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