Half-year Report

FIDELITY EUROPEAN TRUST PLC

Half-Yearly Results for the six months ended 30 June 2023 (unaudited)

 

Financial Highlights:

  • The Board of Fidelity European Trust PLC (the “Company”) declares an interim dividend of 3.26 pence per share, an increase of 5.8% on the prior year.

 

  • The net asset value (“NAV”) of the Company increased by +11.1% for the six months ending 30 June, outperforming the FTSE World Europe (ex UK) Index, which returned +9.3%.

 

  • The share priced matched the Benchmark Index, returning +9.3% over the reporting period.

 

  • The Company remains the top performer in the AIC peer group over one, five and ten years*.

 

  • The Company continues to focus on attractively valued companies with strong balance sheets and consistent dividend growth.

 

*Data according to the AIC as at 24/07/23

 

 

 

Contacts

 

For further information, please contact:

 

Smita Amin

Company Secretary

01737 836347

 

 

 

 

 

 

 

Portfolio Managers’ Half-Yearly Review

Performance Review
During the first six months of the year the net asset value (“NAV”) total return was +11.1% compared to a total return of +9.3% for the FTSE World Europe (ex UK) Index which is the Company’s Benchmark Index. The share price total return was +9.3%, which is below the NAV total return because of a widening of the share price discount to NAV. (All figures in UK sterling.)

Market Review
Continental European markets were unexpectedly strong in the first half of this year, as investors concerns moderated regarding global economic growth and as corporate earnings proved more resilient than feared. UK sterling appreciated by +3% against the Euro during this six month period so in Euro terms, the continental European benchmark rose +12% which is impressive, however much less than the Nasdaq which rocketed +30% in equivalent terms!

The market recovery from the lows of October 2022 accelerated in January boosted by confirmation that China would relax its strict COVID policies and “re-open”. This positive sentiment was tested by the collapse of the Silicon Valley Bank (SVB) in early March, and the subsequent demise of Credit Suisse, but the market shrugged these off and ended the first quarter at close to its highest levels for the period. First quarter corporate results were better than anticipated (despite a technical recession in Germany). There was also a flurry of excitement regarding the likely long term impact of generative Artificial Intelligence (AI) which boosted technology names (such as ASML), but overall, the market stalled in the second quarter as investors worried that central banks were still in tightening mode given the resilience of the global economy and the stickiness of inflation. Like the US stock market, the continental European markets were led higher by a narrow group of mega-cap companies, often in the technology or luxury sectors. The energy sector was the main laggard, as commodity prices fell from the elevated levels of 2022, despite China “re-opening” and the continued war in Ukraine.

Portfolio Managers’ Report
The Company’s NAV total return outperformed the Company’s Benchmark Index over the six month period by almost 2%. Much of this outperformance was due to the gearing of the Company which was maintained throughout the period at around 13%. Shareholders of the Company will remember that, as mentioned in the 2021 Annual Report, the Board endorsed an intention to maintain a relatively fixed level of gearing within a range that is approximately double the 6% average gearing from the end of the global financial crisis until the global pandemic. Gearing is, of course, one of the great advantages of an investment trust, and although it may amplify volatility in the short term, we expect it to enhance long term returns. The agreed level of gearing takes into account our cautious investment approach and allows considerable headroom before published limits are reached in the event of a sharp sell-off in the markets.

The contribution from stock-picking was also positive during this period. The stand-out performer during the half-year was 3i Group which continued to impress with positive results updates and strong current trading figures from their largest investment, the continental European discount retail group, Action. Financials, which is the Company’s largest sector overweight, was however rocked by the bankruptcy of SVB. Bankinter suffered as investors worried that it was a European equivalent of a US regional bank with a deposit base that might prove less sticky than other European banks, given its recent growth and more sophisticated customer base. Sampo, the Nordic insurance company, also performed poorly following disappointing results and conservative guidance regarding capital distributions to shareholders. Roche continued its lacklustre run, hampered by disappointing guidance for 2023 due to a drop-off in COVID-related revenues (in diagnostics and pharma) and the on-going impact of biosimilars (comparable biological medicines) on Rituxan, Herceptin and Avastin. On a more positive note, LVMH Moët Hennessy and Hèrmes International defied gravity, once again, on the growing hope that the Chinese consumers were embarking on so-called “revenge spending” that has been seen post “re-opening” in the US and Europe.

Top Five Stock Contributors (on a relative basis)

Sector

Country

%

3i Group

Financials

UK

+0.9

ASML

Information Technology

Netherlands

+0.5

Amadeus IT Group

Consumer Discretionary

Spain

+0.5

Hèrmes International

Consumer Discretionary

France

+0.5

L’Oréal

Consumer Staples

France

+0.4

 

 

 

 

Top Five Stock Detractors (on a relative basis)

Sector

Country

%

Sampo

Financials

Finland

-0.6

TotalEnergies

Energy

France

-0.6

Bankinter

Financials

Spain

-0.4

Symrise

Materials

Germany

-0.3

EQT

Financials

Sweden

-0.3

 

Outlook
There are plenty of reasons to be bearish. More than a year ago, the two-year treasury yields rose above the ten-year treasury yields in the US bond market (it is normally the other way around). This ‘yield curve inversion’ has, historically, been a lead indicator of recession about 80% of the time, but the lag between the date of inversion and recession can be six months to three years. It is a bit like seeing a big dark cloud on the horizon and predicting it will rain soon! To date, the global economy and corporate earnings have been resilient while stock markets have recovered quite dramatically since the lows in October, such that share prices are now back in the middle of their normal valuation ranges. It is hard to imagine that this will not be tested in the months ahead. Having said that, the pandemic and subsequent monetary and fiscal policies have made this an unusual cycle. At present, investors seem to be expecting a soft landing or no global recession at all. Earnings forecasts for 2023 are similar to earnings delivered for 2022 but analysts are still forecasting growth in 2024. The capacity of consumers (the most important contributors to GDP) to maintain spending levels has surprised many. But, in general, they still have jobs and pandemic savings to burn. The cost-of-living crisis may ease too as commodity prices lead general pricing downwards on goods and services. This disinflation may also be helped along by governments ‘encouraging’ corporates to abandon ‘greedflation’ (which might hinder company margins). So maybe the consumer will keep the global economy bumbling along. Having said that, credit conditions are tightening (post SVB) and the US Federal Reserve and government are draining liquidity via quantitative tightening and short term bond issuance, and there is a multi-year refinancing requirement ahead for consumers and corporates alike. Geopolitical risks remain elevated too with the war in Europe and continued tensions between the US and China. Whatever our views on the outlook, we will maintain the current level of gearing and will continue to focus on attractively valued companies with strong balance sheets that should be resilient and able to grow dividends, even in a more difficult economic environment.

SAM MORSE
Portfolio Manager

Marcel Stötzel
Co-Portfolio Manager
1 August 2023

Twenty Largest Holdings as at 30 June 2023

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



 


Asset 
£’000 


Exposure 
%1 

Fair 
Value 
£’000 

Long Exposures – shares unless otherwise stated

 

 

 

Nestlé

 

 

 

Food Producers

102,451 

6.8 

102,451 

ASML

 

 

 

Technology Hardware & Equipment

92,644 

6.1 

92,644 

LVMH Moët Hennessy

 

 

 

Personal Goods

86,605 

5.7 

86,605 

Novo Nordisk

 

 

 

Pharmaceuticals & Biotechnology

82,079 

5.4 

82,079 

Roche

 

 

 

Pharmaceuticals & Biotechnology

69,925 

4.6 

69,925 

TotalEnergies

 

 

 

Oil, Gas & Coal

64,304 

4.3 

64,304 

L’Oréal

 

 

 

Personal Goods

63,203 

4.2 

63,203 

EssilorLuxottica

 

 

 

Medical Equipment & Services

51,561 

3.4 

51,561 

SAP (long CFD)

 

 

 

Software & Computer Services

51,231 

3.4 

(164)

Sanofi (long CFD)

 

 

 

Pharmaceuticals & Biotechnology

47,733 

3.2 

2,076 

Legrand (long CFD)

 

 

 

Electronic & Electrical Equipment

45,085 

3.0 

(1,033)

Hèrmes International

 

 

 

Personal Goods

44,523 

2.9 

44,523 

MTU Aero Engines

 

 

 

Aerospace & Defense

44,225 

2.9 

44,225 

Partners Group Holding

 

 

 

Investment Banking & Brokerage Services

42,805 

2.8 

42,805 

3i Group

 

 

 

Investment Banking & Brokerage Services

41,286 

2.7 

41,286 

Assa Abloy

 

 

 

Construction & Materials

40,720 

2.7 

40,720 

Deutsche Börse Group

 

 

 

Investment Banking & Brokerage Services

38,606 

2.6 

38,606 

Sampo

 

 

 

Non-Life Insurance

36,170 

2.4 

36,170 

Amadeus IT Group

 

 

 

Software & Computer Services

35,556 

2.3 

35,556 

Linde (long CFD)

 

 

 

Chemicals

33,822 

2.2 

635 

 

--------------- 

--------------- 

--------------- 

Twenty largest long exposures

1,114,534 

73.6 

938,177 

Other long exposures

522,642 

34.5 

522,642 

 

--------------- 

--------------- 

--------------- 

Total long exposures before long futures2,3

1,637,176 

108.1 

1,460,819 

 

========= 

========= 

========= 

Long Futures

 

 

 

Euro Stoxx 50 Future September 20233

60,659 

4.0 

1,120 

 

--------------- 

--------------- 

--------------- 

Total long exposures after long futures3

1,697,835 

112.1 

1,461,939 

 

========= 

========= 

========= 

Short Exposures

 

 

 

Short CFDs (2 Holdings)

18,101 

1.2 

(396)

 

--------------- 

--------------- 

--------------- 

Gross Asset Exposure3,4

1,715,936 

113.3 

 

 

========= 

========= 

 

Portfolio Fair Value5

 

 

1,461,543 

Net current assets (excluding derivative assets and liabilities)

 

 

53,000 

 

 

 

--------------- 

Shareholders’ Funds (per the Balance Sheet below)

 

 

1,514,543 

 

 

 

========= 

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

2 Total long exposures before long futures comprises investments of £1,459,305,000 and long CFDs of £177,871,000.

3 See Note 13 below.

4 Gross Asset Exposure comprises market exposure to investments of £1,459,305,000 plus market exposure to all derivative instruments of £256,631,000. Derivative instruments comprise long CFDs of £177,871,000, long futures of £60,659,000 and short CFDs of £18,101,000.

5 Portfolio Fair Value comprises investments of £1,459,305,000 plus derivative assets of £3,919,000 less derivative liabilities of £1,681,000 (per the Balance Sheet below).

 

 

 

 

 

 

 

 

 

 

 

 

 

Interim Management Report and Directors’ Responsibility Statement

Interim Dividend
The Board does not influence the Portfolio Managers by imposing any income objective in any particular period, and the investment focus on companies capable of growing their dividends remains. The Board acknowledges that both capital and income growth are components of performance, as reflected in the investment objective of the Company. It therefore has a policy whereby it seeks to pay a progressive dividend in normal circumstances and to pay dividends twice yearly in order to smooth dividend payments for the reporting year. Unlike open-ended funds, investment trusts can hold back some of the income they receive in good years, thereby building up revenue reserves, which can then be used to supplement dividends during difficult times. The Board has over the past few years augmented revenue reserves by retaining a small proportion of earnings to be used in difficult times, as in the case of the final dividend paid in May 2021.

The Company’s revenue return for the six months to 30 June 2023 was 7.38 pence per ordinary share (30 June 2022: 7.08 pence). The Board has declared an interim dividend of 3.26 pence per ordinary share which is an increase of 5.8% on the 3.08 pence per ordinary share paid as the interim dividend in 2022. This will be paid on 27 October 2023 to shareholders on the register at close of business on 22 September 2023 (ex-dividend date 21 September 2023).

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

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

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

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

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

The Board considers that the principal risks and uncertainties faced by the Company fall into the following categories: economic and geopolitical risks; market risk; discount control risk; operational risk; cybercrime risk; investment performance risk (including the use of derivatives and gearing); environmental, social and governance (ESG) risks; key person risk; operational resilience risk; and tax and regulatory risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 December 2022. A copy of the Annual Report can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/europe.

While the principal risks and uncertainties are the same as those at the previous year end, the uncertainty continues to be heightened by the ongoing Russia and Ukraine conflict dominating political risks and industry concerns. There is geopolitical and economic uncertainty, in particular concerns over global economic growth, inflation and financial distress. Earlier in the year, the collapse of Silicon Valley Bank and the buyout of Credit Suisse caused turmoil in the global banking sector and volatility in the markets. The quantum of risks continues to change, and the Board remains vigilant in monitoring such risks.

Climate change continues to be a key emerging issue, as well as a principal risk, that is confronting asset managers and their investors. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor how this may potentially impact the Company, the main risk being the impact on investment valuations and shareholder returns.

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

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

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

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

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

This conclusion also takes into account the Board’s assessment of the ongoing risks from the war in Ukraine, significant market events and regulatory changes.

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

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

BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL
1 August 2023

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

The Directors confirm to the best of their knowledge that:

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

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

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

The Half-Yearly Report was approved by the Board on 1 August 2023 and the above responsibility statement was signed on its behalf by Vivian Bazalgette, Chairman.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Statements

Income Statement for the six months ended 30 June 2023


 


 

Six months ended 30 June 2023
unaudited

Six months ended 30 June 2022
unaudited

Year ended 31 December 2022
audited


 


Notes 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Gains/(losses) on investments

 

 

94,641 

94,641 

 

(172,868)

(172,868)

 

(63,812)

(63,812)

Gains/(losses) on derivative instruments

 

 

36,841 

36,841 

 

(29,395)

(29,395)

 

(22,034)

(22,034)

Income

4 

35,816 

 

35,816 

33,050 

 

33,050 

43,042 

 

43,042 

Investment management fees

5 

(1,303)

(3,910)

(5,213)

(1,177)

(3,533)

(4,710)

(2,362)

(7,087)

(9,449)

Other expenses

 

(507)

 

(507)

(511)

 

(511)

(919)

 

(919)

Foreign exchange (losses)/gains

 

 

(2,599)

(2,599)

 

502 

502 

 

(372)

(372)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Net return/(loss) on ordinary activities before finance costs and taxation

 

34,006 

124,973 

158,979 

31,362 

(205,294)

(173,932)

39,761 

(93,305)

(53,544)

Finance costs

6 

(908)

(2,724)

(3,632)

(31)

(92)

(123)

(196)

(586)

(782)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Net return/(loss) on ordinary activities before taxation

 

33,098 

122,249 

155,347 

31,331 

(205,386)

(174,055)

39,565 

(93,891)

(54,326)

Taxation on return/(loss) on ordinary activities

7 

(2,916)

 

(2,916)

(2,241)

 

(2,241)

(2,641)

 

(2,641)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Net return/(loss) on ordinary activities after taxation for the period

 

30,182 

122,249 

152,431 

29,090 

(205,386)

(176,296)

36,924 

(93,891)

(56,967)

 

 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

Return/(loss) per ordinary share

8 

7.38p 

29.91p 

37.29p 

7.08p 

(49.97p)

(42.89p)

9.00p 

(22.88p)

(13.88p)

 

 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

========= 

 

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

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

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

Statement of Changes in Equity for the six months ended 30 June 2023




 




Notes 


Share 
capital 
£’000 

Share 
premium 
account 
£’000 

Capital 
redemption 
reserve 
£’000 


Capital 
reserve 
£’000 


Revenue 
reserve 
£’000 

Total 
shareholders’ 
funds 
£’000 

Six months ended 30 June 2023 (unaudited)

 

 

 

 

 

 

 

Total shareholders’ funds at 31 December 2022

 

10,411 

58,615 

5,414 

1,271,996 

34,559 

1,380,995 

Net return on ordinary activities after taxation for the period

 

 

 

 

122,249 

30,182 

152,431 

Dividend paid to shareholders

9 

 

 

 

 

(18,883)

(18,883)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds at 30 June 2023

 

10,411 

58,615 

5,414 

1,394,245 

45,858 

1,514,543 

 

 

========= 

========= 

========= 

========= 

========= 

========= 

Six months ended 30 June 2022 (unaudited)

 

 

 

 

 

 

 

Total shareholders’ funds at 31 December 2021

 

10,411 

58,615 

5,414 

1,372,360 

27,433 

1,474,233 

Net (loss)/return on ordinary activities after taxation for the period

 

 

 

 

(205,386)

29,090 

(176,296)

Dividend paid to shareholders

9 

 

 

 

 

(17,180)

(17,180)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds at 30 June 2022

 

10,411 

58,615 

5,414 

1,166,974 

39,343 

1,280,757 

 

 

========= 

========= 

========= 

========= 

========= 

========= 

Year ended 31 December 2022 (audited)

 

 

 

 

 

 

 

Total shareholders’ funds at 31 December 2021

 

10,411 

58,615 

5,414 

1,372,360 

27,433 

1,474,233 

Net (loss)/return on ordinary activities after taxation for the year

 

 

 

 

(93,891)

36,924 

(56,967)

Repurchase of ordinary shares

11 

 

 

 

(6,473)

 

(6,473)

Dividends paid to shareholders

9 

 

 

 

 

(29,798)

(29,798)

 

 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds at 31 December 2022

 

10,411 

58,615 

5,414 

1,271,996 

34,559 

1,380,995 

 

 

========= 

========= 

========= 

========= 

========= 

========= 

Balance Sheet as at 30 June 2023
Company Number 2638812




 




Notes 

30 June 
2023 
unaudited 
£’000 

31 December 
2022 
audited 
£’000 

30 June 
2022 
unaudited 
£’000 

Fixed assets

 

 

 

 

Investments

10 

1,459,305 

1,325,389 

1,252,159 

 

--------------- 

--------------- 

--------------- 

--------------- 

Current assets

 

 

 

 

Derivative instruments

10 

3,919 

521 

253 

Debtors

 

12,141 

8,128 

13,706 

Amounts held at futures clearing houses and brokers

 

5,869 

12,891 

3,789 

Cash and cash equivalents

 

36,362 

44,884 

15,955 

 

 

--------------- 

--------------- 

--------------- 

 

 

58,291 

66,424 

33,703 

 

 

========= 

========= 

========= 

Current liabilities

 

 

 

 

Derivative instruments

10 

(1,681)

(9,633)

(4,179)

Other creditors

 

(1,372)

(1,185)

(926)

 

 

--------------- 

--------------- 

--------------- 

 

 

(3,053)

(10,818)

(5,105)

 

 

========= 

========= 

========= 

Net current assets

 

55,238 

55,606 

28,598 

 

 

========= 

========= 

========= 

Net assets

 

1,514,543 

1,380,995 

1,280,757 

 

 

========= 

========= 

========= 

Capital and reserves

 

 

 

 

Share capital

11 

10,411 

10,411 

10,411 

Share premium account

 

58,615 

58,615 

58,615 

Capital redemption reserve

 

5,414 

5,414 

5,414 

Capital reserve

 

1,394,245 

1,271,996 

1,166,974 

Revenue reserve

 

45,858 

34,559 

39,343 

 

 

--------------- 

--------------- 

--------------- 

Total shareholders’ funds

 

1,514,543 

1,380,995 

1,280,757 

 

 

========= 

========= 

========= 

Net asset value per ordinary share

12 

370.55p 

337.87p 

311.61p 

 

 

========= 

========= 

========= 

Notes to the Financial Statements

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

2 Publication of Non-statutory Accounts
The Financial Statements in this Half-Yearly Report have not been audited by the Company’s Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 (“the Act”). The financial information for the year ended 31 December 2022 is extracted from the latest published Financial Statements of the Company. Those Financial Statements were delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Act.

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

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

4 Income





 

Six months 
ended 
30.06.23 
unaudited 
£’000 

Six months 
ended 
30.06.22 
unaudited 
£’000 

Year 
ended 
31.12.22 
audited 
£’000 

Investment income

 

 

 

Overseas dividends

28,415 

26,955 

35,333 

Overseas scrip dividends

957 

729 

1,052 

UK dividends

965 

1,075 

1,910 

 

--------------- 

--------------- 

--------------- 

 

30,337 

28,759 

38,295 

 

========= 

========= 

========= 

Derivative income

 

 

 

Income recognised from futures contracts

1,797 

1,083 

1,208 

Dividends received on long CFDs

3,339 

2,858 

3,025 

Interest received on CFDs1

61 

347 

422 

 

--------------- 

--------------- 

--------------- 

 

5,197 

4,288 

4,655 

 

========= 

========= 

========= 

Investment and derivative income

35,534 

33,047 

42,950 

 

========= 

========= 

========= 

Other interest

 

 

 

Interest received on collateral, bank deposits and money market funds

276 

3 

88 

Interest received on tax reclaims

6 

 

4 

 

--------------- 

--------------- 

--------------- 

 

282 

3 

92 

 

--------------- 

--------------- 

--------------- 

Total income

35,816 

33,050 

43,042 

 

========= 

========= 

========= 

1 Due to negative interest rates in the prior periods, the Company received interest on its long CFDs.

Special dividends of £710,000 have been recognised in capital during the period (six months ended 30 June 2022 and year ended 31 December 2022: £1,115,000).

5 INVESTMENT MANAGEMENT FEES


 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Six months ended 30 June 2023 (unaudited)

 

 

 

Investment management fees

1,303 

3,910 

5,213 

 

========= 

========= 

========= 

Six months ended 30 June 2022 (unaudited)

 

 

 

Investment management fees

1,177 

3,533 

4,710 

 

========= 

========= 

========= 

Year ended 31 December 2022 (audited)

 

 

 

Investment management fees

2,362 

7,087 

9,449 

 

========= 

========= 

========= 

 

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

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

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

6 FINANCE COSTS


 

Revenue 
£’000 

Capital 
£’000 

Total 
£’000 

Six months ended 30 June 2023 (unaudited)

 

 

 

Interest paid on collateral and bank deposits

 

 

 

Interest paid on CFDs

647 

1,942 

2,589 

Costs recognised from futures contracts

261 

782 

1,043 

 

--------------- 

--------------- 

--------------- 

 

908 

2,724 

3,632 

 

========= 

========= 

========= 

Six months ended 30 June 2022 (unaudited)

 

 

 

Interest paid on collateral and bank deposits1

16 

47 

63 

Interest paid on CFDs

15 

45 

60 

 

--------------- 

--------------- 

--------------- 

 

31 

92 

123 

 

========= 

========= 

========= 

Year ended 31 December 2022 (audited)

 

 

 

Interest paid on collateral and bank deposits1

28 

82 

110 

Interest paid on CFDs

168 

504 

672 

 

--------------- 

--------------- 

--------------- 

 

196 

586 

782 

 

========= 

========= 

========= 

1 Due to negative interest rates in the prior periods, the Company paid interest on its collateral and bank deposits.

 

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

7 TAXATION ON RETURN/(LOSS) ON ORDINARY ACTIVITIES





 

Six months 
ended 
30.06.23 
unaudited 
£’000 

Six months 
ended 
30.06.22 
unaudited 
£’000 

Year 
ended 
31.12.22 
audited 
£’000 

Overseas taxation

2,916 

2,241 

2,641 

 

========= 

========= 

========= 

 

8 RETURN/(LOSS) PER ORDINARY SHARE




 

Six months 
ended 
30.06.23 
unaudited 

Six months 
ended 
30.06.22 
unaudited 

Year 
ended 
31.12.22 
audited 

Revenue return per ordinary share

7.38p 

7.08p 

9.00p 

Capital return/(loss) per ordinary share

29.91p 

(49.97p)

(22.88p)

 

--------------- 

--------------- 

--------------- 

Total return/(loss) per ordinary share

37.29p 

(42.89p)

(13.88p)

 

========= 

========= 

========= 

 

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

 

£’000 

£’000 

£’000 

Net revenue return on ordinary activities after taxation

30,182 

29,090 

36,924 

Net capital return/(loss) on ordinary activities after taxation

122,249 

(205,386)

(93,891)

 

--------------- 

--------------- 

--------------- 

Net total return/(loss) on ordinary activities after taxation

152,431 

(176,296)

(56,967)

 

========= 

========= 

========= 

 

 

Number 

Number 

Number 

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

408,730,523 

411,016,049 

410,346,447 

 

========== 

========== 

========== 

 

9 DIVIDENDS PAID TO SHAREHOLDERS





 

Six months 
ended 
30.06.23 
unaudited 
£’000 

Six months 
ended 
30.06.22 
unaudited 
£’000 

Year 
ended 
31.12.22 
audited 
£’000 

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

18,883 

 

 

Interim dividend of 3.08 pence per ordinary share paid for the year ended 31 December 2022

 

 

12,618 

Final dividend of 4.18 pence per ordinary share paid for the year ended 31 December 2021

 

17,180 

17,180 

 

--------------- 

--------------- 

--------------- 

 

18,883 

17,180 

29,798 

 

========= 

========= 

========= 

 

The Company has declared an interim dividend for the six month period to 30 June 2023 of 3.26 pence per ordinary share (2022: 3.08 pence). The interim dividend will be paid on 27 October 2023 to shareholders on the register on 22 September 2023 (ex-dividend date 21 September 2023). The total cost of this interim dividend, which has not been included as a liability in these Financial Statements, is £13,325,000 (2022: £12,659,000). This amount is based on the number of ordinary shares held outside Treasury at the date of this report.

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

Classification

Input

Level 1

Valued using quoted prices in active markets for identical assets.

Level 2

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

Level 3

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

 

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


30 June 2023 (unaudited)

Level 1 
£’000 

Level 2 
£’000 

Level 3 
£’000 

Total 
£’000 

Financial assets at fair value through profit or loss

 

 

 

 

Investments

1,459,305 

 

 

1,459,305 

Derivative instrument assets

1,120 

2,799 

 

3,919 

 

--------------- 

--------------- 

--------------- 

--------------- 

 

1,460,425 

2,799 

 

1,463,224 

 

========= 

========= 

========= 

========= 

Financial liabilities at fair value through profit or loss

 

 

 

 

Derivative instrument liabilities

 

(1,681)

 

(1,681)

 

========= 

========= 

========= 

========= 

 


31 December 2022 (audited)

Level 1 
£’000 

Level 2 
£’000 

Level 3 
£’000 

Total 
£’000 

Financial assets at fair value through profit or loss

 

 

 

 

Investments

1,325,389 

 

 

1,325,389 

Derivative instrument assets

 

521 

 

521 

 

--------------- 

--------------- 

--------------- 

--------------- 

 

1,325,389 

521 

 

1,325,910 

 

========= 

========= 

========= 

========= 

Financial liabilities at fair value through profit or loss

 

 

 

 

Derivative instrument liabilities

(2,454)

(7,179)

 

(9,633)

 

========= 

========= 

========= 

========= 

 


30 June 2022 (unaudited)

Level 1 
£’000 

Level 2 
£’000 

Level 3 
£’000 

Total 
£’000 

Financial assets at fair value through profit or loss

 

 

 

 

Investments

1,252,159 

 

 

1,252,159 

Derivative instrument assets

 

253 

 

253 

 

--------------- 

--------------- 

--------------- 

--------------- 

 

1,252,159 

253 

 

1,252,412 

 

========= 

========= 

========= 

========= 

Financial liabilities at fair value through profit or loss

 

 

 

 

Derivative instrument liabilities

(348)

(3,831)

 

(4,179)

 

========= 

========= 

========= 

========= 

 

11 SHARE CAPITAL


 

30 June 2023
unaudited

31 December 2022
audited

30 June 2022
unaudited


 

Number of 
shares 

 
£’000 

Number of 
shares 

 
£’000 

Number of 
shares 

 
£’000 

Issued, allotted and fully paid

 

 

 

 

 

 

Ordinary shares of 2.5 pence each held outside of Treasury

 

 

 

 

 

 

Beginning of the period

408,730,523 

10,218 

411,016,049 

10,275 

411,016,049 

10,275 

Ordinary shares repurchased into Treasury

 

 

(2,285,526)

(57)

 

 

 

----------------- 

----------------- 

----------------- 

----------------- 

----------------- 

----------------- 

End of the period

408,730,523 

10,218 

408,730,523 

10,218 

411,016,049 

10,275 

 

========== 

========== 

========== 

========== 

========== 

========== 

Ordinary shares of 2.5pence each held in Treasury1

 

 

 

 

 

 

Beginning of the period

7,717,387 

193 

5,431,861 

136 

5,431,861 

136 

Ordinary shares repurchased into Treasury

 

 

2,285,526 

57 

 

 

 

----------------- 

----------------- 

----------------- 

----------------- 

----------------- 

----------------- 

End of the period

7,717,387 

193 

7,717,387 

193 

5,431,861 

136 

 

========== 

========== 

========== 

========== 

========== 

========== 

Total share capital

 

10,411 

 

10,411 

 

10,411 

 

 

========== 

 

========== 

 

========== 

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

There were no ordinary shares repurchased into Treasury during the period (year ended 31 December 2022: cost of £6,473,000 and six months ended 30 June 2022: cost of £nil).

12 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the total Shareholders’ funds divided by the number of ordinary shares held outside of Treasury.


 

30.06.23 
unaudited 

31.12.22 
audited 

30.06.22 
unaudited 

Total shareholders’ funds

£1,514,543,000 

£1,380,995,000 

£1,280,757,000 

Ordinary shares held outside of Treasury at the period end

408,730,523 

408,730,523 

411,016,049 

Net asset value per ordinary share

370.55p 

337.87p 

311.61p 

 

============ 

============ 

============ 

 

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

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

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


 

Gross gearing
Asset exposure

Net gearing
Asset exposure

 

£’000 

%1 

£’000 

%1 

30 June 2023 (unaudited)

 

 

 

 

Investments

1,459,305 

96.4 

1,459,305 

96.4 

Long CFDs

177,871 

11.7 

177,871 

11.7 

Long futures

60,659 

4.0 

60,659 

4.0 

 

--------------- 

--------------- 

--------------- 

--------------- 

Total long exposures

1,697,835 

112.1 

1,697,835 

112.1 

Short CFDs

18,101 

1.2 

(18,101)

(1.2)

 

--------------- 

--------------- 

--------------- 

--------------- 

Gross asset exposure/net market exposure

1,715,936 

113.3 

1,679,734 

110.9 

 

========= 

========= 

========= 

========= 

Shareholders’ funds

1,514,543 

 

1,514,543 

 

 

========= 

 

========= 

 

Gearing2

 

13.3 

 

10.9 

 

 

========= 

 

========= 

========= 

31 December 2022 (audited)

 

 

 

 

Investments

1,325,389 

96.0 

1,325,389 

96.0 

Long CFDs

152,446 

11.0 

152,446 

11.0 

Long futures

65,056 

4.7 

65,056 

4.7 

 

--------------- 

--------------- 

--------------- 

--------------- 

Total long exposures

1,542,891 

111.7 

1,542,891 

111.7 

Short CFDs

 

 

 

 

 

--------------- 

--------------- 

--------------- 

--------------- 

Gross asset exposure/net market exposure

1,542,891 

111.7 

1,542,891 

111.7 

 

========= 

========= 

========= 

========= 

Shareholders’ funds

1,380,995 

 

1,380,995 

 

 

========= 

 

========= 

 

Gearing2

 

11.7 

 

11.7 

 

 

========= 

 

========= 

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

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


 

Gross gearing
Asset exposure

Net gearing
Asset exposure

 

£’000 

%1 

£’000 

%1 

30 June 2022 (unaudited)

 

 

 

 

Investments

1,252,159 

97.8 

1,252,159 

97.8 

Long CFDs

135,626 

10.6 

135,626 

10.6 

Long futures

32,215 

2.5 

32,215 

2.5 

 

--------------- 

--------------- 

--------------- 

--------------- 

Total long exposures

1,420,000 

110.9 

1,420,000 

110.9 

Short CFDs

 

 

 

 

 

--------------- 

--------------- 

--------------- 

--------------- 

Gross asset exposure/net market exposure

1,420,000 

110.9 

1,420,000 

110.9 

 

========= 

========= 

========= 

========= 

Shareholders’ funds

1,280,757 

 

1,280,757 

 

 

========= 

 

========= 

 

Gearing2

 

10.9 

 

10.9 

 

 

========= 

 

========= 

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

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

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

During the period, fees for portfolio management services of £5,213,000 (six months ended 30 June 2022: £4,710,000 and year ended 31 December 2022: £9,449,000) were payable to FII. At the Balance Sheet date, fees for portfolio management of £866,000 (31 December 2022: £832,000 and 30 June 2022: £754,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the period was £160,000 (six months ended 30 June 2022: £147,000 and year ended 31 December 2022: £209,000). At the Balance Sheet date, no fees for marketing services were accrued and included in other creditors (31 December 2022 and 30 June 2022: £nil).

As at 30 June 2023, the Board consisted of five non-executive Directors (shown in the Directory in the Half-Yearly Report), all of whom are considered to be independent by the Board. None of the Directors have a service contract with the Company. The Chairman receives an annual fee of £44,500, the Audit Committee Chair an annual fee of £35,000, the Senior Independent Director an annual fee of £31,500 and each other Director an annual fee of £29,000. The following members of the Board hold ordinary shares in the Company: Vivian Bazalgette 30,000 shares, Fleur Meijs 28,970 shares, Milyae Park nil shares, Sir Ivan Rogers nil shares and Paul Yates 32,000 shares.

 

 

The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2023 and 30 June 2022 has not been audited or reviewed by the Company’s Independent Auditor.

The information for the year ended 31 December 2022 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.

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

 

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

 

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

 




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