Half-year Report

FIDELITY EUROPEAN TRUST PLC

Half-Yearly Results for the six months ended 30 June 2024 (unaudited)

 

Financial Highlights:

  • The Board of Fidelity European Trust PLC (the “Company”) declares an interim dividend of 3.60 pence per share, an increase of 10.4% on the prior year.

 

  • In the six-month period ended 30 June 2024, the Company reported a net asset value (NAV) return of +7.6% and ordinary share price total return of +10.6% outperforming the Benchmark Index, the FTSE World Europe (ex UK) Index, which returned +7.1%.

 

  • Holdings in ASML, Novo Nordisk and 3i Group were key drivers of performance.

 

 

 

Contacts

 

For further information, please contact:

 

Smita Amin

Company Secretary

01737 836347

 

Portfolio Managers’ Half-Yearly Review

Performance Review
During the first six months of the year, the net asset value (“NAV”) total return was +7.6% compared to a total return of +7.1% for the FTSE World Europe (ex UK) Index, which is the Company’s Benchmark Index. The share price total return was +10.6%, which is above the NAV total return because of a narrowing of the share price discount to NAV. (All figures in UK sterling.)

Market Review
In the first half of this year, continental European markets were boosted by the resilience of global economic growth and the anticipation of interest rate reductions given lower rates of inflation. The European Central Bank (ECB) duly obliged with a quarter of a percentage point cut in its interest rate in early June, following cuts by the Swiss and Swedish central banks.

Despite the Labour Party having a big lead in the polls ahead of the UK general election, UK sterling appreciated by 2% against the Euro during the six month period. Therefore, in Euro terms, the continental European benchmark rose by more than 9%, with many of the constituent country markets hitting all time highs, before cooling off somewhat at the very end of the period when President Macron of France unexpectedly announced snap parliamentary elections.

The “growth” themes that had led markets higher last year continued to dominate performance in this period. The perceived long-term impact of generative Artificial Intelligence (“AI”) remained an area of optimism, not only for specific technology providers, but also for corporate productivity in general. Obesity medications, which have to date seen strong launches, also continued to attract investors’ admiration. In addition, some “value” sectors also performed very strongly, in particular the banking sector, which continued to report substantial earnings and dividends, helped by high levels of net interest income and low levels of credit losses.

PORTFOLIO MANAGERSREPORT
The company’s NAV total return outperformed the Company’s Benchmark over the six month reporting period. The gearing of the Company, given rising markets, was the main contributor to this outperformance. The contribution from stock-picking was mixed during this period.

Two of the largest holdings in the Company, namely ASML (AI) and Novo Nordisk (obesity), saw impressive gains as a result of the themes mentioned above. 3i Group also continued to climb following a positive presentation, highlighting the longer-term growth potential of its largest investment Action, its continental European discount retail group. Two of the Company’s Southern European bank holdings — Intesa Sanpaolo and Bankinter — were also very strong performers, in keeping with the banking sector. Bankinter has recovered well from a poor twelve month period when investors’ confidence was rattled by the regional banking crisis in the US.

Detractors from performance included a number of names in the consumer sector, such as L’Oréal, Nestlé and LVMH Moët Hennessy. Consumers in the US have been more restrained now that pandemic savings have been spent. The recovery in consumer spending in China has been more anaemic than expected, and has not been able to offset weaker trends elsewhere. Finally, there were a number of stock-specific disappointments. The most notable was Dassault Systèmes, which reported disappointing results and a muted outlook particularly relating to Medidata, a supplier of software for clinical trials, which they acquired in 2019.

Top Five Stock Contributors (on a relative basis)

Sector

Country

% 

ASML

Information Technology

Netherlands

0.8 

Novo Nordisk

Health Care

Denmark

0.8 

3i Group

Financials

UK

0.6 

SAP

Information Technology

Germany

0.5 

Bankinter

Financials

Spain

0.3 

 

 

 

========= 

 

Top Five Stock Detractors (on a relative basis)

Sector

Country

% 

Dassault Systèmes

Information Technology

France

-0.5 

L'Oréal

Consumer Staples

France

-0.5 

Partners Group

Financials

Switzerland

-0.4 

Nestlé

Consumer Staples

Switzerland

-0.4 

SIG Group

Materials

Switzerland

-0.3 

 

 

 

========= 

 

Outlook
The COVID-19 global pandemic — a “once in a century” event — has set off a long-lasting chain reaction that is unpredictable and makes fools of forecasters (including the Company’s Portfolio Managers!). We thought the rapid and steep monetary tightening which followed the pandemic would end in recession, as it so often does, following an inversion of the yield curve. That has not, to date, been the case. Indeed, the global economy has been much more resilient than anticipated and corporate earnings have held up well supporting stock markets around the world. As highlighted above, many stock markets are reaching all-time highs. However, we are now seeing some signs of consumers reining in their spending, particularly in the US. Consumption is the main growth engine of developed economies. Is this an early warning sign that the dreaded recession is upon us just as the optimists declare victory? To add to this, there is considerable geopolitical uncertainty expected post the US elections, not least the potential changes in US foreign policy when it comes to the tragic Ukraine war. In the event of a downturn, stubborn inflationary pressures could prevent a rapid easing in monetary policy. Continental European governments remain heavily indebted and are already running substantial budget deficits so fiscal easing would also be constrained. Valuations no longer discount an economic malaise. So, in short, we are cautious and see the stock market as being vulnerable if the outlook worsens and sentiment shifts to be more negative.

Whatever the constitution of the new French government following the result of the French parliamentary elections, we have little optimism regarding the short or long-term outlook for the French domestic economy for the same reasons that we are gloomy about the outlook for the domestic economies of Europe (which represent about one third of the sales and profits of continental European companies). Ageing populations, low productivity, high and growing levels of government debt, etc., will mean that growth is likely to remain anaemic. Thankfully, domestic France represents a relatively small percentage of sales and profits for continental European companies.

However, whatever our views on the outlook, we will maintain gearing within the prescribed range and we will continue to focus on attractively valued companies with strong balance sheets that should be resilient, and able to grow dividends, even in a more difficult environment.

SAM MORSE
Portfolio Manager

MARCEL STÖTZEL
Co-Portfolio Manager
2 August 2024

Twenty Largest Holdings as at 30 June 2024

The Asset Exposures shown below measure exposure to market price movements as a result of owning shares and derivative instruments. The Fair Value is the realisable value of the investments as reported in the Balance Sheet. Where a contract for difference (“CFD”) is held, the Fair Value reflects the profit or loss on the contract since it was opened and is based on how much the share price of the underlying share has moved.


 


Asset Exposure

Fair 
Value 

 

£’000 

%1 

£’000 

Long Exposures – shares unless otherwise stated

 

 

 

Novo Nordisk

 

 

 

Pharmaceuticals & Biotechnology

135,335 

8.0 

135,335 

ASML

 

 

 

Technology Hardware & Equipment

126,510 

7.5 

126,510 

Nestlé

 

 

 

Food Producers

92,647 

5.5 

92,647 

SAP (long CFD)

 

 

 

Software & Computer Services

76,830 

4.6 

4,792 

LVMH Moët Hennessy

 

 

 

Personal Goods

73,704 

4.4 

73,704 

TotalEnergies

 

 

 

Oil, Gas & Coal

73,565 

4.4 

73,565 

Roche

 

 

 

Pharmaceuticals & Biotechnology

67,402 

4.0 

67,402 

L'Oréal

 

 

 

Personal Goods

58,593 

3.5 

58,593 

EssilorLuxottica

 

 

 

Medical Equipment & Services

56,079 

3.3 

56,079 

3i Group

 

 

 

Investment Banking & Brokerage Services

49,769 

2.9 

49,769 

Hermès International

 

 

 

Personal Goods

47,208 

2.8 

47,208 

Legrand (long CFD)

 

 

 

Electronic & Electrical Equipment

45,366 

2.7 

(2,067)

Partners Group

 

 

 

Investment Banking & Brokerage Services

44,027 

2.6 

44,027 

Sanofi

 

 

 

Pharmaceuticals & Biotechnology

43,126 

2.5 

43,126 

Long Exposures – shares unless otherwise stated

 

 

 

Deutsche Börse Group

 

 

 

Investment Banking & Brokerage Services

42,980 

2.5 

42,980 

Assa Abloy

 

 

 

Construction & Materials

40,715 

2.4 

40,715 

Linde (long CFD)

 

 

 

Chemicals

39,348 

2.3 

25 

Sampo

 

 

 

Non-Life Insurance

36,380 

2.1 

36,380 

Kone

 

 

 

Industrial Engineering

34,975 

2.1 

34,975 

Intesa Sanpaolo

 

 

 

Banks

34,853 

2.1 

34,853 

 

--------------- 

--------------- 

--------------- 

Twenty largest long exposures

1,219,412 

72.2 

1,060,618 

 

========= 

========= 

========= 

Other long exposures

586,379 

34.8 

568,018 

 

--------------- 

--------------- 

--------------- 

Total long exposures before long futures2,3

1,805,791 

107.0 

1,628,636 

 

========= 

========= 

========= 

Long Futures

 

 

 

EURO STOXX 50 Future September 20243

69,923 

4.1 

531 

 

--------------- 

--------------- 

--------------- 

Total long exposures after long futures3

1,875,714 

111.1 

1,629,167 

 

========= 

========= 

========= 

Short Exposures

 

 

 

Short CFDs (1 Holding)

12,990 

0.8 

(257)

 

--------------- 

--------------- 

--------------- 

Gross Asset Exposure3,4

1,888,704 

111.9 

 

 

========= 

========= 

 

Portfolio Fair Value5

 

 

1,628,910 

Net current assets (excluding derivative assets and liabilities)

 

 

59,173 

 

 

 

--------------- 

Shareholders’ Funds (per Balance Sheet below)

 

 

1,688,083 

 

 

 

========= 

 

1 Asset Exposure is expressed as a percentage of Shareholders’ Funds.

2 Total long exposures before long futures comprises investments of £1,626,177,000 and long CFDs of £179,614,000.

3 See Note 13 below.

4 Gross Asset Exposure comprises market exposure to investments of £1,626,177,000 plus market exposure to all derivative instruments of £262,527,000. Derivative instruments comprise long CFDs of £179,614,000, long futures of £69,923,000 and short CFDs of £12,990,000.

5 Portfolio Fair Value comprises investments of £1,626,177,000 plus derivative assets of £5,348,000 less derivative liabilities of £2,615,000 (per the Balance Sheet below).

Interim Management Report and Directors’ Responsibility Statement

Interim Dividend
As part of their investment process, the Portfolio Managers focus on companies capable of growing their dividends over time. The Board does not impose any income objective in any particular period, recognising that both capital and income growth are components of performance, as reflected in the investment objective of the Company. The Board does, however, have a policy whereby it seeks to pay 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 six months to 30 June 2024 was 8.38 pence per ordinary share (30 June 2023: 7.38 pence). The Board has declared an interim dividend of 3.60 pence per ordinary share which is an increase of 10.4% on the 3.26 pence per ordinary share paid as the interim dividend in 2023. This will be paid on 25 October 2024 to shareholders on the register at close of business on 20 September 2024 (ex-dividend date 19 September 2024).

Shareholders may choose to reinvest their dividends for additional shares in the Company.

Discount Management and Treasury Shares
The Board has an active discount management policy, the primary purpose of which is to reduce discount volatility. It seeks to maintain the discount in single digits in normal market conditions. Buying shares at a discount also results in an enhancement to the NAV per ordinary share.

In order to assist in managing the discount, the Board has shareholder approval to hold ordinary shares repurchased by the Company in Treasury, rather than cancelling them. Shares in Treasury are then available to be re-issued at NAV per ordinary share or at a premium to NAV per ordinary share, facilitating the management of and enhancing liquidity in the Company’s shares.

In the reporting period and up to the date of this report, the discount remained in single digits and the Company did not repurchase any ordinary shares into Treasury or for cancellation.

Principal Risks and Uncertainties
The Board, with the assistance of the Manager (FIL Investment Services (UK) Limited), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties faced by the Company.

The Board considers that the principal risks and uncertainties faced by the Company continue to fall into the following categories: geopolitical, economic and market risks; investment performance (including the use of derivatives and gearing) risk; regulatory (including tax) risk; key person risk; environmental, social and governance (ESG) risks; cybercrime and information security risks; discount control risk; and business continuity risk. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 December 2023 which can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/europe.

While the principal risks and uncertainties remain the same as those at the last year end, the magnitude of their uncertainty continues to grow with the ongoing conflicts in Ukraine and the Middle East, deglobalisation trends and significant supply disruption, fears of global recession amid inflationary pressures and financial distress dominating political risks and industry concerns. Trade and technology concerns between the US and China, and China and Taiwan, are exacerbating economic headwinds, such as the cost of living crisis, inflation, high interest rates and the threat of cyberattacks on critical infrastructure. The Board remains vigilant about the changing scale of such risks.

Climate change continues to be a key principal risk confronting asset managers and their investors. Globally, climate change effects are already being experienced in the form of changing weather patterns. Climate change can potentially impact the operations of investee companies, their supply chains and their customers. Additional risks may also arise from increased regulations, costs and net-zero programmes which can all impact investment returns. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor how this may impact the Company as a risk, the main risk being the impact on investment valuations and potentially shareholder returns.

The Board and the Manager are also monitoring the emerging risks posed by the rapid advancement of artificial intelligence (AI) and technology and how it may threaten the Company’s activities and its potential impact on the portfolio and investee companies. Although advances in computing power mean that AI is a powerful tool that will impact society, there are risks from its increasing use and manipulation with the potential to harm, including a heightened threat to cybersecurity.

Investors should be prepared for market fluctuations and remember that holding shares in the Company should be considered to be a long-term investment. Risks are mitigated by the investment trust structure of the Company which means that the Portfolio Managers are not required to trade to meet investor redemptions. Therefore, investments in the Company’s portfolio can be held over a longer-time horizon.

The Manager has appropriate business continuity and operational resilience plans in place to ensure the continued provision of services. This includes investment team key activities, including those of portfolio managers, analysts and trading/support functions. The Manager reviews its operational resilience strategies on an ongoing basis and continues to take all reasonable steps in meeting its regulatory obligations, assess its ability to continue operating and the steps it needs to take to serve and support its clients, including the Board.

The Company’s other third-party service providers also have similar measures in place to ensure that business disruption is kept to a minimum.

Transactions with the Manager and Related Parties
The Manager has delegated the Company’s portfolio management and company secretariat services to FIL Investments International. Transactions with the Manager and related party transactions with the Directors are disclosed in Note 14 to the Financial Statements below.

Going Concern Statement
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and can continue in operational existence for a period of at least twelve months from the date of this Half-Yearly Report.

This conclusion also takes into account the Board’s assessment of the ongoing risks as outlined above.

Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.

Continuation votes are held every two years and the next continuation vote will be put to shareholders at the Annual General Meeting in 2025.

BY ORDER OF THE BOARD
FIL Investments International
2 August 2024

DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (“DTR”) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge that:

a) The condensed set of Financial Statements contained within the Half-Yearly Report has been prepared in accordance with the Financial Reporting Council’s Standard FRS Interim Financial Reporting; and

b) The Portfolio Managers’ Half-Yearly Review and the Interim Management Report above, include a fair review of the information required by DTR 4.2.7R and 4.2.8R.

In line with previous years, the Half-Yearly Report has not been audited or reviewed by the Company’s Independent Auditor.

The Half-Yearly Report was approved by the Board on 2 August 2024 and the above responsibility statement was signed on its behalf by Vivian Bazalgette, Chairman.

FINANCIAL STATEMENTS

Income Statement for the six months ended 30 June 2024


 


 

Six months ended 30 June 2024
unaudited

Six months ended 30 June 2023
unaudited

Year ended 31 December 2023
audited


 


Notes 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Gains on investments

 

 

76,095 

76,095 

 

94,641 

94,641 

 

165,905 

165,905 

Gains on derivative instruments

 

 

21,012 

21,012 

 

36,841 

36,841 

 

50,441 

50,441 

Income

4 

41,081 

 

41,081 

35,816 

 

35,816 

47,221 

 

47,221 

Investment management fees

5 

(1,437)

(4,311)

(5,748)

(1,303)

(3,910)

(5,213)

(2,625)

(7,877)

(10,502)

Other expenses

 

(521)

 

(521)

(507)

 

(507)

(967)

 

(967)

Foreign exchange losses

 

 

(1,577)

(1,577)

 

(2,599)

(2,599)

 

(1,464)

(1,464)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Net return on ordinary activities before finance costs and taxation

 

39,123 

91,219 

130,342 

34,006 

124,973 

158,979 

43,629 

207,005 

250,634 

Finance costs

6 

(1,488)

(4,463)

(5,951)

(908)

(2,724)

(3,632)

(2,138)

(6,414)

(8,552)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Net return on ordinary activities before taxation

 

37,635 

86,756 

124,391 

33,098 

122,249 

155,347 

41,491 

200,591 

242,082 

Taxation on return on ordinary activities

7 

(3,391)

 

(3,391)

(2,916)

 

(2,916)

(3,390)

 

(3,390)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Net return on ordinary activities after taxation for the period

 

34,244 

86,756 

121,000 

30,182 

122,249 

152,431 

38,101 

200,591 

238,692 

Return per ordinary share

8 

8.38p 

21.22p 

29.60p 

7.38p 

29.91p 

37.29p 

9.32p 

49.08p 

58.40p 

 

 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

 

The Company does not have any other comprehensive income. Accordingly, the net return on ordinary activities after taxation for the period is also the total comprehensive income for the period and no separate Statement of Comprehensive Income has been presented.

The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.

No operations were acquired or discontinued in the period and all items in the above statement derive from continuing operations.

Statement of Changes in Equity for the six months ended 30 June 2024




 




Notes 


Share 
capital 
£’000 

Share 
premium 
account 
£’000 

Capital 
redemption 
reserve 
£’000 


Capital 
reserve 
£’000 


Revenue 
reserve 
£’000 

Total 
shareholder’ 
fund 
£’000 

Six months ended 30 June 2024 (unaudited)

 

 

 

 

 

 

 

Total shareholders’ funds at 31 December 2023

 

10,411 

58,615 

5,414 

1,472,587 

40,452 

1,587,479 

Net return on ordinary activities after taxation for the period

 

 

 

 

86,756 

34,244 

121,000 

Dividend paid to shareholders

9 

 

 

 

 

(20,396)

(20,396)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds at 30 June 2024

 

10,411 

58,615 

5,414 

1,559,343 

54,300 

1,688,083 

 

 

========= 

========= 

========= 

========= 

========= 

========= 

Six months ended 30 June 2023 (unaudited)

 

 

 

 

 

 

 

Total shareholders’ funds at 31 December 2022

 

10,411 

58,615 

5,414 

1,271,996 

34,559 

1,380,995 

Net return on ordinary activities after taxation for the period

 

 

 

 

122,249 

30,182 

152,431 

Dividend paid to shareholders

9 

 

 

 

 

(18,883)

(18,883)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds at 30 June 2023

 

10,411 

58,615 

5,414 

1,394,245 

45,858 

1,514,543 

 

 

========= 

========= 

========= 

========= 

========= 

========= 

Year ended 31 December 2023 (audited)

 

 

 

 

 

 

 

Total shareholders’ funds at 31 December 2022

 

10,411 

58,615 

5,414 

1,271,996 

34,559 

1,380,995 

Net return on ordinary activities after taxation for the year

 

 

 

 

200,591 

38,101 

238,692 

Dividends paid to shareholders

9 

 

 

 

 

(32,208)

(32,208)

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds at 31 December 2023

 

10,411 

58,615 

5,414 

1,472,587 

40,452 

1,587,479 

 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

Balance Sheet as at 30 June 2024
Company Number 2638812




 




Notes 

30 June 
2024 
unaudited 
£’000 

31 December 
2023 
audited 
£’000 

30 June 
2023 
unaudited 
£’000 

Fixed assets

 

 

 

 

Investments

10 

1,626,177 

1,518,875 

1,459,305 

 

 

--------------- 

--------------- 

--------------- 

Current assets

 

 

 

 

Derivative instruments

10 

5,348 

886 

3,919 

Debtors

 

13,404 

11,449 

12,141 

Amounts held at futures clearing houses and brokers

 

4,545 

8,384 

5,869 

Cash and cash equivalents

 

42,633 

52,804 

36,362 

 

 

--------------- 

--------------- 

--------------- 

 

 

65,930 

73,523 

58,291 

 

 

========= 

========= 

========= 

Current liabilities

 

 

 

 

Derivative instruments

10 

(2,615)

(3,521)

(1,681)

Other creditors

 

(1,409)

(1,398)

(1,372)

 

 

--------------- 

--------------- 

--------------- 

 

 

(4,024)

(4,919)

(3,053)

 

 

========= 

========= 

========= 

Net current assets

 

61,906 

68,604 

55,238 

 

 

========= 

========= 

========= 

Net assets

 

1,688,083 

1,587,479 

1,514,543 

 

 

========= 

========= 

========= 

Capital and reserves

 

 

 

 

Share capital

11 

10,411 

10,411 

10,411 

Share premium account

 

58,615 

58,615 

58,615 

Capital redemption reserve

 

5,414 

5,414 

5,414 

Capital reserve

 

1,559,343 

1,472,587 

1,394,245 

Revenue reserve

 

54,300 

40,452 

45,858 

 

 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds

 

1,688,083 

1,587,479 

1,514,543 

 

 

========= 

========= 

========= 

Net asset value per ordinary share

12 

413.01p 

388.39p 

370.55p 

 

 

========= 

========= 

========= 

Notes to the Financial Statements

1 Principal Activity
Fidelity European Trust PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 2638812, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.

2 Publication of Non-statutory Accounts
The Financial Statements in this Half-Yearly Report have not been audited by the Company's Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 ("the Act"). The financial information for the year ended 31 December 2023 is extracted from the latest published Financial Statements of the Company. Those Financial Statements were delivered to the Registrar of Companies and included the Independent Auditor's Report which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Act.

3 ACCOUNTING POLICIES
(i) Basis of Preparation
The Company prepares its Financial Statements on a going concern basis and in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland, issued by the Financial Reporting Council. The Financial Statements are also prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP") issued by the Association of Investment Companies ("AIC") in July 2022. FRS 104: Interim Financial Reporting has also been applied in preparing this condensed set of Financial Statements. The accounting policies followed are consistent with those disclosed in the Company's Annual Report and Financial Statements for the year ended 31 December 2023.

(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements. This conclusion also takes into account the Board’s assessment of the risks faced by the Company as detailed in the Interim Management Report above.

4 Income





 

Six months 
ended 
30.06.24 
unaudited 
£’000 

Six months 
ended 
30.06.23 
unaudited 
£’000 

Year 
ended 
31.12.23 
audited 
£’000 

Investment income

 

 

 

Overseas dividends

33,375 

28,415 

37,484 

Overseas scrip dividends

 

957 

957 

UK dividends

957 

965 

1,679 

 

--------------- 

--------------- 

--------------- 

 

34,332 

30,337 

40,120 

 

========= 

========= 

========= 

Derivative income

 

 

 

Income recognised from futures contracts

1,659 

1,797 

2,392 

Dividends received on long CFDs

3,536 

3,339 

3,570 

Interest received on CFDs

180 

61 

333 

 

--------------- 

--------------- 

--------------- 

 

5,375 

5,197 

6,295 

 

========= 

========= 

========= 

Investment and derivative income

39,707 

35,534 

46,415 

 

========= 

========= 

========= 

Other interest

 

 

 

Interest received on collateral, bank deposits and money market funds

1,342 

276 

798 

Interest received on tax reclaims

32 

6 

8 

 

--------------- 

--------------- 

--------------- 

 

1,374 

282 

806 

 

========= 

========= 

========= 

Total income

41,081 

35,816 

47,221 

 

========= 

========= 

========= 

 

Special dividends of £nil have been recognised in capital during the period (six months ended 30 June 2023 and year ended 31 December 2023: £710,000).

5 Investment Management Fees


 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Six months ended 30 June 2024 (unaudited)

 

 

 

Investment management fees

1,437 

4,311 

5,748 

 

--------------- 

--------------- 

--------------- 

Six months ended 30 June 2023 (unaudited)

 

 

 

Investment management fees

1,303 

3,910 

5,213 

 

--------------- 

--------------- 

--------------- 

Year ended 31 December 2023 (audited)

 

 

 

Investment management fees

2,625 

7,877 

10,502 

 

========= 

========= 

========= 

 

FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investments International (”FII“). Both companies are Fidelity group companies.

FII charges investment management fees at an annual rate of 0.85% of net assets up to £400 million and 0.65% of net assets in excess of £400 million. Fees are payable monthly in arrears and are calculated on a daily basis.

Investment management fees have been allocated 75% to capital reserve in accordance with the Company‘s accounting policies.

6 Finance Costs


 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Six months ended 30 June 2024 (unaudited)

 

 

 

Interest paid on bank deposits

7 

22 

29 

Interest paid on CFDs1

1,145 

3,435 

4,580 

Costs recognised from futures contracts

336 

1,006 

1,342 

 

--------------- 

--------------- 

--------------- 

 

1,488 

4,463 

5,951 

 

========= 

========= 

========= 

Six months ended 30 June 2023 (unaudited)

 

 

 

Interest paid on CFDs1

647 

1,942 

2,589 

Costs recognised from futures contracts

261 

782 

1,043 

 

--------------- 

--------------- 

--------------- 

 

908 

2,724 

3,632 

 

========= 

========= 

========= 

Year ended 31 December 2023 (audited)

 

 

 

Interest paid on CFDs1

1,601 

4,803 

6,404 

Costs recognised from futures contracts

537 

1,611 

2,148 

 

--------------- 

--------------- 

--------------- 

 

2,138 

6,414 

8,552 

 

========= 

========= 

========= 

 

1 The interest paid on CFDs is higher in the current reporting period due to an increase of long CFDs exposures and interest rates. As a result, the Company has been exposed to higher interest charges.

Finance costs have been allocated 75% to capital reserve in accordance with the Company’s accounting policies.

7 Taxation on Return on Ordinary Activities





 

Six months 
ended 
30.06.24 
unaudited 
£’000 

Six months 
ended 
30.06.23 
unaudited 
£’000 

Year 
ended 
31.12.23 
audited 
£’000 

Overseas taxation

3,391 

2,916 

3,390 

 

--------------- 

--------------- 

--------------- 

 

8 Return per Ordinary Share




 

Six months 
ended 
30.06.24 
unaudited 

Six months 
ended 
30.06.23 
unaudited 

Year 
ended 
31.12.23 
audited 

Revenue return per ordinary share

8.38p 

7.38p 

9.32p 

Capital return per ordinary share

21.22p 

29.91p 

49.08p 

 

--------------- 

--------------- 

--------------- 

Total return per ordinary share

29.60p 

37.29p 

58.40p 

 

========= 

========= 

========= 

 

The return per ordinary share is based on the net return on ordinary activities after taxation for the period divided by the weighted average number of ordinary shares held outside Treasury during the period, as shown below:

 

£’000 

£’000 

£’000 

Net revenue return on ordinary activities after taxation

34,244 

30,182 

38,101 

Net revenue return on ordinary activities after taxation

86,756 

122,249 

200,591 

 

--------------- 

--------------- 

--------------- 

Net total return on ordinary activities after taxation

121,000 

152,431 

238,692 

 

========= 

========= 

========= 

 

 

Number 

Number 

Number 

Weighted average number of ordinary shares held outside Treasury during the period

408,730,523 

408,730,523 

408,730,523 

 

========= 

========= 

========= 

 

9 Dividends Paid to Shareholders





 

Six months 
ended 
30.06.24 
unaudited 
£’000 

Six months 
ended 
30.06.23 
unaudited 
£’000 

Year 
ended 
31.12.23 
audited 
£’000 

Final dividend of 4.99 pence per ordinary share paid for the year ended 31 December 2023

20,396 

 

 

Interim dividend of 3.26 pence per ordinary share paid for the year ended 31 December 2023

 

 

13,325 

Final dividend of 4.62 pence per ordinary share paid for the year ended 31 December 2022

 

18,883 

18,883 

 

--------------- 

--------------- 

--------------- 

 

20,396 

18,883 

32,208 

 

========= 

========= 

========= 

 

The Company has declared an interim dividend for the six month period to 30 June 2024 of 3.60 pence per ordinary share (2023: 3.26 pence). The interim dividend will be paid on 25 October 2024 to shareholders on the register at close of business on 20 September 2024 (ex-dividend date 19 September 2024). The total cost of this interim dividend, which has not been included as a liability in these Financial Statements, is £14,714,000 (2023: £13,325,000). This amount is based on the number of ordinary shares held outside Treasury at the date of this report.

10 Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.

Classification

Input

Level 1

Valued using quoted prices in active markets for identical assets.

Level 2

Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3

Valued by reference to valuation techniques using inputs that are not based on observable market data.

 

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The table below sets out the Company’s fair value hierarchy:


30 June 2024 (unaudited)

Level 1 
£’000 

Level 2 
£’000 

Level 3 
£’000 

Total 
£’000 

Financial assets at fair value through profit or loss

 

 

 

 

Investments

1,626,177 

 

 

1,626,177 

Derivative instrument assets

531 

4,817 

 

5,348 

 

--------------- 

--------------- 

--------------- 

--------------- 

 

1,626,708 

4,817 

 

1,631,525 

 

========= 

========= 

========= 

========= 

Financial liabilities at fair value through profit or loss

 

 

 

 

Derivative instrument liabilities

 

(2,615)

 

(2,615)

 

========= 

========= 

========= 

========= 

 


31 December 2023 (audited)

Level 1 
£’000 

Level 2 
£’000 

Level 3 
£’000 

Total 
£’000 

Financial assets at fair value through profit or loss

 

 

 

 

Investments

1,518,875 

 

 

1,518,875 

Derivative instrument assets

 

886 

 

886 

 

--------------- 

--------------- 

--------------- 

--------------- 

 

1,518,875 

886 

 

1,519,761 

 

========= 

========= 

========= 

========= 

Financial liabilities at fair value through profit or loss

 

 

 

 

Derivative instrument liabilities

(348)

(3,173)

 

(3,521)

 

========= 

========= 

========= 

========= 

 


30 June 2023 (unaudited)

Level 1 
£’000 

Level 2 
£’000 

Level 3 
£’000 

Total 
£’000 

Financial assets at fair value through profit or loss

 

 

 

 

Investments

1,459,305 

 

 

1,459,305 

Derivative instrument assets

1,120 

2,799 

 

3,919 

 

--------------- 

--------------- 

--------------- 

--------------- 

 

1,460,425 

2,799 

 

1,463,224 

 

========= 

========= 

========= 

========= 

Financial liabilities at fair value through profit or loss

 

 

 

 

Derivative instrument liabilities

 

(1,681)

 

(1,681)

 

========= 

========= 

========= 

========= 

 

11 Share Capital


 

30 June 2024
unaudited

31 December 2023
audited

30 June 2023
unaudited


 

Number of 
shares 


£’000 

Number of 
shares 


£’000 

Number of 
shares 


£’000 

Issued, allotted and fully paid

 

 

 

 

 

 

Ordinary shares of 2.5 pence each held outside of Treasury

 

 

 

 

 

 

Beginning of the period

408,730,523 

10,218 

408,730,523 

10,218 

408,730,523 

10,218 

Ordinary shares repurchased into Treasury

 

 

 

 

 

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

End of the period

408,730,523 

10,218 

408,730,523 

10,218 

408,730,523 

10,218 

 

========= 

========= 

========= 

========= 

========= 

========= 

Ordinary shares of 2.5 pence each held in Treasury1

 

 

 

 

 

 

Beginning of the period

7,717,387 

193 

7,717,387 

193 

7,717,387 

193 

Ordinary shares repurchased into Treasury

 

 

 

 

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

End of the period

7,717,387 

193 

7,717,387 

193 

7,717,387 

193 

 

========= 

========= 

========= 

========= 

========= 

========= 

Total share capital

 

10,411 

 

10,411 

 

10,411 

 

 

========= 

 

========= 

 

========= 

 

1 Ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.

During the period, no ordinary shares were repurchased into Treasury (year ended 31 December 2023 and six months ended 30 June 2023: nil shares).

12 Net Asset Value per Ordinary Share
The calculation of the net asset value per ordinary share is based on the total Shareholders’ funds divided by the number of ordinary shares held outside of Treasury.


 

30.06.24 
unaudited 

31.12.23 
audited 

30.06.23 
unaudited 

Total shareholders’ funds

£1,688,083,000 

£1,587,479,000 

£1,514,543,000 

Ordinary shares held outside of Treasury at the period end

408,730,523 

408,730,523 

408,730,523 

Net asset value per ordinary share

413.01p 

388.39p 

370.55p 

 

========= 

========= 

========= 

 

It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per ordinary share or at a premium to net asset value per ordinary share and, therefore, shares held in Treasury have no dilutive effect.

13 Capital Resources and Gearing
The Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital and reserves, as disclosed in the Balance Sheet above, and any gearing, which is managed by the use of derivative instruments. Financial resources are managed in accordance with the Company’s investment policy and in pursuit of its investment objective.

The Company’s gross gearing and net gearing at the end of the period is shown below:


 

Gross gearing
Asset exposure

Net gearing
Asset exposure

 

£’000 

%1 

£’000 

%1 

30 June 2024 (unaudited)

 

 

 

 

Investments

1,626,177 

96.3 

1,626,177 

96.3 

Long CFDs

179,614 

10.7 

179,614 

10.7 

Long futures

69,923 

4.1 

69,923 

4.1 

 

--------------- 

--------------- 

--------------- 

--------------- 

Total long exposures

1,875,714 

111.1 

1,875,714 

111.1 

 

========= 

========= 

========= 

========= 

Short CFDs

12,990 

0.8 

(12,990)

(0.8)

 

========= 

========= 

========= 

========= 

Gross asset exposure/net market exposure

1,888,704 

111.9 

1,862,724 

110.3 

Shareholders’ funds

1,688,083 

 

1,688,083 

 

 

========= 

========= 

========= 

========= 

Gearing2

 

11.9 

 

10.3 

 

 

========= 

 

========= 

31 December 2023 (audited)

 

 

 

 

Investments

1,518,875 

95.6 

1,518,875 

95.6 

Long CFDs

199,945 

12.6 

199,945 

12.6 

Long futures

64,492 

4.1 

64,492 

4.1 

 

--------------- 

--------------- 

--------------- 

--------------- 

Total long exposures

1,783,312 

112.3 

1,783,312 

112.3 

 

========= 

========= 

========= 

========= 

Short CFDs

12,736 

0.8 

(12,736)

(0.8)

 

--------------- 

--------------- 

--------------- 

--------------- 

Gross asset exposure/net market  exposure

1,796,048 

113.1 

1,770,576 

111.5 

Shareholders’ funds

1,587,479 

 

1,587,479 

 

 

========= 

 

========= 

 

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 the gross asset exposure/net market exposure exceeds shareholders' funds expressed as a percentage of shareholders’ funds.


 

Gross gearing
Asset exposure

Net gearing
Asset exposure

30 June 2023 (unaudited)

£’000 

%1 

£’000 

%1 

Investments

1,459,305 

96.4 

1,459,305 

96.4 

Long CFDs

177,871 

11.7 

177,871 

11.7 

Long futures

60,659 

4.0 

60,659 

4.0 

 

--------------- 

--------------- 

--------------- 

--------------- 

Total long exposures

1,697,835 

112.1 

1,697,835 

112.1 

 

========= 

========= 

========= 

========= 

Short CFDs

18,101 

1.2 

(18,101)

(1.2)

Gross asset exposure/net market exposure

1,715,936 

113.3 

1,679,734 

110.9 

Shareholders’ funds

1,514,543 

 

1,514,543 

 

 

========= 

========= 

========= 

========= 

Gearing2

 

13.3 

 

10.9 

 

 

========= 

 

========= 

 

1 Asset exposure to the market expressed as a percentage of shareholders’ funds.

2 Gearing is the amount by which the gross asset exposure/net market exposure exceeds shareholders’ funds expressed as a percentage of shareholders’ funds.

14 Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management and the role of company secretary to FIL Investments International (“FII”), the Investment Manager. Both companies are Fidelity group companies. Details of the fee arrangements are given in Note 5 above.

During the period, fees for portfolio management services of £5,748,000 (six months ended 30 June 2023: £5,213,000 and year ended 31 December 2023: £10,502,000) were payable to FII. At the Balance Sheet date, fees for portfolio management services of £970,000 (31 December 2023: £925,000 and 30 June 2023: £866,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the period was £116,000 (six months ended 30 June 2023: £160,000 and year ended 31 December 2023: £260,000). At the Balance Sheet date, marketing services of £55,000 were accrued and included in other creditors (31 December 2023: £14,000 and 30 June 2023: £nil).

As at 30 June 2024, the Board consisted of five non-executive Directors (shown in the Directory in the Half-Yearly Report), all of whom are considered to be independent by the Board. None of the Directors have a service contract with the Company. The Chairman receives an annual fee of £48,000, the Audit Committee Chair an annual fee of £37,250, the Senior Independent Director an annual fee of £33,500 and each other Director an annual fee of £31,000. The following members of the Board hold ordinary shares in the Company: Vivian Bazalgette 30,000 shares, Fleur Meijs 28,970 shares, Milyae Park 10,000 shares, Sir Ivan Rogers 4,569 shares and Paul Yates 32,000 shares.

 

The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2024 and 30 June 2023 has not been audited or reviewed by the Company’s Independent Auditor.

The information for the year ended 31 December 2023 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

A copy of the Half-Yearly Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

 

The Half-Yearly Report will also be available on the Company's website at www.fidelity.co.uk/europe where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.

 




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