Fidelity China Special Situations PLC NAV per Share total return -9.1% in 6 months

Fidelity European Values PLC

Fidelity China Special Situations PLC (LON:FCSS) today announced  half-Yearly results for the six months ended 30 September 2018 (unaudited)

Financial Highlights:

Fidelity China Special Situations PLC’s  Net Asset Value per Share total return was -9.1% in the 6 months to 30 September 2018 compared to the MSCI China Index total return of -4.0%

The Company’s Share Price total return for the six month period was -8.8%

Over a 3 year period, the NAV total return was 79.4% and the Share Pricereturn was 87.2%, both outperforming the MSCI China Index return of +70.7%

Despite recent volatility in Chinese markets, Portfolio Manager, Dale Nicholls, is confident of long-term growth potential in the Company’s portfolio

Interim Management Report


The Company has a three-year unsecured fixed rate facility agreement with Scotiabank Europe PLC for US$150,000,000. The interest rate is fixed at 3.01% per annum until the facility terminates on 14 February 2020.

To achieve further gearing, the Company uses contracts for difference on a number of holdings in its portfolio.

At 30 September 2018, the Company’s gearing, defined as Gross Asset Exposure in excess of Net Assets, was 26.0% (31 March 2018: 20.2%; 30 September 2017: 26.2%). This is within the limit set by the Company’s Prospectus of 30%.

Unlisted Investments

The Company held four unlisted investments at the start of the reporting period. Two new investments were made in the reporting period and two investments became listed: Aurora Mobile Limited and Meituan Dianping (formerly ‘China Internet Plus Holdings’), both at prices above their carrying values. Accordingly, the Company held four unlisted investments at the end of the period.

Discount Management

The Company’s discount narrowed slightly from 12.3% at the start of the reporting period to 12.1% at the end of the reporting period.

The Board recognises that the Company’s share price is affected by the interaction of supply and demand in the market and investor sentiment towards China, as well as the performance of the NAV per share.

Recognising these factors, the Board regularly reviews the level of discount and continues to discuss the ways in which it might be reduced so that the Company’s shares can trade at a level closer to the NAV. The Board also monitors market practice amongst peer group companies and also take regular advice from the Company’s Broker on this subject.

At present, the Board believes that the discount is best addressed by repurchasing the Company’s shares, when appropriate, according to market conditions. During the reporting period, the Board authorised the repurchase of 1,100,000 ordinary shares by the Company to be held in Treasury. These share repurchases will have benefited shareholders as the NAV per share has been increased by purchasing shares at a discount. Since the end of the reporting period and as at the date of this report, the Company has repurchased a further 450,000 ordinary shares into Treasury.

Management Fees

As mentioned in the Annual Report for the year ended 31 March 2018 and effective from 1 July 2018, the Board agreed a new fee arrangement with FIL Investment Services (UK) Limited, the Company’s Alternative Investment Fund Manager (the “Manager”). The new fee reduced the annual fee of 1.00% of net assets to 0.90% of net assets per annum, with a +/-0.20% variation fee based on the Company’s NAV per share performance relative to the Company’s Benchmark Index. The maximum fee that the Company will now pay is 1.10% of net assets, but if the Company underperforms against the Benchmark Index, then the overall fee could fall as low as 0.70% of net assets. The revised management fee provides an overall reduction from the previous management fee structure, especially in those years where a performance fee was payable.

The management fee paid for the three months from 1 April to 30 June 2018 was at 1.00% of net assets and for the three months to 30 September 2018 was at 0.90% in line with the new fee arrangements.

In addition, the annual administration fee reduced by £500,000 to £100,000 with effect from 1 April 2018.

Board of Directors

John Ford did not stand for re-election at the Annual General Meeting (“AGM”) and left the Board on 25 July 2018.

David Causer plans to stand down from the Board at next year’s AGM when he will have completed nine years on the Board since the Company launched in 2010.

Mike Balfour was appointed to the Board on 1 October, 2018. It is intended that he will become Chair of the Audit and Risk Committee after the next AGM in succession to David Causer. This is in line with the Board’s succession plan.

Vera Hong Wei resigned from the Board on 31 October 2018. The Board has appointed a specialist consultancy firm to identify a new Director.

Principal Risks and Uncertainties

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 risks and uncertainties that the Company faces.

The Board considers that the principal risks and uncertainties faced by the Company continue to fall into the following categories: market, performance, discount control, gearing and currency risks. Other risks facing the Company include cybercrime, tax and regulatory and operational (service providers) risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 March 2018 and can be found on the Company’s pages of the Manager’s website at

The Company continues to have exposure to a number of companies with all or part of their business in Variable Interest Entity (“VIE”) structures. VIEs are entities where the controlling interest is not based on a majority of voting rights and may result in a risk to investors in not being able to enforce their ownership rights in certain circumstances. As at 30 September 2018, 47.96% of the companies in the portfolio had a VIE structure (Benchmark Index: 38.16%).

These principal risks and uncertainties have not materially changed in the six months to 30 September 2018 and are equally applicable to the remaining six months of the Company’s financial year.

Transactions with the Managers and Related Parties

The Manager has delegated the investment management (other than investment management in unlisted securities) to FIL Investment Management (Hong Kong) Limited. It has delegated the investment management of the unlisted securities and the company secretariat function to FIL Investments International. Transactions with the Managers and related party transactions with the Directors are disclosed in Note 15 below.

Going Concern

The Directors have considered the Fidelity China’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio (being mainly securities which are readily realisable) and its expenditure and cash flow projections and have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing these Financial Statements.

By order of the Board.

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