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Fidelity European Trust Plc (FEV)

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Friday 05 August, 2022

Fidelity European Trust Plc

Half-year Report

Fidelity European Trust PLC

Half-Yearly results for the six months ended 30 June 2022 (unaudited)

Financial Highlights:

  • The Board of Fidelity European Trust PLC (the “Company”) declares an interim dividend of 3.08 pence per share, an increase of 16.2% on the prior year.
  • The Company is the top performer in the peer group over one and three years.
  • Over the review period, the Company’s net asset value (“NAV”) outperformed the benchmark by 3.1% in sterling terms
  • The contribution from stock-picking was strong during the period, boosted by takeover bids for two companies in which the Company has significant holdings.
  • The Company continues to focus on attractively valued companies with strong balance sheets and consistent dividend growth.


Contacts

For further information, please contact:

Smita Amin
Company Secretary
01737 836347
FIL Investments International



PORTFOLIO MANAGERS’ HALF-YEARLY REVIEW

PERFORMANCE REVIEW
During the first six months of the year the net asset value (“NAV”) total return was -12.0% compared to a total return of -15.1% for the FTSE World Europe (ex UK) Index which is the Company’s Benchmark Index. The share price total return was -16.0%, which is below the NAV total return because of a widening of the share price discount to NAV. (All figures in UK sterling.)

MARKET REVIEW
Continental European markets fell sharply in the first half of this year, as investors fretted about the likely consequences of rising inflation, exacerbated by the war in Ukraine.

The year kicked off with a marked rotation from so-called ‘growth’ to ‘value’ stocks as investors anticipated an acceleration in interest rate rises by central banks to curtail inflation. Companies with little fundamental support, in terms of earnings or dividends, were hit particularly hard (the Company benefits from being underweight in these companies). The invasion of Ukraine led to an increasingly risk-off tone with defensive sectors, such as healthcare, benefiting at the expense of more cyclical sectors, such as banks, as stagflation became a popular economic prediction. The market fall accelerated towards the end of the period when the Federal Reserve surprised with a 0.75% interest rate rise showing that it was willing to risk recession in order to rein in inflation.

Although share prices have been very weak during the period, company earnings in continental Europe have continued to rise and, until very recently, were even upgraded. The fall in the market has seen a very significant derating of valuation multiples, albeit from unusually high levels. The stock market is considered a leading indicator and may, therefore, be signalling trouble ahead, but managements of companies are typically more upbeat, and we have noted an increase in directors buying shares in their own companies, and also an increase in M&A activity (which has significantly boosted two holdings in the portfolio). Time will tell if their optimism proves misplaced.

PORTFOLIO MANAGERS’ REPORT
Although the absolute return is very disappointing, the Company’s cautious approach to investing has meant that the NAV has fallen less than the market as a whole. The NAV has outperformed the Company’s Benchmark Index over the six months by just over 3%. This outperformance was despite the gearing of the Company which was maintained throughout the period at around 12%.

The contribution from stock-picking has been strong during this period. This has been particularly boosted by takeover bids for two companies in which the Company has significant holdings. Swedish Match has agreed to be acquired by Philip Morris International at a substantial premium to its trading price, while Atlantia is being acquired by its controlling shareholder in partnership with a private equity company. In terms of corporate activity, Société des Bains de Mer de Monaco has also benefited from crystallising its long-held investment in the on-line gaming company Betclic. Deutsche Börse Group was also a strong performer during the period benefiting from heightened volatility which drives higher volumes on its derivatives exchange Eurex and higher interest rates which boost interest income earned on customer balances held at Clearstream.

By contrast, some of the big winners of previous years suffered in the market derating, particularly perceived ‘growth’ stocks trading at high multiples, such as ASML, and the private equity companies Partners Group and EQT. The luxury goods companies, particularly Hermès International, were also derated significantly, despite decent earnings results, as investors feared that lockdowns in China would become more impactful and that the general outlook for consumer spending would weaken. Very low, or even negative, bond yields have supported high valuations of such long duration ‘growth’ names for many years. That valuation support has been removed swiftly as inflation expectations and bond yields have risen. These are companies, however, that enjoy strong pricing power, so their fundamental prospects remain attractive, particularly in a more inflationary era. At the right price, these names are likely to resume their strong contribution to the longer term performance of the Company.

Five Highest Contributors to NAV total return Sector Country %
Swedish Match Consumer Staples Sweden +1.4
Deutsche Börse Group Financials Germany +0.7
TotalEnergies Energy France +0.7
Sanofi Health Care France +0.7
Bankinter Financials Spain +0.6

   

Five Highest Detractors to NAV total return Sector Country %
EQT Financials Sweden -0.6
Novartis Health Care Switzerland -0.5
Partners Group Financials Switzerland -0.5
ASML Technology Netherlands -0.5
Legrand Industrials France -0.4

OUTLOOK
To date, consumer spending is holding up, but consumer confidence is falling, and inflationary pressures continue to rise. Most investors now seem to expect a fall in private consumption in the Autumn after savings, made during the pandemic, are exhausted in a summer spending spree. This is concerning, particularly when one considers that consumer spending is by far the biggest component in the GDP of most continental European countries. If Russia closes the gas pipeline, things could go from bad to worse this winter for most continental European economies and particularly for Germany and Italy which have typically been more reliant on Russian-sourced energy.

What could improve the picture for Europe? China re-opening driving a global recovery? Peace in Ukraine? Inflation peaking? All seem unlikely at present so it seems probable that equity markets will continue to struggle until the medicine (higher interest rates) appears to be working and bringing inflation under control. Central banks cannot wave a magic wand anymore. They are caught between a rock and a hard place.

The market has, of course, already discounted much of this bad news. As your former portfolio manager, Anthony Bolton, likes to say: “it’s important not to grow increasingly bearish as the market falls”. The stock market will start to recover (often inexplicably) some months before earnings bottom out or a recession ends. When it does it will be led by cyclical companies with weak balance sheets (colloquially known as a “trash rally”). The Company may well lag in such a recovery, but we remain confident that in the long term, focusing on attractively valued companies with strong balance sheets and consistent dividend growth will deliver out-performance of the Benchmark Index.

Sam Morse
Portfolio Manager

Marcel Stötzel
Co-Portfolio Manager
4 August 2022


TWENTY LARGEST HOLDINGS AS AT 30 JUNE 2022

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

Fair 
Value 
£000 
Asset Exposure
£000  %1 
Long Exposures – shares unless otherwise stated
Nestlé
Food Producers 94,485  7.4  94,485 
---------------  ---------------  --------------- 
Roche
Pharmaceuticals & Biotechnology 69,555  5.4  69,555 
---------------  ---------------  --------------- 
LVMH Moët Hennessy
Personal Goods 63,582  5.0  63,582 
---------------  ---------------  --------------- 
Novo Nordisk
Pharmaceuticals & Biotechnology 60,628  4.7  60,628 
---------------  ---------------  --------------- 
ASML
Technology Hardware & Equipment 57,373  4.5  57,373 
---------------  ---------------  --------------- 
TotalEnergies
Oil, Gas & Coal 56,404  4.4  56,404 
---------------  ---------------  --------------- 
Sanofi (long CFD)
Pharmaceuticals & Biotechnology 50,497  3.9  246 
---------------  ---------------  --------------- 
L'Oréal
Personal Goods 46,113  3.6  46,113 
---------------  ---------------  --------------- 
Swedish Match
Tobacco 43,256  3.4  43,256 
---------------  ---------------  --------------- 
Deutsche Börse Group
Investment Banking & Brokerage Services 43,234  3.4  43,234 
---------------  ---------------  --------------- 
EssilorLuxottica
Medical Equipment & Services 42,351  3.3  42,351 
---------------  ---------------  --------------- 
Enel
Electricity 35,614  2.8  35,614 
---------------  ---------------  --------------- 
Zurich Insurance Group
Non-Life Insurance 35,130  2.7  35,130 
---------------  ---------------  --------------- 
3i Group
Investment Banking & Brokerage Services 31,930  2.5  31,930 
---------------  ---------------  --------------- 
SAP (shares and long CFD)
Software & Computer Services 31,882  2.5  10,088 
---------------  ---------------  --------------- 
Linde (long CFD)
Chemicals 31,548  2.5  (1,594)
---------------  ---------------  --------------- 
Legrand (long CFD)
Electronic & Electrical Equipment 31,517  2.4  (2,165)
---------------  ---------------  --------------- 
Symrise
Chemicals 27,990  2.2  27,990 
---------------  ---------------  --------------- 
Hermès International
Personal Goods 25,185  2.0  25,185 
---------------  ---------------  --------------- 
DKSH Holding
Industrial Support Services 24,980  1.9  24,980 
=========  =========  ========= 
Twenty largest long exposures 903,254  70.5  764,385 
Other long exposures 484,531  37.9  484,196 
=========  =========  ========= 
Total long exposures before long futures2,3 1,387,785  108.4  1,248,581 
=========  =========  ========= 
Long Futures
Euro Stoxx 50 Future September 20223 32,215  2.5  (348)
=========  =========  ========= 
Gross Asset Exposure3,4 1,420,000  110.9 
=========  ========= 
Portfolio Fair Value5 1,248,233 
Net current assets (excluding derivative assets and liabilities) 32,524 
========= 
Shareholders’ Funds (per Balance Sheet below) 1,280,757 
========= 

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

2  Total long exposures before long futures comprises investments of £1,252,159,000 and long CFDs of £135,626,000.

3  See Note 13 below.

4  Gross Asset Exposure comprises market exposure to investments of £1,252,159,000 plus market exposure to all derivative instruments of £167,841,000. Derivative instruments comprise long CFDs of £135,626,000 and long futures of £32,215,000.

5  Portfolio Fair Value comprises investments of £1,252,159,000 plus derivative assets of £253,000 less derivative liabilities of £4,179,000 (per the Balance Sheet below).




INTERIM MANAGEMENT REPORT AND DIRECTORS’ RESPONSIBILITY STATEMENT

BOARD CHANGES
After serving on the Board for nine years, Marion Sears stepped down from the Board on 10 May 2022 as a non-executive Director and Senior Independent Director. As her successor as a non-executive Director, Milyae Park was appointed on 1 January 2022. Paul Yates succeeded Ms Sears as Senior Independent Director on 10 May 2022.

INTERIM DIVIDEND
The Board does not influence the Portfolio Managers by imposing any income objective in any particular period and the investment focus on companies capable of growing their dividends remains. The Board acknowledges that both capital and income growth are components of performance, as reflected in the investment objective of the Company. It therefore has a policy whereby it seeks to pay a progressive dividend in normal circumstances and to pay dividends twice yearly in order to smooth dividend payments for the reporting year. Unlike open-ended funds, investment trusts can hold back some of the income they receive in good years, thereby building up revenue reserves, which can then be used to supplement dividends during difficult times. The Board has over the past few years augmented revenue reserves by retaining a small proportion of earnings to be used in difficult times, as it did for the payment of the final dividend for the year ended 31 December 2020.

The Company’s revenue return for the six months to 30 June 2022 was 7.08 pence per share (30 June 2021: 5.28 pence). The Board has declared an interim dividend of 3.08 pence per share which is an increase of 16.2% on the 2.65 pence per share paid as the interim dividend in 2021. This will be paid on 28 October 2022 to shareholders on the register at close of business on 23 September 2022 (ex-dividend date 22 September 2022).

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 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 share or at a premium to NAV per share, facilitating the management of and enhancing liquidity in the Company’s shares.

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

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

The Board considers that the principal risks and uncertainties faced by the Company fall into the following categories: market risk; economic and political risks; discount control risk; operational risk from cybercrime; investment performance risk; key person risk; environmental, social and governance (ESG) risks; operational resilience risk; tax and regulatory risks; and third party service providers operational risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 December 2021. A copy of the Annual Report can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/europe.

While the principal risks and uncertainties are the same as those at the previous year end, the uncertainty has been heightened by the ongoing Russia and Ukraine conflict. The quantum of risks has changed and continues to change. The Board remains vigilant in monitoring the risks.

A key emerging risk that the Board has identified is climate change. It is one of the most critical emerging issues confronting asset managers and their investors. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor this. Geopolitical and economic concerns are also emerging risks and the ramifications of a global downturn could have significant impact. The Board keeps material geopolitical and economic risks under close review and discusses these with the Portfolio Managers at each Board meeting.

Investors should be prepared for market fluctuations and remember that holding shares in the Company should be considered to be a long term investment. These risks are somewhat mitigated by the investment trust structure of the Company which means that no forced sales need to take place to deal with any redemptions. Therefore, investments in the Company’s portfolio can be held over a longer time horizon.

The Manager carries on reviewing its business continuity plans and its operational resilience strategies on an ongoing basis. It continues to take all reasonable steps in meeting its regulatory obligations and to assess operational risks, the ability to continue operating and the steps it needs to take to serve and support its clients, including the Board. The Manager has appropriate business continuity plans in place and the provision of services has continued to be supplied without interruption during the pandemic and continues to do so.

Investment team key activities, including those of portfolio managers, analysts and trading/ support functions, have continued to perform well despite the operational challenges posed when working from home or when split team arrangements were in place during the peak of the pandemic, and more recently, the disruption from the rail strikes.

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

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
The Manager has delegated the Company’s portfolio management and company secretariat services to FIL Investments International. Transactions with the Manager and related party transactions with the Directors are disclosed in Note 14 to the Financial Statements below.

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

This conclusion also takes into account the Board’s assessment of the ongoing risks from COVID and evolving variants as set out 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 2023.

BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL

4 August 2022




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

The Directors confirm to the best of their knowledge that:

a)  the condensed set of Financial Statements contained within the Half-Yearly Report has been prepared in accordance with the Financial Reporting Council’s Standard FRS 104: Interim Financial Reporting; and

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

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

The Half-Yearly Report was approved by the Board on 4 August 2022 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 2022


 
Six months ended 30 June 2022
unaudited
Six months ended 30 June 2021
unaudited
Year ended 31 December 2021
audited

 
 
Notes 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
(Losses)/gains on investments (172,868) (172,868) 116,714  116,714  221,090  221,090 
(Losses)/gains on derivative instruments (29,395) (29,395) 21,176  21,176  38,145  38,145 
Income 33,050  33,050  26,335  26,335  37,879  37,879 
Investment management fees (1,177) (3,533) (4,710) (1,171) (3,513) (4,684) (2,438) (7,313) (9,751)
Other expenses (511) (511) (426) (426) (908) (908)
Foreign exchange gains/(losses) 502  502  (258) (258) (27) (27)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Net return/(loss) on ordinary activities before finance costs and taxation 31,362  (205,294) (173,932) 24,738  134,119  158,857  34,533  251,895  286,428 
Finance costs (31) (92) (123) (59) (179) (238) (134) (403) (537)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Net return/(loss) on ordinary activities before taxation 31,331  (205,386) (174,055) 24,679  133,940  158,619  34,399  251,492  285,891 
Taxation on return/(loss) on ordinary activities (2,241) (2,241) (2,943) (2,943) (3,547) (3,547)
---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Net return/(loss) on ordinary activities after taxation for the period 29,090  (205,386) (176,296) 21,736  133,940  155,676  30,852  251,492  282,344 
=========  =========  =========  =========  =========  =========  =========  =========  ========= 
Return/(loss) per ordinary share 7.08p  (49.97p) (42.89p) 5.28p  32.55p  37.83p  7.50p  61.15p  68.65p 
=========  =========  =========  =========  =========  =========  =========  =========  ========= 

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

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

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




STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2022




 
 
 
 
Notes 
 
Share 
capital 
£000 
Share 
premium 
account 
£000 
Capital 
redemption 
reserve 
£000 
 
Capital 
reserve 
£000 
 
Revenue 
reserve 
£000 
Total 
shareholders’
funds 
£000 
Six months ended 30 June 2022 (unaudited)
Total shareholders’ funds at 31 December 2021 10,411  58,615  5,414  1,372,360  27,433  1,474,233 
Net (loss)/return on ordinary activities after taxation for the period (205,386) 29,090  (176,296)
Dividend paid to shareholders (17,180) (17,180)
---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Total shareholders’ funds at 30 June 2022 10,411  58,615  5,414  1,166,974  39,343  1,280,757 
=========  =========  =========  =========  =========  ========= 
Six months ended 30 June 2021 (unaudited)
Total shareholders’ funds at 31 December 2020 10,411  58,615  5,414  1,122,325  23,520  1,220,285 
Net return on ordinary activities after taxation for the period 133,940  21,736  155,676 
Dividend paid to shareholders (16,047) (16,047)
---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Total shareholders’ funds at 30 June 2021 10,411  58,615  5,414  1,256,265  29,209  1,359,914 
=========  =========  =========  =========  =========  ========= 
Year ended 31 December 2021 (audited)
Total shareholders’ funds at 31 December 2020 10,411  58,615  5,414  1,122,325  23,520  1,220,285 
Net return on ordinary activities after taxation for the year 251,492  30,852  282,344 
Repurchase of ordinary shares 11  (1,457) (1,457)
Dividends paid to shareholders (26,939) (26,939)
---------------  ---------------  ---------------  ---------------  ---------------  --------------- 
Total shareholders’ funds at 31 December 2021 10,411  58,615  5,414  1,372,360  27,433  1,474,233 
=========  =========  =========  =========  =========  ========= 




BALANCE SHEET AS AT 30 JUNE 2022
Company Number 2638812




 
 
 
 
Notes 
30 June 
2022 
unaudited 
£000 
31 December 
2021 
audited 
£000 
30 June 
2021 
unaudited 
£000 
Fixed assets
Investments 10  1,252,159  1,447,997  1,322,774 
---------------  ---------------  --------------- 
Current assets
Derivative instruments 10  253  4,010  2,684 
Debtors 13,706  8,957  9,183 
Amounts held at futures clearing houses and brokers 3,789  2,962  4,724 
Cash and cash equivalents 15,955  11,366  22,484 
---------------  ---------------  --------------- 
33,703  27,295  39,075 
---------------  ---------------  --------------- 
Current liabilities
Derivative instruments 10  (4,179) (962)
Other creditors (926) (1,059) (973)
---------------  ---------------  --------------- 
(5,105) (1,059) (1,935)
---------------  ---------------  --------------- 
Net current assets 28,598  26,236  37,140 
---------------  ---------------  --------------- 
Net assets 1,280,757  1,474,233  1,359,914 
---------------  ---------------  --------------- 
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 1,166,974  1,372,360  1,256,265 
Revenue reserve 39,343  27,433  29,209 
---------------  ---------------  --------------- 
Total shareholders’ funds 1,280,757  1,474,233  1,359,914 
=========  =========  ========= 
Net asset value per ordinary share 12  311.61p  358.68p  330.50p 
=========  =========  ========= 




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 2021 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 April 2021. 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 2021.

(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 continuing risks arising from COVID-19 and evolving variants.

4 INCOME





 
Six months 
ended 
30.06.22 
unaudited 
£000 
Six months 
ended 
30.06.21 
unaudited 
£000 
Year 
ended 
31.12.21 
audited 
£000 
Investment income
Overseas dividends 26,955  21,029  30,799 
Overseas scrip dividends 729  512  513 
UK dividends 1,075  750  1,374 
---------------  ---------------  --------------- 
28,759  22,291  32,686 
---------------  ---------------  --------------- 
Derivative income
Income recognised from futures contracts 1,083  1,299  1,834 
Dividends received on long CFDs 2,858  2,408  2,700 
Interest received on CFDs1 347  337  659 
---------------  ---------------  --------------- 
4,288  4,044  5,193 
---------------  ---------------  --------------- 
Investment and derivative income 33,047  26,335  37,879 
=========  =========  ========= 
Other interest
Interest received on collateral, bank deposits and money market funds
---------------  ---------------  --------------- 
---------------  ---------------  --------------- 
Total income 33,050  26,335  37,879 
=========  =========  ========= 

1  Due to negative interest rates during the reporting period, the Company received interest on its long CFDs.

Special dividends of £1,115,000 have been recognised in capital during the period (six months ended 30 June 2021 and year ended 31 December 2021: £82,000).

5 INVESTMENT MANAGEMENT FEES


 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Six months ended 30 June 2022 (unaudited)
Investment management fees 1,177  3,533  4,710 
---------------  ---------------  --------------- 
Six months ended 30 June 2021 (unaudited)
Investment management fees 1,171  3,513  4,684 
---------------  ---------------  --------------- 
Year ended 31 December 2021 (audited)
Investment management fees 2,438  7,313  9,751 
=========  =========  ========= 

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.

From 1 April 2021, 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. Prior to this date, the investment management fees were charged at an annual rate of 0.85% of net assets up to £400 million and 0.75% 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 2022 (unaudited)
Interest paid on collateral and bank deposits1 16  47  63 
Interest paid on long CFDs 15  45  60 
---------------  ---------------  --------------- 
31  92  123 
=========  =========  ========= 
Six months ended 30 June 2021 (unaudited)
Interest paid on collateral and bank deposits1 13  41  54 
Interest paid on CFDs1 46  138  184 
---------------  ---------------  --------------- 
59  179  238 
=========  =========  ========= 
Year ended 31 December 2021 (audited)
Interest paid on collateral and bank deposits1 40  122  162 
Interest paid on CFDs1 94  281  375 
---------------  ---------------  --------------- 
134  403  537 
=========  =========  ========= 

1  Due to negative interest rates during the reporting period, the Company paid interest on its short CFDs and deposits.

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

7 TAXATION ON RETURN/(LOSS) ON ORDINARY ACTIVITIES





 
Six months 
ended 
30.06.22 
unaudited 
£000 
Six months 
ended 
30.06.21 
unaudited 
£000 
Year 
ended 
31.12.21 
audited 
£000 
Overseas taxation 2,241  2,943  3,547 
=========  =========  ========= 

8 RETURN/(LOSS) PER ORDINARY SHARE




 
Six months 
ended 
30.06.22 
unaudited 
Six months 
ended 
30.06.21 
unaudited 
Year 
ended 
31.12.21 
audited 
Revenue return per ordinary share 7.08p  5.28p  7.50p 
Capital (loss)/return per ordinary share (49.97p) 32.55p  61.15p 
---------------  ---------------  --------------- 
Total (loss)/return per ordinary share (42.89p) 37.83p  68.65p 
=========  =========  ========= 

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

£000  £000  £000 
Net revenue return on ordinary activities after taxation 29,090  21,736  30,852 
Net capital (loss)/return on ordinary activities after taxation (205,386) 133,940  251,492 
---------------  ---------------  --------------- 
Net total (loss)/return on ordinary activities after taxation (176,296) 155,676  282,344 
=========  =========  ========= 

   

Number  Number  Number 
Weighted average number of ordinary shares held outside Treasury during the period 411,016,049  411,466,049  411,286,049 
==========  ==========  ========== 

9 DIVIDENDS PAID TO SHAREHOLDERS





 
Six months 
ended 
30.06.22 
unaudited 
£000 
Six months 
ended 
30.06.21 
unaudited 
£000 
Year 
ended 
31.12.21 
audited 
£000 
Final dividend of 4.18 pence per ordinary share paid for the year ended 31 December 2021 17,180 
Interim dividend of 2.65 pence per ordinary share paid for the year ended 31 December 2021 10,892 
Final dividend of 3.90 pence per ordinary share paid for the year ended 31 December 2020 16,047  16,047 
---------------  ---------------  --------------- 
17,180  16,047  26,939 
=========  =========  ========= 

The Company has declared an interim dividend for the six month period to 30 June 2022 of 3.08 pence per ordinary share (2021: 2.65 pence). The interim dividend will be paid on 28 October 2022 to shareholders on the register on 23 September 2022 (ex-dividend date 22 September 2022). The total cost of this interim dividend, which has not been included as a liability in these Financial Statements, is £12,659,000 (2021: £10,892,000). 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 2022 (unaudited)
Level 1 
£000 
Level 2 
£000 
Level 3 
£000 
Total 
£000 
Financial assets at fair value through profit or loss
Investments 1,252,159  1,252,159 
Derivative instrument assets 253  253 
---------------  ---------------  ---------------  --------------- 
1,252,159  253  1,252,412 
=========  =========  =========  ========= 
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (348) (3,831) (4,179)
=========  =========  =========  ========= 

   


31 December 2021 (audited)
Level 1 
£000 
Level 2 
£000 
Level 3 
£000 
Total 
£000 
Financial assets at fair value through profit or loss
Investments 1,447,997  1,447,997 
Derivative instrument assets 950  3,060  4,010 
---------------  ---------------  ---------------  --------------- 
1,448,947  3,060  1,452,007 
=========  =========  =========  ========= 
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities
=========  =========  =========  ========= 

   


30 June 2021 (unaudited)
Level 1 
£000 
Level 2 
£000 
Level 3 
£000 
Total 
£000 
Financial assets at fair value through profit or loss
Investments 1,322,774  1,322,774 
Derivative instrument assets 2,684  2,684 
---------------  ---------------  ---------------  --------------- 
1,322,774  2,684  1,325,458 
=========  =========  =========  ========= 
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities (962) (962)
=========  =========  =========  ========= 

11 SHARE CAPITAL


 
30 June 2022
unaudited
31 December 2021
audited
30 June 2021
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 Treasury
Beginning of the period 411,016,049  10,275  411,466,049  10,286  411,466,049  10,286 
Ordinary shares repurchased into Treasury (450,000) (11)
------------------  ------------------  ------------------  ------------------  ------------------  ------------------ 
End of the period 411,016,049  10,275  411,016,049  10,275  411,466,049  10,286 
===========  ===========  ===========  ===========  ===========  =========== 
Ordinary shares of 2.5 pence each held in Treasury1
Beginning of the period 5,431,861  136  4,981,861  125  4,981,861  125 
Ordinary shares repurchased into Treasury 450,000  11 
------------------  ------------------  ------------------  ------------------  ------------------  ------------------ 
End of the period 5,431,861  136  5,431,861  136  4,981,861  125 
===========  ===========  ===========  ===========  ===========  =========== 
Total share capital 10,411  10,411  10,411 
===========  ===========  =========== 

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

There were no ordinary shares repurchased into Treasury during the period (year ended 31 December 2021: cost of £1,457,000 and six months ended 30 June 2021: no ordinary shares repurchased).

12 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the following:


 
30.06.22 
unaudited 
31.12.21 
audited 
30.06.21 
unaudited 
Total shareholders’ funds £1,280,757,000  £1,474,233,000  £1,359,914,000 
Ordinary shares held outside Treasury at period end 411,016,049  411,016,049  411,466,049 
Net asset value per ordinary share 311.61p  358.68p  330.50p 
===========  ===========  =========== 

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 2022 (unaudited)
Investments 1,252,159  97.8  1,252,159  97.8 
Long CFDs 135,626  10.6  135,626  10.6 
Long futures 32,215  2.5  32,215  2.5 
---------------  ---------------  ---------------  --------------- 
Total long exposures 1,420,000  110.9  1,420,000  110.9 
Short CFDs
---------------  ---------------  ---------------  --------------- 
Gross asset exposure/net market exposure 1,420,000  110.9  1,420,000  110.9 
---------------  ---------------  ---------------  --------------- 
Shareholders’ funds 1,280,757  1,280,757 
=========  =========  =========  ========= 
Gearing2 10.9  10.9 
=========  ========= 
31 December 2021 (audited)
Investments 1,447,997  98.2  1,447,997  98.2 
Long CFDs 136,841  9.3  136,841  9.3 
Long futures 53,348  3.6  53,348  3.6 
---------------  ---------------  ---------------  --------------- 
Total long exposures 1,638,186  111.1  1,638,186  111.1 
Short CFDs
---------------  ---------------  ---------------  --------------- 
Gross asset exposure/net market exposure 1,638,186  111.1  1,638,186  111.1 
---------------  ---------------  ---------------  --------------- 
Shareholders’ funds 1,474,233  1,474,233 
=========  =========  =========  ========= 
Gearing2 11.1  11.1 
=========  ========= 

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

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


 
Gross gearing 
Asset exposure 
Net gearing 
Asset exposure
£000  %1  £000  %1 
30 June 2021 (unaudited)
Investments 1,322,774  97.3  1,322,774  97.3 
Long CFDs 140,477  10.3  140,477  10.3 
Long futures 59,631  4.4  59,631  4.4 
---------------  ---------------  ---------------  --------------- 
Total long exposures 1,522,882  112.0  1,522,882  112.0 
Short CFDs 5,603  0.4  (5,603) (0.4)
---------------  ---------------  ---------------  --------------- 
Gross asset exposure/net market exposure 1,528,485  112.4  1,517,279  111.6 
---------------  ---------------  ---------------  --------------- 
Shareholders’ funds 1,359,914  1,359,914 
=========  =========  =========  ========= 
Gearing2 12.4  11.6 
=========  ========= 

1  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 services 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 £4,710,000 (six months ended 30 June 2021: £4,684,000 and year ended 31 December 2021: £9,751,000) were payable to FII. At the Balance Sheet date, fees for portfolio management services of £754,000 (31 December 2021: £871,000 and 30 June 2021: £790,000) 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 £147,000 (six months ended 30 June 2021: £56,000 and year ended 31 December 2021: £126,000). At the Balance Sheet date, fees for marketing services of £nil (31 December 2021: £5,000 and 30 June 2021: £13,000) were accrued and included in other creditors.

As at 30 June 2022, 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 £43,000, the Audit Committee Chair an annual fee of £34,000, the Senior Independent Director an annual fee of £30,500 and each other Director an annual fee of £28,000. The following members of the Board hold ordinary shares in the Company: Vivian Bazalgette 30,000 shares, Fleur Meijs 28,970 shares, Milyae Park nil shares, Sir Ivan Rogers nil shares and Paul Yates 32,000 shares.


 

The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2022 and 30 June 2021 has not been audited or reviewed by the Company’s Independent Auditor.

The information for the year ended 31 December 2021 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.


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