Fidelity China Special Situations Plc - Annual Financial Report

FIDELITY CHINA SPECIAL SITUATIONS PLC
 

Final Results for the year ended 31 March 2023

Financial Highlights:

• The Board of Fidelity China Special Situations PLC (the “Company”) recommends an annual dividend of 6.25 pence per share, an increase of 13.6% from last year.
• The first tier of the management fee will reduce from 0.90% of net assets to 0.85% of net assets from 1 July 2023.
• The net asset value (“NAV”) total return of the Company increased by +2.6% for the year ended 31 March 2023, outperforming the Benchmark Index (MSCI China Index) which returned +1.4% (in UK

sterling terms).

• The ordinary share price total return was +0.3% over the reporting year.

• The Portfolio Manager continues to find opportunities fuelled by growing domestic consumption in the region.

Contacts

For further information, please contact:

Smita Amin

Company Secretary

01737 836347

FIL Investments International

CHAIRMAN’S STATEMENT

After more than two years of volatile returns, it was pleasing to see positive net asset value (“NAV”) and share price returns and a return to outperformance for your Company against its Benchmark Index, the MSCI China Index (in UK sterling terms). China’s economic growth rate in 2022 was just 3%, the lowest in decades, but the economy and stock market are now on a recovery path following the removal of the zero-COVID policy.

In the reporting year to 31 March 2023, NAV per share total return of your Company was 2.6% outperforming the Benchmark Index which returned 1.4%. The share price total return was 0.3%. The discount of the share price to the NAV widened to 9.7% at the end of the year compared to 7.5% last year. While we expect the Company to generate its returns primarily from capital, corporate earnings growth in China and the maturing of business models has meant healthy growth in dividends. Our own dividend – which has grown every year since inception – makes an important contribution to shareholder returns and this year grows by 13.6% from 5.50 pence to 6.25 pence.

As our Portfolio Manager, Dale Nicholls, points out in his report, investor pessimism towards China reached a peak in the early part of the second half of our financial year. Encouragingly, the rebound in sentiment since then is borne out by the six-months to 31 March 2023 total return performance figures, with the NAV and share price rising by 12.1% and 11.2% respectively, compared with a return of 7.3% on the Benchmark Index.

While the mood of investors in Chinese equities has swung between extreme bearishness and euphoria over the past year, the current backdrop reflects a more measured outlook. The Board continues to believe that a direct exposure to China – the world’s second-largest economy – is an important constituent of a diversified portfolio. Although economic growth was lacklustre in 2022, the International Monetary Fund expects China’s GDP to advance by 5.3% in 2023, ahead of the 3.9% average for emerging markets and developing economies and well in excess of the 1.3% forecast for advanced economies.

China is at a different point in the economic cycle to the rest of the world; rising interest rates and inflation in the West have meant very constraining central bank policies aimed at slowing economies down, whereas the opposite is the case in China. Inflation is not and has not been a problem and the authorities are taking a more stimulative approach to boost growth. This is being done at a measured pace to reduce unemployment, particularly amongst the young, but at a level which doesn’t fan speculation in the property sector which remains an issue.

Your portfolio has limited exposure to property as Dale prefers to access the housing theme through areas such as home décor and appliances. Consumer spending, which is expected to be the primary engine of growth for the Chinese economy, is an important driver of stock selection, with the consumer discretionary sector containing many of the attractively valued, fast-growing stocks that he favours. Having a large research team on the ground in China is fundamental to seeking out the best opportunities, particularly among medium and smaller-sized companies, where the relatively higher growth potential has yet to be reflected in share prices, and investor awareness is low.

As a closed-ended fund and without the liquidity concerns that would hamper an open-ended fund, the Company is able to invest up to 15% of its Net Assets plus Borrowings in unquoted companies (those not listed on a stock exchange). This allows the Manager to take advantage of the faster growth trajectory of earlier stage companies before they potentially become listed on the public markets. Other than the unlisted shares in Xiaoju Kuaizhi (Didi Chuxing) converting to listed American Depositary Shares, there have been no new unlisted additions or changes to the unlisted companies held in the portfolio in the reporting year. However, the unlisted percentage increased from 13.2% of Net Assets plus Borrowings on 31 March 2022 to 13.6% on 31 March 2023 given changes in the valuations of these companies and changes to the size of the rest of the portfolio. 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.

Our unquoted investments 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 look after these companies. An additional resource has been added in the past year in the form of oversight by a newly recruited Chinese unlisted investment specialist. The Board receives regular updates from the FVC, with Alastair Bruce, the 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 our perception of emerging risks. The key risks are set out below. We believe, however, that those risks are outweighed by the opportunities offered by investing in China in general, and in particular in Fidelity China Special Situations. Dale’s focus on consumption and the domestic economy mitigates much of the geopolitical risk which has been heightened in the period under review. We share Dale’s confidence that with the Chinese economy now having fully reopened after the restrictions imposed by the government’s zero-COVID policy, the opportunities for a continued rebound in consumer spending are significant.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) INVESTMENT AND CLIMATE CHANGE
ESG factors remain central to the work of both the Board and the Portfolio Manager. 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, much more needs to be done. Fidelity has a sustainable investing approach, which includes engagement and voting principles and its proprietary forward-looking ESG ratings. This ratings system leverages Fidelity’s internal research and interactions with investee companies, where analysts quantify the direction of change of a company’s ESG performance (positive, neutral or negative trajectory) and rate the companies using a scale of A to E. The Board pays close attention to the ratings of underlying portfolio companies and challenges the Portfolio Manager and his team on any stocks with lower ratings. The ratings of the companies within the portfolio are well ahead of the broader market and continue to improve.

The evaluation of ESG factors is a core part of our Portfolio Manager’s investment process and he continues to see progress regarding the level of engagement with and transparency of Chinese companies. Sustainability factors are key topics of conversation with companies and many management teams are looking at ways to generate a more sustainable outcome for their businesses. Although China continues to lag most other major markets in this area, we are encouraged by the rates of improvement the Manager is seeing. China’s regulators are engaging with companies to improve the disclosure of ESG metrics to better align themselves with the required standards. Not only is this a good outcome globally, but we also believe that progress on better ESG practices could be a key driver of performance for the portfolio over the longer-term. Further details of the Manager’s ESG practices are in the Annual Report.

GEARING
We continue to believe that the judicious use of gearing (another benefit of the investment trust structure) can be accretive to long-term capital and income returns, although being more than 100% invested does also mean that the NAV and share price may be more volatile and can accentuate losses in a falling market. Net gearing at the year-end was 21.1%, largely unchanged from a year earlier when it was at 23.5%. The Company recently renewed its loan facility for a period of one year at a fixed interest annual rate of 6.335%. The Board would prefer to have a diversified source of finance in the future, as well as CFDs, and depending on terms hopes to be able to put in place longer-term borrowing when this facility ends.

DIVIDEND
Although the Company’s investment objective is to achieve long-term capital growth, it has paid an increasing dividend each year since its inception, growing from 0.25 pence per share in 2011 to 5.50 pence per share in 2022, which is a compound annualised growth rate of 32.8%.

As indicated earlier, the Board is pleased to recommend once again an increased final dividend of 6.25 pence per share for the year ended 31 March 2023 for approval by shareholders at the Annual General Meeting (“AGM”) to be held on 20 July 2023. This represents an increase of 13.6% over the 5.50 pence paid in respect of the prior year and cements your Company’s status as one of the Association of Investment Companies’ Next Generation of Dividend Heroes. The dividend will be payable on 27 July 2023 to shareholders on the register on 16 June 2023 (ex-dividend date 15 June 2023).

The revenue per share earned by the Company during the year was 7.05 pence, which is an increase of 9.8% over the 6.42 pence earned in the prior year, and this fully covers the recommended dividend.

DISCOUNT MANAGEMENT
The Board believes that investors are best served when the share price trades close to its 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 bought since then have been cancelled. There is an annual 14.99% cap in place that limits the Company’s ability to repurchase its own shares in the market.

The Company’s discount widened from 7.5% at the start of the reporting year to 9.7% on 31st March. To combat slightly tricky and volatile market conditions during the year, the Board authorised the repurchase of 25,631,781 shares into Treasury at a cost of £57,249,000, representing 4.5% of the issued share capital of the Company. These share repurchases have benefited remaining shareholders as the NAV per share has been increased by purchasing shares at a discount. Since the year end and as at the date of this report, the Company has repurchased a further 2,900,696 shares into Treasury and 2,238,726 shares for cancellation. The graph below shows the movement of the Company’s discount during the year.

FCSS – Discount to NAV

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 CHARGE
The Ongoing Charge (the costs of running the Company) for the year was 0.98% (2022: 0.94%). The variable element of the management fee (due to outperformance of the Benchmark Index) was a charge of 0.20% (2022: 0.20%). Therefore, the Ongoing Charge, including this variable element, for the year was 1.18% (2022: 1.14%).

The largest element of those running costs of the Company is the management fee paid to Fidelity.

MANAGEMENT FEE
The Board has agreed a revised fee with the Manager, FIL Investment Services (UK) Limited, with effect from 1 July 2023. The revised fee will be 0.85% (reduced from 0.90%) on the first £1.5 billion of net assets. It will remain at 0.70% on net assets over £1.5 billion. The variable element of the fee of +/-0.20% remains unchanged.

CHANGE OF BROKER
Following a review of broker services provided to the Company, we changed our corporate broker in March this year from Peel Hunt to Jefferies International, who now acts as sole corporate broker and financial adviser to the Company.

BOARD OF DIRECTORS
This is my first annual report as Chairman, having taken over from Nicholas Bull at the conclusion of the last AGM. Nicholas had served on the Board since Fidelity China Special Situations PLC was launched in April 2010, and as Chairman since 2016, and we thank him for his wonderful stewardship of the Company.

Given my new position, Alastair Bruce, who joined the Board in July 2021, has taken on my former role as Chairman of the Audit and Risk Committee.

We have welcomed three new non-executive Directors in the past 12 months. Georgina Field, whose appointment was announced in the last annual report, and who joined the Board on 1 July 2022, is an investment marketing specialist and founder and CEO of White Marble Consulting. She was subsequently elected by shareholders at the AGM on 20 July 2022.

We were sad to say goodbye to Linda Yueh who resigned and stepped down from the Board on 31 December 2022 in order to concentrate on a new role as a non-executive director of Standard Chartered plc. Linda’s role as Senior Independent Director is now undertaken by Vanessa Donegan. We are very pleased to have added not one but two China experts to the Board as non-executive Directors in recent months. Edward Tse, a pioneer of management consulting in China, was appointed to the Board on 24 November 2022. As well as acting as a consultant to hundreds of companies on all critical aspects of business in China, he has also advised Chinese government organisations on strategy, state-owned enterprise reform and Chinese companies going overseas, as well as advising the World Bank and the Asian Development Bank.

Gordon Orr, who moved to mainland China from the UK in the early 1990s, founded McKinsey’s management consulting practice in the country, and led McKinsey in China and subsequently Asia until 2015. Gordon was appointed to the Board on 1 January 2023. He currently serves on the boards of Hong Kong-listed companies Lenovo, Meituan and Swire Pacific, and is the Vice Chairman of the China Britain Business Council.

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. Owing to the changes in its composition during the year, the Board no longer meets the target of 40% of FTSE 350 board members to be women as set by the FTSE Women Leaders Review. Our Board composition currently has a 33% women representation, however, it should be noted that from 1 July to 31 December 2022 the Board exceeded the 40% target. In the period from 24 July 2019 to 31 December 2022, at least 40% of the Board consisted of women. As all the current Directors have served for less than five years, the Board wishes to take due care in making the next appointment in order to meet the 40% target and to space out succession planning. The present plan is to recruit a female director before the AGM next year.

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 20 July 2023. I, together with Alastair, Vanessa and Georgina will stand for re-election and both Edward and Gordon, being newly appointed, will stand for election at the AGM. 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 shareholders.

ANNUAL GENERAL MEETING
The Company’s AGM is at 11.00 am on Thursday, 20 July 2023, and the Board and I hope to see as many of you as possible on the day. Details of the AGM are below.

OUTLOOK
After a year in which China’s economic growth was hampered by lockdown restrictions, the current picture looks much brighter. GDP growth is forecast to come back in line with longer-term trends at above 5% in 2023, and the authorities are willing to stimulate where needed to ensure sustainable growth is in line with the government’s Common Prosperity agenda. ESG standards continue to improve, and as Western governments experiment with increasingly protectionist policies and try to tame inflation, opportunities increase for China to move up the value chain in manufacturing and services.

Against this improving backdrop, valuations in the stock market, and in particular those of small and mid-cap companies in China, remain relatively modest, with arguably the best opportunities to be found among the less well-known companies that may be overlooked by funds that lack a solid on-the-ground research presence. Added to this, Dale’s flexible approach to portfolio management allows your Company to adapt to changing conditions, helping to ensure a profitable future.

While the Chinese stockmarkets are always likely to be volatile, we are encouraged that all the building blocks remain in place for continued healthy returns. There will be slips along the way and we remain mindful of geopolitical issues such as the relationship with the US and the status of Taiwan, however structural trends such as the growing middle class and on-going innovation support our positive medium to long-term view.

All the Directors on your Board, other than newly appointed Edward and Gordon, are also shareholders in the Company, and we remain committed to its future success.

Meanwhile, we hope to see you, in person or virtually, at our Annual General Meeting on 20 July 2023, details of which are below.

MIKE BALFOUR
Chairman
7 June 2023

ANNUAL GENERAL MEETING – THURSDAY, 20 JULY 2023 AT 11.00 AM
The AGM of the Company will be held at 11.00 am on Thursday, 20 July 2023 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 would prefer not 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 [email protected] 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 Managers 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 would 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 192-504-083. 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
It has been an extraordinary period for investors over the past year, both in China and globally. What are the main factors that shareholders should understand?

ANSWER
Not too long ago, in fact after the 20th National Congress of the Chinese Communist Party in October 2022, sentiment towards Chinese equities was probably the lowest I have witnessed since I started managing Chinese and broader Asian equities. This bearishness was further fuelled by weakening macro data and off the back of the country’s zero-COVID policy.

Then just before the end of 2022, there was an unexpected pivot towards the country’s reopening and the end of China’s zero-COVID policy. This caused a sudden shift in investor sentiment, as the market started pricing in the benefits of reopening. The National People’s Congress at the end of March 2023 clarified the government’s focus on quality growth, primarily underpinned by growth in domestic demand. As I write this year’s annual review, questions are once again being raised about China’s economic recovery, which is likely the main factor behind recent market weakness. While growth rates on the whole have clearly tempered in the second quarter, the government’s GDP target of 5% for the year looks achievable. This will make China one of the few large economies that will see accelerating economic growth in 2023. Corporate earnings should follow suit and see accelerating growth, which again compares favourably to other markets. In terms of corporates, messages are mixed, but we are seeing clearer trends and distinctions between winners and losers, with the stronger players confirming that operations are returning to normal and are painting an optimistic picture of recovery. Valuations as a whole remain towards the lower end of historical levels, and remain attractive versus global peers, despite what is mostly a stronger growth outlook.

Consumption will most likely be the prime driver of the recovery, supported by strong household balance sheets with deposit levels increasing significantly over COVID. Property still remains a significant component of these balance sheets. On the back of ongoing loosening measures, we are seeing increasing signs of the residential property market bottoming in terms of both volumes and pricing. This all bodes well for spending to continue to recover, similar to the post COVID recoveries we have seen in other economies.

Geopolitics is another factor that continues to dominate headlines and can cause turmoil in markets at times. As I have said before I believe that strategic competition and related tensions between China and the US will be with us for decades and investors should expect this. It is important to remember that these two economies are heavily intertwined and this is recognised by the respective governments. The key thing we need to evaluate as investors is how policies have the potential to impact the fundamentals of individual companies. In the past year, we have seen the US government further restrict sales of leading-edge semiconductors and related equipment to China. I believe there is potential for such restrictions to tighten further – these are the type of risks that we build into our analysis. For most companies, such risks are not a factor. Consequently, the team and I continue to find many attractive opportunities across the market.

QUESTION
How has the Company performed in the year under review, and how have things changed since China’s zero-COVID policy was removed?

ANSWER
The Company’s NAV delivered a total return of 2.6% for the financial year ended 31 March 2023, outperforming the MSCI China Index (the Benchmark Index) which returned 1.4%. Robust stock picking in the Chinese consumption space (both discretionary and staples) and in materials contributed positively to performance. An overweight allocation in industrials also added value. In contrast, selected names in financials and communication services weighed on returns, as did an overweight exposure to the information technology (“IT”) sector.

As discussed above, the biggest change post-COVID is the outlook for the consumer. While the recovery is bumpy and varies somewhat by sector, the path to recovery is clearly there. Having said this, the obvious beneficiaries of reopening – particularly travel and certain consumer stocks – saw a significant upswing as the zero-COVID policy was lifted. However, this has made the investment case less compelling for some companies and overall I have reduced exposure to such names.

Clearly the resumption of normal business operations and supply chains is another important change. As a result, we will be looking for signs of recovering business confidence and related indications of a pick-up in capex. Recent credit growth data is encouraging. As the recovery broadens, I would expect companies in other sectors such as industrials and financials to benefit. At the same time, one needs to be wary of global trends – many other economies may slow significantly, which can impede a return in investor confidence and sentiment.

QUESTION
Which stocks have performed well during the period and why?

ANSWER
Macroeconomically, sensitive names in the consumer discretionary space have fared well as faster than expected reopening led to an accelerated consumption recovery in China. Among the top contributors in the portfolio were positions in branded variety retailer MINISO Group Holding and home appliances manufacturer Hisense Home Appliances Group. MINISO’s recent results were better than expected, demonstrating good execution in brand and product upgrades, overseas expansion and solid efficiency gains. Hisense’s profit recovery remains well on track, led by robust overseas growth and solid ongoing profitability from its joint venture with Hitachi. In addition, retail jewellery player Luk Fook Holdings International has enjoyed a rerating in the market, driven by pent-up post-pandemic demand and market share gains as a result of channel expansion. Also, within the consumer discretionary sector, a short position in an auto manufacturer, known for their design in electric vehicles (EVs), added to performance as the stock declined owing to concerns of consumers favouring other brands. The risk of lower market share was a key aspect of our investment thesis for shorting the stock.

A holding outside the consumer sector that also proved rewarding was the position in COSCO Shipping Energy Transportation (“CSET”), the largest global oil tanker operator. CSET benefited from tailwinds associated with a recovery in oil demand as air and road traffic regained momentum.

Conversely, the lack of exposure to Chinese online retailer PDD Holdings and an underweight stance in internet and gaming giant Tencent Holdings held back relative returns. Tencent’s share price was further boosted as it received new game licenses from the Chinese regulator at the start of this year. This type of news, such as the issuance of new gaming licenses, has been another signal that regulatory pressures on the internet sector have eased.

Within financials, shares of credit facilitator Lufax Holding declined, triggered by concerns over fintech regulation, deteriorating asset quality and heightened risks about a de-listing of its American Depositary Receipts (ADRs) shares. Nonetheless, we feel Lufax remains substantially undervalued and provides upside potential given its leading position in small and medium-sized enterprises’ (SMEs) online lending. Further, it is likely we will see an easing of regulatory headwinds, albeit they will not completely disappear. Challenging market conditions and weak sentiment in 2022 also negatively weighed on the performance of third-party wealth management company Noah Holdings. Despite these challenges, Noah’s assets under management remain resilient. It continues to grow its client base, positioning itself for robust growth. Its strength is underpinned by structural tailwinds from growth in the wealth management sector in China amid rising household assets and its shift into alternative capital market products.

Within the IT sector, a position in Chinese data-centre operator VNET Group detracted from returns amid some corporate governance concerns – notably, privatisation offers and then the forced selling of the founder’s pledged shares by a large shareholder. The company remains undervalued from a fundamental perspective and its core business remains resilient as evidenced by its recent huge order win from a new, sizable and well-regarded client. Finally, it is worth highlighting that the holding in AI (artificial intelligence) software maker SenseTime weighed on performance owing to issues over a higher loss ratio and a lack of standardisation in scaling up the business. We closed out our position in the company in the third quarter.

QUESTION
What is your approach to gearing, and what impact has it had on returns during the year and over the longer-term?

ANSWER
The Company has the ability to gear (borrow in order to invest) with the view that in the long-term, the judicious use of borrowing can enhance capital returns for shareholders. Given the weak market sentiment and broad-based corrections experienced after the Congress meeting last October, many stocks with lower regulatory risk were sold-off indiscriminately, and this presented interesting opportunities to use gearing in order to add to some long positions.

As at 31 March 2023, the Company’s Net Gearing, which nets off short positions and hedges was 21.1%. For the year as a whole, gearing slightly detracted from returns (gearing impact of -1.5%). However, in the long-term the effect of gearing has been positive, adding a cumulative 12% to total returns over my tenure as Portfolio Manager.

Over the past few years, the portfolio’s net market exposure bias has been predominantly long, fluctuating between 110-120%. I dynamically manage gearing based on opportunities I see in the market – generally gearing moves up when valuations are lower and vice versa.

QUESTION
What areas of the economy are you particularly looking at? Are there any sectors that you are specifically interested in?

ANSWER
Further development of the capital markets, which could become an asset allocation choice for domestic households given that property is no longer viable for ‘investment purposes’, could give rise to some interesting opportunities in the financial services sector. For example, brokers are benefiting from increased trading and the opening of new accounts. Noah Holdings is also benefiting from decent structural tailwinds seen from the growing wealth management/asset management industry, which as previously highlighted, should see the shift in growth from household assets into alternative and capital market products. While there is large potential for increased market share gains for Noah, especially in the area of high-net-worth assets, we are cognisant of intensifying competition.

Within the property sector, the Company remains underexposed to developers due to the avoidance of private developers. However, a position is maintained in state-backed China Overseas Land and Investment (“COLI”). Given continued expectations of consolidation within the segment, COLI stands to gain market share. We have strong conviction in:

·      COLI’s high quality land bank (it has the highest proportion of land bank in ‘Tier 1 and Tier 2’ cities versus other national developers) – an important point, as it benefits from ongoing urbanisation;

·      Its product quality, which is well-known and well-recognised by homebuyers;

·      It has maintained solid profitability due to discipline and pricing; and

·      Its land acquisition kept pace during 2022, which should ensure sufficient new sellable resources as demand continues to recover.

Urbanisation continues to support rising consumer purchasing power. Throughout my tenure as the Company’s Portfolio Manager, I have been focused on the rise of the Chinese consumer, and that remains the case, with approximately 43% of the portfolio invested in consumer stocks at the year end, mainly in stocks within the consumer discretionary sector.

JNBY Design is a leading player in the designer fashion apparel industry. Its differentiated ‘fashion forward’ product offerings are backed by a strong and stable local design team. Valuation-wise, JNBY is trading on a price/earnings (P/E) multiple below 10 times, which is very attractive for a company with a solid growth profile and track record. It also leverages its strong cash flows to pay a healthy dividend. Encouragingly, within the consumer discretionary sector, China’s jewellery market is expected to see attractive growth, owing to higher per capital disposable income growth. We expect the company Lao Feng Xiang to gain market share and be a long-term winner in the country’s jewellery sector, which is around RMB800 billion and growing at a compound annual rate of between 7 and 8%. Similar to JNBY, the company has strong brand equity and maintains a group of powerful and loyal distributors. Further, with continued industry growth, it is in a position to accelerate the pace of new and expanded stores. We are also pleased that from a governance perspective, Lao Feng Xiang’s management team has been improving its management incentive plans.

We are continuing to witness a rapid pace of innovation in China. This, combined with the ‘domestic substitution’ trend and ongoing consolidation across a range of industries, has underpinned our significant weighting in industrials. The core thesis around industry consolidation remains very much in place – i.e. industries such as building materials are very fragmented relative to more developed markets but are expected to consolidate, seeing the bigger and better players taking further market share. Although some of our paint companies have lagged given ongoing property concerns, we maintain a high level of conviction in the future upside potential as their fundamentals normalise – notably they should benefit from an increase in infrastructure investment (albeit these projects are expected to be very targeted compared to the spending we saw back in 2008).

QUESTION
What are the major domestic developments that investors should be aware of?

ANSWER
In terms of external perception, there was a world of difference in the reactions to the October 2022 Congress versus the National People’s Congress in March 2023. However, in reality they were both on the same page in terms of the government’s direction and emphasis on various policies; of note, innovation, consumption and the quality versus the quantity of economic growth (a GDP target of 5% was announced for the year).

The overhaul of Alibaba Group Holding – China’s second-largest listed company – is a major event. Designed to drive greater autonomy and agility for each of its businesses, it has also forced the market to consider the value of each business. This includes the financial business Ant – the potential float of this business should be taken positively by markets as a sign of progress beyond the peak of regulatory tightening.

Also, within the internet space, ByteDance (an unlisted holding) made headline news overseas after its TikTok app was banned on government-owned devices in the US, UK and EU. Fortunately, its domestic video-sharing app, Douyin, has seen more attractive growth. The Chinese market accounts for 82% of ByteDance’s $70 billion total revenues, and domestic revenue growth remains strong year-on-year amid a tepid economic environment overseas. Focusing again on its overseas operations, in order to address concerns over unauthorised access to US user data, ByteDance has launched Project Texas, a comprehensive system to protect data privacy. This, in turn, could result in a lower probability of a complete ban. Even under the worst-case scenario of a full ban, it would likely take a considerable amount of time and negotiation before anything was enacted. Given all this, we continue to be supportive holders of ByteDance.

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
All Fidelity managed funds have had ESG considerations embedded in their investment process for a number of years. Our research analysts consider ESG as part of their fundamental stock assessments, using Fidelity’s proprietary Sustainability Rating and Climate Rating frameworks. As well as this research, we are active owners of our holdings and engage with companies on a regular basis where we feel ESG practices could be improved.

During the period under review, we engaged with optics manufacturer Sunny Optical on the subject of board diversity. Fidelity International (“Fidelity”) became a member of the 30% Club HK Chapter in 2022, and in September the Group sent letters to 26 companies with all-male boards to encourage greater gender diversity. Sunny Optical was one of them.

This engagement is part of a 30% Club initiative that Fidelity is involved with along with other investors. The company was responsive and shared that a new female director will be joining the board in 2023. While this still falls short of FIL’s standard, it means that Sunny Optical will have its first female director, and also that the level of board independence will rise significantly.

As well as gender, broader labour management for contract workers was also mentioned. The company has been outsourcing frontline manufacturing worker positions since 2018, and the recent controversy over Foxconn’s use of agency workers on less favourable terms than permanent staff has brought this topic into the spotlight.

We also had an in-depth engagement with Tuhu Car (an automotive services company, which is yet to list) in order to better understand its ESG performance and provide advice. The company confirmed it was the first time it had engaged extensively with investors on ESG. As a private company, Tuhu Car does not publish an annual ESG report. However, we have put together an ESG profile for the company based on our engagement, which showed that the company’s direct environmental impact is limited to the energy consumption and carbon emission associated with its warehouses and logistic fleets. While Tuhu Car is still at a very early stage of measuring and managing its direct environmental footprint as well as that of its franchisees, we expect these disclosures to improve as the company becomes more mature, and particularly once it has listed.

Our engagement with state-backed logistics company Sinotrans centred around its capital allocation. Regulators have called on State-Owned Enterprises (SOEs) to improve the efficiency of their capital allocation and we are optimistic that Sinotrans’s efforts in this area could help drive a re-rating of the company. We first sent a letter to the company on the subject, and then discussed the suggestion in a face-to-face meeting. In the past few months, we have continued to supply the company with peer analysis and case studies for their internal assessment on the matter. Given our suggestion that the company should increase its cash payout, we were pleased to see it achieved a 45.2% full-year cash payout ratio (dividend plus buyback) for its 2022 financial year. We believe this should serve as a good starting point for further capital allocation discussions with Sinotrans and we will continue to engage with the company on this subject.

QUESTION
How has the portfolio’s exposure to unlisted companies changed during the year under review?

ANSWER
There has been no change in the number or names of unlisted companies held in the portfolio in the year other than the unlisted shares in Xiaoju Kuaizhi (Didi Chuxing) being converted to listed American Depositary Shares (ADS). The percentage of the portfolio in unlisted companies has moved around due to changes in the value of the individual holdings as well as the value of the overall portfolio. The process of valuing the Company’s unlisted investments is set out in the Annual Report and as example of its oversight, the Manager’s Fair Value Committee has revalued ByteDance three times since October. As at the end of March 2023, the Company had nine unlisted investments valued at £192,878,000 being 13.6% of its total Net Assets plus Borrowings (2022: ten unlisted investments valued at £194,650,000 being 13.2% of Net Assets plus Borrowings). Of the nine companies held during the year, three rose in value, five fell in value and one was unchanged. The largest contributor to performance was Pony.ai, with the biggest detractor being DJI International.

QUESTION
Investment performance in the year under review has been volatile. What lessons have you learnt over the period and what are your expectations for the coming months?

ANSWER
This has been a period that reminds me of just how much sentiment can swing in the Chinese market, and how short-term focused it can be. Policy clearly remains a key focus for the market, but the market often gets overly focused on short-term moves while losing perspective of longer-term goals and historical cyclicality. We now see policy returning to a greater focus on growth – this should not be a surprise. The lesson that is reinforced is the importance of staying calm and focusing on risk/ reward. While we added to positions that were under pressure and capitalised on our capacity to increase overall gearing, we could, arguably, have been more aggressive when some were labelling China as “uninvestable”.

Furthermore, the past year has once again underlined how important it is for us to have people on the ground in China; even when overseas market participants were most bearish, we were still finding investment opportunities and were able to capitalise on the input from our locally-based analysts to make decisions on companies based on fundamentals.

Chinese onshore equities (i.e., A shares) have one of the lowest correlations – of any major market – with the US S&P 500 Index and, consequently, can be viewed as a good diversifier in a global portfolio. Economically, China is at a different point in the policy and economic cycle compared to most developed countries currently. In fact, we would argue that it is possibly one cycle ahead of other economies. In its April 2023 World Economic Outlook (“WEO”), the International Monetary Fund has forecast China’s GDP growth to be 5.3% in 2023 and 4.5% in 2024, both unchanged from the January WEO update, but with the 2023 figure showing a 0.8 percentage point improvement on the last full WEO in October 2022. Some analysts expect the 2023 forecast to be even higher given the strength of the domestic economic data. Household finances are very healthy; the savings rate is 35% and has been in the 30s for many years, compared with around 9% in the UK. Consumption growth hinges on both the ability and the willingness to spend; the ability to spend is clearly there given there is effectively no household debt, but the willingness to spend is dependent upon improved sentiment, and we are now witnessing that too.

I continue to have a confidence in both the Chinese market and the underlying companies we are invested in. As such, I maintain a personal holding of 113,036 shares in the Company.

DALE NICHOLLS
Portfolio Manager
7 June 2023

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 considered 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 issue as well as a principal risk confronting asset managers and their investors. 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 to shareholder returns. Another emerging risk may be the de-coupling from China by developed economies.

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 following 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 US, e.g. trade sanctions and China encouraging Chinese companies to de-list from the US. ·      Regulatory interventions in certain sectors of the financial markets in China. ·      The ongoing Ukraine/Russia conflict polarising countries globally, e.g. Western countries supplying counter-offensive weapons and tanks leading to further escalation. ·      South China Sea Dispute could have a negative impact on Chinese investments, including reduced access to global markets and technology, sanctions and retaliatory measures and possible weakening of investment and confidence in Chinese companies. ·      Implications of tensions in the Taiwan Strait 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 Board receives and reviews reports from the Portfolio Manager on a regular basis. ·      Major market contingency plans are developed for more extreme events.	Increasing
Market and Economic Risks (including Currency Risk)	·      China’s newly announced economic targets and policy setting are more conservative and stability-oriented. ·      The momentum from the growth in size and wealth of the middle class is tempered by the reduction in the size of the working population. ·      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 functional currency in which the Company reports its results is sterling and its shares are traded 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 Manager’s ability to understand and predict events in China. 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
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 three lines of defence model.	Increasing
Investment Performance Risk (including Gearing Risk)	·      The Portfolio Manager fails 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
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. ·      Regulatory risk from the China Security Regulatory Commission (“CSCR”) guidelines that companies with VIE structures will require CSCR approval to list overseas and 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
Climate Change Risk	·      Impact on investment valuations, business operations, the supply chain and shareholder expectations. ·      China’s climate change credentials will likely be less favourable if compared to similar companies in developed western markets. ·      Reputational impact may arise by being invested in a company with poor climate change matters.	·      The Board is provided with insights and reports provided by the investment management team. ·      Fidelity uses a proprietary climate rating designed to complement broader sustainability ratings and is considered by 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).	Increasing
Discount Management Risk	·      The Board fails 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, exhausts 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 has been implemented to keep 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 market-place when required in order to keep the discount in single digits. ·      Maintaining close communications with major shareholders.	Increasing
Unlisted Securities Risk	·      Valuations of unlisted securities may be adversely affected by market conditions. ·      Initial public offering (IPO) of the unlisted companies may face difficulties to come to the market and to achieve marketability. ·      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 a limit on the extent of the investment 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 and an external advisor.	Stable
Environmental, Social and Governance (“ESG”) Risk	·      Investor expectations 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 of 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 and updated 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.	Stable
Business Continuity Risk (including Global Pandemic Risk)	·      Operational resilience risks could result in financial and/or reputational impact to the Company affecting the functioning of the business and global markets.	·      Fidelity has Business Continuity and Event Management Frameworks in place to deal with business disruption and assure operational resilience.	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.

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;

·      The principal and emerging risks and uncertainties facing the Company as set out above and their potential impact;

·      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; and

·      Future income and expenditure forecasts.

The Company’s performance for the five year reporting period to 31 March 2023 was well ahead of the Benchmark Index, with a NAV total return of +8.3%, a share price total return of +12.3% compared to the Benchmark Index total return of -7.5%. 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 fact that the portfolio comprises sufficient readily realisable securities which can be sold to meet funding requirements if necessary;

·      The Board’s discount management policy; 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, tensions with Taiwan and the ongoing global implications of the Ukraine and Russia war, 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 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 and the loan facility agreement, 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 2024 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 evolving variants of COVID, the war in Ukraine, China’s tensions with the US and Taiwan and significant market events. The prospects of the Company over a period longer than twelve months can be found in the Viability Statement above.

Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.

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 external appointed Manager 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 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 Managers meet 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:

·      As part of the Board’s succession plan, the appointments of Georgina Field on 1 July 2022, Edward Tse on 24 November 2022 and Gordon Orr on 1 January 2023;

·      As part of the Board’s succession plan, the decision to appoint Mike Balfour as Chairman of the Board to replace Nicholas Bull on 20 July 2022 and Alastair Bruce as Chairman of the Audit and Risk Committee on the change of role for Mr Balfour;

·      The decision to hold a hybrid AGM in 2022 (and again this year) in order to make the AGM more accessible and improve the shareholder experience;

·      Authorising the repurchase of 25,631,781 ordinary shares 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;

·      The decision to renew the Company’s revolving fixed rate credit facility for US$100,000,000 for gearing purposes;

·      The decision to change the Company’s corporate broker following a review of services provided;

·      The decision to appoint an apprentice of the Board with effect from 13 July 2023;

·      Following discussions with the Manager, the reduction in the first tier of the management fee from 0.90% to 0.85% with effect from1 July 2023; and

·      The decision to pay a final dividend of 6.25 pence per ordinary share, the highest rate since the Company was launched.

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 profit 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 7 June 2023 and signed on its behalf

MIKE BALFOUR
Chairman

FINANCIAL STATEMENTS

INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2023

		Year ended 31 March 2023			Year ended 31 March 2022
	Notes	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Revenue
Investment income	3	32,704	–	32,704	29,638	–	29,638
Derivative income	3	11,566	–	11,566	11,595	–	11,595
Other income	3	409	–	409	42	–	42
		---------------	---------------	---------------	---------------	---------------	---------------
Total income		44,679	–	44,679	41,275	–	41,275
		=========	=========	=========	=========	=========	=========
Losses on investments at fair value through profit or loss	10	–	(6,912)	(6,912)	–	(603,831)	(603,831)
Gains/(losses) on derivative instruments	11	–	14,971	14,971	–	(160,189)	(160,189)
Foreign exchange gains		–	8,167	8,167	–	1,429	1,429
Foreign exchange losses on bank loan		–	(4,814)	(4,814)	–	(3,569)	(3,569)
		---------------	---------------	---------------	---------------	---------------	---------------
Total income and gains/(losses)		44,679	11,412	56,091	41,275	(766,160)	(724,885)
		=========	=========	=========	=========	=========	=========
Expenses
Investment management fees	4	(3,012)	(11,715)	(14,727)	(3,984)	(15,659)	(19,643)
Other expenses	5	(1,097)	(4)	(1,101)	(1,393)	(25)	(1,418)
		---------------	---------------	---------------	---------------	---------------	---------------
Profit/(loss) before finance costs and taxation		40,570	(307)	40,263	35,898	(781,844)	(745,946)
Finance costs	6	(3,956)	(11,869)	(15,825)	(1,663)	(4,989)	(6,652)
		---------------	---------------	---------------	---------------	---------------	---------------
Profit/(loss) before taxation		36,614	(12,176)	24,438	34,235	(786,833)	(752,598)
Taxation	7	(1,149)	–	(1,149)	(1,186)	–	(1,186)
		---------------	---------------	---------------	---------------	---------------	---------------
Profit/(loss) after taxation for the year		35,465	(12,176)	23,289	33,049	(786,833)	(753,784)
		---------------	---------------	---------------	---------------	---------------	---------------
Earnings/(loss) per ordinary share	8	7.05p	(2.42p)	4.63p	6.42p	(152.81p)	(146.39p)
		=========	=========	=========	=========	=========	=========

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.

No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.

The Notes below form an integral part of these Financial Statements.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2023

	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 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
		=========	=========	=========	=========	=========	=========	=========
Total equity at 31 March 2021		5,710	211,569	917	248,491	1,676,791	39,499	2,182,977
Repurchase of ordinary shares	15	–	–	–	(4,448)	–	–	(4,448)
(Loss)/profit after taxation for the year		–	–	–	–	(786,833)	33,049	(753,784)
Dividend paid to shareholders	9	–	–	–	–	–	(24,124)	(24,124)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------
Total equity at 31 March 2022		5,710	211,569	917	244,043	889,958	48,424	1,400,621
		=========	=========	=========	=========	=========	=========	=========

The Notes below form an integral part of these Financial Statements.

BALANCE SHEET AS AT 31 MARCH 2023
Company Number 7133583

	Notes	31 March  2023  £’000	31 March  2022  £’000
Non-current assets
Investments at fair value through profit or loss	10	1,318,764	1,365,485
		---------------	---------------
Current assets
Derivative instruments	11	22,313	23,994
Amounts held at futures clearing houses and brokers		34,813	32,220
Other receivables	12	11,939	14,204
Cash at bank		72,943	73,673
		---------------	---------------
		142,008	144,091
		=========	=========
Current liabilities
Derivative instruments	11	(20,892)	(17,524)
Bank loan	13	(80,857)	(76,043)
Other payables	14	(20,602)	(15,388)
		---------------	---------------
		(122,351)	(108,955)
		=========	=========
Net current assets		19,657	35,136
		=========	=========
Net assets		1,338,421	1,400,621
		=========	=========
Equity attributable to equity shareholders
Share capital	15	5,710	5,710
Share premium account	16	211,569	211,569
Capital redemption reserve	16	917	917
Other reserve	16	186,794	244,043
Capital reserve	16	877,782	889,958
Revenue reserve	16	55,649	48,424
		---------------	---------------
Total equity		1,338,421	1,400,621
		=========	=========
Net asset value per ordinary share	17	274.08p	272.52p
		=========	=========

The Financial Statements above and below were approved by the Board of Directors on 7 June 2023 and were signed on its behalf by:

MICHAEL BALFOUR
Chairman

The Notes below form an integral part of these Financial Statements.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2023

	Year ended  31 March  2023  £’000	Year ended  31 March  2022  £’000
Operating activities
Cash inflow from investment income	30,352	26,752
Cash inflow from derivative income	11,484	11,481
Cash inflow from other income	409	42
Cash outflow from Directors’ fees	(195)	(181)
Cash outflow from other payments	(15,638)	(21,626)
Cash outflow from the purchase of investments	(429,715)	(733,693)
Cash outflow from the purchase of derivatives	(7,957)	(4,095)
Cash outflow from the settlement of derivatives	(485,760)	(549,387)
Cash inflow from the sale of investments	480,407	936,723
Cash inflow from the settlement of derivatives	510,263	387,497
Cash outflow from amounts held at futures clearing houses and brokers	(2,593)	(12,348)
	---------------	---------------
Net cash inflow from operating activities before servicing of finance	91,057	41,165
	=========	=========
Financing activities
Cash outflow from loan interest paid	(2,242)	(2,009)
Cash outflow from CFD interest paid	(12,099)	(3,037)
Cash outflow from short CFD dividends paid	(254)	(1,707)
Cash outflow from the repurchase of ordinary shares	(57,119)	(4,448)
Cash outflow from dividends paid to shareholders	(28,240)	(24,124)
	---------------	---------------
Cash outflow from financing activities	(99,954)	(35,325)
	=========	=========
(Decrease)/increase in cash at bank	(8,897)	5,840
Cash at bank at the start of the year	73,673	66,404
Effect of foreign exchange movements	8,167	1,429
	---------------	---------------
Cash at bank at the end of the year	72,943	73,673
	=========	=========

The Notes below form an integral part of these Financial Statements.

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 2024 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 and the loan agreement, reviewed 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 a principal and as an emerging 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 in the Directors’ Report above takes account of all events and conditions up to 30 June 2024 which is at least twelve months from the date of approval of these Financial Statements.

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 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 below 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 received on 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) above. 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 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) above;

·      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 gains/(losses) 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 gains/(losses) 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 amounts receivable on settlement of derivatives, securities sold for future settlement, 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 amounts payable on settlement of derivatives, securities purchased for future settlement, 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 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 an 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 £25,993,000 (2022: unrealised investment holding gains of £17,794,000). See Note 18 below for further details on the level 3 investments.

3 INCOME

	Year ended  31 March  2023  £’000	Year ended  31 March  2022  £’000
Investment income
Overseas dividends	31,949	28,632
Overseas scrip dividends	755	1,006
	---------------	---------------
	32,704	29,638
	=========	=========
Derivative income
Dividends received on long CFDs	11,282	11,483
Interest received on CFDs	284	112
	---------------	---------------
	11,566	11,595
	=========	=========
Other income
Interest received on collateral and deposits	409	42
	---------------	---------------
Total income	44,679	41,275
	=========	=========

Special dividends of £1,155,000 (2022: £nil) have been recognised in capital.

4 INVESTMENT MANAGEMENT FEES

	Year ended 31 March 2023			Year ended 31 March 2022
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Investment management fee – base	3,012	9,037	12,049	3,984	11,953	15,937
Investment management fee – variable	–	2,678	2,678	–	3,706	3,706
	---------------	---------------	---------------	---------------	---------------	---------------
	3,012	11,715	14,727	3,984	15,659	19,643
	=========	=========	=========	=========	=========	=========

FIL Investment Services (UK) Limited (a Fidelity group company) is the Company’s Alternative Investment Fund Manager (“the Manager”) and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited (“the Investment Manager”).

The base investment management fee is charged at an annual rate of 0.90% on the first £1.5 billion of net assets, reducing to 0.70% of net assets over £1.5 billion. 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. In the event of outperformance against the Benchmark Index, the maximum fee that the Company would pay overall is 1.10% on net assets up to £1.5 billion and reducing to 0.90% on net assets over £1.5 billion. If the Company underperforms, then the overall fee can fall as low as 0.70% on net assets up to £1.5 billion and reducing to 0.50% on net assets over £1.5 billion. Fees are payable monthly in arrears and are calculated on a daily basis. With effect from 1 July 2023, the first tier of the management fee will reduce from 0.90% to 0.85%.

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  2023  £’000	Year ended  31 March  2022  £’000
Allocated to revenue:
AIC fees	21	21
Custody fees	157	352
Depositary fees	57	73
Directors’ expenses	13	5
Directors’ fees1	202	182
Legal and professional fees	77	207
Marketing expenses	263	264
Printing and publication expenses	50	50
Registrars’ fees	69	55
Other expenses	131	131
Fees payable to the Company’s Independent Auditor for the audit of the Financial Statements	57	53
	---------------	---------------
	1,097	1,393
	=========	=========
Allocated to capital:
Legal and professional fees	4	25
	---------------	---------------
Other expenses	1,101	1,418
	=========	=========

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 2023			Year ended 31 March 2022
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Interest paid on bank loan and overdrafts	663	1,989	2,652	505	1,516	2,021
Interest paid on CFDs*	3,230	9,689	12,919	731	2,193	2,924
Dividends paid on short CFDs	63	191	254	427	1,280	1,707
	---------------	---------------	---------------	---------------	---------------	---------------
	3,956	11,869	15,825	1,663	4,989	6,652
	=========	=========	=========	=========	=========	=========

*   Increased compared to the prior year due to an increase in interest rates.

Finance costs have been allocated 75% to capital reserve in accordance with the Company’s accounting policies.

7 TAXATION

	Year ended 31 March 2023			Year ended 31 March 2022
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
a) Analysis of the taxation charge for the year
Overseas taxation	1,149	–	1,149	1,186	–	1,186
	---------------	---------------	---------------	---------------	---------------	---------------
Taxation charge for the year (see Note 7b)	1,149	–	1,149	1,186	–	1,186
	=========	=========	=========	=========	=========	=========

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 19% (2022: 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 2023			Year ended 31 March 2022
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Profit/(loss) before taxation	36,614	(12,176)	24,438	34,235	(786,833)	(752,598)
Profit/(loss) before taxation multiplied by the standard rate of UK corporation tax of 19% (2022: 19%)	6,957	(2,313)	4,644	6,505	(149,498)	(142,993)
Effects of:
Capital (gains)/losses not taxable*	–	(2,168)	(2,168)	–	145,570	145,570
Income not taxable	(6,116)	–	(6,116)	(5,560)	–	(5,560)
Expenses not deductible	–	1,987	1,987	–	666	666
Excess expenses	(841)	2,494	1,653	(945)	3,262	2,317
Overseas taxation	1,149	–	1,149	1,186	–	1,186
	---------------	---------------	---------------	---------------	---------------	---------------
Taxation charge (Note 7a)	1,149	–	1,149	1,186	–	1,186
	=========	=========	=========	=========	=========	=========

*   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 £37,583,000 (2022: £35,407,000), in respect of excess expenses of £150,330,000 (2022: £141,629,000) has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.

In the Spring Budget of 2021, the UK Government announced that from 1 April 2023 the corporation tax rate will increase to 25%. This rate has been substantively enacted at the balance sheet date and has therefore been applied to calculate the unrecognised deferred tax asset for the current year (2022: 25%).

8 EARNINGS/(LOSS) PER ORDINARY SHARE

	Year ended  31 March  2023	Year ended  31 March  2022
Revenue earnings per ordinary share	7.05p	6.42p
Capital loss per ordinary share	(2.42p)	(152.81p)
	---------------	---------------
Total earnings/(loss) per ordinary share	4.63p	(146.39p)
	=========	=========

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	35,465	33,049
Capital loss after taxation for the year	(12,176)	(786,833)
	---------------	---------------
Total profit/(loss) after taxation for the year	23,289	(753,784)
	=========	=========

   

	Number	Number
Weighted average number of ordinary shares held outside of Treasury	503,045,428	514,922,357
	==========	==========

9 DIVIDENDS PAID TO SHAREHOLDERS

	Year ended  31 March  2023  £’000	Year ended  31 March  2022  £’000
Dividend paid
Dividend of 5.50 pence per ordinary share paid for the year ended 31 March 2022	28,240	–
Dividend of 4.68 pence per ordinary share paid for the year ended 31 March 2021	–	24,124
	---------------	---------------
	28,240	24,124
	=========	=========
Dividend proposed
Dividend proposed of 6.25 pence per ordinary share for the year ended 31 March 2023	30,199	–
Dividend proposed of 5.50 pence per ordinary share for the year ended 31 March 2022	–	28,240
	---------------	---------------
	30,199	28,240
	=========	=========

The Directors have proposed the payment of a dividend for the year ended 31 March 2023 of 6.25 pence per ordinary share which is subject to approval by shareholders at the Annual General Meeting on 20 July 2023 and has not been included as a liability in these Financial Statements. The dividend will be paid on 27 July 2023 to shareholders on the register at the close of business on 16 June 2023 (ex-dividend date 15 June 2023).

10 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

	2023  £’000	2022  £’000
Total investments*	1,318,764	1,365,485
	---------------	---------------
Opening book cost	1,630,492	1,701,567
Opening investment holding (losses)/gains	(265,007)	465,708
	---------------	---------------
Opening fair value of investments	1,365,485	2,167,275
	=========	=========
Movements in the year
Purchases at cost	440,666	728,039
Sales – proceeds	(480,475)	(925,998)
Losses on investments	(6,912)	(603,831)
	---------------	---------------
Closing fair value	1,318,764	1,365,485
	=========	=========
Closing book cost	1,514,572	1,630,492
Closing investment holding losses	(195,808)	(265,007)
	---------------	---------------
Closing fair value of investments	1,318,764	1,365,485
	=========	=========

*   The fair value hierarchy of the investments is shown in Note 18 below.

The Company received £480,475,000 (2022: £925,998,000) from investments sold in the year. The book cost of these investments when they were purchased was £556,586,000 (2022: £799,114,000). 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  2023  £’000	Year ended  31 March  2022  £’000
Purchases transaction costs	599	1,501
Sales transaction costs	742	1,478
	---------------	---------------
	1,341	2,979
	=========	=========

The portfolio turnover rate for the year was 35.5% (2022: 45.2%). 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  2023  £’000	Year ended  31 March  2022  £’000
Net gains/(losses) on derivative instruments
Realised gains/(losses) on CFDs	6,913	(206,340)
Realised gains on futures	16,590	39,391
Realised (losses)/gains on options	(2,645)	4,656
Movement in investment holding gains on CFDs	353	379
Movement in investment holding (losses)/gains on futures	(4,466)	1,814
Movement in investment holding losses on options	(1,774)	(89)
	---------------	---------------
	14,971	(160,189)
	=========	=========

   

	2023  Fair value  £’000	2022  Fair value  £’000
Fair value of derivative instruments recognised on the Balance Sheet*
Derivative instrument assets	22,313	23,994
Derivative instrument liabilities	(20,892)	(17,524)
	---------------	---------------
	1,421	6,470
	=========	=========

*   The fair value hierarchy of the derivative instruments is shown in Note 18 below.

	Fair value  £’000	2023  Asset  exposure  £’000	Fair value  £’000	2022  Asset  exposure  £’000
At the year end the Company held the following derivative instruments
Long CFDs	7,409	512,674	5,898	568,330
Short CFDs	(1,238)	19,086	(80)	14,149
Futures (hedging exposure)	(6,857)	(172,890)	(2,391)	(176,746)
Call options	204	2,161	387	2,642
Put options (long exposure)	(414)	5,097	–	–
Put options (short exposure)	29	188	1,128	4,096
Put options (hedging exposure)	2,288	(26,013)	1,528	(12,395)
	---------------	---------------	---------------	---------------
	1,421	340,303	6,470	400,076
	=========	=========	=========	=========

12 OTHER RECEIVABLES

	2023  £’000	2022  £’000
Amounts receivable on settlement of derivatives	10,135	12,924
Securities sold for future settlement	148	80
Accrued income	1,513	794
Taxation recoverable	13	202
Other receivables	130	204
	---------------	---------------
	11,939	14,204
	=========	=========

13 BANK LOAN – REPAYABLE WITHIN ONE YEAR

	2023  £’000	2022  £’000
Fixed rate unsecured US dollar loan
US dollar 100,000,000 fixed at a rate of 6.335%	80,857	–
US dollar 100,000,000 fixed at a rate of 2.606%	–	76,043
	---------------	---------------
	80,857	76,043
	=========	=========

The prior loan agreement with Scotiabank Europe PLC matured on 14 February 2023 and the Company entered into a one year unsecured loan agreement with The Bank of Nova Scotia, London Branch. The new agreement was obtained by novating the existing agreement. The interest rate of the new agreement is fixed at 6.335% per annum until the agreement terminates on 13 February 2024.

14 OTHER PAYABLES

	2023  £’000	2022  £’000
Securities purchased for future settlement	12,402	2,206
Amounts payable on settlement of derivatives	4,731	10,994
Investment management fees	1,266	1,307
Accrued expenses	1,096	724
Finance costs payable	977	157
Amounts payable for repurchase of shares	130	–
	---------------	---------------
	20,602	15,388
	=========	=========

15 SHARE CAPITAL

	Number of  shares	2023  £’000	Number of  shares	2022  £’000
Issued, allotted and fully paid
Ordinary shares of 1 pence each held outside Treasury
Beginning of the year	513,957,409	5,140	515,463,483	5,155
Ordinary shares repurchased into Treasury	(25,631,781)	(256)	(1,506,074)	(15)
	------------------	------------------	------------------	------------------
End of the year	488,325,628	4,884	513,957,409	5,140
	===========	===========	===========	===========
Ordinary shares of 1 pence each held in Treasury*
Beginning of the year	57,097,071	570	55,590,997	555
Ordinary shares repurchased into Treasury	25,631,781	256	1,506,074	15
	------------------	------------------	------------------	------------------
End of the year	82,728,852	826	57,097,071	570
	===========	===========	===========	===========
Total share capital		5,710		5,710
		===========		===========

*   The ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.

During the year, the Company repurchased 25,631,781 (2022: 1,506,074) ordinary shares and held them in Treasury. The cost of repurchasing these shares of £57,249,000 (2022: £4,448,000) 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 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
	=========	=========	=========	=========	=========	=========	=========

   

	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 2021	5,710	211,569	917	248,491	1,676,791	39,499	2,182,977
Losses on investments (see Note 10)	–	–	–	–	(603,831)	–	(603,831)
Gains on derivative instruments (see Note 11)	–	–	–	–	(160,189)	–	(160,189)
Foreign exchange gains	–	–	–	–	1,429	–	1,429
Foreign exchange losses on bank loan	–	–	–	–	(3,569)	–	(3,569)
Investment management fees (see Note 4)	–	–	–	–	(15,659)	–	(15,659)
Other expenses (see Note 5)	–	–	–	–	(25)	–	(25)
Finance costs (see Note 6)	–	–	–	–	(4,989)	–	(4,989)
Revenue profit after taxation for the year	–	–	–	–	–	33,049	33,049
Dividend paid to shareholders (see Note 9)	–	–	–	–	–	(24,124)	(24,124)
Repurchase of ordinary shares (see Note 15)	–	–	–	(4,448)	–	–	(4,448)
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
At 31 March 2022	5,710	211,569	917	244,043	889,958	48,424	1,400,621
	=========	=========	=========	=========	=========	=========	=========

The capital reserve balance at 31 March 2023 includes investment holding losses on investments of £195,808,000 (2022: losses of £265,007,000) as detailed in Note 10 above. See Note 2 (s) above 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 following:

	2023	2022
Net assets	£1,338,421,000	£1,400,621,000
Ordinary shares held outside of Treasury at year end	488,325,628	513,957,409
Net asset value per ordinary share	274.08p	272.52p
	============	============

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 and, therefore, 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), operational, investment performance (including gearing), variable interest entity structures, climate change, discount management, unlisted securities, environmental, social and governance (“ESG”), key people, cybercrime and information security and business continuity (including global pandemic). 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 raised. In addition, the Company has derivative instruments and an unsecured fixed rate loan facility for US$100,000,000 expiring on 13 February 2024. The Company has drawn down the whole of this facility as disclosed in Note 13 above.

Interest rate risk exposure
The values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:

	2023  £’000	2022  £’000
Exposure to financial instruments that bear interest
Long CFDs – exposure less fair value	505,265	562,432
Bank loan	80,857	76,043
	---------------	---------------
	586,122	638,475
	=========	=========
Exposure to financial instruments that earn interest
Short CFDs – exposure plus fair value	17,848	14,069
Amounts held at futures clearing houses and brokers	34,813	32,220
Cash at bank	72,943	73,673
	---------------	---------------
	125,604	119,962
	---------------	---------------
Net exposure to financial instruments that bear interest	460,518	518,513
	=========	=========

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 and bank loan;

·      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	2023  Total  £’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	Investments  held at  fair value  through  profit or loss  £’000	Asset  exposure of  long  derivative  instruments1  £’000	Other  receivables2  £’000	Cash  at bank  £’000	2022  Total  £’000
Chinese renminbi	287,250	–	–	48	287,298
Euro	10,977	–	–	–	10,977
Hong Kong dollar	553,457	313,964	40,791	71,767	979,979
Japanese yen	32,796	–	–	–	32,796
Singapore dollar	14,421	–	–	–	14,421
South Korean won	–	–	–	1	1
Taiwan dollar	18,452	–	208	8	18,668
UK sterling	21,493	–	204	–	21,697
US dollar	426,639	67,867	5,221	1,849	501,576
	---------------	---------------	---------------	---------------	---------------
	1,365,485	381,831	46,424	73,673	1,867,413
	=========	=========	=========	=========	=========

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, US dollar denominated bank loan and other payables. The currency profile of these financial liabilities is shown below:

Currency	Asset  exposure of  short  derivative  instruments*  £’000	US dollar  bank loan  £’000	Other  payables  £’000	2023  Total  £’000
Hong Kong dollar	13,842	–	13,658	27,500
UK sterling	–	–	1,823	1,823
US dollar	5,432	80,857	5,121	91,410
	---------------	---------------	---------------	---------------
	19,274	80,857	20,602	120,733
	=========	=========	=========	=========

   

Currency	Asset  exposure of  short  derivative  instruments*  £’000	US dollar  bank loan  £’000	Other  payables  £’000	2022  Total  £’000
Hong Kong dollar	8,403	–	12,064	20,467
UK sterling	–	–	1,773	1,773
US dollar	9,842	76,043	1,551	87,436
	---------------	---------------	---------------	---------------
	18,245	76,043	15,388	109,676
	=========	=========	=========	=========

*   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. The Company has the facility to borrow up to US$100,000,000 (2022: US$100,000,000) until 13 February 2024. The current borrowing is shown in Note 13 above.

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 2023, £15,601,000 (2022: £21,395,000) 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 £5,814,000 (2022: £5,559,000), HSBC Bank plc £5,397,000 (2022: £nil), UBS AG £4,390,000 (2022: £nil) and J.P. Morgan Securities plc £nil (2022: £15,836,000). As at 31 March 2023, £34,813,000 (2022: £32,220,000), 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 £24,694,000 (2022: £27,437,000) in cash, J.P. Morgan Securities plc £7,273,000 (2022: £nil) in cash, Morgan Stanley & Co. International Ltd £2,846,000 (2022: £3,977,000) in cash and HSBC Bank plc £nil (2022: £806,000) 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:

				Related amounts not set off on balance sheet		2023
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	Financial  instruments  £’000	Margin  account  received as  collateral  £’000	Net  amount  £’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
	=========	=========	=========	=========	=========	=========

   

				Related amounts not set off on balance sheet		2023
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	Financial  instruments  £’000	Margin  account  pledged as  collateral  £’000	Net  amount  £’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	–
	=========	=========	=========	=========	=========	=========

   

				Related amounts not set off on balance sheet		2022
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	Financial  instruments  £’000	Margin  account  received as  Collateral  £’000	Net  amount  £’000
CFDs	20,951	–	20,951	(7,240)	(13,711)	–
Put options	3,043	–	3,043	–	(3,043)	–
	---------------	---------------	---------------	---------------	---------------	---------------
	23,994	–	23,994	(7,240)	(16,754)	–
	=========	=========	=========	=========	=========	=========

   

				Related amounts not set off on balance sheet		2022
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	Financial  instruments  £’000	Margin  account  pledged as  collateral  £’000	Net  amount  £’000
CFDs	(15,133)	–	(15,133)	7,240	4,950	(2,943)
Futures (exchange traded)	(2,391)	–	(2,391)	–	2,391	–
	---------------	---------------	---------------	---------------	---------------	---------------
	(17,524)	–	(17,524)	7,240	7,341	(2,943)
	=========	=========	=========	=========	=========	=========

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 decreased the profit after taxation for the year and decreased the net assets of the Company by £3,797,000 (2022: increased the loss after taxation and decreased the net assets by £4,425,000). 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 decreased the profit after taxation for the year and decreased the net assets of the Company (2022: increased the loss after taxation and decreased the net assets) by the following amounts:

Currency	2023  £’000	2022  £’000
Chinese renminbi	17,467	26,118
Euro	948	998
Hong Kong dollar	82,028	87,228
Japanese yen	3,200	2,982
Singapore dollar	–	1,311
Taiwan dollar	1,791	1,697
US dollar	42,223	37,649
	---------------	---------------
	147,657	157,983
	=========	=========

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 increased the profit after taxation for the year and increased the net assets of the Company (2022: decreased the loss after taxation and increased the net assets) by the following amounts:

Currency	2023  £’000	2022  £’000
Chinese renminbi	21,348	31,922
Euro	1,159	1,220
Hong Kong dollar	100,257	106,613
Japanese yen	3,911	3,644
Singapore dollar	–	1,602
Taiwan dollar	2,189	2,074
US dollar	51,606	46,015
	---------------	---------------
	180,470	193,090
	=========	=========

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 increased the profit after taxation for the year and increased the net assets of the Company by £112,588,000 (2022: decreased the loss after taxation and increased the net assets by £117,084,000). 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 increased the profit after taxation for the year and increased the net assets of the Company by £19,288,000 (2022: decreased the loss after taxation and increased the net assets by £19,465,000). A decrease of 10% in the valuation would have had an equal but opposite effect. There are no inputs which would result in a material change in the value of the unlisted investments.

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 increased the profit after taxation for the year and increased the net assets of the Company by £30,176,000 (2022: decreased the loss after taxation and increased the net assets by £36,359,000). 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) above, 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.

	2023		2022
	Fair value  £’000	Book value  £’000	Fair value  £’000	Book value  £’000
Fixed rate unsecured loan of US dollar 100,000,000	81,092	80,857	75,897	76,043
	=========	=========	=========	=========

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	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)
	=========	=========	=========	=========

   

Financial assets at fair value through profit or loss	Level 1  £’000	Level 2  £’000	Level 3  £’000	2022  Total  £’000
Investments	1,103,568	67,267	194,650	1,365,485
Derivative instrument assets	2,843	21,151	–	23,994
	---------------	---------------	---------------	---------------
	1,106,411	88,418	194,650	1,389,479
	=========	=========	=========	=========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities	(2,391)	(15,133)	–	(17,524)
	=========	=========	=========	=========
Financial liabilities at fair value
Bank loan	–	(75,897)	–	(75,897)
	=========	=========	=========	=========

Level 3 investments (unlisted and delisted investments)

	2023  £’000	2022  £’000
Pony.ai	48,272	41,134
DJI International	30,475	32,363
Chime Biologics	29,064	27,081
Venturous Holdings	26,015	27,831
ByteDance	24,035	25,773
Tuhu Car	14,024	14,296
Cutia Therapeutics	11,575	10,720
Beisen	9,418	10,656
Xiaoju Kuaizhi (Didi Chuxing) (moved to Level 1)	–	4,796
Shanghai Yiguo	–	–
3 listed investments whose listings are currently suspended	–	–
	---------------	---------------
	192,878	194,650
	=========	=========

Pony.ai
Pony.ai develops artificial intelligence and autonomous driving technology solutions for transportation and is an unlisted company. The valuation at 31 March 2023 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 2023, its fair value was £48,272,000 (book cost: £24,892,000).

DJI International
DJI International is a manufacturer of drones and is an unlisted company. The valuation at 31 March 2023 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 2023, its fair value was £30,475,000 (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 2023 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 2023, its fair value was £29,064,000 (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 2023 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 with consideration given to the price of shares when US$21.2 million of funding was raised in December 2022. As at 31 March 2023, its fair value was £26,015,000 (book cost: £26,029,000).

ByteDance
ByteDance develops application software and is an unlisted company. The valuation at 31 March 2023 is based on the company’s financial performance, the macro-environment and benchmarking the position to a range of comparable market data. Consideration was also given to a recent transaction whereby G42 bought a US$100m stake in the company. As at 31 March 2023, its fair value was £24,035,000 (book cost: £7,361,000).

Tuhu Car
Tuhu Car is an online retailer of automobile spare parts and is an unlisted company. The valuation at 31 March 2023 is based on the company’s performance, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 March 2023, its fair value was £14,024,000 (book cost: £13,129,000).

Cutia Therapeutics
Cutia Therapeutics is a specialty pharmaceutical company and is an unlisted company. The valuation at 31 March 2023 is based on the company’s performance, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 March 2023, its fair value was £11,575,000 (book cost: £10,266,000).

Beisen
Beisen is a Chinese talent management company that offers talent management and measurement solutions and is an unlisted company. The valuation at 31 March 2023 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 2023, its fair value was £9,418,000 (book cost: £11,758,000).

Since the year ended 31 March 2023, the company has listed on the Hong Kong Stock Exchange.

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 2023 (book cost: £11,806,000).

Companies whose listings are suspended
Three listed companies in the portfolio have had their listing suspended: DBA Telecommunication (Asia) Limited (suspended July 2014), China Animal Healthcare Limited (suspended March 2015) and BNN Technology Limited (suspended September 2017). As at 31 March 2023, each holding has been valued at £nil.

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	2023  Level 3  £’000	2022  Level 3  £’000
Level 3 investments at the beginning of the year	194,650	166,464
Purchases at cost	–	35,153
Transfers out of level 3 at cost*	(9,971)	(26,330)
Unrealised profits recognised in the Income Statement	8,199	19,363
	---------------	---------------
Level 3 investments at the end of the year	192,878	194,650
	=========	=========

*      Financial instruments are transferred out of level 3 when they become listed.

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 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:

	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	0.0	(188)	0.0
	---------------	---------------	---------------	---------------
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%
		=========		=========

   

	2022
	Gross gearing		Net gearing
	Exposure  £’000	%1	Exposure  £’000	%1
Investments	1,365,485	97.5	1,365,485	97.5
Long CFDs	568,330	40.6	568,330	40.6
Call options	2,642	0.2	2,642	0.2
	---------------	---------------	---------------	---------------
Total long exposures before hedges	1,936,457	138.3	1,936,457	138.3
less: short derivative instruments hedging the above	(189,141)	(13.5)	(189,141)	(13.5)
	---------------	---------------	---------------	---------------
Total long exposures after the netting of hedges	1,747,316	124.8	1,747,316	124.8
Short CFDs	14,149	1.0	(14,149)	(1.0)
Put options (short exposure)	4,096	0.3	(4,096)	(0.3)
	---------------	---------------	---------------	---------------
Gross Asset Exposure/net market exposure*	1,765,561	126.1	1,729,071	123.5
	---------------	---------------	---------------	---------------
Net Assets	1,400,621		1,400,621
	---------------	---------------	---------------	---------------
Gearing2		26.1%		23.5%
		=========		=========

*      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 £14,727,000 (2022: £19,643,000) were payable to the Manager. At the Balance Sheet date, management fees of £1,266,000 (2022: £1,307,000) were accrued and included in other payables. Fidelity also provides the Company with marketing services. The total amount payable for these services was £263,000 (2022: £264,000). At the Balance Sheet date, marketing services of £43,000 (2022: £4,000) were accrued and included in other payables.

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, £22,000 (2022: £19,000) of employers’ National Insurance contributions were paid by the Company. At the Balance Sheet date, Directors’ fees of £22,000 (2022: £15,000) were accrued and included in other payables.

21 POST BALANCE SHEET EVENT
On 13 April 2023 following an initial public offering, Beisen listed on the Hong Kong Stock Exchange.

Alternative Performance Measures

Discount/Premium
The discount/premium is considered to be an Alternative Performance Measure. It is the difference between the NAV per Ordinary Share of the Company and the share price expressed as a percentage of the NAV per Ordinary Share. Details of the Company’s discount/premium are on the Financial Highlights page in the Annual Report and both are defined in the Glossary of Terms in the Annual Report.

Gearing
Gearing 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
Ongoing charges are considered to be an Alternative Performance Measure. The ongoing charges ratio 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.

	2023  £’000	2022  £’000
Investment management fees (£’000)	12,049	15,937
Other expenses (£’000)	1,101	1,418
	---------------	---------------
Ongoing charges (£’000)	13,150	17,355
	=========	=========
Variable management fees (£’000)	2,678	3,706
Average net assets (£’000)	1,338,770	1,848,490
Ongoing charges ratio	0.98%	0.94%
Ongoing charges ratio including variable management fees	1.18%	1.14%
	=========	=========

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 2023 and 31 March 2022.

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%
	=========	=========

   

2022	Net asset  value per  share	Share  price
31 March 2021	423.50p	419.00p
	---------------	---------------
31 March 2022	272.52p	252.00p
	---------------	---------------
Change in the year	-35.7%	-39.9%
Impact of dividend reinvestment	+0.8%	+0.7%
	---------------	---------------
Total return for the year	-34.9%	-39.2%
	=========	=========

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 March 2023 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 2022 and 2023 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 2021 is derived from the statutory accounts for 2022 which have been delivered to the Registrar of Companies. The 2023 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