TIDMFEV
Fidelity European Values PLC
Half-Yearly results for the six months ended 30 June 2020 (unaudited)
Financial Highlights:
* The Board of Fidelity European Values PLC (the "Company") recommends an
interim dividend of 2.60 pence per share.
* The Company recorded a net asset value ("NAV") total return of +3.0%
compared to a total return of -1.9% for the Company's Benchmark Index
* The discount to NAV widened over the period from 6.2% to 7.4%, due to a
share price total return of +1.7%.
* The EU's European Recovery Fund is a strong political and economic
statement
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
FIL Investments International
PORTFOLIO MANAGER'S HALF-YEARLY REVIEW
PERFORMANCE REVIEW
During the first six months of the year the net asset value ("NAV") total
return was +3.0% compared to a total return of -1.9% for the FTSE World Europe
(ex UK) Index which is the Company's Benchmark Index. The share price total
return was +1.7%, 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 very volatile in the first half of this year.
The first quarter was one of the worst on record while the second was one of
the best. Overall, share prices declined during the review period, although
this was cushioned by the weakness of the pound which depreciated seven percent
against the euro.
The catalyst of this volatility was, of course, the uncertainty caused by the
Coronavirus (COVID-19) pandemic which brought much of the world to a standstill
and caused markets to crash during the first quarter. Share prices recovered
rapidly during the second quarter as central banks and governments responded to
a looming economic crisis with an awesome barrage of monetary and fiscal
easing.
Lockdowns, to control the spread of COVID-19, have, inevitably, resulted in
significant downward revisions to economic growth forecasts. Encouragingly,
however, this appears to have galvanised the European Union ("EU") into action
with the announcement, among other fiscal remedies, of an euro 750bn "Recovery
Fund" to support its members' economies with a range of infrastructure and
renewable energy projects. As always, the substance of the package will be
subject to scrutiny and ultimate implementation, but the initiative has been
greeted as a step in the right direction, particularly by investors wary of a
new Eurozone crisis.
Shorter term earnings and dividends for European companies have suffered
substantial cuts too in the wake of the pandemic. Indeed, dividends have,
unusually, proven even less resilient than earnings for a range of reasons
including regulatory constraints in the financial sectors and political
pressure to restrain payments to shareholders, particularly in France. Some
companies have also not been able to pay dividends due to fundamental pressure
on liquidity as revenues ground to a halt. While the equity markets'
resilience, despite these downgrades to earnings and dividends, may suggest
that investors view these reductions as transitory, the reductions in long term
bond yields, and the liquidity being pumped into markets by central banks, will
support the valuation of equities for some time to come.
Sector returns, in general, have diverged dramatically over the review period.
Although the pandemic's impact on activity was the main determinant of
performance, other factors also played their roles. Most notably, the growing
focus on environmental, social and governance (ESG) standards influenced fund
flows and sector performance too. Sectors such as energy, that were on the
wrong side of both, performed particularly poorly. Technology, at the other
extreme, was the outstanding beneficiary as the pandemic appeared likely to
accelerate structural trends such as the shift to on-line and the
digitalisation of companies.
PORTFOLIO MANAGER'S REPORT
The Company's NAV increased slightly in the six months to 30 June 2020,
performing better than the Benchmark Index which declined slightly.
The Company's focus on companies with strong balance sheets provided notable
resilience during the first quarter as equity markets fell precipitously.
Pleasingly, the Company was able to keep pace with the Benchmark in the second
quarter partly thanks to a slight increase in gearing after the Company closed
all its short positions and went ex-dividend. Overall, relative performance was
encouraging during the review period although absolute returns were lacklustre.
The relative outperformance was helped by stock-picking. Swedish Match was,
once again, the stand-out performer reporting strong first quarter results as
the company benefited from the on-going success of Zyn, the nicotine pouch
business in the United States, and from consumers stocking up on their products
as lockdowns began. At the other end of the spectrum, many of the Company's
bank holdings performed poorly as investors worried about the outlook for bad
debts. Traffic-related companies, such as MTU and Atlantia, also performed
poorly as did Sodexo, the contract caterer, which struggled given the closure
of most offices and the cancellation of most events.
In terms of activity, two holdings were sold during the review period. Royal
Dutch Shell was disposed early in the year after the company published
disappointing fourth quarter results which made it clear that there was no
prospect of dividend growth. Iliad, the French telecoms company, was also sold,
partly in a tender offer by the majority share owner Xavier Niel.
Three new positions were acquired: Enel, an Italian utility company, which
stands to benefit from the continued growth of renewable energy, SIG Combibloc,
a Swiss packaging company and Zurich Insurance which should benefit from
improved premium pricing after a difficult year for claims in 2020.
Five Highest Contributors to NAV total return Sector Country %
Swedish Match Consumer Sweden +1.2
Staples
Deutsche Boerse Financials Germany +0.6
ASML Information Netherlands +0.5
Technology
Airbus Industrials France +0.5
Fresenius Medical Care Healthcare Germany +0.5
Five Highest Detractors to NAV total return Sector Country %
ABN AMRO Bank Financials Netherlands -0.8
Sodexo Consumer France -0.6
Discretionary
DNB Financials Norway -0.5
MTU Aero Engines Industrials Germany -0.5
3i Group Financials UK -0.5
OUTLOOK
The second half of this year is likely to be testing; not least because the
pandemic is not yet over. Herd immunity or a vaccine are distant on the horizon
so further waves and lockdowns appear inevitable. Central banks and governments
are doing their utmost to support economies, and markets, but in doing so are
potentially creating new problems for the future. Many companies that would
otherwise have gone out of business will limp along, with reduced levels of
staffing, such that many industries will continue to be oversupplied. Consumers
are likely to remain wary and companies will hesitate before investing. Any
economic recovery is likely to be fitful and anaemic. Equity markets have
already bounced back strongly in the second quarter of this year so further
progress will rely on a recovery in earnings and dividends much stronger than
your Portfolio Manager currently anticipates, given that valuations, in
aggregate, are already full. Presidential elections in the United States, not
to mention the negotiations around a new relationship between the United
Kingdom and the EU, have the potential to create moments of panic or relief in
the second half of this year.
Your Portfolio Manager will, however, as always, stay fully invested because,
as has been demonstrated time and again, equities do well over the long term
even through many crises and despite many bleak outlooks. Your Portfolio
Manager will also continue to focus on attractively-valued companies which are
able to sustain consistent dividend growth. As mentioned before, consistency in
dividend growth has become more challenging for many continental European
companies, including some of those held in the portfolio. Determining the best
course of action will be decided on a case by case basis with an eye on
valuation. Although execution of this investment strategy has become more
complicated, its merit will not diminish especially in what is likely to
continue to be an unusually volatile environment.
By order of the Board
FIL INVESTMENTS INTERNATIONAL
3 August 2020
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT
COMPANY NAME CHANGE
As reported in the Annual Report for the year ended 31 December 2019, the Board
announced its intention to change the Company's name from Fidelity European
Values PLC to Fidelity European Trust PLC. The reason for this was to align the
Company's name more closely to its objective, and to avoid confusion with value
products. It had been expected that the name change would have been effective
on 12 May 2020, the date of the Company's Annual General Meeting, and following
the requisite statutory filings. However, the impact of COVID-19, and the
resultant Government's Stay at Home Measures, have caused substantial delays in
the usual statutory filing process. It is not currently possible to deliver the
required documents in person to Companies House for action on the same day,
which would provide shareholders and the market appropriate certainty about the
date of the Company's name change. It still remains the Board's intention to
change the name of the Company to Fidelity European Trust PLC. However, until
this can be executed with Companies House at a planned future date, the Board
has decided that the Company should continue as Fidelity European Values PLC at
least until 30 September 2020. The delay in the name change was announced on
the London Stock Exchange on 6 May 2020.
Whenever the change to the Company's name is made, it will retain its existing
ticker (FEV.L), SEDOL (BK1PKQ9) and ISIN (GB00BK1PKQ95). An announcement will
be made on the London Stock Exchange ahead of the change in name taking effect.
INTRODUCTION OF CO-PORTFOLIO MANAGER
The Board has agreed with Fidelity to appoint Marcel Stotzel as a Co-Portfolio
Manager alongside Sam Morse, the Company's Portfolio Manager. Marcel and Sam
have worked closely together in recent years. Marcel is a very talented analyst
and investor, with extensive experience in European companies. Marcel will help
Sam with oversight of his different strategies and mandates and will assist in
client servicing and marketing.
The move to a Co-Portfolio Manager structure should strengthen the investment
process by introducing greater challenge and also increase the ability to meet
more companies and, effectively, be in two places at once. Marcel as
Co-Portfolio Manager, will have a permanent association with the Company, and
will share a common investment approach and complementary investment
experience.
BOARD CHANGES
Having served on the Board for ten years as a non-executive Director, Dr Robin
Niblett stepped down from the Board at the conclusion of the Annual General
Meeting on 12 May 2020. As Dr Niblett's successor, Sir Ivan Rogers was
appointed on the Board as a non-executive Director on 1 January 2020.
INTERIM DIVID
The Board's dividend policy, which was updated last year, is to pay dividends
twice yearly in order to smooth the dividend payments for the reporting year.
The Company's revenue return for the six months to 30 June 2020 was 3.99 pence
per share.
The Board has declared an interim dividend of 2.60 pence per share which is a
modest 0.4% increase on the 2.59 pence per share paid as the interim dividend
in 2019. This will be paid on 30 October 2020 to shareholders on the register
on 25 September 2020 (ex-dividend date 24 September 2020). The Board's policy
is to seek to pay a progressive dividend in normal circumstances. Owing to
COVID-19 and its economic effects, however, some companies have cut or
cancelled their dividend payments this year, and this pattern is likely to
continue while the virus remains in broad circulation. Accordingly, the Board's
present intention during this period is to pay nominal increases in total
annual dividends, utilising reserves as necessary. Should company dividend
practices be judged, once the crisis is over, to have changed on a permanent
rather than temporary basis, then the Board will reconsider its dividend paying
policy at that time.
Shareholders may choose to reinvest their dividends for additional shares in
the Company. Details of the Dividend Reinvestment Plan can be found in the
Half-Yearly Report.
DISCOUNT MANAGEMENT AND TREASURY SHARES
The Board operates an active discount management policy, the primary purpose of
which is to reduce discount volatility. Buying shares at a discount also
results in an enhancement to the NAV per share. As a consequence, the Board
seeks to maintain the discount in single digits in normal market conditions. In
order to assist in managing the discount, the Board has shareholder approval to
hold in Treasury ordinary shares repurchased by the Company, rather than
cancelling them. These shares are then available to re-issue at NAV per share
or at a premium to NAV, facilitating the management of and enhancing liquidity
in the Company's shares.
In the six months to 30 June 2020 and as at the date of this report, the
Company has not repurchased any ordinary shares into Treasury or for
cancellation.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board, with the assistance of the Alternative Investment Fund Manager (FIL
Investment Services (UK) Limited (the "Manager")), has developed a risk matrix
which, as part of the risk management and internal controls process, has
identified the key risks and uncertainties faced by the Company. These
principal risks and uncertainties fall into the following categories: market
risk; performance risk; key person risk; economic and political risk; discount
control risk; gearing risk; derivatives risk; operational risks from cybercrime
and other significant events such as the COVID-19 pandemic; 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 2019 which can be found on the Company's pages
of the Manager's website at www. fidelityinvestmenttrusts.com.
These risks and uncertainties have not materially changed during the six months
to 30 June 2020, with the exception of the impact of the risks arising from
COVID-19, and are equally applicable to the remaining six months of the
Company's financial year.
CORONAVIRUS (COVID-19)
The risks arising from COVID-19 are being kept under constant review by the
Board and the Manager. The Manager has contingency plans in place to allow for
the continuation of Fidelity's operations and to look after the safety of their
employees.
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 will 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 is keeping its business continuity plans and operational resilience
strategies under constant review and will take all reasonable steps to continue
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. For example, to enhance its resilience, the
Manager has mandated work from home arrangements and implemented split team
working for those whose work is deemed necessary to be carried out in the
office. The Manager has also imposed self-isolation arrangements on staff in
line with Government recommendations and guidance. The Company's other third
party service providers have also implemented similar measures to ensure
business disruption can be 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 (being mainly securities which are
readily realisable) and its expenditure and cash flow projections and have
concluded that the Company has adequate resources to continue in operational
existence for the foreseeable future. Thus, they continue 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
arising from COVID-19.
Continuation votes are held every two years and the next continuation vote will
be put to shareholders at the Annual General Meeting in 2021.
By order of the Board
FIL INVESTMENTS INTERNATIONAL
3 August 2020
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 Interim Management Report, together with the Portfolio Manager's
Half-Yearly Review above, includes 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 3 August 2020 and the above
responsibility statement was signed on its behalf by Vivian Bazalgette,
Chairman.
TWENTY LARGEST HOLDINGS AS AT 30 JUNE 2020
The Gross Asset Exposures shown below and on the next page measure exposure to
market price movements as a result of owning shares and derivative instruments.
The Balance Sheet Value is the actual value of the portfolio. Where a contract
for difference ("CFD") is held, the Balance Sheet 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.
Balance
Sheet
Gross Asset Exposure Value
Long Exposures - shares unless otherwise stated GBP'000
GBP'000 %1
Nestlé
Packaged Food 87,439 7.6 87,439
-------------- -------------- --------------
Roche
Pharmaceuticals 70,525 6.1 70,525
-------------- -------------- --------------
SAP
Software 52,873 4.6 52,873
-------------- -------------- --------------
ASML
Semiconductors 49,890 4.3 49,890
-------------- -------------- --------------
LVMH Moët Hennessy
Personal Goods 48,674 4.2 48,674
-------------- -------------- --------------
Sanofi (long CFD)
Pharmaceuticals 46,974 4.1 7,259
-------------- -------------- --------------
L'Oréal
Personal Goods 43,168 3.7 43,168
-------------- -------------- --------------
Novo Nordisk
Healthcare Services 39,824 3.4 39,824
-------------- -------------- --------------
Enel
Electricity 39,814 3.4 39,814
-------------- -------------- --------------
Swedish Match
Tobacco 36,655 3.2 36,655
-------------- -------------- --------------
Total
Oil & Gas 36,010 3.1 36,010
-------------- -------------- --------------
Deutsche Boerse
Financial Services 34,997 3.0 34,997
-------------- -------------- --------------
Linde (long CFD)
Chemicals 32,691 2.8 1,724
-------------- -------------- --------------
Symrise
Chemicals 31,183 2.7 31,183
-------------- -------------- --------------
EssilorLuxottica
Health Care Equipment & Services 31,119 2.7 31,119
-------------- -------------- --------------
3i Group
Financial Services 27,689 2.4 27,689
-------------- -------------- --------------
Legrand
Electronic & Electrical Equipment 27,026 2.4 27,026
-------------- -------------- --------------
Telenor
Mobile Telecommunications 26,784 2.3 26,784
-------------- -------------- --------------
Fresenius Medical Care
Healthcare Services 24,932 2.2 24,932
-------------- -------------- --------------
Partners Group
Financial Services 24,505 2.1 24,505
-------------- -------------- --------------
Twenty largest long exposures 812,772 70.3 742,090
-------------- -------------- --------------
Other long exposures 392,679 34.0 392,679
======== ======== ========
Total long exposures before long futures2,3 1,205,451 104.3 1,134,769
======== ======== ========
Long Futures
Euro Stoxx 50 Future September 20203 40,438 3.5 1,051
-------------- -------------- --------------
Gross Asset Exposure3,4 1,245,889 107.8
-------------- --------------
Portfolio Fair Value5 1,135,820
--------------
Net current assets (excluding derivative assets and 19,913
liabilities)
========
Shareholders' Funds (per the Balance Sheet below) 1,155,733
========
1 Gross Asset Exposure is expressed as a percentage of Shareholders' Funds.
2 Total long exposures before long futures comprises investments of GBP
1,125,786,000 and long CFDs of GBP79,665,000.
3 See Note 13 below.
4 Gross Asset Exposure comprises market exposure to investments of GBP
1,125,786,000 plus market exposure to all derivative instruments of GBP
120,103,000. Derivative instruments comprise long CFDs of GBP79,665,000 and long
futures of GBP40,438,000.
5 Portfolio Fair Value comprises investments of GBP1,125,786,000 plus
derivative assets of GBP10,034,000 (per the Balance Sheet below).
FINANCIAL STATEMENTS
INCOME STATEMENT FOR THE SIX MONTHSED 30 JUNE 2020
six months ended 30 June 2020 six months ended 30 June 2019 year ended 31 December 2019
unaudited unaudited audited
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments - 12,987 12,987 - 157,063 157,063 - 183,944 183,944
Gains on derivative - 5,215 5,215 - 7,806 7,806 - 17,516 17,516
instruments
Income 4 18,950 - 18,950 28,016 - 28,016 34,201 - 34,201
Investment management fees 5 (1,061) (3,182) (4,243) (1,010) (3,030) (4,040) (2,119) (6,357) (8,476)
Other expenses (428) - (428) (406) - (406) (857) - (857)
Foreign exchange (losses)/ - (129) (129) - 505 505 - 199 199
gains
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Net return on ordinary 17,461 14,891 32,352 26,600 162,344 188,944 31,225 195,302 226,527
activities before finance
costs and taxation
Finance costs 6 (57) (173) (230) (140) (419) (559) (254) (760) (1,014)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Net return on ordinary 17,404 14,718 32,122 26,460 161,925 188,385 30,971 194,542 225,513
activities before taxation
Taxation on return on 7 (986) - (986) (1,587) - (1,587) (2,155) - (2,155)
ordinary activities
======== ======== ======== ======== ======== ======== ======== ======== ========
Net return on ordinary 16,418 14,718 31,136 24,873 161,925 186,798 28,816 194,542 223,358
activities after taxation
for the period
======== ======== ======== ======== ======== ======== ======== ======== ========
Return per ordinary share 8 3.99p 3.58p 7.57p 6.04p 39.32p 45.36p 7.00p 47.26p 54.26p
======== ======== ======== ======== ======== ======== ======== ======== ========
The Company does not have any other comprehensive income. Accordingly the net
return on ordinary activities after taxation for the period is also the total
comprehensive income for the period and no separate Statement of Comprehensive
Income has been presented.
The total column of this statement represents the Income Statement of the
Company. The revenue and capital columns are supplementary and presented for
information purposes as recommended by the Statement of Recommended Practice
issued by the AIC.
No operations were acquired or discontinued in the period and all items in the
above statement derive from continuing operations.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHSED 30 JUNE 2020
Share Capital Total
share premium redemption capital revenue shareholders'
capital account reserve reserve reserve funds
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 30 June
2020 (unaudited)
Total shareholders' funds 10,411 58,615 5,414 1,037,007 29,115 1,140,562
at 31 December 2019
Net return on ordinary - - - 14,718 16,418 31,136
activities after taxation
for the period
Dividend paid to 9 - - - - (15,965) (15,965)
shareholders
-------------- -------------- -------------- -------------- -------------- --------------
Total shareholders' funds 10,411 58,615 5,414 1,051,725 29,568 1,155,733
at 30 June 2020
-------------- -------------- -------------- -------------- -------------- --------------
Six months ended 30 June
2019 (unaudited)
Total shareholders' funds 10,411 58,615 5,414 844,043 36,828 955,311
at 31 December 2018
Net return on ordinary - - - 161,925 24,873 186,798
activities after taxation
for the period
Repurchase of ordinary 11 - - - (1,591) - (1,591)
shares
Dividend paid to 9 - - - - (25,872) (25,872)
shareholders
-------------- -------------- -------------- -------------- -------------- --------------
Total shareholders' funds 10,411 58,615 5,414 1,004,377 35,829 1,114,646
at 30 June 2019
-------------- -------------- -------------- -------------- -------------- --------------
Year ended 31 December
2019 (audited)
Total shareholders' funds 10,411 58,615 5,414 844,043 36,828 955,311
at 31 December 2018
Net return on ordinary - - - 194,542 28,816 223,358
activities after taxation
for the year
Repurchase of ordinary 11 - - - (1,578) - (1,578)
shares
Dividends paid to 9 - - - - (36,529) (36,529)
shareholders
-------------- -------------- -------------- -------------- -------------- --------------
Total shareholders' funds 10,411 58,615 5,414 1,037,007 29,115 1,140,562
at 31 December 2019
======== ======== ======== ======== ======== ========
BALANCE SHEET AS AT 30 JUNE 2020
Company Number 2638812
30 June 31 December 30 June
2020 2019 2019
unaudited audited unaudited
Notes GBP'000 GBP'000 GBP'000
Fixed assets
Investments 10 1,125,786 1,108,702 1,084,330
-------------- -------------- --------------
Current assets
Derivative instruments 10 10,034 16,576 8,856
Debtors 11,490 5,134 9,535
Amounts held at futures clearing houses and brokers 6,113 2,029 640
Fidelity Institutional Liquidity Fund 106 46 38
Cash at bank 6,576 9,444 15,252
-------------- -------------- --------------
34,319 33,229 34,321
-------------- -------------- --------------
Creditors
Derivative instruments 10 - (457) (648)
Other creditors (4,372) (912) (3,357)
-------------- -------------- --------------
(4,372) (1,369) (4,005)
-------------- -------------- --------------
Net current assets 29,947 31,860 30,316
-------------- -------------- --------------
Net assets 1,155,733 1,140,562 1,114,646
======== ======== ========
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 1,051,725 1,037,007 1,004,377
Revenue reserve 29,568 29,115 35,829
-------------- -------------- --------------
Total shareholders' funds 1,155,733 1,140,562 1,114,646
======== ======== ========
Net asset value per ordinary share 12 280.88p 277.19p 270.90p
======== ======== ========
NOTES TO THE FINANCIAL STATEMENTS
1 PRINCIPAL ACTIVITY
Fidelity European Values 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 2019 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 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 October
2019. 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 2019.
4 INCOME
six months six months
ended ended year ended
30.06.20 30.06.19 31.12.19
unaudited unaudited audited
GBP'000 GBP'000 GBP'000
Investment income
Overseas dividends 15,705 24,621 29,019
Overseas scrip dividends 219 347 795
UK dividends 673 1,145 2,058
-------------- -------------- --------------
16,597 26,113 31,872
-------------- -------------- --------------
Derivative income
Income recognised from futures contracts 675 428 567
Dividends received on long CFDs 1,615 1,431 1,658
Interest received on long CFDs1 36 20 45
-------------- -------------- --------------
2,326 1,879 2,270
-------------- -------------- --------------
Investment and derivative income 18,923 27,992 34,142
======== ======== ========
Other interest
Interest received on deposits and money market funds 27 24 48
Interest received on tax reclaims - - 11
-------------- -------------- --------------
27 24 59
-------------- -------------- --------------
Total income 18,950 28,016 34,201
======== ======== ========
1 Due to negative interest rates during the reporting period, the Company
received interest on its long CFDs.
No special dividends have been recognised in capital during the period (six
months ended 30 June 2019: GBPnil and year ended 31 December 2019: GBPnil).
5 INVESTMENT MANAGEMENT FEES
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Six months ended 30 June 2020 (unaudited)
Investment management fees 1,061 3,182 4,243
-------------- -------------- --------------
Six months ended 30 June 2019 (unaudited)
Investment management fees 1,010 3,030 4,040
-------------- -------------- --------------
Year ended 31 December 2019 (audited)
Investment management fees 2,119 6,357 8,476
======== ======== ========
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 GBP400 million and 0.75% of net assets in excess of GBP400 million. Fees are
payable monthly in arrears and are calculated on a daily basis.
6 FINANCE COSTS
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Six months ended 30 June 2020 (unaudited)
Interest paid on deposits1 18 54 72
Interest paid on short CFDs1 7 21 28
Dividends paid on short CFDs 32 98 130
-------------- -------------- --------------
57 173 230
======== ======== ========
Six months ended 30 June 2019 (unaudited)
Interest paid on deposits1 6 18 24
Interest paid on short CFDs1 20 59 79
Dividends paid on short CFDs 114 342 456
-------------- -------------- --------------
140 419 559
======== ======== ========
Year ended 31 December 2019 (audited)
Interest paid on deposits1 30 89 119
Interest paid on short CFDs1 27 81 108
Dividends paid on short CFDs 197 590 787
-------------- -------------- --------------
254 760 1,014
======== ======== ========
1 Due to negative interest rates during the reporting period, the Company
paid interest on its short CFDs and deposits.
7 TAXATION ON RETURN ON ORDINARY ACTIVITIES
six six
months months year
ended ended ended
30.06.20 30.06.19 31.12.19
unaudited unaudited audited
GBP'000 GBP'000 GBP'000
Overseas taxation 986 1,587 2,155
======== ======== ========
8 RETURN PER ORDINARY SHARE
six months six months
ended ended year ended
30.06.20 30.06.19 31.12.19
unaudited unaudited audited
Revenue return per ordinary share 3.99p 6.04p 7.00p
Capital return per ordinary share 3.58p 39.32p 47.26p
-------------- -------------- --------------
Total return per ordinary share 7.57p 45.36p 54.26p
======== ======== ========
The return per ordinary share is based on the net return on ordinary activities
after taxation for the period divided by the weighted average number of
ordinary shares held outside of Treasury during the period, as shown below:
GBP'000 GBP'000 GBP'000
Net revenue return on ordinary activities after taxation for 16,418 24,873 28,816
the period
Net capital return on ordinary activities after taxation for 14,718 161,925 194,542
the period
-------------- -------------- --------------
Net total return on ordinary activities after taxation for 31,136 186,798 223,358
the period
======== ======== ========
number number number
Weighted average number of ordinary shares held outside of 411,466,049 411,828,509 411,645,789
Treasury during the period
========== ========== ==========
9 DIVIDS PAID TO SHAREHOLDERS
six months six months
ended ended year ended
30.06.20 30.06.19 31.12.19
unaudited unaudited audited
GBP'000 GBP'000 GBP'000
Final dividend of 3.88 pence per ordinary share for the year 15,965 - -
ended 31 December 2019
Interim dividend of 2.59 pence per ordinary share for the - - 10,657
year ended 31 December 2019
Final dividend of 6.28 pence per ordinary share for the year - 25,872 25,872
ended 31 December 2018
-------------- -------------- --------------
15,965 25,872 36,529
======== ======== ========
The Company has declared an interim dividend for the six month period to 30
June 2020 of 2.60 pence per ordinary share (2019: 2.59 pence). The interim
dividend will be paid on 30 October 2020 to shareholders on the register on 25
September 2020 (ex-dividend date 24 September 2020). The total cost of this
interim dividend, which has not been included as a liability in these Financial
Statements, is GBP10,698,000 (2019: GBP10,657,000). This amount is based on the
number of ordinary shares held outside of 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 within
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:
level 1 level 2 level 3 total
30 June 2020 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit or
loss
Investments 1,125,786 - - 1,125,786
Derivative instrument assets 1,051 8,983 - 10,034
-------------- -------------- -------------- --------------
1,126,837 8,983 - 1,135,820
-------------- -------------- -------------- --------------
Financial liabilities at fair value through profit
or loss
Derivative instrument liabilities - - - -
======== ======== ======== ========
level 1 level 2 level 3 total
31 December 2019 (audited) GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit or
loss
Investments 1,108,702 - - 1,108,702
Derivative instrument assets - 16,576 - 16,576
-------------- -------------- -------------- --------------
1,108,702 16,576 - 1,125,278
-------------- -------------- -------------- --------------
Financial liabilities at fair value through profit
or loss
Derivative instrument liabilities (137) (320) - (457)
======== ======== ======== ========
level 1 level 2 level 3 total
30 June 2019 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit or
loss
Investments 1,084,330 - - 1,084,330
Derivative instrument assets 242 8,614 - 8,856
-------------- -------------- -------------- --------------
1,084,572 8,614 - 1,093,186
-------------- -------------- -------------- --------------
Financial liabilities at fair value through profit
or loss
Derivative instrument liabilities - (648) - (648)
======== ======== ======== ========
11 SHARE CAPITAL
30 June 2020 31 December 2019 30 June 2019
unaudited audited unaudited
number of number of number of
shares GBP'000 shares GBP'000 shares GBP'000
Issued, allotted and fully paid
Ordinary shares of 2.5 pence each
held outside of Treasury
Beginning of the period 411,466,049 10,286 412,172,826 10,304 412,172,826 10,304
Ordinary shares repurchased into - - (706,777) (18) (706,777) (18)
Treasury
----------------- -------------- ----------------- -------------- -------------- --------------
End of the period 411,466,049 10,286 411,466,049 10,286 411,466,049 10,286
----------------- -------------- ----------------- -------------- -------------- --------------
Ordinary shares of 2.5 pence each
held in Treasury1
Beginning of the period 4,981,861 125 4,275,084 107 4,275,084 107
Ordinary shares repurchased into - - 706,777 18 706,777 18
Treasury
----------------- -------------- ----------------- -------------- -------------- --------------
End of the period 4,981,861 125 4,981,861 125 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 2019: cost of GBP1,578,000 (net of stamp duty) and six months
ended 30 June 2019: cost of GBP1,591,000).
12 NET ASSET VALUE PER ORDINARY SHARE
The net asset value per ordinary share is based on net assets of GBP1,155,733,000
(31 December 2019: GBP1,140,562,000 and 30 June 2019: GBP1,114,646,000) and on
411,466,049 (31 December 2019: 411,466,049 and 30 June 2019: 411,466,049)
ordinary shares, being the number of ordinary shares of 2.5 pence each held
outside of Treasury at the period end. 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 on the Balance Sheet above, and any gearing, which is achieved
through 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 gearing at the end of the period is shown below:
gross asset exposure net asset exposure
GBP'000 %1 GBP'000 %1
30 June 2020 (unaudited)
Investments 1,125,786 97.4 1,125,786 97.4
Long CFDs 79,665 6.9 79,665 6.9
Long futures 40,438 3.5 40,438 3.5
-------------- -------------- -------------- --------------
Total long exposures 1,245,889 107.8 1,245,889 107.8
Short CFDs - - - -
-------------- -------------- -------------- --------------
Gross/net asset exposure 1,245,889 107.8 1,245,889 107.8
-------------- -------------- -------------- --------------
Shareholders' funds 1,155,733 1,155,733
-------------- -------------- -------------- --------------
Gearing2 7.8 7.8
======== ========
31 December 2019 (audited)
Investments 1,108,702 97.2 1,108,702 97.2
Long CFDs 72,774 6.4 72,774 6.4
Long futures 26,151 2.3 26,151 2.3
-------------- -------------- -------------- --------------
Total long exposures 1,207,627 105.9 1,207,627 105.9
Short CFDs 13,973 1.2 (13,973) (1.2)
-------------- -------------- -------------- --------------
Gross/net asset exposure 1,221,600 107.1 1,193,654 104.7
-------------- -------------- -------------- --------------
Shareholders' funds 1,140,562 1,140,562
-------------- --------------
Gearing2 7.1 4.7
======== ========
1 Exposure to the market expressed as a percentage of shareholders' funds.
2 Gearing is the amount by which the gross/net asset exposure exceeds
shareholders' funds expressed as a percentage of shareholders' funds.
gross asset exposure net asset exposure
GBP'000 %1 GBP'000 %1
30 June 2019 (unaudited)
Investments 1,084,330 97.3 1,084,330 97.3
Long CFDs 66,941 6.0 66,941 6.0
Long futures 9,082 0.8 9,082 0.8
-------------- -------------- -------------- --------------
Total long exposures 1,160,353 104.1 1,160,353 104.1
Short CFDs 15,453 1.4 (15,453) (1.4)
-------------- -------------- -------------- --------------
Gross/net asset exposure 1,175,806 105.5 1,144,900 102.7
-------------- -------------- -------------- --------------
Shareholders' funds 1,114,646 1,114,646
-------------- -------------- -------------- --------------
Gearing2 5.5 2.7
======== ========
1 Exposure to the market expressed as a percentage of shareholders' funds.
2 Gearing is the amount by which the gross/net asset 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 GBP4,243,000 (six
months ended 30 June 2019: GBP4,040,000 and year ended 31 December 2019: GBP
8,476,000) were payable to FII. At the Balance Sheet date, fees for portfolio
management services of GBP733,000 (31 December 2019: GBP752,000 and 30 June 2019: GBP
705,000) 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 GBP80,000 (six months ended 30 June 2019: GBP80,000 and year
ended 31 December 2019: GBP189,000). At the Balance Sheet date, GBP16,000 (31
December 2019: GBP7,000 and 30 June 2019: GBP2,000) for marketing services was
accrued and included in other creditors.
As at 30 June 2020, 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 GBP41,500, the Audit
Committee Chair an annual fee of GBP32,500, the Senior Independent Director an
annual fee of GBP29,500 and each other Director an annual fee of GBP27,000. The
following members of the Board hold ordinary shares in the Company: Vivian
Bazalgette 30,000 shares, Fleur Meijs 28,970 shares, Sir Ivan Rogers nil
shares, Marion Sears 25,475 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
2020 and 30 June 2019 has not been audited or reviewed by the Company's
Independent Auditor.
The information for the year ended 31 December 2019 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.fidelityinvestmenttrusts.com where up to date information on the Company,
including daily NAV and share prices, factsheets and other information can also
be found.
END
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