REG-Fidelity European Trust Plc: Annual Financial Report
20/03/2025 07:15
FIDELITY EUROPEAN TRUST PLC
Final Results for the year ended 31 December 2024
Financial Highlights:
* The Board of Fidelity European Trust PLC (the “Company”) recommends a
final dividend of 5.50 pence which together with the interim dividend payment
of 3.60 pence per share (totalling 9.10 pence) represents an increase of 10.3%
over the total dividend of 8.25 pence paid in the prior year.
* During the year ended 31 December 2024, the Company reported a net asset
value (NAV) total return of +0.5% while the Benchmark Index, the FTSE World
Europe ex UK Index, rose by +3.0%.
* Over the same period, the ordinary share price total return of the Company
was -0.1%.
* The Portfolio Managers remain focused on identifying attractively valued
companies which will deliver consistent dividend growth over the long-term.
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
FIL Investments International
Chairman’s Statement
2024 was a busy year on the political stage, with more than half the world’s
population going to the polls. But while UK investors’ attention may
primarily have been caught by the elections at home and in the US, in Europe
the picture has been just as fractious, with right-wing populists agitating
for change in the key economies of France and Germany, as well as making gains
in the European parliament. Despite this uncertain backdrop, shares in
European companies broadly advanced, underpinned by trends such as the growth
in artificial intelligence, defence spending in an environment of continued
geopolitical tension, and the green energy transition. With inflation
moderating across the developed world, the European Central Bank cut interest
rates four times between June and December, with further easing expected in
the year ahead.
As I discuss below, following seven years of outperformance up to and
including 2023, your Portfolio Managers, Sam Morse and Marcel Stötzel, had a
trickier time in 2024. The core of their investment philosophy lies in finding
attractively valued companies with strong balance sheets, business franchises
and dividend growth, which are not overly at risk from external factors such
as the macroeconomic or geopolitical backdrop. With the economy and
geopolitics both at the front of investors’ minds, the market narrative did
not favour your Portfolio Managers’ bottom-up stock picking approach.
However, Sam and Marcel remain dedicated to well-financed, globally relevant
businesses with good pricing power; these factors should stand such companies
in good stead over the longer-term and offer some insulation from the vagaries
of politics and the economy. You can read more about their experiences in 2024
in the Portfolio Managers’ Review which follows this report.
Performance
Shareholders who attended the AGM in May 2024 may recall my observation that
seven years of outperformance was unusual, cautioning that even the best fund
managers underperform from time to time. These words unfortunately turned out
to be prescient, as the Company did underperform its Benchmark Index (the FTSE
World Europe ex UK Index) in the year under review, with a NAV total return of
+0.5% compared with a total return of +3.0% for the Benchmark Index. The share
price total return was –0.1%, reflecting a very slight widening in the
discount to NAV from 7.3% at the start of the year to just below 8.0% at the
year end. Underperformance, however inevitable it may be from time to time, is
always disappointing, but perhaps some small comfort can be taken from the
fact that your Company beat the average return of its peers in the Association
of Investment Companies’ Europe sector in both NAV and share price terms, as
well as trading at a narrower discount than their average.
The longer-term performance record remains solid despite the underperformance
in 2024. Your Company has outperformed the Benchmark Index and the peer group
over three, five and 10 years, as well as since Sam Morse’s appointment as
your Portfolio Manager in 2011, generating annualised NAV and share price
total returns of 10.0% and 11.1% respectively over Sam’s tenure to date,
compared with 7.8% for the Benchmark Index. I am delighted to report that the
Company’s longer-term performance was also recognised externally in the year
under review, winning the AJ Bell Investment Award in the European Equity –
Active category (which assesses open-ended funds as well as investment
trusts), the Citywire Investment Trust Award for best European trust and the
Investment Company of the Year Award from Investment Week in the Europe
category.
DIVIDENDS
As part of their investment process, your Portfolio Managers focus on
companies that are capable of growing their dividends over time. The Board
does not impose any income objective in any particular year, recognising that
both capital and income growth are components of performance, as reflected in
the investment objective of the Company. We do, however, have a policy whereby
we seek to deliver a progressive dividend in normal circumstances, paid twice
yearly in order to smooth dividend payments for the reporting year. Unlike
open-ended funds such as OEICs, investment trusts can hold back some of the
income they receive in good years, thereby building up revenue reserves that
can then be used to supplement dividends during challenging times.
The Company’s revenue return for the year to 31 December 2024 was 10.41
pence per ordinary share (2023: 9.32 pence), and an interim dividend of 3.60
pence per share was paid on 25 October 2024 (2023: 3.26 pence). The Board is
pleased to recommend a final dividend of 5.50 pence for the year ended 31
December 2024 (2023: 4.99 pence) for approval by shareholders at the Annual
General Meeting (“AGM”) on 8 May 2025. The interim and final dividends
(total of 9.10 pence) represent an increase of 0.85 pence (10.3%) over the
8.25 pence paid for the year ended 31 December 2023, and a 13th consecutive
annual increase in the full year dividend.
The final dividend will be paid on 13 May 2025 to shareholders on the register
at close of business on 28 March 2025 (ex-dividend date 27 March 2025).
Shareholders may choose to reinvest their dividends for additional shares in
the Company.
Outlook
Core Europe, particularly France and Germany, has well recognised political
and economic problems, but the leading companies of the region are global in
nature. This is why the returns from continental European equities have
consistently defied the sceptics over the years. While the economic
performance of peripheral European countries has been stronger in recent
times, your Portfolio Managers continue to believe that the soundest long-term
investment prospects are to be found in those companies that typically
originate from the core of Europe (France, Switzerland and Germany) and trade
globally. Nevertheless, your Company’s exposure in peripheral Europe does
include Ryanair Holdings in Ireland, Novo Nordisk in Denmark, Kone in Finland
and Assa Abloy in Sweden – all companies with leading franchises well beyond
their own shores. In addition, select smaller companies have excellent growth
potential, and a number of these feature in the portfolio alongside the core
of global market leaders.
At the time of writing, it appears that negotiations to end the Russia-Ukraine
war may involve a number of changes in the geopolitical framework of Europe. A
more isolationist United States looks to be retreating behind its North
American carapace, while President Trump appears determined to follow through
on significant import tariffs. This naturally threatens European security as
well as prosperity, not least given knock-on effects on agriculture and raw
materials, both in terms of supply and inflation.
One might be forgiven for thinking that the implications were negative for
European equities, and yet so far this year they have outperformed those in
the United States, with investors encouraged by the prospects for peace - at
least in the short-term - and valuations that compare favourably. In addition,
heavy potential defence spending could help to lift the European economy out
of the doldrums, with the fiscal framework possibly more broadly loosened. The
European Central Bank is furthermore in the process of reducing interest
rates.
If all this makes for a volatile outlook, your Portfolio Managers’ continued
focus on finding attractively valued companies with good long-term capital and
income growth prospects should provide the opportunity for positive
performance in any event.
Fees
As mentioned in last year’s Annual Report, it is the practice of the Board
to review fees paid to the Manager every third year. We did this in 2024, and
the Directors believe that the fees continue to represent good value for
shareholders.
OTHER MATTERS
DISCOUNT MANAGEMENT AND TREASURY SHARES
The Board has an active discount management policy, the primary purpose of
which is to reduce discount volatility. The Board also closely monitors the
liquidity of the Company’s shares as the recent lack of natural buyers in
the investment trust sector has put added pressure on discount levels. The
policy seeks to maintain the discount to NAV in single digits in normal market
circumstances. Buying back shares at a discount also results in an increase in
the NAV per ordinary share.
To assist in managing the discount, the Board has shareholder approval to hold
ordinary shares repurchased by the Company in Treasury, rather than cancelling
them. Shares in Treasury are then available to be reissued 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. The Board is seeking
shareholder approval to renew this authority at the AGM on 8 May 2025.
Despite an environment of wider discounts across the investment trust
universe, your Company’s discount to NAV remained broadly in single digits
throughout the year under review, and no shares were repurchased.
Gearing
The Company continues to gear through the use of derivative instruments,
primarily contracts for difference (“CFDs”), and the Portfolio Managers
have flexibility to gear within the parameters set by the Board, the rationale
being that over the longer-term carefully monitored levels of gearing will
enhance returns from a rising market. The ability to do this is a key
advantage of the investment trust structure. As at 31 December 2024, the
Company’s gross gearing was 11.3% (2023: 13.1%), with net gearing also at
11.3% (2023: 11.5%). In the reporting year, gearing was maintained within the
limits set by the Board and made a positive contribution to both absolute and
relative NAV performance, as can be seen from the attribution analysis table
in the Annual Report.
The Board monitors the level of gearing and the use of derivative instruments
carefully and has defined a risk control framework for this purpose which is
reviewed at each Board meeting. It should be emphasised that all gearing is
subject to the Portfolio Managers’ confidence in identifying attractive
investment opportunities, and to their remaining attractive.
Board of Directors
As I indicated in last year’s Annual Report, I have now completed nine
years’ service on your Board, and in accordance with best practice, I will
step down at the conclusion of the AGM on 8 May 2025. Paul Yates, as the
Senior Independent Director, led an exercise to identify my successor, and in
October 2024 we were delighted to announce the appointment of Davina Walter to
the Board, and she will succeed me as Chairman at the conclusion of the AGM.
Davina is an experienced investment professional, non-executive director and
chairman, with 40 years of experience in the investment trust sector. We
believe she is an excellent candidate to lead your Company in the coming
years, and I wish her all the very best in her new role.
We continue to review Board composition and Directors’ succession on a
regular basis to ensure that we have a Board with a mix of tenures and one
which provides diversity of perspective together with a range of skills and
appropriate experience for your Company. Following my retirement, our Board
will number three women and two men, with an average tenure of four years and
nine months. Paul Yates is due to retire at the 2026 AGM when he will have
completed nine years of service and his replacement as a non-executive
Director will be recruited before then. In accordance with the UK Corporate
Governance Code for Directors of FTSE 350 Companies, all Directors will be
subject to re-election and in Davina’s case election at the AGM on 8 May
2025. The Directors’ biographies can be found in the Annual Report, and
between them, they have a wide range of appropriate skills and experience to
form a balanced Board for the Company.
Continuation Vote
In accordance with the Articles of Association, your Company is subject to a
continuation vote every two years. The next continuation vote will take place
at this year’s AGM on 8 May 2025. At the last continuation vote in May 2023,
it was pleasing to see strong evidence of shareholder support from the 99.86%
of votes cast in favour of continuation of the Company. The enfranchisement of
shareholders is a key advantage for investment trust investors over open-ended
company investors, and we would urge all shareholders to use their vote at the
forthcoming AGM.
Articles of Association
The Board is proposing to move to an aggregate cap on Directors’ fees in
line with market practice and to provide greater flexibility. The proposed new
cap is £350,000 in aggregate per annum, replacing the existing cap of
£50,000 per Director per annum which was put in place in 2010.
We have also taken the opportunity to make other changes of a minor or
technical nature, 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/europe. The Articles will be subject to
shareholder approval at the AGM on 8 May 2025 and 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 held at 11.00 am on Thursday, 8 May 2025 at 4
Cannon Street EC4M 5AB and virtually via the online Lumi AGM meeting platform.
The AGM provides a great opportunity for shareholders to meet the Company’s
Directors, and of course, for us to meet you, and hear first-hand from your
Portfolio Managers. We hope to see as many of you as possible on the day. Full
details of the AGM are below.
VIVIAN BAZALGETTE
Chairman
19 March 2025
ANNUAL GENERAL MEETING – THURSDAY, 8 MAY 2025 AT 11.00 AM
The AGM of the Company will be held at 11.00 am on Thursday, 8 May 2025 at 4
Cannon Street, London EC4M 5AB (nearest tube stations are St Paul’s or
Mansion House) and virtually via the online Lumi AGM meeting platform. Full
details of the meeting are given in the Notice of Meeting in the Annual
Report.
For those shareholders who are unable to attend in person, we will live-stream
the formal business and presentations of the meeting online.
Sam Morse and Marcel Stötzel, the Portfolio Managers, will be making a
presentation to shareholders highlighting the achievements and challenges of
the year past and the prospects for the year to come. They and the Board will
be very happy to answer any questions that shareholders may have. Copies of
their presentation can be requested by email at investmenttrusts@fil.com 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. See Note 9 to the Notes to the Notice of
Meeting in the Annual Report for details on how to vote virtually. Investors
viewing the AGM online will be able to submit live written questions to the
Board and the Portfolio Managers and we will answer as many of these as
possible at an appropriate juncture during the meeting.
Further information and links to the Lumi platform may be found on the
Company’s website at www.fidelity.co.uk/europe. On the day of the AGM, in
order to join electronically and ask questions via the Lumi platform,
shareholders will need to connect to the website https://web.lumiagm.com.
Please note that investors on platforms, such as Fidelity Personal Investing,
Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest, will need to
request attendance at the AGM in accordance with the policies of your chosen
platform. They may request that you submit electronic votes in advance of the
meeting. If you are unable to obtain a unique IVC and PIN from your nominee or
platform, we will also welcome online participation as a guest. Once you have
accessed https://web.lumiagm.com from your web browser on a tablet or
computer, you will need to enter the Lumi Meeting ID which is 124004169. You
should then select the ‘Guest Access’ option before entering your name and
who you are representing, if applicable. This will allow you to view the
meeting and ask questions, but you will not be able to vote.
Portfolio Managers’ Review
Question
Firstly, congratulations on winning multiple awards for Active European Equity
fund management this year. How has the Company performed in the year to 31
December 2024?
Answer
Sam: Thank you, but as our shareholders will know, awards recognise past
performance. They are, of course, gratefully received but the stock market
often likes to teach award-winners a lesson. And thus, this was the case for
us in 2024. At the half-year stage, the Company’s NAV was still slightly
above the Benchmark Index, which our shareholders may remember from the
Half-Yearly Report. But, just as the awards rolled in, the tide went out for
the European stock markets, especially in UK sterling terms, and for our
relative performance. Investors’ fears that interest rates might not come
down as quickly as expected were heightened by the election of President
Trump, and the likely consequences in terms of tariffs and other policies. The
Company’s portfolio fares less well when bond yields rise, as they did in
short order, but our stock holdings detracted from returns as well. So, for
the year under review, the Benchmark Index rose +3.0% while the Company’s
NAV total return was +0.5%. The widening of the discount meant that the share
price return was -0.1%.
QUESTION
What stocks have been the main drivers of performance in 2024?
Answer
Marcel: The main contributors were: 3i which continued strong like-for-like
store sales as well as store expansions at key holding Action, SAP was driven
by strong product adoption (as detailed below) and margin performance and MTU
as a result of strong aftermarket sales performance as well as successfully
fixing the geared turbofan (GTF) engine issues.
The main detractors were: L’Oréal, which in a tough China environment, has
seen growth in the short-term and expectations for the long-term decelerate,
Nestlé mismanaged the pricing and cost relationship through Covid, and over
the post Covid inflationary period, and thus had to reset medium-term
guidance. Dassault Systèmes struggled with the Medidata acquisition as well
as weakness from their autos and industrials customers.
Below are the top five stock contributors and detractors to performance in the
Company’s reporting year.
Top 5 Stock Contributors (on a relative basis) %
3i Group +1.2
SAP +1.1
MTU Aero Engines +0.7
EssilorLuxottica +0.6
Intesa Sanpaolo +0.5
=========
Top 5 Stock Detractors (on a relative basis) %
L’Oréal -0.8
Nestlé -0.8
Dassault Systèmes -0.5
Novo Nordisk -0.5
TotalEnergies -0.5
=========
Question
Give an example of how your bottom-up stock selection process has added value
to the Company this year?
Answer
Marcel: A notable example would be SAP. I covered SAP as an analyst 10 years
ago and even back then the company and investors were talking about the
massive potential of its enterprise resource planning software called S/4
HANA. Fast forward nine years later (an incredibly long time in technology)
and the jury was still out on whether SAP’s customers would adopt S/4 HANA
or not. After doing a significant amount of work with the current Fidelity
analyst that covers SAP, we came to the conclusion that this long adoption
cycle was mainly customers waiting for the technology to mature and also large
customers such as Nestlé or Samsung needing several years to get their IT
systems in order before they could begin migrating. Additionally, we
discovered SAP has both a carrot and a stick to “nudge” customers towards
adoption - the carrot being great new functionality (including new Artificial
Intelligence offerings), and the stick being the fact that SAP will stop
supporting older software versions of S/4 HANA from 2027-2030. All of this
gave us strong conviction that S/4 HANA adoption would be a case of “when,
and not if” and this proved to be the case in 2024 and led to the impressive
performance of the Company.
Question
This year has been full of political change around the world as well as
Europe. How has this affected the portfolio? And how do you think about
geopolitical risk within the portfolio?
Answer
Sam: 2024 was a year of elections; some outcomes were expected, others were
not. As mentioned already, President Trump’s election, although expected by
many, still resulted in rising bond yields because his policies on tariffs and
immigration may be inflationary. This did not help the Company’s portfolio
which has a preponderance of bond-like steady dividend growers that fare less
well, at least in the short-term, in a more inflationary environment. The
unexpected French parliamentary elections also hurt the Company’s
performance. The portfolio is overweight companies listed in France because
there are many world-leading franchises, like LVMH Moët Hennessy and
L’Oréal, which have a long history of dividend growth. These companies
garner the vast majority of their revenues and profits from outside France,
but when investors are nervous about French sovereign exposure, they will get
sold too in the general meltdown — probably more than they should. Many of
our investors will know that Marcel and I stick to a policy of keeping large
sector groupings balanced within five percentage points of the benchmark
level. This balance normally dampens down other factorial risks, including
geopolitical risks, across the portfolio, such that it is the stock-picking
that drives performance over meaningful time periods. We still believe that
will be the case in the longer-term.
Question
With interest rates still much higher than previous years, what impact does
this have on the companies you invest in?
Answer
Marcel: The most direct impact is that finance costs for companies in which we
invest rises when interest rates rise. However, the reality is a bit more
nuanced. Many CFOs of the companies we invested in took out fixed rate debt
during the depths of Covid in 2020. This debt typically has a 5-year fixed
interest rate period which means that many of our investee companies have not
yet felt the pain from higher interest rates. We expect this may change in
2025, and thus we have been reducing exposure to companies that we feel could
have nasty refinancing surprises in 2025.
At the portfolio level, higher interest rates are a matter of puts and takes
– some companies such as banks will benefit from “higher for longer”
interest rates while other companies such as construction or consumer spending
exposed sectors will be hurt by high rates. Having said that, we do not
explicitly take a view on macro variables such as the direction of interest
rates, and thus would expect bottom-up stock picking to continue to be the
main driver of the Company’s performance.
Question
How would you describe the outlook for continental Europe and does this
correlate with your thoughts on the individual companies you invest in?
ANSWER
Sam: As we have often said, the macroeconomic backdrop does not reflect the
outlook for individual European companies. Although the outlook for
continental Europe is uncertain and faces challenges, we are excited about the
prospects for the individual companies in which we invest. However, ageing
populations, high levels of government debt and a lack of structural reform
have curtailed growth in the region and give us reasons to be cautious. The
Draghi report provides a sensible blueprint for improvement, but it is
unlikely to be acted on in full while Europe remains mired in fragmented
national politics. There is some hope that Germany, post elections, will look
to release the legal hand brake on fiscal expansion. Does this matter for the
companies we invest in? In part, yes, but European companies have often kept
pace with global indices (admittedly not in 2024) because they are less and
less reliant on the domestic European economies (two-thirds of sales and
profits now comes from outside Europe). Also, there have been many studies
showing that there is a tenuous link between regional economic growth and the
performance of regional stock markets. The real dividend growth of constituent
companies is much more important as are other crucial factors like the
profitability of industry structures and corporate governance. So, although we
are cautious on the outlook for continental Europe, we remain excited about
the prospects for the individual companies held in the portfolio.
Question
How does Fidelity European Trust PLC differentiate itself in comparison to
other European equity funds or in comparison to other regions, and what
advantages or challenges does this present?
Answer
Sam: Our primary area of differentiation comes from our focus on dividend
growth, i.e. investing in companies that consistently grow their dividends
year after year. While many investors focus on dividends or growth, we feel
that focusing on both factors at the same time gives us an edge. We hope as a
result of this philosophy and our bottom-up stock picking, we differentiate
ourselves from the European benchmark over time. Our investment objective is
to outperform the Benchmark Index by 1 to 2% per annum post fees. If
successfully achieved, it will differentiate your Company from most other
European equity funds over the years. This is, of course, easier said than
done and always a challenge! Recently, European funds have differentiated
themselves from other regional funds negatively via lacklustre relative
performance. This has led to considerable outflows from European regional
funds. European stock markets, as a result, appear to be trading at a
significant valuation discount, on a like for like basis, to other regions, in
particular the US. Clearly, the sectoral and geographic mix of Europe is
different to the US too, for example, less technology and a greater exposure
to emerging markets including China. We still believe there is a strong case
for diversification especially now that sentiment towards Europe is so
negative. European companies, carefully selected, have beaten most global
indices over longer periods of time.
Question
The dividend has increased for thirteen consecutive years, putting the Company
on the AIC’s ‘next generation’ of dividend heroes. How do you look at
dividends versus growth when making an investment decision?
Answer
Marcel: We do not view growth and dividends as mutually exclusive. While
clearly, we do not expect or desire a large dividend from a high growth
company, we feel that very few companies have an excuse for not having at
least a small dividend. An example of this is ASML, a company with enormous
investment requirements and growth opportunities given their crucial role in
enabling global semiconductor manufacturing. Even ASML pays a circa 1%
dividend yield and notably has grown its dividend every year since 2009. This
highlights another important point. While the €0.20 dividend paid in 2009
may not have seemed high (it was also around a 1% dividend yield at the time),
ASML’s dividend has grown 30x to be over €6 by 2024. Thus, clearly not
only is an attractive starting dividend yield important, but a rapidly growing
dividend can also make for a fantastic investment.
Question
Looking forward into 2025 and beyond, which sectors and regions are you
particularly excited about?
Answer
Sam: We do not really invest on a top-down basis. Like most fund managers at
Fidelity, we are bottom-up stock pickers. Our particular focus, in this
respect, is to identify attractively valued cash-generative companies, with
strong balance sheets, that we expect to grow their dividends on a
three-to-five-year horizon. So, we do not get excited about sectors and
regions but about individual companies. In fact, as mentioned before, we try
to stay balanced by sector, such that the stock picking drives performance
rather than allocation to certain sectors or regions.
Answer
Marcel: I would say what most excites us looking forward to 2025 is seeing how
the more mainstream adoption of artificial intelligence (“AI”) will
benefit a number of different stocks. This could range from technology stocks
such as ASML and SAP to more “hidden” AI players such as Legrand (which
sell products that are essential to datacentres such as transformers, Power
Distribution Units, cooling, etc.). Additionally, we expect to see 2025 being
the year that adopters of AI start to realise more tangible benefits, with
financial services firms in particular, being well placed to reap the gains
from AI.
SAM MORSE
Portfolio Manager
19 March 2025
MARCEL STÖTZEL
Co-Portfolio Manager
19 March 2025
Strategic Report
RISK FRAMEWORK
Principal Risks and Uncertainties and Risk Management
As required by provisions 28 and 29 of the 2018 UK Corporate Governance Code,
the Board has a robust ongoing process for identifying, evaluating and
managing the principal risks and uncertainties faced by the Company, including
those that could threaten its business model, future performance, solvency or
liquidity. The Board, with the assistance of the Alternative Investment Fund
Manager (FIL Investment Services (UK) Limited/the “Manager”), has
developed a risk matrix which, as part of the risk management and internal
controls process, identifies the key existing and emerging risks and
uncertainties that the Company faces.
Emerging Risks
The Audit 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 Committee. The Board determines the nature and extent of
any risks it is willing to take in order to achieve the Company’s strategic
objectives.
Climate change, which refers to a large scale shift in the planet’s weather
patterns and average temperatures, continues to be a key emerging as well as a
principal risk confronting asset managers and their investors. Globally,
climate change effects are already being experienced in the form of changing
weather patterns. Extreme weather events can potentially impact the operations
of investee companies, their supply chains and their customers. The Board
notes that the Manager incorporates 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
technology 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.
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.
Principal Risks Description and Risk Mitigation
Geopolitical, Economic and Market Risks The Company and its assets may be impacted by geopolitical, economic and market related risks, in particular concerns over global economic growth, inflation and financial distress. The Company is exposed to a number of geopolitical risks. The fast-changing
global geopolitical landscape is largely shaped by the ongoing armed conflicts effects, deglobalisation trends and significant supply disruption, as well as concerns around global growth and uncertainties on effects of changes in monetary policies,
recession amid inflationary pressures and financial distress. Russia and the Middle East are both significant net exporters of oil, natural gas and a variety of soft commodities and supply limitations have fuelled global inflation and economic instability,
specifically within Western nations. Broader geopolitical themes include the US-China trade war, the South China sea dispute affecting shipping routes, the implications of China-Taiwan relations and escalation of North and South Korea tensions. European
economic growth remains under pressure: anaemic credit growth and depressed confidence will likely push the European Central Bank to cut rates more aggressively in 2025. A weaker euro remains the key offset to tariff risks. Additionally, downside risks are
further accumulating as President Trump links the US’s geo-economic aims with tariff threats. Significant increases in domestic European defence spending would provide a catalyst for a cyclical upswing, but the shape and timing are uncertain. The Company
may be affected by market and economic risks. The principal market related risks are market downturn, interest rate movements, inflation and market shocks, such as volatility from the war in Ukraine and conflict in the Middle East. The Company may also be
impacted by concerns over global economic growth and major political events affecting markets and economies and the consequences of this. Although inflation is starting to stabilise across most economies, risks remain driven by a combination of global
labour shortages in some sectors and supply chain shortages, including energy and food security. Inflation and economic instability are leading to a prolonged cost-of-living crisis and potentially impacting investors’ risk appetite. The Company’s portfolio
is made up mainly of listed securities. The Portfolio Managers success or failure to protect and increase the Company’s value against the above background is core to the Company’s continued success. The investment philosophy of stock-picking and investing
in attractively valued companies should outperform the Benchmark Index over time. The risk from the likely effects of unforeseen economic and market events is somewhat mitigated by the Company’s investment trust structure which means no forced sales need
to take place to deal with any redemptions. Therefore, investments can be held over a longer time horizon. The Board reviews geopolitical, economic and market risks and legislative changes at each Board meeting. The Portfolio Managers provide an investment
review at each meeting which includes a review of the economic and political environment and any risks and challenges faced by the Company. Risks to which the Company is exposed to in the market risk category are included in Note 17 in the Financial
Statements below together with summaries of the policies for managing these risks.
Investment Performance Risk (including the use of derivatives and gearing) The achievement of the Company’s investment performance objective relative to the market requires the taking of risk such as investment strategy, asset allocation and stock selection, and may lead to NAV and share price underperformance compared to the
Benchmark Index and/or peer group companies. The Board relies on the Portfolio Managers’ skills and judgement to make investment decisions based on research and analysis of individual stocks and sectors. The Board reviews the performance of the asset value
of the portfolio against the Company’s Benchmark Index and its competitors and also considers the outlook for the market with the Portfolio Managers at each Board meeting. The emphasis is on long-term investment performance as there is a risk for the
Company of volatility of performance in the shorter-term. Derivative instruments are used to protect and enhance investment conviction and returns. There is a risk that the use of derivatives may lead to higher volatility in the NAV and the share price due
to leverage effect than might otherwise be the case. The Board has put in place policies and limits to control the Company’s use of derivatives and exposures. These are monitored on a daily basis by the Manager’s Compliance team and regular reports are
provided to the Board. Further detail on derivative instruments risk is included in Note 17 in the Financial Statements below. The Company gears through the use of long CFDs which provide greater flexibility and are generally cheaper than bank loans as a
form of financing. The principal risk is that the Portfolio Managers fail to use gearing effectively, resulting in a failure to outperform in a rising market or increasing underperformance in a falling market. The Board regularly considers the level of
gearing and gearing risk and sets limits within which the Manager must operate.
Legislation, Taxation and Regulatory Risks The Company may be impacted by changes in legislation, taxation, regulation or other external influence that require changes to the nature of the Company’s business. A breach of Section 1158 of the Corporation Tax Act 2010 by the Company could lead to a
loss of investment trust status, resulting in the Company being subject to tax on capital gains. In recent months, there have been increased concerns around investment cost disclosures and their impact on the industry. However, it should be noted that the
Government and regulator have announced a temporary exemption for investment companies from the EU cost disclosure requirements. Regulatory changes for investment companies are monitored regularly by the Board and managed through active engagement with
regulators and trade bodies by the Manager and also by the AIC.
Marketplace and Competition Risks The environment in which the Company operates continues to undergo change, which may affect the Company’s ability to grow and maintain its business. This change includes the increasing presence of alternative investment offerings, as well as industry
consolidation, which could influence the demand for investment trusts. The Board, the Manager, and the Company’s Broker closely monitor industry activity and the peer group and actively manage supply and demand through its discount polices and mechanisms.
In addition, an annual strategy review is undertaken by the Board to ensure that the Company continues to offer a relevant product to shareholders.
Cybercrime and Information Security Risks The operational risk and business impact from heightened external levels of cybercrime and the risk of data loss is significant. Cybercrime threats evolve rapidly and consequently the risk is regularly re-assessed and the Board receives regular updates
from the Manager in respect of the type and possible scale of cyberattacks. The Manager’s technology and risk management teams have developed robust risk frameworks and implemented a number of initiatives and controls in order to provide enhanced
mitigating protection to this ever-increasing threat, and also to address the potential risks of artificial intelligence (AI). The risks are regularly re- assessed by Fidelity’s information security teams and risk frameworks are continually enhanced with
the implementation of additional tools and processes, including improvements to existing ones. Fidelity has dedicated cybersecurity and technology risk teams which provide continuous oversight, preventative and detection controls as well as awareness
updates and best practice guidance. Risks also remain due to military conflicts and geopolitical tensions including the war in Ukraine and conflict in the Middle East and employees working from home. These primarily relate to phishing, ransomware, remote
access threats, extortion and denial of services attacks, threats from highly organised criminal networks and sophisticated ransomware operators. The Manager has dedicated prevent, detect and respond resources specifically to monitor the cyber threats
associated within the workplace and there are a number of mitigating actions in place, including control strengthening, geo-blocking and phishing mitigants, combined with enhanced resilience and recovery options. The Company’s third-party service providers
are also subject to regular oversight and provide assurances and have similar control measures in place to detect and respond to cyber threats and activity.
Business Continuity Risk There continues to be increased focus from financial services regulators around the world on the contingency plans of regulated financial firms. The top risks globally are cybersecurity, geopolitical events, outages, fire events and natural disasters.
There are also ongoing risks from the war in Ukraine and conflict in the Middle East, specifically regarding cyberattacks and the potential loss of power and/or broadband services. The Manager continues to take all necessary and reasonable steps to assure
operational resilience and to meet its regulatory obligations, assess its ability to continue operating and the steps it needs to take to support its clients, including the Board, and has an appropriate control environment in place. The Manager has
provided the Board with assurance that the Company has appropriate operational resilience and business continuity plans and the provision of services has continued to be supplied without interruption. In addition, hybrid working patterns allow for greater
flexibility in the event of another pandemic or similar event. The Company relies on a number of third-party service providers, principally the Registrar, Custodian and Depositary. They are all subject to a risk-based programme of risk oversight and
internal audits by the Manager and their own internal controls reports are received by the Board on an annual basis and any concerns are investigated. The third-party service providers have also confirmed the implementation of appropriate measures to
ensure no business disruption. Risks associated with these services are generally rated as low, but the financial consequences could be serious, including reputational damage to the Company. These are mitigated through operational resilience frameworks.
Key Person and Operational Support Risks The loss of the Portfolio Manager or key individuals could lead to potential performance, operational or regulatory issues. The Portfolio Manager’s style is intrinsically linked with the Company’s investment philosophy and strategy and, therefore, the
Company has a key person dependency on him. Fidelity has succession plans in place for its portfolio managers which have been discussed with the Board and provides some assurance in this regard. The Co-Portfolio Manager has been in place since 1 September
2020 and he works closely alongside the Portfolio Manager and has extensive experience in European markets and companies and shares a common investment approach and complementary investment experience with the Portfolio Manager. This helps strengthen the
investment process by introducing greater challenge and also increases the ability to be able to meet more companies. The Manager identifies key dependencies which are then addressed through succession plans, particularly for portfolio managers.
Discount Control Risk Owing to the nature of investment companies, the price of the Company’s shares and its discount to NAV are factors which are not totally within the Company’s control. The Board has an active discount management policy in place, the primary purpose of which
is to reduce discount volatility and maintain the Company’s discount in single digits in normal market conditions. Some short-term influence over the discount may be exercised by the use of share repurchases at acceptable prices and within the parameters
set by the Board. The demand for shares can be influenced through good performance and an active investor relations program. The Company’s share price, NAV and discount volatility are monitored daily by the Manager and the Company’s Broker and considered
by the Board at each of its meetings. The investment company sector has suffered from significant discounts for an extended period and this has allowed for some activist managers to take a more aggressive approach. The Board is aware of these risks and
continue to actively monitor the Company’s discount and will take action within the guidelines set.
Environmental, Social and Governance (“ESG”) Risk There is a risk that the value of the assets of the Company is affected by ESG related risks, including climate change risk, such as the risk of extreme weather events that may impact global supply chains for companies and customers. ESG risks include
investor expectations and how the Company is positioned from a marketing perspective and whether it is compliant with its ESG disclosure requirements. Whilst Fidelity considers ESG factors in its investment decision-making process, the Company does not
carry the label. However, ESG continues to be a risk confronting asset managers and investors. The Board monitors how this may potentially impact the Company on investment valuations and shareholders returns. ESG integration is carried out at the
fundamental research analyst level within its investment teams, primarily through Fidelity’s Proprietary Sustainability Rating which is designed to generate a forward-looking and holistic assessment of a company’s ESG risks and opportunities based on
sector-specific key performance indicators. The Portfolio Manager considers the effects of ESG when making investment decisions. ESG ratings of the companies within the Company’s portfolio compared to MSCI ratings are provided in the Annual Report.
The Company has a full risk register which includes less material risks and
the Audit Committee, on behalf of the Board, reviews this at least annually.
Continuation Vote
A continuation vote takes place every two years. There is a risk that
shareholders do not vote in favour of the continuation of the Company during
periods when performance of the Company’s NAV and its share price is poor.
The last continuation vote was at the AGM held on 10 May 2023 and 99.86% of
the votes cast by shareholders were in favour of the continuation of the
Company. The next continuation vote will take place at this year’s AGM on 8
May 2025 and the Directors expect the vote to be passed.
Viability Statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the twelve month period required by the “Going Concern” basis. The Company
is an investment trust with the objective of achieving long-term growth in
both capital and income. The Board considers long-term to be at least five
years, and accordingly, the Directors believe that five years is an
appropriate investment horizon to assess the viability of the Company,
although the life of the Company is not intended to be limited to this or any
other period.
In making an assessment on the viability of the Company, the Board has
considered the following:
· The ongoing relevance of the investment objective in prevailing market
conditions;
· The Company’s level of gearing;
· The Company’s NAV and share price performance compared to its Benchmark
Index;
· The principal and emerging risks and uncertainties facing the Company and
their potential impact, as set out above;
· The likely future demand for the Company’s shares;
· The Company’s share price discount to the NAV and the Board’s discount
management policy;
· The liquidity of the Company’s portfolio;
· The level of income generated by the Company; and
· Future income and expenditure forecasts.
The Company’s performance for the five year reporting period to 31 December
2024 was well ahead of the Benchmark Index, with a NAV total return of +54.2%
and an ordinary share price total return of +52.6% compared to the Benchmark
Index total return of +41.4%. 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 mainly comprises readily realisable securities which can be
sold to meet funding requirements if necessary;
· The Board’s discount management policy; and
· The ongoing processes for monitoring operating costs and income which are
considered to be reasonable in comparison to the Company’s total assets.
In preparing the Financial Statements, the Directors have considered the
continued 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, unforeseen market events, geopolitical
issues 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 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 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 31 March 2026 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 Middle
East conflict, significant market and geopolitical events and regulatory
changes on 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.
The Board has also considered the upcoming continuation vote at the AGM on 8
May 2025 and are not aware of any circumstances that would result in the
continuation vote not being passed.
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 company, 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 Managers, 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 and how the Company compares with peers in the AIC Europe and
European Smaller Companies sectors.
The Board places great importance on communication with shareholders. The
Annual General Meeting provides the key forum for the Board and the Portfolio
Managers 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 Secretary at the same
address or by email at investmenttrusts@fil.com.
The Portfolio Managers meet with major shareholders, potential investors,
stock market analysts, journalists and other commentators throughout the year.
These communication opportunities help inform the Board in considering how
best to promote the success of the company over the long-term.
The Board seeks to engage with the Manager and other service providers and
advisers in a constructive and collaborative way, promoting a culture of
strong governance, while encouraging open and constructive debate, in order to
ensure appropriate and regular challenge and evaluation. This aims to enhance
service levels and strengthen relationships with service providers, with a
view to ensuring shareholders’ interests are best served by maintaining the
highest standards of commercial conduct while keeping cost levels competitive.
Whilst the Company’s direct operations are limited, the Board recognises the
importance of considering the impact of the Company’s investment strategy on
the wider community and environment. The Board believes that a proper
consideration of Environmental, Social and Governance (ESG) issues aligns with
the Company’s investment objective to deliver long-term growth in both
capital and income.
In addition to ensuring that the Company’s investment objective was being
pursued, key decisions and actions taken by the Board during the reporting
year, and up to the date of this report, have included:
· As part of the Board’s succession plan, carrying out a recruitment
process to replace Vivian Bazalgette as non-executive Director and Chairman of
the Board who having completed nine years on the Board on 1 December 2024 will
step down at the conclusion of the AGM on 8 May 2025. Davina Walter will
replace him as non-executive Director and Chairman of the Board;
· The decision to pay an interim dividend of 3.60 pence per ordinary share
and a final dividend of 5.50 pence per ordinary share (a total of 9.10 pence
per ordinary share), to maintain the Board’s policy to pay progressive
dividends in normal circumstances. The Company has paid an increased dividend
for 14 years in a row;
· Meetings by the Chairman with some of the Company’s key shareholders
during the reporting year;
· The decision once again to hold a hybrid AGM in 2025 in order to make the
AGM more accessible to those shareholders who are unable to or prefer not to
attend in person; and
· The decision to update the Company’s Articles of Association, subject to
shareholder approval at the AGM on 8 May 2025.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and 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, the Directors have elected to prepare the
Financial Statements in accordance with UK Generally Accepted Accounting
Practice (UK Accounting Standards and applicable law), including Financial
Reporting Standard FRS 102: The Financial Reporting Standard applicable in the
UK and Republic of Ireland (“FRS 102”). Under company law, the Directors
must not approve the Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of the
profit or loss for the reporting period.
In preparing these Financial Statements, the Directors are required to:
· Select suitable accounting policies in accordance with Section 10 of FRS
102 and then apply them consistently;
· Make judgements and estimates that are reasonable and prudent;
· Present information, including accounting policies, in a fair and balanced
manner that provides relevant, reliable, comparable and understandable
information;
· State whether applicable UK Accounting Standards, including FRS 102, have
been followed, subject to any material departures disclosed and explained in
the Financial Statements; and
· Prepare the Financial Statements on a going concern basis, unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy, at any time, the financial position of the Company and
enable them to ensure that the Company and 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 which comply with that law
and those regulations.
The Directors have delegated 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/europe to
the Manager. 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 Generally
Accepted Accounting Practice, including FRS 102, give a true and fair view of
the assets, liabilities, financial position and profit of the Company;
· The Annual Report, including the Strategic 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 19
March 2025 and signed on its behalf by:
VIVIAN BAZALGETTE
Chairman
Income Statement for the year ended 31 December 2024
Year ended 31 December 2024 Year ended 31 December 2023
Notes Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments 10 – (47,301) (47,301) – 165,905 165,905
Gains on derivative instruments 11 – 35,423 35,423 – 50,441 50,441
Income 3 53,670 – 53,670 47,221 – 47,221
Investment management fees 4 (2,878) (8,634) (11,512) (2,625) (7,877) (10,502)
Other expenses 5 (1,063) – (1,063) (967) – (967)
Foreign exchange losses – (2,956) (2,956) – (1,464) (1,464)
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before finance costs and taxation 49,729 (23,468) 26,261 43,629 207,005 250,634
Finance costs 6 (2,770) (8,309) (11,079) (2,138) (6,414) (8,552)
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before taxation 46,959 (31,777) 15,182 41,491 200,591 242,082
Taxation on return/(loss) on ordinary activities 7 (4,422) – (4,422) (3,390) – (3,390)
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities after taxation for the year 42,537 (31,777) 10,760 38,101 200,591 238,692
Return/(loss) per ordinary share 8 10.41p (7.78p) 2.63p 9.32p 49.08p 58.40p
========= ========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly, the net
return/(loss) on ordinary activities after taxation for the year is also the
total comprehensive income for the year and no separate Statement of
Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the
Company. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
No operations were acquired or discontinued in the year and all items in the
above statement derive from continuing operations.
The Notes above form an integral part of these Financial Statements.
Statement of Changes in Equity for the year ended 31 December 2024
Notes Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve shareholders’
£’000 account reserve £’000 £’000 funds
£’000 £’000 £’000
Total shareholders’ funds at 31 December 2023 10,411 58,615 5,414 1,472,587 40,452 1,587,479
Net (loss)/return on ordinary activities after taxation for the year – – – (31,777) 42,537 10,760
Dividends paid to shareholders 9 – – – – (35,110) (35,110)
--------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 31 December 2024 10,411 58,615 5,414 1,440,810 47,879 1,563,129
========= ========= ========= ========= ========= =========
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 year – – – 200,591 38,101 238,692
Dividends paid to shareholders 9 – – – – (32,208) (32,208)
--------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 31 December 2023 10,411 58,615 5,414 1,472,587 40,452 1,587,479
========= ========= ========= ========= ========= =========
The Notes above form an integral part of these Financial Statements.
Balance Sheet as at 31 December 2024 Company number 2638812
Notes 2024 2023
£’000 £’000
Fixed assets
Investments 10 1,487,772 1,518,875
--------------- --------------- ---------------
Current assets
Derivative instruments 11 – 886
Debtors 12 9,506 11,449
Amounts held at futures clearing houses and brokers 10,078 8,384
Cash and cash equivalents 63,042 52,804
--------------- ---------------
82,626 73,523
========= =========
Current liabilities
Derivative instruments 11 (5,796) (3,521)
Other creditors 13 (1,473) (1,398)
--------------- ---------------
(7,269) (4,919)
========= =========
Net current assets 75,357 68,604
--------------- ---------------
Net assets 1,563,129 1,587,479
========= =========
Capital and reserves
Share capital 14 10,411 10,411
Share premium account 15 58,615 58,615
Capital redemption reserve 15 5,414 5,414
Capital reserve 15 1,440,810 1,472,587
Revenue reserve 15 47,879 40,452
--------------- ---------------
Total shareholders’ funds 1,563,129 1,587,479
========= =========
Net asset value per ordinary share 16 382.44p 388.39p
========= =========
The Financial Statements above and below were approved by the Board of
Directors on 19 March 2025 and were signed on its behalf by:
VIVIAN BAZALGETTE
Chairman
The Notes below form an integral part of these Financial Statements.
Notes to the Financial Statements
1 Principal Activity
Fidelity European Trust PLC is an Investment Company incorporated in England
and Wales that is listed 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 Accounting Policies
The Company has prepared its Financial Statements in accordance with UK
Generally Accepted Accounting Practice (“UK GAAP”), including FRS 102
“The Financial Reporting Standard applicable in the UK and Republic of
Ireland”, issued by the Financial Reporting Council (“FRC”). The
Financial Statements have also been 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. The Company is exempt from
presenting a Cash Flow Statement as a Statement of Changes in Equity is
presented and substantially all of the Company’s investments are highly
liquid and are carried at market value.
(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 31 March 2026 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, reviewed the liquidity
of the investment portfolio 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 and their
consideration of the upcoming continuation vote at the AGM on 8 May 2025, as
detailed in the Going Concern Statement above. The Directors recommend that
shareholders vote in favour of the continuation of the Company.
In preparing these Financial Statements the Directors have considered the
impact of climate change risk as an emerging and a principal 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 FRS 102, investments are valued at fair value, which for
the Company are quoted bid prices for investments in active markets at the
balance sheet date and 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 31 March 2026 which is at least twelve months from the date
of approval of these Financial Statements.
b) Significant accounting estimates and judgements
The Directors make judgements and estimates concerning the future. Estimates
and judgements are continually evaluated and are based on historical
experience and other factors, such as expectations of future events, and are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates. The Company’s Financial Statements contain no key
sources of estimation or uncertainty.
c) Segmental reporting
The Company is engaged in a single segment business and, therefore, no
segmental reporting is provided.
d) Presentation of the Income Statement
In order to better reflect the activities of an investment company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature
has been prepared alongside the Income Statement. The net revenue
return/(loss) 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) Income
Income from equity investments is accounted for 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. Amounts are
credited to the revenue column of the Income Statement. 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 in the revenue
column of the Income Statement. Any excess in the value of the shares received
over the amount of the cash dividend is recognised in the capital column of
the Income Statement. Special dividends are treated as a revenue receipt or a
capital receipt depending on the facts and circumstances of each particular
case.
Derivative instrument income received from dividends on long contracts for
difference (“CFDs”) is accounted for on the date on which the right to
receive the payment is established, normally the ex-dividend date. The amount
net of tax is credited to the revenue column of the Income Statement.
Interest received on CFDs, bank deposits, collateral and money market funds is
accounted for on an accruals basis and credited to the revenue column of the
Income Statement. Interest received on CFDs represent the finance costs
calculated by reference to the notional value of the CFDs.
f) Investment management fees and other expenses
Investment management fees and other expenses are accounted for on an accruals
basis and are charged as follows:
· The investment management fee is allocated 25% to revenue and 75% to
capital in line with the Board’s expected long-term split of revenue and
capital return from the Company’s portfolio of investments; and
· All other expenses are allocated in full to revenue with the exception of
those directly attributable to share issues or other capital events.
g) Functional currency and foreign exchange
The functional and reporting currency of the Company is UK sterling, which is
the currency of the primary economic environment in which the Company
operates. Transactions denominated in foreign currencies are reported in UK
sterling at the rate of exchange ruling at the date of the transaction. Assets
and liabilities in foreign currencies are translated at the rates of exchange
ruling at the Balance Sheet date. Foreign exchange gains and losses arising on
translation are recognised in the Income Statement as a revenue or a capital
item depending on the nature of the underlying item to which they relate.
h) Finance costs
Finance costs comprises interest paid on collateral and bank deposits and
finance costs paid on CFDs, which are accounted for on an accruals basis.
Finance costs are allocated 25% to revenue and 75% to capital in line with the
Board’s expected long-term split of revenue and capital return from the
Company’s portfolio of investments.
i) Taxation
The taxation charge represents the sum of current taxation and deferred
taxation.
Current taxation is taxation suffered at source on overseas income less
amounts recoverable under taxation treaties. Taxation is charged or credited
to the revenue column of the Income Statement, except where it relates to
items of a capital nature, in which case it is charged or credited to the
capital column of the Income Statement. Where expenses are allocated between
revenue and capital any tax relief in respect of the expenses is allocated
between revenue and capital returns on the marginal basis using the
Company’s effective rate of corporation tax for the accounting period. The
Company is an approved Investment Trust under Section 1158 of the Corporation
Tax Act 2010 and is not liable for UK taxation on capital gains.
Deferred taxation is the taxation expected to be payable or recoverable on
timing differences between the treatment of certain items for accounting
purposes and their treatment for the purposes of computing taxable profits.
Deferred taxation is based on tax rates that have been enacted or
substantively enacted when the taxation is expected to be payable or
recoverable. Deferred tax assets are only recognised if it is considered more
likely than not that there will be sufficient future taxable profits to
utilise them.
j) Dividend paid
Dividends payable to equity shareholders are recognised when the Company’s
obligation to make payment is established.
k) Investments
The Company’s business is investing in financial instruments with a view to
profiting from their total return in the form of income and capital growth.
This portfolio of investments 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. Investments are measured at fair value with changes in
fair value recognised in profit or loss, in accordance with the provisions of
both Section 11 and Section 12 of FRS 102. The fair value of investments is
initially taken to be their cost and is subsequently measured as follows:
· Listed investments are valued at bid prices, or last market prices,
depending on the convention of the exchange on which they are listed.
In accordance with the AIC SORP, the Company includes transaction costs,
incidental to the purchase or sale of investments, within (losses)/gains on
investments in the capital column of the Income Statement and has disclosed
these costs in Note 10 below.
l) Derivative instruments
When appropriate, permitted transactions in derivative instruments are used.
Derivative transactions into which the Company may enter include long and
short CFDs and futures. Derivatives are classified as other financial
instruments 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:
· Long and short CFDs – the difference between the strike price and the
value of the underlying shares in the contract; and
· Futures – the difference between the contract price and the quoted trade
price.
Where transactions are used to protect or enhance income, if the circumstances
support this, the income and expenses derived are included in net income in
the revenue column of the Income Statement. Where such transactions are used
to protect or enhance capital, if the circumstances support this, the income
and expenses derived are included in gains/(losses) on derivative instruments
in the capital column of the Income Statement. Any positions on such
transactions open at the year end are reflected on the Balance Sheet at their
fair value within current assets or current liabilities.
m) Debtors
Debtors include accrued income, taxation recoverable and other debtors and
prepayments incurred in the ordinary course of business. If collection is
expected in one year or less (or in the normal operating cycle of the
business, if longer) they are classified as current assets. If not, they are
presented as non-current assets. They are recognised initially at fair value
and, where applicable, subsequently measured at amortised cost using the
effective interest rate method.
n) Amounts held at futures clearing houses and brokers
These are amounts held in segregated accounts on behalf of brokers as
collateral against open derivative contracts. These are carried at amortised
cost.
o) Cash and cash equivalents
Cash and cash equivalents may comprise cash at bank and money market funds
which are short-term, highly liquid and are readily convertible to a known
amount of cash. These are subject to an insignificant risk of changes in
value.
p) Other creditors
Other creditors include investment management fees and other creditors and
expenses accrued in the ordinary course of business. If payment is due within
one year or less (or in the normal operating cycle of the business, if longer)
they are classified as current liabilities. If not, they are presented as
non-current liabilities. They are recognised initially at fair value and,
where applicable, subsequently measured at amortised cost using the effective
interest rate method.
q) Capital reserve
The following are accounted for in the capital reserve:
· Gains and losses on the disposal of investments and derivative
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;
· 75% of investment management fees and finance costs;
· Dividends receivable which are capital in nature; and
· Cost of repurchasing shares.
Technical guidance issued by the Institute of Chartered Accountants in England
and Wales in TECH 02/17BL, guidance on the determination of realised profits
and losses in the context of distributions under the Companies Act 2006,
states that changes in the fair value of investments which are readily
convertible to cash, without accepting adverse terms at the Balance Sheet
date, can be treated as realised. Capital reserves realised and unrealised are
shown in aggregate as capital reserve in the Statement of Changes in Equity
and the Balance Sheet. At the Balance Sheet date, the portfolio of the Company
consisted of investments listed on a recognised stock exchange and derivative
instruments contracted with counterparties having an adequate credit rating,
and the portfolio was considered to be readily convertible to cash.
3 Income
Year ended Year ended
31.12.24 31.12.23
£’000 £’000
Investment income
Overseas dividends 42,870 37,484
Overseas scrip dividends – 957
UK dividends 1,654 1,679
--------------- ---------------
44,524 40,120
========= =========
Derivative income
Income recognised from futures contracts 2,468 2,392
Dividends received on long CFDs 3,972 3,570
Interest received on CFDs 329 333
--------------- ---------------
6,769 6,295
========= =========
Investment and derivative income 51,293 46,415
========= =========
Other income
Interest received on collateral, bank deposits and money market funds 2,323 798
Interest received on tax reclaims 54 8
--------------- ---------------
2,377 806
========= =========
Total income 53,670 47,221
========= =========
Special dividends of £1,271,000 (2023: £710,000) have been recognised in
capital.
4 Investment Management Fees
Year ended 31 December 2024 Year ended 31 December 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fees 2,878 8,634 11,512 2,625 7,877 10,502
========= ========= ========= ========= ========= =========
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.
5 Other Expenses
Year ended Year ended
31.12.24 31.12.23
£’000 £’000
AIC fees 24 21
Custody fees 90 81
Depositary fees 63 54
Directors’ fees 1 186 169
Legal and professional fees 120 94
Marketing expenses 221 260
Printing and publication expenses 191 127
Registrars’ fees 91 86
Fees payable to the Company’s Independent Auditor for the audit of the Financial Statements 50 48
Other expenses 27 27
--------------- ---------------
1,063 967
========= =========
1 Details of the breakdown of Directors’ fees are disclosed in the
Directors’ Remuneration Report in the Annual Report.
6 Finance Costs
Year ended 31 December 2024 Year ended 31 December 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest paid on collateral and bank deposits 15 43 58 – – –
Interest paid on CFDs 2,122 6,367 8,489 1,601 4,803 6,404
Costs recognised from futures contracts 633 1,899 2,532 537 1,611 2,148
--------------- --------------- --------------- --------------- --------------- ---------------
2,770 8,309 11,079 2,138 6,414 8,552
========= ========= ========= ========= ========= =========
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
Year ended 31 December 2024 Year ended 31 December 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
a) Analysis of the taxation charge for the year
Overseas taxation 4,422 – 4,422 3,390 – 3,390
--------------- --------------- --------------- --------------- --------------- ---------------
Taxation charge for the year (see Note 7b) 4,422 – 4,422 3,390 – 3,390
========= ========= ========= ========= ========= =========
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 25.00% (2023: 25.00%). A
reconciliation of the standard rate of UK corporation tax to the taxation
charge for the year is shown below:
Year ended 31 December 2024 Year ended 31 December 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return/(loss) on ordinary activities before taxation 46,959 (31,777) 15,182 41,491 200,591 242,082
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 25.00% (2023: blended rate of 23.52%) 11,740 (7,944) 3,796 9,758 47,179 56,937
Effects of:
Capital losses/(gains) not taxable 1 – 3,709 3,709 – (50,540) (50,540)
Income not taxable (11,131) – (11,131) (9,436) – (9,436)
Expenses not deductible – 2,077 2,077 – 1,509 1,509
Excess management expenses (609) 2,158 1,549 (322) 1,852 1,530
Overseas taxation 4,422 – 4,422 3,390 – 3,390
--------------- --------------- --------------- --------------- --------------- ---------------
Total taxation charge for the year (see Note 7a) 4,422 – 4,422 3,390 – 3,390
========= ========= ========= ========= ========= =========
1 The Company is exempt from UK taxation 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 £18,676,000 (2023: £17,127,000), in respect of
excess expenses of £69,202,000 (2023: £63,004,000) and excess loan interest
of £5,505,000 (2023: £5,505,000), has not been recognised as it is unlikely
that there will be sufficient future taxable profits to utilise these
expenses.
The UK corporation tax rate increased from 19.00% to 25.00% from 1 April 2023.
The rate of 25.00% has been applied to calculate the unrecognised deferred tax
asset for the current year (2023: 25.00%).
8. RETURN PER ORDINARY SHARE
Year ended Year ended
31.12.24 31.12.23
Revenue return per ordinary share 10.41p 9.32p
Capital (loss)/return per ordinary share (7.78p) 49.08p
--------------- ---------------
Total return per ordinary share 2.63p 58.40p
========= =========
The return/(loss) per ordinary share is based on the net return/(loss) on
ordinary activities 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
Net revenue return on ordinary activities after taxation 42,537 38,101
Net capital (loss)/return on ordinary activities after taxation (31,777) 200,591
--------------- ---------------
Total return on ordinary activities after taxation 10,760 238,692
========= =========
Number Number
Weighted average number of ordinary shares held outside of Treasury 408,730,523 408,730,523
========= =========
9 DIVIDENDS PAID TO SHAREHOLDERS
Year ended Year ended
31.12.24 31.12.23
£’000 £’000
Dividends paid
Interim dividend of 3.60 pence per ordinary share paid for the year ended 31 December 2024 14,714 –
Final dividend of 4.99 pence per ordinary share paid for the year ended 31 December 2023 20,396 –
Interim dividend of 3.26 pence per ordinary share paid for the year ended 31 December 2023 – 13,325
Final dividend of 4.62 pence per ordinary share paid for the year ended 31 December 2022 – 18,883
--------------- ---------------
35,110 32,208
========= =========
Dividends proposed
Final dividend of 5.50 pence per ordinary share proposed for the year ended 31 December 2024 22,480 –
Final dividend of 4.99 pence per ordinary share proposed for the year ended 31 December 2023 – 20,396
--------------- ---------------
Total dividend proposed 22,480 20,396
========= =========
The Directors have proposed the payment of a final dividend for the year ended
31 December 2024 of 5.50 pence per ordinary share which is subject to approval
by shareholders at the Annual General Meeting on 8 May 2025 and has not been
included as a liability in these Financial Statements. The dividend will be
paid on 13 May 2025 to shareholders on the register at the close of business
on 28 March 2025 (ex-dividend date 27 March 2025).
10 INVESTMENTS
2024 2023
£’000 £’000
Investments held at fair value 1,487,772 1,518,875
--------------- ---------------
Opening book cost 943,460 872,694
Opening investment holding gains 575,415 452,695
--------------- ---------------
Opening fair value 1,518,875 1,325,389
========= =========
Movements in the year
Purchases at cost 185,382 275,931
Sales – proceeds (169,184) (248,350)
(Losses)/gains on investments (47,301) 165,905
--------------- ---------------
Closing fair value 1,487,772 1,518,875
========= =========
Closing book cost 1,005,206 943,460
Closing investment holding gains 482,566 575,415
--------------- ---------------
Closing fair value 1,487,772 1,518,875
========= =========
The Company received £169,184,000 (2023: £248,350,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£123,636,000 (2023: £205,165,000). 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
Transaction costs incurred in the acquisition and disposal of investments,
which are included in the (losses)/gains on investments above, were as
follows:
Year ended Year ended
31.12.24 31.12.23
£’000 £’000
Purchases transaction costs 488 286
Sales transaction costs 70 121
--------------- ---------------
558 407
========= =========
11 DERIVATIVE INSTRUMENTS
Year ended Year ended
31.12.24 31.12.23
£’000 £’000
Gains/(losses) on derivative instruments
Gains on long CFD positions closed 41,187 32,223
(Losses)/gains on short CFD positions closed (8,418) 2,257
Gains on futures contracts closed 5,815 9,484
Movement in investment holding (losses)/gains on long CFDs (2,246) 4,229
Movement in investment holding (losses)/gains on short CFDs (142) 142
Movement in investment holding (losses)/gains on futures (773) 2,106
--------------- ---------------
35,423 50,441
========= =========
2024 2023
Fair value Fair value
£’000 £’000
Derivative instruments recognised on the Balance Sheet
Derivative instrument assets – 886
Derivative instrument liabilities (5,796) (3,521)
--------------- ---------------
(5,796) (2,635)
========= =========
2024 2023
Fair value Asset Fair value Asset
£’000 exposure £’000 exposure
£’000 £’000
At the year end the Company held the following derivative instruments
Long CFDs (4,675) 196,659 (2,429) 199,945
Short CFDs – – 142 12,736
Long futures (1,121) 54,743 (348) 64,492
--------------- --------------- --------------- ---------------
(5,796) 251,402 (2,635) 277,173
========= ========= ========= =========
12. DEBTORS
2024 2023
£’000 £’000
Accrued income 618 933
Taxation recoverable 8,807 10,393
Other debtors and prepayments 81 123
--------------- ---------------
9,506 11,449
========= =========
13. OTHER CREDITORS
2024 2023
£’000 £’000
--------------- ---------------
Creditors and accruals 1,473 1,398
========= =========
14. SHARE CAPITAL
2024 2023
Number of Nominal Number of Nominal
shares value shares value
£’000 £’000
Issued, allotted and fully paid
Ordinary shares of 2.5 pence each held outside of Treasury
Beginning of the year 408,730,523 10,218 408,730,523 10,218
Ordinary shares repurchased into Treasury – – – –
--------------- --------------- --------------- ---------------
End of the year 408,730,523 10,218 408,730,523 10,218
========= ========= ========= =========
Ordinary shares of 2.5 pence each held in Treasury 1
Beginning of the year 7,717,387 193 7,717,387 193
Ordinary shares repurchased into Treasury – – – –
--------------- --------------- --------------- ---------------
End of the year 7,717,387 193 7,717,387 193
========= ========= ========= =========
Total share capital 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.
No ordinary shares were repurchased into Treasury during the year (2023: nil).
15 CAPITAL AND RESERVES Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve shareholders’
£’000 account reserve £’000 £’000 funds
£’000 £’000 £’000
At 1 January 2024 10,411 58,615 5,414 1,472,587 40,452 1,587,479
Losses on investments (see Note 10) – – – (47,301) – (47,301)
Gains on derivative instruments (see Note 11) – – – 35,423 – 35,423
Foreign exchange losses – – – (2,956) – (2,956)
Investment management fees (see Note 4) – – – (8,634) – (8,634)
Finance costs (see Note 6) – – – (8,309) – (8,309)
Revenue return on ordinary activities after taxation for the year – – – – 42,537 42,537
Dividends paid to shareholders (see Note 9) – – – – (35,110) (35,110)
--------------- --------------- --------------- --------------- --------------- ---------------
At 31 December 2024 10,411 58,615 5,414 1,440,810 47,879 1,563,129
========= ========= ========= ========= ========= =========
At 1 January 2023 10,411 58,615 5,414 1,271,996 34,559 1,380,995
Gains on investments (see Note 10) – – – 165,905 – 165,905
Gains on derivative instruments (see Note 11) – – – 50,441 – 50,441
Foreign exchange losses – – – (1,464) – (1,464)
Investment management fees (see Note 4) – – – (7,877) – (7,877)
Finance costs (see Note 6) – – – (6,414) – (6,414)
Revenue return on ordinary activities after taxation for the year – – – – 38,101 38,101
Dividends paid to shareholders (see Note 9) – – – – (32,208) (32,208)
--------------- --------------- --------------- --------------- --------------- ---------------
At 31 December 2023 10,411 58,615 5,414 1,472,587 40,452 1,587,479
========= ========= ========= ========= ========= =========
The capital reserve balance at 31 December 2024 includes investment holding
gains of £482,566,000 (2023: gains of £575,415,000) as detailed in Note 10.
See Note 2 (q) for further details. The revenue and capital reserves are
distributable by way of dividends.
16 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.
2024 2023
Total shareholders’ funds £1,563,129,000 £1,587,479,000
Ordinary shares held outside of Treasury at year end 408,730,523 408,730,523
Net asset value per ordinary share 382.44p 388.39p
========= =========
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.
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 Manager, has developed a risk
matrix which, as part of the internal control process, identifies the risks
that the Company faces. Principal risks identified are: geopolitical, economic
and market; investment performance (including the use of gearing and
derivatives); legislation, taxation and regulatory; marketplace threats and
competition; cybercrime and information security; business continuity; key
person and operational support; discount control; and environmental, social
and governance (“ESG”). Risks are identified and graded in this process,
together with steps taken in mitigation, and are updated and reviewed on an
ongoing basis. These risks and how they are identified, evaluated and managed
are shown in the Strategic Report above.
This note 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 held in accordance with the Company’s investment objective
and policies;
· Derivative instruments which comprise CFDs and futures on equity indices;
and
· Cash, liquid resources and short-term debtors and creditors that arise
from its operations.
The risks identified 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 Lead Portfolio Manager.
The Company is exposed to a financial risk arising as a result of any
increases in interest rates associated with the funding of the 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:
2024 2023
£’000 £’000
Exposure to financial instruments that bear interest
Long CFDs – exposure less fair value 201,334 202,374
--------------- ---------------
Exposure to financial instruments that earn interest
Short CFDs – exposure plus fair value – 12,878
Amounts held at futures clearing houses and brokers 10,078 8,384
Cash and cash equivalents 63,042 52,804
--------------- ---------------
73,120 74,066
========= =========
Net exposure to financial instruments that bear interest 128,214 128,308
========= =========
Foreign currency risk
The Company’s net return/(loss) on ordinary activities after taxation for
the year and its net assets can be affected by foreign exchange rate 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. The Company can also be subject to short-term exposure from exchange
rate movements, for example, between the date when an investment is purchased
or sold and the date when settlement of the transaction occurs.
Three principal areas have been identified where foreign currency risk could
impact the Company:
· Movements in exchange rates affecting the value of investments and
derivative instruments;
· Movements in exchange rates affecting short-term timing differences; and
· Movements in exchange rates affecting income received.
Currency exposure of financial assets
The currency exposure profile of the Company’s financial assets is shown
below:
2024
Currency Investments Long Debtors 1 Cash and 2024
held at exposure £’000 cash Total
fair value to derivative equivalents 2 £’000
£’000 instruments £’000
£’000
Euro 917,732 213,759 4,309 63,042 1,198,842
Swiss franc 295,505 – 3,752 – 299,257
Danish krone 85,263 – 341 – 85,604
Swedish krona 92,286 – – – 92,286
US dollar – 37,643 – – 37,643
Norwegian krone 25,629 – – – 25,629
UK sterling 71,357 – 11,182 – 82,539
--------------- --------------- --------------- --------------- ---------------
1,487,772 251,402 19,584 63,042 1,821,800
========= ========= ========= ========= =========
1 Debtors include amounts held at futures clearing houses and brokers.
2 Cash and cash equivalent are made up of £3,460,000 cash at bank and
£59,582,000 held in Fidelity Institutional Liquidity Fund.
2023
Currency Investments Long Debtors 1 Cash and Total
held at exposure £’000 cash £’000
fair value to derivative equivalents 2
£’000 instruments £’000
£’000
Euro 877,629 228,019 6,389 52,691 1,164,728
Swiss franc 357,739 – 3,947 – 361,686
Danish krone 96,102 – 465 – 96,567
Swedish krona 93,135 – – – 93,135
US dollar – 36,418 – 113 36,531
Norwegian krone 25,052 – – – 25,052
UK sterling 69,218 – 9,032 – 78,250
--------------- --------------- --------------- --------------- ---------------
1,518,875 264,437 19,833 52,804 1,855,949
========= ========= ========= ========= =========
1 Debtors include amounts held at futures clearing houses and brokers.
2 Cash and cash equivalent are made up of £3,900,000 cash at bank and
£48,904,000 held in Fidelity Institutional Liquidity Fund.
Currency exposure of financial liabilities
The currency profile of the Company’s financial liabilities is shown below:
Currency Short Other 2024
exposure creditors
to derivative £’000
instruments Total
£’000 £’000
Euro – 200 200
US dollar – 78 78
UK sterling – 1,195 1,195
--------------- --------------- ---------------
– 1,473 1,473
========= ========= =========
Currency Short Other 2023
exposure creditors
to derivative £’000
instruments Total
£’000 £’000
Euro 12,736 245 12,981
US dollar – 48 48
UK sterling – 1,105 1,105
--------------- --------------- ---------------
12,736 1,398 14,134
========= ========= =========
Other price risk
Other price risk arises mainly from uncertainty about future prices of
financial instruments used in the Company’s business. It represents the
potential loss the Company might suffer through holding market positions in
the face of price movements. 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 Portfolio
Managers are responsible for actively monitoring the existing portfolio
selected in accordance with the overall asset allocation parameters described
above and seek to ensure that individual stocks also meet an acceptable
risk/reward profile.
Liquidity risk
Due to the closed-ended nature of the Company, the liquidity risk is limited.
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.
Liquidity risk exposure
At 31 December 2024, the undiscounted gross cash outflows of the financial
liabilities were all repayable within one year and consisted of derivative
instrument liabilities of £5,796,000 (2023: £3,521,000) and creditors of
£1,473,000 (2023: £1,398,000).
Counterparty risk
Certain derivative instruments in which the Company invests 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 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 by evaluating derivative instrument
credit risk exposure.
31 December 2024 31 December 2023
Collateral Collateral Collateral Collateral
received pledged received pledged
£’000 £’000 £’000 £’000
Goldman Sachs International Ltd – – – 810
J.P. Morgan Securities plc – 5,025 – 2,460
UBS AG 50 5,053 60 5,114
--------------- --------------- --------------- ---------------
50 10,078 60 8,384
========= ========= ========= =========
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 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 Manager. Exposure to credit risk arises on unsettled
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, are set out in a documented Risk Management Process
Document. Derivative instruments are used by the Manager for the following
purposes:
· to gain unfunded long exposure to equity markets, sectors or single
stocks. Unfunded exposure is exposure gained without an initial flow of
capital; and
· to position short exposures in the Company’s portfolio. These uncovered
exposures benefit from falls in the prices of shares which the Portfolio
Managers believe to be overvalued. These positions, therefore, distinguish
themselves from other short exposures held for hedging purposes since they are
expected to add risk to the portfolio.
RISK SENSITIVITY ANALYSIS
Interest rate risk sensitivity analysis
Based on the financial instruments held and interest rates at 31 December
2024, an increase of 1.00% in interest rates throughout the year, with all
other variables held constant, would have decreased the net return on ordinary
activities after taxation for the year and decreased the net assets of the
Company by £1,282,000 (2023: decreased the net return and decreased the net
assets by £1,283,000). 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 instruments held and currency exchange rates at the
Balance Sheet date, a 10% strengthening of the UK sterling exchange rate
against foreign currencies, with all other variables held constant, would have
decreased the Company’s net return on ordinary activities after taxation for
the year and decreased the Company’s net assets (2023: decreased the net
return and decreased the net assets) by the following amounts:
Currency 2024 2023
£’000 £’000
Euro 108,967 104,704
Swiss franc 27,205 32,881
Swedish krona 8,390 8,467
Danish krone 7,782 8,779
US dollar 3,415 3,317
Norwegian krone 2,330 2,277
--------------- ---------------
158,089 160,425
========= =========
Based on the financial instruments held and currency exchange rates at the
Balance Sheet date, a 10% weakening of the UK sterling exchange rate against
foreign currencies, with all other variables held constant, would have
increased the Company’s net return on ordinary activities after taxation for
the year and increased the Company’s net assets (2023: increased the net
return and increased the net assets) by the following amounts:
Currency 2024 2023
£’000 £’000
Euro 133,182 127,972
Swiss franc 33,251 40,187
Swedish krona 10,254 10,348
Danish krone 9,512 10,730
US dollar 4,174 4,054
Norwegian krone 2,848 2,784
--------------- ---------------
193,221 196,075
========= =========
Other price risk – exposure to investments sensitivity analysis
Based on the investments held and share prices at 31 December 2024, an
increase of 10% in share prices, with all other variables held constant, would
have increased the Company’s net return on ordinary activities after
taxation for the year and increased the net assets of the Company by
£148,777,000 (2023: increased the net return and increased the net assets by
£151,888,000). A decrease of 10% in share prices would have had an equal and
opposite effect.
Other price risk – net exposure to derivative instruments sensitivity
analysis
Based on the derivative instruments held and share prices at 31 December 2024,
an increase of 10% in the share prices underlying the derivative instruments,
with all other variables held constant, would have increased the Company’s
net return on ordinary activities after taxation for the year and increased
the net assets of the Company by £25,140,000 (2023: increased the net return
and increased the net assets by £25,170,000). A decrease of 10% in share
prices of the investments underlying the derivative instruments would have had
an equal and opposite effect.
Fair Value of Financial Assets and Liabilities
Financial assets and liabilities are stated in the Balance Sheet at values
which are not materially different to their fair values. As explained in Notes
2 (k) and (l), investments and derivative instruments are shown at fair value.
In the case of cash and cash equivalents, 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 (k) and (l). The table below sets out the Company’s fair value
hierarchy.
2024
Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments 1,487,772 – – 1,487,772
Derivative instrument assets – – – –
--------------- --------------- --------------- ---------------
1,487,772 – – 1,487,772
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (1,121) (4,675) – (5,796)
========= ========= ========= =========
2023
Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments 1,518,875 – – 1,518,875
Derivative instrument assets – 886 – 886
--------------- --------------- --------------- ---------------
1,518,875 886 – 1,519,761
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (348) (3,173) – (3,521)
========= ========= ========= =========
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 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, both of which are detailed in the in the Annual Report. The
principal risks and their management are disclosed in the Strategic Report
above and in Note 17.
The Company’s gross gearing and net gearing at the year end is set out
below:
2024
Gross gearing Net gearing
Asset % 1 Asset % 1
exposure exposure
£’000 £’000
Investments 1,487,772 95.2 1,487,772 95.2
Long CFDs 196,659 12.6 196,659 12.6
Long futures 54,743 3.5 54,743 3.5
--------------- --------------- --------------- ---------------
Total long exposures 1,739,174 111.3 1,739,174 111.3
========= ========= ========= =========
Short CFDs – – – –
Gross asset exposure/net market exposure 1,739,174 111.3 1,739,174 111.3
Shareholders’ funds 1,563,129 1,563,129
Gearing 2 11.3 11.3
========= ========= ========= =========
1 Asset exposure to the market expressed as a percentage of shareholders’
funds.
2 Gearing is the amount by which gross asset exposure/net market exposure
exceeds shareholders’ funds expressed as a percentage of shareholders’
funds.
2023
Gross gearing Net gearing
Asset exposure Asset exposure
£’000 % 1 £’000 % 1
Investments 1,518,875 95.6 1,518,875 95.6
Long CFDs 199,945 12.6 199,945 12.6
Long futures 64,492 4.1 64,492 4.1
--------------- --------------- --------------- ---------------
Total long exposures 1,783,312 112.3 1,783,312 112.3
========= ========= ========= =========
Short CFDs 12,736 0.8 (12,736) (0.8)
--------------- --------------- --------------- ---------------
Gross asset exposure/net market exposure 1,796,048 113.1 1,770,576 111.5
Shareholders’ funds 1,587,479 1,587,479
Gearing 2 13.1 11.5
========= ========= ========= =========
1 Asset exposure to the market expressed as a percentage of shareholders’
funds.
2 Gearing is the amount by which gross asset exposure/net market exposure
exceeds shareholders’ funds expressed as a percentage of shareholders’
funds.
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 and the role of company
secretary to FIL Investments International (“FII”). Both companies are
Fidelity group companies.
Details of the current fee arrangements are given in the Directors’ Report
in the Annual Report and in Note 4. During the year, fees for portfolio
management services of £11,512,000 (2023: £10,502,000) were payable to FII.
At the Balance Sheet date, fees for portfolio management services of £972,000
(2023: £925,000) were accrued and included in other creditors. FII also
provides the Company with marketing services. The total amount payable for
these services during the year was £221,000 (2023: £260,000). At the Balance
Sheet date, marketing services of £53,000 (2023: £14,000) were accrued and
included in other creditors.
Disclosures of the Directors’ interests in the ordinary shares of the
Company and Directors’ fees and taxable expenses relating to reasonable
travel expenses paid 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, £20,000 (2023:
£17,000) of Employers’ National Insurance Contributions was also paid by
the Company. As at 31 December 2024, Directors’ fees of £22,000 (2023:
£14,000) were accrued and payable.
Alternative Performance Measures
The Company uses the following as Alternative Performance Measures and these
are all defined in the Glossary of Terms 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 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 Balance Sheet and Note 16 above for further details of the Company’s
NAV per ordinary share.
ONGOING CHARGES RATIO
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of management fees and other expenses expressed
as a percentage of the average net assets throughout the year.
2024 2023
Investment management fees (£’000) 11,512 10,502
Other expenses (£’000) 1,063 967
--------------- ---------------
Ongoing charges (£’000) 12,575 11,469
========= =========
Ongoing charges ratio 0.76% 0.77%
========= =========
REVENUE, CAPITAL AND TOTAL RETURNS PER SHARE
See the Income Statement and Note 8 above for further details on the revenue,
capital and total returns per ordinary share.
TOTAL RETURN PERFORMANCE
The NAV per ordinary share total return performance includes reinvestment of
the dividend in the NAV of the Company on the ex-dividend date. The ordinary
share price total return performance 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 ordinary share
and the ordinary share price of the Company, the impact of the dividend
reinvestments and the total returns for the years ended 31 December 2024 and
31 December 2023.
2024 Net asset Ordinary
value per share
ordinary price
share
31 December 2023 388.39p 360.00p
31 December 2024 382.44p 352.00p
Change in year -1.5% -2.2%
Impact of dividend reinvestments +2.0% +2.1%
-------------- --------------
Total return for the year +0.5% -0.1%
========= =========
2023 Net asset Ordinary
value per share
ordinary price
share
31 December 2022 337.87p 319.50p
31 December 2022 388.39p 360.00p
Change in year +15.0% +12.7%
Impact of dividend reinvestments +2.5% +2.6%
-------------- --------------
Total return for the year +17.5% +15.3%
========= =========
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 December 2024 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 2023 and 2024 statutory accounts received unqualified reports from the
Company's Auditor and did not include any reference to matters to which the
Auditor drew attention by way of emphasis without qualifying the reports and
did not contain a statement under s.498 of the Companies Act 2006. The
financial information for 2023 is derived from the statutory accounts for 2023
which have been delivered to the Registrar of Companies. The 2024 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:
www.morningstar.co.uk/uk/NSM
The Annual Report will be posted to shareholders later this month and
additional copies will be available from the registered office of the Company
and on the Company's website: www.fidelity.co.uk/europe where up to date
information on the Company, including daily NAV and share prices, factsheets
and other information can also be found.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
ENDS
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