Half-year Report
02/08/2023 07:00
FIDELITY EUROPEAN TRUST PLC
Half-Yearly Results for the six months ended 30 June 2023 (unaudited)
Financial Highlights:
* The Board of Fidelity European Trust PLC (the “Company”) declares an
interim dividend of 3.26 pence per share, an increase of 5.8% on the prior
year.
* The net asset value (“NAV”) of the Company increased by +11.1% for the
six months ending 30 June, outperforming the FTSE World Europe (ex UK) Index,
which returned +9.3%.
* The share priced matched the Benchmark Index, returning +9.3% over the
reporting period.
* The Company remains the top performer in the AIC peer group over one, five
and ten years*.
* The Company continues to focus on attractively valued companies with strong
balance sheets and consistent dividend growth.
*Data according to the AIC as at 24/07/23
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
Portfolio Managers’ Half-Yearly Review
Performance Review
During the first six months of the year the net asset value (“NAV”) total
return was +11.1% compared to a total return of +9.3% for the FTSE World
Europe (ex UK) Index which is the Company’s Benchmark Index. The share price
total return was +9.3%, which is below the NAV total return because of a
widening of the share price discount to NAV. (All figures in UK sterling.)
Market Review
Continental European markets were unexpectedly strong in the first half of
this year, as investors concerns moderated regarding global economic growth
and as corporate earnings proved more resilient than feared. UK sterling
appreciated by +3% against the Euro during this six month period so in Euro
terms, the continental European benchmark rose +12% which is impressive,
however much less than the Nasdaq which rocketed +30% in equivalent terms!
The market recovery from the lows of October 2022 accelerated in January
boosted by confirmation that China would relax its strict COVID policies and
“re-open”. This positive sentiment was tested by the collapse of the
Silicon Valley Bank (SVB) in early March, and the subsequent demise of Credit
Suisse, but the market shrugged these off and ended the first quarter at close
to its highest levels for the period. First quarter corporate results were
better than anticipated (despite a technical recession in Germany). There was
also a flurry of excitement regarding the likely long term impact of
generative Artificial Intelligence (AI) which boosted technology names (such
as ASML), but overall, the market stalled in the second quarter as investors
worried that central banks were still in tightening mode given the resilience
of the global economy and the stickiness of inflation. Like the US stock
market, the continental European markets were led higher by a narrow group of
mega-cap companies, often in the technology or luxury sectors. The energy
sector was the main laggard, as commodity prices fell from the elevated levels
of 2022, despite China “re-opening” and the continued war in Ukraine.
Portfolio Managers’ Report
The Company’s NAV total return outperformed the Company’s Benchmark Index
over the six month period by almost 2%. Much of this outperformance was due to
the gearing of the Company which was maintained throughout the period at
around 13%. Shareholders of the Company will remember that, as mentioned in
the 2021 Annual Report, the Board endorsed an intention to maintain a
relatively fixed level of gearing within a range that is approximately double
the 6% average gearing from the end of the global financial crisis until the
global pandemic. Gearing is, of course, one of the great advantages of an
investment trust, and although it may amplify volatility in the short term, we
expect it to enhance long term returns. The agreed level of gearing takes into
account our cautious investment approach and allows considerable headroom
before published limits are reached in the event of a sharp sell-off in the
markets.
The contribution from stock-picking was also positive during this period. The
stand-out performer during the half-year was 3i Group which continued to
impress with positive results updates and strong current trading figures from
their largest investment, the continental European discount retail group,
Action. Financials, which is the Company’s largest sector overweight, was
however rocked by the bankruptcy of SVB. Bankinter suffered as investors
worried that it was a European equivalent of a US regional bank with a deposit
base that might prove less sticky than other European banks, given its recent
growth and more sophisticated customer base. Sampo, the Nordic insurance
company, also performed poorly following disappointing results and
conservative guidance regarding capital distributions to shareholders. Roche
continued its lacklustre run, hampered by disappointing guidance for 2023 due
to a drop-off in COVID-related revenues (in diagnostics and pharma) and the
on-going impact of biosimilars (comparable biological medicines) on Rituxan,
Herceptin and Avastin. On a more positive note, LVMH Moët Hennessy and
Hèrmes International defied gravity, once again, on the growing hope that the
Chinese consumers were embarking on so-called “revenge spending” that has
been seen post “re-opening” in the US and Europe.
Top Five Stock Contributors (on a relative basis) Sector Country %
3i Group Financials UK +0.9
ASML Information Technology Netherlands +0.5
Amadeus IT Group Consumer Discretionary Spain +0.5
Hèrmes International Consumer Discretionary France +0.5
L’Oréal Consumer Staples France +0.4
Top Five Stock Detractors (on a relative basis) Sector Country %
Sampo Financials Finland -0.6
TotalEnergies Energy France -0.6
Bankinter Financials Spain -0.4
Symrise Materials Germany -0.3
EQT Financials Sweden -0.3
Outlook
There are plenty of reasons to be bearish. More than a year ago, the two-year
treasury yields rose above the ten-year treasury yields in the US bond market
(it is normally the other way around). This ‘yield curve inversion’ has,
historically, been a lead indicator of recession about 80% of the time, but
the lag between the date of inversion and recession can be six months to three
years. It is a bit like seeing a big dark cloud on the horizon and predicting
it will rain soon! To date, the global economy and corporate earnings have
been resilient while stock markets have recovered quite dramatically since the
lows in October, such that share prices are now back in the middle of their
normal valuation ranges. It is hard to imagine that this will not be tested in
the months ahead. Having said that, the pandemic and subsequent monetary and
fiscal policies have made this an unusual cycle. At present, investors seem to
be expecting a soft landing or no global recession at all. Earnings forecasts
for 2023 are similar to earnings delivered for 2022 but analysts are still
forecasting growth in 2024. The capacity of consumers (the most important
contributors to GDP) to maintain spending levels has surprised many. But, in
general, they still have jobs and pandemic savings to burn. The cost-of-living
crisis may ease too as commodity prices lead general pricing downwards on
goods and services. This disinflation may also be helped along by governments
‘encouraging’ corporates to abandon ‘greedflation’ (which might hinder
company margins). So maybe the consumer will keep the global economy bumbling
along. Having said that, credit conditions are tightening (post SVB) and the
US Federal Reserve and government are draining liquidity via quantitative
tightening and short term bond issuance, and there is a multi-year refinancing
requirement ahead for consumers and corporates alike. Geopolitical risks
remain elevated too with the war in Europe and continued tensions between the
US and China. Whatever our views on the outlook, we will maintain the current
level of gearing and will continue to focus on attractively valued companies
with strong balance sheets that should be resilient and able to grow
dividends, even in a more difficult economic environment.
SAM MORSE
Portfolio Manager
Marcel Stötzel
Co-Portfolio Manager
1 August 2023
Twenty Largest Holdings as at 30 June 2023
The Asset Exposures shown below measure exposure to market price movements as
a result of owning shares and derivative instruments. The Fair Value is the
actual value of the portfolio as reported in the Balance Sheet. Where a
contract for difference (“CFD”) is held, the Fair Value reflects the
profit or loss on the contract since it was opened and is based on how much
the share price of the underlying share has moved.
Asset Exposure Fair
£’000 % 1 Value
£’000
Long Exposures – shares unless otherwise stated
Nestlé
Food Producers 102,451 6.8 102,451
ASML
Technology Hardware & Equipment 92,644 6.1 92,644
LVMH Moët Hennessy
Personal Goods 86,605 5.7 86,605
Novo Nordisk
Pharmaceuticals & Biotechnology 82,079 5.4 82,079
Roche
Pharmaceuticals & Biotechnology 69,925 4.6 69,925
TotalEnergies
Oil, Gas & Coal 64,304 4.3 64,304
L’Oréal
Personal Goods 63,203 4.2 63,203
EssilorLuxottica
Medical Equipment & Services 51,561 3.4 51,561
SAP (long CFD)
Software & Computer Services 51,231 3.4 (164)
Sanofi (long CFD)
Pharmaceuticals & Biotechnology 47,733 3.2 2,076
Legrand (long CFD)
Electronic & Electrical Equipment 45,085 3.0 (1,033)
Hèrmes International
Personal Goods 44,523 2.9 44,523
MTU Aero Engines
Aerospace & Defense 44,225 2.9 44,225
Partners Group Holding
Investment Banking & Brokerage Services 42,805 2.8 42,805
3i Group
Investment Banking & Brokerage Services 41,286 2.7 41,286
Assa Abloy
Construction & Materials 40,720 2.7 40,720
Deutsche Börse Group
Investment Banking & Brokerage Services 38,606 2.6 38,606
Sampo
Non-Life Insurance 36,170 2.4 36,170
Amadeus IT Group
Software & Computer Services 35,556 2.3 35,556
Linde (long CFD)
Chemicals 33,822 2.2 635
--------------- --------------- ---------------
Twenty largest long exposures 1,114,534 73.6 938,177
Other long exposures 522,642 34.5 522,642
--------------- --------------- ---------------
Total long exposures before long futures 2,3 1,637,176 108.1 1,460,819
========= ========= =========
Long Futures
Euro Stoxx 50 Future September 2023 3 60,659 4.0 1,120
--------------- --------------- ---------------
Total long exposures after long futures 3 1,697,835 112.1 1,461,939
========= ========= =========
Short Exposures
Short CFDs (2 Holdings) 18,101 1.2 (396)
--------------- --------------- ---------------
Gross Asset Exposure 3,4 1,715,936 113.3
========= =========
Portfolio Fair Value 5 1,461,543
Net current assets (excluding derivative assets and liabilities) 53,000
---------------
Shareholders’ Funds (per the Balance Sheet below) 1,514,543
=========
1 Asset Exposure is expressed as a percentage of Shareholders’ Funds.
2 Total long exposures before long futures comprises investments of
£1,459,305,000 and long CFDs of £177,871,000.
3 See Note 13 below.
4 Gross Asset Exposure comprises market exposure to investments of
£1,459,305,000 plus market exposure to all derivative instruments of
£256,631,000. Derivative instruments comprise long CFDs of £177,871,000,
long futures of £60,659,000 and short CFDs of £18,101,000.
5 Portfolio Fair Value comprises investments of £1,459,305,000 plus
derivative assets of £3,919,000 less derivative liabilities of £1,681,000
(per the Balance Sheet below).
Interim Management Report and Directors’ Responsibility Statement
Interim Dividend
The Board does not influence the Portfolio Managers by imposing any income
objective in any particular period, and the investment focus on companies
capable of growing their dividends remains. The Board acknowledges that both
capital and income growth are components of performance, as reflected in the
investment objective of the Company. It therefore has a policy whereby it
seeks to pay a progressive dividend in normal circumstances and to pay
dividends twice yearly in order to smooth dividend payments for the reporting
year. Unlike open-ended funds, investment trusts can hold back some of the
income they receive in good years, thereby building up revenue reserves, which
can then be used to supplement dividends during difficult times. The Board has
over the past few years augmented revenue reserves by retaining a small
proportion of earnings to be used in difficult times, as in the case of the
final dividend paid in May 2021.
The Company’s revenue return for the six months to 30 June 2023 was 7.38
pence per ordinary share (30 June 2022: 7.08 pence). The Board has declared an
interim dividend of 3.26 pence per ordinary share which is an increase of 5.8%
on the 3.08 pence per ordinary share paid as the interim dividend in 2022.
This will be paid on 27 October 2023 to shareholders on the register at close
of business on 22 September 2023 (ex-dividend date 21 September 2023).
Shareholders may choose to reinvest their dividends for additional shares in
the Company.
Discount Management and Treasury Shares
The Board has an active discount management policy, the primary purpose of
which is to reduce discount volatility. It seeks to maintain the discount in
single digits in normal market conditions. Buying shares at a discount also
results in an enhancement to the NAV per ordinary share.
In order to assist in managing the discount, the Board has shareholder
approval to hold ordinary shares repurchased by the Company in Treasury,
rather than cancel them. Shares in Treasury are then available to be re-issued
at NAV per ordinary share or at a premium to NAV per ordinary share,
facilitating the management of and enhancing liquidity in the Company’s
shares.
In the reporting period and up to the date of this report, the discount
remained in single digits and the Company did not repurchase any ordinary
shares into Treasury or for cancellation.
Principal Risks and Uncertainties
The Board, with the assistance of the Manager (FIL Investment Services (UK)
Limited), 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 faced by the Company.
The Board considers that the principal risks and uncertainties faced by the
Company fall into the following categories: economic and geopolitical risks;
market risk; discount control risk; operational risk; cybercrime risk;
investment performance risk (including the use of derivatives and gearing);
environmental, social and governance (ESG) risks; key person risk; operational
resilience risk; and tax and regulatory risks. Information on each of these
risks is given in the Strategic Report section of the Annual Report for the
year ended 31 December 2022. A copy of the Annual Report can be found on the
Company’s pages of the Manager’s website at www.fidelity.co.uk/europe.
While the principal risks and uncertainties are the same as those at the
previous year end, the uncertainty continues to be heightened by the ongoing
Russia and Ukraine conflict dominating political risks and industry concerns.
There is geopolitical and economic uncertainty, in particular concerns over
global economic growth, inflation and financial distress. Earlier in the year,
the collapse of Silicon Valley Bank and the buyout of Credit Suisse caused
turmoil in the global banking sector and volatility in the markets. The
quantum of risks continues to change, and the Board remains vigilant in
monitoring such risks.
Climate change continues to be a key emerging issue, as well as a principal
risk, that is confronting asset managers and their investors. The Board notes
that the Manager has integrated ESG considerations, including climate change,
into the Company’s investment process. The Board will continue to monitor
how this may potentially impact the Company, the main risk being the impact on
investment valuations and shareholder returns.
Investors should be prepared for market fluctuations and remember that holding
shares in the Company should be considered to be a long term investment. Risks
are mitigated by the investment trust structure of the Company which means
that no forced sales need to take place to deal with any redemptions.
Therefore, investments in the Company’s portfolio can be held over a longer
time horizon.
The Manager has appropriate business continuity and operational plans in place
to ensure the uninterrupted provision of services, including investment team
key activities, including those of portfolio managers, analysts and
trading/support functions. It reviews its operational resilience strategies on
an ongoing basis and continues to take all reasonable steps in meeting its
regulatory obligations and protecting its ability to continue operating and to
serve and support its clients, including the Board.
The Company’s other third-party service providers also have similar measures
to ensure that business disruption is kept to a minimum.
Transactions with the Manager and Related Parties
The Manager has delegated the Company’s portfolio management and company
secretariat services to FIL Investments International. Transactions with the
Manager and related party transactions with the Directors are disclosed in
Note 14 to the Financial Statements below.
Going Concern Statement
The Directors have considered the Company’s investment objective, risk
management policies, liquidity risk, credit risk, capital management policies
and procedures, the nature of its portfolio and its expenditure and cash flow
projections. The Directors, having considered the liquidity of the Company’s
portfolio of investments (being mainly securities which are readily
realisable) and 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 can continue in operational existence for
a period of at least twelve months from the date of this Half-Yearly Report.
This conclusion also takes into account the Board’s assessment of the
ongoing risks from the war in Ukraine, significant market events and
regulatory changes.
Accordingly, the Financial Statements of the Company have been prepared on a
going concern basis.
Continuation votes are held every two years and the next continuation vote
will be put to shareholders at the Annual General Meeting in 2025.
BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL
1 August 2023
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (“DTR”) of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
a) The condensed set of Financial Statements contained within the Half-Yearly
Report has been prepared in accordance with the Financial Reporting
Council’s Standard FRS 104: Interim Financial Reporting; and
b) The Portfolio Managers’ Half-Yearly Review and the Interim Management
Report above, include a fair review of the information required by DTR 4.2.7R
and 4.2.8R.
In line with previous years, the Half-Yearly Report has not been audited or
reviewed by the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on 1 August 2023 and the
above responsibility statement was signed on its behalf by Vivian Bazalgette,
Chairman.
Financial Statements
Income Statement for the six months ended 30 June 2023
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
unaudited unaudited audited
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Gains/(losses) on investments – 94,641 94,641 – (172,868) (172,868) – (63,812) (63,812)
Gains/(losses) on derivative instruments – 36,841 36,841 – (29,395) (29,395) – (22,034) (22,034)
Income 4 35,816 – 35,816 33,050 – 33,050 43,042 – 43,042
Investment management fees 5 (1,303) (3,910) (5,213) (1,177) (3,533) (4,710) (2,362) (7,087) (9,449)
Other expenses (507) – (507) (511) – (511) (919) – (919)
Foreign exchange (losses)/gains – (2,599) (2,599) – 502 502 – (372) (372)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before finance costs and taxation 34,006 124,973 158,979 31,362 (205,294) (173,932) 39,761 (93,305) (53,544)
Finance costs 6 (908) (2,724) (3,632) (31) (92) (123) (196) (586) (782)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before taxation 33,098 122,249 155,347 31,331 (205,386) (174,055) 39,565 (93,891) (54,326)
Taxation on return/(loss) on ordinary activities 7 (2,916) – (2,916) (2,241) – (2,241) (2,641) – (2,641)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities after taxation for the period 30,182 122,249 152,431 29,090 (205,386) (176,296) 36,924 (93,891) (56,967)
========= ========= ========= ========= ========= ========= ========= ========= =========
Return/(loss) per ordinary share 8 7.38p 29.91p 37.29p 7.08p (49.97p) (42.89p) 9.00p (22.88p) (13.88p)
========= ========= ========= ========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly the net
return/(loss) on ordinary activities 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. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
No operations were acquired or discontinued in the period and all items in the
above statement derive from continuing operations.
Statement of Changes in Equity for the six months ended 30 June 2023
Notes Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve shareholders’
£’000 account reserve £’000 £’000 funds
£’000 £’000 £’000
Six months ended 30 June 2023 (unaudited)
Total shareholders’ funds at 31 December 2022 10,411 58,615 5,414 1,271,996 34,559 1,380,995
Net return on ordinary activities after taxation for the period – – – 122,249 30,182 152,431
Dividend paid to shareholders 9 – – – – (18,883) (18,883)
--------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 30 June 2023 10,411 58,615 5,414 1,394,245 45,858 1,514,543
========= ========= ========= ========= ========= =========
Six months ended 30 June 2022 (unaudited)
Total shareholders’ funds at 31 December 2021 10,411 58,615 5,414 1,372,360 27,433 1,474,233
Net (loss)/return on ordinary activities after taxation for the period – – – (205,386) 29,090 (176,296)
Dividend paid to shareholders 9 – – – – (17,180) (17,180)
--------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 30 June 2022 10,411 58,615 5,414 1,166,974 39,343 1,280,757
========= ========= ========= ========= ========= =========
Year ended 31 December 2022 (audited)
Total shareholders’ funds at 31 December 2021 10,411 58,615 5,414 1,372,360 27,433 1,474,233
Net (loss)/return on ordinary activities after taxation for the year – – – (93,891) 36,924 (56,967)
Repurchase of ordinary shares 11 – – – (6,473) – (6,473)
Dividends paid to shareholders 9 – – – – (29,798) (29,798)
--------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 31 December 2022 10,411 58,615 5,414 1,271,996 34,559 1,380,995
========= ========= ========= ========= ========= =========
Balance Sheet as at 30 June 2023
Company Number 2638812
Notes 30 June 31 December 30 June
2023 2022 2022
unaudited audited unaudited
£’000 £’000 £’000
Fixed assets
Investments 10 1,459,305 1,325,389 1,252,159
--------------- --------------- --------------- ---------------
Current assets
Derivative instruments 10 3,919 521 253
Debtors 12,141 8,128 13,706
Amounts held at futures clearing houses and brokers 5,869 12,891 3,789
Cash and cash equivalents 36,362 44,884 15,955
--------------- --------------- ---------------
58,291 66,424 33,703
========= ========= =========
Current liabilities
Derivative instruments 10 (1,681) (9,633) (4,179)
Other creditors (1,372) (1,185) (926)
--------------- --------------- ---------------
(3,053) (10,818) (5,105)
========= ========= =========
Net current assets 55,238 55,606 28,598
========= ========= =========
Net assets 1,514,543 1,380,995 1,280,757
========= ========= =========
Capital and reserves
Share capital 11 10,411 10,411 10,411
Share premium account 58,615 58,615 58,615
Capital redemption reserve 5,414 5,414 5,414
Capital reserve 1,394,245 1,271,996 1,166,974
Revenue reserve 45,858 34,559 39,343
--------------- --------------- ---------------
Total shareholders’ funds 1,514,543 1,380,995 1,280,757
========= ========= =========
Net asset value per ordinary share 12 370.55p 337.87p 311.61p
========= ========= =========
Notes to the Financial Statements
1 Principal Activity
Fidelity European Trust PLC is an Investment Company incorporated in England
and Wales with a premium listing on the London Stock Exchange. The Company’s
registration number is 2638812, 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 Publication of Non-statutory Accounts
The Financial Statements in this Half-Yearly Report have not been audited by
the Company’s Independent Auditor and do not constitute statutory accounts
as defined in section 434 of the Companies Act 2006 (“the Act”). The
financial information for the year ended 31 December 2022 is extracted from
the latest published Financial Statements of the Company. Those Financial
Statements were delivered to the Registrar of Companies and included the
Independent Auditor’s Report which was unqualified and did not contain a
statement under either section 498(2) or 498(3) of the Act.
3 ACCOUNTING POLICIES
(i) Basis of Preparation
The Company prepares its Financial Statements on a going concern basis and in
accordance with UK Generally Accepted Accounting Practice (“UK GAAP”) and
FRS 102: The Financial Reporting Standard applicable in the UK and Republic of
Ireland, issued by the Financial Reporting Council. The Financial Statements
are also prepared in accordance 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. FRS 104: Interim Financial Reporting has also been applied in
preparing this condensed set of Financial Statements. The accounting policies
followed are consistent with those disclosed in the Company’s Annual Report
and Financial Statements for the year ended 31 December 2022.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for a period of at least twelve
months from the date of approval of these Financial Statements. Accordingly,
the Directors consider it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements. This conclusion also takes
into account the Board’s assessment of the risks faced by the Company as
detailed in the Interim Management Report above.
4 Income
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
£’000 £’000 £’000
Investment income
Overseas dividends 28,415 26,955 35,333
Overseas scrip dividends 957 729 1,052
UK dividends 965 1,075 1,910
--------------- --------------- ---------------
30,337 28,759 38,295
========= ========= =========
Derivative income
Income recognised from futures contracts 1,797 1,083 1,208
Dividends received on long CFDs 3,339 2,858 3,025
Interest received on CFDs 1 61 347 422
--------------- --------------- ---------------
5,197 4,288 4,655
========= ========= =========
Investment and derivative income 35,534 33,047 42,950
========= ========= =========
Other interest
Interest received on collateral, bank deposits and money market funds 276 3 88
Interest received on tax reclaims 6 – 4
--------------- --------------- ---------------
282 3 92
--------------- --------------- ---------------
Total income 35,816 33,050 43,042
========= ========= =========
1 Due to negative interest rates in the prior periods, the Company received
interest on its long CFDs.
Special dividends of £710,000 have been recognised in capital during the
period (six months ended 30 June 2022 and year ended 31 December 2022:
£1,115,000).
5 INVESTMENT MANAGEMENT FEES
Revenue Capital Total
£’000 £’000 £’000
Six months ended 30 June 2023 (unaudited)
Investment management fees 1,303 3,910 5,213
========= ========= =========
Six months ended 30 June 2022 (unaudited)
Investment management fees 1,177 3,533 4,710
========= ========= =========
Year ended 31 December 2022 (audited)
Investment management fees 2,362 7,087 9,449
========= ========= =========
FIL Investment Services (UK) Limited is the Company’s Alternative Investment
Fund Manager and has delegated portfolio management to FIL Investments
International (“FII”). Both companies are Fidelity group companies.
FII charges investment management fees at an annual rate of 0.85% of net
assets up to £400 million and 0.65% of net assets in excess of £400 million.
Fees are payable monthly in arrears and are calculated on a daily basis.
Investment management fees have been allocated 75% to capital reserve in
accordance with the Company’s accounting policies.
6 FINANCE COSTS
Revenue Capital Total
£’000 £’000 £’000
Six months ended 30 June 2023 (unaudited)
Interest paid on collateral and bank deposits – – –
Interest paid on CFDs 647 1,942 2,589
Costs recognised from futures contracts 261 782 1,043
--------------- --------------- ---------------
908 2,724 3,632
========= ========= =========
Six months ended 30 June 2022 (unaudited)
Interest paid on collateral and bank deposits 1 16 47 63
Interest paid on CFDs 15 45 60
--------------- --------------- ---------------
31 92 123
========= ========= =========
Year ended 31 December 2022 (audited)
Interest paid on collateral and bank deposits 1 28 82 110
Interest paid on CFDs 168 504 672
--------------- --------------- ---------------
196 586 782
========= ========= =========
1 Due to negative interest rates in the prior periods, the Company paid
interest on its collateral and bank deposits.
Finance costs have been allocated 75% to capital reserve in accordance with
the Company’s accounting policies.
7 TAXATION ON RETURN/(LOSS) ON ORDINARY ACTIVITIES
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
£’000 £’000 £’000
Overseas taxation 2,916 2,241 2,641
========= ========= =========
8 RETURN/(LOSS) PER ORDINARY SHARE
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
Revenue return per ordinary share 7.38p 7.08p 9.00p
Capital return/(loss) per ordinary share 29.91p (49.97p) (22.88p)
--------------- --------------- ---------------
Total return/(loss) per ordinary share 37.29p (42.89p) (13.88p)
========= ========= =========
The return/(loss) per ordinary share is based on the net return/(loss) on
ordinary activities after taxation for the period divided by the weighted
average number of ordinary shares held outside Treasury during the period, as
shown below:
£’000 £’000 £’000
Net revenue return on ordinary activities after taxation 30,182 29,090 36,924
Net capital return/(loss) on ordinary activities after taxation 122,249 (205,386) (93,891)
--------------- --------------- ---------------
Net total return/(loss) on ordinary activities after taxation 152,431 (176,296) (56,967)
========= ========= =========
Number Number Number
Weighted average number of ordinary shares held outside Treasury during the period 408,730,523 411,016,049 410,346,447
========== ========== ==========
9 DIVIDENDS PAID TO SHAREHOLDERS
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
£’000 £’000 £’000
Final dividend of 4.62 pence per ordinary share paid for the year ended 31 December 2022 18,883 – –
Interim dividend of 3.08 pence per ordinary share paid for the year ended 31 December 2022 – – 12,618
Final dividend of 4.18 pence per ordinary share paid for the year ended 31 December 2021 – 17,180 17,180
--------------- --------------- ---------------
18,883 17,180 29,798
========= ========= =========
The Company has declared an interim dividend for the six month period to 30
June 2023 of 3.26 pence per ordinary share (2022: 3.08 pence). The interim
dividend will be paid on 27 October 2023 to shareholders on the register on 22
September 2023 (ex-dividend date 21 September 2023). The total cost of this
interim dividend, which has not been included as a liability in these
Financial Statements, is £13,325,000 (2022: £12,659,000). This amount is
based on the number of ordinary shares held outside Treasury at the date of
this report.
10 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 table below sets out the Company’s fair value hierarchy:
30 June 2023 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 1,459,305 – – 1,459,305
Derivative instrument assets 1,120 2,799 – 3,919
--------------- --------------- --------------- ---------------
1,460,425 2,799 – 1,463,224
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (1,681) – (1,681)
========= ========= ========= =========
31 December 2022 (audited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 1,325,389 – – 1,325,389
Derivative instrument assets – 521 – 521
--------------- --------------- --------------- ---------------
1,325,389 521 – 1,325,910
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (2,454) (7,179) – (9,633)
========= ========= ========= =========
30 June 2022 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 1,252,159 – – 1,252,159
Derivative instrument assets – 253 – 253
--------------- --------------- --------------- ---------------
1,252,159 253 – 1,252,412
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (348) (3,831) – (4,179)
========= ========= ========= =========
11 SHARE CAPITAL
30 June 2023 31 December 2022 30 June 2022
unaudited audited unaudited
Number of £’000 Number of £’000 Number of £’000
shares shares shares
Issued, allotted and fully paid
Ordinary shares of 2.5 pence each held outside of Treasury
Beginning of the period 408,730,523 10,218 411,016,049 10,275 411,016,049 10,275
Ordinary shares repurchased into Treasury – – (2,285,526) (57) – –
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
End of the period 408,730,523 10,218 408,730,523 10,218 411,016,049 10,275
========== ========== ========== ========== ========== ==========
Ordinary shares of 2.5pence each held in Treasury 1
Beginning of the period 7,717,387 193 5,431,861 136 5,431,861 136
Ordinary shares repurchased into Treasury – – 2,285,526 57 – –
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
End of the period 7,717,387 193 7,717,387 193 5,431,861 136
========== ========== ========== ========== ========== ==========
Total share capital 10,411 10,411 10,411
========== ========== ==========
1 Ordinary shares held in Treasury carry no rights to vote, to receive a
dividend or to participate in a winding up of the Company.
There were no ordinary shares repurchased into Treasury during the period
(year ended 31 December 2022: cost of £6,473,000 and six months ended 30 June
2022: cost of £nil).
12 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the
total Shareholders’ funds divided by the number of ordinary shares held
outside of Treasury.
30.06.23 31.12.22 30.06.22
unaudited audited unaudited
Total shareholders’ funds £1,514,543,000 £1,380,995,000 £1,280,757,000
Ordinary shares held outside of Treasury at the period end 408,730,523 408,730,523 411,016,049
Net asset value per ordinary share 370.55p 337.87p 311.61p
============ ============ ============
It is the Company’s policy that shares held in Treasury will only be
reissued at net asset value per ordinary share or at a premium to net asset
value per ordinary share and, therefore, shares held in Treasury have no
dilutive effect.
13 CAPITAL RESOURCES AND GEARING
The Company does not have any externally imposed capital requirements. The
financial resources of the Company comprise its share capital and reserves, as
disclosed in the Balance Sheet above, and any gearing, which is managed by the
use of derivative instruments. Financial resources are managed in accordance
with the Company’s investment policy and in pursuit of its investment
objective.
The Company’s gross gearing and net gearing at the end of the period is
shown below:
Gross gearing Net gearing
Asset exposure Asset exposure
£’000 %1 £’000 % 1
30 June 2023 (unaudited)
Investments 1,459,305 96.4 1,459,305 96.4
Long CFDs 177,871 11.7 177,871 11.7
Long futures 60,659 4.0 60,659 4.0
--------------- --------------- --------------- ---------------
Total long exposures 1,697,835 112.1 1,697,835 112.1
Short CFDs 18,101 1.2 (18,101) (1.2)
--------------- --------------- --------------- ---------------
Gross asset exposure/net market exposure 1,715,936 113.3 1,679,734 110.9
========= ========= ========= =========
Shareholders’ funds 1,514,543 1,514,543
========= =========
Gearing 2 13.3 10.9
========= ========= =========
31 December 2022 (audited)
Investments 1,325,389 96.0 1,325,389 96.0
Long CFDs 152,446 11.0 152,446 11.0
Long futures 65,056 4.7 65,056 4.7
--------------- --------------- --------------- ---------------
Total long exposures 1,542,891 111.7 1,542,891 111.7
Short CFDs – – – –
--------------- --------------- --------------- ---------------
Gross asset exposure/net market exposure 1,542,891 111.7 1,542,891 111.7
========= ========= ========= =========
Shareholders’ funds 1,380,995 1,380,995
========= =========
Gearing 2 11.7 11.7
========= =========
1 Asset exposure to the market expressed as a percentage of shareholders’
funds.
2 Gearing is the amount by which the gross asset exposure/net market exposure
exceeds shareholders’ funds expressed as a percentage of shareholders’
funds.
Gross gearing Net gearing
Asset exposure Asset exposure
£’000 % 1 £’000 %1
30 June 2022 (unaudited)
Investments 1,252,159 97.8 1,252,159 97.8
Long CFDs 135,626 10.6 135,626 10.6
Long futures 32,215 2.5 32,215 2.5
--------------- --------------- --------------- ---------------
Total long exposures 1,420,000 110.9 1,420,000 110.9
Short CFDs – – – –
--------------- --------------- --------------- ---------------
Gross asset exposure/net market exposure 1,420,000 110.9 1,420,000 110.9
========= ========= ========= =========
Shareholders’ funds 1,280,757 1,280,757
========= =========
Gearing 2 10.9 10.9
========= =========
1 Asset exposure to the market expressed as a percentage of shareholders’
funds.
2 Gearing is the amount by which the gross asset exposure/net market exposure
exceeds shareholders’ funds expressed as a percentage of shareholders’
funds.
14 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
FIL Investment Services (UK) Limited is the Company’s Alternative Investment
Fund Manager and has delegated portfolio management and the role of company
secretary to FIL Investments International (“FII”), the Investment
Manager. Both companies are Fidelity group companies. Details of the fee
arrangements are given in Note 5 above.
During the period, fees for portfolio management services of £5,213,000 (six
months ended 30 June 2022: £4,710,000 and year ended 31 December 2022:
£9,449,000) were payable to FII. At the Balance Sheet date, fees for
portfolio management of £866,000 (31 December 2022: £832,000 and 30 June
2022: £754,000) were accrued and included in other creditors. FII also
provides the Company with marketing services. The total amount payable for
these services during the period was £160,000 (six months ended 30 June 2022:
£147,000 and year ended 31 December 2022: £209,000). At the Balance Sheet
date, no fees for marketing services were accrued and included in other
creditors (31 December 2022 and 30 June 2022: £nil).
As at 30 June 2023, the Board consisted of five non-executive Directors (shown
in the Directory in the Half-Yearly Report), all of whom are considered to be
independent by the Board. None of the Directors have a service contract with
the Company. The Chairman receives an annual fee of £44,500, the Audit
Committee Chair an annual fee of £35,000, the Senior Independent Director an
annual fee of £31,500 and each other Director an annual fee of £29,000. The
following members of the Board hold ordinary shares in the Company: Vivian
Bazalgette 30,000 shares, Fleur Meijs 28,970 shares, Milyae Park nil shares,
Sir Ivan Rogers nil shares and Paul Yates 32,000 shares.
The financial information contained in this Half-Yearly Results Announcement
does not constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the six months ended 30 June
2023 and 30 June 2022 has not been audited or reviewed by the Company’s
Independent Auditor.
The information for the year ended 31 December 2022 has been extracted from
the latest published audited financial statements, which have been filed with
the Registrar of Companies, unless otherwise stated. The report of the Auditor
on those financial statements contained no qualification or statement under
sections 498(2) or (3) of the Companies Act 2006.
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.
A copy of the Half-Yearly Report will shortly be submitted to the National
Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at
www.fidelity.co.uk/europe where up to date information on the Company,
including daily NAV and share prices, factsheets and other information can
also be found.
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