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Annual Report
& Accounts
for the Period from Incorporation on
31 October 2013 to 31 December 2014
Fundsmith Emerging Equities Trust plc
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A member of the Association of Investment Companies
Fundsmith Emerging Equities Trust plc
33 Cavendish Square, London W1G 0PW
www.feetplc.co.uk
Perivan Financial Print 234739
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Contents
● Page 3
Financial Highlights
● Page 4-5
Chairman’s Statement
Strategy and Outlook
● Pages 11-12
Investment Portfolio
● Pages 13-15
Investment Manager’s
Review
About Fundsmith Emerging Equities
Trust plc
2
3
Company Summary
Financial Highlights
Chairman’s Statement
Strategic Report
4-5
6-10 Overview of Strategy
11-12 Investment Portfolio
13-15 Investment Manager’s Review
16-18 Investment Philosophy
Governance
19-20 Board of Directors
21-23 Report of the Directors
Statement of Directors’
24
Responsibilities
25-32 Corporate Governance
33-34 Audit Committee Report
35-36 Directors’ Remuneration Report
Directors’ Remuneration
37
Policy Report
Financial Statements
38-40 Independent Auditor’s Report
41
42
43
44
45-56 Notes to the Accounts
Income Statement
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Further Information
57
58
Shareholder Information
Alternative Investment Fund
Managers Directive Disclosure
59-60 Glossary of Terms
61-62 How to Invest
63-67 Notice of Annual General Meeting
68-69 Explanatory Notes
to the Resolutions
Company Information
70
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Company Summary
Company Summary
Fundsmith Emerging Equities Trust plc aims to provide shareholders with an
attractive return by investing in a portfolio of shares issued by listed or traded
companies which have the majority of their operations in, or revenue derived
from, developing economies* and which provide direct exposure to the rise of
the consumer classes in those countries.
Company Summary
The Company
The Company is an investment trust and its shares are
listed on the Official List and traded on the main market of
the London Stock Exchange. The Company is a member of
the Association of Investment Companies.
Total assets less current liabilities as at 31 December 2014
were £192.8 million and the market capitalisation was
£207.3 million.
Management
The Company employs Fundsmith LLP (‘Fundsmith’) as
Investment Manager and Alternative Investment Fund
Manager (‘AIFM’). Further details of the terms of these
appointments are provided on page 21.
Performance is measured against the MSCI Emerging and
Frontier Markets Index measured on a net sterling adjusted
basis.
Capital Structure
The Company’s capital structure is composed of Ordinary
Shares. Further details are given in note 11 to the accounts
on page 52.
ISA Status
The Company’s shares are eligible for Individual Savings
Accounts (‘ISAs’) and for Junior ISAs.
Retail Investors advised by IFAs
The Company currently conducts its affairs so that its
shares can be recommended by Independent Financial
Advisers (‘IFAs’) in the UK to ordinar y retail investors in
accordance with the Financial Conduct Authority (‘FCA’) rules
in relation to non-mainstream investment products and
intends to continue to do so. The shares are excluded from
the FCA’s restrictions which apply to non-mainstream
investment products because they are shares in an
investment trust.
*See Fundsmith’s Investment Philosophy on page 16 for further information.
Further details of the Company’s investment policy are set out in the Strategic Report on page 6.
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Financial Highlights
Financial Highlights
Net asset value per share
997.00p
Ordinary share price
1,072.00p
-0.3%
+7.2%
Benchmark over the period 25 June 2014 to 31 December 2014
MSCI Emerging
and Frontier
Markets Index
(measured on a net sterling
adjusted basis)
+0.5%
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Chairman’s Statement
Strategic Report
Introduction
Here is our first Annual Report since the launch of the Company and the listing of its shares
on the London Stock Exchange on 25 June 2014. It covers the period from incorporation on
31 October 2013 to 31 December 2014.
The Company’s share
price rose by 7.2%
in the period
Performance
In their report (beginning on page 13), our Investment
Manager describes how they have invested part of the funds
raised and also the development of the portfolio to-date. The
stock markets of territories in which we invest have
performed poorly from when the Investment Manager began
investing (25 June 2014) to 31 December 2014. The
Company’s net asset value per share fell slightly (by 0.3%)
in this period, after Investment Manager fees and other
expenses. This compares to a rise of 0.5% in the MSCI
Emerging and Frontier Markets Index measured on a net
sterling adjusted basis, the Company’s benchmark. The
Company’s per formance relative to the benchmark was
affected by the rate of investment and consequent higher
level of cash maintained over the period.
The Company’s share price performed much better, rising
by 7.2%, to 1,072.0 pence per share. The premium to the
Company’s net asset value per share ended the period at
7.5%. The Board continues to keep this under review.
Since the end of the period under review, net asset value
per share per formance has been below the benchmark,
reflecting the fact that we are not yet fully invested. In
addition, the Company’s share price has also fallen slightly;
the shares are currently trading on a 3.4% premium to the
Company’s net asset value per share.
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Share Capital
Your Company raised £192.9 million at its launch and there
are now a total of 19,337,921 ordinary shares in issue. It
is the Board’s view that the ability to issue new shares at a
premium to net asset value plays an important part in
ensuring that the level of premium does not reach excessive
levels as growing the total funds under management will
reduce on-going costs per share; it will also increase the
liquidity of the Company’s shares. However, your Board
believes that it would not be appropriate to issue further
shares until the funds raised at launch have been invested.
We are, however, seeking shareholder authority to issue
further new shares (up to an additional 10% of the
Company’s issued share capital) at the Annual General
Meeting.
Dividends
The Board does not anticipate recommending any dividends
in the near future. Its investment objective is for the shares
mainly to provide capital growth. The Company will comply
with the United Kingdom’s investment trust rules regarding
distributable income but does not expect significant income
from the shares in which it invests. Any dividends and
distributions will be at the discretion of the Board from time
to time.
Outlook
Our Investment Manager remains cautious with regard to the
short-term economic prospects of emerging market
countries where investment is targeted. Whilst there has
been much negative stock market sentiment surrounding
emerging markets export growth, there continues to be
significant underlying domestic demand-led growth. Stock
selection continues to be key and your Board believes that
our Investment Manager’s strategy of focusing on well-
managed companies that own long lived, cash generative
consumer brands will provide attractive returns for our
shareholders.
Annual General Meeting (“AGM”)
The Company’s AGM, which will be held on Tuesday, 26 May
2015 at 1.00pm at Barber-Surgeons’ Hall, Monkwell
Square, Wood Street, London EC2Y 5BL, provides
shareholders with an opportunity to meet the Board and to
hear a presentation from our Investment Manager. I look
forward to meeting as many shareholders as possible at the
AGM.
Martin Bralsford
Chairman
19 March 2015
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Overview of Strategy
Strategic Report
Investment objective
Aim
To provide shareholders with an attractive return by investing
in a portfolio of shares issued by listed or traded companies
which have the majority of their operations in, or revenue
derived from, developing economies* and which provide
direct exposure to the rise of the consumer classes in those
countries.
*See Fundsmith’s Investment Philosophy on page 16 for further
information
Investment Approach and Policy
The Company will maintain a portfolio diversified by issuer
concentration and it is anticipated that the Company’s initial
portfolio will comprise 35 to 55 investments once the net
proceeds, raised at the Company’s launch, are substantially
invested.
The Company will comply with the following restrictions at
the time each investment is made:
(i) not more than 5% of the Company’s gross assets can
be invested in shares issued by any single company.
This limit rises to 10% in respect of up to 40% of gross
assets;
(ii) not more than 40% of the Company’s gross assets can
be invested in shares issued by companies domiciled
in any single jurisdiction;
(iii) not more than 20% of the Company’s gross assets can
be in deposits held with a single bank or financial
institution. In applying this limit all uninvested cash
(except cash representing distributable income or
credited to a distribution account that the Depositary
holds) should be included;
(iv) not more than 20% of the Company’s gross assets can
consist of shares and approved money market
instruments issued by the same group. When applying
the limits set out in (i) this provision would allow the
Company to invest not more than five per cent. in the
shares of each of four group member companies, or
10% in two of them (if applying the 40% limit);
(v) the Company’s holdings in any combination of shares
or deposits issued by a single company or fund must
not exceed 20% of the Company’s gross assets overall;
(vi) the Company must not acquire shares issued by a
company and carr ying rights to vote at a general
meeting of that company if the Company has the power
to influence significantly the conduct of business of that
company (or would be able to do so after the acquisition
of the shares). The Company is to be taken to have
power to influence significantly if it exercises or controls
the exercise of 20% or more of the voting rights in that
company; and
(vii) the Company must not acquire shares which do not
carry a right to vote on any matter at a general meeting
of the company that issued them and represent more
than 10% of these securities issued by that company.
Uninvested cash or surplus capital or assets may be
invested on a temporary basis in:
● cash or cash equivalents, money market instruments,
bonds, commercial paper or other debt obligations with
banks or other counterparties having a single-A (or
equivalent) or higher credit rating as determined by an
internationally recognised rating agency; or
● any “government and public securities” as defined for
the purposes of the FCA rules.
In general, the Company will not use portfolio management
techniques such as interest rate hedging and credit default
swaps. However, the Company may use currency hedging,
through derivatives if necessary, as a portfolio management
technique. Whilst the Company, generally, will not hedge its
currency exposure, it does reserve the right to do so in the
circumstances where, in the opinion of the Investment
Manager, a significant depreciation of a currency has
become likely but the Investment Manager wishes to
continue owning the companies in the portfolio denominated
in that currency and where the cost of hedging that currency
is unlikely, in the opinion of the Investment Manager, to
extinguish any gains from hedging.
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Investment Strategy and
Business Model
Key Performance Indicators
The Company’s Board of Directors meets regularly and at
each meeting reviews performance against a number of key
measures, as follows:
● Net asset value return against the MSCI Emerging and
Frontier Markets Index measured on a net sterling
adjusted basis;
● Share price return;
● Discount/premium of share price to net asset value per
share; and
● Ongoing charges ratio.
Net asset value return against the
benchmark
The Directors regard the Company’s net asset value return
as being the overall measure of value delivered to
shareholders over the long term. Fundsmith’s investment
style is such that performance is likely to deviate from that
of the benchmark index. The Board considers the most
important comparator to be the MSCI Emerging and Frontier
Markets Index measured on a net sterling adjusted basis.
During the period under review the Company’s net asset
value per share return was -0.3%, underper forming the
benchmark by 0.8%.
A full description of per formance during the year under
review and the investment portfolio is contained in the
Investment Manager’s Review commencing on page 13 of
this annual report.
Share price return
The Directors also regard the Company’s share price return
to be a key indicator of per formance. This is monitored
closely by the Board.
During the period under review the Company’s share price
return was +7.2%, outperforming the benchmark by 6.7%.
Premium/discount of share price to net
asset value per share
The Board undertakes a regular review of the level of
premium/discount and consideration is given to ways in
which share price performance may be enhanced, including
the effectiveness of marketing and share issuance and buy-
backs, where appropriate. The making and timing of any
share issuance and buy-backs is at the absolute discretion
of the Board.
It is the Board’s view that the ability to issue new shares at
a premium to net asset value plays an important part in
ensuring that the level of premium does not reach excessive
levels. However, your Board believes that it is not
appropriate to issue further shares until the funds raised at
launch have been invested.
Ongoing charges ratio
The Board continues to be conscious of expenses and works
hard to maintain a sensible balance between good quality
service and costs. As at 31 December 2014 the ongoing
charges ratio was 1.7%.
Ongoing charges ratio
1.7%
Premium of the Company’s share price to net asset
value per share on 31 December 2014
7.5%
Number of Ordinary Shares in issue
19,337,921
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Overview of Strategy
Strategic Report
Risk Management
The Board is responsible for the management of the
principal risks faced by the Company and the Board regularly
reviews these risks and how each risk is mitigated. The
Board has categorised the risks faced by the Company under
five headings as follows:
● Investment activity and strategy
● Financial
● Shareholder relations and corporate governance
● Operational
● Accounting, legal and regulatory
A summary of these risks and their mitigation is described
below:
Principal Risks and Uncertainties
Mitigation
Investment Activity and
Strategy
An unsuccessful investment strategy,
including asset allocation, may lead to
underperformance against the Company’s
benchmark index and peer companies, and
may result in a widening of the Company’s
share price discount to net asset value per
share.
The Board regularly reviews the Company’s investment mandate and
its long-term investment strategy in relation to market and economic
conditions, and the operation of the Company’s peers, thereby
monitoring whether the Company should continue in its present form.
Fundsmith provides an explanation of stock selection decisions and an
overall rationale for the make-up of the portfolio. Fundsmith discusses
current and potential investment holdings with the Board on a regular
basis in addition to new initiatives, which may enhance shareholder
returns. The Board sets appropriate investment restrictions and
guidelines. Additional reports and presentations are made regularly to
investors by Fundsmith and also by Investec Bank plc, the Company’s
Corporate Stockbroker.
In consultation with its advisers the Board also undertakes a regular
review of the level of premium/discount and consideration is given to
ways in which share price performance may be enhanced, including
the effectiveness of marketing, share issuance and share buy-backs,
where appropriate.
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Strategic Report
Principal Risks and Uncertainties
Mitigation
Financial
The
Company
counter-party risk),
exchange risk and credit risk.
financial risks associated with the
(including
foreign
include market
liquidity risk,
risk
The Company’s assets comprise mainly of readily realisable liquid
securities, which can be sold to meet funding requirements, if necessary.
Further information on financial instruments and risk can be found in
note 14 to the financial statements beginning on page 53.
The Company is also exposed to the risk that the custodian and/or
counterparties may fail and that title to stocks does not sur vive an
ensuing liquidation. The Company’s Investment Manager is responsible
for undertaking reviews of the credit worthiness of the counterparties
that it uses. The Board regularly reviews the Investment Manager’s
approved list of counterparties.
As the Company’s shares are denominated and traded in sterling, the
return to shareholders will be affected by changes in the value of sterling
relative to those foreign currencies. Whilst the Company, generally, will
not hedge its currency exposure, it does reserve the right to do so in
the circumstance where, in the opinion of the Investment Manager, a
significant depreciation of a currency has become likely but the
Investment Manager wishes to continue owning the companies in the
portfolio denominated in that currency and where the cost of hedging
that currency is unlikely in the opinion of the Investment Manager, to
extinguish any gains from hedging.
Shareholder Relations and
Corporate Governance
Shareholder unrest could arise if there is poor
adherence to best practice in corporate
governance and which could
in
reputational damage to the Company.
result
The Board receives regular reports on shareholder activity and is kept
informed of shareholder sentiment. Regular contact is maintained with
major shareholders. Details of the Company’s compliance with corporate
governance best practice, including information on relations with
shareholders, are set out in the Corporate Governance Statement
beginning on page 25.
Operational
Disruption to, or failure of, accounting, dealing
the
or payments systems
Company’s ser vice providers,
including
custodian and appointed sub-custodians and
the depositar y
could prevent accurate
reporting and monitoring of the Company’s
financial position.
in place at
The Board reviews both the internal controls and the disaster recovery
procedures put in place by its principal service providers on a regular
basis.
Accounting, Legal and Regulatory
Failure to comply with appropriate law and
regulations could expose the Company to
serious
reputational
damage.
loss and
financial
The Board relies on the ser vices of its external advisers to ensure
compliance with applicable law and regulations including the Companies
Act, the Corporation Tax Act and the UKLA Listing Rules. The Board is
aware of changes to the regulatory environment in the year ahead.
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Overview of Strategy
Strategic Report
Director, Social, Economic
and Environmental Matters
and Looking to the Future
Directors
The Directors of the Company, who served during the period,
are shown below. Further information on the Directors can
be found on page 19.
Martin Bralsford (Chairman) (appointed 23 May 2014)
David Potter (appointed 23 May 2014)
John Spencer (appointed 23 May 2014)
Simon Godwin (appointed 31 October 2013,
27 May 2014)
Mark Laurence (appointed 31 October 2013, resigned
27 May 2014)
resigned
All Directors seek election or re-election by shareholders at
each Annual General Meeting.
Board Diversity
The Company is supportive of the recommendations of Lord
Davies’ Report that the per formance of corporate boards
can be improved by encouraging the appointment of the best
people from a range of differing perspectives and
backgrounds. The Company recognises the benefits of
diversity on the Board, including gender, and takes this into
account in its Board appointments. The Company is
committed to ensuring that any Director search process
actively seeks persons with the right qualifications so that
appointments can be made on the basis of merit against
objective criteria from a diverse selection of candidates. To
this end the Board will consider diversity during any Director
search process.
Social, Economic and Environmental
Matters
The Directors, through the Company’s Investment Manager,
do their best to encourage companies in which investments
are made to adhere to best practice with regard to Corporate
Governance. In light of the nature of the Company’s
business there are no relevant human rights issues and the
Company does not have a human rights policy.
The Company recognises that social and environmental
issues can have an effect on some of its investee
companies.
The Company is an investment trust and so its own direct
environmental impact is minimal. The Board of Directors
consists of three Directors, one of whom is resident in the
UK, one is resident in the US and one in the Channel
Islands. The Board holds all of its regular meetings in the
UK each year.
The Company does not have any employees. Therefore there
is no employee information to disclose.
Looking to the Future
The Board concentrates its attention on the Company’s
investment per formance, and the Investment Manager’s
investment approach, and on factors that may have an
effect on this approach. The Board is regularly updated on
wider investment trust industry issues and discussions are
held at each Board meeting concerning the Company’s
future development and strategy.
The Company’s overall strategy remains unchanged.
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Investment Portfolio
Investments held as at 31 December 2014
Security Country of incorporation Fair value £’000
% of investments
Eastern Tobacco Egypt 4,632
East African Breweries Ltd Kenya 4,535
Nigerian Breweries PLC Nigeria 4,480
Godrej Consumer Products Ltd India 4,399
Shoprite Holdings Ltd South Africa 4,279
Universal Robina Corp Philippines 4,024
Big C Supercenter PCL Thailand 3,986
Sun Art Retail Group Ltd Hong Kong 3,982
Want Want China Holdings Ltd Cayman Islands 3,708
Kroton Educacional SA Brazil 3,379
4.4%
4.3%
4.2%
4.2%
4.0%
3.8%
3.8%
3.8%
3.5%
3.2%
Top 10 Investments 41,404
39.2%
Bim Birlesik Magazalar AS Turkey 3,377
Grupo Nutresa SA Colombia 3,242
Sa Sa International Holdings Ltd Cayman Islands 2,973
Ambev SA Brazil 2,924
Magnit PJSC Russian Federation 2,811
Colgate-Palmolive India Ltd India 2,690
Hengan International Group Co Ltd Cayman Islands 2,621
Marico Ltd India 2,607
Hypermarcas SA Brazil 2,490
Indofood CBP Sukses Makmur Tbk PT Indonesia 2,468
3.2%
3.1%
2.8%
2.8%
2.7%
2.5%
2.5%
2.5%
2.3%
2.3%
Top 20 Investments 69,607
65.9%
Jollibee Foods Corp Philippines 2,451
ITC Ltd India 2,433
Wynn Macau Ltd Cayman Islands 2,412
Forus SA Chile 2,322
Souza Cruz SA Brazil 2,118
Vitasoy International Holdings Ltd Hong Kong 2,051
Emami Ltd India 1,798
Mr Price Group Ltd South Africa 1,723
Ceylon Tobacco Co PLC Sri Lanka 1,675
Unilever Nigeria PLC Nigeria 1,554
2.3%
2.3%
2.3%
2.2%
2.0%
1.9%
1.7%
1.6%
1.6%
1.5%
Top 30 Investments 90,144
85.3%
Grupo Lala SAB de CV Mexico 1,545
Natura Cosmeticos SA Brazil 1,491
Guinness Nigeria PLC Nigeria 1,470
Famous Brands Ltd South Africa 1,329
Hindustan Unilever Ltd India 1,249
Philippine Seven Corp Philippines 1,106
Britannia Industries Ltd India 1,090
Unilever Indonesia Tbk PT Indonesia 1,048
Nestlé India Ltd India 813
Spur Corp Ltd South Africa 782
1.5%
1.4%
1.4%
1.3%
1.2%
1.0%
1.0%
1.0%
0.8%
0.7%
Top 40 Investments 102,067
96.6%
With the exception of liquidity funds, all portfolio holdings are in equities.
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Investment Portfolio
Strategic Report
Investments held as at 31 December 2014 – continued
Security Country of incorporation Fair value £’000
% of investments
Dabur India Ltd India 773
Nestlé Nigeria PLC Nigeria 752
Alicorp SAA Peru 731
Tiger Brands Ltd South Africa 617
Nestlé Lanka PLC Sri Lanka 250
FAN Milk Ltd Ghana 197
British American Tobacco Bangladesh Co Ltd Bangladesh 91
GlaxoSmithKline Consumer Healthcare Ltd India 87
Procter & Gamble Hygiene Healthcare Ltd India 78
Nestlé Pakistan Ltd Pakistan 47
0.7%
0.7%
0.7%
0.6%
0.2%
0.2%
0.1%
0.1%
0.1%
0.0%
Top 50 Investments 105,690
100.0%
With the exception of liquidity funds, all portfolio holdings are in equities.
Portfolio Breakdown
Equities 105,690
Liquidity Funds 83,218
188,908
55.9%
44.1%
100.0%
Liquidity funds consist of investments in money market funds, with the aim of protecting capital while earning income,
until the Company is fully invested.
Portfolio Distribution
as at 31 December 2014
By Sector (based on net asset value)
By Geography (by Country of Incorporation)
45%
46%
19%
31%
50%
9%
● Consumer Staples
● Consumer Discretionary
● Cash (incl. Money Market Funds
and cash held at bank)
● Asia
● Europe, Middle East, Africa
● Latin America
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Investment Manager’s Review
At the time of the Company’s launch, we believed that a
favourable entr y point for our strategy of investing in
consumer stocks in Developing Economies (a term as
defined in the Investment Philosophy report) lay ahead as a
result of two major developments:
● The mooted end of Quantitative Easing (“QE”) in the
United States which might lessen the flow of funds into
Emerging Markets (“EM”) and even lead funds to return
to the United States; and
● The economic slowdown in China and its knock-on effect
in countries which are dominated by commodity exports,
most of which are also Developing Countries.
So far this thesis seems to have played out mostly as we
expected. QE in the United States has ended and we now
await the end to the other unconventional policy measure
the Zero Interest Rate Policy (“ZIRP”). China’s economy has
definitely been slowing and the knock-on effect on
commodity prices has been profound since China
represented more than 100% of the increase in demand for
some commodities since 2009 when it undertook a massive
stimulus in response to the financial crisis. The oil price has
been the most obvious casualty but other commodities,
such as iron ore, have experienced price falls of similar
magnitude.
We are firmly in the camp which expects a fall in oil and
other commodity prices to be a benefit to the world economy.
Almost every economic activity requires energy input which
is heavily dependent upon the price of oil. Other input costs
are affected as the prices for products which are by-products
of oil such as artificial fertilisers, packaging, and plastics
as well as other commodities fall. Most of the companies in
the Company’s portfolio have energy and oil in particular as
a major input cost and a fall in its price should benefit their
margins as well as leaving consumers with a larger portion
of their income to spend on their products.
If you are in any doubt about the impact of the oil price on
economic activity consider the following. Ever y global
recession since 1970 has been preceded by a doubling of
the oil price (Januar y to March 1974, March to October
1979, July to October 1990, June 1999 to March 2000,
January 2007 to July 2008). When oil prices have fallen by
more than 50%, this been followed by rapidly accelerating
global growth (1987-88, 1993-94, 1998-99, 2003-04 and
2010-11).
There were of course other factors involved in causing these
periods of boom and bust, but it is hard to doubt that a fall
in the oil price will boost economic activity above what it
would otherwise have been. The last part of the preceding
sentence is underlined because it is important: the fall in
the price of oil and other commodities may boost growth but
it may also be telling us that the world economy was in far
worse shape than many commentators had realised which
has affected demand for oil and helped to cause the price
fall.
The fall in the price of oil also has differential effects on
companies and countries.
Fairly obviously it is not good news for oil producers and we
have seen the adverse effects of the fall in the oil price on
the currencies of major oil exporters such as Colombia,
Nigeria and Russia, and to a lesser extent Brazil and Mexico,
during this period. We await the likely positive economic
effect on major oil importers in which we invest such as
China, India, Pakistan and the Philippines. Nor is oil the only
commodity which will be producing less revenue for
exporters in the developing world, so will coal, iron ore, and
copper which will affect Brazil, Chile, Indonesia, Peru and
South Africa.
Other events which affected the areas where we seek to
invest during this period include:
● The overthrow of the presidential regime in the Ukraine,
the consequent Russian annexation of the Crimea, and
the dispute over the territory in Eastern Ukraine which
has led to sanctions against Russia by the USA and the
EU. We only have one Russian company in the
Company’s portfolio, the leading retailer Magnit which
in our view is a very good business. It’s just a pity at
present that it is in Russia;
● Elections in Brazil, India, Indonesia, and Sri Lanka. If
there was a theme to these elections it is the overthrow
of incumbent parties and the emergence of reformers,
although Brazil does not fit this pattern with the
re-election of Dilma Roussef; and
● In India Narendra Modi’s election in May swept aside
the Congress Party and placed a man with a real reform
agenda and a track record of achievement as Governor
of Gujarat in power. Our only problem with this is that
Mr Modi had the poor timing to get himself elected in
the month before the Company began investing and the
exuberant response of the Indian stock market to his
election has made it difficult for us to achieve the level
of investment we would like in Indian consumer
companies at valuations which are reasonable.
However, at the moment actual consumer spending
which underpins the results of the portfolio companies
Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014 | 13
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Investment Manager’s Review
Strategic Report
has yet to match the improvement in sentiment from
this reform agenda so we hope to get the full weighting
we desire in Indian companies at a more reasonable
valuation.
Overall the markets we seek to invest in performed relatively
poorly in 2014. From the date we started investing (24 June
2014) to the 31 December 2014 the MSCI Emerging and
Frontier Markets Index was up 0.5% with the MSCI Emerging
Markets Index up 0.7% (all in sterling terms). The Company’s
Net Asset Value (“NAV”) was down by 0.3% over the same
period. This was heavily influenced by the fact that we began
with 100% of the assets in cash and ended the year with
c.45% still in cash. In contrast, the share price was up 7.2%
and traded at a premium of 7.5% to the net asset value per
share as at 31 December 2014.
The top five contributors to that performance and the five biggest detractors with the amount contributed by local currency
movements are as follows:
Top Five Contributors Country of Incorporation Contribution %
Eastern Tobacco Egypt 0.46
Emami Ltd India 0.18
Universal Robina Corp Philippines 0.16
Shoprite Holdings South Africa 0.14
Indofood CBP Sukses Indonesia 0.12
Top Five Detractors Country of Incorporation Contribution %
Magnit Russian Federation (0.17)
Wynn Macau Macau (0.16)
Sun Art Retail Group China (0.11)
Natura Cosmeticos Brazil (0.11)
Unilever Nigeria Nigeria (0.11)
Of which Currency %
0.05
0.01
0.03
(0.01)
0.00
Of which Currency %
0.07
0.04
0.06
(0.03)
(0.02)
The portfolio list on pages 11 and 12 and the portfolio
distribution pie charts on page 12 show a breakdown of our
portfolio at the end of 2014 on the basis of geography and
sector. India is the largest country exposure.
At the end of the year we held stakes in 50 companies. Our
average company was founded in 1958 and had a median
market capitalisation of just over £3 billion. All of them
operate in sectors which directly ser ve the consumer
although none are in consumer durables. However, at
present, cash remains our largest asset.
As part of our analysis of the portfolio, we consider a
number of measures: Return on Capital Employed; Gross
Margin; Cash Conversion; and Growth. The average of our
portfolio, listed on pages 11 and 12, weighted by the size
of our holdings against the measures is disclosed below.
The companies in our portfolio had an average Return on
Capital Employed (“ROCE”) of 37% in the past year, 43% if
goodwill is excluded from capital employed, which gives an
indication of the return on their operating capital. To say this
is high would be an understatement.
The average Gross Margin (the profit after the cost of goods
sold) was 43%. Our companies sell goods for £10 which they
purchase or make for under £6 which is good considering
that we own some retailers which are low margin
businesses. Average Operating Profit margins are 17%.
On average our companies convert 105% of their profits into
cash. This measure deser ves two additional notes of
explanation. Firstly, you might wonder how a company can
convert more than 100% of its profits into cash. There is
more than one way this can occur, but the commonest is
that it has negative working capital because it gets paid
before it has to pay its suppliers. Retailers are commonly in
this situation: shoppers pay for their goods on the spot, the
retailers do not pay their suppliers as promptly. Secondly,
the cash flow number we are quoting is the “neutral” cash
flow (as in Neutral Free Cash Flow or “NFCF”) which takes
the capital expenditure as being in line with the depreciation
charge. We make this assumption because the companies
we seek to invest in are high growth companies which often
have such high capital expenditure that they have no cash
flow left after this item. If we measured their cash flow after
subtracting the actual capital expenditure we would never
buy their shares as they would have negative cash flows,
and given the returns they are making we should want them
to reinvest as much in growing their businesses as possible.
So we make the assumption that all their capital
14 | Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014
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expenditures over and above the depreciation charge are
voluntary spending undertaken in order to grow the business
and we assess their free cash flows on that basis.
In the last year these companies have grown their revenues
at 12% and earnings per share at 20%, both numbers which
companies operating in the developed world can only dream
of, although of course that may not persist.
All of these performance statistics seem to confirm that we
are invested in good businesses.
What about valuation? Our companies have a price earnings
ratio (or “PE”) of 30 which does not sound cheap, although
when placed in context with earnings growth of 20% it
compares favourably with the valuation and growth
prospects of comparable companies in developed markets.
We prefer not to use PE's for valuation purposes as earnings
are not the same as cash and take no account of the capital
employed to generate the earnings. The free cash flow yield
on our portfolio (the free cash flows which the companies
generate, divided by their market value and weighted for
their respective size in the portfolio again using the
assumption that capital expenditure equals depreciation) is
4.1%. Again, this compares favourably with the free cash
flow yield available on comparable developed world
companies.
fully
the Company becomes
Once
these
fundamental characteristics of the portfolio companies
should begin to take on additional significance as they
shape our expectations of long term returns on our
investment.
invested
We remain cautious about the immediate prospects for
Developing Economies in the light of the same factors which
we foresaw at the time of launch and we will continue to
seek what we believe are at least reasonable valuations as
we seek to invest the balance of the cash raised in our
portfolio companies.
Terry Smith
Fundsmith LLP
Investment Manager
19 March 2015
Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014 | 15
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Investment Philosophy
Strategic Report
Fundsmith Emerging Equities Trust plc (‘FEET’) invests in
companies which have the majority of their operations in, or
revenue derived from, Developing Economies* and which
provide direct exposure to the rise of the consumer classes
in those countries.
We apply a three step investment process to implement that
strategy:
1. We aim to invest in high quality businesses
In our view, a high quality business is one which can sustain
a high return on operating capital employed in cash.
We are seeking a sustainable high rate of return. An
important contributor to this is repeat business, usually from
consumers. A company that sells many small items each
day is better able to earn consistent returns over the years
than a company whose business is cyclical, like a steel
manufacturer, or “lumpy”, like a property developer, a movie
studio or even a drugs company. This approach rules out
most businesses that do not sell directly to consumers or
which make goods which are not consumed at short and
regular intervals.
Capital goods companies and industrial suppliers make
components,
to
ingredients and packaging
businesses. Business buyers are able to defer purchases
of such products when the business cycle turns down.
Moreover, business buyers employ staff whose sole raison
d’être is to drive down the cost of purchase and lengthen
their payment terms. In contrast we as consumers have no
direct bargaining power.
to sell
An important contributor to resilience is a resistance to
product obsolescence. This means that we try not to invest
in industries which are subject to rapid technological
innovation. Innovation is often sought by investors but does
not always produce lasting value for them. Developments
such as canals, railroads, aviation, microchips and the
internet have transformed industries and people’s lives.
They have created value for some investors, but a lot of
capital gets destroyed for others, just as the internet has
destroyed the value of many traditional media industries,
most notably newspapers, as well as quite a lot of capital
invested in the internet companies that didn’t make it and
at the peak of bubbles such as the Dotcom boom.
Even when a company sells to consumers, it is unlikely to
fit our criteria if its products have a life which can be
extended. When consumers hit hard times, they can defer
replacing their cars, houses and appliances, but not food,
toiletries, cosmetics and cleaning products. Hence we do
not intend to invest in manufacturers of consumer durables.
We seek to invest in businesses whose assets are
intangible and difficult to replicate. It may seem counter-
intuitive to seek businesses which do not rely upon tangible
assets. The businesses we seek to invest in do something
ver y unusual: they break the rule of mean reversion that
states returns must revert to the average as new capital is
attracted to business activities earning above-average
returns.
They can do this because their most important assets are
not physical assets, which can be replicated by anyone with
access to capital, but intangible assets which can be very
difficult to replicate, no matter how much capital a
competitor is willing to spend. Moreover, it’s hard for
companies to replicate these intangible assets using
borrowed funds, as banks tend to favour the (often illusory)
comfort of tangible collateral. This means that the business
does not suffer from economically irrational (or at least
innumerate) competitors when credit is freely available. To
be fair, during equity market “bubbles”, some irrational
competition can be funded by equity which seems to require
no foreseeable return, but such Dotcom style phenomena
mostly seem to attract capital to technology, biotech, social
networking, e-tailing and online businesses and not the less
glamorous world of consumer non-durables.
The kinds of intangible assets we seek are brand names,
trademarks, dominant market shares, patents, licenses,
franchises, intellectual property or know how, distribution
networks, supply chains, client relationships and installed
bases of equipment or software that lock in clients for
ser vice, spares, repairs, renewals, consumables and
transactions. Some combination of such intangibles defines
a company’s franchise. Since stock markets typically value
companies on the not unreasonable assumption that their
returns will regress to the mean, businesses whose returns
do not do this can become under valued. Therein lies our
opportunity as investors.
We avoid companies that have to use leverage to make an
adequate return on equity. We only invest in companies that
earn a high return on their capital on an unleveraged basis.
The companies we invest in may well have leverage, but they
don’t require borrowed money to function. For example,
*Where we refer to our investments in Developing Economies or Emerging Markets we mean countries other than those
included in the MSCI World Index, i.e. in the widest possible sense. Clearly when referring to others’ references to emerging
markets, developing economies or the developing world their own definition applies.
16 | Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014
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financial companies (such as banks, investment banks,
credit card lenders or leasing companies) typically earn a
low unleveraged return on their assets. They then have to
lever up that capital several times over with money from
lenders and depositors in order to earn what they deem to
be an acceptable return on their shareholders’ equity. This
means that not only are their unlevered equity returns
inadequate, but periodically the supply of credit is
withdrawn, often with disastrous consequences given the
illiquidity of their asset base. In assessing leverage, we
include off-balance sheet finance in the form of operating
leases, which are common in some sectors, such as
retailing.
The businesses we seek must have growth potential. It is
not enough for companies to earn a high unlevered rate of
return. Our definition of growth is that they must also be able
to reinvest at least a portion of their excess cash flow back
into the business to grow, while generating a high return on
the cash thus reinvested. Over time, this should compound
shareholders’ wealth by generating more than a pound of
stock-market value for each pound reinvested. In our view,
growth cannot be thought about sensibly in isolation from
returns. Rapid growth may be good news or it may be bad
news. It depends on how much capital you have to invest to
generate that growth.
The source of growth is also a factor to consider. Growth in
profits from increasing prices can simply build an umbrella
beneath which competitors can flourish. We are more
interested in companies which have physical growth in the
merchandise or ser vice sold than simply pricing power,
although having both is nice.
2. We try not to overpay for shares when investing
We only invest when we believe the valuation is attractive.
We estimate the free cash flow of every company after tax
and interest, but before dividends and other distributions,
and after adding back any discretionary capital expenditure
which is not needed to maintain the business. Otherwise we
would penalise companies which can invest in order to grow.
Our aim is to invest only when free cash flow per share as a
percentage of a company’s share price (the free cash flow
yield) is high relative to long-term interest rates and when
compared with the free cash flow yields of other investment
candidates both within and outside the portfolio. Our goal
is to buy securities that we believe will grow and compound
in value, which bonds cannot, at yields that are similar to or
better than what we would get from a bond.
3. We aim to buy and hold
We aim to be long-term, buy-and-hold investors. We seek to
own only stocks that will compound in value over the years.
Accordingly, we try to be very careful about the stocks we
pick. We do not have a good new investment idea every day,
or indeed, not even every year. Even when we are able to
find a new company we would like to invest in, we have to
wait, sometimes forever, for a price and valuation at which
we can justify investing. The resulting low level of dealing
activity also minimises the frictional costs of trading, a cost
which is often overlooked by investors as it is not normally
disclosed as part of the costs of running funds
Our investment philosophy is also defined by a number of
things we don’t do:
(A) We try never to engage in so-called “Greater Fool
Theory”
We really want to own all of the companies that we invest
in. We do not buy them knowing that they are not good
businesses or are over-valued in the hope that someone
more gullible will come along and pay an even higher price
for them. We assume that there is no greater fool than us.
(B) Indices are not used for portfolio construction
We are interested in indices in order to benchmark our
per formance but not as a tool to aid our portfolio
construction.
The simplest reason for this is that we wish to per form
better than the relevant indices and the majority of fund
managers who hug the index composition with their portfolio
selections. As the legendar y investor Sir John Templeton
said “If you want to have a better per formance than the
crowd, you must do things differently from the crowd.”
There is also the problem that the MSCI Emerging Markets
Index is dominated by companies of a sort that we would
never own.
The top ten companies in the MSCI Emerging Markets Index
are all in the banking, energy, technology and telecoms
sectors. They all fall into sectors which we would never
invest in because they are cyclical, rely on leverage to deliver
an adequate return, are subject to rapid and unpredictable
change and/or have returns controlled by governments.
In contrast, under 10% of the Index is in Consumer Staples,
which is the bedrock of the Fundsmith strategy and a
consistent producer of shareholder value with high unlevered
returns on capital in cash.
Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014 | 17
We are helped in this regard by the fact that about a fifth of
the companies in our Investable Universe and about a
quarter of the portfolio for FEET are quoted subsidiaries,
associates or franchisees of the multinational companies.
This certainly helps from a due diligence/corporate
governance standpoint.
(E) Currencies
Our policy is generally not to hedge FEET’s currency
exposure. The exception in FEET would be in the
circumstances where we believe significant depreciation of
a currency has become likely but we wish to continue owning
the companies in FEET denominated in that currency and we
are comfortable that we can put in place a hedge the cost
of which will not extinguish any gains from hedging. Such a
combination of circumstances is unusual.
Terry Smith
Fundsmith LLP
Investment Manager
19 March 2015
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Investment Philosophy
Strategic Report
(C) We do not attempt market timing
Once we are fully invested we will not attempt to manage
the percentage invested in equities in our portfolio to reflect
any view of market levels, timing or developments. Getting
market timing right is a skill we do not possess. We assume
that if you own shares in FEET you have already taken the
decision to invest that portion of your portfolio in Emerging
Market equities, managed in the manner we describe.
Our inability and unwillingness to try to make market timing
calls is one factor which prevents us from investing in
sectors which are highly cyclical. It is possible to deliver
performance from such investments, but it requires a good
sense of timing for the economic cycle and how the market
cycle relates to it. It also requires strong nerves, because
such investments are often counter-intuitive, as exemplified
in the investment adage “Only buy cyclicals when they look
expensive”. This is because when they have little or no
earnings, and so look expensive on the basis of their
price/earnings ratio, they are at, or close, to the bottom of
the cycle. The converse applies: you should sell them when
they look cheap, as they are then at, or close, to peak
earnings.
We are not sure we have either the skill set or the
constitution for such investing. In any event, investing in
cyclical businesses has one big disadvantage. They are
mostly poor quality businesses which struggle to make
adequate returns on their capital. Whilst you wait to see
whether you have got your timing right, the underlying value
of your investment is more likely to erode than compound
whilst you await the upturn, and of course occasionally they
do not survive a cycle at all.
(D) Corporate Governance
Investment in emerging markets has dangers which might
loosely be labelled as problems of corporate governance.
There are examples of companies which have had assets
confiscated by governments, which have had their know-how
taken by a local joint venture partner who has set up in
competition with them, of minority investment in business
controlled by local families which have gone awry.
We do not intend to bring enlightenment to Emerging
Markets in the form of improved corporate governance via
our investments. We are minority investors and we will
assume that the corporate governance landscape we see is
the one we have to deal with rather than assuming we can
change it. Then we will select investments in that
environment the same way that porcupines make love –
carefully.
18 | Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014
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Board of Directors
The Board of Directors, all of whom are non-executive, supervise the management of the Company and look after the interests
of shareholders. The Board considers that all the Directors are independent and there are no relationships or circumstances
which are likely to affect or could appear to affect their judgment.
Martin Bralsford
Chairman
Martin was articled with Pannell Kerr Forster & Co, London, qualifying as a Chartered
Accountant in 1970 and obtained a masters degree at the London Business School in 1974.
Until July 2007 he was Chief Executive of C.I. Traders, taking up this role in August 2002
when it acquired Le Riche Group. He joined Le Riche Group as its Chief Executive in
November 1992 after having previously been Group Managing Director and Chairman of
Premier Brands Ltd, (now Premier Foods Ltd), part of Hillsdown Holdings. Prior to this he
held a number of financial and general management appointments in Calor Gas, Rank Group,
SmithKline Beecham and Cadbury Schweppes. He has served as an independent member
of the boards of a number of commercial, banking and investment companies including
Gartmore Capital Strategy Fund Limited and Acorn Income Fund Limited. He is a Trustee of
a number of charitable trusts; a former President of the Jersey Chamber of Commerce; and
a former Chairman of both the Training and Employment Partnership in Jersey and the Durrell
Wildlife Conservation Trust of which he is a Life Trustee.
David Potter
After 35 years in the City (CSFB, Montagu, Midland, Guinness Mahon, Investec) David has
spent the last 15 years as a Chairman, Non-Executive and Trustee in a wide range of
companies and institutions. He is currently Chairman of Spark Ventures PLC, a Director of
Maven Income and Growth VCT, a member of the Council of The Centre for the Study of
Financial Innovation, Chairman of the Bryanston and National Film & TV School Foundations
and a member of The King’s College London Investment Board. David is Chairman of the
Management Engagement Committee.
John Spencer
John Spencer qualified as a chartered accountant in 1966 and worked with KPMG from 1966
to 1969. He joined Barclays Bank in 1969 and held a variety of posts, including President
of Barclays Bank of New York and chief executive of the USA Banking division. He returned
to the UK in 1990 as deputy chief executive of BZW and chief executive of the Global Markets
division and was appointed a member of the Group Executive Committee. He was
Non-Executive chairman of Regent Inns plc from 1995 to 1998 and served as non-executive
chairman of Softtechnet.com plc, a director of Numerica Group plc and Chief Executive of
Snell & Wilcox Limited, a private company. He was appointed Director of Tullett Prebon
(originally Collins Stewart) in 2000 until 2007 where he was the Senior Independent
Non-executive Director and a member of the Audit, Remuneration and Nominations
Committees. He is a Non-Executive Director of tpSEF Inc. John is Chairman of the Audit
Committee.
All Directors are members of the Audit and Management Engagement Committees.
Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014 | 19
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Board of Directors
Governance
Meeting Attendance
The number of Board and Committee meetings held in the period 31 October 2013 to 31 December 2014, and each
Director’s attendance level, is shown below:
Type and number of meetings
held in the period 31 October 2013 to 31 December 2014
Martin Bralsford (appointed 23 May 2014)
David Potter (appointed 23 May 2014)
John Spencer (appointed 23 May 2014)
Simon Godwin (appointed 31 October 2013, resigned 27 May 2014)
Mark Laurence (appointed 31 October 2013, resigned 27 May 2014)
Board
(6)
4
4
4
2
2
Audit Committee
(1)
1
1
1
–
–
Directors’ Interests
The beneficial interests of the Directors and their families in the Company were as set out below:
Martin Bralsford
David Potter
John Spencer
There have been no changes in the above Directors’ interests as at 19 March 2015.
Management
Engagement
Committee
(1)
1
1
1
–
–
Shares of 1p each
31 December 2014
100,000
5,000
5,000
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Report of the Directors
The Directors present their annual report on the affairs of
the Company together with the audited financial statements
and the Independent Auditor’s Report for the period from
incorporation on 31 October 2013 to 31 December 2014.
Business and Status of the Company
The Company is registered as a public limited company in
England (Registered Number 08756681) and is an
investment company within the terms of Section 833 of the
Companies Act 2006 (the ‘Act’). Its shares are listed on the
Official List of the UK Listing Authority and traded on the
main market of the London Stock Exchange, which is a
regulated market as defined in Section 1173 of the Act.
The Company has applied for and been accepted as an
approved investment trust under sections 1158 and 1159
of the Corporation Taxes Act 2010 and Part 2 Chapter 1 of
Statutory Instrument 2011/2999. This approval relates to
accounting periods commencing on or after 25 June 2014.
The Directors are of the opinion that the Company has
conducted its affairs so as to be able to retain such
approval.
Investment Policy
In order to achieve its investment objective, the Company
invests in a portfolio of shares issued by listed or traded
companies which have the majority of their operations in, or
revenue derived from, developing economies and which
provide direct exposure to the rise of the consumer classes
in those countries.
Further details concerning the Company’s investment policy
can be found in the Strategic Report on page 6 and the
Investment Philosophy on page 16.
Results
The results attributable to shareholders for the period are
shown on page 41.
Gearing
The Company has the power to borrow using short-term
banking facilities to raise funds for short-term liquidity
purposes or for discount management purposes including
the purchase of its own shares, provided that the maximum
gearing represented by such borrowings shall be limited to
15% of the Company’s net assets at the time of draw down
of such borrowings. The Company is not currently geared.
Leverage
For the purposes of the Alternative Investment Fund
Managers (AIFM) Directive, leverage is any method which
increases the Company’s exposure, including the borrowing
of cash and the use of derivatives. It is expressed as a ratio
between the Company’s exposure and its net asset value
and can be calculated on a Gross and a Commitment
method. The current maximum permitted limit under the
Gross and Commitment methods is 115%. Up to date
information is available in the Investor Disclosure Document
on the Company’s website www.feetplc.co.uk. Further
information can also be found in the Alternative Investment
Fund Managers Directive Disclosure on page 58.
Investment Management and Alternative
Investment Fund Manager (“AIFM”)
Investment Management Agreement:
Fundsmith receives a periodic fee equal to 1.25% p.a. of the
Company’s net asset value. The Investment Management
Agreement may be terminated by either party giving notice
of not less than 12 months. Fundsmith under the terms of
the agreement provides, inter alia, the following services:
● seeking out and evaluating investment opportunities;
● recommending the manner by which monies should be
invested, disinvested, retained or realised;
● advising on how rights conferred by the investments
should be exercised;
● analysing the performance of investments made;
● advising the Company in relation to trends, market
movements and other matters which may affect the
investment policy of the Company; and
● acting as AIFM to the Company.
Continuing Appointment of the
Investment Manager and AIFM
The Board has concluded that it is in shareholders’ interests
that Fundsmith acting as both the Investment Manager and
AIFM continues in its roles. The review undertaken by the
Board considered the Company’s investment performance
together with the quality and adequacy of other ser vices
provided.
The Board also reviewed the appropriateness of the terms
of the Investment Management Agreement in particular the
length of notice period and the fee structures.
Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014 | 21
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Report of the Directors
Governance
Directors’ & Officers’ Liability Insurance
Cover
insurance cover was
liability
Directors’ & officers’
maintained by the Company during the period ended 31
December 2014. It is intended that this policy will continue
for the year ending 31 December 2015 and subsequent
years.
Directors’ Indemnities
As at the date of this report, indemnities are in force
between the Company and each of its Directors under which
the Company has agreed to indemnify each Director, to the
extent permitted by law, in respect of certain liabilities
incurred as a result of carr ying out his or her role as a
Director of the Company. The Directors are also indemnified
against the costs of defending any criminal or civil
proceedings or any claim by the Company or a regulator as
they are incurred provided that where the defence is
unsuccessful the Director must repay those defence costs
to the Company. The indemnities are qualifying third party
indemnity provisions for the purposes of the Companies Act
2006.
A copy of each deed of indemnity is available for inspection
at the Company’s registered office during normal business
hours and will be available for inspection at the Annual
General Meeting.
Beneficial Owners of Shares – Information
Rights
Beneficial owners of shares who have been nominated by
the registered holder of those shares to receive information
rights under section 146 of the Companies Act 2006 are
required to direct all communications to the registered
holder of their shares rather than to the Company’s registrar,
Capita Asset Services, or to the Company directly.
Individual Savings Accounts
The Company’s shares are eligible to be held in the stocks
and shares component of an ISA or Junior ISA, subject to
applicable annual subscription limits (£15,000 for an ISA
and £4,000 for a Junior ISA for the 2014/2015 tax year)
(£15,240 and £4,080 respectively for 2015/2016 tax year).
Investments held in ISAs or Junior ISAs will be free of UK
tax on both capital gains and income. The opportunity to
invest in Ordinar y Shares through an ISA is restricted to
certain UK resident individuals aged 18 or over. Junior ISAs
are available for UK resident children aged under 18 and
born before 1 September 2002 or after 2 Januar y 2011.
Sums received by a shareholder on a disposal of Ordinary
Shares held within an ISA or Junior ISA will not count towards
the shareholder’s annual limit.
S.I. 2007/1093 C.49 Commencement
No.2 Order 2007
The following disclosures are made in accordance with S.I.
2007/1093 C.49 Commencement No.2 Order 2007.
Capital Structure
The Company’s capital structure is summarised in note 11
on page 52.
Voting Rights in the Company’s shares
Details of the voting rights in the Company’s shares at the
date of this Annual Report are given in note 9 to the Notice
of Annual General Meeting on page 66.
Political Donations
The Company does not intend to make any political
donations.
Substantial Shares Interest
The Company was aware of the following substantial interests in the voting rights of the Company:
Shareholder
Mr Simon Justin Nixon
Mr Duncan Russell Cameron
19 March 2015*
31 December 2014
Number of
shares
2,000,000
1,000,000
% of issued
share capital
10.3
5.2
Number of
shares
2,000,000
1,000,000
% of issued
share capital
10.3
5.2
As at 31 December 2014 the Company had 19,337,921 shares in issue. As at 19 March 2015 the Company had
19,337,921 shares in issue.
* 19 March 2015 being the latest practicable date before publication of the Annual Report.
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Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report
from its operations, nor does it have responsibility for any
other emissions producing sources under the Companies Act
2006 (Strategic Reports and Directors’ Reports) Regulations
2013, including those within its underlying investment
portfolio.
By order of the Board
Frostrow Capital LLP
Company Secretary
19 March 2015
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Statement of Directors’ Responsibilities
Governance
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors have elected to prepare the financial statements
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the company
and of the profit or loss of the company for that period. In
preparing
International
Accounting Standard 1 requires that directors:
financial statements,
these
● properly select and apply accounting policies;
● present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
● provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
impact of particular
the
users
transactions, other events and conditions on the
entity's financial position and financial per formance;
and
to understand
● make an assessment of the Company’s ability to
continue as a going concern.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the company’s transactions and disclose with reasonable
accuracy at any time the financial position of the company
and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Going Concern
The Directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements as the assets of the Company consist mainly of
securities which are readily realisable and, accordingly, the
Company has adequate financial resources to continue in
operational existence for the foreseeable future. In reviewing
the position as at the date of this report, the Board has
considered the ‘Going Concern and Liquidity Risk: Guidance
for Directors of UK Companies 2009’, published by the
Financial Reporting Council 2009.
Disclosure of Information to the Auditor
So far as the Directors are aware, there is no relevant
information of which the Auditor is unaware. The Directors
have taken all steps they ought to have taken to make
themselves aware of any relevant audit information and to
establish that the Auditor is aware of such information.
Responsibility Statement of the Directors
in respect of the annual financial report
The Directors, whose details can be found on page 19,
confirm to the best of their knowledge that:
● the Financial Statements, within this Annual Report,
have been prepared in accordance with applicable
accounting standards, give a true and fair view of the
assets, liabilities, financial position and the return for
the period ended 31 December 2014;
● the Strategic Report and the Report of the Directors
include a fair review of the information required by
4.1.8R to 4.1.11R of the FCA’s Disclosure and
Transparency Rules; and
● the annual report and financial statements taken as a
whole are fair, balanced and understandable and
provide the information necessar y to assess the
Company’s performance, business model and strategy.
On behalf of the Board
Martin Bralsford
Chairman
19 March 2015
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Corporate Governance
Corporate Governance
The Board is accountable to shareholders for the governance of the Company’s affairs. As an investment trust, the
Company’s day-to-day responsibilities are delegated to third parties; the Company has no employees and the Directors are
all non-executive. Therefore not all the provisions of the UK Corporate Governance Code (the ‘UK Code’) issued by the
Financial Reporting Council (‘FRC’) are directly applicable to the Company. The Board has therefore considered the principles
and recommendations of the Code of Corporate Governance published by the Association of Investment Companies in
February 2013 (‘the AIC Code’) by reference to the AIC Corporate Governance Guide for Investment Companies (‘the AIC
Guide’). The AIC Code, as explained by the AIC Guide, addresses all the applicable principles set out in the UK Code as well
as setting out additional principles and recommendations on issues that are of specific relevance to investment companies.
The FRC has confirmed that, by following the AIC Guide, boards of investment companies meet their obligations in relation
to the UK Code and paragraph 9.8.6 of the Listing Rules.
Copies of the AIC Code, the AIC Guide and the UK Code can be found on the respective organisations websites:
www.theaic.co.uk and www.frc.org.uk.
Throughout the period ended 31 December 2014 the Company complied with the provisions of the AIC Code and AIC
Guide.
The Principles of the AIC Code
The AIC Code is made up of twenty-one principles split into three
sections covering:
– The Board
– Board Meetings and relations with Fundsmith
– Shareholder Communications
The Board
AIC Code Principle
Compliance Statement
1. The Chairman should be
independent.
The Chairman, Martin Bralsford, is independent of Fundsmith. There is a clear division of
responsibility between the Chairman, the Directors, Fundsmith and the Company’s other
third party service providers. The Chairman is responsible for the leadership of the Board
and for ensuring its effectiveness in all aspects of its role.
2. A majority of the Board
should be independent of the
manager.
The Board consists of three non-executive Directors, each of whom is independent of
Fundsmith. No member of the Board is a Director of another investment company managed
by Fundsmith, nor has any Board member been an employee of the Company, Fundsmith or
any of its service providers.
should
be
3. Directors
submitted for re-election at
regular intervals. Nomination for
re-election should not be
assumed but be based on
disclosed
and
continued
satisfactor y
performance.
procedures
All Directors will submit themselves for annual re-election by shareholders.
The individual performance of each Director standing for re-election is evaluated annually
by the remaining members of the Board and, if considered appropriate, a recommendation
is made that shareholders vote in favour of their re-election at the Annual General Meeting.
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Corporate Governance
Governance
The Board continued
AIC Code Principle
Compliance Statement
4. The Board should have a
policy on tenure, which
is
disclosed in the annual report.
5. There
full
should
disclosure of information about
the Board.
be
6. The Board should aim to
have a balance of skills,
experience, length of ser vice
and knowledge of the company.
7. The Board should undertake
a formal and rigorous annual
evaluation
own
of
per formance and that of its
committees and
individual
directors.
its
The Board considers its structure and recognises the need for progressive refreshments.
The Board subscribes to the view expressed within the AIC Code that long-serving Directors
should not be prevented from forming part of an independent majority. It does not consider
that a Director’s tenure necessarily reduces his ability to act independently and, following
formal performance evaluations, believes that each of those Directors is independent in
character and judgment and that there are no relationships or circumstances which are
likely to affect their judgment. The Board’s policy on tenure is that continuity and experience
are considered to add significantly to the strength of the Board and, as such, no limit on
the overall length of service of any of the Company’s Directors, including the Chairman,
has been imposed. In view of its non-executive nature, the Board considers that it is not
appropriate for the Directors to be appointed for a specified term, although new Directors
are appointed with the expectation that they will serve for a minimum period of three years
subject to shareholder approval.
The terms and conditions of the Directors’ appointments are set out in letters of
engagement which are available for inspection on request at the office of Frostrow Capital
LLP, the Company Secretary, and at the Annual General Meeting.
The Directors’ biographical details, set out on page 19 demonstrate the wide range of skills
and experience that they bring to the Board.
Details of the Board’s Committees and their composition are set out below and on page 31.
The Audit Committee membership comprises the whole Board under the Chairmanship of
John Spencer. The Chairman of the Company is a member of the Audit Committee, but
does not chair it. His membership of the Audit Committee is considered appropriate given
the Chairman’s extensive business experience.
The Management Engagement Committee is comprised of the whole Board under the
Chairmanship of David Potter.
The Board will consider annually the skills possessed by the Directors and identifies any
skill shortages to be filled by new Directors.
When considering new appointments, the Board will review the skills of the Directors and
seeks to add persons with complementary skills or who possess the skills and experience
which fill any gaps in the Board’s knowledge or experience and who can devote sufficient
time to the Company to carry out their duties effectively.
The experience of the current Directors is detailed in their biographies set out on page 19.
The Company is committed to ensuring that any vacancies arising are filled by the most
qualified candidates and recognises the value of diversity in the composition of the Board.
When Board positions become available as a result of retirement or resignation, the
Company will ensure that a diverse group of candidates is considered.
During the course of 2015 the performance of the Board, its committees and individual
Directors (including each Director’s independence) will be evaluated through a formal
assessment process led by the Chairman.
The Board is satisfied that the structure, mix of skills and operation of the Board
continues to be effective and relevant for the Company.
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The Board continued
AIC Code Principle
Compliance Statement
reflect
remuneration
8. Director
should
their duties,
responsibilities and the value of
their time spent.
9. The Independent Directors
should take the lead in the
appointment of new Directors
and the process should be
disclosed in the annual report.
10. Directors should be offered
relevant training and induction.
11. The Chairman (and the
Board) should be brought into
the process of structuring a new
launch at an early stage.
The Board will periodically review the fees paid to the Directors and compare these with
the fees paid by the Company’s peer group and the investment trust industry generally,
taking into account the level of commitment and responsibility of each Board member.
Details on the remuneration arrangements for the Directors of the Company can be found
in the Directors’ Remuneration Policy Report and Directors’ Remuneration Report on
pages 35 to 37 and in note 5 on page 49.
As all of the Directors are non-executive, the Board considers that it is acceptable for the
Chairman of the Company to chair meetings when discussing Directors’ fees. The Chairman
takes no part in discussions regarding his own remuneration. The Board periodically takes
advice from external independent advisers on Directors’ remuneration.
Subject to there being no conflict of interest, all Directors are entitled to vote on candidates
for the appointment of new Directors and on the recommendation for shareholders’ approval
the Directors seeking re-election at the Annual General Meeting.
New appointees to the Board will be provided with a full induction programme. The programme
will cover the Company’s investment strategy, policies and practices. The Directors are also
given key information on the Company’s regulatory and statutory requirements as they arise
including information on the role of the Board, matters reserved for its decision, the terms of
reference for the Board Committees, the Company’s corporate governance practices and
procedures and the latest financial information. It is the Chairman’s responsibility to ensure
that the Directors have sufficient knowledge to fulfil their role and Directors are encouraged to
participate in training courses where appropriate.
The Directors have access to the advice and services of a Company Secretary through its
appointed representative which is responsible to the Board for ensuring that Board
procedures are followed and that applicable rules and regulations are complied with. The
Company Secretary is also responsible for ensuring good information flows between all
parties.
Principle 11 applies to the launch of new investment companies and is therefore not
applicable to the Company.
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Corporate Governance
Governance
Board Meetings and relations with Fundsmith
12. Boards and managers
should operate in a supportive,
co-operative
open
environment.
and
13. The primar y
focus at
regular board meetings should
be a review of investment
per formance and associated
matters, such as gearing, asset
allocation, marketing/investor
group
relations,
information
industr y
issues.
peer
and
should
give
14. Boards
sufficient attention to overall
strategy.
The Board meets regularly throughout the year and a representative of Fundsmith is in
attendance at each Board meeting. The Chairman encourages open debate to foster a
supportive and co-operative approach for all participants.
The Board has agreed a schedule of matters specifically reserved for decision by the Board.
This includes establishing the investment objectives, strategy and benchmarks, the permitted
types or categories of investments, the markets in which transactions may be undertaken,
the amount or proportion of the assets that may be invested in any category of investment
or in any one investment, and the Company’s share issuance and share buy back policies.
The Board, at its regular meetings, undertakes reviews of key investment and financial
data, revenue projections and expenses, analyses of asset allocation, transactions and
performance comparisons, share price and net asset value performance, marketing and
shareholder communication strategies, the risks associated with pursuing the investment
strategy, peer group information and industry issues.
The Audit Committee reviews the Company’s risk matrix and the Management Engagement
Committee reviews the performance and cost of the Company’s third party service providers.
The Board is responsible for strategy and has established an annual programme of agenda
items under which it reviews the objectives and strategy for the Company at each meeting.
15. The Board should regularly
review both the performance of,
and contractual arrangements
with, the investment manager
and the manager (or executives
of a self-managed company).
The Management Engagement Committee meets at least once a year. It reviews annually
the per formance of Fundsmith (the Company’s Investment Manager and AIFM) and the
Company’s other principal service providers. The Committee considers the quality, cost and
remuneration method of the ser vice provided by Fundsmith against their contractual
obligations and the Board receives regular reports on compliance with the Investment
Restrictions which it has set.
The Audit Committee reviews the compliance and control systems of Fundsmith in operation
insofar as they relate to the affairs of the Company and the Board undertakes periodic
reviews of the arrangements with and the services provided by the Custodian, and the
depositary to ensure that the safeguarding of the Company’s assets and security of the
shareholders’ investment is being maintained.
16. The Board should agree
policies with the investment
manager and
the manager
covering key operational issues.
The Investment Management Agreement between the Company and Fundsmith sets out
the limits of Fundsmith’s authority, beyond which Board approval is required. The Board
has also agreed detailed investment guidelines with Fundsmith, which are considered at
each Board meeting.
A representative from Fundsmith attends each meeting of the Board to address questions
on specific matters and to seek approval for specific transactions which Fundsmith is
required to refer to the Board.
The Board has delegated discretion to Fundsmith to exercise voting powers on its behalf,
other than for contentious or sensitive matters which are to be referred to the Board for
consideration.
The Board has reviewed Fundsmith’s Stewardship Policy, which includes its Corporate
Governance and Voting Guidelines.
Reports on commissions paid by Fundsmith are submitted to the Board regularly.
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Board Meetings and relations with Fundsmith continued
AIC Code Principle
Compliance Statement
17. Boards should monitor the
level of the share price discount
or premium (if any) and, if
desirable, take action to reduce
it.
The Board considers any imbalances in the supply of and the demand for the Company’s
shares in the market and takes appropriate action when considered necessary.
The Board considers the discount or premium to net asset value of the Company’s share
price at each Board meeting.
At each meeting the Board reviews reports from Fundsmith on marketing and shareholder
communication strategies. It also considers their effectiveness as well as measures of
investor sentiment and any recommendations on share buy-backs and issuance.
18. The Board should monitor
and evaluate other ser vice
providers.
The Management Engagement Committee reviews, at least annually, the performance of
all the Company’s third party service providers, including the level and structure of fees
payable and the length of the notice period, to ensure that they remain competitive and in
the best interests of shareholders.
The Audit Committee reviews reports from the principal service providers on compliance
and the internal and financial control systems in operation and relevant independent audit
reports thereon, as well as reviewing service providers’ anti-bribery and corruption policies
to address the provisions of the Bribery Act 2010.
Shareholder Communications
19. The Board should regularly
monitor the shareholder profile
of the company and put in place
canvassing
a system
for
shareholder views and
for
the Board’s
communicating
views to shareholders.
20. The Board should normally
take responsibility for, and have
a direct involvement in, the
content of communications
regarding major
corporate
issues even if the manager is
asked to act as spokesman.
A detailed analysis of the substantial shareholders of the Company is provided to the
Directors at each Board meeting. Representatives of Fundsmith regularly meet with
institutional shareholders and private client asset managers to discuss strategy and to
understand their issues and concerns and, if applicable, to discuss corporate governance
issues. The results of such meetings are reported at the following Board meeting.
Reports from the Company’s broker are submitted to the Board on investor sentiment and
industry issues.
Shareholders wishing to communicate with the Chairman, or any other member of the
Board, may do so by writing to the Company, for the attention of the Company Secretary at
the Offices of Frostrow. All shareholders are encouraged to attend the Annual General
Meeting, where they are given the opportunity to question the Chairman, the Board and
representatives of Fundsmith. Fundsmith will make a presentation to shareholders covering
the investment per formance and strategy of the Company at the forthcoming Annual
General Meeting. The Directors welcome the views of all shareholders and place
considerable importance on communications with them.
All substantive communications regarding any major corporate issues are discussed by the
Board taking into account representations from Fundsmith, the Auditor, legal advisers and
the Corporate Stockbroker.
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Corporate Governance
Governance
Shareholder Communications continued
AIC Code Principle
Compliance Statement
21. The Board should ensure
that shareholders are provided
with sufficient information for
them
the
risk/reward balance to which
they are exposed by holding the
shares.
to understand
The Company places great importance on communication with shareholders and aims to
provide them with a full understanding of the Company’s investment objective, policy and
activities, its per formance and the principal investment risks by means of informative
Annual and Half Year reports. This is supplemented by the daily publication, through the
London Stock Exchange, of the net asset value of the Company’s shares.
The Annual Report provides information on Fundsmith’s investment performance, investment
portfolio risk and operational and compliance issues. Further details on the risk/reward
balance are set out in the Strategic Report under Risk Management on pages 8 and 9 and
in note 14 beginning on page 53.
The investment portfolio is listed on pages 11 and 12.
The Company’s website, www.feetplc.co.uk, is regularly updated with monthly factsheets
and provides useful information about the Company including the Company’s financial
reports and announcements.
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Governance
terms of
reference, which clearly define
Committees of the Board
During the period from incorporation on 31 October 2013 to
the Board delegated certain
31 December 2014
responsibilities and functions to committees. Copies of the
full
the
responsibilities of each Committee, can be obtained from
the Company Secretary, will be available for inspection at
the Annual General Meeting, and can be found at the
Company’s website at www.feetplc.co.uk. The membership
of the Company’s committees comprises all of the
Company’s Directors. The Audit Committee is chaired by
John Spencer, the Management Engagement Committee by
David Potter.
The table on page 20 details the number of Board and
Committee meetings attended by each Director. During the
period there were six Board meetings, one Audit Committee
meeting and one meeting of the Management Engagement
Committee.
Management Engagement Committee
This committee meets at least once a year and reviews the
terms of engagement of the AIFM and Investment Manager
and the Company’s other service providers.
Audit Committee
The Audit Committee meets at least twice a year and is
responsible for the review of the half-year and annual
financial statements, the nature and scope of the external
audit and the findings there from and the terms of
appointment of the Auditor, including their remuneration and
the provision of any non-audit services by them.
The Audit Committee meets representatives of the AIFM and
Investment Manager and their Compliance Officer who
report as to the proper conduct of business in accordance
with the regulatory environment in which the Company and
Investment Manager operate. The Company’s external
Auditor also attend meetings of this Committee at its
request and report on their work procedures and their
findings in relation to the Company’s statutory audit. They
also have the opportunity to meet with the Committee
without representatives of the Investment Manager being
present. The Audit Committee reviews the need for non-audit
services to be provided by the Auditor and authorises such
on a case by case basis, having consideration to the cost
effectiveness of the ser vices and the independence and
objectivity of the Auditor. Details of the fees (both auditable
and non-audit related) paid to Deloitte LLP can be found on
page 49. The Board has concluded, on the recommendation
of the Audit Committee, that the Auditor continues to be
independent.
Anti-Bribery and Corruption Policy
The Board has adopted a zero tolerance approach to
instances of bribery and corruption. Accordingly it expressly
prohibits any Director or associated persons when acting on
behalf of the Company, from accepting, soliciting, paying,
offering or promising to pay or authorise any payment, public
or private in the UK or abroad to secure any improper benefit
for themselves or for the Company.
The Board applies the same standards to its ser vice
providers in their activities for the Company.
A copy of the Company’s Anti Bribery and Corruption Policy
can be found on its website at www.feetplc.co.uk. The policy
is reviewed regularly by the Audit Committee.
Relations with Shareholders
The Board considers the shareholder register at each Board
meeting. Fundsmith has regular contact with the Company’s
institutional shareholders. The Board supports the principle
that the Annual General Meeting be used to communicate
with private investors. It is the intention that the full Board
will attend the Annual General Meeting under the
Chairmanship of the Chairman of the Board. Details of proxy
votes received in respect of each resolution will be made
available to shareholders at the meeting and will also be
published on the Company’s website at www.feetplc.co.uk.
Representatives from the Investment Manager will attend
the Annual General Meeting and give a presentation on
investment matters to those present. The Company has
adopted a nominee share code which is set out overleaf.
The Board receives marketing and public relations reports
from Fundsmith. The Board reviews and considers the
marketing plans on a regular basis.
The annual and half-year financial reports and a monthly fact
sheet are available to all shareholders. The Board considers
the format of the annual and half-year financial reports so
as to ensure they are useful to all shareholders and others
taking an interest in the Company. In accordance with best
practice, the annual report, including the Notice of the
Annual General Meeting, is sent to shareholders at least 20
working days before the meeting. Separate resolutions are
proposed for substantive issues.
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Corporate Governance
Governance
Exercise of Voting Powers
The Board has delegated authority to Fundsmith (as AIFM
and Investment Manager) to vote the shares owned by the
Company that are held on its behalf by its custodian, State
Street Bank and Trust Company. The Board has instructed
that Fundsmith submit votes for such shares wherever
possible. This accords with current best practice whilst
maintaining a primary focus on financial returns. Fundsmith
may refer to the Board on any matters of a contentious
nature.
Nominee Share Code
Where shares are held in a nominee company name, the
Company undertakes:
● to provide the nominee company with multiple copies of
shareholder communications, so long as an indication
of quantities has been provided in advance; and
● to allow investors holding shares through a nominee
company to attend general meetings, provided the
correct authority from the nominee company is
available.
Nominee companies are encouraged to provide the
necessary authority to underlying shareholders to attend the
Company’s general meetings.
By order of the Board
Frostrow Capital LLP
Company Secretary
19 March 2015
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Audit Committee Report
for the period from incorporation on 31 October 2013 to
31 December 2014
The Committee, which comprises all of the Directors, met
once during the period. Attendance by each Director is
shown in the table on page 20. The Committee also met on
26 February 2015.
Responsibilities
The Committee’s main responsibilities during the year were:
1. To review the Company’s half-year and annual financial
statements. In particular, the Committee considered
whether the annual financial statements are fair,
balanced and understandable, allowing shareholders to
more easily assess the Company’s strategy, investment
policy, business model and financial performance.
2. To review the risk management and internal control
processes of the Company and its key ser vice
providers. As part of this review the Committee again
reviewed the appropriateness of the Company’s anti-
bribery and corruption policy.
3. To recommend the appointment of an external auditor
and agreeing the scope of its work and its remuneration,
reviewing its independence and the effectiveness of the
audit process.
4. To consider any non-audit work to be carried out by the
auditor. The Audit Committee has considered the extent
and nature of non-audit work performed by the auditor
and is satisfied that this did not impinge on their
independence and is a cost effective way for the
Company to operate.
5. To consider the need for an internal audit function.
Since the Company delegates its day-to-day operations
to third parties and has no employees, the Committee
has determined there is no requirement for such a
function.
The Committee’s terms of reference are available for review
on the Company’s website at www.feetplc.co.uk.
Meetings and Business
The following matters were dealt with at its meetings:
August 2014
– Review of the Committee’s terms of reference
– Review of the Auditor’s plan for the 2014 audit
– Review of risks, internal control and compliance
– Review of the Company’s anti briber y and corruption
policy and the measures put in place by the Company’s
service providers
– Review of the Company’s half-year results
– Approval of the half-year report
February 2015
– Review the Committee’s terms of reference
– Review the Company’s results
– Approval of the annual report and financial statements
– Review of risk management, internal controls and
compliance
– Review the outcome of the Audit and discuss matters
arising
Financial Statements
The Board has requested the Committee to confirm that in
its opinion the Board can make the required statement that
the Annual Report taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company’s per formance,
business model and strategy. The Committee has given this
confirmation on the basis of its review of the whole
document, underpinned by involvement in the planning for
its preparation and review of the processes to assure the
accuracy of factual content.
Risk
The Directors have identified (Strategic Report pages 8 and
9) five main areas of risk: Investment Activity and Strategy,
Financial, Shareholder Relations and Corporate Governance,
Operational and Accounting, Legal and Regulatory and has
set out the actions taken to evaluate and manage these
risks. The Auditor has also detailed two specific areas of
risk in their report: investment valuation and liquidity and
ownership of investments and has set out the work they
have performed to satisfy themselves that these have been
financial statements. The
properly reflected
Committee reviews the various actions taken and satisfies
itself that they are sufficient: in particular the Committee
reviews the Company’s schedule of key risks at each
meeting and requires amendments to both risks and
mitigation actions if appropriate.
in the
Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014 | 33
years. The Committee will, however, continue to consider
annually the need to go to tender for audit quality or
independence reasons.
Auditor Reappointment
Deloitte LLP have indicated their willingness to continue to
act as auditor to the Company for the forthcoming year and
a resolution for their re-appointment will be proposed at the
Annual General Meeting.
The Committee reviews the scope and effectiveness of the
audit process, including agreeing the Auditor’s assessment
of materiality and monitors the Auditor’s independence and
objectivity. It conducted a review of the performance of the
Auditor during the year and concluded that performance was
satisfactory and there were no grounds for change.
John Spencer
Chairman of the Audit Committee
19 March 2015
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Audit Committee Report
Governance
External auditor
Meetings:
This year the nature and scope of the audit together with
Deloitte LLP’s audit plan were considered by the Committee
on 27 August 2014.
As Chairman of the Committee, I met with Deloitte LLP (by
telephone) on 24 February 2015 to discuss the outcome of
the audit and the draft 2014 annual report and accounts.
The Committee then met Deloitte LLP on 26 February 2015
to review the outcome of the audit and to discuss matters
that arose.
Independence and Effectiveness:
In order to fulfil the Committee’s responsibility regarding the
independence of the Auditor, the Committee reviewed:
– the senior audit personnel in the audit plan for the year;
– the Auditor’s arrangements concerning any conflicts of
interest;
– the extent of any non-audit services;
– the statement by the Auditor that they remain
independent within the meaning of the regulations and
their professional standards; and
– Auditor independence.
In order to consider the effectiveness of the audit process,
the Committee reviewed:
– the Auditor’s fulfilment of the agreed audit plan;
– the report arising from the audit itself; and
– feedback from Frostrow Capital LLP (as Company
Secretary) on the conduct of the audit.
The Committee is satisfied with the Auditor’s independence
and the effectiveness of the audit process, together with the
degree of diligence and professional scepticism brought to
bear.
Audit Tendering
As a Public Company listed on the London Stock Exchange,
the Company will in future be subject to the mandator y
Auditor rotation requirements of the European Union.
Subject to the detailed implementation of the European
requirements in the UK, this is likely to mean that the
Company will put the external audit out to tender at least
every ten years, and change auditor at least every twenty
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Directors’ Remuneration Report
Statement from the Chairman
I am pleased to present the Directors’ Remuneration Report
to shareholders. This report has been prepared in
accordance with the requirements of Section 421 of the
Companies Act 2006 and the Enterprise and Regulator y
Reform Act 2013. An Ordinary Resolution for the approval
of this report will be put to shareholders at the Company’s
forthcoming Annual General Meeting. The law requires the
Company’s auditor to audit certain of the disclosures
provided in this report. Where disclosures have been
audited, they are indicated as such and the Auditor’s audit
opinion is included in its report to shareholders on pages
38 and 40. The Remuneration Policy Report on page 37
forms part of this report.
The Board considers the framework for the remuneration of
the Directors on an annual basis. It reviews the ongoing
appropriateness of the Company’s remuneration policy and
the individual remuneration of Directors by reference to the
activities of the Company and comparison with other
companies of a similar structure and size. This is in-line with
the AIC Code.
As the Directors were appointed on 23 May 2014 a review
of their fees has not yet been undertaken. A review will be
held in 2015.
Directors’ Fees and Expenses
The Directors, as at the date of this report, were all
appointed on 23 May 2014 and received the fees listed in
the table below. These exclude any employers’ national
insurance contributions, if applicable. No other forms of
remuneration were received by the Directors and so fees
represent the total remuneration of each Director.
Directors’ Emoluments for the Period (audited information)
Martin Bralsford (Chairman)
David Potter
John Spencer
Date of
Appointment
to the Board
23 May 2014
23 May 2014
23 May 2014
Fees
2014 (£)
13,250
12,051
12,051
37,352
Sums paid to Third Parties (audited information)
Fees due to Mr Bralsford were paid to Marbral Limited (a
company of which he is a director), otherwise none of the
fees referred to in the above table were paid to any third
party in respect of the ser vices provided by any of the
Directors.
Other Benefits
Taxable Benefits – Article 149 of the Company’s Articles of
Association provides that Directors are entitled to be
reimbursed for reasonable expenses incurred by them in
connection with the per formance of their duties and
attendance at Board and General Meetings.
Pensions related benefits – Article 158 permits the
Company to provide pension or similar benefits for Directors
and employees of the Company. However, no pension
schemes or other similar arrangements have been
established and no Director is entitled to any pension or
similar benefits.
Loss of office
Directors do not have service contracts with the Company
but are engaged under Letters of Appointment. These
specifically exclude any entitlement to compensation upon
leaving office for whatever reason.
Share Price Total Return
A five year per formance comparison is required to be
presented in this report. However, as the Company was
incorporated on 31 October 2013 and commenced trading
on 25 June 2014, the performance comparison is therefore
shown overleaf
for the period from 24 June 2014 to
31 December 2014 using the MSCI Emerging and Frontier
Markets Index on a net sterling adjusted basis, which the
Board has adopted as the measure for both the Company’s
per formance and that of the Investment Manager for the
period.
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Directors’ Remuneration Report
Governance
Total Shareholder Return for the period 24 June 2014 to 31 December 2014
%
115
110
105
100
95
90
85
FEET Share price
(total return)
Benchmark Index
2 4/0 6/2 0 1 4
2 4/0 7/2 0 1 4
2 4/0 8/2 0 1 4
2 4/0 9/2 0 1 4
2 4/1 0/2 0 1 4
2 4/1 1/2 0 1 4
2 4/1 2/2 0 1 4
Directors’ Interests in the Company’s Shares (audited
information)
Martin Bralsford (Chairman)
David Potter
John Spencer
Total
Ordinary shares
of 1p each
31 December
2014
100,000
5,000
5,000
110,000
Annual Statement
On behalf of the Board and in accordance with Part 2 of
Schedule 8 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations
2013, I confirm that the Remuneration Policy, set out on
page 35 of this annual report, and Remuneration Report
summarise, as applicable, for the period to 31 December
2014:
(a) the major decisions on Directors’ remuneration;
(b) any substantial changes
relating
to Directors’
remuneration made during the period; and
(c) the context in which the changes occurred and
decisions have been taken.
Martin Bralsford
Chairman
19 March 2015
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Directors’ Remuneration Policy Report
The Company’s Remuneration Policy provides that fees
payable to the Directors should reflect the time spent by the
Board on the Company’s affairs and the responsibilities
borne by the Directors and should be sufficient to enable
candidates of high calibre to be recruited. Directors are
remunerated in the form of fees payable monthly in arrears,
paid to the Director personally or to a specified third party.
There are no long-term incentive schemes, share option
schemes or pension arrangements and the fees are not
specifically related to the Directors’ per formance, either
individually or collectively. Directors’
remuneration
comprises solely Directors’ fees. The current and projected
Directors’ fees for 2014 and 2015 are shown in the table
below. The Company does not have any employees.
No communications have been received from shareholders
regarding Directors’ remuneration.
The remuneration for the non-executive Directors is
determined within the limits set out in the Company’s
Articles of Association. The present limit is £250,000 in
aggregate per annum.
It is the Board’s intention that the Remuneration Policy will
be considered by shareholders at the Annual General
Meeting at least once every three years.
An Ordinary Resolution for the approval of this policy will be
considered by shareholders at the forthcoming Annual
General Meeting.
Directors’ Fees Current and Projected
Martin Bralsford
David Potter
John Spencer
Fees
2015 (£)
25,000
20,000
20,000
65,000
Fees
2014 (£)
13,250
12,051
12,051
37,352
None of the Directors has a service contract. The terms of
their appointment provide that Directors shall retire and be
subject to election at the first annual general meeting after
their appointment and to re-election annually thereafter. The
terms also provide that a Director may be removed without
notice and that compensation will not be due on leaving
office.
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Independent Auditor’s Report to the Members
of Fundsmith Emerging Equities Trust plc
Financial Statements
Opinion on financial statements
of Fundsmith Emerging Equities
Trust plc
Going concern
Our assessment of risks of material
misstatement
Risk
Valuation and liquidity of investments
of the Company
The investment balance is the most
quantitatively significant balance on the
balance sheet and is the main driver of
the company’s performance, standing
at £189 million as at 31 December
2014. As this Company invests
primarily in developing economies there
is a risk that if the investments are not
actively traded, the prices are not
reflective of their fair value
Ownership of investments
The investment balance is the most
quantitatively significant balance on the
statement of financial position,
standing at £189 million as at
31 December 2014. Therefore, the risk
that the Company does not hold the
rights and obligations to these
investments could materially impact
the financial statements.
In our opinion the financial statements:
●
●
●
give a true and fair view of the state of the Company’s affairs as at
31 December 2014 and of its profit for the period from incorporation on
31 October 2013 to 31 December 2014;
have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies
Act 2006.
The financial statements comprise the Income Statement, the Statement of Financial
Position, the Statement of Changes in Equity and the Statement of Cash Flows and
the related notes 1 to 16. The financial reporting framework that has been applied
in their preparation is applicable law and IFRSs as adopted by the European Union.
As required by the Listing Rules we have reviewed the Directors’ statement that
the Company is a going concern. We confirm that:
● we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate; and
● we have not identified any material uncertainties that may cast significant
doubt on the company’s ability to continue as a going concern.
However, because not all future events or conditions can be predicted, this statement
is not a guarantee as to the company’s ability to continue as a going concern.
The assessed risks of material misstatement described below are those that
had the greatest effect on our audit strategy, the allocation of resources in the
audit and directing the efforts of the engagement team:
How the scope of our audit responded to the risk
To test the valuation of investments as at 31 December 2014, we performed
the following:
●
For all quoted investments, valued at £189 million, we agreed the bid prices
to an independent pricing source; and
To test the liquidity of investments as at 31 December 2014, we performed the
following:
●
●
verified the trading activity and volume around the period end, by reviewing
all investments held at the period end; and
identified investments which were not frequently traded and considered
indicators of impairment by monitoring the price of any post period-end sales.
No such investments were identified.
To test the ownership of investment balances as at 31 December 2014 we
performed the following:
●
●
Confirmed the ownership of all investments at period end by obtaining
independent third party confirmations directly from the custodian and
agreeing them to the schedule of investments held at period-end. We also
reviewed the latest International Standards for Assurance Engagements
(“ISAE”) 3402 report on the custodian’s controls related to its custody of
the company’s investments and assessed whether it was adequate; and
Performed purchase and sales testing on a sample of trades made during
the period and performed testing on trades made around the period-end to
determine whether transactions have been recorded in the correct period.
The description of risks above should be read in conjunction with the significant
issues considered by the Audit Committee discussed on pages 33 and 34.
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Risk
Our application of materiality
An overview of the scope of our
audit
Opinion on other matters
prescribed by the Companies Act
2006
How the scope of our audit responded to the risk
Our audit procedures relating to these matters were designed in the context of
our audit of the financial statements as a whole, and not to express an opinion
on individual accounts or disclosures. Our opinion on the financial statements
is not modified with respect to any of the risks described above, and we do not
express an opinion on these individual matters.
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our work.
We determined materiality for the company to be £1,928,000 which is
approximately 1% of Shareholders’ funds.
We agreed with the Audit Committee that we would report to the Committee all
audit differences in excess of £38,650, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
Our audit was scoped by obtaining an understanding of the entity and its
environment, including internal control, and assessing the risks of material
misstatement. Audit work to respond to the risks of material misstatement was
performed directly by the audit engagement team.
In our opinion:
●
●
the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
the information given in the Strategic Report and the Report of the Directors
for the financial period for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
● we have not received all the information and explanations we require for our
Directors’ remuneration
Corporate Governance Statement
audit; or
●
●
adequate accounting records have not been kept, or returns adequate for
our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records
and returns.
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of Directors’ remuneration have not been made or the part
of the Directors’ Remuneration Report to be audited is not in agreement with
the accounting records and returns. We have nothing to report arising from these
matters.
Under the Listing Rules we are also required to review the part of the Corporate
Governance Statement relating to the Company’s compliance with ten provisions
of the UK Corporate Governance Code. We have nothing to report arising from
our review.
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Independent Auditor’s Report to the Members
of Fundsmith Emerging Equities Trust plc
Financial Statements
Our duty to read other information
in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to
report to you if, in our opinion, information in the annual report is:
Respective responsibilities of
directors and auditor
Scope of the audit of the
financial statements
● materially inconsistent with the information in the audited financial
statements; or
●
apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the company acquired in the course of performing our audit;
or
●
otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the
Directors’ statement that they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately discloses those
matters that we communicated to the audit committee which we consider should
have been disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
As explained more fully in the Directors’ Responsibilities Statement, the Directors
are responsible for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for
Auditors. We also comply with International Standard on Quality Control 1 (UK
and Ireland). Our audit methodology and tools aim to ensure that our quality
control procedures are effective, understood and applied. Our quality controls
and systems include our dedicated professional standards review team and
independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are
appropriate to the company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial information
in the annual report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report.
Stuart McLaren (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
19 March 2015
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Income Statement
Financial Statements
Strategic Report
for the period from incorporation on 31 October 2013 to 31 December 2014
31 December 2014
Revenue Capital Total
Notes £’000 £’000 £’000
Dividend Income 2 1,051 0 1,051
Other Operating Income 7 0 7
1,058 0 1,058
Gain on investments
Gains on investments held through profit and loss 8 0 1,464 1,464
Losses on foreign exchange transactions 0 (138) (138)
Management fees 4 (1,239) 0 (1,239)
Other expenses including dealing costs 5 (428) (356) (784)
(Loss)/profit before finance costs and tax (609) 970 361
Finance costs 0 0 0
(Loss)/profit before tax (609) 970 361
Tax 6 (61) 0 (61)
(Loss)/profit for the period (670) 970 300
Earnings per share (basic and diluted) (p) 7 (3.46) 5.01 1.55
The Company does not have any income or expenses which are not included in the profit for the year. Accordingly the “profit
for the year” is also the “total comprehensive income for the period”, as defined in IAS 1 (revised) and no separate Statement
of Comprehensive Income has been presented.
All of the profit and total comprehensive income for the period is attributable to the owners of the Company.
The “Total” column of this statement represents the Company’s Income Statement, prepared in accordance with International
Financial Reporting Standards (IFRS). The “Revenue” and “Capital” columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of this statement.
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Statement of Financial Position
Financial Statements
as at 31 December 2014
31 December 2014
Notes £’000 £’000
Non Current Assets
Investments held at Fair Value through Profit and Loss 8 188,908
188,908
Gain on investments
Receivables 9 194
Cash and Cash Equivalents 5,693
5,887
194,795
Current Liabilities
Trade and other payables 10 (1,995)
(1,995)
192,800
Equity Attributable to Equity Shareholders
Ordinary Share Capital 11 193
Share Premium 12 0
Capital Reserves 193,277
Accumulated Losses (670)
192,800
Net Asset Value per share (p) 13 997.00
The financial statements on pages 41 to 56 were approved by the Board on 19 March 2015 and were signed on its behalf
by:
Martin Bralsford
Chairman
The accompanying notes are an integral part of this statement.
Fundsmith Emerging Equities Trust plc – Company Registration Number 08756681 (Registered in England)
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Statement of Changes in Equity
for the period ended 31 December 2014
Share Share Capital Accumulated
Capital Premium Reserves Losses Total
£’000 £’000 £’000 £’000 £’000
Balance at 31 October 2013 0 0 0 0 0
Profit for the period 0 0 970 (670) 300
0 0 970 (670) 300
Issue of Share Capital 193 192,307 0 0 192,500
Cancellation of Share Premium Account 0 (192,307) 192,307 0 0
Balance at 31 December 2014 193 0 193,277 (670) 192,800
The accompanying notes are an integral part of this statement.
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Statement of Cash Flows
Financial Statements
Strategic Report
for the period from incorporation on 31 October 2013 to 31 December 2014
31 December 2014
£’000
Cash Flows from Operating Activities
Profit before taxation 300
Adjustments for:
Purchases of investments (293,771)
Sale of investments 106,327
Gain on investments (1,464)
Operating cash flows before movements in working capital (188,608)
Increase in receivables (194)
Increase in payables 1,995
Net Cash Flow from operating activities (186,807)
Cash Flows from Financing Activities
Proceeds from issue of new shares 193,379
Issue costs relating to new shares (879)
Net Cash Flow from Financing Activities 192,500
Net Increase in Cash and Cash Equivalents 5,693
Cash and Cash Equivalents at the start of the period 0
Cash and Cash Equivalents at the end of the period 5,693
The accompanying notes are an integral part of this statement.
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Notes to the Accounts
Financial Statements
1. Accounting Policies
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
(“IFRS”). These comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”),
together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved
by the International Accounting Standards Committee (“IASC”) that remain in effect, to the extent that IFRS have been
adopted by the European Union.
(a) Accounting Convention
The financial statements have been prepared under the historical cost convention (modified to include investments
at fair value through profit or loss) on a going concern basis and in accordance with applicable International Financial
Reporting Standards as adopted by the EU (IFRS) and with the Statement of Recommended Practice ‘Financial
Statements of Investment Trust Companies and Venture Capital Trusts’ issued by the Association of Investment
Companies in January 2009. They have also been prepared on the assumption that approval as an investment trust
will continue to be granted. The company is a UK listed company with a predominantly UK shareholder base. The
results and the financial position of the company are expressed in sterling, which is the functional and presentational
currency of the company. The accounting policies have been disclosed consistently and in line with Companies
Act 2006.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on
the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to
the fair value measurement in its entirety, which are described as follows:
● Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity
can access at the measurement date;
● Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly; and
● Level 3 inputs are unobservable inputs for the asset or liability.
Statement of estimation uncertainty
In the application of the Company’s accounting policies, management is required to make judgments, estimates
and assumptions about carrying values of assets and liabilities that are not always readily apparent from other
sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may vary from these estimates. There have been no significant judgments,
estimates or assumptions for the period.
(b) Presentation of the Income Statement
In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by
the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital
nature has been presented alongside the Income Statement. In accordance with the Company’s Articles of
Association, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure
the directors believe appropriate in assessing the Company’s compliance with certain requirements set out in section
1158 of the Corporation Tax Act 2010.
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Notes to the Accounts
Financial Statements
1. Accounting Policies Continued
(c) Income
Income from investments (other than capital dividends), including taxes deducted at source, is included in revenue
by reference to the date on which the investment is quoted ex-dividend, or where no ex-dividend date is quoted,
when the company’s right to receive payment is established. Special dividends are credited to capital or revenue,
according to the circumstances. Income from underwriting commission is recognised as earned.
Interest receivable and payable, management fees, and other expenses are treated on an accruals basis.
(d) Expenses
The management fee is recognised as a revenue item in the income statement. All other expenses are charged to
revenue except where they directly relate to the acquisition or disposal of an investment, in which case, they are
added to the cost of the investment or deducted from the sale proceeds. The Board will, however, keep this under
review and an appropriate amendment to this treatment will be made if required.
(e) Investments
Investments – investments have been designated upon initial recognition as fair value through profit or loss.
Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose
terms require delivery within the time frame established by the market concerned, and are initially measured at fair
value. Subsequent to initial recognition, investments are valued at fair value. For listed investments, this is deemed
to be bid market prices. Gains and losses arising from changes in fair value are included in net profit or loss for the
year as a capital item in the income statement and are ultimately recognised in the capital reserve.
Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the
Income Statement.
When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the
relevant market, the investments concerned are recognised or derecognised on the trade date.
All the investments are defined by IFRS as investments held at fair value through profit and loss. All gains and losses
are allocated to the capital return within the Income Statement as “Gains or losses on investments held at fair value
through profit and loss”.
All investments are designated upon initial recognition as held at fair value through profit and loss, and are measured
at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the
convention of the exchange on which the investment is quoted.
The Company derecognises a financial asset only when the contractual right to the cash flows from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to
another entity. On derecognition of a financial asset, the difference between the asset’s carrying amount and the
sum of the consideration received and receivable and the cumulative gain or loss that had been accumulated in
equity is recognised in the Income Statement.
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1. Accounting Policies Continued
(f) Foreign Currencies
Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange
ruling at the date of the balance sheet or at the related forward contract rate. Transactions in foreign currency are
converted to sterling at the rate ruling at the date of the transaction or, where forward foreign currency contracts
have been taken out, at contractual rates and included as an exchange gain or loss in the capital reserve or the
revenue account depending on whether the gain or loss is of a capital or revenue nature.
(g) Cash and cash equivalents
Cash at bank and in hand comprises cash and demand deposits which are readily convertible to a known amount
of cash and are subject to insignificant risk of changes in value.
(h) Equity dividends
Interim dividends are recognised in the period in which they are paid. Final dividends are not recognised until
approved by shareholders in the annual general meeting.
(i) Capital reserves
Gains or losses on realisation of investments and changes in fair values of investments are transferred to the capital
reserve. Any changes in fair values of investments that are not readily convertible to cash are treated as unrealised
gains or losses within the capital reserve.
(j) Taxation
The charge for taxation is based upon the revenue for the year and is allocated according to the marginal basis
between revenue and capital using the company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the
balance sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax
in future have occurred at the balance sheet date measured on an undiscounted basis and based on enacted tax
rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there
will be suitable profits from which the future reversal of the underlying temporary differences can be deducted.
Timing differences are differences arising between the company’s taxable profits and its results as stated in the
accounts which are capable of reversal in one or more subsequent periods. Due to the company’s status as an
investment trust company, and the intention to continue meeting the conditions required to obtain approval in the
foreseeable future, the company has not provided deferred tax on any capital gains and losses arising on the
revaluation or disposal of investments.
(k) Cost of Share Issues
These have been offset against the proceeds of share issues and dealt with in the share premium account.
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Notes to the Accounts
Financial Statements
1. Accounting Policies Continued
(l) Adoption of New and Revised Standards
At the date of authorisation of these financial statements, the following Standard and Interpretations which
have not been applied in these financial statements were in issue but not yet effective (and in some cases
had not yet been adopted by the EU):
IFRS 9 Financial Instruments
IFRS 9 will impact both the measurement and disclosures of financial instruments in future periods. It is not
practicable to provide a reasonable estimate of the effect of the standard until a detailed review has been
completed.
2. Dividend Income
2014
£’000
UK dividends 213
Overseas dividends 838
1,051
3. Segmental Reporting
The directors are of the opinion that the Company is engaged in a single segment of business being investment business.
4. Investment Management Fee
2014
£’000
Investment Management Fee 1,239
As at 31 December 2014, an amount of £1,239,526 was payable to the Investment Manager.
Details of the terms of the Investment Management Agreement are provided on page 21.
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5. Other Expenses
Revenue Capital Total
£’000 £’000 £’000
Transaction Costs on fair value through profit or loss assets 0 356 356
Directors' Fees 37 0 37
Auditor’s Remuneration 28 0 28
Registrar Fees 13 0 13
Broker Fees 26 0 26
Company Secretarial Fees 44 0 44
Custody Fees 124 0 124
Depositary Fees 20 0 20
Postage and Printing 21 0 21
Legal Fees 31 0 31
Other Expenses 84 0 84
428 356 784
Transaction costs on fair value through profit or loss assets represent such costs incurred on both the purchase and sales
of those assets. Transaction costs on purchases amounted to £349,000 and on sales amounted to £7,000.
The Company has had no employees throughout the period.
Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
Revenue £’000
Fees payable to the Company’s Auditor for the audit of the Company’s annual accounts 28
Total audit fees 28
Tax services (advice, preparation and submission within local jurisdictions of withholding tax claims) 17
Reporting accountant engagement for the admission to the Premium Listing and London Stock Exchange 60
Total non-audit fees 77
Total fees paid 105
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Notes to the Accounts
Financial Statements
6. Taxation
(a) Analysis of tax charge in the year
Revenue Capital Total
pence pence pence
UK corporation tax at 21% 0 0 0
Irrecoverable overseas withholding tax 61 0 61
Total current tax for the year 61 0 61
(b) The charge for the year can be reconciled to the profit per the Income Statement
as follows:
Revenue Capital Total
£’000 £’000 £’000
Profit/(Loss) before tax (609) 970 361
Tax at UK corporation tax rate of 21.00% (128) 204 76
Effects of :
Income not chargeable to tax: UK dividends 1 (176) 0 (176)
Expenses not deductible for tax purposes 0 75 75
Non-taxable gains on investments 0 (279) (279)
Movement in excess management expenses 2 304 0 304
Irrecoverable overseas withholding tax 61 0 61
Total current tax charge for the year 61 0 61
1. Investment trusts are not subject to corporation tax on these items.
2. The Company has not recognised a deferred tax asset of £289,424 arising as a result of having unutilised management expenses since, under current
tax legislation, it is unlikely that the Company will obtain any benefit for the asset.
7. Earnings per Share
Profit/(loss) per Ordinary Share is as follows:
2014
Revenue Capital Total
pence pence pence
Earnings per Ordinary Share (3.46) 5.01 1.55
The total gain per share of 1.55p is based on the total gain attributable to equity shareholders of £300,000.
The revenue loss per share (3.46)p is based on the revenue loss attributable to equity shareholders of £(670,000). The
capital gain per share of 5.01p is based on the capital gain attributable to equity shareholders of £970,000.
The total revenue loss and capital gain per share are based on the weighted average number of shares in issue of
19,337,921 during the period.
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8. Investments Held at Fair Value Through Profit and Loss
All investments are designated as fair value through profit or loss on initial recognition, therefore all gains and losses arise
on investments designated as fair value through profit or loss.
2014
£’000
Purchases at cost 293,771
Sales – proceeds (106,327)
– realised gains on sales 120
Investment holding gains 1,344
Closing Fair Value at 31 December 2014 188,908
Closing Cost at 31 December 2014 187,564
Investment holding gains at 31 December 2014 1,344
188,908
Gains on investments
Gains on sales of investments 120
Investment holding gains 1,344
1,464
All investments are listed and actively traded.
Fair value of financial instruments
The following table shows financial assets recognised at fair value, analysed between those whose fair value is based on:
● Level 1 – quoted prices in active markets for identical investments.
● Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments
credit risk, etc). There are no level 2 investments.
● Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of
investments). There are no level 3 investments.
All investments are considered Level 1 investments, and have been considered so throughout the lifetime of the Company’s
holding.
9. Receivables
2014
£’000
Accrued Income 87
Other Receivables 107
194
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Notes to the Accounts
Financial Statements
10. Payables
2014
£’000
Trade payables 632
Accruals and deferred income 1,363
1,995
11. Share capital
2014 2014
Number £’000
Issued, allotted and fully paid 19,337,921 193
On 31 October 2013, the Company issued 50,000 shares of £1.00 at incorporation for a consideration of £50,000.
On 20 June 2014, the Company exchanged 50,000 shares of £1.00 for 50,000 shares of £0.01 and 4,950,000 deferred
shares of £0.01.
On 20 June 2014, the Company repurchased 4,950,000 deferred shares of £0.01 for cancellation.
On 26 June 2014, the Company issued 19,287,921 shares of £0.01 for a consideration of £192,879,210.
12. Share Premium Account
2014
£’000
Balance at 31 October 2013 0
Premium arising on issue of new shares 193,186
Costs of issuing new shares (879)
Cancellation of share premium account (192,307)
Balance at 31 December 2014 0
The Company cancelled its Share Premium Account as at 3 September 2014 by Special Resolution, which was confirmed
by an Order of the High Court of Justice.
13. Net Asset Value per Share
2014
£’000
Net asset value per share 997.0p
The net asset value per share is based on the net assets attributable to equity shareholders of £192,800,000 and on
19,337,921 shares in issue at 31 December 2014.
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14. Risk Management and Financial Instruments
The Company’s investing activities undertaken in pursuit of its investment objective, as set out on page 6, involve certain
inherent risks. The main risks arising from the Company’s financial instruments are market price risk, interest rate risk,
liquidity risk, credit risk and currency risk. The Board reviews and agrees policies for managing each of these risks as
summarised below. These policies have remained substantially unchanged during the current period.
Market price risk
Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business.
It represents the potential loss the Company might suffer through holding market positions in the face of price movements.
The Board meets on four scheduled occasions in each year and at each meeting it receives sufficient financial and statistical
information to enable it to monitor adequately the investment performance and status of the business. The Board has also
established a series of investment parameters, which are reviewed annually, designed to manage the risk inherent in
managing a portfolio of investments.
Interest rate risk
Interest rate risk is the risk of movements in the value of or income from financial instruments that arise as a result of
fluctuations in interest rates. The Company finances its operations through retained profits including capital profits, with no
additional financing.
Liquidity risk
The Company’s assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if
necessary. Short-term flexibility is achieved through the use of cash balances and short-term bank deposits. All payables
are due within under three months.
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party
to incur a financial loss. This is mitigated by the Investment Manager reviewing the credit ratings of broker counterparties.
The risk attached to dividend flows is mitigated by the Investment Manager’s research of potential investee companies. The
Company’s custodian bank is responsible for the collection of income on behalf of the Company. Cash is held either with
reputable banks with high quality external credit enhancements or in liquidity/cash funds providing a spread of exposures
to various underlying banks in order to diversify risk. The carrying amount of financial instruments best represents the
maximum exposure to credit risk.
Currency risk
The income and capital value of the Company’s investments and liabilities can be affected by exchange rate movements as
some of the Company’s assets and income are denominated in currencies other than sterling which is the Company’s
reporting currency. The key areas where foreign currency risk could have an impact on the Company are:
● movements in rates that would affect the value of investments and liabilities; and
● movements in rates that would affect the income received.
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Notes to the Accounts
Financial Statements
14. Risk Management and Financial Instruments Continued
The Company had the following currency exposures, all of which are included in the Statement of Financial Position at fair
value based on the exchange rates ruling at the period end.
31st December 2014
Investments Cash Receivables Payables Total
£’000 £’000 £’000 £’000 £’000
Bangladeshi Taka 91 0 0 0 91
Brazilian Real 12,403 0 1 0 12,404
Pounds Sterling 83,218 5,343 107 (1,363) 87,305
US Dollar 2,811 17 29 0 2,857
Egyptian Pound 4,632 161 0 0 4,793
Thai Baht 3,986 0 0 0 3,986
Colombian Peso 3,242 11 0 (244) 3,009
Chilean Peso 2,322 14 0 0 2,336
Ghanaian Cedi 197 0 0 0 197
Hong Kong Dollar 17,747 5 0 0 17,752
Indonesian Rupiah 3,516 0 0 0 3,516
Kenyan Shilling 4,535 0 52 0 4,587
Indian Rupee 18,014 62 0 0 18,076
Sri Lankan Rupee 1,926 17 0 0 1,943
Mexican Peso 1,545 0 0 0 1,545
Nigerian Naira 8,256 46 0 (86) 8,216
Peruvian Nuevo Sol 731 0 0 0 731
Philippine Peso 7,582 0 0 (302) 7,280
Pakistani Rupee 47 0 0 0 47
Turkish Lira 3,377 17 0 0 3,394
South African Rand 8,730 0 5 0 8,735
188,908 5,693 194 (1,995) 192,800
The Company mitigates the risk of loss due to exposure to a single currency by way of diversification of the portfolio.
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit after tax for the year and the net assets for the year in relation to
foreign exchange movements. The analysis below assumes that exchange rates may move +/-2% against sterling.
£’000 £’000
+2% -2%
Effect on net assets for the year 2,110 (2,110)
Effect on capital return 2,114 (2,114)
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Interest rate risk
The majority of the Company’s financial assets are equity shares and other investments which neither pay interest nor
have a maturity date. The Company’s cash balance of £5,693,000 earns interest, calculated on a tiered basis, depending
on the balance held, by reference to the base rate. The level of interest paid fluctuates in line with the base rate.
If the base rate increased by 0.5%, the impact on the profit or loss and net assets would be expected to be a positive
£28,000. If the bank base rate decreased by 0.5%, the impact on the profit or loss and net assets would be expected to
be a negative £28,000. The calculations are based on the cash balances at the respective balance sheet date and are
not representative of the period as a whole.
All current liabilities have no interest rate and are repayable within one year.
Other price risk exposure
If the investment valuation fell by 10% at 31 December 2014, the impact on profit or loss and net assets would have been
negative £18.9 million. If the investment portfolio valuation rose by 10% at 31 December 2014, the impact on profit or
loss and net assets would have been positive £18.9 million. The calculations are based on the portfolio valuations as at
the respective period-end date and are not representative of the period as a whole.
The Company held the following categories of financial instruments, all of which are included in the Statement of Financial
Position at fair value.
Assets at fair value through profit and loss
Cash
Investment income receivable
Other receivables
Other payables
£’000
188,908
5,693
87
107
(1,995)
192,800
Liquidity risk exposure
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. All
payables are due within under three months.
Capital management policies and procedures
The Company’s capital management objectives are to ensure that it will be able to continue as a going concern, and to
provide long-term growth in revenue and capital, principally by investment in UK securities.
The Company’s capital is its equity share capital and reserves that are shown in the Statement of Financial Position at a
total of £192,800,000.
The Company is subject to several externally imposed capital requirements:
● as a public company, the Company has a minimum share capital of £50,000.
● in order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be
able to meet one of the two capital restriction tests imposed on investment companies by company law.
The Company has complied with all of the above requirements.
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Notes to the Accounts
Financial Statements
15. Contingent Liabilities
As at 31 December 2014, there were no contingent liabilities or capital commitments for the Company.
16. Related Party Transactions
IAS 24 ‘Related party disclosures’ requires the disclosure of the details of material transactions between the Company
and any related parties. Accordingly, the disclosures required are set out below:
Directors – The remuneration of the Directors is set out in the Report on Directors’ Remuneration on page 35. There were
no contracts subsisting during or at the end of the period in which a Director of the Company is or was interested and
which are or were significant in relation to the Company’s business. There were no other material transactions during the
period with the Directors of the Company.
AIFM and Investment Manager – Details of the contract including the remuneration to the AIFM and Investment Manager are
detailed in Note 4 and on page 48.
Terry Smith, the Managing Partner at Fundsmith LLP, the Company’s AIFM and Investment Manager holds 500,000 shares in
the Company amounting to 2.6% of the Company’s issued share capital.
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Shareholder Information
Further Information
Financial Calendar
31 December
Financial Year End
March
30 June
August
May
Final Results Announced
Half Year End
Half Year End Results Announced
Annual General Meeting
Annual General Meeting
The Annual General Meeting of Fundsmith Emerging Equities Trust plc will be held at Barber Surgeons’ Hall, Monkwell Square,
Wood Street, London EC2Y 5BL on Tuesday, 26 May 2015 at 1.00 p.m.
Share Prices
The Company’s Ordinary Shares are listed on the London Stock Exchange under ‘Investment Companies’. The price is given
daily in the Financial Times and other newspapers.
Change of Address
Communications with shareholders are mailed to the address held on the share register. In the event of a change of address
or other amendment this should be notified to the Company’s Registrars, Capita Asset Services, under the signature of the
registered holder.
Daily Net Asset Value
The daily net asset value of the Company’s shares can be obtained on the Company’s website at www.feetplc.co.uk and is
published daily via the London Stock Exchange.
Profile of the Company’s Ownership
% of Ordinary Shares held at 31 December 2014
31 December 2014
0.7%
2.9%
0.1%
37.5%
58.8%
● Corporate
● Retail
● Investment Trusts
● Banks
● Pension Funds
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Alternative Investment Fund Managers Directive
Disclosures (Unaudited)
Fundsmith LLP and the Company are required to make certain disclosures available to investors in accordance with the
Alternative Investment Fund Managers Directive (“AIFMD”). Those disclosures that are required to be made pre-investment
are included within an Investor Disclosure Document (“IDD”) which can be found on the Company’s website
www.feetplc.co.uk.
The periodic disclosures to investors are made below:
● information on the investment strategy, geographic and sector investment focus and principal stock exposures are
included in the Strategic Report.
● None of the Company’s assets are subject to special arrangements arising from their illiquid nature.
●
●
●
The Strategic Report and note 14 to the accounts set out the risk profile and risk management systems in place. There
have been no changes to the risk management systems in place in the period under review and no breaches of any of
the risk limits set, with no breach expected.
There are no new arrangements for managing the liquidity of the Company or any material changes to the liquidity
management systems and procedures employed by Fundsmith.
All authorised Alternative Investment Fund Managers are required to comply with the AIFMD Remuneration Code. It is
therefore anticipated that the Fundsmith Remuneration Policy and associated financial disclosures will be made with
the Company’s Annual Report for 2015.
Leverage
For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the
Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the
Company’s exposure and its net asset value and can be calculated on a Gross and a Commitment method. Under the Gross
method, exposure represents the sum of the Company’s positions after the deduction of sterling cash balances, without
taking into account any hedging and netting arrangements. Under the Commitment method, exposure is calculated without
the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.
The table below sets out the current maximum permitted limit and actual level of leverages for the Company:
Maximum level of leverage
Actual level at 31 December 2014
As a percentage of assets
Gross
method
Commitment
method
115%
0%
115%
0%
There have been no breaches of the maximum level during the period and no changes to the maximum level of leverage
employed by the Company. There is no right of re-use of collateral or any guarantees granted under the leveraging
arrangement.
Changes to the information contained either within this Annual Report or the IDD in relation to any special arrangements in
place, the maximum level of leverage which Fundsmith may employ on behalf of the Company, the right of use of collateral
or any guarantee granted under any leveraging arrangement, or any change to the position in relation to any discharge or
liability by the Depositary will be notified via a regulatory news service without undue delay in accordance with the AIFMD.
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Glossary of Terms
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and transposed into UK legislation, the AIFMD
classifies certain investment vehicles, including investment companies, as Alternative Investment Funds (“AIFs”) and requires
them to appoint an Alternative Investment Fund Manager (“AIFMD”) and depositary to manage and oversee the operations
of the investment vehicle. The Board of the Company retains responsibility for strategy, operations and compliance and the
Directors retain a fiduciary duty to shareholders.
Average Operating Profit
The profit earned from a Company’s normal core business operations.
Compound Annual Growth Rate
The average year-on-year growth rate of an investment over a number of years. While investments usually do not grow at a
constant rate, the compound annual return smoothes out returns by assuming constant growth.
Discount or Premium
A description of the difference between the share price and the net asset value per share. The size of the discount or
premium is calculated by subtracting the share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher than the net asset value per share the result is
a premium. If the share price is lower than the net asset value per share, the shares are trading at a discount.
Gearing
In simple terms gearing is borrowing. An investment trust can borrow money to invest in additional investments for its
portfolio. The effect of the borrowing on the shareholders’ assets is called ‘gearing’. If the Company’s assets grow
shareholders’ assets grow proportionately more because the debt remains the same. But if the value of the Company’s
assets falls, the situation is reversed. Gearing can therefore enhance per formance in rising markets but can adversely
impact performance in falling markets.
Gearing represents borrowings at par less cash and cash equivalents expressed as a percentage of shareholders’ funds.
Potential gearing is the company’s borrowings expressed as a percentage of shareholders’ funds.
Leverage
For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the
Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the
Company’s exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross
method, exposure represents the sum of the Company’s positions after the deduction of sterling cash balances, without
taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without
the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.
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Glossary of Terms
Further Information
Initial Public Offering (IPO)
The initial offer by a company of shares to be quoted on a stock exchange. Often known as a flotation.
Net Asset Value (NAV)
The value of the Company’s assets, principally investments made in other companies and cash being held, minus any
liabilities. The NAV is also described as ‘shareholders’ funds’ per share. The NAV is often expressed in pence per share
after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the
share price which is the price at which the Company’s shares can be bought or sold by an investor. The share price is
determined by the relationship between the demand and supply of the shares.
Neutral Free Cash Flow
An entity has neutral free cash flow if its expenses equal its income.
Ongoing Charges
Ongoing charges are calculated by taking the Company’s annualised ongoing charges, excluding per formance fees and
exceptional items, and dividing by the average net asset value of the Company over the year.
Price Earnings Ratio
A Company’s share price divided by the amount of profit it makes for each share in a 12-month period.
Return on Capital Employed (“ROCE”)
A financial ratio that measures a company’s profitability and the efficiency with which its capital is employed. It is calculated
as Earnings Before Interest and Tax (EBIT)/Capital Employed.
Zero Interest Rate Policy (“ZIRP”)
In monetary policy, the use of a 0% nominal interest rate means that the central bank can no longer reduce the interest rate
to encourage economic growth. A zero-bound interest rate typically refers to the process where, by gradual steps, the interest
rate approaches zero.
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How to Invest
Investment Platforms
The Company’s shares are traded openly on the London Stock Exchange and can be purchased through a stock broker or
other financial intermediary. The shares are available through savings plans (including Investment Dealing Accounts, ISAs,
Junior ISAs and SIPPs) which facilitate both regular monthly investments and lump sum investments in the Company’s
shares. There are a number of investment platforms that offer these facilities. A list of some of them, that is not
comprehensive nor constitutes any form of recommendation, can be found below:
AJ Bell Youinvest
http://www.youinvest.co.uk/
Alliance Trust Savings
http://www.alliancetrustsavings.co.uk/
Barclays Stockbrokers
https://www.barclaysstockbrokers.co.uk/Pages/index.aspx
Charles Stanley Direct
https://www.charles-stanley-direct.co.uk/
Club Finance
Fast Trade
FundsDirect
http://www.clubfinance.co.uk/
http://www.fastrade.co.uk/wps/portal
http://www.fundsdirect.co.uk/Default.asp?
Halifax Share Dealing
http://www.halifax.co.uk/Sharedealing/
Hargreaves Lansdown
http://www.hl.co.uk/
HSBC
iDealing
IG Index
https://investments.hsbc.co.uk/
http://www.idealing.com/
http://www.igindex.co.uk/
Interactive Investor
http://www.iii.co.uk/
IWEB
http://www.iweb-sharedealing.co.uk/share-dealing-home.asp
James Brearley
http://www.jbrearley.co.uk/Marketing/index.aspx
Natwest Stockbrokers
http://www.natweststockbrokers.com/nw/products-and-services/share-dealing.ashx
Saga Share Direct
https://www.sagasharedirect.co.uk/
Selftrade
http://www.selftrade.co.uk/
The Share Centre
https://www.share.com/
Saxo Capital Markets
http://uk.saxomarkets.com/
TD Direct Investing
http://www.tddirectinvesting.co.uk/
Capita Asset Services – Share Dealing Service
A quick and easy share dealing service is available to existing shareholders through the Company’s Registrar, Capita Asset
Services, to either buy or sell shares. An online and telephone dealing facility provides an easy to access and simple to use
service.
Type of trade
Share certificates
Costs*
Online
Telephone
1.25% of the value of the deal
1.5% of the value of the deal
(Minimum £30.00, max £150.00)
(Minimum £40.00, max £195.00)
There is no need to pre-register and there are no complicated forms to fill in. The online and telephone dealing service
allows you to trade ‘real time’ at a known price which will be given to you at the time you give your instruction.
To deal online or by telephone all you need is your surname, shareholder reference number, full postcode and your date of
birth. Your shareholder reference number can be found on your latest statement or certificate where it will appear as either
a ‘folio number’ or ‘investor code’. Please have the appropriate documents to hand when you log on or call, as this
information will be needed before you can buy or sell shares.
*These are correct at the time of printing and may be subject to change. Please visit www.capitadeal.com for the current costs.
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How to Invest
Further Information
The maximum deal size for online trades is £25,000. Deals over this amount can be done over the telephone and rates will
be advised at the time of dealing.
For further information on this service please contact: www.capitadeal.com (online dealing) or 0871 664 0364† (telephone
dealing).
If calling from outside of the UK please dial +44 (0) 203 367 2686
† Calls cost 10p per minute plus network extras and may be recorded for training purposes. Lines are open from 8.00 a.m.
to 4.30 p.m. Monday to Friday.
Risk Warnings
● Past performance is no guarantee of future performance.
● The value of your investment and any income from it may go down as well as up and you may not get back the amount
invested. This is because the share price is determined, in part, by the changing conditions in the relevant stockmarkets
in which the Company invests and by the supply and demand for the Company’s shares.
● As the shares in an investment trust are traded on a stockmarket, the share price will fluctuate in accordance with
supply and demand and may not reflect the underlying net asset value of the shares; where the share price is less than
the underlying value of the assets, the difference is known as the ‘discount’. For these reasons, investors may not get
back the original amount invested.
● Although the Company’s financial statements are denominated in sterling, all of the holdings in the portfolio are currently
denominated in currencies other than sterling and therefore they may be affected by movements in exchange rates. As
a result, the value of your investment may rise or fall with movements in exchange rates.
● Investors should note that tax rates and reliefs may change at any time in the future.
● The value of ISA and Junior ISA tax advantages will depend on personal circumstances. The favourable tax treatment of
ISAs and Junior ISAs may not be maintained.
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Notice of the Annual General Meeting
Notice is hereby given that the Annual General Meeting of Fundsmith Emerging Equities Trust plc will be held at Barber-
Surgeons’ Hall, Monkwell Square, Wood Street, London EC2Y 5BL on Tuesday, 26 May 2015 at 1.00 p.m. for the following
purposes:
Ordinary Business
To consider and, if thought fit, pass the following as ordinary resolutions:
1.
2.
3.
4.
5.
6.
7.
To receive and, if thought fit, to accept the Audited Financial Statements and the Report of the Directors for the
period 31 October 2013 to 31 December 2014
To elect Martin Bralsford as a Director of the Company
To elect David Potter as a Director of the Company
To elect John Spencer as a Director of the Company
To approve the Directors’ Remuneration Report for the period ended 31 December 2014
To receive and approve the Remuneration Policy
To re-appoint Deloitte LLP as Auditor to the Company and to authorise the Directors to determine their remuneration
Special Business
To consider and, if thought fit, pass the following resolutions of which resolutions 9, 10, and 11 will be proposed as special
resolutions:
Authority to Allot Shares
8.
THAT in substitution for all existing authorities the Directors be and are hereby generally and unconditionally
authorised in accordance with Section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the
Company to allot relevant securities (within the meaning of Section 551 of the Act) up to a maximum aggregate
nominal amount of £19,337 (being 10% of the issued share capital of the Company at the date of the notice
convening the meeting at which this resolution is proposed) and representing 1,933,792 shares of 1 penny each
(or, if less, the number representing 10% of the issued share capital of the Company at the date at which this
resolution is passed), provided that this authority shall expire at the conclusion of the Annual General Meeting of
the Company to be held in 2016 or 15 months from the date of passing this resolution, whichever is the earlier,
unless previously revoked, varied or renewed, by the Company in general meeting and provided that the Company
shall be entitled to make, prior to the expiry of such authority, an offer or agreement which would or might require
relevant securities to be allotted after such expiry and the Directors may allot relevant securities pursuant to such
offer or agreement as if the authority conferred hereby had not expired.
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Notice of the Annual General Meeting
Further Information
Disapplication of Pre-emption Rights
9.
THAT in substitution of all existing powers the Directors be and are hereby generally empowered pursuant to Sections
570 and 573 of the Companies Act 2006 (the “Act”) to allot equity securities (within the meaning of section 560 of
the Act) for cash pursuant to the authority conferred on them by resolution 8 set out in the notice convening the
Annual General Meeting at which this resolution is proposed or otherwise as if section 561(1) of the Act did not
apply to any such allotment and to sell relevant shares (within the meaning of section 560 of the Act) for cash as if
section 561(1) of the Act did not apply to any such sale, provided that this power shall be limited to the allotment
of equity securities pursuant to:
(a)
(b)
an offer of equity securities open for acceptance for a period fixed by the Directors where the equity securities
respectively attributable to the interests of holders of shares of 1 penny each in the Company (“Shares”)
are proportionate (as nearly as may be) to the respective numbers of Shares held by them but subject to
such exclusions or other arrangements in connection with the issue as the Directors may consider necessary,
appropriate, or expedient to deal with equity securities representing fractional entitlements or to deal with
legal or practical problems arising in any overseas territory, the requirements of any regulatory body or stock
exchange, or any other matter whatsoever; and
(otherwise than pursuant to sub-paragraph (a) above) up to an aggregate nominal value of £19,337 or, if
less, the number representing 10% of the issued share capital of the Company at the date of the meeting
at which this resolution is passed,
and expires at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution
or 15 months from the date of passing this resolution, whichever is the earlier, unless previously revoked, varied or
renewed by the Company in general meeting and provided that the Company shall be entitled to make, prior to the
expiry of such authority, an offer or agreement which would or might require equity securities to be allotted after
such expir y and the Directors may allot equity securities pursuant to such offer or agreement as if the power
conferred hereby had not expired.
Authority to Repurchase Ordinary Shares
10.
THAT the Company be and is hereby generally and unconditionally authorised in accordance with section 701 of the
Companies Act 2006 (the “Act”) to make one or more market purchases (within the meaning of section 693(4) of
the Act) of ordinary shares of 1 penny each in the capital of the Company (“Shares”) for cancellation provided that:
(a)
(b)
(c)
the maximum aggregate number of Shares authorised to be purchased is 2,898,754 (representing
approximately 14.99% of the issued share capital of the Company at the date of the notice convening the
meeting at which this resolution is proposed);
the minimum price (exclusive of expenses) which may be paid for a Share is 1 penny;
the maximum price (exclusive of expenses) which may be paid for a Share is an amount equal to the greater
of (i) 105% of the average of the middle market quotations for a Share as derived from the Daily Official List
of the London Stock Exchange for the five business days immediately preceding the day on which that Share
is purchased and (ii) the higher of the price of the last independent trade in shares and the highest then
current independent bid for shares on the London Stock Exchange as stipulated in Article 5(1) of Regulation
No. 2233/2003 of the European Commission (Commission Regulation of 22 December 2003 implementing
the Market Abuse Directive as regards exemptions for buy-back programmes and stabilisation of financial
instruments);
(d)
the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company
to be held in 2016 or, if earlier, on the expiry of 15 months from the date of the passing of this resolution
unless such authority is renewed prior to such time; and
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(e)
the Company may make a contract to purchase Shares under this authority before the expiry of such authority
which will or may be executed wholly or partly after the expiration of such authority, and may make a purchase
of Shares in pursuance of any such contract.
General Meetings
11.
THAT the Directors be authorised to call general meetings (other than annual general meetings) on not less than 14
clear days’ notice, such authority to expire at the conclusion of the next Annual General Meeting of the Company or,
if earlier, until expiry of 15 months from the date of the passing of this resolution.
By order of the Board
Frostrow Capital LLP
Company Secretary
19 March 2015
Registered office:
33 Cavendish Square
London W1G 0PW
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Notice of the Annual General Meeting
Further Information
Notes
1.
Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the
meeting. A shareholder may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise
the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A
proxy form which may be used to make such appointment and give proxy instructions accompanies this notice.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the
resolutions. If no voting indication is given, a proxy may vote or abstain from voting at his/her discretion. A proxy may vote (or
abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting.
To be valid any proxy form or other instrument appointing a proxy must be completed and signed and received by post or (during
normal business hours only) by hand at Capita Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF no later
than 1.00 p.m. on 21 May 2015.
In the case of a member which is a company, the instrument appointing a proxy must be executed under its seal or signed on its
behalf by a duly authorised officer or attorney or other person authorised to sign. Any power of attorney or other authority under
which the instrument is signed (or a certified copy of it) must be included with the instrument.
The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described below) will not prevent
a shareholder attending the meeting and voting in person if he/she wishes to do so.
Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a “Nominated Person”) may, under an agreement between him/her and the shareholder by whom he/she was
nominated, have a right to be appointed (or have someone else appointed) as a proxy for the meeting. If a Nominated Person has
no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give
instructions to the shareholder as to the exercise of voting rights.
The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 3 above does not apply
to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company.
Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, only shareholders registered on the register of members
of the Company (the “Register of Members”) at 5.30 p.m. on 21 May 2015 (or, in the event of any adjournment, on the date which
is two days before the time of the adjourned meeting) will be entitled to attend and vote or be represented at the meeting in respect
of shares registered in their name at that time. Changes to the Register of Members after that time will be disregarded in determining
the rights of any person to attend and vote at the meeting.
As at 19 March 2015 (being the last business day prior to the publication of this notice) the Company’s issued share capital
consists of 19,337,921 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 19 March
2015 are 19,337,921.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using
the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST
members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in accordance with the specifications of Euroclear UK and Ireland Limited
(“CRESTCo”), and must contain the information required for such instruction, as described in the CREST Manual. The message,
regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed
proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA10) no later than 48 hours before
the time appointed for holding the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message
by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through
CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors, or voting service providers should note that CRESTCo does not
make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore,
apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that
his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted
by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted
by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in
the Register of Members in respect of the joint holding (the first named being the most senior).
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15. Members who wish to change their proxy instructions should submit a new proxy appointment using the methods set out above.
Note that the cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any
amended proxy appointment received after the relevant cut-off time will be disregarded.
16. Members who have appointed a proxy using the hard-copy proxy form and who wish to change the instructions using another hard-
copy form, should contact Capita Asset Services on 0871 664 0300 (calls cost 10p per minute plus network extras). Lines are
open 8.30am to 5.30pm Monday to Friday.
17.
18.
If a member submits more than one valid proxy appointment, the appointment received last before the latest time for the receipt
of proxies will take precedence.
In order to revoke a proxy instruction, members will need to inform the Company. Members should send a signed hard copy notice
clearly stating their intention to revoke a proxy appointment to Capita Asset Services, PXS1, 34 Beckenham Road, Beckenham,
Kent BR3 4ZF.
In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by
an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice
is signed (or a duly certified copy of such power of attorney) must be included with the revocation notice. If a member attempts to revoke
their proxy appointment but the revocation is received after the time for receipt of proxy appointments (see above) then, subject to
paragraph 4, the proxy appointment will remain valid.
LOCATION OF THE ANNUAL GENERAL MEETING
Barber-Surgeons’ Hall, Monkwell Square, Wood Street, London EC2Y 5BL
Barbican
Barber-Surgeons’ Hall
Monkwell Square
P
P
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A
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Moorgate
Moorgate
FORE STREET
T
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D S
O
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LONDON WALL
T
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A
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GRESHAM STREET
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LONDON WAL
LOTHBURY
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St. Pauls
CHEAPSIDE
POULTRY
Bank
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Explanatory Notes to the Resolutions
Further Information
Resolution 1 – To receive the Annual Report and Accounts
The Annual Report and Accounts for the period from incorporation on 31 October 2013 to 31 December 2014 will be
presented to the Annual General Meeting. These accounts accompanied this Notice of Meeting and shareholders will be
given an opportunity at the meeting to ask questions.
Resolutions 2 to 4 – Election of Directors
Resolutions 2 to 4 deal with the election of each Director. Biographies of each of the Directors can be found on page 19 of
this annual report.
Resolutions 5 to 6 – Remuneration Policy and Remuneration Report
It is now mandatory for all listed companies to put both their Report on Directors’ Remuneration and their Remuneration
Policy to a shareholder vote. The Report on Directors’ Remuneration and the Directors’ Remuneration Policy Report are set
out in full in this annual report on pages 35 to 37.
Resolution 7 – Re-Appointment of Auditor and the determination of their remuneration
Resolution 7 relates to the re-appointment of Deloitte LLP as the Company’s independent Auditor to hold office until the
next Annual General Meeting of the Company and also authorises the Directors to set their remuneration.
Resolutions 8 and 9 – Issue of Shares
Ordinary Resolution 8 in the Notice of Annual General Meeting will renew the authority to allot the unissued share capital
up to an aggregate nominal amount of £19,337 (equivalent to 1,933,792 shares, or 10% of the Company’s existing issued
share capital on 19 March 2015, being the nearest practicable date prior to the signing of this Report). Such authority will
expire on the date of the next Annual General Meeting or after a period of 15 months from the date of the passing of the
resolution, whichever is earlier. This means that the authority will have to be renewed at the next Annual General Meeting.
When shares are to be allotted for cash, Section 551 of the Companies Act 2006 (the “Act”) provides that existing
shareholders have pre-emption rights and that the new shares must be offered first to such shareholders in proportion to
their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares
otherwise than by a pro rata issue to existing shareholders. Special Resolution 9 will, if passed, give the Directors power to
allot for cash equity securities up to 10% of the Company’s existing share capital on 19 March 2015, as if Section 551 of
the Act does not apply. This is the same nominal amount of share capital which the Directors are seeking the authority to
allot pursuant to Resolution 8. This authority will also expire on the date of the next Annual General Meeting or after a period
of 15 months, whichever is earlier. This authority will not be used in connection with a rights issue by the Company.
The Directors intend to use the authority given by Resolutions 8 and 9 to allot shares and disapply pre-emption rights only
in circumstances where this will be clearly beneficial to shareholders as a whole. The issue proceeds would be available for
investment in line with the Company’s investment policy. No issue of shares will be made which would effectively alter the
control of the Company without the prior approval of shareholders in general meeting.
Resolution 10 – Share Repurchases
The principal aim of a share buy-back facility is to enhance shareholder value by acquiring shares at a discount to net asset
value, as and when the Directors consider this to be appropriate. The purchase of shares, when they are trading at a discount
to net asset value per share, should result in an increase in the net asset value per share for the remaining shareholders.
This authority, if conferred, will only be exercised if to do so would result in an increase in the net asset value per share for
the remaining shareholders and if it is in the best interests of shareholders generally. Any purchase of shares will be made
within guidelines established from time to time by the Board. Shares purchased under this authority will be cancelled.
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Under the current Listing Rules, the maximum price that may be paid on the exercise of this authority must not exceed the
higher of (i) 105% of the average of the middle market quotations for the shares over the five business days immediately
preceding the date of purchase and (ii) the higher of the last independent trade and the highest current independent bid on
the trading venue where the purchase is carried out. The minimum price which may be paid is 1 penny per share. Shares
which are purchased under this authority will be cancelled.
Special Resolution 10 in the Notice of Annual General Meeting will renew the authority to purchase in the market a maximum
of 14.99% of shares in issue on 19 March 2015, being the nearest practicable date prior to the signing of this Report,
(amounting to 2,898,754 shares). Such authority will expire on the date of the next Annual General Meeting or after a period
of 15 months from the date of passing of the resolution, whichever is earlier. This means in effect that the authority will
have to be renewed at the next Annual General Meeting or earlier if the authority has been exhausted.
Resolution 11 – General Meetings
Special Resolution 11 seeks shareholder approval for the Company to hold General Meetings (other than the Annual General
Meeting) at 14 clear days’ notice.
Recommendation
The Board considers that the resolutions relating to the above items of special business, are in the best interests of
shareholders as a whole. Accordingly, the Board unanimously recommends to the shareholders that they vote in favour of
the above resolutions to be proposed at the forthcoming Annual General Meeting as the Directors intend to do in respect
of their own beneficial holdings totaling 110,000 shares.
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Company Information
Further Information
Directors
Martin Bralsford, (Chairman)
David Potter (Chairman of the Management Engagement
Committee)
John Spencer (Chairman of the Audit Committee)
Administrator
State Street Bank and Trust Company
20 Churchill Place
Canary Wharf
London E14 5HJ
Registered Office
33 Cavendish Square
London W1G 0PW
Website
www.feetplc.co.uk
Company Registration Number
08756681 (Registered in England)
The Company is an investment company as defined under
Section 833 of the Companies Act 2006.
The Company was incorporated in England on 31 October
2013 as FEEIT plc
Investment Manager and AIFM
Fundsmith LLP
52-54 Gracechurch Street
London EC3V 0EH
Website: www.fundsmith.co.uk
Authorised and regulated by the Financial Conduct
Authority.
Company Secretary
Frostrow Capital LLP
25 Southampton Buildings
London WC2A 1AL
Telephone: 0203 008 4910
E-Mail: info@frostrow.com
Website: www.frostrow.com
Authorised and regulated by the Financial Conduct
Authority.
If you have an enquiry about the Company or if you would
like to receive a copy of the Company’s monthly fact
sheet by e-mail, please contact Frostrow Capital using the
stated e-mail address.
Depositary
State Street Trustees Limited
20 Churchill Place
Canary Wharf
London E14 5HJ
Custodian and Banker
State Street Bank and Trust Company
20 Churchill Place
Canary Wharf
London E14 5HJ
Independent Auditor
Deloitte LLP
2 New Street Square
London EC4A 3B2
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone (in UK): 0871 664 0300†
Telephone (from overseas): +44 20 8639 3399
Facsimile: +44 (0) 1484 600911
E-Mail: ssd@capitaassetservices.com
Website: www.capitaassetservices.com
Please contact the Registrars if you have a query about a
certificated holding in the Company’s shares.
†calls cost 10p per minute plus network charges and
may be recorded for training purposes. Lines are open
from 8.30 a.m. to 5.30 p.m. Monday to Friday.
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Company Information
Further Information
Brokers
Investec Bank plc
2 Gresham Street
London EC2V 7QP
Solicitors
Travers Smith
10 Snow Hill
London EC1A 2AL
Identification Codes
Shares:
SEDOL:
ISIN:
BLOOMBERG:
EPIC:
BLSNND1
GB00BLSNND18
FEET LN
FEET
Foreign Account Tax Companies Act
(“FATCA”)
32RSE8.99999.SL.826
Fundsmith Emerging Equities Trust plc Annual Report & Accounts 2014 | 71
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Disability Act
Copies of this annual report and other documents issued by the Company are available from the Company Secretary. If needed, copies can be
made available in a variety of formats, including braille, audio tape or larger type as appropriate. You can contact the Registrar to the Company,
Capita Registrars, which has installed telephones to allow speech and hearing impaired people who have their own telephone to contact them
directly, without the need for an intermediate operator, for this service please call 0800 731 1888. Specially trained operators are available during
normal business hours to answer queries via this service. Alternatively, if you prefer to go through a ‘typetalk’ operator (provided by RNID) you
should dial 18001 from your textphone followed by the number you wish to dial.
This report is printed on Revive Pure White Silk a totally recycled paper produced using 100% recycled waste at a mill that has been awarded the
ISO 14001 certificate for environmental management.
The pulp is bleached using a totally chlorine free (TCF) process.
234739 Frostrow FEET Cover 02/04/2015 12:29 Page 1
Annual Report
& Accounts
for the Period from Incorporation on
31 October 2013 to 31 December 2014
Fundsmith Emerging Equities Trust plc
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A member of the Association of Investment Companies
Fundsmith Emerging Equities Trust plc
33 Cavendish Square, London W1G 0PW
www.feetplc.co.uk
Perivan Financial Print 234739