Fidelity European Trust Plc - Annual Financial Report
Final Results for the year ended
Financial Highlights:
-- The Board of Fidelity European Trust PLC (the “Company”) recommends a
final dividend of 4.99 pence which together with the interim dividend
payment of 3.26 pence per share (totalling 8.25 pence ) represents an
increase of 7.1% over the total dividend of 7.70 pence paid in the prior
year.
-- During the year ended 31 December 2023 , the Company reported a net asset
value (NAV) total return of +17.5% while the Benchmark Index, the FTSE
World Europe ex UK Index, rose by +15.7%.
-- Over the same period, the ordinary share price total return was +15.3%.
-- The Portfolio Managers remain focused on identifying attractively valued
companies which will deliver consistent dividend growth cycle on cycle.
Contacts
For further information, please contact:
Company Secretary
01737 836347
Chairman’s Statement
The year under review began as the previous one ended, with interest rates and inflation continuing to ratchet upwards in
While consumers have continued to face a cost-of-living crisis, many companies have managed to maintain their margins, even amid higher costs, a theme that has played out favourably in the Company’s portfolio given our Portfolio Managers’ focus on well financed businesses with good pricing power. While
Performance
The Company performed well in the year under review, delivering a net asset value total return of +17.5% and comfortably beating the +15.7% total return of the Benchmark Index, the FTSE World Europe ex
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
The final dividend will be payable on
Outlook
Last year, I sounded a cautious note on the outlook for the portfolio, given the risk of a global recession at some stage in 2023. While this has not yet come to pass – and indeed, there was a degree of euphoria in markets towards the end of the reporting year under review – it would be unwise to buy too fully into the idea that ‘normalising’ interest and inflation rates will ensure a rosy picture in 2024. As Sam points out in the Portfolio Managers’ Review below, a return to target inflation rates of 2% could be seen as quite restrictive in a historical context. If this is achieved only because of a flatlining global economy, then the market could take fright over the prospects for corporate earnings and dividends, particularly if interest rate reductions are seen to be delayed. Other reasons to be cautious include the possibilities arising from many elections this year, the Chinese economy and the property market – which appear to have deeper-seated problems than anyone expected, the ongoing conflagration in
With all that said, however, your Company performed well in 2023, aided by stock-specific opportunities in areas such as private equity, where 3i Group and Partners Group were the two biggest winners in the portfolio. There was also a positive impact from gearing, maintained throughout the year and used to take advantage of the fact that markets tend to rise over the long-term. The Portfolio Managers’ focus is unchanged and continues to be on finding attractively valued companies with good prospects for cash generation and dividend growth over the longer-term, with positioning driven by opportunities at the individual stock level rather than macro developments.
Fees
It is the practice of the Board to review fees paid to the Manager every third year, and this was done early in 2024. It has been agreed that the fee rate should remain unchanged for the forthcoming three years beginning on
OTHER MATTERS
Cybersecurity
Fidelity takes the threat of cybercrime very seriously and is active in ensuring that its own and customers’ data remains secure, with risks regularly re-assessed and communicated to the Board. Such risks – which have increased due to the
Environmental, Social and Governance (“ESG”) Investment
While your Company is not a ‘green’ or ‘ethical’ fund, ESG factors remain an important part of the work of both the Board and the Portfolio Managers, as continuing deterioration in the climate and other social and governance concerns present a potential investment risk to your portfolio. Businesses are under pressure to ensure that their activities are not harmful in these respects, and although there is progress on a wide range of issues – from deforestation to clean energy transition – more still needs to be done.
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 in 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
The discount remained in single digits throughout the year under review, and no shares were repurchased or issued.
Gearing
The Company continues to gear through the use of derivative instruments, primarily contracts for difference (“CFDs”), and the Portfolio Manager has flexibility to gear within the parameters set by the Board. As at
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 stressed that all gearing is subject to the Portfolio Managers’ confidence in identifying attractive investment opportunities, and to their remaining attractive.
Board of Directors
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 the range of appropriate skills and experience for your Company. In accordance with the
While there have been no changes to the Board in the year under review, I will have completed nine years’ service in
Continuation Vote
In accordance with the Company’s Articles of Association, the Company is subject to a continuation vote every two years. The most recent such vote was at last year’s AGM on
Annual General Meeting
The Company’s AGM is at 12 noon on Wednesday,
Chairman
ANNUAL GENERAL MEETING – WEDNESDAY,
The AGM of the Company will be held at
12 noon on Wednesday,
For those shareholders who would prefer not to attend in person, we will live-stream the formal business and presentations of the meeting online.
Properly registered shareholders joining the AGM virtually will be able to vote on the proposed resolutions. Please 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 125-205-035 . 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
How has the Company performed in the year to
Answer
Sam:
We know that what really matters to shareholders
is how the share price performs. In that regard, 2023 has been a good year in absolute terms, with the share price up by 15.3% (total return in Sterling). That is pleasantly surprising given that we entered the year with such gloomy prospects and many predicting recession given the cost-of-living crisis and rising interest rates. However, with the Benchmark Index rising by 15.7%, the share price just about kept up with the market. The NAV did better than the Benchmark, rising by 17.5%, however the share price discount to NAV widened during the year thereby offsetting this outperformance. The Company’s gearing which was maintained through the year at a low double-digit level, was the main reason that the NAV outperformed. This is a good reminder of the benefit of gearing in a rising market, and one of the key advantages of investment trusts relative to other investment vehicles.
Question
What stocks have been the main drivers of performance in 2023?
Answer
Sam:
After a strong year in 2022, stock-picking was
more mixed in 2023 making only a marginally positive contribution to the Company’s outperformance in NAV terms. There were two big winners, both from the financials sector and participants in the private equity industry. 3i Group’s shares rose following another very strong year of growth from its main investment, Action, which is a continental European discount retailer. Investors feared that the cost-of-living crisis would limit the spending of Action’s existing customers, but it appears to have driven greater footfall as the squeeze on disposable income encouraged new customers to seek the bargains on offer.
Partners Group enjoyed a big re-rating as investors’ worst fears regarding the economy and a knock-on impact on private equity valuations, receded and were replaced by a recognition of the resilience of the group, in terms of both valuations and fund-raising, given it is spread across different private asset classes and different customer groups respectively.
In contrast, there was a tail of more lacklustre performers. Sampo, the Nordic insurance company, was perhaps the most notable example. It suffered some weak underwriting results, largely weather-related, and shareholders were also disappointed by the company’s conservative distribution policy. We still expect the stock to be a steady compounder, from an attractive level of dividend yield, especially now that it has refocused on its core business of non-life insurance in the Nordic markets, which enjoy higher returns than most insurance markets in continental
Below are the top five stock contributors and detractors to NAV performance in the Company’s reporting year.
Top 5 Stock Contributors (on a relative basis) %
3i Group +1.5
Partners Group +1.1
Novo Nordisk +0.7
ASML +0.6
L’Oréal +0.5
=========
Top 5 Stock Dectractors (on a relative basis) %
Sampo -0.6
Nestlé -0.6
MTU Aero Engines -0.5
Roche -0.5
DKSH Holding -0.4
=========
Question
Give an example of how your bottom-up stock selection process has added value to the Company this year?
Answer
Marcel:
The two private equity names that were our big
winners were both great examples of where we benefited from focusing on bottom-up stock picking rather than top-down macro forecasts. Both 3i Group and Partners Group had big macro clouds hanging over them - from worries about the impact higher interest rates/lower stock market levels would have on private equity to concerns that portfolio companies would be hit by the cost-of-living squeeze and looming recession. Additionally, there were concerns that the funding/fund raising environment would dry up just at the time that private equity players were unable to exit past investments. We shared these concerns, but looking at a bottom-up stock picking basis, we felt strongly that the long-term impact of the above was overstated. Instead, we felt that the key drivers of the stocks over the long-term were still intact and would remain so in the event of any short-term wobbles. For example, for 3i what really mattered was the sales performance from its main investment Action. While this might be impacted in the short-term, this would not have been enough to change the strong long-term outlook (and in the end the short-term held up well too). For Partners, what mattered the most was their fund-raising ability as their earnings are heavily skewed towards management fees. While this has been impacted in the short-term (although less than feared) we do not feel that this changes the excellent long-term fundraising potential of the company. Credit must also go to our Diversified Financials analyst who did some great value-add analysis (including hosting a “Private Equity Day” where we met leading industry CEOs) and consistently kept us focused on the key longer-term drivers of the companies’ profits.
Question
How are you managing geopolitical risk within the portfolio?
Answer
Sam:
We are unable to predict outcomes in this respect.
We do, however, try to make sure that in the event of any outcome, we are not overly exposed relative to the Benchmark. We try to achieve this by maintaining a balance in the portfolio on sector weightings and by running “what if” scenarios related to geopolitical tensions such as those between
Question
With inflation looking like it will normalise, what effect will this have on markets and in particular your portfolio?
Answer
Sam:
Two things to consider in answering this question:
what is normal inflation and how will we get there? Central banks in the US and
Answer
Marcel:
I agree with Sam’s views and would add that
inflation normalising will also have an important knock-on effect on the ability of central banks to cut interest rates. This is important as a number of investments use the “risk free rate” as the rate of return they need to exceed in order to be attractive to investors. As such the lowering of interest rates has (all else being equal) a direct impact on making other investments more attractive. Additionally, a number of European companies are sitting on fixed rate debt that was taken out during the depths of the pandemic. This debt has an average interest rate well below current market interest rates which means that if central banks are unable to meaningfully lower rates by the time this debt becomes due (late 2024/2025), then a number of companies could see a large interest expense hit. At an aggregate level, this interest rate shock could also have a negative impact on economies.
Question
How have you incorporated ESG into the management of the portfolio this year?
Answer
Sam:
At Fidelity, the bulk of our ESG analysis is done by
our fundamental equity analysts alongside their work on building an investment thesis. As well as rating a company a ‘buy’ or a ‘sell’ they also assign a sustainability rating on a scale of A-E. As long-term investors, we believe that over time companies with good ESG practices will also be those that have sustainable business models that display the quality characteristics we look for in our investee companies. Our equity analysts are supported by Fidelity’s Sustainable Investing analysts who offer expertise and allow us to conduct larger thematic pieces of work.
Our wider team engaged with 28 holdings in the Company during the year through approximately 40 different interactions on ESG topics, including 13 in-person meetings or conference calls with investee companies. Executive remuneration was the most prominent engagement topic followed by governance and biodiversity.
Answer
Marcel:
Using ESG analysis as an additional layer of “risk
evaluation” allows us to make sure that we are considering the full set of company risks. These were not the only reasons for some of the sales we carried out last year, but they were nonetheless a key input into our decision to sell the likes of Prosus (Social concerns) and Schindler (Governance concerns).
Question
Looking forward into 2024 and beyond, which sectors and regions are you particularly excited about?
Answer
Sam:
We do not really do excitement! As investors, there
is always the danger that we get overexcited by potential rewards and overlook downside risks. A fast-growing region, for example, may also have unattractive corporate governance or poor industry structures. Academic studies, in particular those by Dimson, Marsh and Staunton from the
Question
Sam you are coming up to 13 years of managing the Company’s portfolio, with fantastic comparative performance versus the Benchmark Index, both in capital growth and dividend growth. What has been the key to success over the longer-term?
Answer
Sam:
I am wary of this. Thirteen is an unlucky number and
disclaimers correctly warn that good past performance is no guarantee of future success! We will, of course, always have good years and bad years, but Marcel and I remain confident that if we continue to identify consistent dividend growers that are attractively valued, we will continue to deliver some outperformance compared to the Benchmark over time. Gearing will, of course, also enhance that outperformance over the long-term as markets rise. The magic of the compounding of consistent outperformance over time, coupled with a very sharp focus on assessing potential downside to avoid banana skins, is what has allowed the Company’s relative performance to pull ahead from its Benchmark over time.
Portfolio Manager
MARCEL STÖTZEL
Co-Portfolio Manager
VOTING CASE STUDIES: ESSILORLUXOTTICA AND PUMA
BACKGROUND
In addition to this, we periodically engage with companies to influence their behaviour in setting remuneration levels for senior employees. We wrote to companies in November and asked them to be mindful of granting significant executive pay rises in the current environment. We have taken the view that in order to support a large pay increase that is misaligned with the broader workforce, the rationale would need to be exceptionally convincing, and the boards of such companies would need to demonstrate that it had also considered how best to support lower paid workers during the cost-of-living crisis.
These policies informed our decision to vote against PUMA’s remuneration policy at the 2023 AGM because their long-term incentive awards do not have a five year restriction period. We also decided to vote against EssilorLuxottica’s remuneration policies for the Chairman/CEO for the reasons outlined below.
ANALYSIS ON OUR VOTING DECISIONS AND COMPANY ENGAGEMENT
Fidelity wrote to the chairs of holdings in major European indices to highlight the importance of responsible corporate responses to the challenges posed by the cost-of-living crisis. This initiative formed part of our ongoing engagement with boards and management teams ahead of their annual general meetings in 2023.
We shared best practices learned from our various engagements, including prioritising lower-paid employees in pay reviews, and providing one-off cost-of-living support payments or providing other forms of non-financial support to lower-paid staff. More broadly, we encouraged responsible corporate responses to the cost-of-living challenges faced by employees and broad alignment between workforce and executive pay outcomes.
On executive remuneration, we encouraged boards to ensure pay decisions reflected the principles of fairness and equitable treatment. When setting executive pay, we asked remuneration committees to consider the broader workforce experience and generally avoid above-workforce base salary increases. We also asked boards to remain mindful of the theoretical potential for windfall LTIP awards.
PUMA : We communicated our voting intentions with the company to explain our position on LTIPs before casting our vote against the remuneration policy.
EssilorLuxottica:
We decided to vote against the remuneration policies for the Chairman/CEO,
We engaged with the company ahead of the AGM and decided that we were unable to vote with management on this proposal.
OUTCOMES
PUMA:
In the case of PUMA, other shareholders were aligned with our stance and the remuneration report was voted down at the AGM
by a majority of 54% of votes cast.
EssilorLuxottica: In contrast, the result for this vote did not go our way. The proposal was passed with around 30% of votes cast against the resolution.
In both cases, we will continue to monitor the company’s remuneration practices.
HIGH CONVICTION HOLDINGS
PUMA:
is well known as the world’s third largest sportswear manufacturer behind Nike and Adidas. There is double digit growth in the
sporting goods market annually and, as the lines blur between luxury and ‘athleisure’, PUMA is well placed in the oligopoly-like market structure. PUMA has been through a dramatic brand reinvigoration that has resulted in strong growth and margin improvement over the past few years. The share price weakness at the beginning of 2023 on fears of a consumer slowdown provided an attractive entry point as the long-term thesis is sound. Importantly for us, the company also has a strong balance sheet and cash generation that supports double digit dividend growth.
EssilorLuxottica
is a global leader in the design, manufacture and distribution of ophthalmic lenses, frames and sunglasses. Formed by
the merger in 2018 of Essilor (founded in 1849) and
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 and emerging 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
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 has integrated ESG considerations, including climate change, into the Company’s investment process. Further details are in the Annual Report. The Board will continue to monitor how this may impact the Company as a risk to investment valuations and potentially shareholder returns.
Other emerging risks may continue to evolve from unforeseen geopolitical and economic events, and also from artificial intelligence (AI).
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
The Board considers the risks listed below as the principal risks and uncertainties faced by the Company.
Principal Risks Description and Risk Mitigation
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 war effects,
deglobalisation trends and significant
supply disruption, as well as fears of
global recession amid inflationary
pressures and financial distress. Russia
and Ukraine 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. The
conflict in the Middle East has added to
geopolitical risk and economic
instability, including social unrest
across Europe . More recently, the
conflict in the Red Sea has disrupted
shipping routes and the supply and cost
of goods, thereby affecting the global
economy and trade. Globally,
geopolitical uncertainty is
significantly impacted by
deglobalisation trends driven by the
prioritisation of the resiliency of
supply chains as well as from political
pressure. The ramifications of onshoring
include regulatory protectionism across
regions, heightening geopolitical
tensions on the continent and overseas.
US-China tensions over trade and
technology rivalry increase the concerns
of China -Taiwan relations potentially
escalating to military conflict as well
as increasing tensions over trade and
economic issues due to competing
territorial claims.
As the year progresses, political risks
are also set to increase heading towards
the US elections in November, and
coupled with ongoing geopolitical
conflicts, could lead to higher
volatility for broader markets and oil
in particular. China , following its
reopening post the pandemic, is seeing
tentative signs of stabilisation, but
its growth story remains challenging.
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 the post pandemic
Geopolitical, Economic and Market Risks global economic recovery, volatility
from the war in Ukraine and more
recently conflict in the Middle East and
conflicts in the Red Sea . 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
continued increased demand following the
pandemic restrictions being lifted,
global labour shortages in some sectors
and supply chain shortages, including
energy and food security. Inflation and
economic instability continue to add 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 market, economic and
political 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. The Company has no direct
investments in Russia and Ukraine or the
Middle East . Whilst the companies in the
portfolio are exposed to these risks,
most of these companies are global
businesses and, therefore, exposed to
global economic trends. The Chairman’s
Statement and the Portfolio Managers’
Review above provide more detail.
Risks to which the Company is exposed to
in the market risk category are included
in Note 17 to the Financial Statements
below together with summaries of the
policies for managing these risks.
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
Investment Performance Risk (including protect and enhance investment
the use of derivatives and gearing) 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
to 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
Manager fails 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.
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. More recently, there have been
increased concerns around investment
Regulatory Risk cost disclosures and its impact in the
industry. Regulatory changes for
investment companies are monitored
regularly by the Board and managed
through active engagement with
regulators and trade bodies by the
Manager.
The loss of the Portfolio Manager or key
operational 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. There is
Key Person a Co-Portfolio Manager who works
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.
There is a risk that the value of the
assets of the Company are negatively
impacted 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. Fidelity has
embedded ESG factors in its investment
decision-making process. 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
Environmental, Social and Governance forward-looking and holistic assessment
(“ESG”) Risk of a company’s ESG risks and
opportunities based on sector-specific
key performance indicators across 127
individual and unique sub-sectors. The
Portfolio Managers are also active in
analysing the effects of ESG when making
investment decisions. The Board
continues to monitor developments in
this area and the positioning of the
Company’s portfolio considering ESG
factors.
Further detail on ESG considerations in
the investment process and sustainable
investing is in the Annual Report. ESG
ratings of the companies within the
Company’s portfolio compared to MSCI
ratings are provided in the Annual
Report.
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 teams have
developed a number of initiatives and
controls in order to provide enhanced
mitigating protection to this
ever-increasing threat, and also
potentially addressing the risks of
artificial intelligence (AI). The risk
is regularly re-assessed by Fidelity’s
information security teams and risk
frameworks are continually enhanced.
This has resulted in the implementation
of additional tools and processes,
including improvements to existing ones.
Fidelity has a dedicated cybersecurity
Cybercrime and Information Security team which provides continuous
Risks oversight, regular awareness updates and
best practice guidance.
Risks also remain due to the
Russia /Ukraine conflict and the trend to
more working from home following the
pandemic. These primarily relate to
phishing, ransomware, remote access
threats, extortion and denial of
services attacks. The Manager has
dedicated 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.
Due 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
Discount Control Risk 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 with the Company’s Broker
and considered by the Board at each of
its meetings.
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 and natural
disasters. There are also ongoing risks
from the Russia /Ukraine war,
specifically regarding cyberattacks and
the potential loss of power and/or
broadband services. Variants of Covid
continue to evolve and some risks
remain.
The Manager continues to take all
reasonable steps 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.
Business Continuity Risk
Specific risks posed by the pandemic
continue to ease with increasing levels
of staff returning to routine
office-based working, albeit under
hybrid working arrangements which allows
greater flexibility on remote working as
part of the new operating model.
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.
Other risks facing the Company include:
Tax and Regulatory Risks
There is a risk of the Company not complying with tax and regulatory requirements.
A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status, resulting in the Company being subject to tax on capital gains.
There is a risk that outstanding withholding tax reclaims may not be recoverable from some jurisdictions and may need to be written-off. The Manager’s tax team works closely with the Custodian to keep these under review and the Board is kept updated on the recoverability of the withholding tax reclaims at each Audit Committee meeting.
The Board monitors tax and regulatory changes at each Board meeting and through active engagement with regulators and trade bodies by the Manager.
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. At the AGM held on
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;
· 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
· The Investment Manager’s compliance with the Company’s investment objective and policy, its investment strategy and asset allocation;
· The fact that 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 impact of climate change as detailed above. The Board has also considered the impact of regulatory changes, unforeseen market events, the ongoing implications of the
In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which is 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
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.
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 (
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 places great importance on communication with shareholders. The Annual General Meeting provides the key forum for the Board and the Portfolio Manager 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
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, and the Board’s review of the Manager includes an assessment of its ESG approach which is set out in the Annual Report.
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:
·
The decision to pay an interim dividend of
·
Carrying out a due diligence trip to
·
The decision to carry out an external Board evaluation using the services of
· The decision to once again hold hybrid AGMs in 2023 and 2024 in order to make the AGM more accessible to those shareholders who are unable to or prefer not to attend in person.
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
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
· Prepare the Financial Statements on the 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
The Directors confirm that to the best of their knowledge:
·
The Financial Statements, prepared in accordance with
· 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
Chairman
INCOME STATEMENT FOR THE YEAR ENDED
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Gains/
(losses) on 10 – 165,905 165,905 – (63,812) (63,812)
investments
Gains/
(losses) on 11 – 50,441 50,441 – (22,034) (22,034)
derivative
instruments
Income 3 47,221 – 47,221 43,042 – 43,042
Investment
management 4 (2,625) (7,877) (10,502) (2,362) (7,087) (9,449)
fees
Other 5 (967) – (967) (919) – (919)
expenses
Foreign
exchange – (1,464) (1,464) – (372) (372)
losses
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/
(loss) on
ordinary
activities 43,629 207,005 250,634 39,761 (93,305) (53,544)
before
finance
costs and
taxation
Finance 6 (2,138) (6,414) (8,552) (196) (586) (782)
costs
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/
(loss) on
ordinary 41,491 200,591 242,082 39,565 (93,891) (54,326)
activities
before
taxation
Taxation on
return/
(loss) on 7 (3,390) – (3,390) (2,641) – (2,641)
ordinary
activities
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/
(loss) on
ordinary
activities 38,101 200,591 238,692 36,924 (93,891) (56,967)
after
taxation
for the
year
========= ========= ========= ========= ========= =========
Return/
(loss) per 8 9.32p 49.08p 58.40p 9.00p (22.88p) (13.88p)
ordinary
share
========= ========= ========= ========= ========= =========
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 below form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
Share Capital Total
Share premium redemption Capital Revenue shareholders’
capital account reserve reserve reserve funds
Notes £’000 £’000 £’000 £’000 £’000 £’000
Total
shareholders’ 10,411 58,615 5,414 1,271,996 34,559 1,380,995
funds at 31
December 2022
Net return on
ordinary
activities – – – 200,591 38,101 238,692
after
taxation for
the year
Dividends
paid to 9 – – – – (32,208) (32,208)
shareholders
--------------- --------------- --------------- --------------- --------------- ---------------
Total
shareholders’ 10,411 58,615 5,414 1,472,587 40,452 1,587,479
funds at 31
December 2023
========= ========= ========= ========= ========= =========
Total
shareholders’ 10,411 58,615 5,414 1,372,360 27,433 1,474,233
funds at 31
December 2021
Net
(loss)/return
on ordinary
activities – – – (93,891) 36,924 (56,967)
after
taxation for
the year
Repurchase of
ordinary 14 – – – (6,473) – (6,473)
shares
Dividends
paid to 9 – – – – (29,798) (29,798)
shareholders
--------------- --------------- --------------- --------------- --------------- ---------------
Total
shareholders’ 10,411 58,615 5,414 1,271,996 34,559 1,380,995
funds at 31
December 2022
========= ========= ========= ========= ========= =========
The Notes below form an integral part of these Financial Statements.
BALANCE SHEET AS AT
Company Number 2638812
2023 2022
Notes £’000 £’000
Fixed assets
Investments 10 1,518,875 1,325,389
--------------- ---------------
Current assets
Derivative instruments 11 886 521
Debtors 12 11,449 8,128
Amounts held at futures clearing houses 8,384 12,891
and brokers
Cash and cash equivalents 52,804 44,884
--------------- ---------------
73,523 66,424
========= =========
Current liabilities
Derivative instruments 11 (3,521) (9,633)
Other creditors 13 (1,398) (1,185)
--------------- ---------------
(4,919) (10,818)
========= =========
Net current assets 68,604 55,606
========= =========
Net assets 1,587,479 1,380,995
========= =========
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 1,472,587 1,271,996
Revenue reserve 15 40,452 34,559
--------------- ---------------
Total shareholders’ funds 1,587,479 1,380,995
========= =========
Net asset value per ordinary share 16 388.39p 337.87p
========= =========
The Financial Statements above and below were approved by the Board of Directors on
Chairman
The Notes below form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1
PRINCIPAL ACTIVITY
2
ACCOUNTING POLICIES
The Company has prepared its Financial Statements in accordance with
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
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
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
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
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 gains/(losses) 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
3 INCOME
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Investment income
Overseas dividends 37,484 35,333
Overseas scrip dividends 957 1,052
UK dividends 1,679 1,910
--------------- ---------------
40,120 38,295
========= =========
Derivative income
Income recognised from futures contracts 2,392 1,208
Dividends received on long CFDs 3,570 3,025
Interest received on CFDs1 333 422
--------------- ---------------
6,295 4,655
========= =========
Investment and derivative income 46,415 42,950
========= =========
Other interest
Interest received on collateral, bank deposits 798 88
and money market funds
Interest received on tax reclaims 8 4
--------------- ---------------
806 92
========= =========
Total income 47,221 43,042
========= =========
1 Due to negative interest rates in the prior year, the Company received interest on its long CFDs.
Special dividends of £710,000 (2022: £1,115,000) have been recognised in capital.
4 INVESTMENT MANAGEMENT FEES
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment 2,625 7,877 10,502 2,362 7,087 9,449
management fees
========= ========= ========= ========= ========= =========
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
31.12.23 31.12.22
£’000 £’000
AIC fees 21 21
Custody fees 81 123
Depositary fees 54 61
Directors’ fees1 169 174
Legal and professional fees 94 60
Marketing expenses 260 209
Printing and publication expenses 127 132
Registrars’ fees 86 75
Fees payable to the Company’s Independent
Auditor for the audit of the Financial 48 45
Statements
Other expenses 27 19
--------------- ---------------
967 919
========= =========
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 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest
paid on
collateral – – – 28 82 110
and bank
deposits1
Interest
paid on 1,601 4,803 6,404 168 504 672
CFDs2
Costs
recognised
from 537 1,611 2,148 – – –
futures
contracts
--------------- --------------- --------------- --------------- --------------- ---------------
2,138 6,414 8,552 196 586 782
========= ========= ========= ========= ========= =========
1 Due to negative interest rates in the prior year, the Company paid interest on its collateral and bank deposits.
2 The interest paid on CFDs is higher in the current reporting year due to an increase on long CFDs exposures and interest rates. As a result, the Company has been exposed to significantly higher interest charges.
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 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
a)
Analysis
of the
taxation
charge
for the
year
Overseas 3,390 – 3,390 2,641 – 2,641
taxation
--------------- --------------- --------------- --------------- --------------- ---------------
Taxation
charge
for the 3,390 – 3,390 2,641 – 2,641
year
(see
Note 7b)
========= ========= ========= ========= ========= =========
b) Factors affecting the taxation charge for the year
The taxation charge for the year is lower than the standard rate of
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return/
(loss) on
ordinary 41,491 200,591 242,082 39,565 (93,891) (54,326)
activities
before
taxation
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/
(loss) on
ordinary
activities
before
taxation
multiplied by 9,758 47,179 56,937 7,517 (17,839) (10,322)
the blended
rate of UK
corporation
tax of 23.52%
(2022: 19.00%)
Effects of:
Capital
(gains)/losses – (50,540) (50,540) – 16,381 16,381
not taxable1
Income not (9,436) – (9,436) (7,276) – (7,276)
taxable
Expenses not – 1,509 1,509 – 111 111
deductible
Excess
management (322) 1,852 1,530 (241) 1,347 1,106
expenses
Overseas 3,390 – 3,390 2,641 – 2,641
taxation
--------------- --------------- --------------- --------------- --------------- ---------------
Total taxation
charge for the 3,390 – 3,390 2,641 – 2,641
year (see Note
7a)
========= ========= ========= ========= ========= =========
1
The Company is exempt from
c)
Deferred taxation
A deferred tax asset of £17,127,000 (2022: £15,501,000), in respect of excess expenses of £63,004,000 (2022: £56,499,000) and excess loan interest of £5,505,000 (2022: £5,505,000), has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.
The
8 RETURN/(LOSS) PER ORDINARY SHARE
Year ended Year ended
31.12.23 31.12.22
Revenue return per ordinary share 9.32p 9.00p
Capital return/(loss) per ordinary share 49.08p (22.88p)
--------------- ---------------
Total return/(loss) per ordinary share 58.40p (13.88p)
========= =========
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
£’000 £’000
Net revenue return on ordinary activities after 38,101 36,924
taxation
Net capital return/(loss) on ordinary activities 200,591 (93,891)
after taxation
--------------- ---------------
Total return/(loss) on ordinary activities after 238,692 (56,967)
taxation
========= =========
Number Number
Weighted average number of ordinary shares held outside 408,730,523 410,346,447
Treasury
========== ==========
9 DIVIDENDS PAID TO SHAREHOLDERS
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Dividends paid
Interim dividend of 3.26 pence per ordinary 13,325 –
share paid for the year ended 31 December 2023
Final dividend of 4.62 pence per ordinary share 18,883 –
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 share – 17,180
paid for the year ended 31 December 2021
--------------- ---------------
32,208 29,798
========= =========
Dividends proposed
Final dividend of 4.99 pence per ordinary share 20,396 –
proposed for the year ended 31 December 2023
Final dividend of 4.62 pence per ordinary share – 18,883
proposed for the year ended 31 December 2022
--------------- ---------------
20,396 18,883
========= =========
The Directors have proposed the payment of a final dividend for the year ended
10 INVESTMENTS
2023 2022
£’000 £’000
Investments held at fair value 1,518,875 1,325,389
--------------- ---------------
Opening book cost 872,694 862,576
Opening investment holding gains 452,695 585,421
--------------- ---------------
Opening fair value 1,325,389 1,447,997
Movements in the year
Purchases at cost 275,931 136,091
Sales – proceeds (248,350) (194,887)
Gains/(losses) on investments 165,905 (63,812)
--------------- ---------------
Closing fair value 1,518,875 1,325,389
========= =========
Closing book cost 943,460 872,694
Closing investment holding gains 575,415 452,695
--------------- ---------------
Closing fair value 1,518,875 1,325,389
========= =========
The Company received £248,350,000 (2022: £194,887,000) from investments sold in the year. The book cost of these investments when they were purchased was £205,165,000 (2022: £125,973,000). 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 gains/(losses) on investments above, were as follows:
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Purchases transaction costs 286 164
Sales transaction costs 121 57
--------------- ---------------
407 221
========= =========
The portfolio turnover for the year was 18.1% (2022: 12.7%). The portfolio turnover rate measures the Company’s trading activity. It is calculated by taking the average of the total amount of securities purchased and the total amount of the securities sold in the reporting year divided by the average investment portfolio value of the Company.
11 DERIVATIVE INSTRUMENTS
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Gains/(losses) on derivative instruments
Gains/(losses) on long CFD positions closed 32,223 (4,300)
Gains on short CFD positions closed 2,257 –
Gains/(losses) on futures contracts closed 9,484 (4,612)
Movement in investment holding gains/(losses) on 4,229 (9,718)
long CFDs
Movement in investment holding gains on short 142 –
CFDs
Movement in investment holding gains/(losses) on 2,106 (3,404)
futures
--------------- ---------------
50,441 (22,034)
========= =========
2023 2022
Fair value Fair value
£’000 £’000
Derivative instruments recognised on the Balance
Sheet
Derivative instrument assets 886 521
Derivative instrument liabilities (3,521) (9,633)
--------------- ---------------
(2,635) (9,112)
========= =========
2023 2022
Asset Asset
Fair value exposure Fair value exposure
£’000 £’000 £’000 £’000
At the year end
the Company held
the following
derivative
instruments
Long CFDs (2,429) 199,945 (6,658) 152,446
Short CFDs 142 12,736 – –
Long futures (348) 64,492 (2,454) 65,056
--------------- --------------- --------------- ---------------
(2,635) 277,173 (9,112) 217,502
========= ========= ========= =========
12 DEBTORS
2023 2022
£’000 £’000
Accrued income 933 784
Taxation recoverable 10,393 7,232
Other debtors and prepayments 123 112
--------------- ---------------
11,449 8,128
========= =========
13 OTHER CREDITORS
2023 2022
£’000 £’000
Creditors and accruals 1,398 1,185
========= =========
14 SHARE CAPITAL
2023 2022
Nominal Nominal
Number of value Number of value
shares £’000 shares £’000
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
of the year
Ordinary
shares
repurchased – – (2,285,526) (57)
into
Treasury
----------------- ----------------- ----------------- -----------------
End of the 408,730,523 10,218 408,730,523 10,218
year
========== ========== ========== ==========
Ordinary
shares of
2.5 pence
each held
in
Treasury1
Beginning 7,717,387 193 5,431,861 136
of the year
Ordinary
shares
repurchased – – 2,285,526 57
into
Treasury
----------------- ----------------- ----------------- -----------------
End of the 7,717,387 193 7,717,387 193
year
========== ========== ========== ==========
Total share 10,411 10,411
capital
========== ==========
1
Ordinary shares held in
No ordinary shares were repurchased into
15 CAPITAL AND RESERVES
Share Capital Total
Share premium redemption Capital Revenue shareholders’
capital account reserve reserve reserve funds
£’000 £’000 £’000 £’000 £’000 £’000
At 1 January 10,411 58,615 5,414 1,271,996 34,559 1,380,995
2023
Gains on
investments – – – 165,905 – 165,905
(see Note
10)
Gains on
derivative
instruments – – – 50,441 – 50,441
(see Note
11)
Foreign
exchange – – – (1,464) – (1,464)
losses
Investment
management – – – (7,877) – (7,877)
fees (see
Note 4)
Finance
costs (see – – – (6,414) – (6,414)
Note 6)
Repurchase
of ordinary – – – – – –
shares (see
Note 14)
Revenue
return on
ordinary
activities – – – – 38,101 38,101
after
taxation for
the year
Dividends
paid to – – – – (32,208) (32,208)
shareholders
(see Note 9)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31
December 10,411 58,615 5,414 1,472,587 40,452 1,587,479
2023
========== ========== ========== ========== ========== ==========
At 1 January 10,411 58,615 5,414 1,372,360 27,433 1,474,233
2022
Losses on
investments – – – (63,812) – (63,812)
(see Note
10)
Losses on
derivative
instruments – – – (22,034) – (22,034)
(see Note
11)
Foreign
exchange – – – (372) – (372)
losses
Investment
management – – – (7,087) – (7,087)
fees (see
Note 4)
Finance
costs (see – – – (586) – (586)
Note 6)
Repurchase
of ordinary – – – (6,473) – (6,473)
shares (see
Note 14)
Revenue
return on
ordinary
activities – – – – 36,924 36,924
after
taxation for
the year
Dividends
paid to – – – – (29,798) (29,798)
shareholders
(see Note 9)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31
December 10,411 58,615 5,414 1,271,996 34,559 1,380,995
2022
========== ========== ========== ========== ========== ==========
The capital reserve balance at
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
2023 2022
Total shareholders’ funds £1,587,479,000 £1,380,995,000
Ordinary shares held outside of Treasury at year 408,730,523 408,730,523
end
Net asset value per ordinary share 388.39p 337.87p
============ ============
It is the Company’s policy that shares held in
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, regulatory, key person and operational support, environmental, social and governance (“ESG”), cybercrime and information security, discount control and business continuity. Other risks identified are tax and regulatory. 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:
2023 2022
£’000 £’000
Exposure to financial instruments that bear
interest
Long CFDs – exposure less fair value 202,374 159,104
----------------- -----------------
Exposure to financial instruments that earn
interest
Short CFDs – exposure plus fair value 12,878 –
Amounts held at futures clearing houses and 8,384 12,891
brokers
Cash and cash equivalents 52,804 44,884
----------------- -----------------
74,066 57,775
========== ==========
Net exposure to financial instruments that 128,308 101,329
bear interest
========== ==========
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
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:
2023
Long
Investments exposure Cash and
held at to derivative cash
fair value instruments Debtors1 equivalents2 Total
Currency £’000 £’000 £’000 £’000 £’000
Euro 877,629 228,019 6,389 52,691 1,164,728
Swiss 357,739 – 3,947 – 361,686
franc
Danish 96,102 – 465 – 96,567
krone
Swedish 93,135 – – – 93,135
krona
US dollar – 36,418 – 113 36,531
Norwegian 25,052 – – – 25,052
krone
UK 69,218 – 9,032 – 78,250
sterling
----------------- ----------------- ----------------- ----------------- -----------------
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
2022
Long
Investments exposure Cash and
held at to derivative cash
fair value instruments Debtors1 equivalents2 Total
Currency £’000 £’000 £’000 £’000 £’000
Euro 788,014 217,502 5,086 17,473 1,028,075
Swiss 323,257 – 1,798 3,724 328,779
franc
Danish 83,544 – 414 1,548 85,506
krone
Swedish 39,892 – – 19,362 59,254
krona
Norwegian 31,369 – – 378 31,747
krone
UK 59,313 – 13,721 2,399 75,433
sterling
----------------- ----------------- ----------------- ----------------- -----------------
1,325,389 217,502 21,019 44,884 1,608,794
========== ========== ========== ========== ==========
1 Debtors include amounts held at futures clearing houses and brokers.
2
Cash and cash equivalent are made up of £44,878,000 cash at bank and £6,000 held in
Currency exposure of financial liabilities
The currency profile of the Company’s financial liabilities is shown below:
Short 2023
exposure
to derivative Other
instruments creditors Total
Currency £’000 £’000 £’000
Euro 12,736 245 12,981
US dollar – 48 48
UK sterling – 1,105 1,105
----------------- ----------------- -----------------
12,736 1,398 14,134
========== ========== ==========
Short 2022
exposure
to derivative Other
instruments creditors Total
Currency £’000 £’000 £’000
Euro – 126 126
UK sterling – 1,059 1,059
----------------- ----------------- -----------------
– 1,185 1,185
========== ========== ==========
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
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.
For derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At
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
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
2023 2022
Currency £’000 £’000
Euro 104,704 93,450
Swiss franc 32,881 29,889
Danish krone 8,779 7,773
Swedish krona 8,467 5,387
US dollar 3,317 –
Norwegian krone 2,277 2,886
----------------- -----------------
160,425 139,385
========== ==========
Based on the financial instruments held and currency exchange rates at the Balance Sheet date, a 10% weakening of the
2023 2022
Currency £’000 £’000
Euro 127,972 114,216
Swiss franc 40,187 36,531
Danish krone 10,730 9,501
Swedish krona 10,348 6,584
US dollar 4,054 –
Norwegian krone 2,784 3,527
----------------- -----------------
196,075 170,359
========== ==========
Other price risk – exposure to investments sensitivity analysis
Based on the investments held and share prices at
Other price risk – net exposure to derivative instruments sensitivity analysis
Based on the derivative instruments held and share prices at
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
Valued by reference to inputs other than quoted prices included
Level 2 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:
Financial 2023
assets at Level 1 Level 2 Level 3 Total
fair value £’000 £’000 £’000 £’000
through
profit or
loss
Investments 1,518,875 – – 1,518,875
Derivative
instrument – 886 – 886
assets
----------------- ----------------- ----------------- -----------------
1,518,875 886 – 1,519,761
========== ========== ========== ==========
Financial
liabilities
at fair
value
through
profit or
loss
Derivative
instrument (348) (3,173) – (3,521)
liabilities
========== ========== ========== ==========
Financial 2022
assets at Level 1 Level 2 Level 3 Total
fair value £’000 £’000 £’000 £’000
through
profit or
loss
Investments 1,325,389 – – 1,325,389
Derivative
instrument – 521 – 521
assets
----------------- ----------------- ----------------- -----------------
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
========== ========== ========== ==========
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 Strategic Report in the Annual Report. The principal risks and their management are disclosed in the Strategic Report and in Note 17 above.
The Company’s gross gearing and net gearing at the year end is set out below:
2023
Gross gearing Net gearing
Asset Asset
exposure 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 1,783,312 112.3 1,783,312 112.3
exposures
Short CFDs 12,736 0.8 (12,736) (0.8)
----------------- ----------------- ----------------- -----------------
Gross asset
exposure/net 1,796,048 113.1 1,770,576 111.5
market
exposure
----------------- ----------------- ----------------- -----------------
Shareholders’ 1,587,479 1,587,479
funds
========== ==========
Gearing2 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.
2022
Gross gearing Net gearing
Asset Asset
exposure exposure
£’000 %1 £’000 %1
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 1,542,891 111.7 1,542,891 111.7
exposures
========== ========== ========== ==========
Short CFDs – – – –
----------------- ----------------- ----------------- -----------------
Gross asset
exposure/net 1,542,891 111.7 1,542,891 111.7
market
exposure
----------------- ----------------- ----------------- -----------------
Shareholders’ 1,380,995 1,380,995
funds
========== ==========
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 gross asset exposure/net market exposure exceeds shareholders’ funds expressed as a percentage of shareholders’ funds.
19 TRANSACTIONS WITH THE MANAGERS AND RELATED PARTIES
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 £10,502,000 (2022: £9,449,000) were payable to FII. At the Balance Sheet date, fees for portfolio management services of £925,000 (2022: £832,000) 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 £260,000 (2022: £209,000). At the Balance Sheet date, marketing services of £14,000 (2022: £nil) 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, £17,000 (2022: £18,000) of Employers’ National Insurance Contributions was also paid by the Company. As at
ALTERNATIVE PERFORMANCE MEASURES
DISCOUNT/PREMIUM
The discount/premium is considered to be an Alternative Performance Measure. It 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 page in the Annual Report and are both defined in the Glossary of Terms in the Annual Report.
GEARING
Gearing (both gross and net) is considered to be an Alternative Performance Measure. See Note 18 above for details of the Company’s gearing. Gearing is defined in the Glossary of Terms in the Annual Report.
NET ASSET VALUE (“NAV”) PER ORDINARY SHARE
The NAV per ordinary share is considered to be an Alternative Performance Measure. See the Balance Sheet and Note 16 above for further details.
ONGOING CHARGES RATIO
The ongoing charges ratio is considered to be an Alternative Performance Measure. It 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.
2023 2022
Investment management fees (£’000) 10,502 9,449
Other expenses (£’000) 967 919
----------------- -----------------
Ongoing charges (£’000) 11,469 10,368
Average net assets (£’000) 1,493,277 1,330,434
----------------- -----------------
Ongoing charges ratio 0.77% 0.78%
========== ==========
REVENUE, CAPITAL AND TOTAL RETURNS PER SHARE
Revenue, capital and total returns per ordinary share are considered to be Alternative Performance Measures. See the Income Statement and Note 8 above for further details.
TOTAL RETURN PERFORMANCE
Total return performance is considered to be an Alternative Performance Measure. The NAV per ordinary share total return includes reinvestment of the dividend in the NAV of the Company on the ex-dividend date. The ordinary share price total return 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
Net asset
value per Ordinary
ordinary share
2023 share price
31 December 2022 337.87p 319.50p
31 December 2023 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%
========== ==========
Net asset
value per Ordinary
ordinary share
2022 share price
31 December 2021 358.68p 340.50p
31 December 2022 337.87p 319.50p
Change in year -5.8% -6.2%
Impact of dividend reinvestments +2.2% +2.4%
----------------- -----------------
Total return for the year -3.6% -3.8%
========== ==========
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended
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
