239187 Frostrow FEET Cover 5mm spine 18/03/2016 21:51 Page 1
Annual Report
for the year ended 31 December 2015
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 239187
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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 Amadeus 100% 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.
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Contents
1
Strategic Report
2
3
4
6
11
13
16
Company Summary
Financial Highlights
Chairman’s Statement
Overview of Strategy
Investment Portfolio
Investment Manager’s Review
Investment Philosophy
3
Financial Statements
38
44
Independent Auditor’s Report
Statement of Comprehensive
2
Governance
19
21
24
Board of Directors
Report of the Directors
Statement of Directors’
Responsibilities
Corporate Governance
Audit Committee Report
Directors’ Remuneration Report
Directors’ Remuneration
25
33
35
37
Policy Report
4
Further Information
62
63
Shareholder Information
Alternative Investment Fund
Income
45
46
47
48
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Managers Directive Disclosures
Glossary of Terms
How to Invest
Notice of Annual General Meeting
Explanatory Notes
to the Resolutions
Company Information
65
67
69
74
76
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Company Summary
Strategic Report
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
premium 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 2015
were £179.3 million (2014: £192.8 million) and the market
capitalisation was £184.7 million (2014: £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 financial
statements on page 56.
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
Performance Summary
As at
31 December 2015
As at
31 December 2014
Share Price
Net asset value per share
Premium of the share price to the net asset
value per share
Ongoing charges ratio
955.0p
927.4p
3.0%
1.7%
1072.0p
997.0p
7.5%
1.7%
Net asset value per share
Share price
Benchmark1
From the launch of the
For the year ended Company on 25 June 2014
to 31 December 2014
31 December 2015
-7.0%
-10.9%
-10.0%
-6.8%
-4.5%
+0.5%
1MSCI Emerging and Frontier Markets Index (measured on a net sterling adjusted basis)
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Chairman’s Statement
Strategic Report
Introduction
I am pleased to present our second Annual Report since the launch of the Company in
mid-2014. It covers the year ended 31 December 2015; the Company’s first full year.
The Company’s share price
decreased by 10.9%
in the year
Performance
In the Investment Manager’s report (beginning on page 13),
they describe how the proceeds have been fully invested and
the development of the portfolio over the year. The stock
markets of countries in which the Company invests have
performed poorly in 2015. The MSCI Emerging and Frontier
Markets Index, measured on a net sterling adjusted basis,
fell by 10.0% over the year. The Company’s net asset value
per share outper formed the benchmark but fell by 7.0%
itself (after expenses). However, shareholders should be
reassured by the positive returns on capital and profit
margins in the underlying investee companies, outlined in
more detail on page 15. Your Board notes the Investment
Manager’s confidence in these high quality companies with
strong underlying characteristics, which is crucial in the
long-term.
The Company’s share price also fell, by 10.9% to
955.0 pence per share over the year, but remained at a
premium to the Company’s net asset value per share at the
end of the year, being 3.0%. The Board keeps the share
price premium under review.
Share Capital
The Company has had 19,337,921 ordinary shares in issue
since its launch. It is the Board’s view that the ability to
issue new shares at a small premium to net asset value per
share plays an important part in ensuring that the level of
premium at which the Company’s shares trade does not
reach excessive levels. In addition, growing the total assets
under management through share issuance will reduce on-
going costs per share and potentially enhance the
secondary market liquidity of the Company’s shares, both
of which are attractive to all shareholders.
As the Company is now fully invested and has consistently
traded at a premium to net asset value, the Board has been
considering a share issuance programme to increase the
capital of the Company and will utilise the existing
shareholder authority to issue up to 10% of the Company’s
issued share capital, which was obtained at the Company’s
Annual General Meeting in 2015, to commence this
process. The Board will seek a renewal of this authority at
the forthcoming Annual General Meeting and in addition,
with regard to the potential benefits of increasing the scale
of the Company further, we will also seek shareholder
authority to issue a further 15% of the Company’s issued
share capital.
We will only issue shares under these authorities where the
issue price per share (after taking into account the costs of
the issue) is not less than the prevailing net asset value per
share. In doing so, any share issues are expected to be
accretive to the Company's net asset value per share.
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investee
Outlook
Our Investment Manager continues to be cautious with
regard to the short-term prospects for the target developing
economies, but remains confident in the quality of the
underlying
companies. Whilst Developing
Economies continue to experience volatility, their domestic
demand-led growth is evident. 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 established and cash generative consumer
brands will provide attractive returns for our shareholders in
the long-term.
Annual General Meeting
The Company’s AGM which will be held on Thursday,
26 May 2016 at 1.00pm at Saddlers’ Hall, 40 Gutter Lane,
London EC2V 6BR 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 that time, together with
my Board colleagues.
Martin Bralsford
Chairman
18 March 2016
Following discussions with the Company’s investment
manager, Fundsmith LLP, the Board is satisfied that suitable
investment opportunities are available to absorb any
additional capital raised and shares will only be issued when
this remains the case. We have also limited the authority
such that it can only be used when the result of the
fundraising would not result in the Company having more
than 10% of its assets in cash, which is a discipline that we
feel is sensible to protect investors from so-called “cash
drag” i.e. the negative impact on equity returns of having
uninvested cash in a rising equity market.
In addition to the specific restrictions placed on the
additional shareholder authority, any issue of shares under
this authority, should market conditions and investor
demand permit, will be subject to the subsequent
publication of a prospectus.
We look forward to receiving shareholder support for these
resolutions which your Board unanimously believes to be in
the best interests of shareholders.
Dividends
The Board has not recommended a dividend this year, and
may not do so for some time. The Company’s principal
investment objective is to provide capital growth rather than
income. The Company will comply with the United Kingdom’s
investment trust rules regarding distributable income which
require that expenses are allocated to revenue or capital
depending on where the split of long-term returns is
expected. At present all costs have been allocated against
revenue as the Company has only just become fully invested
and capital returns have been negative since inception. Our
expectation is that this split will be reviewed next year and
if it were to change, it would increase the chance of a
dividend being paid although this is by no means certain.
Any dividends and distributions will be at the discretion of
the Board from time to time.
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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.
Investment Approach and Policy
The Company maintains a portfolio diversified by issuer
concentration and the Company’s portfolio will normally
comprise 35 to 55 investments.
The Company complies 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 5% 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.
*See Fundsmith’s Investment Philosophy on page 16 for further information
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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;
● Premium/discount 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 year under review the Company’s net asset value
per share return was -7.0%, outperforming the benchmark
by 3.0%.
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 year under review the Company’s share price
return was -10.9%, underper forming the benchmark by
0.9%.
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, 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. To this end, the Board has been considering issuing
new shares at an appropriate time. Further details are
provided in the Chairman’s Statement on pages 4-5.
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 2015 the ongoing
charges ratio was 1.7%.
Ongoing charges ratio
31 December 2015 2014
1.7% 1.7%
Premium of the Company’s share price to net asset
value per share on
31 December 2015 2014
3.0% 7.5%
Number of Ordinary Shares in issue
31 December 2015 2014
19,337,921 19,337,921
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Overview of Strategy
Strategic Report
Risk Management
The Board is responsible for the ongoing identification,
evaluation and management of the principal risks faced by
the Company and the Board regularly reviews these risks
and how each risk is mitigated. The Directors have carried
out a robust assessment of the principal risks facing the
Company, including those that would threaten its solvency
and liquidity. The Board has categorised the risks faced by
the Company under five headings as follows:
A summary of these risks and their mitigation is described
below:
Principal Risks and Uncertainties
Mitigation
● Investment activity and strategy
● Financial
● Shareholder relations and corporate governance
● Operational
● Accounting, legal and regulatory
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 share price premium or discount to net asset
value per share 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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Principal Risks and Uncertainties
Mitigation
Financial
The
Company
counterparty
liquidity
exchange risk and credit risk.
financial risks associated with the
(including
foreign
include market
risk),
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 56.
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, which could result in reputational
damage to the Company.
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
or payments systems
the
including
Company’s ser vice providers,
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. The Audit Committee receives annually internal control reports
from the AIFM and the Registrar. The Audit Committee also reviews a
summary of the SOC1 (or ISAE 3402) report from the Company’s
custodian. These reviews include consideration of the associated cyber
security risks facing the Company. Further details of the Board’s internal
controls are set out in the Audit Committee Report on page 34.
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.
The Company’s Depositar y reports annually to the Audit Committee
confirming that the Company has been managed in accordance with the
AIFMD, the FUND Sourcebook and the Company’s Articles of Association
and Prospectus.
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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 year,
are shown below. Further information on the Directors can
be found on page 19.
Martin Bralsford (Chairman)
David Potter
John Spencer
All Directors seek 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.
An over view of the main trends and factors affecting the
performance of the Company is set out in the Investment
Manager’s Review beginning on page 13.
The Company’s overall strategy remains unchanged.
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Investment Portfolio
Investments held as at 31 December 2015
Security Country of incorporation Fair value £’000
% of investments
Godrej Consumer Products Ltd India 6,144
Vitasoy International Holdings Ltd Hong Kong 6,032
Universal Robina Corp Philippines 5,289
Colgate Palmolive (India) Ltd India 5,074
Britannia Industries Ltd India 4,749
Foshan Haitian Flavouring China 4,723
Jollibee Foods Corp Philippines 4,617
Grupo Lala SAB De CV Mexico 4,480
Hindustan Unilever Ltd India 4,403
East African Breweries Ltd Kenya 4,402
3.4%
3.4%
3.0%
2.8%
2.7%
2.7%
2.6%
2.5%
2.5%
2.5%
Top 10 Investments 49,913
28.1%
Emami Ltd India 4,386
Dabur India Ltd India 4,310
Eastern Tobacco Egypt 4,192
Asian Paints Ltd India 4,159
Philippine Seven Corp Philippines 4,073
Glaxosmithkline Consumer Healthcare Ltd India 3,990
Edita Food Industries Reg Egypt 3,868
HM Sampoerna Tbk PT Indonesia 3,835
Nigerian Breweries Plc Nigeria 3,829
Bim Birlesik Magazalar AS Turkey 3,757
2.5%
2.4%
2.4%
2.3%
2.3%
2.2%
2.2%
2.2%
2.1%
2.1%
Top 20 Investments 90,312
50.8%
Nestlé India Ltd India 3,715
Mr Price Group Ltd South Africa 3,688
Indofood CBP Sukses Makmur Tbk Indonesia 3,622
Famous Brands Ltd South Africa 3,580
Shoprite Holdings Ltd South Africa 3,525
Spur Corp Ltd South Africa 3,484
Sun Art Retail Group Ltd Hong Kong 3,433
Procter + Gamble Hygiene India 3,429
Magnit PJSC Spon GDR Regs Russian Federation 3,415
Ceylon Tobacco Co Plc Sri Lanka 3,330
2.1%
2.1%
2.0%
2.0%
2.0%
2.0%
1.9%
1.9%
1.9%
1.9%
Top 30 Investments 125,533
70.6%
Nestlé Lanka Plc Sri Lanka 3,292
Big C Supercenter Pcl Thailand 3,271
Guinness Nigeria Plc Nigeria 3,221
Nestlé Nigeria Plc Nigeria 3,183
Tiger Brands Ltd South Africa 3,166
Unilever Indonesia Tbk PT Indonesia 3,136
Forus SA Chile 3,068
Ambev SA Brazil 3,052
Tanzania Breweries Ltd Tanzania 3,013
Hengan Intl Group Co Ltd Cayman Islands 2,964
1.9%
1.8%
1.8%
1.8%
1.8%
1.8%
1.7%
1.7%
1.7%
1.7%
Top 40 Investments 156,899
88.3%
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Investment Portfolio
Strategic Report
Investments held as at 31 December 2015 – continued
Security Country of incorporation Fair value £’000
% of investments
Want Want China Holdings Ltd Cayman Islands 2,941
Bajaj Corp Ltd India 2,939
Marico Ltd India 2,872
Marico Ltd (Placing) India 2,858
Hypermarcas SA Brazil 2,704
Unilever Nigeria Plc Nigeria 2,174
Nestlé Pakistan Ltd Pakistan 1,300
Fan Milk Ltd Ghana 1,158
British American Tobacco Bangladesh Co Ltd Bangladesh 1,137
Walmart De Mexico SAB de CV Mexico 724
1.7%
1.7%
1.6%
1.6%
1.5%
1.2%
0.7%
0.7%
0.6%
0.4%
Top 50 Investments 177,706
100.0%
Portfolio Distribution
as at 31 December 2015
By Sector (based on net asset value)
2%
2%
6%
By Geography (by Country of Incorporation)
8%
7%
16%
41%
32%
30%
26%
● Food & Beverage
● Fast Moving Consumer Goods
● Retail
● Tobacco
● Fast food
● Chemicals & Industrials
● Cash
Top 10 Purchases and Sales in 2015
Top 10 Purchases
Security
1.
Foshan Haitian Flavouring
2. Procter & Gamble Hygiene
3. Asian Paints Ltd
4. Glaxosmithkline Consumer Healthcare
5. Spur Corp Ltd
6. Edita Food Industries Reg
7. Mr Price Group Ltd
8. Nestlé India Ltd
9. Nestlé Lanka Ltd
10. Dabur India Ltd
Country of incorporation
China
India
India
India
South Africa
Egypt
South Africa
India
Sri Lanka
India
30%
● Asia (ex India)
● Eastern Europe, Middle East
and Africa
● India
● Latin America
Kroton Educacional SA
Pidilite Industries Ltd
Top 10 Sales
Security
1.
2.
3. Grupo Nutresa SA
4.
5.
6. Wynn Macau Ltd
7. Havells India Ltd
8.
9. Natura Cosmeticos SA
10. Alicorp SAA
ITC Ltd
Souza Cruz SA
Sa Sa International Hldgs
Country of incorporation
Brazil
India
Columbia
India
Brazil
Cayman Islands
India
Cayman Islands
Brazil
Peru
12 | Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2015
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Investment Manager’s Review
2015 was the first full year that Fundsmith Emerging
Equities Trust plc (“FEET”) has been in existence.
To recap once again on our original investment proposition
when we launched may seem like the old Yogi Berra (the
American baseball player and coach who was known for his
deceptively simple sayings and who died in 2015) aphorism:
“It’s déjà vu all over again”, but in my view it is wise to keep
your original thesis in mind when investing, and check
periodically to see whether it appears to be correct.
This had two elements:
Investment Proposition 1
FEET was to be invested using the same strategy as the
Fundsmith Equity Fund but with one added dimension: the
companies invested in by FEET would have the majority of
their operations in, or revenues derived from, Developing
Economies and provide direct exposure to the rise of the
consumer classes in those countries. This rise is a
well-established trend with a predictable pattern of
development and has a long way to run.
Investment Proposition 2
A favourable entr y point for our strategy of investing in
consumer stocks in Developing Economies lies ahead as a
result of two major developments:
The end of Quantitative Easing (“QE”) in the United States
which might lessen the flow of funds into Emerging Markets
and even lead funds to return to the United States.
The economic slowdown in China and its knock-on effect in
countries which are dominated by commodity exports, most
of which are also Developing Economies.
I think we can now say that Proposition 2 has now largely
come true in spades with turmoil in Chinese markets, and
poor economic performance in those economies which were
driven by the commodity bubble caused at least in part by
China, such as Brazil and other Latin American countries,
and parts of Africa such as Nigeria and South Africa.
As at 31 December 2015 FEET was 98% invested. Although
we held off investing the cash raised by FEET as we awaited
the negative impact on emerging markets, spot landings in
investment are close to impossible and developments since
the year end suggest that at the very least there will be more
turmoil to endure before the good characteristics of the
companies in which we have invested can shine through in
the form of investment per formance. Or in plain English:
please keep your seat belt fastened.
How did FEET perform in 2015?
FEET Net Asset Value per share (“NAV”)
FEET share price
MSCI E+FM Index (the Company’s benchmark)
MSCI Emerging Markets Index
MSCI Frontier Markets Index
-7.0%
-10.9%
-10.0%
-10.0%
-9.5%
In terms of NAV per share, we have outper formed the
benchmark of the MSCI Emerging and Frontier Markets
Index, measured on a net sterling adjusted basis, although
of course this merely means that FEET’s NAV and share
price went down less than the relevant index.
What are we invested in?
The regional split is shown on page 12.
It is worth noting that just 6% of the portfolio was invested
in companies operating in China and a further 5% in Hong
Kong. This is a much lower percentage than the exposure
to China and Hong Kong in the Emerging and Frontier
Markets Index which is approximately 24%. Similarly, we
have a relatively low exposure to Latin America, and Brazil
in particular, at 3%, compared with the index at
approximately 6%. This reflects our dim view of the
prospects for China and Brazil for some while at least.
We only own stocks which provide non-durable consumer
necessities or small ticket luxuries such as confectionery
and cosmetics. The holding in the Chemicals and Industrials
sector
is India’s leading supplier of paint, mostly to
consumers.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2015 | 13
239187 Frostrow FEET pp02-pp20 18/03/2016 21:52 Page 14
Investment Manager’s Review
Strategic Report
In terms of contribution to per formance, the table below shows the top five contributors to and detractors from our
performance by stock:
Top Five Contributors Country of Incorporation % Top Five Detractors Country of Incorporation
Vitasoy International Want Want
Holdings Ltd Hong Kong +1.1 China Holdings Ltd Cayman Islands*
Godrej Consumer Shoprite
Products Ltd India +1.0 Holdings Ltd South Africa
Marico Ltd India +0.9 Forus SA Chile
Britannia Industries Ltd India +0.7 Guinness Nigeria Plc Nigeria
Grupo Lala SAB De CV Mexico +0.5 Nigerian Breweries Plc Nigeria
%
-1.0
-0.8
-0.8
-0.7
-0.7
*principal place of business in China
It seems obvious that things to avoid were China and
companies in countries which have been adversely affected
by the bursting of the commodity bubble – Chile, Nigeria and
South Africa. However, as ever in investment, things are
rarely that straightforward, and our best performer is based
in Hong Kong. India has equally obviously been a happier
hunting ground but whilst some of the Indian stocks have
performed well we remain wary of the fact that their ratings
have run ahead of their immediate prospects as growth in
consumer demand in India remains subdued, and Prime
Minister Narendra Modi is struggling to bring elements of
his reform programme such as a national Goods and
Services Tax to fruition.
In terms of currencies, the largest negative impacts upon
the portfolio were from the Brazilian real and the South
African rand.
The portfolio turnover during 2015 was 67% which is higher
than we would like or expect in the long-term. The main
reason for this is that we were 55% uninvested at the start
of the year, and so our portfolio turnover was always going
to be over 50% if we invested the cash. It also therefore
makes no sense to provide a Total Cost of Investing
including the cost of dealing at this stage although we will
expect to do so in future now that FEET is fully invested. The
Ongoing Charges figure for 2015 was 1.7% of assets
compared with 1.7% last year.
The top ten sales of stocks during the year (in order of size)
are listed on page 12 of this Annual Report. The themes
which link these sales were reducing our exposure to
countries and companies which we were not confident would
fare satisfactorily in the downturn – Brazil, Colombia, Peru,
and Greater China (Hong Kong and Macau), and to some
companies where we were not convinced that the
management was reinvesting on our behalf wisely. In the
case of Souza Cruz we were on the receiving end of a bid
from the multinational parent company BAT.
The top ten purchases are also listed on page 12 of this
Annual Report. In most cases we were simply adding to
existing holdings. New holdings during the year were:
● Asian Paints Ltd – India’s leading supplier of paint to
consumers
● EDITA Food Industries Reg – a leading Egyptian food
company
● Foshan Haitan Flavouring – the leading supplier of
sauces and flavourings in China
In line with Investment Proposition 1 above (it is, by the way,
no coincidence that we place this Proposition first) we are
keen to ensure that FEET owns shares not only in the
consumer sector but also in good companies – companies
which have returns on capital and profit margins which are
vastly superior to the companies in the benchmark index and
which convert far more of their profits into cash. They
accomplish this with much lower resort to debt or leverage
than the companies in the benchmark index. If these
characteristics persist then sooner or later they will be
reflected in the share prices.
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The characteristics of the FEET portfolio as at 31 December
2015 compared with the companies in the Emerging and
Frontier Markets Index were:
LTM ROCE
LTM ROCE (ex goodwill)
LTM Gross margin
LTM Operating margin
LTM NFCF conversion
LFY Revenue growth
LFY EPS growth
FEET Companies Index Companies
0.8%
N/A
23.5%
1.2%
N/A
-4.2%
-91.7%
43.4%
48.2%
43.6%
16.7%
110.1%
11.4%
11.3%
This would seem to demonstrate that FEET owns stakes in
companies which are at least superior to the benchmark in
terms of their financial characteristics.
However, whilst we wait for those superior operating
characteristics to be reflected in share price performance
and through that the NAV and share price of FEET, we will
continue to take advantage of any opportunities presented
by the current volatile conditions to upgrade the portfolio.
Terry Smith
Fundsmith LLP
Investment Manager
18 March 2016
Abbreviations:
LTM – Last Twelve Months
LFY – Last Full Year
ROCE* – Return on Capital Employed
NFCF* – Neutral Free Cash Flow
EPS* – Earnings Per Share
* please refer to the Glossary of Terms on page 65 for
further details
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2015 | 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 for the year ended 31 December 2015
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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 for the year ended 31 December 2015 | 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
18 March 2016
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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.
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Board of Directors
Governance
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 judgement.
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. Prior to this he had been Chairman of Premier Brands and
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; including 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 16 years as a chairman, non-executive director and trustee in a wide range
of companies and institutions. He is currently Chairman of Gresham House Strategic PLC
and Illustrated London News Limited, a member of the Council of The Centre for the Study
of Financial Innovation, Chairman of the Br yanston 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 for the year ended 31 December 2015 | 19
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Board of Directors
Governance
Meeting Attendance
The number of Board and Committee meetings held during the year to 31 December 2015, and each Director’s
attendance level, is shown below:
Type and number of meetings
held during the year ended 31 December 2015
Martin Bralsford
David Potter
John Spencer
Board
(4)
4
4
4
Audit Committee
(2)
2
2
2
Management
Engagement
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 18 March 2016.
Shares of 1p each
31 December 2015
100,000
7,908
5,000
20 | Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2015
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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 year ended
31 December 2015.
Business and Status of the Company
The Company is registered as a public limited company in
England and Wales (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
and strategy 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 year are
shown on page 3.
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 the 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 be found in the Alternative Investment Fund
Managers Directive Disclosures on page 63.
Investment Management and Alternative
Investment Fund Manager (“AIFM”)
Fundsmith LLP (“Fundsmith”) under the terms of the
Investment Management 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.
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.
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 structure.
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Report of the Directors
Governance
Going Concern
The content of the investment portfolio, trading activity, the
Company’s cash balances and revenue forecasts, and the
trends and factors likely to affect the Company’s
per formance are reviewed and discussed at each Board
meeting. The Directors, having made relevant enquiries, are
satisfied 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 that are
readily realisable and, accordingly, the Company has
adequate financial resources to continue in operational
existence for the foreseeable future.
Viability Statement
In accordance with the UK Corporate Governance Code and
the Listing Rules, the Directors have assessed the
prospects of the Company over a longer period than the
12 months required by the ‘Going Concern’ provision. The
Board asked the Audit Committee to address this new
requirement, which should take account of the Company’s
current position and the principal risks as set out on page 8
to 9 so that the Board may state that they have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
period of their assessment.
● The expenses of the Company are predictable and
modest in comparison with the assets and there are no
capital commitments foreseen which would alter that
position; and
● The Company has no employees with only non-executive
Directors and consequently does not have redundancy
or
other
or
responsibilities.
employment
liabilities
related
The Audit Committee as well as considering the principal
risks on pages 8 to 9 and the financial position of the
Company as set out above, has also made the following
assumptions in considering the longer-term viability:
● The Board and the Investment Manager will continue to
adopt a long-term view when making investments, and
anticipated holding periods can be at least four years;
● The Company invests principally in the securities of
listed companies in emerging markets to which
investors will wish to continue to have exposure;
● There will continue to be demand for investment trusts;
● Regulation will not increase to a level that makes the
running of the Company uneconomical; and
● The per formance of the Company will continue to be
satisfactory.
To provide this assessment the Audit Committee considered
the Company’s financial position as described above and its
ability to liquidate its portfolio and meet its expenses as
they fall due:
Based on the results of this review, the Directors have a
reasonable expectation that the Company will be able to
continue its operations and meet its expenses and liabilities
as they fall due over the next four years.
● The portfolio comprises of investments traded on
international stock exchanges and there is a spread of
investments by size of company. The current portfolio
could be liquidated to the extent of 61% within seven
trading days assuming 30% participation and there is
no expectation that the nature of the investments held
within the portfolio will be materially different in future;
Directors’ & Officers’ Liability Insurance
Cover
insurance cover was
liability
Directors’ & officers’
maintained by the Company during the year ended
31 December 2015. It is intended that this policy will
continue for the year ending 31 December 2016 and
subsequent years.
Substantial Shares Interest
The Company was aware of the following substantial interests in the voting rights of the Company:
Shareholder
Mr Simon Justin Nixon
Hargreaves Lansdown
Mr Duncan Russell Cameron
Brewin Dolphin
2 March 2016*
31 December 2015
Number of
shares
2,000,000
1,360,722
1,000,000
648,514
% of issued
share capital
10.34
7.04
5.17
3.35
Number of
shares
2,000,000
1,300,021
1,000,000
640,162
% of issued
share capital
10.34
6.72
5.17
3.31
As at 31 December 2015 the Company had 19,337,921 shares in issue. As at 2 March 2016 the Company had 19,337,921
shares in issue.
* 2 March 2016 being the latest practicable date before publication of the Annual Report.
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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 72.
There are no restrictions concerning the transfer of securities
in the Company; no special rights with regard to control
attached to securities; no restrictions on voting rights, no
agreements between holders of securities regarding their
transfer which are known to the Company; and no
agreements which the Company is party to that might affect
its control following a successful takeover bid.
Political Donations
The Company has not and does not intend to make any
political donations.
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.
Listing Rule 9.8.4
Listing Rule 9.8.4 requires the Company to include certain
information in a single identifiable section of the Annual
Report or a cross reference table indicating where the
information is set out. The Directors confirm that there are
no disclosures to be made in this regard.
By order of the Board
Frostrow Capital LLP
Company Secretary
18 March 2016
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 carrying 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.
Share Capital
At the Company’s first annual general meeting held on
Tuesday, 26 May 2015, authority to allot up to 933,792
ordinary shares of 1 penny each on a non pre-emptive basis
was granted. Authority to repurchase up to 2,898,754
shares was also granted. The authorities remained in place
at 31 December 2015 and to the date of this report: no
shares were issued or repurchased during the year.
Resolutions to renew these authorities will be put to
shareholders at the next AGM on Thursday, 26 May 2016.
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 56.
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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.
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 and give a true and fair view of the assets,
liabilities, financial position and the return for the year
ended 31 December 2015;
● 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 position, performance, business model and
strategy.
On behalf of the Board
Martin Bralsford
Chairman
18 March 2016
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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 2015 (‘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.
Statement of Compliance
The Directors believe that the Company has complied with the recommendations of the AIC Code that are applicable to
smaller companies (those below the FTSE 350) during the year under review and up to the date of this report and thereby
the provisions of the UK Code except as set out below.
The UK Code includes provisions relating to:
– the role of the chief executive;
– executive Directors’ remuneration; and
– the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers these provisions are not
relevant to the position of the Company as it is an externally managed investment company. In addition, all of the Company’s
day-to-day management and administrative functions are outsourced to third parties. The Company has no executive
Directors, employees or internal operations.
The Principles of the AIC Code
The AIC Code is made up of 21 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.
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Corporate Governance
Governance
The Board continued
AIC Code Principle
Compliance Statement
3. Directors should be
submitted for re-election at
regular intervals. Nomination
for re-election should not be
assumed but be based on
disclosed procedures and
continued satisfactory
performance.
4. The Board should have a
policy on tenure, which is
disclosed in the annual report.
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.
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 judgement and that there are no relationships or circumstances which are
likely to affect their judgement. 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.
5. There should be full
disclosure of information about
the Board.
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.
6. The Board should aim to
have a balance of skills,
experience, length of service
and knowledge of the
company.
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 considers annually the skills possessed by the Directors and identifies any skill
shortages to be filled by new directors.
When considering new appointments, the Board reviews 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.
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The Board continued
AIC Code Principle
Compliance Statement
7. The Board should
undertake a formal and
rigorous annual evaluation of
its own performance and that
of its committees and
individual directors.
8. Director remuneration
should reflect 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.
During the course of 2015 the performance of the Board, its committees and individual
Directors (including each Director’s independence) was 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.
The Board annually reviews the fees paid to the Directors and compares 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 51.
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 may periodically
take 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
of 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
AIC Code Principle
Compliance Statement
12. Boards and managers
should operate in a supportive,
co-operative and open
environment.
13. The primary focus at
regular board meetings should
be a review of investment
performance and associated
matters, such as gearing,
asset allocation,
marketing/investor relations,
peer group information and
industry issues.
14. Boards should give
sufficient attention to overall
strategy.
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).
16. The Board should agree
policies with the investment
manager and the manager
covering key operational
issues.
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 buyback 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.
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.
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 per share 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 service
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 a system for canvassing
shareholder views and for
communicating the Board’s
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.
An analysis of the shareholder register 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 to understand the
risk/reward balance to which
they are exposed by holding
the shares.
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 56.
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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functions
responsibilities and
Committees of the Board
During the year ended 31 December 2015 the Board
to
delegated certain
committees. Copies of the full terms of reference, which
clearly define 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 on 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
year there were four Board meetings, two Audit Committee
meetings 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 and
AIFM being present. The Audit Committee reviews the need
for non-audit ser vices to be provided by the Auditor and
authorises such on a case by case basis, having
consideration to the cost effectiveness of the services and
the independence and objectivity of the Auditor. Details of
the fees (both audit and non-audit related) paid to Deloitte
LLP can be found on page 52. 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 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.
Conflicts of Interest
In line with the Companies Act 2006, the Board has the
power to authorise any potential conflicts of interest that
may arise and impose such limits or conditions as it thinks
fit. A register of interests and potential conflicts is
maintained and is reviewed at ever y Board meeting to
ensure all details are kept up to date. It was resolved at
each Board meeting during the year that there were no direct
or indirect interests of a Director that conflicted with the
interests of the Company. Appropriate authorisation will be
sought prior to the appointment of any new director or if any
conflicts or potential conflicts arise.
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
18 March 2016
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Audit Committee Report
for the year ended 31 December 2015
– Review the outcome of the audit and discuss matters
The Committee, which comprises all of the Directors, met
twice during the year. Attendance by each Director is shown
in the table on page 20. The Committee also met on
25 February 2016 to consider this report.
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 agree 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 the Committee’s
meetings:
February 2015
– Review of the Committee’s terms of reference
– Review of the Company’s results
– Approval of the annual report and financial statements
– Review of risk management, internal controls and
compliance
arising
August 2015
– Review of the Committee’s terms of reference
– Review of the Auditor’s plan for the 2015 audit
– Review of risk management, internal controls 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
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 financial position,
performance, 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.
Significant Reporting Matters
The Committee considered key accounting issues, matters
and judgements in relation to the Company’s financial
statements and disclosures relating to:
Valuation of the Company’s Investments
The Committee reviews the valuation and existence of
investments every six months.
Recognition of Revenue from Investments
The Committee took steps to gain an understanding of the
processes in place to record investment income and
transactions. The Committee sought confirmation that all
dividends receivable have been accounted for correctly.
Accounting Policies
The current accounting policies, as set out on pages 48 to
50, have been applied consistently throughout the year and
the prior period.
In light of there being no unusual
transactions during the year or other possible reasons, the
Committee has found no reason to change the policies.
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Audit Committee Report
Governance
Going Concern
Having reviewed the Company’s financial position and
liabilities, the Committee is satisfied that it is appropriate
for the Board to prepare the financial statements on the
going concern basis. Further detail is provided on page 22.
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
Internal Controls and Risk Management
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 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.
The Board has overall responsibility for the Company’s
systems of internal controls and for reviewing their
effectiveness. In common with the majority of investment
trusts, investment management, accounting, company
secretarial and custodial services have been delegated to
third parties. The effectiveness of the internal controls is
assessed on a continuing basis by the Investment Manager,
the Depositary and the Company Secretary. Each maintains
its own system of internal controls and the Audit Committee
receives regular reports from them.
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 26 August 2015.
The Committee met Deloitte LLP (the “Auditor”) on
25 February 2016 to review the outcome of the audit and
the draft 2015 Annual Report and financial statements.
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
– the Auditor’s independence.
– 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.
The only non-audit work carried out during the year related
to tax compliance services. The Audit Committee monitors
the level of non-audit work carried out by the Auditor and
seeks assurances from the Auditor that they maintain
suitable policies and processes ensuring independence, and
monitors compliance with
regulator y
requirements on an annual basis. The Company operates
on the basis whereby the provision of non-audit services by
the Auditor is permissible where no conflict of interest
arises, where the independence of the Auditor is not likely
to be impinged by undertaking the work and the quality and
the objectivity of both the non-audit work and audit work will
not be compromised.
relevant
the
Audit Tendering
As a public company listed on the London Stock Exchange,
the Company is subject to the mandatory auditor rotation
requirements of the European Union. The Company will put
the external audit out to tender at least every 10 years, and
change auditor at least every 20 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 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
18 March 2016
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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 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 to 43. 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.
At the most recent review, held on 26 August 2015, it was
agreed that the Directors’ fees would remain unchanged for
2016.
Directors’ Fees and Expenses
The Directors, as at the date of this report, 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’ Remuneration for the Year (audited)
Date of
Appointment
to the Board
23 May 2014
23 May 2014
23 May 2014
Fees
Fees
2015 (£) 2014* (£)
25,000
20,000
20,000
65,000
13,250
12,051
12,051
37,352
Martin Bralsford
(Chairman)
David Potter
John Spencer
Total
*A pro rata fee was payable in 2014 as the Company
launched in June 2014.
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.
Pension 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
pursuant to their Letters of Appointment.
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 25 June 2014 to
31 December 2015 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.
This report is also required to include a table showing actual
expenditure by the Company on remuneration and
distributions to shareholders for the current and prior year.
However, as the Directors have not yet recommended or
declared a dividend, there is no such information to include.
Statement of Voting at the Annual General Meeting
At the AGM held on 26 May 2015, 3,046,752 votes (99.9%)
were received in favour of the resolution seeking approval
of the Directors’ Remuneration Report, 4,550 (0.1%) were
against, and 700 votes were withheld; the percentage of
votes excludes votes withheld.
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Directors’ Remuneration Report
Governance
Total Shareholder Return for the period 24 June 2014 to 31 December 2015
%
115
110
105
100
95
90
85
80
Jun-1 4
Jul-1 4
Aug-1 4
S ep-1 4
Oct-1 4
N ov-1 4
D ec-1 4
Jan-1 5
Feb-1 5
M ar-1 5
Apri-1 5
M ay-1 5
Jun-1 5
July-1 5
Aug-1 5
S ep-1 5
Oct-1 5
N ov-1 5
D ec-1 5
MSCI Emerging and Frontier
Markets Index (Benchmark)
FEET Share price (total return)
Directors’ Interests in the Company’s Shares as at
31 December 2015 (audited)
Martin Bralsford (Chairman)
David Potter
John Spencer
Total
Ordinary shares
of 1p each
2015
100,000
7,908
5,000
112,908
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 37 of this Annual Report, and the Directors’
Remuneration Report summarise, as applicable, for the year
ended 31 December 2015:
(a) the major decisions on Directors’ remuneration;
Directors are not required to hold shares in the Company.
(b) any substantial changes
relating
to Directors’
remuneration made during the year; and
(c) the context in which the changes occurred and
decisions have been taken.
Martin Bralsford
Chairman
18 March 2016
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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 2015 and 2016 are shown in the table
below. The Company does not have any employees.
Directors’ Fees Current and Projected
Martin Bralsford
David Potter
John Spencer
Total
Fees
2016 (£)
25,000
20,000
20,000
65,000
Fees
2015 (£)
25,000
20,000
20,000
65,000
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. At the last AGM
held on 26 May 2015, 3,045,652 votes (99.8%) were
received in favour of the resolution seeking approval of the
Directors’ Remuneration Policy, 5,050 (0.2%) were against,
and 1,300 votes were withheld; the percentage of votes
excludes votes withheld.
An Ordinar y Resolution for the approval of this policy will
next be considered by shareholders at the Annual General
Meeting to be held in 2018 unless any material changes are
proposed by the Directors, in which case a resolution will be
proposed at the Annual General Meeting following such
changes.
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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 and the directors’
assessment of the principal risks
that would threaten the solvency
or liquidity of the company
Independence
Our assessment of risks of material
misstatement
In our opinion the financial statements:
●
●
●
give a true and fair view of the state of the Company’s affairs as at
31 December 2015 and of its loss for the year then ended;
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 Statement of Comprehensive Income, the
Statement of Financial Position, the Statement of Changes in Equity, 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
regarding the appropriateness of the going concern basis of accounting contained
within note 1 (a) to the financial statements and the Directors’ statement on the
longer-term viability of the company contained within the Report of The Directors
on page 22.
We have nothing material to add or draw attention to in relation to:
● the Directors’ confirmation on page 8 that they have carried out a robust
assessment of the principal risks facing the company, including those that
would threaten its business model, future performance, solvency or liquidity;
● the disclosures on pages 8 and 9 that describe those risks and explain how
they are being managed or mitigated;
● the Directors’ statement in note 1(a) to the financial statements about whether
they considered it appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material uncertainties to the
Company’s ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements;
● the Director’s explanation on page 22 as to how they have assessed the
prospects of the Company, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern basis of accounting and
we did not identify any such material uncertainties. 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.
We are required to comply with the Financial Reporting Council’s Ethical
Standards for Auditors and we confirm that we are independent of the Company
and we have fulfilled our other ethical responsibilities in accordance with those
standards. We also confirm we have not provided any of the prohibited non-audit
services referred to in those standards.
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.
The Audit Committee has requested that while not required under International
Standards on Auditing (UK and Ireland), we include in our report any significant
key observations in respect of these assessed risks of material misstatement.
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Risk description
Valuation of investments
The valuation of investment at £178m
as at 31 December 2015 (2014:
£189m) held by the Company is the
most quantitatively significant balance
on the balance sheet and also the main
driver of the Company’s performance
and net asset value.
Given current economic conditions,
there is a risk that investments within
the portfolio may not be actively traded
and the prices quoted may not be
reflective of fair value and may result in
a material misstatement.
Refer to note 1(e) for the accounting
policy on investments and details of the
investments are disclosed on pages 11
and 12.
Key observations
Risk description
Ownership of investments
Given that the Company holds an
investment portfolio of £178m as at
31 December 2015 (2014: £189m),
there is an increased risk that the
effect of any investments not held in
the name of the Company or where
the Company did not have ownership
of the investments may result in a
material misstatement.
Refer to note 1(e) for the accounting
policy on investments and details of
the investments are disclosed on
pages 11 and 12.
How the scope of our audit responded to the risk
We performed the following procedures to address the valuation of investments
risk:
● We documented and assessed the design and implementation of controls
in place to value the investment portfolio within the ISAE assurance report
on controls at a service organisation. We have also assessed whether the
service auditors were professionally competent and that the scope of the
controls tested were appropriate to give us assurance over the risk
identified.
● We agreed 100% of the Company’s investment portfolio at the year end to
confirmations received directly from the custodian;
● We agreed 100% of the bid prices of quoted investments on the investment
ledger at year end to closing prices published by an independent pricing
source and investigated any differences above 1%;
We performed the following procedure to address the liquidity of investments
risk:
● We identified investments that are not frequently traded and considered
indicators of impairment by monitoring the price of any post year-end volume
of trade movement.
No findings relating to investment valuations were identified from our testing
per formed on the ser vice organisation report and assessment of the related
service auditors.
No findings were identified for any differences that exceeded 1% between the
prices used by the Company for valuing its listed investments and the independent
pricing sources used in our valuation testing.
From our volume of trade and liquidity analysis, we found that two investments
held at the year end with a total fair value of £6,814,000 had low volumes of
trade. This indicated that a Level 2 fair value measurement should be applied to
these investments. The Directors have agreed to change the fair value
categorisation from Level 1 to Level 2 for these investments in the financial
statements. We are now satisfied that the liquidity and categorisation of
investments at year end is acceptable.
How the scope of our audit responded to the risk
We performed the following procedures to address this risk:
● We reviewed the ser vice organisation control report to understand and
document the design and implementation of controls over ownership of
investments within the ISAE assurance report on controls at a ser vice
organisation. We have also assessed whether the ser vice auditors were
professionally competent and that the scope of the controls tested were
appropriate to give us assurance over the risk identified; and
● We confirmed the ownership of all investments at the year end by obtaining
independent third party confirmations directly from the custodian and agreeing
them to the schedule of investments held at year-end.
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Independent Auditor’s Report to the Members
of Fundsmith Emerging Equities Trust plc
Financial Statements
Key observations
Risk description
Revenue recognition
Dividend income of £3m for the year
ended 31 December 2015 (2014:
£1m) from equity investments is
accounted for on an ex-dividend basis.
Overseas dividends are included gross
of any withholding tax.
1. There is a risk that dividend
income will not be accurately
calculated;
2. There is a risk that dividend
income will not be recognised in
the correct accounting period in
the financial statements; and
3.
In addition there is a risk of
completeness of dividend income
for the year.
Refer to note 1(c) for the revenue
accounting policy and details of
revenue are disclosed in note 2.
Key observations
No findings were identified from our testing performed on the service
organisation report and assessment of the related service auditors.
No findings were identified from our testing of the custodian confirmation.
How the scope of our audit responded to the risk
We performed the following procedures to address this risk:
● We documented and assessed the design and implementation of controls
over revenue recognition within the ISAE assurance report on controls at a
service organisation. We have also assessed whether the service auditors
were professionally competent and that the scope of the controls tested
were appropriate to give us assurance over the risk identified.
1.
2.
3.
We obtained a listing for all the investments held at any point during
the year and obtained the ex-dividend dates and rates for all
dividends declared in the year from an independent third party
resource. A sample of these were taken and the ex-dividend dates
and rates compared to the client’s ledger. We recalculated the
expected income and compared this to the client’s ledger. We agreed
receipts of payments to a bank statement.
We tested cut-off around the balance sheet date by agreeing the ex-
dividend dates and rates of a sample of accrued dividends to
independent data and checked for subsequent collections; and
We gained comfort over the completeness of dividend income by
selecting our sample from a reciprocal population. We obtained the
dividend history for each investment held at the year end and also
those investments sold during the year from a third party resource.
We selected our sample from this population.
No findings were identified relating to revenue recognition, accuracy of revenue,
revenue cut off and revenue completeness from our testing performed on the
service organisation report and assessment of the related service auditors.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee
discussed on page 33.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
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Strategic Report
Strategic Report
Our application of materiality
An overview of the scope of our
audit
Opinion on other matters
prescribed by the Companies Act
2006
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.
for
We determined materiality
to be £1,793,000
(2014: £1,928,000), which is approximately 1% (2014: 1%) of shareholders’
funds. The key focus is on the per formance of the investment trust as
measured through the shareholders’ funds and therefore this was chosen as
our basis for materiality.
the company
We agreed with the Audit Committee that we would report to the Committee all
audit differences in excess of £35,869 (2014: £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 controls, 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.
As the accounting is performed by service organisations, we obtained an
understanding of how the Company uses service organisations in its operations
and evaluated the design and implementation of relevant controls at the Company
that relate to the services provided by service organisations. We reviewed the
latest reports on internal controls from the service organisations and contacted
them directly to obtain specific information we needed to conduct our audit.
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 year 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 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.
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Independent Auditor’s Report to the Members
of Fundsmith Emerging Equities Trust plc
Financial Statements
Directors’ remuneration
Corporate Governance Statement
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 part of the Corporate
Governance Statement relating to the company’s compliance with certain
provisions of the UK Corporate Governance Code. We have nothing to report
arising from our review.
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
● 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 Statement of Directors’ Responsibilities, 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). 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.
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Scope of the audit of the
financial statements
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
18 March 2016
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Statement of Comprehensive Income
Financial Statements
For the year ended
31 December 2015
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
For the period from incorporation on
31 October 2013 to
31 December 2014
Dividend income 2 3,001 0 3,001 1,051 0 1,051
Other operating income 7 0 7 7 0 7
3,008 0 3,008 1,058 0 1,058
(Losses)/gains on investments
(Losses)/gains on investments
held through profit and loss 8 0 (12,003) (12,003) 0 1,464 1,464
Gains/(losses) on foreign
exchange transactions 9 (495) (486) 0 (138) (138)
Management fees 4 (2,308) 0 (2,308) (1,239) 0 (1,239)
Other expenses including
dealing costs 5 (934) (503) (1,437) (428) (356) (784)
(Loss)/profit before finance
costs and tax (225) (13,001) (13,226) (609) 970 361
Finance costs 0 0 0 0 0 0
(Loss)/profit before tax (225) (13,001) (13,226) (609) 970 361
Tax 6 (230) 0 (230) (61) 0 (61)
(Loss)/profit for the year/period (455) (13,001) (13,456) (670) 970 300
Earnings per share
(basic and diluted) (p) 7 (2.35) (67.23) (69.58) (3.46) 5.01 1.55
The Company does not have any income or expenses which are not included in the loss for the year. Accordingly the “loss
for the year” is also the “total comprehensive income for the year”, as defined in IAS 1 (revised).
All of the loss and total comprehensive income for the year 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 on pages 48 to 61 are an integral part of this financial statement.
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Statement of Financial Position
Financial Statements
Strategic Report
As at
31 December 2014
Notes £’000 £’000 £’000 £’000
As at
31 December 2015
Non - Current Assets
Investments held at fair value through profit and loss 8 177,706 188,908
177,706 188,908
Current Assets
Receivables 9 40 194
Cash and Cash Equivalents 2,691 5,693
2,731 5,887
180,437 194,795
Current Liabilities
Trade and other payables 10 (1,093) (1,995)
(1,093) (1,995)
179,344 192,800
Equity Attributable to Equity Shareholders
Ordinary share capital 11 193 193
Share Premium 12 0 0
Capital Reserves 180,276 193,277
Accumulated Losses (1,125) (670)
179,344 192,800
Net Asset Value per share (p) 13 927.4 997.0
The financial statements on pages 44 to 61 were approved by the Board on 18 March 2016 and were signed on its behalf by:
Martin Bralsford
Chairman
The accompanying notes on pages 48 to 61 are an integral part of this financial statement.
Fundsmith Emerging Equities Trust plc – Company Registration Number 08756681 (Registered in England and Wales)
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Statement of Changes in Equity
Financial Statements
Strategic Report
For the year ended 31 December 2015
Share Share Capital Accumulated
Capital Premium Reserves Losses Total
£’000 £’000 £’000 £’000 £’000
Balance at 1 January 2015 193 0 193,277 (670) 192,800
Loss for the year 0 0 (13,001) (455) (13,456)
193 0 180,276 (1,125) 179,344
Balance at 31 December 2015 193 0 180,276 (1,125) 179,344
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 on pages 48 to 61 are an integral part of this financial statement.
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Statement of Cash Flows
Strategic Report
Strategic Report
Financial Statements
Strategic Report
For the period from
For the year ended 31 October 2013 to
31 December 2015 31 December 2014
£’000 £’000
Cash Flows from Operating Activities
(Loss)/profit for the year/period (13,456) 300
Adjustments for:
Loss/(gain) on investments 12,003 (1,464)
Sale of investments [a] 25,513 106,327
Sale of money market funds 84,355 0
Purchases of investments [a] (109,519) (293,771)
Purchases of money market funds (1,150) 0
Decrease/(increase) in receivables 154 (194)
(Decrease)/increase in payables (902) 1,995
Net Cash Flow from operating activities (3,002) (186,807)
Cash Flows from Financing Activities
Proceeds from issue of new shares 0 193,379
Issue costs relating to new shares 0 (879)
Net Cash Flow from Financing Activities 0 192,500
Net (Decrease)/Increase in Cash and Cash Equivalents (3,002) 5,693
Cash and Cash Equivalents at start of the year/period 5,693 0
Cash and Cash Equivalents at end of the year/period 2,691 5,693
[a] Receipts from the sale of, and payments to acquire, investment securities have been classified as components of cash flows
from operating activities because they form part of the Company’s dealing operations.
The accompanying notes on pages 48 to 61 are an integral part of this financial statement.
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Notes to the Financial Statements
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 November 2014. They have also been prepared on the assumption that approval as an investment trust
will continue to be granted. The Directors believe that it is appropriate to continue to adopt the going concern basis for
preparing the financial statements for the reasons stated on page 22. 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. The Company was incorporated on 31 October 2013 and the first
set of financial statements covered the 14 month period from incorporation to 31 December 2014. Therefore the
amounts presented as prior period comparatives in these financial statements are not entirely comparable to the
amounts presented for the year ended 31 December 2015.
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 judgements, 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 judgements,
estimates or assumptions for the year.
(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 Statement of Comprehensive Income between items of a
revenue and capital nature has been presented alongside the Statement of Comprehensive Income. 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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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 Statement of Comprehensive Income. 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
Statement of Comprehensive Income.
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 Statement of Comprehensive Income 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 Statement of Comprehensive Income.
(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.
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Notes to the Financial Statements
Financial Statements
1. Accounting Policies Continued
(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
financial statements 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) 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:
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)
IFRS 9 will impact both the classification and measurement 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.
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2. Dividend Income
2015 2014
£’000 £’000
UK dividends 143 213
Overseas dividends 2,858 838
Total 3,001 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
and a geographical split of the portfolio can be seen on page 12.
4. Investment Management Fee
2015 2014
£’000 £’000
Investment Management Fee 2,308 1,239
As at 31 December 2015, an amount of £560,587 (2014: £1,239,526) was payable to the Investment Manager.
Details of the terms of the Investment Management Agreement are provided on page 21.
5. Other Expenses
Revenue
£’000
2015 2014
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
Transactions Costs on fair value
through profit or loss assets 0 412 412 0 356 356
Directors' Fees 65 0 65 37 0 37
Auditor's Remuneration 28 0 28 28 0 28
Registrar Fees 10 0 10 13 0 13
Broker Fee 50 0 50 26 0 26
Company Secretarial Fees 85 0 85 44 0 44
Custody Fees 410 0 410 124 0 124
Depositary Fees 35 0 35 20 0 20
Postage and Printing 12 0 12 21 0 21
Legal Fees 41 0 41 31 0 31
Administration Fees 66 0 66 35 0 35
Other Expenses 132 91 223 49 0 49
Total Expenses 934 503 1,437 428 356 784
Transaction costs on fair value through profit or loss assets represent such costs incurred on both purchase and sales of
those assets. Transaction costs on purchases amounted to £372,000 (2014: £349,000) and on sales amounted to
£40,000 (2014: £7,000).
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Notes to the Financial Statements
Financial Statements
5. Other Expenses Continued
Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
2015 2014
Revenue £’000 £’000
Fees payable to the Company’s Auditor for the audit of the Company’s annual
financial statements 28 28
Total audit fees 28 28
Tax services (advice, preparation and submission within local jurisdictions of withholding
tax claims) 25 17
Reporting accountant engagement for the admission to the Premium Listing and
London Stock Exchange 0 60
Total non-audit fees 25 77
Total fees paid 53 105
6. Taxation
(a) Analysis of tax charge in the year
Revenue
pence
2015 2014
Capital
pence
Total Revenue Capital Total
pence pence pence pence
UK corporation tax at 20.25%
(2014: 21.00%) 0 0 0 0 0 0
Irrecoverable overseas withholding tax 230 0 230 61 0 61
Total current tax for the year 230 0 230 61 0 61
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6. Taxation Continued
(b) The effective corporation tax rate was 20.25% (2014: 21.00%). The tax charge for the year differs from the
charge resulting from applying the standard rate of corporation tax in the UK for an investment trust company. The
differences are explained below:
Revenue
£’000
2015 2014
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
(Loss)/Profit before tax (225) (13,001) (13,226) (609) 970 361
Tax at UK corporation effective
tax rate of 20.25% (2014: 21.00%) (46) (2,632) (2,678) (128) 204 76
Effects of:
Income not chargeable to tax:
UK dividends 1 0 0 0 (176) 0 (176)
Overseas dividends not taxable (610) 0 (610) 0 0 0
Expenses not deductible for
tax purposes 0 102 102 0 75 75
Non-taxable gains on investments 0 2,530 2,530 0 (279) (279)
Movement in excess
management expenses 2 656 0 656 304 0 304
Irrecoverable overseas withholding tax 230 0 230 61 0 61
Total current tax charge for the year 230 0 230 61 0 61
1. Investment trusts are not subject to corporation tax on these items.
2. As at 31 December 2015, the Company had unutilised management expenses of £4.7 million (2014: £289,424) carried forward. Due to the Company's
status as an investment trust and the intention to continue to meet the conditions required to obtain approval in the foreseeable future, the
Company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments.
7. Earnings per Share
Profit/(loss) per Ordinary Share is as follows:
2015 2014
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Earnings per Ordinary Share (2.35) (67.23) (69.58) (3.46) 5.01 1.55
The total (loss)/gain per share of (69.58)p (2014: 1.55p) is based on a total (loss)/gain attributable to equity shareholders
of £(13,456,000) (2014: £300,000).
The revenue (loss) per share of (2.35)p (2014: 3.46p) is based on a revenue (loss)/gain attributable to equity shareholders
of £(455,000) (2014: £(670,000)).
The capital (loss)/gain per share of (67.23)p (2014: 5.01p) is based on a capital (loss)/gain attributable to equity
shareholders of £(13,001,000) (2014: £970,000).
The total revenue loss and total capital (loss)/gain per share are based on the weighted average number of shares in issue
of 19,337,921 during the year/period.
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Notes to the Financial Statements
Financial Statements
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.
2015 2014
£’000 £’000
Opening cost at 1 January 187,564 0
Opening investment holding gains at 1 January 1,344 0
Valuation at 1 January 188,908 0
Purchases at cost 110,669 293,771
Sales - proceeds (109,868) (106,327)
Realised (loss)/gain on sales (5,741) 120
Investment holding (loss)/gain (6,262) 1,344
Closing Fair Value at 31 December 177,706 188,908
Closing cost at 31 December 183,968 187,564
Closing investment holding (loss)/gain at 31 December (6,262) 1,344
Valuation at 31 December 177,706 188,908
(Loss)/gain on investments
(Loss)/gain on sales of investments (5,741) 120
Investment holding (loss)/gain (6,262) 1,344
(Loss)/gain on investments (12,003) 1,464
All investments are listed.
Fair value of financial instruments
Under IFRS 13 ‘Fair Value Measurement’ an entity is required to classify investments using a fair value hierarchy that reflects
the significance of the inputs used in making the measurement decision.
The following shows the analysis of financial assets recognised at fair value based on:
● Level 1 – quoted prices in active markets for identical instruments. As at 31 December 2015 £170,892,000 (2014:
£188,908,000) of the investment portfolio was classified as Level 1.
● Level 2 – other significant obser vable inputs (including quoted prices for similar investments, interest rates,
prepayments, credit risk, etc). As at 31 December 2015, £6,814,000 (2014: £Nil) of the investment portfolio was
classified as Level 2.
● 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 Level 1 investments have been considered so throughout the year to 31 December 2015 (2014: same).
During the year to 31 December 2015 (2014: None) the following securities: Spur Corp Ltd and (£3,484,000) and Ceylon
Tobacco Co Plc (£3,330,000), were transferred from Level 1 to Level 2 at the year end. This was due to these securities
having low volumes of trade.
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8. Investments Held at Fair Value Through Profit and Loss
Continued
Fair value measurements recognised in the Statement of Financial Position
2015
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments held at fair value through profit and loss 170,892 6,814 0 177,706
Total 170,892 6,814 0 177,706
2014
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments held at fair value through profit and loss 188,908 0 0 188,908
Total 188,908 0 0 188,908
9. Receivables
2015 2014
£’000 £’000
Accrued income 24 87
Other receivables 16 107
40 194
10. Payables
2015 2014
£’000 £’000
Trades payable 346 632
Management fee payable 561 1,239
Other fees payable 186 124
1,093 1,995
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Notes to the Financial Statements
Financial Statements
11. Share capital
2015 2015 2014 2014
Number £’000 Number £’000
Issued, allotted and fully paid (ordinary) 19,337,921 193 19,337,921 193
There were no transactions in the Company’s own shares for the year to 31 December 2015. The following transactions are
for the period to 31 December 2014.
– 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
2015 2014
£’000 £’000
Balance at 1 January 2015/31 October 2013 0 0
Premium arising on issue of new shares 0 193,186
Costs of issuing new shares 0 (879)
Cancellation of share premium account 0 (192,307)
0 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
2015 2014
£’000 £’000
Net asset value per share 927.4p 997.0p
The net asset value per share is based on the net assets attributable to equity shareholders of £179,344,000
(2014: £192,800,000) and on 19,337,921 (2014: 19,337,921) shares in issue at 31 December 2015.
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 year.
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14. Risk Management and Financial Instruments Continued
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, cash balances 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 Financial Statements
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 year end.
31 December 2015
Investments Cash Receivables Payables Total
£’000 £’000 £’000 £’000 £’000
Bangladeshi Taka 1,138 0 0 0 1,138
Brazilian Real 5,756 22 0 0 5,778
Chilean Peso 3,068 23 0 0 3,091
Chinese Yuan 4,723 0 0 0 4,723
Egyptian Pound 4,192 219 0 0 4,411
Ghanaian Cedi 1,157 0 0 (346) 811
Hong Kong Dollar 15,370 0 0 0 15,370
Indian Rupee 53,028 26 0 0 53,054
Indonesian Rupiah 10,592 0 0 0 10,592
Kenyan Shilling 4,402 87 0 0 4,489
Mexican Peso 5,205 0 0 0 5,205
Nigerian Naira 12,406 154 0 0 12,560
Pakistani Rupee 1,301 15 0 0 1,316
Philippine Peso 13,979 0 0 0 13,979
Pounds Sterling 0 2,055 16 (760) 1,311
South African Rand 17,443 0 24 0 17,467
Sri Lankan Rupee 6,623 28 0 0 6,651
Tanzanian Shilling 3,013 62 0 0 3,075
Thai Baht 3,270 0 0 0 3,270
Turkish Lira 3,757 0 0 0 3,757
US Dollar 7,283 0 0 13 7,296
177,706 2,691 40 (1,093) 179,344
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Strategic Report
14. Risk Management and Financial Instruments Continued
31 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
Chilean Peso 2,322 14 0 0 2,336
Columbian Peso 3,242 11 0 (244) 3,009
Egyptian Pound 4,632 161 0 0 4,793
Ghanaian Cedi 197 0 0 0 197
Hong Kong Dollar 17,747 5 0 0 17,752
Indian Rupee 18,014 62 0 0 18,076
Indonesian Rupiah 3,516 0 0 0 3,516
Kenyan Shilling 4,535 0 52 0 4,587
Mexican Peso 1,545 0 0 0 1,545
Nigerian Naira 8,256 46 0 (86) 8,216
Pakistani Rupee 47 0 0 0 47
Peruvian Nuevo Sol 731 0 0 0 731
Philippino Peso 7,582 0 0 (302) 7,280
Pounds Sterling 83,218 5,343 107 (1,363) 87,305
South African Rand 8,730 0 5 0 8,735
Sri Lankan Rupee 1,926 17 0 0 1,943
Thai Baht 3,986 0 0 0 3,986
Turkish Lira 3,377 17 0 0 3,394
US Dollar 2,811 17 29 0 2,857
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.
2015 2014 2015 2014
as at 31 December £’000 £’000 £’000 £’000
+2% +2% -2% -2%
Effect on net assets for the year 3,561 2,110 (3,561) (2,110)
Effect on capital return 3,554 2,114 (3,554) (2,114)
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Notes to the Financial Statements
Financial Statements
14. Risk Management and Financial Instruments Continued
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 £2,691,000 (2014: £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
£13,000 (2014: £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 £13,000 (2014: £28,000). The calculations are based on the cash balances at the respective
balance sheet date and are not representative of the year 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 2015, the impact on profit or loss and net assets would have been
negative £17.8 million (2014: £18.9 million). If the investment portfolio valuation rose by 10% at 31 December 2015, the
impact on profit or loss and net assets would have been positive £17.8 million (2014: £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.
as at 31 December
Assets at fair value through profit and loss
Cash
Investment income receivable
Other receivables
Other payables
2015
£’000
2014
£’000
177,706
188,908
2,691
5,693
24
16
87
107
(1,093)
(1,995)
179,344
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 £179,344,000 (2014: £192,800,000).
The Company is subject to the following externally imposed capital requirements:
● as a public company, the Company has a minimum share capital of £50,000; and
● in order to be able to pay dividends out of profits available for distribution, 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 both of the above requirements.
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15. Contingent Liabilities
As at 31 December 2015, 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 year 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 year
with the Directors of the Company.
AIFM and Investment Manager – Details of the contract including the remuneration due to the AIFM and Investment Manager
are detailed in Note 4 on page 51.
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 as at the date of this report.
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Shareholder Information
Further Information
Further Information
Financial Calendar
31 December
Financial Year End
March
May
30 June
August
Final Results Announced
Annual General Meeting
Half Year End
Half Year End Results Announced
Annual General Meeting
The Annual General Meeting of Fundsmith Emerging Equities Trust plc will be held at Saddlers’ Hall, 40 Gutter Lane, London
EC2V 6BR on Thursday, 26 May 2016 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 2015
31 December 2014
● Corporate 58.9%
● Retail 33.8%
● Pension Funds 3.4%
● Banks 2.0%
● Investment Companies 1.9%
● Corporate 58.8%
● Retail 37.5%
● Investment Companies 2.9%
● Banks 0.7%
● Pension Funds 0.1%
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Alternative Investment Fund Managers Directive
Disclosures (Unaudited)
Fundsmith LLP (“Fundsmith”) 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 financial statements 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 year 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.
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 2015
As a percentage of assets
Gross
method
Commitment
method
115%
Nil
115%
Nil
There have been no breaches of the maximum level during the year 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.
Remuneration Disclosure
During the year ending 31 March 2015, Fundsmith LLP had 18 members of personnel in total, including employees and
Partners. The total amount of remuneration paid to Fundsmith personnel during this period was £15,285,271. Out of this
figure, the total amount of remuneration paid to the Partners of Fundsmith LLP was £12,639,895, whilst the total amount
of remuneration paid to the employees of Fundsmith LLP was £2,645,376.
Of the £2,645,376 paid to Fundsmith employees, £1,326,544.06 was variable remuneration and £1,318,831.94 was fixed
remuneration.
The partners of Fundsmith LLP are not paid a bonus. All of their remuneration is a fixed proportion of Fundsmith LLP’s net
profits.
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Alternative Investment Fund Managers Directive
Disclosures (Unaudited)
Further Information
Explanatory Note
We are required to make this remuneration disclosure to the Company’s investors in accordance with the Alternative
Investment Fund Managers Directive (AIFMD).
The financial year of the Company runs from 1 January to 31 December, whereas the financial year of Fundsmith LLP runs
from 1 April to 31 March. The above figures are taken from the annual financial report and accounts of Fundsmith LLP for
the year from 1 April 2014 to 31 March 2015. These figures have been independently audited and filed with Companies
House.
The rules require us to disclose both the amount of remuneration paid in total, and the amount paid to “Code Staff”
(broadly, senior management and/or risk takers). Fundsmith’s only Code Staff are the Partners.
The information above relates to Fundsmith LLP as a whole, and we have not broken it down by reference to the Company
or the other funds that we manage. Nor have we shown the proportion of remuneration which relates to the income we earn
from our management of the Company. We have not provided such a breakdown because this does not reflect the way we
work or the way we are organised at Fundsmith. All of the Partners and most of our employees are involved in the
management of the Company.
The Company represents approximately 3.5% of Fundsmith’s total funds under management.
Statement on the Alternative Investment Fund Managers
Remuneration Code
The Company is classified as an Alternative Investment Fund (AIF) in accordance with the Alternative Investment Fund
Managers Directive (AIFMD). Fundsmith LLP is duly authorised as an Alternative Investment Fund Manager (AIFM) for the
purpose of managing the Company. As an authorised AIFM, Fundsmith LLP must adhere to the AIFM Remuneration Code.
The AIFM Remuneration Code contains a set of principles, which are designed to ensure that AIFMs reward their personnel
in a way which promotes sound and effective risk management, which does not encourage risk-taking, which supports the
objectives and strategy of any AIFs it manages, and which supports the alignment of interest between the AIFM, its
personnel and any AIFs it manages (where this alignment extends to the AIF’s investors).
Remuneration at Fundsmith LLP is deliberately straightforward. Our employees are paid a competitive salary. At the end
of each year, our employees’ performance is reviewed by the Partners in order to determine whether or not a bonus should
be paid. All bonus decisions are agreed unanimously by the Partners.
The Partners are each paid a fixed proportion of Fundsmith LLP’s net profits. We consider that this is the best way to
ensure that our Partners’ interests are completely aligned with our investors’ interests over the long-term. This alignment
of interest is reinforced by the fact that Fundsmith personnel have invested approximately £5,000,000 in the Company.
We have a clear and direct interest in the long-term success of the Company.
Any investor who would like more information on how we adhere to the Principles of the Remuneration Code may request
a summary of our Remuneration Policy.
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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.
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.
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.
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Glossary of Terms
Further Information
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.
Earnings Per Share (“EPS”)
The proportion of a Company’s profit allocated to each ordinary share.
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.
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How to Invest
Further Information
Investment Platforms
The Company’s shares are traded openly on the London Stock Exchange and can be purchased through a stockbroker 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.
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, investor code, full postcode and your date of birth. Your investor
code can be found on your dividend voucher or share certificate. 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.
For further information on this service please contact: www.capitadeal.com (online dealing) or 0371 664 0445† (telephone
dealing).
† Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom are charged
at the applicable International rate. Lines are open from 8.00 a.m. to 4.30 p.m. Monday to Friday excluding public holidays
in England and Wales.
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How to Invest
Further Information
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
Further Information
Notice is hereby given that the Annual General Meeting of Fundsmith Emerging Equities Trust plc will be held at Saddlers’
Hall, 40 Gutter Lane, London EC2V 6BR on Thursday, 26 May 2016 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.
To receive and, if thought fit, to accept the Audited Financial Statements and the Report of the Directors for the year
ended 31 December 2015
To re-elect Martin Bralsford as a Director of the Company
To re-elect David Potter as a Director of the Company
To re-elect John Spencer as a Director of the Company
To approve the Directors’ Remuneration Report for the year ended 31 December 2015
To re-appoint Deloitte LLP as Auditor to the Company and to authorise the Audit Committee to determine their
remuneration
Special Business
To consider and, if thought fit, pass the following resolutions of which resolutions 9, 10, 11 and 12 will be proposed as
special resolutions:
Authority to Issue Shares
7.
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 £19,337.92 (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,
provided that this authority shall (a) only be used to issue new shares for a price (after taking into account the costs
of issue) which represents a premium to the Company’s latest cum-income net asset value per share (as announced
through a regulatory information service) and (b) expire at the conclusion of the Annual General Meeting of the
Company to be held in 2017 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.
8.
THAT, in addition to the authority conferred by resolution 7 above, 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 £29,006.88 (being 15% 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 2,900,688 shares of 1 penny
each, provided that this authority shall only be used to issue new shares for a price (after taking into account the
costs of the issue) which represents a premium to the Company's latest cum-income net asset value per share (as
announced through a regulatory information service) (the “NAV"), and shall (a) not be exercisable on any date when
the Company is holding cash which, together with the net proceeds of issue of such equity securities under this
authority, would amount to a sum in excess of 10% of the product of the NAV per share and the number of ordinary
shares in issue at the date of that announcement, and (b) expire at the conclusion of the Annual General Meeting
of the Company to be held in 2017 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 7 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)
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
(b)
(otherwise than pursuant to sub-paragraph (a) above) an offer or offers of equity securities of up to an
aggregate nominal value of £19,337.92,
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.
10.
THAT, in addition to the authority conferred by resolution 9 above, 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 an offer or offers of equity securities of up
to an aggregate nominal value of £29,006.88 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 expiry and the Directors may allot equity securities pursuant
to such offer or agreement as if the power conferred hereby had not expired.
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Further Information
Authority to Repurchase Ordinary Shares
11.
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)
(d)
(e)
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);
the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company
to be held in 2017 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
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
12.
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
18 March 2016
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 24 May 2016.
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 24 May 2016 (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 17 March 2016 (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 17 March 2016 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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Further Information
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 12p per minute plus your phone company’s access
charge. Calls outside the United Kingdom will be charged at the applicable international rate). Lines are open 9.00 a.m. to 5.30 p.m.
Monday to Friday excluding public holidays in England and Wales.
17.
18.
19.
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
Saddlers’ Hall, 40 Gutter Lane, London EC2V 6BR
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Explanatory Notes to the Resolutions
Further Information
Resolution 1 – To receive the Annual Report and Financial Statements
The Annual Report and Financial Statements for the year ended 31 December 2015 will be presented to the Annual General
Meeting. These financial statements accompanied this Notice of Meeting and shareholders will be given an opportunity at
the meeting to ask questions.
Resolutions 2 to 4 – Re-Election of Directors
Resolutions 2 to 4 deal with the re-election of each Director. Biographies of each of the Directors can be found on page 19
of this Annual Report.
The Chairman has confirmed, following a performance review, that all the Directors continue to perform effectively.
Resolution 5 – Remuneration Report
The Report on Directors’ Remuneration is set out in full in this annual report on pages 35 to 36.
Resolution 6 – Re-Appointment of Auditor and the determination of their remuneration
Resolution 6 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 Audit Committee to set their remuneration.
Resolutions 7 to 10 – Issue of Shares
Ordinary Resolution 7 in the Notice of Annual General Meeting will renew the authority to allot 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 17 March 2016, being the nearest practicable date prior to the signing of this Annual 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
unless previously renewed.
Ordinary Resolution 8 in the Notice of Annual General Meeting will give authority to the Directors to allot unissued share
capital up to a nominal amount of £29,006.88 (equivalent to 2,900,688 shares, or 15% of the Company’s existing issued
share capital on 17 March 2016). The authority can only be exercised to issue shares at a premium to the Company’s
prevailing net asset value per share, which will ensure that the issues are accretive to existing shareholders. Furthermore,
the authority can only be exercised providing it would not result in the Company having more than 10% of its assets in cash,
thereby protecting existing shareholders from so-called “cash drag” i.e. the negative impact on equity returns of having
uninvested cash in a rising equity market. This authority will also expire on the date of the next Annual General Meeting or
after a period of 15 months, whichever is earlier.
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 17 March 2016, 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 7. 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.
Special Resolution 10 will, if passed, give the Directors power to allot shares up to a further 15% of the Company’s issued
share capital (as at 17 March 2016) on a non-pre-emptive basis. 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.
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The Directors intend to use the authority given by Resolutions 7 to 10 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 11 – 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.
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.
Special Resolution 11 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 17 March 2016, being the nearest practicable date prior to the signing of this Annual
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 12 – General Meetings
Special Resolution 12 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 112,908 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)
Custodian and Banker
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 and Wales)
The Company is an investment company as defined under
Section 833 of the Companies Act 2006.
The Company was incorporated in the United Kingdom on
31 October 2013 as FEEIT plc
Investment Manager and AIFM
Fundsmith LLP
33 Cavendish Square
London W1G 0PW
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.
Administrator
State Street Bank and Trust Company
20 Churchill Place
Canary Wharf
London E14 5HJ
Depositary
State Street Trustees Limited
20 Churchill Place
Canary Wharf
London E14 5HJ
Independent Auditor
Deloitte LLP
Chartered Accountants and Statutory Auditor
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: shareholderenquiries@capita.co.uk
Website: www.capitaassetservices.com
Please contact the Registrars if you have a query about a
certificated holding in the Company’s shares.
†calls cost 12p per minute plus your phone company’s access charge and
may be recorded for training purposes. Lines are open from 9.00 a.m. to
5.30 p.m. Monday to Friday excluding public holidays in England and
Wales.
Brokers
Investec Bank plc
2 Gresham Street
London EC2V 7QP
Solicitors
Travers Smith LLP
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
76 | Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2015
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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 Amadeus 100% 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.
239187 Frostrow FEET Cover 5mm spine 18/03/2016 21:51 Page 1
Annual Report
for the year ended 31 December 2015
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 239187