TIDMFEV
FIDELITY EUROPEAN TRUST PLC
Half-Yearly Results for the six months ended 30 June 2023 (unaudited)
Financial Highlights:
· The Board of Fidelity European Trust PLC (the "Company") declares an interim
dividend of 3.26 pence per share, an increase of 5.8% on the prior year.
· The net asset value ("NAV") of the Company increased by +11.1% for the six
months ending 30 June, outperforming the FTSE World Europe (ex UK) Index, which
returned +9.3%.
· The share priced matched the Benchmark Index, returning +9.3% over the
reporting period.
· The Company remains the top performer in the AIC peer group over one, five
and ten years*.
· The Company continues to focus on attractively valued companies with strong
balance sheets and consistent dividend growth.
*Data according to the AIC as at 24/07/23
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
Portfolio Managers' Half-Yearly Review
Performance Review
During the first six months of the year the net asset value ("NAV") total return
was +11.1% compared to a total return of +9.3% for the FTSE World Europe (ex UK)
Index which is the Company's Benchmark Index. The share price total return was
+9.3%, which is below the NAV total return because of a widening of the share
price discount to NAV. (All figures in UK sterling.)
Market Review
Continental European markets were unexpectedly strong in the first half of this
year, as investors concerns moderated regarding global economic growth and as
corporate earnings proved more resilient than feared. UK sterling appreciated by
+3% against the Euro during this six month period so in Euro terms, the
continental European benchmark rose +12% which is impressive, however much less
than the Nasdaq which rocketed +30% in equivalent terms!
The market recovery from the lows of October 2022 accelerated in January boosted
by confirmation that China would relax its strict COVID policies and "re-open".
This positive sentiment was tested by the collapse of the Silicon Valley Bank
(SVB) in early March, and the subsequent demise of Credit Suisse, but the market
shrugged these off and ended the first quarter at close to its highest levels
for the period. First quarter corporate results were better than anticipated
(despite a technical recession in Germany). There was also a flurry of
excitement regarding the likely long term impact of generative Artificial
Intelligence (AI) which boosted technology names (such as ASML), but overall,
the market stalled in the second quarter as investors worried that central banks
were still in tightening mode given the resilience of the global economy and the
stickiness of inflation. Like the US stock market, the continental European
markets were led higher by a narrow group of mega-cap companies, often in the
technology or luxury sectors. The energy sector was the main laggard, as
commodity prices fell from the elevated levels of 2022, despite China "re
-opening" and the continued war in Ukraine.
Portfolio Managers' Report
The Company's NAV total return outperformed the Company's Benchmark Index over
the six month period by almost 2%. Much of this outperformance was due to the
gearing of the Company which was maintained throughout the period at around 13%.
Shareholders of the Company will remember that, as mentioned in the 2021 Annual
Report, the Board endorsed an intention to maintain a relatively fixed level of
gearing within a range that is approximately double the 6% average gearing from
the end of the global financial crisis until the global pandemic. Gearing is, of
course, one of the great advantages of an investment trust, and although it may
amplify volatility in the short term, we expect it to enhance long term returns.
The agreed level of gearing takes into account our cautious investment approach
and allows considerable headroom before published limits are reached in the
event of a sharp sell-off in the markets.
The contribution from stock-picking was also positive during this period. The
stand-out performer during the half-year was 3i Group which continued to impress
with positive results updates and strong current trading figures from their
largest investment, the continental European discount retail group, Action.
Financials, which is the Company's largest sector overweight, was however rocked
by the bankruptcy of SVB. Bankinter suffered as investors worried that it was a
European equivalent of a US regional bank with a deposit base that might prove
less sticky than other European banks, given its recent growth and more
sophisticated customer base. Sampo, the Nordic insurance company, also performed
poorly following disappointing results and conservative guidance regarding
capital distributions to shareholders. Roche continued its lacklustre run,
hampered by disappointing guidance for 2023 due to a drop-off in COVID-related
revenues (in diagnostics and pharma) and the on-going impact of biosimilars
(comparable biological medicines) on Rituxan, Herceptin and Avastin. On a more
positive note, LVMH Moët Hennessy and Hèrmes International defied gravity, once
again, on the growing hope that the Chinese consumers were embarking on so
-called "revenge spending" that has been seen post "re-opening" in the US and
Europe.
Top Five Stock Sector Country %
Contributors (on a
relative basis)
3i Group Financials UK +0.9
ASML Information Technology Netherlands +0.5
Amadeus IT Group Consumer Discretionary Spain +0.5
Hèrmes International Consumer Discretionary France +0.5
L'Oréal Consumer Staples France +0.4
Top Five Stock Sector Country %
Detractors (on a
relative basis)
Sampo Financials Finland -0.6
TotalEnergies Energy France -0.6
Bankinter Financials Spain -0.4
Symrise Materials Germany -0.3
EQT Financials Sweden -0.3
Outlook
There are plenty of reasons to be bearish. More than a year ago, the two-year
treasury yields rose above the ten-year treasury yields in the US bond market
(it is normally the other way around). This `yield curve inversion' has,
historically, been a lead indicator of recession about 80% of the time, but the
lag between the date of inversion and recession can be six months to three
years. It is a bit like seeing a big dark cloud on the horizon and predicting it
will rain soon! To date, the global economy and corporate earnings have been
resilient while stock markets have recovered quite dramatically since the lows
in October, such that share prices are now back in the middle of their normal
valuation ranges. It is hard to imagine that this will not be tested in the
months ahead. Having said that, the pandemic and subsequent monetary and fiscal
policies have made this an unusual cycle. At present, investors seem to be
expecting a soft landing or no global recession at all. Earnings forecasts for
2023 are similar to earnings delivered for 2022 but analysts are still
forecasting growth in 2024. The capacity of consumers (the most important
contributors to GDP) to maintain spending levels has surprised many. But, in
general, they still have jobs and pandemic savings to burn. The cost-of-living
crisis may ease too as commodity prices lead general pricing downwards on goods
and services. This disinflation may also be helped along by governments
`encouraging' corporates to abandon `greedflation' (which might hinder company
margins). So maybe the consumer will keep the global economy bumbling along.
Having said that, credit conditions are tightening (post SVB) and the US Federal
Reserve and government are draining liquidity via quantitative tightening and
short term bond issuance, and there is a multi-year refinancing requirement
ahead for consumers and corporates alike. Geopolitical risks remain elevated too
with the war in Europe and continued tensions between the US and China. Whatever
our views on the outlook, we will maintain the current level of gearing and will
continue to focus on attractively valued companies with strong balance sheets
that should be resilient and able to grow dividends, even in a more difficult
economic environment.
SAM MORSE
Portfolio Manager
Marcel Stötzel
Co-Portfolio Manager
1 August 2023
Twenty Largest Holdings as at 30 June 2023
The Asset Exposures shown below measure exposure to market price movements as a
result of owning shares and derivative instruments. The Fair Value is the actual
value of the portfolio as reported in the Balance Sheet. Where a contract for
difference ("CFD") is held, the Fair Value reflects the profit or loss on the
contract since it was opened and is based on how much the share price of the
underlying share has moved.
Asset Exposure Fair
£'000 %1 Value
£'000
Long Exposures - shares unless
otherwise stated
Nestlé
Food Producers 102,451 6.8 102,451
ASML
Technology Hardware & Equipment 92,644 6.1 92,644
LVMH Moët Hennessy
Personal Goods 86,605 5.7 86,605
Novo Nordisk
Pharmaceuticals & Biotechnology 82,079 5.4 82,079
Roche
Pharmaceuticals & Biotechnology 69,925 4.6 69,925
TotalEnergies
Oil, Gas & Coal 64,304 4.3 64,304
L'Oréal
Personal Goods 63,203 4.2 63,203
EssilorLuxottica
Medical Equipment & Services 51,561 3.4 51,561
SAP (long CFD)
Software & Computer Services 51,231 3.4 (164)
Sanofi (long CFD)
Pharmaceuticals & Biotechnology 47,733 3.2 2,076
Legrand (long CFD)
Electronic & Electrical 45,085 3.0 (1,033)
Equipment
Hèrmes International
Personal Goods 44,523 2.9 44,523
MTU Aero Engines
Aerospace & Defense 44,225 2.9 44,225
Partners Group Holding
Investment Banking & Brokerage 42,805 2.8 42,805
Services
3i Group
Investment Banking & Brokerage 41,286 2.7 41,286
Services
Assa Abloy
Construction & Materials 40,720 2.7 40,720
Deutsche Börse Group
Investment Banking & Brokerage 38,606 2.6 38,606
Services
Sampo
Non-Life Insurance 36,170 2.4 36,170
Amadeus IT Group
Software & Computer Services 35,556 2.3 35,556
Linde (long CFD)
Chemicals 33,822 2.2 635
--------- --------------- ---------------
------
Twenty largest long exposures 1,114,534 73.6 938,177
Other long exposures 522,642 34.5 522,642
--------- --------------- ---------------
------
Total long exposures before long 1,637,176 108.1 1,460,819
futures2,3
========= ========= =========
Long Futures
Euro Stoxx 50 Future September 60,659 4.0 1,120
20233
--------- --------------- ---------------
------
Total long exposures after long 1,697,835 112.1 1,461,939
futures3
========= ========= =========
Short Exposures
Short CFDs (2 Holdings) 18,101 1.2 (396)
--------- --------------- ---------------
------
Gross Asset Exposure3,4 1,715,936 113.3
========= =========
Portfolio Fair Value5 1,461,543
Net current assets (excluding 53,000
derivative assets and
liabilities)
---------------
Shareholders' Funds (per the 1,514,543
Balance Sheet below)
=========
1Asset Exposure is expressed as a percentage of Shareholders' Funds.
2Total long exposures before long futures comprises investments of
£1,459,305,000 and long CFDs of £177,871,000.
3See Note 13 below.
4Gross Asset Exposure comprises market exposure to investments of £1,459,305,000
plus market exposure to all derivative instruments of £256,631,000. Derivative
instruments comprise long CFDs of £177,871,000, long futures of £60,659,000 and
short CFDs of £18,101,000.
5Portfolio Fair Value comprises investments of £1,459,305,000 plus derivative
assets of £3,919,000 less derivative liabilities of £1,681,000 (per the Balance
Sheet below).
Interim Management Report and Directors' Responsibility Statement
Interim Dividend
The Board does not influence the Portfolio Managers by imposing any income
objective in any particular period, and the investment focus on companies
capable of growing their dividends remains. The Board acknowledges that both
capital and income growth are components of performance, as reflected in the
investment objective of the Company. It therefore has a policy whereby it seeks
to pay a progressive dividend in normal circumstances and to pay dividends twice
yearly in order to smooth dividend payments for the reporting year. Unlike open
-ended funds, investment trusts can hold back some of the income they receive in
good years, thereby building up revenue reserves, which can then be used to
supplement dividends during difficult times. The Board has over the past few
years augmented revenue reserves by retaining a small proportion of earnings to
be used in difficult times, as in the case of the final dividend paid in May
2021.
The Company's revenue return for the six months to 30 June 2023 was 7.38 pence
per ordinary share (30 June 2022: 7.08 pence). The Board has declared an interim
dividend of 3.26 pence per ordinary share which is an increase of 5.8% on the
3.08 pence per ordinary share paid as the interim dividend in 2022. This will be
paid on 27 October 2023 to shareholders on the register at close of business on
22 September 2023 (ex-dividend date 21 September 2023).
Shareholders may choose to reinvest their dividends for additional shares in the
Company.
Discount Management and Treasury Shares
The Board has an active discount management policy, the primary purpose of which
is to reduce discount volatility. It seeks to maintain the discount in single
digits in normal market conditions. Buying shares at a discount also results in
an enhancement to the NAV per ordinary share.
In order to assist in managing the discount, the Board has shareholder approval
to hold ordinary shares repurchased by the Company in Treasury, rather than
cancel them. Shares in Treasury are then available to be re-issued at NAV per
ordinary share or at a premium to NAV per ordinary share, facilitating the
management of and enhancing liquidity in the Company's shares.
In the reporting period and up to the date of this report, the discount remained
in single digits and the Company did not repurchase any ordinary shares into
Treasury or for cancellation.
Principal Risks and Uncertainties
The Board, with the assistance of the Manager (FIL Investment Services (UK)
Limited), has developed a risk matrix which, as part of the risk management and
internal controls process, identifies the key existing and emerging risks and
uncertainties faced by the Company.
The Board considers that the principal risks and uncertainties faced by the
Company fall into the following categories: economic and geopolitical risks;
market risk; discount control risk; operational risk; cybercrime risk;
investment performance risk (including the use of derivatives and gearing);
environmental, social and governance (ESG) risks; key person risk; operational
resilience risk; and tax and regulatory risks. Information on each of these
risks is given in the Strategic Report section of the Annual Report for the year
ended 31December 2022. A copy of the Annual Report can be found on the Company's
pages of the Manager's website at www.fidelity.co.uk/europe.
While the principal risks and uncertainties are the same as those at the
previous year end, the uncertainty continues to be heightened by the ongoing
Russia and Ukraine conflict dominating political risks and industry concerns.
There is geopolitical and economic uncertainty, in particular concerns over
global economic growth, inflation and financial distress. Earlier in the year,
the collapse of Silicon Valley Bank and the buyout of Credit Suisse caused
turmoil in the global banking sector and volatility in the markets. The quantum
of risks continues to change, and the Board remains vigilant in monitoring such
risks.
Climate change continues to be a key emerging issue, as well as a principal
risk, that is confronting asset managers and their investors. The Board notes
that the Manager has integrated ESG considerations, including climate change,
into the Company's investment process. The Board will continue to monitor how
this may potentially impact the Company, the main risk being the impact on
investment valuations and shareholder returns.
Investors should be prepared for market fluctuations and remember that holding
shares in the Company should be considered to be a long term investment. Risks
are mitigated by the investment trust structure of the Company which means that
no forced sales need to take place to deal with any redemptions. Therefore,
investments in the Company's portfolio can be held over a longer time horizon.
The Manager has appropriate business continuity and operational plans in place
to ensure the uninterrupted provision of services, including investment team key
activities, including those of portfolio managers, analysts and trading/support
functions. It reviews its operational resilience strategies on an ongoing basis
and continues to take all reasonable steps in meeting its regulatory obligations
and protecting its ability to continue operating and to serve and support its
clients, including the Board.
The Company's other third-party service providers also have similar measures to
ensure that business disruption is kept to a minimum.
Transactions with the Manager and Related Parties
The Manager has delegated the Company's portfolio management and company
secretariat services to FIL Investments International. Transactions with the
Manager and related party transactions with the Directors are disclosed in Note
14 to the Financial Statements below.
Going Concern Statement
The Directors have considered the Company's investment objective, risk
management policies, liquidity risk, credit risk, capital management policies
and procedures, the nature of its portfolio and its expenditure and cash flow
projections. The Directors, having considered the liquidity of the Company's
portfolio of investments (being mainly securities which are readily realisable)
and the projected income and expenditure, are satisfied that the Company is
financially sound and has adequate resources to meet all of its liabilities and
ongoing expenses and can continue in operational existence for a period of at
least twelve months from the date of this Half-Yearly Report.
This conclusion also takes into account the Board's assessment of the ongoing
risks from the war in Ukraine, significant market events and regulatory changes.
Accordingly, the Financial Statements of the Company have been prepared on a
going concern basis.
Continuation votes are held every two years and the next continuation vote will
be put to shareholders at the Annual General Meeting in 2025.
BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL
1 August 2023
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
a)The condensed set of Financial Statements contained within the Half-Yearly
Report has been prepared in accordance with the Financial Reporting Council's
Standard FRS 104: Interim Financial Reporting; and
b)The Portfolio Managers' Half-Yearly Review and the Interim Management Report
above, include a fair review of the information required by DTR 4.2.7R and
4.2.8R.
In line with previous years, the Half-Yearly Report has not been audited or
reviewed by the Company's Independent Auditor.
The Half-Yearly Report was approved by the Board on 1 August 2023 and the above
responsibility statement was signed on its behalf by Vivian Bazalgette,
Chairman.
Financial Statements
Income Statement for the six months ended 30 June 2023
Six Six
Year
months months
ended 31
ended 30 ended 30
December
June 2023 June 2022
2022
unaudited unaudited
audited
Notes Revenue Capital Total Revenue Capital
Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000
£'000 £'000 £'000 £'000
Gains/(losse - 94,641 94,641 - (172,868)
(172,868) - (63,812) (63,812)
s) on
investments
Gains/(losse - 36,841 36,841 - (29,395)
(29,395) - (22,034) (22,034)
s) on
derivative
instruments
Income 4 35,816 - 35,816 33,050 -
33,050 43,042 - 43,042
Investment 5 (1,303) (3,910) (5,213) (1,177) (3,533)
(4,710) (2,362) (7,087) (9,449)
management
fees
Other (507) - (507) (511) -
(511) (919) - (919)
expenses
Foreign - (2,599) (2,599) - 502 502
- (372) (372)
exchange
(losses)/gai
ns
--------- --------- --------- --------- --------- ----
----- --------- --------- ---------
------ ------ ------ ------ ------ ----
-- ------ ------ ------
Net 34,006 124,973 158,979 31,362 (205,294)
(173,932) 39,761 (93,305) (53,544)
return/(loss
)
on ordinary
activities
before
finance
costs and
taxation
Finance 6 (908) (2,724) (3,632) (31) (92)
(123) (196) (586) (782)
costs
--------- --------- --------- --------- --------- ----
----- --------- --------- ---------
------ ------ ------ ------ ------ ----
-- ------ ------ ------
Net 33,098 122,249 155,347 31,331 (205,386)
(174,055) 39,565 (93,891) (54,326)
return/(loss
)
on ordinary
activities
before
taxation
Taxation on 7 (2,916) - (2,916) (2,241) -
(2,241) (2,641) - (2,641)
return/(loss
) on
ordinary
activities
--------- --------- --------- --------- --------- ----
----- --------- --------- ---------
------ ------ ------ ------ ------ ----
-- ------ ------ ------
Net 30,182 122,249 152,431 29,090 (205,386)
(176,296) 36,924 (93,891) (56,967)
return/(loss
)
on ordinary
activities
after
taxation
for the
period
========= ========= ========= ========= =========
========= ========= ========= =========
Return/(loss 8 7.38p 29.91p 37.29p 7.08p (49.97p)
(42.89p) 9.00p (22.88p) (13.88p)
) per
ordinary
share
========= ========= ========= ========= =========
========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly the net
return/(loss) on ordinary activities after taxation for the period is also the
total comprehensive income for the period and no separate Statement of
Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the
Company. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
No operations were acquired or discontinued in the period and all items in the
above statement derive from continuing operations.
Statement of Changes in Equity for the six months ended 30 June 2023
Notes Share Share Capital Capital Revenue
Total
capital premium redemption reserve reserve
shareholders'
£'000 account reserve £'000 £'000
funds
£'000 £'000
£'000
Six months
ended
30 June 2023
(unaudited)
Total 10,411 58,615 5,414 1,271,996 34,559
1,380,995
shareholders'
funds at 31
December 2022
Net return on - - - 122,249 30,182
152,431
ordinary
activities
after
taxation
for the
period
Dividend paid 9 - - - - (18,883)
(18,883)
to
shareholders
--------- --------- ---------- --------- --------- --
-----------
------ ------ ----- ------ ------ --
Total 10,411 58,615 5,414 1,394,245 45,858
1,514,543
shareholders'
funds at 30
June 2023
========= ========= ========= ========= =========
=========
Six months
ended
30 June 2022
(unaudited)
Total 10,411 58,615 5,414 1,372,360 27,433
1,474,233
shareholders'
funds at 31
December 2021
Net - - - (205,386) 29,090
(176,296)
(loss)/return
on
ordinary
activities
after
taxation for
the
period
Dividend paid 9 - - - - (17,180)
(17,180)
to
shareholders
--------- --------- ---------- --------- --------- --
-----------
------ ------ ----- ------ ------ --
Total 10,411 58,615 5,414 1,166,974 39,343
1,280,757
shareholders'
funds at 30
June 2022
========= ========= ========= ========= =========
=========
Year ended 31
December 2022
(audited)
Total 10,411 58,615 5,414 1,372,360 27,433
1,474,233
shareholders'
funds at 31
December 2021
Net - - - (93,891) 36,924
(56,967)
(loss)/return
on
ordinary
activities
after
taxation for
the
year
Repurchase of 11 - - - (6,473) -
(6,473)
ordinary
shares
Dividends 9 - - - - (29,798)
(29,798)
paid
to
shareholders
--------- --------- ---------- --------- --------- --
-----------
------ ------ ----- ------ ------ --
Total 10,411 58,615 5,414 1,271,996 34,559
1,380,995
shareholders'
funds at 31
December 2022
========= ========= ========= ========= =========
=========
Balance Sheet as at 30 June 2023
Company Number 2638812
Notes 30 June 31 30 June
2023 December 2022
unaudited 2022 unaudited
£'000 audited £'000
£'000
Fixed assets
Investments 10 1,459,305 1,325,389 1,252,159
------- --------- --------- ---------------
------- ------ ------
-
Current assets
Derivative instruments 10 3,919 521 253
Debtors 12,141 8,128 13,706
Amounts held at futures 5,869 12,891 3,789
clearing houses and
brokers
Cash and cash equivalents 36,362 44,884 15,955
--------- --------- ---------------
------ ------
58,291 66,424 33,703
========= ========= =========
Current liabilities
Derivative instruments 10 (1,681) (9,633) (4,179)
Other creditors (1,372) (1,185) (926)
--------- --------- ---------------
------ ------
(3,053) (10,818) (5,105)
========= ========= =========
Net current assets 55,238 55,606 28,598
========= ========= =========
Net assets 1,514,543 1,380,995 1,280,757
========= ========= =========
Capital and reserves
Share capital 11 10,411 10,411 10,411
Share premium account 58,615 58,615 58,615
Capital redemption 5,414 5,414 5,414
reserve
Capital reserve 1,394,245 1,271,996 1,166,974
Revenue reserve 45,858 34,559 39,343
--------- --------- ---------------
------ ------
Total shareholders' funds 1,514,543 1,380,995 1,280,757
========= ========= =========
Net asset value per 12 370.55p 337.87p 311.61p
ordinary share
========= ========= =========
Notes to the Financial Statements
1 Principal Activity
Fidelity European Trust PLC is an Investment Company incorporated in England and
Wales with a premium listing on the London Stock Exchange. The Company's
registration number is 2638812, and its registered office is Beech Gate,
Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been
approved by HM Revenue & Customs as an Investment Trust under Section 1158 of
the Corporation Tax Act 2010 and intends to conduct its affairs so as to
continue to be approved.
2 Publication of Non-statutory Accounts
The Financial Statements in this Half-Yearly Report have not been audited by the
Company's Independent Auditor and do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006 ("the Act"). The financial
information for the year ended 31 December 2022 is extracted from the latest
published Financial Statements of the Company. Those Financial Statements were
delivered to the Registrar of Companies and included the Independent Auditor's
Report which was unqualified and did not contain a statement under either
section 498(2) or 498(3) of the Act.
3 ACCOUNTING POLICIES
(i) Basis of Preparation
The Company prepares its Financial Statements on a going concern basis and in
accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and FRS
102: The Financial Reporting Standard applicable in the UK and Republic of
Ireland, issued by the Financial Reporting Council. The Financial Statements are
also prepared in accordance with the Statement of Recommended Practice:
Financial Statements of Investment Trust Companies and Venture Capital Trusts
("SORP") issued by the Association of Investment Companies ("AIC") in July 2022.
FRS 104: Interim Financial Reporting has also been applied in preparing this
condensed set of Financial Statements. The accounting policies followed are
consistent with those disclosed in the Company's Annual Report and Financial
Statements for the year ended 31 December 2022.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for a period of at least twelve
months from the date of approval of these Financial Statements. Accordingly, the
Directors consider it appropriate to adopt the going concern basis of accounting
in preparing these Financial Statements. This conclusion also takes into account
the Board's assessment of the risks faced by the Company as detailed in the
Interim Management Report above.
4 Income
Six Six Year
months months ended
ended ended 31.12.22
30.06.23 30.06.22 audited
unaudited unaudited £'000
£'000 £'000
Investment income
Overseas dividends 28,415 26,955 35,333
Overseas scrip dividends 957 729 1,052
UK dividends 965 1,075 1,910
--------- --------- ---------------
------ ------
30,337 28,759 38,295
========= ========= =========
Derivative income
Income recognised from futures 1,797 1,083 1,208
contracts
Dividends received on long CFDs 3,339 2,858 3,025
Interest received on CFDs1 61 347 422
--------- --------- ---------------
------ ------
5,197 4,288 4,655
========= ========= =========
Investment and derivative income 35,534 33,047 42,950
========= ========= =========
Other interest
Interest received on collateral, 276 3 88
bank deposits and money market
funds
Interest received on tax reclaims 6 - 4
--------- --------- ---------------
------ ------
282 3 92
--------- --------- ---------------
------ ------
Total income 35,816 33,050 43,042
========= ========= =========
1Due to negative interest rates in the prior periods, the Company received
interest on its long CFDs.
Special dividends of £710,000 have been recognised in capital during the period
(six months ended 30 June 2022 and year ended 31 December 2022: £1,115,000).
5 INVESTMENT MANAGEMENT FEES
Revenue Capital Total
£'000 £'000 £'000
Six months ended 30 June 2023 (unaudited)
Investment management fees 1,303 3,910 5,213
========= ========= =========
Six months ended 30 June 2022 (unaudited)
Investment management fees 1,177 3,533 4,710
========= ========= =========
Year ended 31 December 2022 (audited)
Investment management fees 2,362 7,087 9,449
========= ========= =========
FIL Investment Services (UK) Limited is the Company's Alternative Investment
Fund Manager and has delegated portfolio management to FIL Investments
International ("FII"). Both companies are Fidelity group companies.
FII charges investment management fees at an annual rate of 0.85% of net assets
up to £400 million and 0.65% of net assets in excess of £400 million. Fees are
payable monthly in arrears and are calculated on a daily basis.
Investment management fees have been allocated 75% to capital reserve in
accordance with the Company's accounting policies.
6 FINANCE COSTS
Revenue Capital Total
£'000 £'000 £'000
Six months ended 30
June 2023 (unaudited)
Interest paid on - - -
collateral and bank
deposits
Interest paid on CFDs 647 1,942 2,589
Costs recognised from 261 782 1,043
futures contracts
--------------- --------------- ---------------
908 2,724 3,632
========= ========= =========
Six months ended 30
June 2022 (unaudited)
Interest paid on 16 47 63
collateral and bank
deposits1
Interest paid on CFDs 15 45 60
--------------- --------------- ---------------
31 92 123
========= ========= =========
Year ended 31 December
2022 (audited)
Interest paid on 28 82 110
collateral and bank
deposits1
Interest paid on CFDs 168 504 672
--------------- --------------- ---------------
196 586 782
========= ========= =========
1 Due to negative interest rates in the prior periods, the Company paid interest
on its collateral and bank deposits.
Finance costs have been allocated 75% to capital reserve in accordance with the
Company's accounting policies.
7 TAXATION ON RETURN/(LOSS) ON ORDINARY ACTIVITIES
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
£'000 £'000 £'000
Overseas taxation 2,916 2,241 2,641
========= ========= =========
8 RETURN/(LOSS) PER ORDINARY SHARE
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
Revenue return per 7.38p 7.08p 9.00p
ordinary share
Capital 29.91p (49.97p) (22.88p)
return/(loss) per
ordinary share
--------------- --------------- ---------------
Total return/(loss) 37.29p (42.89p) (13.88p)
per ordinary share
========= ========= =========
The return/(loss) per ordinary share is based on the net return/(loss) on
ordinary activities after taxation for the period divided by the weighted
average number of ordinary shares held outside Treasury during the period, as
shown below:
£'000 £'000 £'000
Net revenue return on ordinary 30,182 29,090 36,924
activities after taxation
Net capital return/(loss) on 122,249 (205,386) (93,891)
ordinary activities after
taxation
--------- --------------- ---------------
------
Net total return/(loss) on 152,431 (176,296) (56,967)
ordinary activities after
taxation
========= ========= =========
Number Number Number
Weighted average number of ordinary 408,730,523 411,016,049 410,346,447
shares held outside Treasury during the
period
========== ========== ==========
9 DIVIDS PAID TO SHAREHOLDERS
Six Six Year
months months ended
ended ended 31.12.22
30.06.23 30.06.22 audited
unaudited unaudited £'000
£'000 £'000
Final dividend of 4.62 pence per ordinary 18,883 - -
share paid for the year ended 31 December
2022
Interim dividend of 3.08 pence per ordinary - - 12,618
share paid for the year ended 31 December
2022
Final dividend of 4.18 pence per ordinary - 17,180 17,180
share paid for the year ended 31 December
2021
--------- --------- ---------
------ ------ ------
18,883 17,180 29,798
========= ========= =========
The Company has declared an interim dividend for the six month period to 30 June
2023 of 3.26 pence per ordinary share (2022: 3.08 pence). The interim dividend
will be paid on 27 October 2023 to shareholders on the register on 22 September
2023 (ex-dividend date 21 September 2023). The total cost of this interim
dividend, which has not been included as a liability in these Financial
Statements, is £13,325,000 (2022: £12,659,000). This amount is based on the
number of ordinary shares held outside Treasury at the date of this report.
10 FAIR VALUE HIERARCHY
The Company is required to disclose the fair value hierarchy that classifies its
financial instruments measured at fair value at one of three levels, according
to the relative reliability of the inputs used to estimate the fair values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical
assets.
Level 2 Valued by reference to inputs other than quoted prices
included in level 1 that are observable (i.e. developed using
market data) for the asset or liability, either directly or
indirectly.
Level 3 Valued by reference to valuation techniques using inputs that
are not based on observable market data.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset. The table below sets out the Company's fair value hierarchy:
30 June 2023 (unaudited) Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets at fair
value through profit or loss
Investments 1,459,305 - - 1,459,305
Derivative instrument assets 1,120 2,799 - 3,919
--------- --------- --------- ---------
------ ------ ------ ------
1,460,425 2,799 - 1,463,224
========= ========= ========= =========
Financial liabilities at fair
value through profit or loss
Derivative instrument - (1,681) - (1,681)
liabilities
========= ========= ========= =========
31 December 2022 (audited) Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets at fair
value through profit or loss
Investments 1,325,389 - - 1,325,389
Derivative instrument assets - 521 - 521
--------- --------- --------- ---------
------ ------ ------ ------
1,325,389 521 - 1,325,910
========= ========= ========= =========
Financial liabilities at fair
value through profit or loss
Derivative instrument (2,454) (7,179) - (9,633)
liabilities
========= ========= ========= =========
30 June 2022 (unaudited) Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets at fair
value through profit or loss
Investments 1,252,159 - - 1,252,159
Derivative instrument assets - 253 - 253
--------- --------- --------- ---------
------ ------ ------ ------
1,252,159 253 - 1,252,412
========= ========= ========= =========
Financial liabilities at fair
value through profit or loss
Derivative instrument (348) (3,831) - (4,179)
liabilities
========= ========= ========= =========
11 SHARE CAPITAL
30 June 31 December 30 June
2023 2022 2022
unaudited audited unaudited
Number of £'000 Number of £'000 Number of
£'000
shares shares shares
Issued,
allotted
and
fully
paid
Ordinary
shares of
2.5
pence
each held
outside of
Treasury
Beginning 408,730,523 10,218 411,016,049 10,275 411,016,049
10,275
of
the period
Ordinary - - (2,285,526) (57) - -
shares
repurchased
into
Treasury
----------- ---------- ----------- ---------- ----------- ----
------
------ ------- ------ ------- ------ ----
---
End of the 408,730,523 10,218 408,730,523 10,218 411,016,049
10,275
period
========== ========== ========== ========== ==========
==========
Ordinary
shares of
2.5pence
each held
in
Treasury1
Beginning 7,717,387 193 5,431,861 136 5,431,861 136
of
the period
Ordinary - - 2,285,526 57 - -
shares
repurchased
into
Treasury
----------- ---------- ----------- ---------- ----------- ----
------
------ ------- ------ ------- ------ ----
---
End of the 7,717,387 193 7,717,387 193 5,431,861 136
period
========== ========== ========== ========== ==========
==========
Total share 10,411 10,411
10,411
capital
========== ==========
==========
1Ordinary shares held in Treasury carry no rights to vote, to receive a dividend
or to participate in a winding up of the Company.
There were no ordinary shares repurchased into Treasury during the period (year
ended 31 December 2022: cost of £6,473,000 and six months ended 30 June 2022:
cost of £nil).
12 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the total
Shareholders' funds divided by the number of ordinary shares held outside of
Treasury.
30.06.23 31.12.22 30.06.22
unaudited audited unaudited
Total shareholders' funds £1,514,543,000 £1,380,995,000 £1,280,757,000
Ordinary shares held outside 408,730,523 408,730,523 411,016,049
of Treasury at the period end
Net asset value per ordinary 370.55p 337.87p 311.61p
share
============ ============ ============
It is the Company's policy that shares held in Treasury will only be reissued at
net asset value per ordinary share or at a premium to net asset value per
ordinary share and, therefore, shares held in Treasury have no dilutive effect.
13 CAPITAL RESOURCES AND GEARING
The Company does not have any externally imposed capital requirements. The
financial resources of the Company comprise its share capital and reserves, as
disclosed in the Balance Sheet above, and any gearing, which is managed by the
use of derivative instruments. Financial resources are managed in accordance
with the Company's investment policy and in pursuit of its investment objective.
The Company's gross gearing and net gearing at the end of the period is shown
below:
Gross Net
gearing gearing
Asset Asset
exposure exposure
£'000 %1 £'000 %1
30 June 2023
(unaudited)
Investments 1,459,305 96.4 1,459,305 96.4
Long CFDs 177,871 11.7 177,871 11.7
Long futures 60,659 4.0 60,659 4.0
--------- --------- --------- ---------
------ ------ ------ ------
Total long exposures 1,697,835 112.1 1,697,835 112.1
Short CFDs 18,101 1.2 (18,101) (1.2)
--------- --------- --------- ---------
------ ------ ------ ------
Gross asset 1,715,936 113.3 1,679,734 110.9
exposure/net market
exposure
========= ========= ========= =========
Shareholders' funds 1,514,543 1,514,543
========= =========
Gearing2 13.3 10.9
========= ========= =========
31 December 2022
(audited)
Investments 1,325,389 96.0 1,325,389 96.0
Long CFDs 152,446 11.0 152,446 11.0
Long futures 65,056 4.7 65,056 4.7
--------- --------- --------- ---------
------ ------ ------ ------
Total long exposures 1,542,891 111.7 1,542,891 111.7
Short CFDs - - - -
--------- --------- --------- ---------
------ ------ ------ ------
Gross asset 1,542,891 111.7 1,542,891 111.7
exposure/net market
exposure
========= ========= ========= =========
Shareholders' funds 1,380,995 1,380,995
========= =========
Gearing2 11.7 11.7
========= =========
1Asset exposure to the market expressed as a percentage of shareholders' funds.
2Gearing is the amount by which the gross asset exposure/net market exposure
exceeds shareholders' funds expressed as a percentage of shareholders' funds.
Gross Net gearing
gearing Asset exposure
Asset
exposure
£'000 %1 £'000 %1
30 June 2022
(unaudited)
Investments 1,252,159 97.8 1,252,159 97.8
Long CFDs 135,626 10.6 135,626 10.6
Long futures 32,215 2.5 32,215 2.5
--------- --------- --------------- ---------------
------ ------
Total long exposures 1,420,000 110.9 1,420,000 110.9
Short CFDs - - - -
--------- --------- --------------- ---------------
------ ------
Gross asset 1,420,000 110.9 1,420,000 110.9
exposure/net market
exposure
========= ========= ========= =========
Shareholders' funds 1,280,757 1,280,757
========= =========
Gearing2 10.9 10.9
========= =========
1Asset exposure to the market expressed as a percentage of shareholders' funds.
2Gearing is the amount by which the gross asset exposure/net market exposure
exceeds shareholders' funds expressed as a percentage of shareholders' funds.
14 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
FIL Investment Services (UK) Limited is the Company's Alternative Investment
Fund Manager and has delegated portfolio management and the role of company
secretary to FIL Investments International ("FII"), the Investment Manager. Both
companies are Fidelity group companies. Details of the fee arrangements are
given in Note 5 above.
During the period, fees for portfolio management services of £5,213,000 (six
months ended 30 June 2022: £4,710,000 and year ended 31 December 2022:
£9,449,000) were payable to FII. At the Balance Sheet date, fees for portfolio
management of £866,000 (31 December 2022: £832,000 and 30 June 2022: £754,000)
were accrued and included in other creditors. FII also provides the Company with
marketing services. The total amount payable for these services during the
period was £160,000 (six months ended 30 June 2022: £147,000 and year ended 31
December 2022: £209,000). At the Balance Sheet date, no fees for marketing
services were accrued and included in other creditors (31 December 2022 and 30
June 2022: £nil).
As at 30 June 2023, the Board consisted of five non-executive Directors (shown
in the Directory in the Half-Yearly Report), all of whom are considered to be
independent by the Board. None of the Directors have a service contract with the
Company. The Chairman receives an annual fee of £44,500, the Audit Committee
Chair an annual fee of £35,000, the Senior Independent Director an annual fee of
£31,500 and each other Director an annual fee of £29,000. The following members
of the Board hold ordinary shares in the Company: Vivian Bazalgette 30,000
shares, Fleur Meijs 28,970 shares, Milyae Park nil shares, Sir Ivan Rogers nil
shares and Paul Yates 32,000 shares.
The financial information contained in this Half-Yearly Results Announcement
does not constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the six months ended 30 June
2023 and 30 June 2022 has not been audited or reviewed by the Company's
Independent Auditor.
The information for the year ended 31 December 2022 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies, unless otherwise stated. The report of the Auditor on
those financial statements contained no qualification or statement under
sections 498(2) or (3) of the Companies Act 2006.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
A copy of the Half-Yearly Report will shortly be submitted to the National
Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at
www.fidelity.co.uk/europe where up to date information on the Company, including
daily NAV and share prices, factsheets and other information can also be found.
This information was brought to you by Cision http://news.cision.com
https://news.cision.com/fidelity-european-trust-plc/r/half-year-report,c3812351
END
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August 02, 2023 02:00 ET (06:00 GMT)
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