Half-yearly Report

FIDELITY CHINA SPECIAL SITUATIONS PLC Interim Financial Report For the 6 months ended 30 September 2013 Further to the disclosure of the Company's interim financial report for the six months ended 30 September 2013 by way of an announcement dated 12 November 2013, in accordance with the Disclosure and Transparency Rules ("the Rules") 4.2.2 and 6.3.5 this announcement contains the text of the announcement dated 12 November 2013 together with detail on the availability of the printed form of the report in compliance with the Rules. The Company's interim financial report for the six months ended 30 September 2013 has been filed with the UK Listing Authority and will shortly be available for inspection at the National Storage Mechanism (NSM): www.morningstar.co.uk/uk/nsm (Documents will usually be available for inspection within two business days of this notice being given) The interim financial report will shortly be available on the Company's website at: https://www.fidelity.co.uk/static/pdf/common/investment-trusts/china-special-situations/fcss-interim-report-2013.pdf Christopher Pirnie, FIL Investments International, Company Secretary - 01737 837 929 26 November 2013 FIDELITY CHINA SPECIAL SITUATIONS PLC Preliminary announcement of unaudited Interim results for the six months ended 30 September 2013 Interim Financial Report For the 6 months ended 30 September 2013 Contents The Investment Objective and Performance Summary of Results Interim Financial Report Directors' Responsibility Statement Twenty Largest Holdings Financial Statements Glossary of Terms Directory Information for Investors Warning to Shareholders The Investment Objective and Performance The investment objective of the Company is to achieve long-term capital growth from an actively managed portfolio made up primarily of securities issued by companies listed in China or Hong Kong and Chinese companies listed elsewhere. The Company may also invest in listed companies with significant interests in China and Hong Kong. Investment Performance Six months ended 30 September 2013 Net Asset Value ("NAV") per Share total return +10.9 Share Price total return +6.3 MSCI China Index total return (net) - in UK sterling -1.9 Standardised Performance Total Return* % 01/10/ 01/10/ 01/10/ 19/04/ 2012 2011 2010 2010 ** to to to to 30/09/ 30/09/ 30/09/ 30/09/ Since 2013 2012 2011 2010 launch NAV Performance +36.8 +7.5 -30.5 +7.7 +10.1 Share Price Performance +35.0 -3.1 -33.1 +13.2 -1.0 Benchmark Index Performance +12.4 +13.4 -23.1 +1.4 -0.6 * Includes reinvested dividends ** Date of launch Sources: Fidelity and Datastream Past performance is not a guide to future returns Summary of Results 30 31 September March 2013 2013 Assets Gross Asset Exposure £762.0m £774.2m Net Assets £635.0m £634.2m Gearing 20.0% 22.1% Net Asset Value per Ordinary Share 106.59p 97.09p Number of Ordinary Shares in issue 595,739,480 653,229,480 Stock market data Share Price at period/year end 96.70p 92.00p Share Price period/year high 98.00p 99.00p Share Price period/year low 81.00p 70.00p (Discount) at period/year end (9.3%) (5.2%) (Discount) period/year high (11.4%) (9.1%) (Discount) period low/premium year high (4.9%) 3.8% Earnings/(losses) for the six months ended 30 2013 2012 September Revenue return per Ordinary Share1 1.43p 1.49p Capital return/(loss) per Ordinary Share1 8.10p (6.78p) Total return/(loss) per Ordinary Share1 9.53p (5.29p) 1 Based on the weighted average number of Ordinary Shares in issue during the period Sources: Fidelity and Datastream Past performance is not a guide to future returns Interim Financial Report MANAGER'S REPORT I am pleased that the better performance I highlighted in the annual report has continued into the first half of the current year. This has been despite a fall in the overall level of the Chinese market. Over this six month period, the Net Asset Value rose 10.9%, the share price appreciated by 6.3% and the MSCI China Index (net) total return - in UK sterling fell 1.9%. This performance means that the Company's NAV has outperformed the Benchmark Index since launch. The results have been helped in particular by the good performance of Chinese internet companies and US-listed Chinese companies. In the interim report a year ago I mentioned that I had materially increased the portfolio's exposure to these names and I am delighted that this has paid off. Another trend that has helped the portfolio has been the increase in the breadth of the market's performance, with many medium and smaller companies' shares outperforming. It is good to see the factors that hindered performance in the past, the exposure to smaller private companies and the portfolio's borrowings, are now working to shareholders' advantage. I am strongly of the view that simply buying exposure to the Index in China will not be as rewarding as buying an actively managed fund with an emphasis on the generally smaller privately run companies that I believe will lead China's growth over the next few years. The Index itself is weighed down by many large state owned enterprises where policy support is likely to be less favourable than in the past. I expect a number of them will face headwinds as cheap finance is cut off, as the government opens up selected industries to competition and as some businesses suffer from the ongoing anti-corruption campaign. On the economic front, the news during the last few months has been better. A recovery in inventories, some upturn in investment and the credit expansion which started in the second half of last year have all helped stabilize GDP growth. I am still of the view that the rate of growth of the economy has to slow in the medium term because the very high levels of growth in the past were due to unsustainably high levels of investment and an export led economic model which is under pressure from rising wages and a strengthening currency. The shift to a consumption based economy will take time and result in a lower but higher quality level of growth. That said, the current level of growth could continue well into next year. I believe there are two common mistakes investment commentators make when they consider the outlook for China: firstly, many paint an overly black or white picture about its future and, secondly, they make predictions for China based solely on their Western experience. China is a diverse, large and complex country and the likelihood that the economy will collapse in a Western style banking crisis any time soon, something that several international commentators predict, is extremely remote in my view. The country does have challenges but I would characterise the outlook, influenced as it is by the interplay of a wide range of factors, as more grey than outright black or white. Also, as a large financially insulated and centrally run dictatorship, where most of the largest companies, including the banks, are still owned by different parts of government, it operates quite differently from most Western economies. One thing I have learned about China is that there is always something for investors to worry about. I have discussed a number of these worries in previous reports over the last 3½ years. They have included amongst other things inflation, Local Government Financing Vehicles, credit expansion, wealth management products, corruption, pollution and an export squeeze. I repeat my belief, expressed here before, that most of the financial challenges are containable if not for ever then at least for a number of years. To my mind, the real challenges are medium-term social and political ones. A particular worry focused on this year by the China `bears' is the rising level of debt in China relative to GDP. There are various definitions of total debt but this is generally thought to represent over 200% of GDP and the figure has risen significantly in the last five years. We need to watch closely how this progresses from here, but in a system where debt is financed internally not from overseas borrowings, it is very difficult to estimate at what level debt could become a problem. This could be at much higher levels than we see today. By the time this report is published the Third Plenum meetings in Beijing will have taken place. This is the most important forum in China for laying out the policies of the new administration. President Xi and Premier Li have already started reform in several areas such as corruption, pollution and financial reform, amongst others. Some of the policies that have been announced so far on the political front, such as a return to communist values and controls on rumour mongering on the internet, may appear to be a step backwards. However, during a recent visit to China an experienced political observer drew an interesting analogy when he said that reform in China is a bit like watching a conjurer: you are persuaded to look at his left hand while the interesting developments are going on in his right hand. He suggested we didn't look simply at what Chinese politicians say (the left hand) but what they do (the right hand), noting when the two may at times be in conflict with each other. A recent trip to see officials and their advisers in Beijing suggests that there is a big reform agenda in the pipeline, although not all the initiatives will be announced at the Plenary meetings. One initiative that was announced at the end of September, and which is a significant development for China, is the Shanghai Free Trade Zone. Even though we only have an outline of the plans at this stage, the intention is to create an important centre in Shanghai where financial and trade reforms can take place. For example a number of activities will now be able to commence in the zone without most of the government clearances that were previously required. China has a history of trying reform in one or two geographical areas and then, if it works, rolling it out across the country. Shanghai could be the crucible for major financial liberalisation across China. At the portfolio level, I continue to focus on the domestic consumption and services sectors as I have done since the Company's inception. The three biggest exposures are to IT, consumer discretionary and healthcare stocks. One reason that Chinese internet companies have done so well this year is due to the upcoming IPO of China's leading e-commerce company, Alibaba. A market capitalisation of over US$100bn is being forecast by brokers. Originally an IPO in Hong Kong looked the most likely but, although this is still not impossible, an IPO in the US in 2014 is the more probable outcome. We purchased a holding in Alibaba convertible shares in 2012 at a market capitalisation equivalent of $48bn and, although a partial revaluation has taken place to a capitalisation of $64bn, hopefully this still leaves good upside. Alibaba is one of the most exciting companies I've come across in my career with its dominant position in e-commerce in China. It is very profitable and has a cash generative platform model. Alibaba's upcoming IPO has shone a light on all Chinese internet companies; the Company's holdings in companies such as Soufun, Sina, Bitauto, 21 Vianet and Kingsoft have benefited. Although valuations have risen a lot, they still in many cases look attractive relative to similar companies listed on other markets, while the growth offered in China's underpenetrated internet market is, in my opinion, better than elsewhere. A specific holding I should mention is Wing Hang bank, a medium-sized Hong Kong bank which this year, together with HSBC, has been one of the two biggest bank holdings in the portfolio. The portfolio's exposure to banks in general is low as I have very small holdings in mainland banks which I believe have a number of challenges ahead of them. I have generally preferred the Hong Kong based institutions. One of the reasons that I purchased the holding in Wing Hang was that I believed it was attractive in its own right and had in effect a free option on future takeover activity. It was my thesis that over time most of the smaller banks in Hong Kong would be bought out, either by mainland banks or by other larger banks in the region. In mid-September it was announced that the two largest shareholders, the Fung family and BNY Mellon, who between them hold 45% of the shares, had been approached with an offer to buy their stake. The shares rose nearly 40% on this news to a level at which they sell on about 1.7 times book value. The control in a smaller Hong Kong bank, Chong Hing, has recently been purchased at over twice the value of its assets and in a take-out I think Wing Hang could be worth more. There is of course no guarantee that there will be a successful bid for the company. Regarding the stock market outlook, valuations have risen a little above their ten-year lows but they are still well below their long-term average. Although sentiment has recovered somewhat, investors, particularly on the mainland, remain cautious. Internationally, emerging markets and China in particular remain out of favour. Indeed the Chinese market has been one of the worst performing world markets over the last three years or so. Also, over time I expect mainland investors to be allowed to invest more freely into Hong Kong listed shares. Mainland investors are keen buyers of smaller company shares and the opportunity to buy into this area in Hong Kong will be a serious consideration for these investors. Hong Kong listed Chinese medium and smaller-sized companies sell on much lower valuations than their mainland listed peers and I would expect this valuation difference to close with the Hong Kong shares being re-rated. Putting all these factors together, I remain optimistic. I am still finding many attractive investment opportunities in Chinese shares and continue to think there is still good upside ahead. I am delighted that investors' patience has now started to be rewarded and I hope that this trend will continue during the last five months before I hand over the portfolio to Dale Nicholls and beyond. Anthony Bolton Portfolio Manager 11 November 2013 DISCOUNT AND PREMIUM The Board believes it is in the best interests of shareholders if the share price of the Company tracks closely the underlying Net Asset Value ("NAV"), which is published each business day. The Board has the ability to issue shares at a premium to NAV and to buy back shares for cancellation at a discount to NAV. During the reporting period, in furtherance of this policy, the Board authorised the repurchase and cancellation at a discount of 57,490,000 Ordinary Shares. Since the period end, the Company has repurchased and cancelled a further 6,075,000 Ordinary Shares. GEARING On 17 February 2012, the Company entered into a revolving credit facility agreement with Scotiabank Europe PLC for US$150,000,000. This facility has been fully drawn down. The Company achieves further gearing by the use of Contracts For Difference on a number of holdings in its portfolio and the use of other derivative instruments. At 30 September 2013, the Company's gearing was 20.0% (31 March 2013: 22.1%; 30 September 2012: 17.4%). PERFORMANCE FEE A performance fee is payable of 15% of any change in NAV attributable to performance which is more than 2% above the return of the MSCI China Index total return (net) - in UK sterling, including making good any cumulative underperformance carried forward from previous years (including the 2% hurdle each year). The performance fee is payable subject to a maximum in any year of 1.5% of the arithmetic mean of the value of assets calculated at the end of each month during the year. The cumulative brought forward underperformance at the start of this financial year together with the Benchmark plus 2% hurdle for the year has been exceeded. A performance fee would only be payable if outperformance is achieved for the full financial year. A provision has been made on a time apportioned basis of £1,148,000 for the six months ended 30 September 2013. The impact on the NAV of this provision is 0.2%. The fee arrangements with the Managers are due to be reviewed by the Board before the start of the next financial year. PRINCIPAL RISKS AND UNCERTAINTIES The Board with the assistance of the Manager, has developed a risk matrix which, as part of the internal controls process, identifies the key risks faced by the Company. The Board believes that the principal risks and uncertainties faced by the Company continue to fall into the following categories: market risk, corporate governance risks, share price risk, gearing risk, currency risk, tax and regulatory risks and operational risks - service providers. Information on each risk of these risks is detailed in the Company's Annual Report for the year ended 31 March 2013 together with a risk matrix listing the specific top risks identified by the Board. The Annual Report is available for inspection on the Company's pages of its website www.fidelity.co.uk/china. GOING CONCERN The Board receives regular reports from the Manager and the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements as outlined in the Annual Report for the year ended 31 March 2013. By order of the Board FIL Investments International 11 November 2013 Directors' Responsibility Statement The Directors confirm to the best of their knowledge that: a) the condensed set of financial statements contained within the Interim Financial Report has been prepared in accordance with the International Accounting Standards 34: "Interim Financial Reporting"; b) the Interim Financial Report (constituting the interim management report) include a fair review of the information required by Rule 4.2.7R of the FCA's Disclosure and Transparency Rules and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and c) in accordance with Disclosure and Transparency Rule 4.2.8R there have been no related party transactions during the six month period to 30 September 2013 and therefore nothing to report on any material effect by such a transaction on the financial position or the performance of the Company during that period; and there have been no changes in this position since the last Annual Report that could have a material effect on the financial position or performance of the Company in the first six months of the current financial year. The Interim Financial Report has not been audited by the Company's Independent Auditor. The Interim Financial Report was approved by the Board on 11 November 2013 and the above responsibility statement was signed on its behalf by John Owen, Chairman. Twenty Largest Holdings at 30 September 2013 Twenty Largest Holdings, including Balance Gross %1 derivatives Sheet Asset Value Exposure £'000 £'000 Wing Hang Bank Limited 33,610 33,610 4.4 Provider of commercial banking and related financial services CITIC Securities Company Limited 28,959 28,959 3.8 Broker and asset manager Tencent Holdings Limited* 20,562 25,523 3.3 Provides internet, mobile and telecommunications value-added services SouFun Holdings Limited 23,484 23,484 3.1 Real estate internet website operator 21Vianet Group 23,237 23,237 3.0 Largest carrier-neutral internet data centre services provider in China Sina China 22,662 22,662 3.0 Owns Weibo social network AIA Group* 17,226 22,314 2.9 Insurance company based in Hong Kong Alibaba Group2 20,598 20,598 2.7 China's major e-commerce group SAIC Motor Corporation Limited 18,227 18,227 2.4 Automobile manufacture and distribution company AsiaInfo-Linkage 18,077 18,077 2.4 Telecommunications software solutions provider in China WuXi Pharma Tech 16,609 16,609 2.2 Pharmaceutical, biotechnology and medical device research company Haitong Securities 16,471 16,471 2.2 Chinese broker Hutchison China MediTech Limited3 15,506 15,506 2.0 Pharmaceutical and healthcare group operating primarily in China China Longyuan Power Group 14,702 14,702 1.9 The largest wind power producer in China HSBC Holdings plc (Hong Kong listed)* 10,597 13,838 1.8 Global banking and financial services company Bitauto Holdings Limited 13,277 13,277 1.8 China's leading auto internet company Air China Limited* 10,966 12,994 1.7 Largest Chinese airline Kingsoft 12,796 12,796 1.7 Chinese software company Ports Design* 9,356 12,408 1.6 Designs, manufactures and retails fashion garments Lee's Pharmaceutical Holdings Limited 12,165 12,165 1.6 Pharmaceutical company Twenty Largest Holdings (2012: 50.7%) 359,087 377,457 49.5 Other Investments including derivatives 359,096 384,498 50.5 Total Investments including derivatives 718,183 761,955 100.0 * Includes investment via CFDs 1 % of total gross asset exposure 2 Unlisted investment 3 Quoted on AIM Income Statement Six months Year Six months ended ended ended 30 September 31 March 30 September 2013 2013 2012 unaudited audited unaudited revenue capital total revenue capital total revenue capital total Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue Investment 2 12,420 - 12,420 14,278 - 14,278 12,468 - 12,468 income Other 2 3 - 3 5 - 5 2 - 2 income Net 2 41 - 41 856 - 856 835 - 835 derivative income Total 12,464 - 12,464 15,139 - 15,139 13,305 - 13,305 revenue Gains/ - 46,531 46,531 - 87,198 87,198 - (39,845) (39,845) (losses) on investments designated at fair value through profit or loss Net gains/ - 2,384 2,384 - (115) (115) - (2,850) (2,850) (losses) on derivative instruments held at fair value through profit or loss Foreign (44) (148) (192) (19) 890 871 (29) (74) (103) exchange (losses)/ gains on other net assets Foreign - 6,023 6,023 - (4,898) (4,898) - 861 861 exchange gains/ (losses) on bank loans Total 12,420 54,790 67,210 15,120 83,075 98,195 13,276 (41,908) (28,632) income and gains/ (losses) Expenses Investment (1,844) (1,844) (3,688) (4,187) (4,187) (8,374) (1,942) (1,942) (3,884) management fee Performance - (1,148) (1,148) - - - - - - fee Other (832) - (832) (1,573) - (1,573) (770) - (770) expenses Profit/ 9,744 51,798 61,542 9,360 78,888 88,248 10,564 (43,850) (33,286) (loss) before finance costs and taxation Finance costs Interest on (403) (403) (806) (871) (871) (1,742) (448) (448) (896) bank loans Profit/ 9,341 51,395 60,736 8,489 78,017 86,506 10,116 (44,298) (34,182) (loss) before taxation Taxation (357) (598) (955) (289) (809) (1,098) (282) (303) (585) Net profit/ 8,984 50,797 59,781 8,200 77,208 85,408 9,834 (44,601) (34,767) (loss) after taxation for the period Earnings/ 3 1.43p 8.10p 9.53p 1.25p 11.76p 13.01p 1.49p (6.78p) (5.29p) (loss) per Ordinary Share The Company does not have any income or expenses that are not included in the net profit/(loss) for the period. Accordingly the "Net profit/(loss) after taxation for the period" is also the "Total comprehensive income for the period" and no separate Statement of Comprehensive Income has been presented. The total column of this statement represents the Income Statement of the Company and is prepared in accordance with IFRS. The revenue return and capital return columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the Association of Investment Companies. All of the profit/(loss) and total comprehensive income/(loss) is attributable to the equity shareholders of the Company. There are no minority interests. All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. Statement of Changes in Equity Notes share share capital other capital revenue total capital premium redemption reserve reserve reserve equity £'000 account reserve £'000 £'000 £'000 £'000 £'000 £'000 Equity 6,598 211,569 29 449,909 (116,378) 7,248 558,975 shareholders' funds at 31 March 2012 Repurchase of 5 (41) - 41 (2,989) - - (2,989) Ordinary Shares Net profit/ - - - - (44,601) 9,834 (34,767) (loss) after taxation for the period Dividend paid 4 - - - - - (4,934) (4,934) Equity 6,557 211,569 70 446,920 (160,979) 12,148 516,285 shareholders' funds at 30 September 2012 Equity 6,598 211,569 29 449,909 (116,378) 7,248 558,975 shareholders' funds at 31 March 2012 Repurchase of 5 (66) - 66 (5,216) - - (5,216) Ordinary Shares Net profit - - - - 77,208 8,200 85,408 after taxation for the year Dividend paid 4 - - - - - (4,934) (4,934) Equity 6,532 211,569 95 444,693 (39,170) 10,514 634,233 shareholders' funds at 31 March 2013 Repurchase of 5 (575) - 575 (52,812) - - (52,812) Ordinary Shares Net profit - - - - 50,797 8,984 59,781 after taxation for the period Dividend paid 4 - - - - - (6,233) (6,233) Equity 5,957 211,569 670 391,881 11,627 13,265 634,969 shareholders' funds at 30 September 2013 Balance Sheet Company number 7133583 30.09.13 31.03.13 30.09.12 unaudited audited unaudited Notes £'000 £'000 £'000 Non current assets Investments designated at fair 715,355 712,898 596,661 value through profit or loss - Current assets Derivative assets held at fair 7,649 8,592 6,908 value through profit or loss Amounts held at futures clearing - 4,056 8,022 houses and brokers Other receivables 13,938 3,131 10,464 Cash and cash equivalents 6,482 18,511 7,208 28,069 34,290 32,602 Current liabilities Derivative liabilities held at (4,821) (3,110) (5,224) fair value through profit or loss Bank loans (92,716) (98,739) (92,980) Other payables (10,918) (11,106) (14,774) (108,455) (112,955) (112,978) Net current liabilities (80,386) (78,665) (80,376) Net assets 634,969 634,233 516,285 Equity attributable to equity shareholders Share capital 5 5,957 6,532 6,557 Share premium account 211,569 211,569 211,569 Capital redemption reserve 670 95 70 Other reserve 391,881 444,693 446,920 Capital reserve 11,627 (39,170) (160,979) Revenue reserve 13,265 10,514 12,148 ---------- Total equity shareholders' funds 634,969 634,233 516,285 Net asset value per Ordinary Share 6 106.59p 97.09p 78.73p Cash Flow Statement Six Six months Year months ended ended ended 30.09.13 31.03.13 30.09.12 unaudited audited unaudited £'000 £'000 £'000 Operating activities Cash inflow from investment income 9,980 13,394 11,199 Cash inflow from derivative income 101 867 892 Cash inflow from other income 3 5 2 Cash outflow from directors' fees (78) (156) (75) Cash outflow from other payments (3,037) (9,618) (5,361) Cash outflow from purchase of (203,308) (443,379) (236,058) investments Cash outflow from the cost of (4,852) (17,861) (13,561) derivatives Cash inflow from sale of investments 235,952 445,595 226,718 Cash inflow from the proceeds of 11,003 20,054 16,817 derivatives Cash inflow/(outflow) from amounts 4,056 (384) (4,100) held at futures clearing houses and brokers Net cash inflow/(outflow) from 49,820 8,517 (3,527) operating activities before servicing of finance Servicing of finance Cash outflow from interest on bank (811) (1,736) (875) loans Net cash inflow/(outflow) from 49,009 6,781 (4,402) operating activities and servicing of finance Financing activities Cash outflow from the repurchase of (54,657) (4,349) (3,505) Ordinary Shares Cash outflow from dividend paid to (6,233) (4,934) (4,934) shareholders Net cash outflow from financing (60,890) (9,283) (8,439) activities Decrease in cash and cash equivalents (11,881) (2,502) (12,841) Cash and cash equivalents at the 18,511 20,123 20,123 beginning of the period Effect of foreign exchange movements (148) 890 (74) Cash and cash equivalents at the end 6,482 18,511 7,208 of the period Notes to the Financial Statements 1 ACCOUNTING POLICIES The Interim Financial Statements have been prepared in accordance with International Accounting Standards ("IAS") 34: "Interim Financial Reporting". The accounting policies adopted in the preparation of the Interim Financial Statements are the same as those applied in the Company's Annual Report for the year ended 31 March 2013. Six Six months Year months ended ended ended 30.09.13 31.03.13 30.09.12 unaudited audited unaudited £'000 £'000 £'000 2 INCOME Income from investments designated at fair value through profit or loss Overseas dividends 11,747 13,195 11,924 Overseas scrip dividends 457 526 373 UK dividends 216 284 69 UK scrip dividends - 273 102 12,420 14,278 12,468 Other income Deposit interest 3 5 2 Net derivative income from investments held at fair value through profit or loss Dividends received on long CFDs 587 1,234 1,010 Interest paid on long CFDs (198) (328) (160) Interest received on short CFDs - 8 - Dividends paid on short CFDs (348) (58) (15) 41 856 835 Total income 12,464 15,139 13,305 Six Six months Year months ended ended ended 30.09.13 31.03.13 30.09.12 unaudited audited unaudited £'000 £'000 £'000 3 EARNINGS/(LOSS) PER ORDINARY SHARE Revenue earnings per Ordinary 1.43p 1.25p 1.49p Share Capital earnings/(loss) per 8.10p 11.76p (6.78p) Ordinary Share Total earnings/(loss) per 9.53p 13.01p (5.29p) Ordinary Share The revenue, capital and total earnings/(loss) per Ordinary Share are based on the net profit/(loss) after taxation in the period divided by the weighted average number of Ordinary Shares in issue during the period, as shown below: Six Six months Year months ended ended ended 30.09.13 31.03.13 30.09.12 unaudited audited unaudited £'000 £'000 £'000 Revenue net profit after 8,984 8,200 9,834 taxation Capital net profit/(loss) 50,797 77,208 (44,601) after taxation Total net profit/(loss) after 59,781 85,408 (34,767) taxation Weighted average number of 627,470,518 656,533,795 657,844,644 Ordinary Shares in issue Six Six months Year months ended ended ended 30.09.13 31.03.13 30.09.12 unaudited audited unaudited £'000 £'000 £'000 4 DIVIDEND Dividend paid Final dividend paid of 1.00 pence 6,233 - - per Ordinary Share for the year ended 31 March 2013 Final dividend paid of 0.75 pence - 4,934 4,934 per Ordinary Share for the year ended 31 March 2012 6,233 4,934 4,934 No dividend has been declared for the six month period to 30 September 2013. Six months Six months ended Year ended ended 30.09.13 31.03.13 30.09.12 unaudited audited unaudited 5 SHARE CAPITAL Shares £'000 Shares £'000 Shares £'000 Issued, allotted and fully paid Ordinary Shares of 1 penny each Beginning of the 653,229,480 6,532 659,754,480 6,598 659,754,480 6,598 period Repurchases of (57,490,000) (575) (6,525,000) (66) (4,025,000) (41) Ordinary Shares of 1 penny each End of the 595,739,480 5,957 653,229,480 6,532 655,729,480 6,557 period 6 NET ASSET VALUE PER ORDINARY SHARE The net asset value per Ordinary Share is based on net assets of £634,969,000 (31 March 2013: £634,233,000 and 30 September 2012: £516,285,000) and on 595,739,480 (31 March 2013: 653,229,480 and 30 September 2012: 655,729,480) Ordinary Shares, being the number of Ordinary Shares in issue at the period end. 7 UNAUDITED FINANCIAL STATEMENTS The results for the six month periods to 30 September 2013 and 30 September 2012, which are unaudited, constitute non-statutory accounts within the meaning of Section 435 of the Companies Act 2006. The figures and financial information for the year to 31 March 2013 are extracted from the latest published Financial Statements, on which the Independent Auditor gave an unqualified report, and they have been delivered to the Registrar of Companies. Glossary of Terms BENCHMARK INDEX The Benchmark Index is MSCI China Index total return (net) - in UK sterling and is a composite of China "B", "H", "Red Chip" and "P Chip" share classes. CHINA "B" SHARES Shares traded on the Shenzhen Stock Exchange and Shanghai Stock Exchange in Hong Kong dollars and US dollars, respectively. The shares were originally intended to be available only to foreign individual and institutional investors, however, since February 2001, they have been available to domestic individual investors who trade through legal foreign currency accounts. CHINA "H" SHARES Shares in companies incorporated in the PRC which are listed on the Hong Kong Stock Exchange. They are available to non-Chinese investors and are traded in Hong Kong dollars on the Hong Kong Stock Exchange. COLLATERAL Assets provided as security. CONTRACT FOR DIFFERENCE (CFD) A Contract For Difference is a derivative. It is a contract between the Company and an investment bank at the end of which the parties exchange the difference between the opening price and the closing price of the underlying asset of the specified financial instrument. It does not involve the Company buying or selling the underlying asset, only agreeing to receive or pay the movement in its share price. A Contract For Difference allows the Company to gain access to the movement in the share price by depositing a small amount of cash known as margin. The Company may reason that the asset price will rise, by buying ("long" position) or fall, by selling ("short" position). If the Company holds long positions, dividends are received and interest is paid. If the Company holds short positions, dividends are paid and interest is received. DEBT Bank borrowings and long Contracts For Difference. DERIVATIVES Financial instruments whose value is derived from the value of an underlying asset or other financial instruments such as stocks, bonds, currency exchange rates, real estate and commodities, or market benchmarks such as interest rates. The main categories of derivatives are Contracts For Difference, futures, and options. DISCOUNT If the share price of the Company is lower than the net asset value per ordinary share, the Company's shares are said to be trading at a discount. It is shown as a percentage of the net asset value per ordinary share. EQUITY LINKED NOTES OR ELN Debt instruments whose return on investment is linked to specific equities or equity markets. The return on equity linked notes may be determined by an equity index, a basket of equities, or a single equity. FAIR VALUE The carrying value in the Balance Sheet and it is also the difference between settlement price and the underlying value of the security. FORWARD CURRENCY CONTRACT An agreement to buy or sell a currency, commodity or other asset at a specified future date and at a predetermined price. It is not standardised and is not traded on organised exchanges. FUTURE OR FUTURE CONTRACT An agreement to buy or sell a stated amount of a security, currency or commodity at a specific future date and at a pre-agreed price. GEARING Gross asset exposure in excess of net assets. GROSS ASSETS Net Assets plus borrowings. GROSS ASSET EXPOSURE The value of the portfolio to which the Company is exposed, whether through direct or indirect investment (including the economic value of the exposure in the underlying asset of the derivatives, but excluding forward currency contracts). HEDGING A hedge position will demonstrate risk reduction qualities by delivering short exposure to an asset which has regional congruence and a correlation of at least 80% to long exposures in the Company's portfolio. It therefore distinguishes itself from a "short" which is a position not opened with the objective of reducing the long exposure in the portfolio. Qualifying hedge exposures do not count towards the short exposure limits. For the purposes of calculating gross asset exposure the exposure attributed to the hedge positions will be deducted from the exposure of the corresponding long positions. INDEX LINKED SECURITIES Debt instruments whose return on investment is linked to changes in interest rates, stock exchanges, or other price indices. MANAGEMENT FEE The annual management fee is calculated as 1.2% of the net asset value of the Company. NET ASSET VALUE OR NAV PER ORDINARY SHARE The NAV per ordinary share is calculated as shareholders' funds divided by the number of ordinary shares in issue. OPTIONS Options provide the right to acquire or sell instruments at an agreed price at an agreed date. Options may be call or put and are used to gain or reduce exposure to the underlying asset on a conditional basis. P CHIPS Companies controlled by mainland individuals, with the establishment and origin of the company in mainland China. P Chips are incorporated outside of the People's Republic of China (PRC) and traded on the Stock Exchange of Hong Kong with a majority of revenues or assets derived from Mainland China. PERFORMANCE FEE The Investment Managers are entitled to an annual performance fee of 15% of any change in NAV attributable to performance which is more than 2% above the returns on the MSCI China Index total return (net) - in UK sterling (after making good any cumulative underperformance, including the 2% hurdle, carried forward from previous years), subject to a maximum performance fee payable in any year equal to 1.5% of the arithmetic mean of the value of assets with the valuation calculated at the end of each month during the year. PREMIUM If the share price of the Company is higher than the net asset value per ordinary share, the Company's shares are said to be trading at a premium. The premium is shown as a percentage of the net asset value per ordinary share. RED CHIPS The term used to describe companies incorporated outside China but which are based in mainland China. Red Chips are listed on, and are required to observe the filing and reporting requirements of, the Hong Kong Stock Exchange. Red Chips typically have a significant portion of their business interests located in mainland China and many are owned, either directly or indirectly, by organisations or enterprises controlled by the Chinese state, provinces or municipalities. SHAREHOLDERS' FUNDS Also described as net asset value, shareholders' funds represent the total value of the Company's assets less the total value of its liabilities as shown in the balance sheet. UNLISTED SECURITIES Securities which are not listed on a regulated stock exchange. These are stated at best estimate of fair value, based on recognised valuation techniques which may take account of recent arm's length transactions in the investments. Directory BOARD OF DIRECTORS John Owen CMG MBE DL (Chairman) Nicholas Bull FCA (Senior Independent Director) David Causer FCA (Chairman of the Audit Committee) The Hon. Peter Pleydell-Bouverie DL (Chairman of the Investment Committee) Elisabeth Scott Andrew Wells INVESTMENT MANAGER FIL Investment Management (Hong Kong) Limited Level 21 Two Pacific Place 88 Queensway Admiralty Hong Kong UNLISTED INVESTMENT MANAGER, SECRETARY AND REGISTERED OFFICE FIL Investments International Beech Gate Millfield Lane Lower Kingswood Tadworth Surrey KT20 6RP FINANCIAL ADVISERS AND STOCKBROKERS Cenkos Securities plc 6,7,8 Tokenhouse Yard London EC2R 7AS INDEPENDENT AUDITOR Grant Thornton UK LLP Chartered Accountants and Registered Auditor 30 Finsbury Square London EC2P 2YU BANKERS AND CUSTODIAN JPMorgan Chase Bank (London Branch) 125 London Wall London EC2Y 5AJ REGISTRARS Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU LAWYERS Slaughter and May One Bunhill Row London EC1Y 8YY Information for Investors CONTACT INFORMATION Private investors: call free on 0800 41 41 10, 9am to 6pm, Monday to Saturday. Financial advisers: call free on 0800 41 41 81, 8am to 6pm, Monday to Friday. www.fidelity.co.uk/its Existing shareholders who have a specific query regarding their holding or need to provide update information, for example a change of address, should contact the appropriate administrator. Holders of ordinary shares Capita Asset Services, Registrars to Fidelity China Special Situations PLC, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Telephone: 0871 664 0300 (calls cost 10p per minute plus network extras. Lines are open 8.30am to 5.30pm, Monday to Friday) Email: ssd@capitaregistrars.com. Details of individual shareholdings and other information can also be obtained from the Registrars' website: www.capitaregistrars.com Fidelity Share Plan investors Fidelity Investment Trust Share Plan, PO Box 24035, 12 Blenheim Place, Edinburgh EH7 9DD. Telephone: 0845 358 1107 (calls to this number are charged at 3.95p per minute from a BT landline. Other telephone service providers' costs may vary). Fidelity ISA investors Fidelity, using the freephone numbers given above, or by writing to: UK Customer Service, Fidelity Investments, Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge, Kent TN11 9DZ. General enquiries should be made to FIL Investments International, the Secretary, at the Company's registered office: FIL Investments International, Investment Trusts, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. Telephone: 01732 36 11 44 Fax: 01737 83 68 92 www.fidelity.co.uk/its FINANCIAL CALENDAR 30 September 2013 - Interim period end November 2013 - announcement of Interim results Beginning of December - publication of Interim Financial Report 31 March 2014 - financial year end June 2014 - publication of Annual Report July 2014 - Annual General Meeting FURTHER INFORMATION The Fidelity Individual Savings Account ("ISA") is offered and managed by Financial Administration Services Limited. The Fidelity Investment Trust Share Plan is managed by FIL Investments International. Both companies are authorised and regulated by the Financial Conduct Authority. The Fidelity Investment Trust Share Plan is administered by The Bank of New York Mellon and shares will be held in the name of The Bank of New York Nominees Limited. The value of savings and eligibility to invest in an ISA will depend on individual circumstances and all tax rules may change in the future. Fidelity investment trusts are managed by FIL Investments International. Fidelity only gives information about its own products and services and does not provide investment advice based on individual circumstances. Should you wish to seek advice, please contact a Financial Adviser. Please note that the value of investments and the income from them may fall as well as rise and the investor may not get back the amount originally invested. Past performance is not a guide to future returns. For funds that invest in overseas markets, changes in currency exchange rates may affect the value of your investment. Investing in small and emerging markets can be more volatile than other more developed markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may already have been acted upon by Fidelity. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and symbol are trademarks of FIL Limited. The content of websites referred to in this document do not form part of this Interim Financial Report. Warning to Shareholders SHARE FRAUD WARNING Share fraud includes scams where investors are called out of the blue and offered shares that often turn out to be worthless or non-existent, or an inflated price for shares they own. These calls come from fraudsters operating in `boiler rooms' that are mostly based abroad. While high profits are promised, those who buy or sell shares in this way usually lose their money. The Financial Conduct Authority (FCA) has found most share fraud victims are experienced investors who lose an average of £20,000, with around £200m lost in the UK each year. PROTECT YOURSELF If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports, you should take these steps before handing over any money: 1. Get the name of the person and organisation contacting you. 2. Check the FCA Register at www.fca.org.uk/register to ensure they are authorised. 3. Use the details on the FCA Register to contact the firm. 4. Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date. 5. Search the FCA's website list of unauthorised firms and individuals to avoid doing business with. 6. REMEMBER: if it sounds too good to be true, it probably is! If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong. REPORT A SCAM If you are approached about a share scam you should tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out about the latest investment scams. You can also call the Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040 Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and symbol are trademarks of FIL Limited Printed on FSC® certified paper. 100% of the inks used are vegetable oil based 95% of press chemicals are recycled for further use and on average 99% of any waste associated with this production will be recycled. The FSC® logo identifies products which contain wood from well-managed forests certified in accordance with the rules of the Forest Stewardship Council®. This document is printed on Cocoon Silk; a paper made using 50% recycled fibre from genuine waste paper and 50% virgin fibre. The unavoidable carbon emissions generated during the manufacture and delivery of this document, have been reduced to net zero through a verified, carbon offsetting project.

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