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| Date | 9 Jun 2026 |
| Time | 07:00:00 |
| Category | Annual Financial Report |
| ID | 202606090007 |
Disseminated via PRN on 9 June 2026
Fidelity CHINA SPECIAL SITUATIONS PLC
Annual Report for the year ended 31 March 2026
FINANCIAL HIGHLIGHTS
For further information, please contact:
George Bayer
Company Secretary
0207 961 4240
FIL Investments International
CHAIRMAN’S STATEMENT
I have pleasure in presenting the Annual Report of Fidelity China Special Situations PLC for the year ended 31 March 2026.
While UK investors in Chinese equities have enjoyed a year of positive returns, it is important to note two external events – at the start and end of the year under review – that have had an appreciable impact on the quantum of those returns. Both events have their origins in the US, illustrating the interconnectedness of the modern global economy. The first was President Trump’s ‘Liberation Day’ trade tariffs, which unsettled markets and have had wide-ranging effects on global supply chains. The second was the war in Iran, launched by the US and Israel on 28 February 2026, which caused further market volatility in the final month of our financial year and continues to be a source of great concern, uncertainty and volatility. As I will discuss, China’s economy and stock market have largely held up well in the face of these challenges, but they have not been immune to their effects.
In the reporting year to 31 March 2026, the net asset value (“NAV”) total return of your Company was 10.7%, while the Benchmark Index (MSCI China Index (in UK sterling terms)) returned 1.6%, representing healthy outperformance. This was the result of good stock picking, particularly in the IT and consumer discretionary sectors. The share price total return was 9.5%, as the discount to NAV widened slightly from 7.3% at the beginning of the period to 8.5% at the end. With the corresponding returns at the half-year (to 30 September 2025) having been +29.7% and +28.7% respectively for the NAV and share price total returns, and +18.0% for the Benchmark, it has clearly been a year of two halves.
China’s economy remains resilient
Despite the global trade headwinds, the Chinese economy performed well in 2025, meeting the government forecast of 5.0% GDP growth. Exports were particularly strong, leading to a record trade surplus of $1.2 trillion, albeit with a rebalancing of trade away from the US towards the rest of the world. While the service sector also did relatively well, consumer consumption remained comparatively weak, as the government continued to struggle to persuade people to dip into their significant savings. The low level of consumer sentiment is closely connected to the ongoing problems in the property market and is, therefore, unlikely to improve materially until property prices bottom out, the timing of which remains uncertain.
The principal risk to the Chinese government’s GDP growth forecast of 4.5-5.0% in 2026 is the potential dampening of export demand as a result of the war in Iran. However, it is worth noting that, in its most recent World Economic Outlook (April 2026), the International Monetary Fund (“IMF”) downgraded its 2026 forecast for China by just 0.1% (versus January 2026) to 4.4%. Furthermore, that 4.4% figure actually represents an upgrade of last October’s IMF forecast of 4.2%. While a prolonged war in the Middle East would undoubtedly dampen global demand, with knock-on effects in China, the country is in a far better position to withstand these difficulties than would have been the case just a few years ago. This is largely due to its impressive transition to renewable energy generation, as well as its strategic oil reserve.
Looking ahead, the Chinese Communist Party’s 15th Five-Year Plan, approved at the National People’s Congress in March and covering the period 2026-2030, aims to provide a blueprint for continued growth in the face of demographic change. Much of the recent growth has come from exports and investment in infrastructure, but the government is keen for consumers to pick up the baton to create a more self-sustaining model that is less dependent on exports, government spending and debt finance. Structural reforms seek to reduce the effect of external inflation on the supply chain, as well as boosting employment for young people in a country where the population is both ageing and declining in numbers. China has many future-facing companies that are or could become world leading, not just in the familiar areas of electric vehicles, solar panels and battery storage, but increasingly in areas such as biotechnology, advanced semiconductors, AI and quantum computing. The focus on technology and innovation has been the driving force behind much of the economic and stock market strength, and this is backed up by an aspiration to grow research and development spending by 7% a year. Alongside this, a target to further reduce carbon emissions by 17% per unit of GDP from 2026 to 2030 will be supported by continued subsidies to trade in older goods for newer, more energy efficient ones, which will also boost consumer demand.
Your portfolio in the financial year
The Q&A with Portfolio Manager Dale Nicholls on the following pages contains a detailed review of the performance drivers and investments in your Company’s portfolio during the year.
Dale continues to take advantage of the specific features of the closed-end investment company structure, including gearing the portfolio, the ability to hold short positions and to own unlisted companies without the liquidity constraints of an open-ended fund. After a busy year in the unquoted portfolio last year, just one new private investment – HashKey, a cryptocurrency exchange operator – was added during this year, although it is now part of the quoted portfolio, having debuted on the Hong Kong Stock Exchange in December 2025. ByteDance, the technology company that amongst other things owns TikTok, continues to be the largest unlisted holding, with no date yet set for an initial public offering (“IPO”). Up to 15% of Net Assets plus Borrowings may be invested in unquoted private companies, allowing Dale to take advantage of the faster growth trajectory of earlier-stage businesses before they are listed on the public markets. More details of the unlisted holdings, which made up 11% of the total Net Assets at the year end and have added materially to your Company’s performance over time, are in the Annual Report.
The Board has confidence that the valuation process for our unlisted holdings is robust. They are assessed regularly by Fidelity’s dedicated Fair Value Committee (“FVC”), with advice from a third-party valuation specialist, as well as from Fidelity’s unlisted investment specialist in Hong Kong and the Fidelity analysts, who undertake research on the companies. The valuation process is set out in more detail in the Annual Report. The Board receives regular updates from the FVC overseeing this process, with Alastair Bruce, our Audit and Risk Committee Chairman, also providing expertise in this area, having for many years been involved professionally in private equity investing.
Gearing
Your Board continues to believe that the judicious use of gearing can enhance returns, although being more than 100% invested also means that the NAV and share price may be more volatile and can accentuate losses in a falling market, as well as being additive on the upside. Having repaid the Company’s US$100m loan in the financial year to 31 March 2024, gearing since then has been solely through contracts for difference (“CFDs”), which tend to be cheaper than prevailing longer-dated borrowing. However, your Board continues to review the position, and we have not ruled out reintroducing an element of fixed rate gearing in the future, should the terms become favourable.
Gearing once again remained around 20% (net asset exposure) during the year, beginning at 20.9% and ending at 19.3%, reflecting Dale’s view that the Chinese equity market remains very attractively valued and offers many interesting investment opportunities. While historically gearing has been in a range of 10-25%, the Board views a figure of around 20% as being the upper end of the normal range. The impact of gearing using CFDs was slightly negative during the year in review, detracting 0.8% to returns.
Dividend
The Company’s investment objective remains focused on achieving long-term capital growth; however, it has the enviable track record of having paid an increased dividend each year since inception, growing from 0.25 pence per share in 2011 to 8.00 pence in 2025, which is a compound annual growth rate of 28.1%. This has been supported by the increasing focus of Chinese companies on rewarding shareholders such as ourselves through increased dividend payments, which we pass on to you, our shareholders.
The year under review has been another very strong one for the Company’s revenue return, underpinned by strong cash flows in our underlying companies and corporate governance reforms that are encouraging companies to pay more. As such, we are pleased to be able to deliver further growth in the ordinary dividend, building on last year’s 25.0% increase in the ordinary dividend by recommending a final dividend of 9.00 pence per share, up 12.5% year-on-year.
The dividend will be payable on 28 July 2026 to shareholders on the register on 19 June 2026 (ex-dividend date 18 June 2026). The revenue per share earned by the Company during the year was 9.22 pence. Shareholders will note that this is lower than last year's 10.18 pence but this included one exceptional dividend from Lufax which distorts the year-on-year comparison. This year’s dividend is once again fully covered by revenue from earnings, and we have been able to add back £3,329,000 to the revenue reserve, which now stands at 6.77 pence per share.
Discount management
While it is always our ambition that the share price should closely match the NAV, it is often the case that investment companies trade at a discount – indeed, at the time of writing, the average discount to NAV across the investment company sector was around 11.6%. Your Board’s policy is to aim for a discount in single figures in normal market conditions, and we pursue this actively by buying back shares in the market when supply exceeds demand. During the year, we repurchased 33,336,928 shares for cancellation (6.7% of the shares in issue (excluding treasury shares) at the start of the financial year) at a cost of just over £100 million. This was accretive to the NAV per share for continuing shareholders.
The share price began the year under review at a 7.3% discount to NAV and ended it at a discount of 8.5%. It is worth reiterating that the single-digit discount target is “in normal market conditions”, which the latter part of the review period arguably was not. Earlier I mentioned two significant external events during the year; each of these was accompanied by a widening of the discount: to just over 15% in the immediate aftermath of the Liberation Day tariff announcements, and to just over 13% in the first week of the war in Iran. Against this backdrop it is pleasing to note that for the vast majority of the period, the discount was well below 10%.
Your Board adjusts the repurchase of shares throughout the year depending on external factors and the level of the discount, and for substantial parts of the year there was very limited buyback activity. However, we have increased it during the Middle East conflict in a highly volatile environment, repurchasing a further 3,121,739 shares between the end of the period and the time of writing. While buybacks can only limit the discount to a certain extent if external factors are hugely negative, your Board is very mindful of the level of discount, and we aim to achieve our objective over the medium-term.
Ongoing Charges Ratio and Management Fee
The Ongoing Charges Ratio (the costs of running the Company) for the year was 0.92% (2025: 0.89%). The variable element of the management fee (due to outperformance of the Benchmark Index on a rolling three year basis) was a charge of 0.17% (2025: a credit of 0.15%). Therefore, the Ongoing Charges Ratio for the year, including this variable element, was 1.09% (2025: 0.74%).
Change of Auditor
In accordance with statutory requirements and FRC guidance on audit tenders, a competitive audit tender was conducted during the year as the Company’s previous auditor had been appointed for 10 years. Following this process the Board appointed PricewaterhouseCoopers LLP as the Company’s new auditor. PricewaterhouseCoopers LLP have replaced EY as auditor with effect from the year under review; their report is in the Annual Report.
Board of Directors
In December 2025, Gordon Orr informed us that he did not intend to stand for re-election as a non-executive Director at the forthcoming Annual General Meeting (“AGM”). Gordon has a wealth of professional and non-executive experience in Hong Kong and mainland China and has been a great asset to your Company over the past three years, giving us valuable insights into the region through his vast network and ongoing business connections. After an exhaustive recruitment process, a strong candidate to replace Gordon has been found. I am pleased to welcome Bessie Lee to the Board from 2 June 2026. Bessie is a seasoned Chief Executive and non-executive director with over 30 years’ experience of driving strategic growth, digital transformation and innovation with particular knowledge and expertise in Chinese businesses.
We are confident that your Company’s Board continues to have a real diversity and balance of relevant skills and experience, including consultancy covering Chinese businesses, accountancy, investment management (including private equity and private equity valuation), marketing and oversight of investment companies.
In recent years, we have sought to pass on the benefit of our accumulated skills and knowledge by taking on a Board apprentice, a role put in place to help develop the next generation of individuals who may not otherwise find a route to becoming a non-executive director. Each apprentice serves a term of one year, during which time they attend all Board and Committee meetings as an observer. Further details are in the Annual Report.
Bessie Lee, having been appointed by the Board of Directors, will be standing for election by shareholders at the AGM. In accordance with the UK Corporate Governance Code for Directors of FTSE 350 companies, all the other Directors, with the exception of Gordon Orr, are subject to annual re-election at the Annual General Meeting (“AGM”) on 21 July 2026, in order to continue to support and oversee the Company in the best interests of all shareholders. The Directors’ biographies can be found in the Annual Report.
Articles of Association
The Board is proposing to increase the aggregate cap on Directors’ fees to provide greater flexibility for any future changes. The proposed new cap is £450,000 in aggregate per annum, which it is felt is in line with market practice, replacing the existing cap of £350,000 per annum which was put in place in 2021.
We have also taken the opportunity to make other changes of a minor, clarificatory or technical nature to the Articles, including clarifications in relation to hybrid general meetings to follow how practice has developed. However, the amendments do not provide for, and the Board has no intention to move to, fully virtual meetings. A full tracked version of all the changes proposed to the Articles is available at www.fidelity.co.uk/china . The principal changes proposed to the Articles are set out in more detail in the Directors’ Report in the Annual Report.
Annual General Meeting
The Company’s AGM will be at 11.00 am on 21 July 2026. The meeting will once again be a hybrid format, with online attendance available; however, I hope to see as many of you as possible in person on the day. Alongside the direct email updates that we now provide, it is one of the few opportunities in the year to sit down together – shareholders, the Board and the Manager – to talk about your investment. Please do join us if you can. Details of the AGM are below.
Among the business of the day will be a vote on a change in the investment policy, which will give the Company the ability to hold up to 20% of the portfolio in a single stock (currently the limit is 15%). At the Company’s year end, the largest holding, Tencent, was 12.3% of net assets but 15.2% of the Benchmark; while there is no intention of materially increasing this at present, the current policy has the effect of prohibiting Dale from taking an overweight position in the stock, which would limit his ability to express a strongly positive view on Tencent or other large Chinese companies in the future. Further information on the policy change can be found in the Notice of AGM.
Outlook
In a world where global geopolitics dominates the news agenda, China, by its considered, consistent behaviour, has been improving relationships around the world, with prominent European, Canadian and Latin American presidents and prime ministers treading the now quite well-worn path to President Xi’s door. While the country’s prospects are to some extent contingent on the Middle East conflict and the oil price, China is arguably benefiting from instability in other parts of the world through its growing global influence, and has much to offer in areas such as EVs, lower-cost solar power and other renewable energy technologies such as battery storage. Furthermore, relations between the US and China are better than many people appreciate, given areas of mutual dependence such as in rare earth minerals and semiconductors.
The steady-as-it-goes approach by the Chinese government to its own economy and international relations are both positive factors for the outlook for investments in the world’s second largest economy. One reason exports have grown so much is the highly competitive industrial landscape – domestic competition is intense in certain sectors, which puts Chinese companies in a very strong position when they turn their ambitions to global markets. This has led to a degree of domestic deflation that the Chinese authorities are keen to reverse, by tackling over-production and irrational price wars. This should ultimately lead to better capital allocation, strengthen corporate balance sheets and drive consolidation, yet is unlikely to threaten China’s dominance in these areas of the global supply chain.
As well as a healthy industrial base, the Chinese government also wants an improving stock market, but not a return to boom and bust as seen in the past. Corporate governance reforms are encouraging companies to reward their minority shareholders through dividends and share buybacks, policies that have proved successful in other markets such as Japan and South Korea. While there have been some interesting new issues (such as your Company’s holding HashKey, mentioned above), there is not the sort of surge in IPOs that would suggest an overheating market, and valuations remain reasonable by international standards, with good earnings growth projected for this year. China has many fantastic companies that are leading-edge and will be global leaders in the future, if they are not already, and it is the opinion of your Board and Portfolio Manager that the long-term opportunity set remains compelling.
Closer to home, your Board is proud of the Company’s record in utilising the strengths of the investment company structure to take advantage of the many opportunities in the Chinese market. The ability to boost returns through gearing, the unlisted portfolio, short positions, Dale’s long-term investment horizon, the strength of our dividend record and our undertaking of buybacks to enhance shareholder value have all added value over the medium and longer term. It has helped your Company to become one of the largest UK-based actively managed China funds, with a broad and diverse shareholder base including many individual investors. We thank you all for your continued support.
Mike Balfour
Chairman
8 June 2026
ANNUAL GENERAL MEETING – TUESDAY, 21 JULY 2026 AT 11.00 AM
The AGM of the Company will be held at 11.00 am on Tuesday, 21 July 2026 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 on in the Annual Report.
For those shareholders who 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 discussing the performance of the past year and the prospects for the year to come. Dale and the Board will be very happy to answer any questions that shareholders may have. Following the AGM, 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 Manager and these will be addressed at an appropriate juncture during the meeting.
Further information and links to the Lumi platform may be found in Note 9 in the Notes to the Notice of Meeting in the Annual Report. 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://meetings.lumiconnect.com/100-346-066-599 .
Please note that investors on platforms, such as Fidelity Personal Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest, will need to request attendance at the AGM in accordance with the policies of your chosen platform. They may request that you submit electronic votes in advance of the meeting. If you are unable to obtain a unique IVC and PIN from your nominee or platform, we will also welcome your online participation as a guest. Once you have accessed https://meetings.lumiconnect.com/100-346-066-599 from your web browser on a tablet, smartphone or computer, 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.
Further information on how to vote across the most common investment platforms is available at the following link: https://www.theaic.co.uk/how-to-vote-your-shares
PORTFOLIO MANAGER’S REVIEW
QUESTION
How has the Company performed in the year to 31st March 2026?
ANSWER
Over the year to 31 March 2026, the Company delivered a positive return in what has been a dynamic and evolving market environment. The Company’s net asset value (NAV) return was 10.7% over the period, significantly outperforming the MSCI China Index in UK sterling terms (the Benchmark), which delivered 1.6%. The share price returned 9.5% over the same period, with the discount to NAV widening slightly from 7.3% to 8.5%. Stock selection was the primary driver of strong performance over the year. (All performance data are on a total return basis).
The period was characterised by a tariffs shock at the beginning of 2025 and a tariffs truce in the later part of the year, a strong recovery supported by strong artificial intelligence (AI) related demand trends, followed by a more complex and volatile geopolitical environment into early 2026. Initial gains were driven by improving sentiment and renewed interest in innovation-led sectors, particularly following the launch of DeepSeek’s AI models. However, as we moved into 2026, technology-led strength gave way to a broad risk-off correction, as escalating geopolitical tensions in the Middle East drove oil and gas prices higher, reignited inflation concerns and weighed on the global growth outlook. On a positive note, China’s diversified economy offered more resilience versus the rest of Asia in those adverse scenarios. The country’s substantial domestic coal reserves, fast growing energy renewables, strategic crude inventories, and relatively low reliance on Middle East oil imports, help limit downside risks.
At the same time, while technological breakthroughs continued to support selected areas of the Chinese stock market and reinforced the long-term growth narrative, the near-term outlook for AI-related demand became more nuanced. Supply chain constraints, including memory shortages and energy-related disruptions, alongside margin pressure in downstream segments, have led to a more divergent performance at the sub-sector and company level. Investors became more selective, as greater scrutiny on earnings sustainability and broader macro expectations came back into focus in contrast to earlier broad-based AI-related optimism. This divergence is particularly evident in earnings expectations: while internet platforms and hyperscalers continue to invest heavily with limited near-term earnings contribution from AI, areas such as semiconductor and power-related equipment companies have been prime beneficiaries, with more meaningful upward revisions to earnings growth.
Domestically, consumer confidence remained subdued amid a gradual and uneven property market recovery. Household spending has yet to regain sustained momentum, despite elevated savings levels and some early signs of improving employment trends. Policy has remained supportive but targeted, with a clear emphasis on structural priorities such as industrial upgrading and quality growth by addressing excess competition across key sectors.
In this context stock selection remains key. The portfolio benefited from exposure to companies aligned with structural growth themes, particularly involving electrification, advanced manufacturing and selective areas of consumption. As market dispersion increased, a disciplined focus on fundamentals and competitive positioning proved increasingly important.
QUESTION
What positions were the biggest contributors and detractors this year, and what drove their performance?
ANSWER
Performance over the period was driven primarily by stock picking, with notable strength from selected consumer discretionary, industrials and information technology holdings.
Within consumer discretionary, the electric vehicle (EV) and autonomous driving segment had a really strong year. Both Hesai Group and Pony.ai were key contributors as profits were taken during the year, benefiting from rising investor confidence in next-generation mobility technologies. Hesai’s performance reflected its leadership in LiDAR (light detection and ranging, or laser radar), supported by strong momentum in ADAS (advanced driver assistance systems) adoption, improved shipment visibility, and emerging vertical opportunities in robotics. Pony.ai, a leading autonomous driving and robotaxi platform that we have owned at both private and public stages of its development, gained on continued execution in robotaxi deployment, including new operating approvals and partnerships, alongside improving unit economics as it scales—underpinning confidence in its path toward commercialisation and sustained growth.
The industrials sector was another key contributor. Preferred holdings across solar modules, batteries, inverters, and power electronics have captured the robust demand linked to AI data centre infrastructure and benefited from market leadership within the electrification value chain.
Ningbo Deye Technology, a leading solar inverter and energy storage system (ESS) maker, advanced on a significantly improved earnings trajectory, underpinned by a strong residential energy storage upcycle. A holding in the world’s largest EV battery maker CATL, also performed well, supported by strong EV and energy storage demand, rising utilisation, and the outlook for sustainable margins through scale and pricing power. Impro Precision Industries was another key contributor. This casting and machined components manufacturer advanced on resilient demand in higher-margin segments like high horsepower engines, early signs of recovery in more cyclical markets like hydraulic & agricultural equipment, and strong operational execution. More broadly, these positions reflect the portfolio’s focus on companies with strong competitive advantages and consequent pricing power, well placed to capture structural growth across electrification, energy storage, and industrial upgrading trends.
Relative performance also benefited from limited exposure to parts of the technology and internet sectors where increasing competition, margin pressure and relatively high valuations weighed on returns. This was particularly evident in our lack of exposure to Xiaomi, where the company’s performance was further impacted by slowing growth in its core handset business, reflecting intensifying competition and rising input costs, especially for memory components. Similarly, not holding Meituan and JD.com contributed positively, as sentiment across Chinese internet platforms remained weak due to subdued consumption trends, intensifying price wars in food delivery, and stricter value-added tax (VAT) enforcement.
Elsewhere in the IT sector, Zhongji Innolight was a notable contributor. As a leading supplier of optical interconnect solutions used in data centres, the company benefited from strong demand for high-speed optical modules driven by AI-related capacity expansion. Minimax, China’s first pure LLM (large language model) play listed globally, was also among the top contributors. We took profit from this holding after a strong performance post IPO.
By contrast, an underweight position in energy and financials, mainly SOE banks, detracted from relative performance. Escalating geopolitical conflict in the Middle East and the temporary closure of the Strait of Hormuz disrupted supply and drove oil prices higher. As a result, a lack of exposure to PetroChina, and other oil majors, hindered returns. Meanwhile, Chinese banks rallied on the back of a defensive rotation into high-yielding assets amid economic uncertainty. As such, not holding China Construction Bank and Industrial & Commercial Bank of China held back returns. Elsewhere within financials, leading consumer finance lender Lexin Fintech declined following a period of strong performance, as investors took profits against a backdrop of softer credit trends and ongoing regulatory overhang. We closed the position in July 2025.
Within industrials, our high-conviction positions in Full Truck Alliance (FTA) and Tuhu Car detracted from relative performance. FTA, China’s leading digital freight matching platform, saw a share price pull-back driven by concerns around a potential ADR delisting risk and developments in non-core businesses. The company has been receptive to investor feedback and has taken steps to refocus on its core operations. We continue to believe its scale, network effects and market leadership create meaningful barriers to entry, and we used the weakness to increase our position. Tuhu Car, a leading platform in automotive maintenance, was impacted by softer consumer sentiment and ongoing intense competition. However, we believe the underlying business remains resilient with strong long-term potential, and view the current risk-reward profile as attractive.
QUESTION
How is the Company currently positioned across sectors, and where are you seeing the most attractive and “special” opportunities in China right now?
ANSWER
Our sector weightings are a reflection of bottom-up stock picking, the key inputs of which include growth potential, levels of returns generated, our evaluation of management, and valuation levels. This tends to lead us to sectors where we see strong underlying growth trends and improving competitive dynamics, combined with increasing competitiveness and attractive valuations. Over the period, we reduced exposure to financials, taking profits, and increased the allocation to areas where risk-reward appears more compelling, particularly within industrials and selective consumer segments.
Cutting edge industrials continue to represent the largest area of exposure for the Company. We believe the market underappreciates the global competitiveness and innovation capabilities of many Chinese industrial companies, particularly those moving up the value chain into higher-end manufacturing, automation and AI-related infrastructure. A key focus is the power and energy ecosystem underpinning the AI buildout. While attention is often centred on semiconductors and memory chips, constraints are increasingly emerging downstream. Over the long-term, we think rising geopolitical tensions are likely to reinforce the case for renewable energy sources and the materials that underpin the energy transition. China’s scale manufacturing base and integrated supply chains position its companies well to capture this demand. In this context, we initiated a position in Wuxi Lead, a leading global supplier of lithium battery equipment and key partner to major manufacturers such as CATL. The company is well positioned to benefit from the ongoing battery capex cycle, supported by demand from energy storage and continued electrification. Emerging solid-state battery technology also offers a medium-term growth opportunity, with higher equipment intensity expected to support both cyclical recovery and structural upgrading within the battery value chain.
We have also maintained a meaningful exposure to companies exposed to global EV and automation trends, as Chinese companies have achieved scale in supplying critical components and materials in those areas. Minth Group is a good example. Its strengths in aluminium and advanced plastics automotive parts, combined with a vertically integrated manufacturing model, position the company to serve both traditional and new energy vehicles, where demand for lighter battery and chassis structures is increasing. Its new business in robotics and AI liquid cooling is also showing great potential. Meanwhile, we trimmed positions in Pony.ai and Hesai Group, selling into strength to take some profit following their strong performance over the period, though both remain key holdings in the portfolio.
Within consumer-related sectors, positioning remains selective. The challenges facing these industries are well known, which has led to a sustained period of underperformance and given rise to some attractively valued opportunities. While overall consumer sentiment remains subdued, there are pockets of recovery from cyclical troughs. In staples, we have selectively added exposure to areas such as dairy and beer, where industry conditions are beginning to bottom out and competitive landscapes are improving after smaller players have exited the markets. We also initiated a position in low-cost hog raiser Muyuan Foods, since the industry, having gone through a severe downturn marked by low hog prices and increased feed costs, is starting to see signs of supply adjustment and market consolidation.
Aside from consumer companies showing potential for cyclical recovery, we also hold some consumer discretionary names who have maintained strong brands which capture consumer trends, alongside cost efficiencies that enable them to sustain growth in a challenging environment. We particularly see this playing out in sportswear and travel-related segments. Sportswear benefits from structural tailwinds, including rising participation and health awareness, and where brand can be a key competitive advantage. Travel expenditure also continues to grow as consumer trends move more towards experience-led consumption and improving mobility. Accordingly we see high-quality hotel chains along with value for money brands being able to capture this opportunity. Both areas remain underpenetrated versus more developed markets, offering attractive long-term growth potential.
Elsewhere, within Financials we purchased HashKey, the largest regulated crypto exchange in Hong Kong, investing in the private company in August last year ahead of its subsequent listing. The core investment case rests on its strong position in a growing, regulated trading market where, irrespective of views on underlying crypto assets, trading activity is becoming more established. More importantly, we see significant optionality from Hong Kong’s early and favourable moves on regulation, including stablecoin licensing. With the city’s potential as a testing ground for mainland China and HashKey closely engaged in regulatory developments, the company is well placed to benefit from potential regulatory easing and broader market evolution.
Beyond the large sector exposures mentioned already, we remain overweight versus the index in healthcare, real estate and communication services, broadly neutral in IT and materials, and underweight in financials, mainly through an underweight in banks, where we see few opportunities in the large state-owned enterprises.
We outline our five largest holdings in the Annual Report.
QUESTION
How have recent signals from the Chinese government, including the latest Party Plenum and longer-term economic plans, influenced where you’re finding opportunities?
ANSWER
Recent policy signals, including the latest Party Plenum and the 15th Five-Year Plan (2026–2030), reinforce a broadly stable pro-growth policy stance and continued support for structural priorities such as innovation, industrial upgrading and quality growth. While the external environment remains uncertain, particularly around geopolitics and trade, the more constructive and pro-business tone from policymakers has helped position China as a more stable and predictable environment for both businesses and investors.
At the macro level, the direction of travel remains one of gradual stabilisation rather than a sharp recovery. The GDP growth target was set at c.4.5–5%, slightly lower than in recent years, reflecting a shift towards more sustainable growth and risk control, supported by targeted fiscal measures and accommodative monetary policy. While overall consumption and economic activity remain relatively soft, we are starting to see signs of stabilisation in areas such as employment, wage growth and secondary property market activity in top-tier cities.
Consumption remains central to China’s long-term growth ambitions. In the near term, household spending continues to reflect cautious behaviour following a general economic slowdown and the property downturn. However, broadly speaking the consumer balance sheet is in good shape, as weaker spending has led to elevated savings levels and less debt. Policy direction continues to be supportive — the recent relaxation of homebuying restrictions in Shanghai and Shenzhen are good examples. The significant correction in supply, in the form of housing starts, remains the main factor likely to drive a stabilisation in market pricing, which is important in terms of wealth effects for the consumer. Structural growth drivers for the mid-term consumption outlook include areas such as services, healthcare and leisure.
Importantly, the opportunity set remains highly company specific. Even in a more challenging macro environment, we are seeing a growing number of businesses adapting effectively through cost discipline, improving operational efficiency, and product innovation. In many industries, market consolidation is accelerating, creating clearer differentiation between winners and laggards.
From a portfolio perspective, this reinforces our focus on bottom-up stock selection. We continue to find opportunities in companies with strong competitive positioning, clear growth drivers and the ability to navigate a more measured recovery environment.
QUESTION
Current geopolitical tensions are high, with conflicts in Ukraine and the Middle East dominating headlines globally; how are these influencing the portfolio performance and positioning in the reporting year?
ANSWER
China is relatively less exposed to direct external energy shocks than many economies, supported by lower reliance on oil and gas, a growing share of cleaner energy, and the presence of significant strategic reserves. As a result, the direct impact of recent geopolitical tensions on the portfolio has been limited.
The more relevant channels to monitor are indirect, including global supply chain disruption, inflationary pressures, and any spillover into consumer sentiment.
Over the medium-term, sustained higher energy prices and increased concerns over energy security could accelerate the global transition to renewable energy sources and electrification. With clear global leadership across EVs, batteries, energy storage systems and renewable supply chains, many Chinese companies stand to benefit.
Whilst the Company has no direct exposure to the energy majors, it does have a significant holding in areas of structural growth and competitiveness through CATL in the battery market. We also maintain selective exposure to areas such as gold within the materials sector, which should provide some diversification in periods of heightened geopolitical uncertainty. Some near-term margin pressure may emerge in areas exposed to higher energy and transportation costs, and positioning has been adjusted accordingly.
While the portfolio typically exhibits higher volatility than the benchmark, periods of broad-based market declines amid highlighted geopolitical risk can amplify short-term price movements. Overall, while the external environment has become more uncertain, we have not made material changes to positioning. A significant portion of the portfolio remains focused on companies with drivers less impacted by short-term geopolitical developments.
QUESTION
The Company can borrow in order to invest; how have you used this gearing over the year? Has it been beneficial to performance?
ANSWER
Our approach to gearing remains consistent, typically increasing net market exposure when valuations are more attractive and moderating when risk-reward conditions become less compelling. Over the period, the Company’s net market exposure averaged around 120%, with net gearing declining to 19.3% at the end of the year from 20.5% at the start. Gearing continued to be implemented primarily through CFDs, providing a flexible and cost-efficient way to adjust exposure as market conditions evolved.
In terms of impact, gearing by means of CFDs slightly pared overall gains during the 12-month period, detracting 0.8% from relative returns. This largely reflects the more volatile market backdrop. Nevertheless, we continue to view gearing as an important tool for enhancing long-term performance, particularly in markets such as China where volatility can create attractive opportunities to deploy capital selectively.
QUESTION
Many shareholders may have seen ByteDance (TikTok) in the news this year, how has this investment performed? And what is your outlook for the Hong Kong IPO pipeline and the Company’s unlisted holdings more broadly?
ANSWER
The TikTok situation evolved because of sustained regulatory scrutiny — beginning with US pressure under the Trump administration in 2020 and intensifying through subsequent legislation requiring divestment of its US business or a potential ban — to a structured compromise. This culminated in a spin-off of the US operations into a separately controlled entity, allowing continued operation in the US, with ByteDance retaining a minority economic stake (~20%) but with reduced control.
Despite the external headwinds, ByteDance remains our largest unlisted holding. The investment has performed strongly over time and continues to be underpinned by a highly profitable domestic business, alongside a growing international market share. While the US remains an important market, the broader global user base, now exceeding two billion, represents a much larger long-term monetisation opportunity. We are seeing encouraging progress in areas such as international e-commerce, which, if it follows a similar trajectory to the domestic business, could become a very meaningful driver of value.
We first invested in ByteDance in 2018, recognising early its strong product innovation and rare ability among Chinese internet companies to build a genuinely global platform. Our closed-ended structure has allowed us to take a long-term view and, importantly, to add to the position in the secondary market when valuations became more attractive in mid-2024 amid uncertainty around TikTok’s US operations and regulatory risks.
The subsequent resolution of US regulatory concerns has removed a key obstacle to progress, and we continue to view the company as well positioned for growth, supported by strong underlying profitability, ongoing international expansion and increasing application of AI across its platforms. The case of ByteDance illustrates the advantage of our investment approach — maintaining conviction through periods of volatility and adding exposure when sentiment is weak.
More broadly, the Hong Kong IPO market has evolved positively in recent years, with easing regulations and a more structured framework designed to attract Chinese companies for primary listings and dual listings. It is increasingly seen as a stable and well established venue for Chinese companies to access international capital. At the same time, the quality of the IPO pipeline has improved, with a greater proportion of companies coming to market with robust business models, stronger operating track records and more transparent disclosure.
This reflects a deeper structural shift rather than a short-term trend. China continues to produce a growing number of innovative companies across areas such as technology, advanced manufacturing and new consumption models, supported by sustained investment in research and development. As a result, we expect the Hong Kong IPO pipeline to remain active and increasingly diverse over time.
From a portfolio perspective, unlisted investments remain an important part of the Company’s opportunity set, allowing us to access high-quality businesses early in their growth journey. Our approach remains selective and valuation disciplined, with a focus on companies that demonstrate scalable growth potential, clear paths to monetisation and the potential to create long-term shareholder value.
QUESTION
How do you include corporate governance in your investment process, and how do you engage with companies to protect shareholder interests?
ANSWER
Corporate governance is central to our investment process and something we assess at the outset of investing and on an ongoing basis through proactive engagement with companies.
At a high level, we have seen clear progress in China’s governance framework in recent years. Many of the core building blocks are now in place, including updates to the Corporate Governance Code, a revised Company Law that strengthens shareholder participation, and higher expectations for boards and independent directors. The direction of travel is positive, with increasing emphasis on transparency, accountability and minority shareholder protection.
More importantly, the focus is now shifting from rules to implementation. We are seeing encouraging signs in areas such as stricter oversight of controlling shareholders, greater accountability for independent directors and improved disclosure standards. There is also growing emphasis on shareholder returns, including more consistent dividend policies and increased use of buybacks.
That said, governance in China operates within a regimented market structure. Controlling shareholders, including the State in some cases, continue to play an important role, and engagement tends to be more incremental in nature.
This is where our approach is important. We engage regularly with companies on areas such as board structure, capital allocation, potential dual-listing, related-party transactions and executive remuneration, with a focus on improving alignment with minority shareholders.
For example, we have actively engaged with China Mengniu Dairy to strengthen capital allocation and shareholder returns, through higher dividend payouts and share buybacks. Over time, we have witnessed a meaningful increase in its payout. A similar shift has been observed in holdings such as Tsingtao Brewery, where improving capital return policies have supported shareholder returns. More broadly, rising distributions from underlying holdings in our portfolio have contributed to the Company’s own ordinary dividend growth of around 11% per annum over the past five years, reflecting a steady improvement in total shareholder returns.
In another case, we engaged with Full Truck Alliance following concerns around a potential ADR delisting in April 2025, which had weighed on the share price despite strong underlying fundamentals. The company has been receptive to this feedback and has initiated discussions with the Hong Kong Stock Exchange. While there is no clear timetable for a potential H-share listing, the process is underway, and the company has continued to provide updates through regular investor meetings. This reflects our broader approach of engaging not only on governance structures, but also on strategic decisions that can protect and enhance shareholder interests.
Overall, while the framework continues to evolve, we believe governance standards in China are moving in the right direction. Combined with increasing institutional participation and regulatory support, this is gradually creating a more investable and transparent market over time.
QUESTION
How do you assess current valuations after a strong year?
ANSWER
Following a strong period of performance, it is important to consider the evolution of market sentiment. Twelve to eighteen months ago Chinese equities were trading at deeply depressed valuations amid concerns around the market’s “investability.” The recovery through 2025 was driven in part by multiple expansion, supported by a more constructive policy backdrop and increasing recognition of Chinese companies’ competitiveness.
As we move through 2026, the dynamic is shifting. Shareholder returns are increasingly supported by earnings rather than a further re-rating. As a result, sector dispersion remains elevated, with a widening gap between companies able to deliver sustainable growth and those facing structural or cyclical pressures.
Valuations remain a supportive backdrop. Despite the rebound, Chinese equities continue to trade at a meaningful discount to global peers. The MSCI China Index is currently trading at around 11.4x forward earnings, broadly in line with its long-term average, and at an approximate 43% discount to the S&P 500 on a forward P/E basis. Further improvements in fundamentals — ultimately coming through in more conviction around the earnings outlook — could help bolster investor confidence.
In an environment where sentiment can shift quickly, this reinforces the importance of a disciplined, bottom-up approach to stock selection, with a focus on companies capable of delivering resilient earnings and long-term value creation.
QUESTION
Finally, looking forward, what excites you most about Fidelity China Special Situations, and what would you highlight to FCSS shareholders?
ANSWER
Looking ahead, the most compelling opportunity remains the ability to invest in high-quality companies operating in structurally growing industries, with durable competitive advantages and offering attractive valuations. Sentiment has improved from previously depressed levels, but the broader market backdrop is likely to remain volatile, particularly amid ongoing geopolitical uncertainty. Additional areas of opportunity are where valuations and sentiment remain at depressed levels, with the potential for the outlook to stabilise and gradually improve. Such sectors would tend to include consumer, property and some financials.
China’s ability to innovate remains a key source of long-term growth. China continues to demonstrate depth in research and development, and engineering talent, supporting progress across AI, advanced manufacturing and digital infrastructure. While the near-term trajectory of AI model development continues to evolve, we remain constructive on the theme and assess opportunities on a company-by-company basis. In particular, accelerating investment and adoption are creating opportunities beyond the models themselves, notably across cloud platforms, data infrastructure and the power and electrification systems required to support increasing demand. Companies like Zhongji Innolight and Weichai Power illustrate how Chinese firms are strengthening their position in the AI infrastructure value chain. In particular, Weichai’s ability to extend its capabilities from traditional heavy-duty engines into power solutions for data centres highlights the flexibility of established industrial players to participate in new growth areas.
We are also seeing China’s competitive position strengthen across industrial and technology supply chains as companies move up the value chain into higher-end manufacturing, automation, robotics and markets driven by electrification. This progress is underpinned by scale, cost advantages and increasingly integrated capabilities, positioning Chinese firms well to capture a larger share of global demand. It is particularly evident in the energy transition arena, where rising geopolitical tensions and energy security concerns are reinforcing investment in renewables, energy storage and related materials.
In automation and next generation mobility, companies such as Ubtech Robotics, Pony.ai and EHang provide exposure to emerging technologies including robotics and autonomous transport. While commercialisation is still at an early stage, we believe these areas represent important long-term opportunities as adoption gradually scales across industrial and consumer applications.
We are also seeing attractive opportunities in consumer facing sectors, where leading brands such as Anta Sports continue to gain market share through product innovation and strong execution. At the same time, newer formats such as discount snack retail, including Busy Ming, reflect evolving consumer behaviour and the shift towards more experiential and value-driven spending.
We see selective opportunities in frontier areas. For example, our investment in HashKey reflects both a core exchange business in a growing, regulated market in digital assets and longer-term optionality as Hong Kong develops as a testing ground for new regulation, including areas like stablecoins.
Overall, while macro uncertainty and market volatility are likely to persist, they also create opportunities for profitable investment over the medium-term. Periods of dislocation can lead to mispricing, particularly in markets where sentiment shifts quickly. Against this backdrop, our focus remains on identifying companies that are mispriced relative to their long-term earnings’ prospects. We believe this disciplined approach positions the portfolio well to deliver attractive long-term returns for our shareholders. As a shareholder in the Company, I remain excited about the Company’s future.
Dale Nicholls
Portfolio Manager
8 June 2026
STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MANAGEMENT
As required by provisions 33 and 34 of the AIC 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 will implement the new requirement, under provision 34 of the AIC Code applicable for reporting periods from 1 January 2026, of a Board declaration on the effectiveness of material risk management and internal controls in the Company’s next reporting year.
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 Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal and emerging risks and uncertainties and to ensure that the Board can continue to meet its UK corporate governance obligations.
The Board considers the risks listed below as the principal risks and uncertainties faced by the Company.
Emerging Risks
The Audit and Risk Committee continues to identify any new emerging risks and take any action necessary to mitigate their potential impact. The risks identified are placed on the Company’s risk matrix and graded appropriately. This process, together with the policies and procedures for the mitigation of existing and emerging risks, is updated and reviewed regularly in the form of comprehensive reports by the Audit and Risk Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.
Globally, climate change (large scale shift in the planet’s weather patterns and average temperatures) effects are already being experienced in the form of changing weather patterns. Extreme weather events can potentially impact the operations of investee and potential investee companies, their supply chains and their customers. Climate change continues to be an emerging risk. The Board notes that the Manager includes ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor how this may impact the Company as a risk to investment valuations and potentially affect shareholder returns.
The Board, together with the Manager, is also monitoring the emerging risks posed by the rapid advancement of artificial intelligence (“AI”) and how it may threaten the Company’s activities and its potential impact on the portfolio and investee companies. AI can provide asset managers powerful tools, such as enhancing data analysis risk management, trading strategies, operational efficiency and client servicing, all of which can lead to better investment outcomes and more efficient operations. However, with these advances in computing power that will impact society, there are risks from its increasing use and manipulation with the potential to harm, including a heightened threat to cybersecurity.
Other emerging risks may continue to evolve from unforeseen geopolitical and economic events. There are currently a number of geopolitical factors that could mean greater stock market risks and heightened macro economic changes such as inflation, interest rates, currency fluctuations, energy costs and an increased regulatory environment.
|
Principal Risks |
Risk Description and Impact |
Risk Mitigation |
Trend |
|
1. Geopolitical Risk |
|
|
Increased |
|
2. Market and Economic Risks (including Currency Risk) |
|
|
Stable |
|
3. Marketplace, Competition and Discount Management Risks |
|
|
Stable |
|
4. Changes in Legislation, Taxation or Regulation |
• Changes in legislation, taxation or regulation, or other external influence that require changes to the investment trust structure of the Company are a significant risk for the Company. • 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. • There have been concerns about investment cost disclosures and their impact on the industry. |
• The Board and Manager closely monitor regulatory, taxation and legislative changes, with developments impacting the Company summarised in the form of regular reporting to the Board. • The Manager monitors Section 1158 status to ensure any issues are escalated to the Board and addressed promptly. • The Manager participates in industry discussions regarding regulatory changes impacting investment companies, and regulatory developments continue to be monitored and managed by Fidelity through active lobbying and negotiations as well as a robust change management process. |
Stable |
|
5. Cybercrime and Information Security Risks, including Business Continuity Risk |
• 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 highly organised criminal networks and sophisticated ransomware operators. • Whilst the use of artificial intelligence (AI) presents many opportunities, it also presents risks, including business process disruption risk as described below. • Business process disruption risk from continued threats of cyberattacks, geopolitical events, outages, fire events and natural disasters, resulting in financial and/or reputational impact to the Company affecting the functioning of the business. • The Company relies on a number of third-party service providers, principally the Registrar, Custodian and Depositary who may be subject to cybercrime. |
• The Manager’s technology risk management teams have implemented a number of initiatives and controls to provide enhanced mitigating protection and also to address the risks of AI. • Key performance indicators and metrics have been developed by the Manager to monitor the overall efficacy of cybersecurity processes and controls and to further enhance the Manager’s cybersecurity strategy and operational resilience. • Fidelity has Business Continuity and Crisis Management Frameworks in place to deal with business disruption and assure operational resilience. • Third-party service providers are subject to a risk-based programme of risk oversight by the Manager. Internal control reports of the Registrar, Custodian and Depositary are received on an annual basis and any concerns are investigated. |
Increased |
|
6. Investment Performance Risk (including Gearing Risk) |
• The Portfolio Manager may fail to outperform the Benchmark Index and peers over the longer-term. • High gearing levels in a falling market accentuate 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, as well as oversight of gearing and relevant limits. • 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. |
Stable |
|
7. 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 proactively prevent, identify and manage operational risks inherent in most activities. • Fidelity uses robust systems and procedures dedicated to its operational processes. Its risk management structure is designed according to the FCA’s three lines of defence model. |
Stable |
|
8. 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, including the experience of the analysts covering China. |
Stable |
|
9. Unlisted Securities Risk |
• Valuations of unlisted securities involve a higher degree of valuation uncertainty and liquidity risks than quoted securities. • Valuations of unlisted securities may be adversely affected by market conditions, government sanctions and US trade tariffs. • Initial public offering (IPO) of the unlisted companies may face delays leading to longer holding periods. • Potential for less stringent standards of governance compared with those of listed entities. |
• The Company has set a limit on the level of investments in unlisted companies, and the Manager has a track record of identifying profitable opportunities. • The Board’s Audit and Risk Committee scrutinises the carrying value of unlisted investments determined by the Manager, with input from Fidelity’s analysts and unlisted investments specialist, and an external third-party valuer. |
Stable |
CONTINUATION VOTE
A continuation vote will take place every five years with the first such vote to be held at the AGM in 2029.
VIABILITY STATEMENT
In accordance with provision 36 of the AIC 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 that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.
In making an assessment on the viability of the Company, the Board has considered the following:
• The ongoing relevance of the investment objective in prevailing market conditions;
• The Company’s level of gearing;
• The Company’s NAV and share price performance compared to its Benchmark Index;
• The principal and emerging risks and uncertainties facing the Company and their potential impact, as set out above;
• The future demand for the Company’s shares;
• The Company’s share price discount to the NAV;
• The liquidity of the Company’s portfolio;
• The level of income generated by the Company;
• Future income and expenditure forecasts; and
• Introduction of a continuation vote with effect from 2029 and every five years thereafter.
The Company’s performance for the five year reporting period to 31 March 2026 was a NAV total return of -18.7% and a share price total return of -24.1%. The Benchmark Index total return over the same period was -18.7%. The Board regularly reviews the investment policy and considers whether it remains appropriate. The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years based on the following considerations:
• The Investment Manager’s compliance with the Company’s investment objective and policy, its investment strategy and asset allocation;
• The portfolio comprises sufficient readily realisable securities which can be sold to meet funding requirements if necessary; and
• The ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets.
In preparing the Financial Statements, the Directors have considered the impact of climate change and potential emerging risks from the use of artificial intelligence as detailed above. The Board has also considered the impact of regulatory changes, global trade tariffs, continuing tensions between the US and China, and China and Taiwan, unforeseen market events, geopolitical concerns and the ongoing global implications of the war in Ukraine and the conflict in the Middle East and how this may affect the Company.
In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which is included in the Directors’ Report in the Annual Report.
GOING CONCERN STATEMENT
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable), stress testing performed, the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and continue in operational existence for the foreseeable future. The Board has therefore concluded that the Company has adequate resources to continue to adopt the going concern basis for the period to 30 June 2027 which is at least twelve months from the date of approval of the Financial Statements. This conclusion also takes into account the Board’s assessment of the ongoing risks from the war in Ukraine, the conflict in the Middle East, China’s tensions with the US and Taiwan and significant market and geopolitical events and regulatory changes that could impact the Company’s performance, prospects and operations.
Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.
The prospects of the Company over a period longer than twelve months can be found in the Viability Statement above.
PROMOTING THE SUCCESS OF THE COMPANY
Under Section 172(1) of the Companies Act 2006, the Directors of a company must act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the likely consequences of any decision in the long-term; the need to foster relationships with the Company’s suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company.
As an externally managed Investment Trust, the Company has no employees or physical assets, and a number of the Company’s functions are outsourced to third parties. The key outsourced function is the provision of investment management services by the Manager, but other professional service providers support the Company by providing administration, custodial, banking and audit services. The Board considers the Company’s key stakeholders to be the existing and potential shareholders, the externally appointed Manager (FIL Investment Services (UK) Limited) and other third-party professional service providers. The Board considers that the interest of these stakeholders is aligned with the Company’s objective of delivering long-term capital growth to investors, in line with the Company’s stated objective and strategy, while providing the highest standards of legal, regulatory and commercial conduct.
The Board, with the Portfolio Manager, sets the overall investment strategy and reviews this at an annual strategy day which is separate from the regular cycle of board meetings. In order to ensure good governance of the Company, the Board has set various limits on the investments in the portfolio, whether in the maximum size of individual holdings, the use of derivatives, the level of gearing and others. These limits and guidelines are regularly monitored and reviewed and are set out in the Annual Report.
The Board receives regular reports from the Company’s Broker which covers market activity, how the Company compares with its peers in the China sector on performance, discount and share repurchase activity, an analysis of the Company’s share register and market trends.
The Board places great importance on communication with shareholders. The Annual General Meeting (“AGM”) 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 [email protected] .
The Portfolio Manager meets with major shareholders, potential investors, stock market analysts, journalists and other commentators throughout the year. These communication opportunities help inform the Board in considering how best to promote the success of the Company over the long-term.
The Board seeks to engage with the Manager and other service providers and advisers in a constructive and collaborative way, promoting a culture of strong governance, while encouraging open and constructive debate, in order to ensure appropriate and regular challenge and evaluation. This aims to enhance service levels and strengthen relationships with service providers, with a view to ensuring shareholders’ interests are best served, by maintaining the highest standards of commercial conduct while keeping cost levels competitive.
Whilst the Company’s direct operations are limited, the Board recognises the importance of considering the impact of the Company’s investment strategy on the wider community and environment, and considers the Manager’s ESG approach in this regard.
In addition to ensuring that the Company’s investment objective was being pursued, key decisions and actions taken by the Directors during the reporting year, and up to the date of this report, have included:
• The appointment of Bessie Lee as a non-executive director of the Company post the Company’s year end;
• Proposing the increase of the single listed investment limit in the Investment Policy to 20% of Net Assets plus Borrowings. This amendment will be put forward for approval by shareholders at the Company’s Annual General Meeting;
• Authorising the repurchase of 33,336,928 shares for cancellation in the reporting year when the Company’s discount widened, in line with the Board’s intention that the ordinary share price should trade at a level close to the underlying NAV. Since the year ended 31 March 2026 and up to the latest practicable date of this report, a further 3,121,739 shares have been repurchased;
• The decision to recommend the payment of a final dividend of 9.00 pence per share in respect of the year ended 31 March 2026;
• Following a competitive audit tender, and a recommendation from the Audit and Risk Committee, appointing PricewaterhouseCoopers LLP as the Company’s auditor;
• Meeting the Company’s key shareholders during the reporting year; and
• The decision to once again hold a hybrid AGM this year in order to make the AGM more accessible and improve the shareholder experience.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable 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 net profit 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 net profit of the Company;
• 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; and
• 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.
The Statement of Directors’ Responsibilities was approved by the Board on 8 June 2026 and signed on its behalf by:
Mike Balfour
Chairman
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2026
|
|
|
Year ended 31 March 2026 |
Year ended 31 March 2025 |
||||
|
|
Notes |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
Revenue |
|
|
|
|
|
|
|
|
Investment income |
3 |
37,913 |
– |
37,913 |
46,862 |
– |
46,862 |
|
Derivative income |
3 |
14,509 |
– |
14,509 |
13,747 |
– |
13,747 |
|
Other income |
3 |
2,204 |
– |
2,204 |
2,090 |
– |
2,090 |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Total income |
|
54,626 |
– |
54,626 |
62,699 |
– |
62,699 |
|
Gains on investments at fair value through profit or loss |
10 |
– |
76,763 |
76,763 |
– |
249,875 |
249,875 |
|
Gains on derivative instruments |
11 |
– |
45,333 |
45,333 |
– |
57,121 |
57,121 |
|
Foreign exchange gains |
|
– |
918 |
918 |
– |
1,769 |
1,769 |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Total income and gains |
|
54,626 |
123,014 |
177,640 |
62,699 |
308,765 |
371,464 |
|
|
|
====== |
====== |
====== |
====== |
====== |
====== |
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fees |
4 |
(3,226) |
(12,308) |
(15,534) |
(2,469) |
(5,572) |
(8,041) |
|
Other expenses |
5 |
(1,280) |
(47) |
(1,327) |
(1,211) |
(32) |
(1,243) |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit before finance costs and taxation |
|
50,120 |
110,659 |
160,779 |
59,019 |
303,161 |
362,180 |
|
Finance costs |
6 |
(3,995) |
(11,985) |
(15,980) |
(5,774) |
(17,324) |
(23,098) |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit before taxation |
|
46,125 |
98,674 |
144,799 |
53,245 |
285,837 |
339,082 |
|
Taxation |
7 |
(1,542) |
610 |
(932) |
(1,070) |
– |
(1,070) |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit after taxation for the year |
|
44,583 |
99,284 |
143,867 |
52,175 |
285,837 |
338,012 |
|
|
|
====== |
====== |
====== |
====== |
====== |
====== |
|
Basic and diluted earnings per ordinary share |
8 |
9.22p |
20.53p |
29.75p |
10.18p |
55.75p |
65.93p |
|
|
|
====== |
====== |
====== |
====== |
====== |
====== |
The Company does not have any income or expenses that are not included in the profit after taxation for the year. Accordingly, the profit 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 Statement of Comprehensive Income 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 and total comprehensive income is attributable to the equity shareholders of the Company. There are no minority interests.
No operations were acquired or discontinued during 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 2026
|
|
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 2025 |
|
5,805 |
338,107 |
1,412 |
74,052 |
922,363 |
72,063 |
1,413,802 |
|
Repurchase of ordinary shares for cancellation |
14 |
(334) |
– |
334 |
(74,052) |
(26,476) |
– |
(100,528) |
|
Profit after taxation for the year |
|
– |
– |
– |
– |
99,284 |
44,583 |
143,867 |
|
Dividend paid to shareholders |
9 |
– |
– |
– |
– |
– |
(44,380) |
(44,380) |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Total equity at 31 March 2026 |
|
5,471 |
338,107 |
1,746 |
– |
995,171 |
72,266 |
1,412,761 |
|
|
|
====== |
====== |
====== |
====== |
====== |
====== |
====== |
|
|
|
|
|
|
|
|
|
|
|
Total equity at 31 March 2024 |
|
6,113 |
338,167 |
1,104 |
140,861 |
636,526 |
53,243 |
1,176,014 |
|
Contribution in respect of the transaction with ACIC by the Manager |
|
– |
100 |
– |
– |
– |
– |
100 |
|
Costs relating to the issuance of new shares in respect to the ACIC transaction |
|
– |
(160) |
– |
– |
– |
– |
(160) |
|
Repurchase of ordinary shares for cancellation |
14 |
(308) |
– |
308 |
(66,809) |
– |
– |
(66,809) |
|
Profit after taxation for the year |
|
– |
– |
– |
– |
285,837 |
52,175 |
338,012 |
|
Dividend paid to shareholders |
9 |
– |
– |
– |
– |
– |
(33,355) |
(33,355) |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Total equity at 31 March 2025 |
|
5,805 |
338,107 |
1,412 |
74,052 |
922,363 |
72,063 |
1,413,802 |
|
|
|
====== |
====== |
====== |
====== |
====== |
====== |
====== |
The Notes below form an integral part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
as at 31 March 2026
Company number 7133583
|
|
Notes |
31 March 2026 £’000 |
31 March 2025 £’000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
10 |
1,348,233 |
1,346,238 |
|
Current assets |
|
|
|
|
Derivative instruments |
11 |
9,419 |
9,938 |
|
Amounts held at futures clearing houses and brokers |
|
38,879 |
33,760 |
|
Other receivables |
12 |
11,160 |
7,295 |
|
Cash and cash equivalents |
|
48,087 |
49,691 |
|
|
|
----------- |
----------- |
|
|
|
107,545 |
100,684 |
|
Current liabilities |
|
|
|
|
Derivative instruments |
11 |
(33,754) |
(24,838) |
|
Other payables |
13 |
(9,263) |
(8,282) |
|
|
|
(43,017) |
(33,120) |
|
Net current assets |
|
64,528 |
67,564 |
|
|
|
----------- |
----------- |
|
Net assets |
|
1,412,761 |
1,413,802 |
|
|
|
======= |
======= |
|
Equity attributable to equity shareholders |
|
|
|
|
Share capital |
14 |
5,471 |
5,805 |
|
Share premium account |
15 |
338,107 |
338,107 |
|
Capital redemption reserve |
15 |
1,746 |
1,412 |
|
Other reserve |
15 |
– |
74,052 |
|
Capital reserve |
15 |
995,171 |
922,363 |
|
Revenue reserve |
15 |
72,266 |
72,063 |
|
|
|
----------- |
----------- |
|
Total equity |
|
1,412,761 |
1,413,802 |
|
|
|
======= |
======= |
|
Net asset value per Ordinary Share |
16 |
306.12p |
285.71p |
|
|
|
======= |
======= |
|
|
|
|
|
The Financial Statements above and the notes below were approved by the Board of Directors on 8 June 2026 and were signed on its behalf by:
Mike Balfour
Chairman
The Notes below form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
for the year ended 31 March 2026
|
|
Year ended 31 March 2026 £’000 |
Year ended 31 March 2025 £’000 |
|
Operating activities |
|
|
|
Cash inflow from investment income |
36,587 |
45,209 |
|
Cash inflow from derivative income |
14,719 |
14,002 |
|
Cash inflow from other income |
2,204 |
2,090 |
|
Cash outflow from Directors’ fees |
(247) |
(249) |
|
Cash outflow from other payments |
(16,033) |
(9,433) |
|
Cash outflow from the purchase of investments |
(693,472) |
(651,563) |
|
Cash outflow from the purchase of derivatives |
(7,371) |
(2,242) |
|
Cash outflow from the settlement of derivatives |
(379,500) |
(436,471) |
|
Cash inflow from the sale of investments |
763,463 |
716,551 |
|
Cash inflow from the settlement of derivatives |
441,299 |
507,321 |
|
Cash outflow from amounts held at futures clearing houses and brokers |
(5,119) |
(9,171) |
|
|
------------ |
------------ |
|
Net cash inflow from operating activities before servicing of finance |
156,530 |
176,044 |
|
Financing activities |
|
|
|
Cash outflow from overdraft interest paid |
(589) |
(80) |
|
Cash outflow from CFD interest paid |
(15,188) |
(22,478) |
|
Cash outflow from short CFD dividends paid |
(447) |
(321) |
|
Cash outflow from the repurchase of ordinary shares for cancellation |
(98,448) |
(66,988) |
|
Cash outflow from dividends paid to shareholders |
(44,380) |
(33,355) |
|
|
------------ |
------------ |
|
Cash outflow from financing activities |
(159,052) |
(123,222) |
|
Net (decrease)/increase in cash and cash equivalents |
(2,522) |
52,822 |
|
Cash and cash equivalents at the start of the year |
49,691 |
7,858 |
|
Bank overdraft at the start of the year |
– |
(12,758) |
|
Effect of foreign exchange movements |
918 |
1,769 |
|
|
------------ |
------------ |
|
Cash and cash equivalents at the end of the year |
48,087 |
49,691 |
|
Represented by: |
|
|
|
Cash at bank |
4,648 |
4,432 |
|
Amount held in Fidelity Institutional Liquidity Fund |
43,439 |
45,259 |
|
|
------------ |
------------ |
|
|
48,087 |
49,691 |
|
|
====== |
======= |
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 that is listed 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 2027, which is at least twelve months from the date of approval of these Financial Statements. In making their assessment the Directors have reviewed income and expense projections, the liquidity of the investment portfolio, stress testing performed and considered the Company’s ability to meet liabilities as they fall due. This conclusion also takes into account the Director’s assessment of the risks faced by the Company as detailed in the Going Concern Statement above.
In preparing these Financial Statements the Directors have considered the impact of climate change risk as an emerging 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 Statement of Financial Position date. Investments which are unlisted are priced using market-based valuation approaches. All investments therefore reflect the market participants view of climate change risk on the investments held by the Company.
The Company’s Going Concern Statement above takes account of all events and conditions up to 30 June 2027, 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:
i) Amendments to the Classification and Measurement of Financial Instruments – Amendments to IFRS 9 and IFRS 7 (effective for annual periods beginning on or after 1 January 2026).
The International Accounting Standards Board (IASB) issued targeted amendments to IFRS 9 and IFRS 7 to respond to recent questions arising in practice, and to include new requirements not only for financial institutions but also for corporate entities. Among other amendments, the IASB clarified the date of recognition and derecognition of some financial assets and liabilities, with a new exception for some financial liabilities settled through an electronic cash transfer system.
ii) IFRS 18 Presentation and Disclosure in Financial Statements (effective for annual periods beginning on or after 1 January 2027).
The IASB issued the new standard on presentation and disclosure in financial statements, which replaces IAS 1, with a focus on updates to the statement of comprehensive income.
The key new concepts introduced in IFRS 18 relate to:
• the structure of the statement of comprehensive income with defined subtotals;
• the requirement to determine the most useful structured summary for presenting expenses in the statement of comprehensive income;
• required disclosures in a single note within the financial statements for certain profit or loss performance measures that are reported outside an entity’s financial statements (that is, management-defined performance measures); and
• enhanced principles on aggregation and disaggregation which apply to the primary financial statements and notes in general.
The Company is currently still assessing the effect of the forthcoming standard and amendments.
No other new standards or amendments to standards are expected to have a material effect on the financial statements of the Company.
c) Segmental reporting – The Company is engaged in a single segment business and, therefore, no segmental reporting is provided.
d) Presentation of the Statement of Comprehensive Income – 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 Statement of Comprehensive Income between items of a revenue and capital nature has been prepared alongside the Statement of Comprehensive Income. 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)) 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 independent third-party 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 Statement of Financial Position 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 17 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 Statement of Comprehensive Income 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 Statement of Comprehensive Income. Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case.
Interest on securities, interest for CFDs, collateral and bank deposits are accounted for on an accruals basis and credited to the revenue column of the Statement of Comprehensive Income. 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 Statement of Financial Position date. Foreign exchange gains and losses arising on translation are recognised in the Statement of Comprehensive Income 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 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 Statement of Comprehensive Income, 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 Statement of Financial Position 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 Statement of Financial Position 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 Statement of Comprehensive Income, except where it relates to items of a capital nature, in which case it is charged or credited to the capital column of the Statement of Comprehensive Income. 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 independent third-party valuer and Fidelity’s unlisted investments specialist, provides recommended fair values to the Directors. These are based on the principles outlined in Note 2 (e). The unlisted investments are valued at fair value following a detailed review and appropriate challenge by the Directors of the pricing methodology proposed by the FVC.
The techniques applied by the FVC when valuing the unlisted investments are predominantly market-based approaches. The market based approaches are set out below and are followed by an explanation of how they are applied to the Company’s unlisted portfolio:
• Multiples;
• Industry Valuation Benchmarks; and
• Available Market Prices.
The nature of the unlisted investment will influence the valuation technique applied. The valuation approach recognises that the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis and future cash flows are used where appropriate to incorporate the operational progress of the investee company into the valuation. Consideration is also given to the input received from the Fidelity International analyst that covers the company, Fidelity’s unlisted investments specialist and from an independent third-party 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 gains on investments held at fair value through profit or loss in the capital column of the Statement of Comprehensive Income and has disclosed them in Note 10.
m) Derivative instruments – When appropriate, permitted transactions in derivative instruments are used. Derivative transactions into which the Company may enter include CFDs, futures, options, warrants and forward currency contracts. Under IFRS 9 derivatives are classified at fair value through profit or loss – held for trading, and are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:
• CFDs – the difference between the strike price and the value of the underlying shares in the contract, calculated in accordance with accounting policy 2 (l);
• Futures – the difference between contract price and the quoted trade price; and
• Options – the quoted trade price for the contract.
Where such transactions are used to protect or enhance income, if the circumstances support this, the income derived is included in derivative income in the revenue column of the Statement of Comprehensive Income. Where such transactions are used to protect or enhance capital, if the circumstances support this, the gains and losses derived are included in gains on derivative instruments held at fair value through profit or loss in the capital column of the Statement of Comprehensive Income. Any positions on such transactions open at the year end are reflected on the Statement of Financial Position 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 on derivative instruments held at fair value through profit or loss in the capital column of the Statement of Comprehensive Income.
n) Amounts held at futures clearing houses and brokers – Cash deposits are held in segregated accounts on behalf of brokers as collateral against open derivative contracts. These are carried at amortised cost.
o) Other receivables – Other receivables include securities sold for future settlement, amounts receivable on settlement of derivatives, accrued income, taxation recoverable and other receivables 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) Other payables – Other payables include securities purchased for future settlement, amounts payable on settlement of derivatives, investment management fees, 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.
q) Other reserve – The full cost of ordinary shares repurchased and held in Treasury and ordinary shares repurchased for cancellation is charged to the other reserve.
r) 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;
• Costs associated with the repurchase of ordinary shares;
• 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 Statement of Financial Position 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 Statement of Financial Position. At the Statement of Financial Position date, the portfolio of the Company consisted of investments listed on a recognised stock exchange and derivative instruments contracted with counterparties having adequate credit rating, and the portfolio was considered to be readily convertible to cash, with the exception of the level 3 investments which had unrealised investment holding gains of £44,389,000 (2025: unrealised investment holding gains of £24,731,000). See Note 17 below for further details on the level 3 investments.
3 Income
|
|
Year ended 31 March 2026 £’000 |
Year ended 31 March 2025 £’000 |
|
Investment income |
|
|
|
Overseas dividends |
37,425 |
46,590 |
|
Overseas scrip dividends |
488 |
272 |
|
|
---------- |
---------- |
|
|
37,913 |
46,862 |
|
|
|
|
|
Derivative income |
|
|
|
Dividends received on long CFDs |
14,154 |
13,152 |
|
Interest received on CFDs |
355 |
595 |
|
|
---------- |
---------- |
|
|
14,509 |
13,747 |
|
|
|
|
|
Other income |
|
|
|
Interest received on collateral, bank deposits and money market funds |
2,204 |
2,090 |
|
|
---------- |
---------- |
|
Total income |
54,626 |
62,699 |
|
|
====== |
====== |
No special dividends have been recognised in capital during the year (2025: £1,493,000).
4 Investment Management Fees
|
|
Year ended 31 March 2026 |
Year ended 31 March 2025 |
||||
|
|
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
Investment management fee – base |
3,226 |
9,679 |
12,905 |
2,648 |
7,942 |
10,590 |
|
Investment management fee – variable |
– |
2,629 |
2,629 |
– |
(1,834) |
(1,834) |
|
Investment management fee – base (waived in respect of ACIC combination) |
– |
– |
– |
(179) |
(536) |
(715) |
|
|
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
|
|
3,226 |
12,308 |
15,534 |
2,469 |
5,572 |
8,041 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager (“the Manager”) and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited (“the Investment Manager”). Both companies are Fidelity group companies.
The base investment management fee is charged at an annual rate of 0.85% on the first £1.5 billion of Net Assets, reducing to 0.65% of Net Assets over £1.5 billion.
In the year to 31 March 2025, the Manager agreed to a contribution of £715,000, representing eight months of management fees, in respect of the assets transferred by ACIC to the Company (in March 2024), that would otherwise be payable by the enlarged Company to the Manager.
In addition, there is a +/-0.20% variable fee based on the Company’s NAV per share performance relative to the Company’s Benchmark Index measured daily over a three-year rolling basis.
Fees are payable monthly in arrears and are calculated on a daily basis. The base investment management fee has been allocated 75% to capital reserve in accordance with the Company’s accounting policies.
Further details of the terms of the Management Agreement are given in the Directors’ Report in the Annual Report.
5 Other Expenses
|
|
Year ended 31 March 2026 £’000 |
Year ended 31 March 2025 £’000 |
|
Allocated to revenue: |
|
|
|
AIC fees |
29 |
22 |
|
Custody fees |
58 |
45 |
|
Depositary fees |
46 |
55 |
|
Directors’ expenses |
66 |
89 |
|
Directors’ fees 1 |
287 |
250 |
|
Legal and professional fees |
114 |
104 |
|
Marketing expenses |
345 |
327 |
|
Printing and publication expenses |
57 |
52 |
|
Registrars’ fees |
76 |
71 |
|
Other expenses |
133 |
133 |
|
Fees payable to the Company’s Independent Auditor for the audit of the Financial Statements |
69 |
63 |
|
|
--------- |
--------- |
|
|
1,280 |
1,211 |
|
Allocated to capital: |
|
|
|
Legal and professional fees |
47 |
32 |
|
|
--------- |
--------- |
|
Other expenses |
1,327 |
1,243 |
|
|
===== |
===== |
1 Details of the breakdown of Directors’ fees are provided within the Directors’ Remuneration Report in the Annual Report. Costs relating to the Directors’ national insurance and levies are included. In the prior year these costs were included in Other expenses.
6 Finance Costs
|
|
Year ended 31 March 2026 |
Year ended 31 March 2025 |
||||
|
|
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
Interest paid on collateral and overdrafts |
147 |
442 |
589 |
20 |
60 |
80 |
|
Interest paid on CFDs |
3,744 |
11,232 |
14,976 |
5,674 |
17,023 |
22,697 |
|
Dividends paid on short CFDs |
104 |
311 |
415 |
80 |
241 |
321 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
|
|
3,995 |
11,985 |
15,980 |
5,774 |
17,324 |
23,098 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
Finance costs have been allocated 75% to capital reserve in accordance with the Company’s accounting policies.
7 Taxation
|
|
Year ended 31 March 2026 |
Year ended 31 March 2025 |
||||
|
|
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
a) Analysis of the taxation charge for the year |
|
|
|
|
|
|
|
Prior year adjustment |
209 |
(209) |
– |
– |
– |
– |
|
Notional tax charge |
401 |
(401) |
– |
– |
– |
– |
|
Overseas taxation |
932 |
– |
932 |
1,070 |
– |
1,070 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
|
Taxation charge for the year (see Note 7b) |
1,542 |
(610) |
932 |
1,070 |
– |
1,070 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
b) Factors affecting the taxation charge for the year
The taxation charge for the year is lower than the standard rate of UK corporation tax for an investment trust company of 25% (2025: 25%). A reconciliation of the standard rate of UK corporation tax to the taxation charge for the year is shown below:
|
|
Year ended 31 March 2026 |
Year ended 31 March 2025 |
||||
|
|
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
Profit before taxation |
46,125 |
98,674 |
144,799 |
53,245 |
285,837 |
339,082 |
|
Profit before taxation multiplied by the standard rate of UK corporation tax of 25% (2025: 25%) |
11,531 |
24,669 |
36,200 |
13,311 |
71,459 |
84,770 |
|
Effects of: |
|
|
|
|
|
|
|
Capital gains not taxable 1 |
– |
(30,754) |
(30,754) |
– |
(77,191) |
(77,191) |
|
Income not taxable |
(9,478) |
– |
(9,478) |
(11,643) |
– |
(11,643) |
|
Expenses not deductible |
– |
2,886 |
2,886 |
– |
4,316 |
4,316 |
|
Prior year adjustment |
209 |
(209) |
– |
– |
– |
– |
|
Notional tax charge |
401 |
(401) |
– |
– |
– |
– |
|
Excess expenses |
(2,053) |
3,199 |
1,146 |
(1,668) |
1,416 |
(252) |
|
Overseas taxation |
932 |
– |
932 |
1,070 |
– |
1,070 |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Taxation charge (Note 7a) |
1,542 |
(610) |
932 |
1,070 |
– |
1,070 |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
1 The Company is exempt from UK corporation tax on capital gains as it meets the HM Revenue & Customs criteria for an investment company set out in Section 1159 of the Corporation Tax Act 2010.
c) Deferred taxation
A deferred tax asset of £40,409,000 (2025: £39,263,000), in respect of excess expenses of £161,636,000 (2025: £157,052,000) has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.
8 Basic and diluted earnings per ordinary share
|
|
Year ended 31 March 2026 |
Year ended 31 March 2025 |
|
Revenue earnings per ordinary share |
9.22p |
10.18p |
|
Capital earnings per ordinary share |
20.53p |
55.75p |
|
|
---------- |
---------- |
|
Total earnings per ordinary share |
29.75p |
65.93p |
|
|
====== |
====== |
The earnings per ordinary share is based on the profit 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 |
44,583 |
52,175 |
|
Capital profit after taxation for the year |
99,284 |
285,837 |
|
|
---------- |
---------- |
|
Total profit after taxation for the year |
143,867 |
338,012 |
|
|
====== |
====== |
|
|
Number |
Number |
|
Weighted average number of ordinary shares held outside of Treasury |
483,522,161 |
512,652,970 |
|
|
====== |
====== |
9 Dividends Paid to Shareholders
|
|
Year ended 31 March 2026 £’000 |
Year ended 31 March 2025 £’000 |
|
Dividend paid |
|
|
|
Ordinary dividend of 8.00 pence per share paid for the year ended 31 March 2025 |
39,449 |
– |
|
Special dividend of 1.00 pence per share paid for the year ended 31 March 2025 |
4,931 |
– |
|
Ordinary dividend of 6.40 pence per share paid for the year ended 31 March 2024 |
– |
33,355 |
|
|
----------- |
----------- |
|
|
44,380 |
33,355 |
|
|
====== |
====== |
|
Dividend proposed |
|
|
|
Ordinary dividend proposed of 9.00 pence per share for the year ended 31 March 2026 |
41,254 |
– |
|
Ordinary dividend proposed of 8.00 pence per share for the year ended 31 March 2025 |
– |
39,509 |
|
Special dividend proposed of 1.00 pence per share for the year ended 31 March 2025 |
– |
4,939 |
|
|
----------- |
----------- |
|
|
41,254 |
44,448 |
|
|
====== |
====== |
The Directors have proposed the payment of a final ordinary dividend for the year ended 31 March 2026 of 9.00 pence per share which is subject to approval by shareholders at the Annual General Meeting on 21 July 2026 and has not been included as a liability in these Financial Statements. The dividend will be paid on 28 July 2026 to shareholders on the register at the close of business on 19 June 2026 (ex-dividend date 18 June 2026).
10 Investments at Fair Value through Profit or Loss
|
|
2026 £’000 |
2025 £’000 |
|
Total investments 1 |
1,348,233 |
1,346,238 |
|
Opening book cost |
1,354,515 |
1,398,894 |
|
Opening investment holding losses |
(8,277) |
(236,629) |
|
|
-------------- |
-------------- |
|
Opening fair value of investments |
1,346,238 |
1,162,265 |
|
|
|
|
|
Movements in the year |
|
|
|
Purchases at cost |
694,168 |
648,076 |
|
Costs in respect of the transaction with ACIC |
– |
543 |
|
Sales – proceeds |
(768,936) |
(714,521) |
|
Gains on investments |
76,763 |
249,875 |
|
|
-------------- |
-------------- |
|
Closing fair value |
1,348,233 |
1,346,238 |
|
|
-------------- |
-------------- |
|
Closing book cost |
1,441,125 |
1,354,515 |
|
Closing investment holding losses |
(92,892) |
(8,277) |
|
|
-------------- |
-------------- |
|
Closing fair value of investments |
1,348,233 |
1,346,238 |
|
|
======== |
======== |
1 The fair value hierarchy of the investments is shown in Note 17.
The Company received £768,936,000 (2025: £714,521,000) from investments sold in the year. The book cost of these investments when they were purchased was £607,558,000 (2025: £692,455,000). 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 gains on investments were as follows:
|
|
Year ended 31 March 2026 £’000 |
Year ended 31 March 2025 £’000 |
|
Purchases transaction costs |
1,527 |
773 |
|
Sales transaction costs |
1,102 |
812 |
|
|
-------------- |
-------------- |
|
|
2,629 |
1,585 |
|
|
======== |
======== |
11 Derivative Instruments
|
|
Year ended 31 March 2026 £’000 |
Year ended 31 March 2025 £’000 |
|
Net changes to gains on derivative instruments |
|
|
|
Realised gains on CFDs |
60,529 |
130,822 |
|
Realised losses on futures |
(6,691) |
(65,414) |
|
Realised gains on options |
452 |
1,765 |
|
Movement in investment holding losses on CFDs |
(8,121) |
(13,424) |
|
Movement in investment holding (losses)/gains on futures |
(626) |
3,366 |
|
Movement in investment holding (losses)/gains on options |
(210) |
6 |
|
|
-------------- |
-------------- |
|
|
45,333 |
57,121 |
|
|
======== |
======== |
|
|
2026 Fair value £’000 |
2025 Fair value £’000 |
|
Fair value of derivative instruments recognised on the Statement of Financial Position 1 |
|
|
|
Derivative instrument assets |
9,419 |
9,938 |
|
Derivative instrument liabilities |
(33,754) |
(24,838) |
|
|
-------------- |
-------------- |
|
|
(24,335) |
(14,900) |
|
|
======== |
======== |
1 The fair value hierarchy of the derivative instruments is shown in Note 17.
|
|
Fair value £’000 |
2026 Asset exposure £’000 |
Fair value £’000 |
2025 Asset exposure £’000 |
|
At the year end the Company held the following derivative instruments |
|
|
|
|
|
Long CFDs |
(30,489) |
560,076 |
(19,358) |
583,496 |
|
Short CFDs |
3,215 |
44,684 |
205 |
18,813 |
|
Futures (hedging exposure) |
2,265 |
(189,185) |
2,891 |
(203,084) |
|
Call options |
944 |
12,066 |
1,761 |
9,442 |
|
Call options (hedging exposure) |
(132) |
(1,962) |
(399) |
(8,967) |
|
Put options |
(138) |
1,937 |
– |
– |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
(24,335) |
427,616 |
(14,900) |
399,700 |
|
|
======= |
======= |
======= |
======= |
12 Other Receivables
|
|
2026 £’000 |
2025 £’000 |
|
Securities sold for future settlement |
9,398 |
3,926 |
|
Amounts receivable on settlement of derivatives |
– |
1,280 |
|
Accrued income |
1,479 |
1,783 |
|
Taxation recoverable |
11 |
11 |
|
Other receivables |
272 |
295 |
|
|
------------ |
------------ |
|
|
11,160 |
7,295 |
|
|
======= |
======= |
13 Other Payables
|
|
2026 £’000 |
2025 £’000 |
|
Securities purchased for future settlement |
3,293 |
3,084 |
|
Amounts payable on settlement of derivatives |
1,367 |
2,986 |
|
Investment management fees |
1,401 |
1,023 |
|
Finance costs payable |
584 |
830 |
|
Accrued expenses |
538 |
359 |
|
Amounts payable for repurchase of shares for cancellation |
2,080 |
– |
|
|
------------ |
------------ |
|
|
9,263 |
8,282 |
|
|
======= |
======= |
14 Share Capital
|
|
Number of shares |
2026 Nominal value £’000 |
Number of shares |
2025 Nominal value £’000 |
|
Issued, allotted and fully paid |
|
|
|
|
|
Ordinary shares of 1 pence each held outside of Treasury |
|
|
|
|
|
Beginning of the year |
494,840,250 |
4,950 |
525,681,434 |
5,258 |
|
Ordinary shares repurchased for cancellation |
(33,336,928) |
(334) |
(30,841,184) |
(308) |
|
|
------------------ |
---------- |
----------------- |
---------- |
|
End of the year |
461,503,322 |
4,616 |
494,840,250 |
4,950 |
|
|
|
|
|
|
|
Ordinary shares of 1 pence each held in Treasury 1 |
85,629,548 |
855 |
85,629,548 |
855 |
|
|
|
---------- |
|
---------- |
|
Total share capital |
|
5,471 |
|
5,805 |
|
|
|
====== |
|
===== |
1 The ordinary shares held in treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.
During the year, the Company repurchased 33,336,928 (2025: 30,841,184) ordinary shares for cancellation. The cost of repurchasing these shares of £100,528,000 (2025: £66,809,000) was charged to the Other reserve and the Capital reserve.
Given the number of shares held in Treasury, all shares repurchased at present are being cancelled rather than held in Treasury.
15 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 2025 |
5,805 |
338,107 |
1,412 |
74,052 |
922,363 |
72,063 |
1,413,802 |
|
Gains on investments (see Note 10) |
– |
– |
– |
– |
76,763 |
– |
76,763 |
|
Gains on derivative instruments (see Note 11) |
– |
– |
– |
– |
45,333 |
– |
45,333 |
|
Foreign exchange gains |
– |
– |
– |
– |
918 |
– |
918 |
|
Investment management fees (see Note 4) |
– |
– |
– |
– |
(12,308) |
– |
(12,308) |
|
Other expenses (see Note 5) |
– |
– |
– |
– |
(47) |
– |
(47) |
|
Finance costs (see Note 6) |
– |
– |
– |
– |
(11,985) |
– |
(11,985) |
|
Notional taxation transfer |
– |
– |
– |
– |
610 |
– |
610 |
|
Revenue profit after taxation for the year |
– |
– |
– |
– |
– |
44,583 |
44,583 |
|
Dividend paid to shareholders (see Note 9) |
– |
– |
– |
– |
– |
(44,380) |
(44,380) |
|
Repurchase of ordinary shares for cancellation (see Note 14) |
(334) |
– |
334 |
(74,052) |
(26,476) |
– |
(100,528) |
|
|
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
|
At 31 March 2026 |
5,471 |
338,107 |
1,746 |
– |
995,171 |
72,266 |
1,412,761 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
======= |
|
|
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 2024 |
6,113 |
338,167 |
1,104 |
140,861 |
636,526 |
53,243 |
1,176,014 |
|
Gains on investments (see Note 10) |
– |
– |
– |
– |
249,875 |
– |
249,875 |
|
Gains on derivative instruments (see Note 11) |
– |
– |
– |
– |
57,121 |
– |
57,121 |
|
Foreign exchange gains |
– |
– |
– |
– |
1,769 |
– |
1,769 |
|
Investment management fees (see Note 4) |
– |
– |
– |
– |
(5,572) |
– |
(5,572) |
|
Other expenses (see Note 5) |
– |
– |
– |
– |
(32) |
– |
(32) |
|
Finance costs (see Note 6) |
– |
– |
– |
– |
(17,324) |
– |
(17,324) |
|
Revenue profit after taxation for the year |
– |
– |
– |
– |
– |
52,175 |
52,175 |
|
Dividend paid to shareholders (see Note 9) |
– |
– |
– |
– |
– |
(33,355) |
(33,355) |
|
Contribution in respect of the transaction with ACIC by the Manager |
– |
100 |
– |
– |
– |
– |
100 |
|
Costs relating to the ACIC transaction (inclusive of VAT recovered) |
– |
(160) |
– |
– |
– |
– |
(160) |
|
Repurchase of ordinary shares for cancellation (see Note 14) |
(308) |
– |
308 |
(66,809) |
– |
– |
(66,809) |
|
|
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
|
At 31 March 2025 |
5,805 |
338,107 |
1,412 |
74,052 |
922,363 |
72,063 |
1,413,802 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
======= |
The capital reserve balance at 31 March 2026 includes investment holding losses on investments of £92,892,000 (2025: losses of £8,277,000) as detailed in Note 10. See Note 2 (r) for further details. In accordance with the Articles of Association, distributions by way of dividend can be made from both the revenue reserve and capital reserves to the extent they are realised.
16 Net Asset Value per Ordinary Share
The calculation of the net asset value per ordinary share is based on the net assets divided by the number of ordinary shares held outside of Treasury.
|
|
2026 |
2025 |
|
Net assets |
£1,412,761,000 |
£1,413,802,000 |
|
Ordinary shares held outside of Treasury at year end |
461,503,322 |
494,840,250 |
|
Net asset value per ordinary share |
306.12p |
285.71p |
|
|
========== |
========== |
It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per share or at a premium to net asset value per share so that shares held in Treasury have no dilutive effect.
17 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. 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 in the Strategic Report above.
This Note is incorporated in accordance with IFRS 7: Financial Instruments: Disclosures and refers to the identification, measurement and management of risks potentially affecting the value of financial instruments.
The Company’s financial instruments may comprise:
• Equity shares (listed and unlisted), equity linked notes, convertible bonds and rights issues;
• Derivative instruments including CFDs, warrants, futures and options written or purchased on stocks and equity indices and forward currency contracts;
• Cash, liquid resources and short-term receivables and payables that arise from its operations; and
• Bank borrowings.
The risks identified by IFRS 7 arising from the Company’s financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instrument risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies are consistent with those followed last year.
Market price risk
Interest rate risk
The Company finances its operations through its share capital and reserves. In addition, the Company has gearing through the use of derivative instruments. The level of gearing is reviewed by the Board and the Portfolio Manager. The Company is exposed to a financial risk arising as a result of any increase in interest rates associated with the funding of derivative instruments.
Interest rate risk exposure
The values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:
|
|
2026 £’000 |
2025 £’000 |
|
Exposure to financial instruments that bear interest |
|
|
|
Long CFDs – exposure less fair value |
590,565 |
602,854 |
|
|
------------ |
------------ |
|
|
590,565 |
602,854 |
|
Exposure to financial instruments that earn interest |
|
|
|
Short CFDs – exposure plus fair value |
47,899 |
19,018 |
|
Amounts held at futures clearing houses and brokers |
38,879 |
33,760 |
|
Cash and cash equivalents |
48,087 |
49,691 |
|
|
------------ |
------------ |
|
|
134,865 |
102,469 |
|
Net exposure to financial instruments that bear interest |
455,700 |
500,385 |
|
|
======= |
======= |
Foreign currency risk
The Company’s profit 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 derivative instruments;
•
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 and cash equivalents. 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 instruments 1 £’000 |
Other receivables 2 £’000 |
Cash and cash equivalents 3 £’000 |
2026
Total £’000 |
|
Chinese renminbi |
24,564 |
– |
– |
– |
24,564 |
|
Euro |
13,294 |
– |
– |
– |
13,294 |
|
Hong Kong dollar |
948,405 |
175,223 |
13,715 |
997 |
1,138,340 |
|
Japanese yen |
– |
7,085 |
– |
135 |
7,220 |
|
Taiwan dollar |
– |
– |
11 |
– |
11 |
|
UK sterling |
11,847 |
– |
272 |
22 |
12,141 |
|
US dollar |
350,123 |
200,624 |
36,041 |
46,933 |
633,721 |
|
|
------------- |
------------- |
------------- |
------------- |
------------- |
|
|
1,348,233 |
382,932 |
50,039 |
48,087 |
1,829,291 |
|
|
======= |
======= |
======= |
======= |
======= |
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.
3 Cash and cash equivalents are made up of £4,648,000 cash at bank and £43,439,000 is held in Fidelity Institutional Liquidity Fund.
|
Currency |
Investments held at fair value through profit or loss £’000 |
Asset exposure of long derivative instruments 1 £’000 |
Other receivables 2 £’000 |
Cash and cash equivalents 3 £’000 |
2025
Total £’000 |
|
Chinese renminbi |
29,850 |
– |
– |
– |
29,850 |
|
Euro |
15,468 |
– |
– |
– |
15,468 |
|
Hong Kong dollar |
873,075 |
127,296 |
5,850 |
2,731 |
1,008,952 |
|
Japanese yen |
– |
13,585 |
1,084 |
– |
14,669 |
|
Taiwan dollar |
5,006 |
– |
– |
– |
5,006 |
|
UK sterling |
12,725 |
– |
295 |
– |
13,020 |
|
US dollar |
410,114 |
240,006 |
33,826 |
46,960 |
730,906 |
|
|
------------- |
------------- |
------------- |
------------- |
------------- |
|
|
1,346,238 |
380,887 |
41,055 |
49,691 |
1,817,871 |
|
|
======= |
======= |
======= |
======= |
======= |
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.
3 Cash and cash equivalents are made up of £4,432,000 cash at bank and £45,259,000 is held in Fidelity Institutional Liquidity Fund.
Currency exposure of financial liabilities
The Company finances its investment activities through its ordinary share capital and reserves. The Company’s financial liabilities comprise short positions on derivative instruments and other payables. The currency profile of these financial liabilities is shown below:
|
Currency |
Asset exposure of short derivative instruments 1 £’000 |
Other payables £’000 |
2026
Total £’000 |
|
Hong Kong dollar |
34,818 |
3,791 |
38,609 |
|
Japanese yen |
– |
135 |
135 |
|
UK sterling |
– |
4,020 |
4,020 |
|
US dollar |
9,866 |
1,317 |
11,183 |
|
|
----------- |
----------- |
----------- |
|
|
44,684 |
9,263 |
53,947 |
|
|
====== |
====== |
====== |
|
Currency |
Asset exposure of short derivative instruments 1 £’000 |
Other payables £’000 |
2025
Total £’000 |
|
Hong Kong dollar |
– |
6,570 |
6,570 |
|
Japanese yen |
– |
7 |
7 |
|
UK sterling |
– |
1,382 |
1,382 |
|
US dollar |
18,813 |
323 |
19,136 |
|
|
----------- |
----------- |
----------- |
|
|
18,813 |
8,282 |
27,095 |
|
|
====== |
====== |
====== |
1 The asset exposure of short derivative instruments excluding hedging exposures.
Other price risk
Other price risk arises mainly from uncertainty about future prices of financial instruments. It represents the potential loss the Company might suffer through price movements in its investment positions. The Board meets quarterly to consider the asset allocation of the portfolio and the risk associated with particular industry sectors within the parameters of the investment objective.
The Investment Manager is responsible for actively monitoring the portfolio selected in accordance with the overall asset allocation parameters and seeks to ensure that individual stocks also meet an acceptable risk/reward profile. Other price risks arising from derivative positions, mainly due to the underlying exposures, are assessed by the Investment Manager’s specialist derivative instruments team.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with financial liabilities. The Company’s assets mainly comprise readily realisable securities and derivative instruments which can be sold easily to meet funding commitments if necessary. Short-term flexibility is achieved by the use of a bank overdraft, if required.
Counterparty risk
Certain derivative instruments in which the Company may invest are not traded on an exchange but instead will be traded between counterparties based on contractual relationships, under the terms outlined in the International Swaps and Derivatives Association’s (“ISDA”) market standard derivative legal documentation. These are known as Over The Counter (“OTC”) trades. As a result, the Company is subject to the risk that a counterparty may not perform its obligations under the related contract. In accordance with the risk management process which the Investment Manager employs, this risk is minimised by only entering into transactions with counterparties which are believed to have an adequate credit rating at the time the transaction is entered into, by ensuring that formal legal agreements covering the terms of the contract are entered into in advance, and through adopting a counterparty risk framework which measures, monitors and manages counterparty risk by the use of internal and external credit agency ratings and evaluates derivative instrument credit risk exposure.
Collateral
For OTC and exchange traded derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions and held in segregated collateral accounts. Collateral can be held by brokers on behalf of the Company to reduce the credit risk exposure of the Company or held by the Company on behalf of brokers to reduce the credit risk exposure of the brokers. All collateral received or pledged at reporting date is in cash. The value of collateral received from brokers and pledged to brokers is shown below:
|
|
2026 |
2025 |
||
|
|
Collateral received £’000 |
Collateral pledged £’000 |
Collateral received £’000 |
Collateral pledged £’000 |
|
Goldman Sachs International Ltd |
– |
3,791 |
– |
– |
|
HSBC Bank plc |
– |
6,139 |
– |
3,037 |
|
UBS AG |
– |
17,385 |
– |
23,770 |
|
J.P. Morgan Securities plc |
– |
6,688 |
– |
6,953 |
|
Morgan Stanley & Co. International Ltd |
– |
4,876 |
1,109 |
– |
|
|
----------- |
----------- |
----------- |
----------- |
|
Total |
– |
38,879 |
1,109 |
33,760 |
|
|
====== |
====== |
====== |
====== |
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 Statement of Financial Position.
The Company’s derivative instrument financial assets and liabilities recognised in the Statement of Financial Position and amounts that could be subject to netting in the event of a default or termination are shown below:
|
Financial assets |
Gross amount £’000 |
Gross amount of recognised financial liabilities set off on the SoFP 1 £’000 |
Net amount of financial assets presented on the SoFP 1 £’000 |
Related amounts not set off on the SoFP 1 |
2026
|
|
|
Financial instruments £’000 |
Margin account received as collateral £’000 |
Net amount £’000 |
||||
|
CFDs |
6,210 |
– |
6,210 |
(6,210) |
– |
– |
|
Options |
944 |
– |
944 |
– |
– |
944 |
|
Futures (exchange traded) |
2,265 |
– |
2,265 |
– |
– |
2,265 |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
|
9,419 |
– |
9,419 |
(6,210) |
– |
3,209 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
|
Financial liabilities |
Gross amount £’000 |
Gross amount of recognised financial assets set off on the SoFP 1 £’000 |
Net amount of financial
liabilities
the SoFP 1 £’000 |
Related amounts not set off on the SoFP 1
|
2026
|
|
|
|
|
|
|
Financial instruments £’000 |
Margin account pledged as collateral £’000 |
Net amount £’000 |
|
CFDs |
(33,484) |
– |
(33,484) |
6,210 |
22,715 |
(4,559) |
|
Options |
(270) |
– |
(270) |
– |
– |
(270) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
|
(33,754) |
– |
(33,754) |
6,210 |
22,715 |
(4,829) |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
|
Financial assets |
Gross amount £’000 |
Gross amount of recognised financial liabilities set off on the SoFP 1 £’000 |
Net amount of financial assets presented on the SoFP 1 £’000 |
Related amounts not set off on the SoFP 1 |
2025
|
|
|
Financial instruments £’000 |
Margin account received as collateral £’000 |
Net amount £’000 |
||||
|
CFDs |
5,286 |
– |
5,286 |
(4,087) |
(1,109) |
90 |
|
Options |
1,761 |
– |
1,761 |
– |
– |
1,761 |
|
Futures (exchange traded) |
2,891 |
– |
2,891 |
– |
– |
2,891 |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
|
9,938 |
– |
9,938 |
(4,087) |
(1,109) |
4,742 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
|
Financial liabilities |
Gross amount £’000 |
Gross amount of recognised financial assets set off on the SoFP 1 £’000 |
Net amount of financial liabilities presented on the SoFP 1 £’000 |
Related amounts not set off on the SoFP 1 |
2025
|
|
|
Financial instruments £’000 |
Margin account pledged as collateral £’000 |
Net amount £’000 |
||||
|
CFDs |
(24,439) |
– |
(24,439) |
4,087 |
12,870 |
(7,482) |
|
Options |
(399) |
– |
(399) |
– |
– |
(399) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
|
(24,838) |
– |
(24,838) |
4,087 |
12,870 |
(7,881) |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
1 Statement of Financial Position.
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
The risks and risk management processes which result from the use of derivative instruments by the Investment Manager, are set out in a documented Risk Management Process Document. Derivative instruments are used by the Investment Manager 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 Statement of Financial Position date, an increase of 1.00% in interest rates throughout the year, with all other variables held constant, would have decreased the net profit after taxation for the year and decreased the net assets of the Company by £4,557,000 (2025: decreased the net profit after taxation and decreased the net assets by £5,004,000). 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 Statement of Financial Position date, a strengthening of the UK sterling exchange rate by 10% against other currencies, with all other variables held constant, would have decreased the net profit after taxation for the year and decreased the net assets of the Company (2025: decreased the net profit after taxation and decreased the net assets) by the following amounts:
|
Currency |
2026 £’000 |
2025 £’000 |
|
Chinese renminbi |
2,233 |
2,714 |
|
Euro |
1,209 |
1,406 |
|
Hong Kong dollar |
99,976 |
91,125 |
|
Japanese yen |
644 |
1,333 |
|
Taiwan dollar |
1 |
455 |
|
US dollar |
56,594 |
64,707 |
|
|
---------- |
---------- |
|
|
160,657 |
161,740 |
|
|
====== |
====== |
Based on the financial assets and liabilities held and the exchange rates ruling at the Statement of Financial Position date, a weakening of the UK sterling exchange rate by 10% against other currencies would have increased the net profit after taxation for the year and increased the net assets of the Company (2025: increased the net profit after taxation and increased the net assets) by the following amounts:
|
Currency |
2026 £’000 |
2025 £’000 |
|
Chinese renminbi |
2,729 |
3,317 |
|
Euro |
1,477 |
1,719 |
|
Hong Kong dollar |
122,192 |
111,376 |
|
Japanese yen |
787 |
1,629 |
|
Taiwan dollar |
1 |
556 |
|
US dollar |
69,171 |
79,085 |
|
|
---------- |
---------- |
|
|
196,357 |
197,682 |
|
|
====== |
====== |
Other price risk sensitivity analysis
Changes in market prices affect the net profit 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 Statement of Financial Position date would have increased the net profit after taxation for the year and increased the net assets of the Company by £119,253,000 (2025: increased the net profit after taxation and increased the net assets by £121,019,000). 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 Statement of Financial Position date would have increased the net profit after taxation for the year and increased the net assets of the Company by £15,570,000 (2025: increased the net profit after taxation and increased the net assets by £13,604,000). A decrease of 10% in the valuation would have had an equal but opposite effect.
The sensitivity analysis below illustrates how the unobservable inputs used in the valuation methodologies of the unlisted assets impact the fair value as at 31 March 2026
|
|
Significant unobservable inputs |
Sensitivity to changes in
|
|||
|
Valuation approach |
Fair
£’000* |
Key
inputs |
Other
inputs |
Range |
|
|
Market approach using comparable traded multiples or calibration factors |
101,672 |
TEV/LTM
|
a, b, c, d |
1.95x - 3.5x |
If TEV/LTM revenue multiple moved by +/- 10%, the fair value would change by £1,688,000 and -£1,668,000 |
|
TEV/LTM EBITDA multiple 2 |
a, b, c, d |
7.25x - 8.25x |
If TEV/LTM EBITDA multiple moved by +/- 10%, the fair value would change by £1,478,000 and -£1,513,000 |
||
|
TEV/FY+1
|
a, b, c, d |
1.55x - 3.25x |
If TEV/FY+1 revenue multiple moved by +/- 10%, the fair value would change by £1,016,000 and -£1,036,000 |
||
|
TEV/FY+1
|
a, b, c, d |
5.0x - 6.0x |
If TEV/FY+1 EBITDA multiple moved by +/- 10%, the fair value would change by £1,570,000 and -£1,605,000 |
||
|
P/E LTM multiple 5 |
a, b, c, d |
14.0x - 17.0x |
If P/E LTM multiple moved by +/- 10%, the fair value would change by £1,104,000 and -£1,059,000 |
||
|
Sum of the parts e |
26,636 |
Selection of comparable companies and relevant indices |
c |
(10.0%) - 10.0% |
If the market factor of the comparable companies moved by +/- 5% the fair value would change by £575,000 and -£575,000 |
|
Scenario analysis considering a range of
|
25,102 |
Discount rate |
c, d |
16.5% - 17.5% |
If the discount rate moved by +/- 10% the fair value would change by £717,000 and -£690,000 |
* An asset may be valued using multiple approaches therefore this column is not expected to represent the total of level 3 investments
1 Total enterprise value (TEV) divided by the last twelve months (LTM) revenue.
2 Total enterprise value (TEV) divided by the last twelve months (LTM) earnings before interest, taxes, depreciation and amortisation (EBITDA).
3 Total enterprise value (TEV) divided by the next twelve months forecasted revenue (FY+1).
4 Total enterprise value (TEV) divided by the next twelve months (FY+1) forecasted earnings before interest, taxes, depreciation and amortisation (EBITDA).
5 Price to earnings (P/E) divided by the last twelve months (LTM) revenue.
The sensitivity analysis below illustrates how the unobservable inputs used in the valuation methodologies of the unlisted assets impact the fair value as at 31 March 2025
|
|
Significant unobservable inputs |
|
|||
|
Valuation approach |
Fair
£’000* |
Key
inputs |
Other
inputs |
Range |
Sensitivity to changes in
|
|
Market approach using comparable traded multiples or calibration factors |
72,128 |
TEV/LTM
|
a, b, c, d |
1.95x - 3.5x |
If TEV/LTM revenue multiple moved by +/- 10%, the fair value would change by £1,535,000 and -£1,534,000 |
|
TEV/LTM EBITDA multiple 2 |
a, b, c, d |
7.25x - 8.25x |
If TEV/LTM EBITDA multiple moved by +/- 10%, the fair value would change by £931,000 and -£954,000 |
||
|
TEV/FY+1
|
a, b, c, d |
1.55x - 3.25x |
If TEV/FY+1 revenue multiple moved by +/- 10%, the fair value would change by £1,354,000 and -£1,377,000 |
||
|
TEV/FY+1
|
a, b, c, d |
5.0x - 6.0x |
If TEV/FY+1 EBITDA multiple moved by +/- 10%, the fair value would change by £978,000 and -£1,001,000 |
||
|
P/E LTM multiple 5 |
a, b, c, d |
14.0x - 17.0x |
If P/E LTM multiple moved by +/- 10%, the fair value would change by £435,000 and -£435,000 |
||
|
P/E FY+1 multiple 6 |
a, b, c, d |
12.0x - 15.0x |
If P/E FY+1 multiple moved by +/- 10%, the fair value would change by £185,000 and -£185,000 |
||
|
Sum of the parts e |
30,258 |
Selection of comparable companies and relevant indices |
c |
(10.0%) - 10.0% |
If the market factor of the comparable companies moved by +/- 5% the fair value would change by £557,000 and -£557,000 |
|
Scenario analysis considering a range of
|
26,194 |
Discount rate |
c, d |
16.5% - 17.5% |
If the discount rate moved by +/- 10% the fair value would change by £353,000 and -£353,000 |
|
Recent transaction prices g |
62,469 |
n/a |
c |
n/a |
n/a |
* An asset may be valued using multiple approaches therefore this column is not expected to represent the total of level 3 investments held at the end of the period.
1 Total enterprise value (TEV) divided by the last twelve months (LTM) revenue.
2 Total enterprise value (TEV) divided by the last twelve months (LTM) earnings before interest, taxes, depreciation and amortisation (EBITDA).
3 Total enterprise value (TEV) divided by the next twelve months forecasted revenue (FY+1).
4 Total enterprise value (TEV) divided by the next twelve months (FY+1) forecasted earnings before interest, taxes, depreciation and amortisation (EBITDA).
5 Price to earnings (P/E) divided by the last twelve months (LTM) revenue.
6 Price to earnings (P/E) divided by the next twelve months forecasted revenue (FY+1).
a. Selection of comparable companies
The fair value is determined by examining the market valuations of similar publicly traded firms. This approach involves identifying peer companies with similar industry characteristics, size, growth prospects, and financial metrics. Key valuation multiples such as Price-to-Earnings (P/E), Enterprise Value-to-EBITDA (EV/EBITDA), and Price-to-Sales (P/S) are calculated for each comparable company. These multiples are then applied to the target company’s corresponding financial figures to derive an estimated value range. The selection of comparable companies is evaluated at each valuation.
b. Selection of appropriate benchmarks
A benchmark-based valuation methodology estimates the fair value of a company by comparing its financial and operational metrics to a set of relevant industry or market benchmarks. These benchmarks may include sector averages, historical performance standards, or key financial ratios such as return on equity (ROE), profit margins, or revenue growth rates. The selection of appropriate benchmarks is assessed individually for each investment and updated regularly.
c. Selection of alternative valuation methodologies
Fair value is be determined using a variety of valuation methodologies, each suited to different types of investments and contexts. Common alternative approaches include the income approach, which estimates fair value based on the present value of expected future cash flows, utilizing discounted cash flow (DCF) models and estimated weighted average cost of capital (WACC) discount rates.
d. Estimate of sustainable earnings
The approach focuses on normalized earnings, either forecasted over the next 12 months or adjusted to reflect a sustainable, long-term level that smooths out cyclical fluctuations and one-time events. Analysts typically use forward-looking metrics such as projected net income or EBITDA, derived from management guidance, analyst forecasts, or historical trends. These earnings are then multiplied by a valuation multiple (e.g., P/E or EV/EBITDA) that reflects market expectations and industry norms. The chosen multiple may be based on comparable companies or historical averages. By focusing on earnings that are expected to persist over time, the approach aims to provide a more accurate and stable estimate of intrinsic value, especially in dynamic or transitional market environments.
e. Sum of the Parts Valuation
Sum of parts valuation (SOTP) determines the overall value of a company by assessing the individual worth of its various divisions or segments, particularly effective where a company is a conglomerate and has business units across multiple industries. The fair value of each business unit or segment is derived separately in accordance with the International Private Equity and Venture Capital 2022 (“IPEV”) Valuation Guidelines determined by any number of analysis methods including discounted cash flow (DCF) valuations, asset-based valuations and multiples valuations using revenue, operating profit or profit margins.
f. Range of exit scenarios
Fair value is determined by modelling potential scenarios about how a company might be sold, or value might be realised. Analysts typically develop several plausible exit scenarios such as a strategic acquisition, initial public offering (IPO), management buyout, or liquidation each with its own assumptions about timing, valuation multiples, and transaction terms. For each scenario, the expected proceeds are estimated, often using projected financial metrics and applying relevant market-based multiples. These proceeds are then discounted back to present value using an appropriate discount rate to reflect the time value of money and risk. The final fair value is calculated as a probability-weighted average of the present values across all scenarios, incorporating both the likelihood and financial impact of each outcome.
g. Recent Transaction price
A recent transaction price itself is observable and whilst it may be the most appropriate basis for a valuation, it often only represents one input and will be used alongside other unobservable inputs to determine the fair value of an asset.
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 Statement of Financial Position date would have increased the profits after taxation for the year and increased the net assets of the Company by £33,825,000 (2025: increased the profit after taxation and increased the net assets by £36,207,000). 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 Statement of Financial Position at values which are not materially different to their fair values. As explained in Notes 2 (l) and (m), investments and derivative instruments are shown at fair value. In the case of cash at bank, book value approximates to fair value due to the short maturity of the instruments.
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 |
2026 Total £’000 |
|
Investments |
1,192,531 |
– |
155,702 |
1,348,233 |
|
Derivative instrument assets |
2,336 |
7,083 |
– |
9,419 |
|
|
------------- |
------------- |
------------- |
------------- |
|
|
1,194,867 |
7,083 |
155,702 |
1,357,652 |
|
|
------------- |
------------- |
------------- |
------------- |
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
Derivative instrument liabilities |
– |
(33,754) |
– |
(33,754) |
|
|
======== |
======== |
======== |
======== |
|
Financial assets at fair value through profit or loss |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
2025 Total £’000 |
|
Investments |
1,210,194 |
– |
136,044 |
1,346,238 |
|
Derivative instrument assets |
2,891 |
7,047 |
– |
9,938 |
|
|
------------- |
------------- |
------------- |
------------- |
|
|
1,213,085 |
7,047 |
136,044 |
1,356,176 |
|
|
------------- |
------------- |
------------- |
------------- |
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
Derivative instrument liabilities |
– |
(24,838) |
– |
(24,838) |
|
|
======== |
======== |
======== |
======== |
Level 3 investments (unlisted and delisted investments)
|
|
2026 £’000 |
2025 £’000 |
|
ByteDance |
73,733 |
55,005 |
|
Venturous Holdings |
27,036 |
30,258 |
|
Chime Biologics |
25,480 |
26,194 |
|
DJI International |
21,381 |
17,123 |
|
Fujian Yangteng Innovation |
8,072 |
7,464 |
|
Shanghai Yiguo |
– |
– |
|
3 listed investments whose listings are currently suspended |
– |
– |
|
|
------------- |
------------- |
|
|
155,702 |
136,044 |
|
|
======== |
======== |
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), BNN Technology Limited (suspended September 2017).
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 Statement of Financial Position 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.
|
Holdings |
|
Cost £’000 |
Fair value £’000 |
Income recognised from the holding in the year £’000 |
Turnover for the latest audited
£’000 |
Pre-tax profits/losses for the latest audited
£’000 |
2026
Net assets/(liabilities) at the latest
£’000 |
|
ByteDance |
|
19,775 |
73,732 |
Nil |
Information not publicly available |
||
|
Venturous Holdings |
|
23,701 |
27,036 |
Nil |
Information not publicly available |
||
|
Chime Biologics |
|
25,227 |
25,479 |
Nil |
Information not publicly available |
||
|
|
|
====== |
====== |
====== |
|
||
|
Holdings |
|
Cost £’000 |
Fair value £’000 |
Income recognised from the holding in the year £’000 |
Turnover for the latest audited
£’000 |
Pre-tax
profits/losses for the latest audited
£’000 |
2025
Net assets/(liabilities) at the latest
£’000 |
|
ByteDance |
|
19,775 |
55,005 |
Nil |
Information not publicly available |
||
|
Venturous Holdings |
|
23,701 |
30,258 |
Nil |
Information not publicly available |
||
|
|
|
====== |
====== |
====== |
|
||
|
Movements in level 3 investments during the year |
2026 Level 3 £’000 |
2025 Level 3 £’000 |
|
Level 3 investments at the beginning of the year |
136,044 |
157,008 |
|
Purchases at cost |
25,686 |
20,251 |
|
Sales proceeds |
– |
(14,410) |
|
Sales gain |
– |
960 |
|
Transfers out of level 3 at cost 1 |
(25,686) |
(42,208) |
|
Unrealised gain recognised in the Statement of Comprehensive Income |
19,658 |
14,443 |
|
|
------------ |
------------ |
|
Level 3 investments at the end of the year |
155,702 |
136,044 |
|
|
======= |
======= |
1 Financial instruments are transferred out of level 3 when they become listed. See above for more information.
18 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 Statement of Financial Position. 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 in the Strategic Report above and in Note 17.
The Company’s gearing at the year end is set out below:
|
|
2026 |
|||
|
|
Gross gearing |
Net gearing |
||
|
|
Exposure £’000 |
% 1 |
Exposure £'000 |
% 1 |
|
Investments |
1,348,233 |
95.4 |
1,348,233 |
95.4 |
|
Long CFDs |
560,076 |
39.6 |
560,076 |
39.6 |
|
Long options |
14,003 |
1.0 |
14,003 |
1.0 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Total long exposures before hedges |
1,922,312 |
136.0 |
1,922,312 |
136.0 |
|
Less: Hedged Future Exposures |
(189,185) |
(13.4) |
(189,185) |
(13.4) |
|
Less: Hedged Option Exposures |
(1,962) |
(0.1) |
(1,962) |
(0.1) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Total long exposures after the netting of hedges |
1,731,165 |
122.5 |
1,731,165 |
122.5 |
|
Short CFDs |
44,684 |
3.2 |
(44,684) |
(3.2) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Gross Asset Exposure/Net Market Exposure* |
1,775,849 |
125.7 |
1,686,481 |
119.3 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Net Assets |
1,412,761 |
|
1,412,761 |
|
|
|
======= |
|
====== |
|
|
Gearing 2 |
|
25.7% |
|
19.3% |
|
|
|
======= |
|
======= |
|
|
2025 |
|||
|
|
Gross gearing |
Net gearing |
||
|
|
Exposure £’000 |
% 1 |
Exposure £'000 |
% 1 |
|
Investments |
1,346,238 |
95.2 |
1,346,238 |
95.2 |
|
Long CFDs |
583,496 |
41.3 |
583,496 |
41.3 |
|
Long options |
9,442 |
0.7 |
9,442 |
0.7 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Total long exposures before hedges |
1,939,176 |
137.2 |
1,939,176 |
137.2 |
|
Less: Hedged Future Exposures |
(203,084) |
(14.4) |
(203,084) |
(14.4) |
|
Less: Hedged Option Exposures |
(8,967) |
(0.6) |
(8,967) |
(0.6) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Total long exposures after the netting of hedges |
1,727,125 |
122.2 |
1,727,125 |
122.2 |
|
Short CFDs |
18,813 |
1.3 |
(18,813) |
(1.3) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Gross Asset Exposure/Net Market Exposure* |
1,745,938 |
123.5 |
1,708,312 |
120.9 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Net Assets |
1,413,802 |
|
1,413,802 |
|
|
|
======= |
|
====== |
|
|
Gearing 2 |
|
23.5% |
|
20.9% |
|
|
|
======= |
|
======= |
* 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.
19 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, the following expenses were payable to Fidelity:
|
|
2026 £’000 |
2025 £’000 |
|
Management fees |
15,534 |
8,041 |
|
Marketing services |
345 |
327 |
|
|
====== |
====== |
At the Statement of Financial Position date, the following balances payable to FII were accrued and included in other creditors:
|
|
2026 £’000 |
2025 £’000 |
|
Management fees |
1,401 |
1,023 |
|
Marketing services |
72 |
47 |
|
|
====== |
====== |
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, employers’ National Insurance contributions were paid by the Company as disclosed in Note 5. At the Statement of Financial Position date, Directors’ fees of £67,000 (2025: £29,000) were accrued and payable.
ALTERNATIVE PERFORMANCE MEASURES
The Company uses the following as Alternative Performance Measures which are all defined in the Glossary to the Annual Report which can be found in the Annual Report.
Discount/Premium
The discount/premium is the difference between the net asset value (“NAV”) per ordinary share of the Company and the ordinary share price and is expressed as a percentage of the NAV per ordinary share. Details of the Company’s discount are on the Financial Highlights page in the Annual Report.
Gearing
See Note 18 above for details of the Company’s gearing (both gross and net).
Net Asset Value (“NAV”) per Ordinary Share
See the Statement of Financial Position and Note 16 above for further details.
Ongoing Charges Ratio
The ongoing charges ratio is considered to be an Alternative Performance Measure. It has been calculated in accordance with guidance issued by the AIC as the total of management fees and other expenses expressed as a percentage of the average net assets throughout the year.
|
|
2026 |
2025 |
|
Investment management fees (£’000) |
12,905 |
9,875 |
|
Other expenses (£’000) |
1,327 |
1,243 |
|
Ongoing charges (£’000) |
14,232 |
11,118 |
|
Variable management fees (£’000) |
2,629 |
(1,834) |
|
Average net assets (£’000) |
1,539,184 |
1,249,044 |
|
Ongoing charges ratio |
0.92% |
0.89% |
|
Ongoing charges ratio including variable management fees |
1.09% |
0.74% |
|
|
======= |
======== |
Revenue, Capital and Total Earnings per Share
See the Statement of Financial Position and Note 8 above for further details.
Total Return Performance
The 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 2026 and 31 March 2025.
|
2026 |
Net asset value per share |
Share price |
|
31 March 2025 |
285.71p |
265.00p |
|
31 March 2026 |
306.12p |
280.00p |
|
Change in the year |
+7.1% |
+5.7% |
|
Impact of dividend reinvestment |
+3.6% |
+3.8% |
|
Total return for the year |
+10.7% |
+9.5% |
|
|
======= |
======= |
|
2025 |
Net asset value per share |
Share price |
|
31 March 2024 |
223.71p |
201.00p |
|
31 March 2025 |
285.71p |
265.00p |
|
Change in the year |
+27.7% |
+31.8% |
|
Impact of dividend reinvestment |
+3.8% |
+4.0% |
|
Total return for the year |
+31.5% |
+35.8% |
|
|
======= |
======= |
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 March 2026 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 2025 and 2026 statutory accounts received unqualified reports from the Company's auditors in respect of those years and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports and did not contain a statement under section 498 of the Companies Act 2006. The financial information for 2025 is derived from the statutory accounts for 2025 which have been delivered to the Registrar of Companies. The 2026 Financial Statements will be filed with the Registrar of Companies in due course.
A copy of the Annual Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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.
END
