461 22,457 31,918 7,799 33,938 41,737
income and
(losses)/
gains
Expenses
Investment (2,183) (2,183) (4,366) (3,746) (3,746) (7,492) (1,602) (1,602) (3,204)
management
fee
Performance - - - - - - - (1,425) (1,425)
fees
Other (817) - (817) (2,435) - (2,435) (1,689) - (1,689)
expenses
Profit/ 8,718 (206,836) (198,118) 3,280 18,711 21,991 4,508 30,911 35,419
(loss)
before
finance
costs and
taxation
Finance (452) (452) (904) (523) (523) (1,046) (250) (250) (500)
costs
Profit/ 8,266 (207,288) (199,022) 2,757 18,188 20,945 4,258 30,661 34,919
(loss)
before
taxation
Overseas (305) - (305) (426) - (426) (349) - (349)
taxation
Net profit/ 7,961 (207,288) (199,327) 2,331 18,188 20,519 3,909 30,661 34,570
(loss)
after
taxation
for the
period
Earnings 3 1.20p (31.30p) (30.10p) 0.47p 3.67p 4.14p 0.83p 6.55p 7.38p
per share
The Company does not have any income or expenses that are not included in the
net profit/(loss) after taxation for the period. Accordingly the net profit/
(loss) after taxation for the period is also the total comprehensive income for
the period and no separate Statement of Comprehensive Income has been
presented. The total column of this statement represents the Statement of
Comprehensive Income of the Company and is prepared in accordance with IFRS.
The revenue and capital columns are supplementary and presented for information
purposes as recommended by the Statement of Recommended Practice issued by the
Association of Investment Companies. All of the profit/(loss) and total
comprehensive income is attributable to the equity shareholders of the Company.
There are no minority interests. All items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the
period.
Statement of Changes in Equity
share capital
share premium redemption other capital revenue total
capital account reserve reserve reserve reserve equity
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
From 19.04.10
to 30.09.10
Proceeds from 4,600 455,400 - - - - 460,000
offer for
subscription
and placing
(1)
Fees and - (3,168) - - - - (3,168)
expenses of
the offer for
subscription
and placing
Cancellation - (452,232) - 452,232 - - -
of share
premium
account (2)
Issue of 217 22,060 - - - - 22,277
ordinary
shares
Additional - (161) - - - - (161)
share listing
costs (3)
Net profit - - - - 30,661 3,909 34,570
after
taxation for
the period
Equity 4,817 21,899 - 452,232 30,661 3,909 513,518
shareholders'
funds:
30 September
2010
From 19.04.10
to 31.03.11
Proceeds from 4,600 455,400 - - - - 460,000
offer for
subscription
and placing
(1)
Fees and - (3,168) - - - - (3,168)
expenses of
the offer for
subscription
and placing
Cancellation - (452,232) - 452,232 - - -
of share
premium
account (2)
Issue of 387 42,262 - - - - 42,649
ordinary
shares
Additional - (200) - - - - (200)
share listing
costs (3)
Proceeds from 1,577 164,673 - - - - 166,250
"C" share
offer and
placing
Fees and - (2,087) - - - - (2,087)
expenses of
the "C" share
offer and
placing
Net profit - - - - 18,188 2,331 20,519
after
taxation for
the period
Equity 6,564 204,648 - 452,232 18,188 2,331 683,963
shareholders'
funds:
31 March 2011
Six months to
30.09.11
Equity 6,564 204,648 - 452,232 18,188 2,331 683,963
shareholders'
funds:
31 March 2011
Issue of 63 6,921 - - - - 6,984
ordinary
shares
Additional - (38) - - - - (38)
share listing
costs (3)
Repurchase of (5) - 5 - (384) - (384)
ordinary
shares
Dividend paid 4 - - - - - (1,657) (1,657)
Net (loss)/ - - - - (207,288) 7,961 (199,327)
profit after
taxation for
the period
Equity 6,622 211,531 5 452,232 (189,484) 8,635 489,541
shareholders'
funds:
30 September
2011
1 The Company was incorporated on 22 January 2010 and operations commenced when
its shares were listed on the London Stock Exchange on 19 April 2010.
2 Court approval was given on 21 April 2010 for the Company's share premium
account to be cancelled. As a result £452,232,000 was transferred to the other
reserve account. This is a distributable reserve.
3 Costs associated with block listing application fees charged by the London
Stock Exchange.
Balance Sheet as at 30 September 2011
Company No. 7133583
30.09.11 31.03.11 30.09.10
unaudited audited unaudited
Note £'000 £'000 £'000
Non current assets
Investments designated at fair value
through profit or loss 577,015 720,287 554,871
Current assets
Derivative assets held at fair value
through profit or loss 6,224 2,729 2,281
Cash and cash equivalents 11,432 25,184 15,564
Amounts held at futures clearing houses
and brokers 5,722 3,280 170
Other receivables 1,843 7,388 12,923
25,221 38,581 30,938
Current liabilities
Derivative liabilities held at fair value
through profit and loss (11,285) (1,582) -
Bank loans (96,015) (62,013) (63,470)
Other payables (5,395) (11,310) (8,821)
(112,695) (74,905) (72,291)
Net current liabilities (87,474) (36,324) (41,353)
Net assets 489,541 683,963 513,518
Equity attributable to equity
shareholders
Share capital 6,622 6,564 4,817
Share premium account 211,531 204,648 21,899
Capital redemption reserve 5 - -
Other reserve 452,232 452,232 452,232
Capital reserve (189,484) 18,188 30,661
Revenue reserve 8,635 2,331 3,909
Total equity shareholders' funds 489,541 683,963 513,518
Net asset value per ordinary share 6 73.93p 104.20p 106.61p
Cash Flow Statement
Six Period from Period
from
months to 19.04.10 to 19.04.10
to
30.09.11 31.03.11 30.09.10
unaudited audited unaudited
£'000 £'000 £'000
Operating activities
Cash inflow from investment income 9,365 7,736 6,589
Cash inflow/(outflow) from net derivative 313 (26) -
income
Cash inflow from other income 6 21 18
Cash outflow from Directors' fees (72) (105) (47)
Cash outflow from other payments (3,358) (6,645) (1,200)
Cash outflow from purchase of investments (423,838) (1,066,951) (623,637)
Cash outflow from purchase of derivatives (8,634) (16,857) (75,042)
Cash inflow from sale of investments 352,033 380,884 160,029
Cash inflow from sale of derivatives 27,011 3,499 6,417
Cash outflow from amounts held at futures (2,442) (3,280) (170)
clearing houses and brokers
Net cash outflow from operating activities (49,616) (701,724) (527,043)
before servicing of finance
Servicing of Finance
Cash outflow on interest on bank loans (480) (1,040) (264)
Net cash outflow from operating activities (50,096) (702,764) (527,307)
and servicing of finance
Financing activities
Cash inflow from issue of ordinary shares 6,984 42,649 18,154
Cash outflow from costs of issue of (38) (200) (3,329)
ordinary shares
Cash outflow from the repurchase of (384) - -
ordinary shares
Cash inflow from offer for subscription and - 460,000 460,000
placing
Cash outflow from the costs of the offer - (3,168) -
for subscription and placing
Cash inflow from the "C" share offer and - 166,250 -
placing
Cash outflow from the costs of the "C" - (2,087) -
share offer and placing
Cash inflow from bank loans 34,002 62,013 63,470
Cash outflow from dividends paid to (1,657) - -
shareholders
Net cash inflow from financing activities 38,907 725,457 538,295
(Decrease)/increase in cash and cash (11,189) 22,693 10,988
equivalents
Reconciliation of movements in cash and
cash equivalents
Net cash (outflow)/inflow from cash and (11,189) 22,693 10,988
cash equivalents (from above)
Effect of foreign exchange movements (2,563) 2,491 4,576
(Decrease)/increase in cash and cash (13,752) 25,184 15,564
equivalents in the period
Cash and cash equivalents at the beginning 25,184 - -
of the period
Cash and cash equivalents at the end of the 11,432 25,184 15,564
period
Notes to the Financial Statements
1. Accounting policies
The Interim Financial Statements have been prepared in accordance with
International Accounting Standard ("IAS") 34 "Interim Financial Reporting". The
accounting policies adopted in the preparation of the Interim Financial
Statements are the same as those applied in the Company's Annual Report for the
period to
31 March 2011.
2. Income
Period Period
from from
Six 19.04.10 19.04.10
months to to
to
30.09.11 31.03.11 30.09.10
unaudited audited unaudited
£'000 £'000 £'000
Income from investment designated at fair
value through
profit or loss
Overseas dividends 10,362 8,783 7,475
Overseas scrip dividends 929 664 247
11,291 9,447 7,722
Other income
Deposit interest 4 12 7
Income from Fidelity Institutional Liquidity
Fund plc - 11 11
4 23 18
Net derivative income
Income received on long CFDs 550 68 -
Less: expenses paid on long CFDs (143) (38) -
407 30 -
Total income 11,702 9,500 7,740
3. Earnings/(losses) per ordinary share
Period Period
from from
19.04.10 19.04.10
Six months to to
to
30.09.11 31.03.11 30.09.10
unaudited audited unaudited
Revenue earnings per ordinary share 1.20p 0.47p 0.83p
Capital (losses)/earnings per ordinary
share (31.30p) 3.67p 6.55p
Total (losses)/earnings per ordinary
share (30.10p) 4.14p 7.38p
The revenue, capital and total earnings/(loss) per ordinary share are based on
the net profit/(loss) after taxation in the period and the weighted average
number of ordinary shares in issue during the period as shown below:
Period from Period from
Six months 19.04.10 to 19.04.10 to
to 30.09.11 31.03.11 30.09.10
unaudited audited unaudited
£'000 £'000 £'000
Revenue net profit after taxation 7,961 2,331 3,909
Capital net (loss)/profit after taxation (207,288) 18,188 30,661
Total net (loss)/profit after taxation (199,327) 20,519 34,570
Weighted average number of ordinary
shares 662,189,453 495,842,187 468,269,394
4. Dividend
Period Period
from from
Six 19.04.10 19.04.10
months to to
to
30.09.11 31.03.11 30.09.10
unaudited audited unaudited
£'000 £'000 £'000
Dividend paid
Final dividend of 0.25 pence per ordinary
share paid for the period ended
31 March 2011 1,657 - -
No dividend has been declared for the six month period ended 30 September 2011.
5. Share capital
Period from Period from
Six months to 19.04.10 to 19.04.10 to
30.09.11 31.03.11 30.09.10
unaudited audited unaudited
Number Number Number
Issued, allotted and
fully paid of shares £'000 of shares £'000 of shares £'000
Beginning of the
period 656,404,480 6,564 - - - -
Issue of ordinary
shares of 1 penny
each at launch on 19
April 2010 - - 460,000,000 4,600 460,000,000 4,600
Issue of ordinary
shares of 1 penny
each following
conversion of the "C"
shares on
1 March 2011 - - 157,654,480 1,577 - -
Issue of ordinary
shares of 1 penny
each 6,250,000 63 38,750,000 387 21,700,000 217
Repurchase of
ordinary shares of 1
penny each (450,000) (5) - - - -
End of the period 662,204,480 6,622 656,404,480 6,564 481,700,000 4,817
6. Net asset value per ordinary share
The net asset value per ordinary share is based on net assets of £489,541,000
(31.03.11: £683,963,000, 30.09.10: £513,518,000) and on 662,204,480 ordinary
shares (31.03.11: 656,404,480, 30.09.10: 481,700,000), being the number of
ordinary shares in issue at the period end.
7. Unaudited financial statements
The results for the six month period to 30 September 2011 and the period from
19 April 2010 to
30 September 2010, which are unaudited, constitute non-statutory accounts
within the meaning of Section 435 of the Companies Act 2006. The figures and
financial information for the period from 19 April 2010 to 31 March 2011 are
extracted from the latest published financial statements, on which the
Independent Auditor gave an unqualified report and have been delivered to the
Registrar of Companies.
Directory
BOARD OF DIRECTORS
John Owen CMG MBE DL (Chairman)
Nicholas Bull FCA (Senior Independent Director)
David Causer FCA (Audit Committee Chairman)
The Hon. Peter Pleydell-Bouverie
Elisabeth Scott
Gary Shaughnessy
INVESTMENT MANAGER
FIL Investment Management
(Hong Kong) Limited
17/F, One International Finance Centre,
Hong Kong
UNLISTED INVESTMENT MANAGER, SECRETARY AND REGISTERED OFFICE
FIL Investments International
Beech Gate, Millfield Lane
Lower Kingswood
Tadworth, Surrey, KT20 6RP
FINANCIAL ADVISERS AND STOCKBROKERS
Cenkos Securities plc
6,7,8 Tokenhouse Yard
London, EC2R 7AS
INDEPENDENT AUDITOR
Grant Thornton UK LLP
Chartered Accountants and Registered Auditor
30 Finsbury Square
London, EC2P 2YU
BANKERS AND CUSTODIAN
JPMorgan Chase Bank (London Branch)
125 London Wall
London, EC2Y 5AJ
REGISTRARS
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4BR
LAWYERS
Slaughter and May
One Bunhill Row
London, EC1Y 8YY
Investor Information
CONTACT INFORMATION
Private investors can call free on 0800 41 41 10, 9am to 6pm, Monday to
Saturday.
Financial advisers can call free on 0800 41 41 81, 8am to 6pm, Monday to
Friday.
www.fidelity.co.uk/its
Existing shareholders who have specific queries regarding their holding, for
example a change of address, should contact the appropriate administrator.
Holders of ordinary shares:
Capita Registrars, Registrars to Fidelity China Special Situations PLC, The
Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4BR, Telephone: 0871 664 0300
(calls cost 10p per minute plus network extras)
email: ssd@capitaregistrars.com. Details of individual shareholdings and other
information can also be obtained from the Registrars' website:
www.capitaregistrars.com
Fidelity Share Plan investors:
Fidelity Investment Trust Share Plan, BNP Paribas Securities Services, Block C,
Western House, Lynchwood Business Park, Peterborough PE2 6BP.
Telephone: 0845 358 1107 (calls to this number are charged at 4p per minute
from a BT landline. Other telephone providers' costs may vary).
Fidelity ISA investors:
Fidelity, using the freephone numbers given above, or by writing to: UK
Customer Service, Fidelity Investments, Oakhill House, 130 Tonbridge Road,
Hildenborough, Tonbridge, Kent TN11 9DZ.
www.fidelity.co.uk/its
Fidelity ShareNetwork:
http://www.fidelity.co.uk/sharenetwork
General enquiries should be made to FIL Investments International, the
Secretary, at the Company's registered office: FIL Investments International,
Investment Trusts, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth,
Surrey KT20 6RP.
Telephone: 01732 361144
Fax: 01737 836892
www.fidelity.co.uk/its
FINANCIAL CALENDAR
30 September 2011 - Interim period end
14 November 2011 - announcement of Interim results
Beginning of December 2011 - publication of Interim Financial Report
31 March 2012 - financial year end
June 2012 - publication of Annual Report
July 2012 - Annual General Meeting
The Fidelity Individual Savings Account ("ISA") is offered and managed by
Financial Administration Services Limited. The Fidelity Investment Trust Share
Plan is managed by FIL Investments International. Both companies are authorised
and regulated by the Financial Services Authority. The Fidelity Investment
Trust Share Plan is administered by BNP Paribas Securities Services and shares
will be held in the name of Puddle Dock Nominees Limited. The value of savings
and eligibility to invest in an ISA will depend on individual circumstances and
all tax rules may change in the future. Fidelity investment trusts are managed
by FIL Investments International. Fidelity only gives information about its own
products and services and does not provide investment advice based on
individual circumstances. Should you wish to seek advice, please contact a
Financial Adviser. Please note that the value of investments and the income
from them may fall as well as rise and the investor may not get back the amount
originally invested. Past performance is not a guide to future returns. For
funds that invest in overseas markets, changes in currency exchange rates may
affect the value of your investment. Investing in small and emerging markets
can be more volatile than other more developed markets. Reference in this
document to specific securities should not be construed as a recommendation to
buy or sell these securities, but is included for the purposes of illustration
only. Investors should also note that the views expressed may no longer be
current and may already have been acted upon by Fidelity. Fidelity, Fidelity
International and the Pyramid Logo are trademarks of FIL Limited.
Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo
and F symbol are trademarks of FIL Limited
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