248080 Frostrow FEET Cover 6mm spine 08/03/2018 18:57 Page 1
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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 248080
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Contents
1
1
Strategic Report
3
4
5
8
9
12
21
24
Company Summary
Financial Highlights
Chairman’s Statement
Investment Objective and Policy
Investment Portfolio
Investment Manager’s Review
Investment Philosophy
Business Review
3
Financial Statements
48
56
57
58
59
60
Independent Auditor’s Report
Income Statement
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
2
Governance
30
32
37
41
Board of Directors
Corporate Governance Report
Report of the Directors
Statement of Directors’
Responsibilities
42
45
47
Audit Committee Report
Directors’ Remuneration Report
Directors’ Remuneration
Policy Report
4
Further Information
75
76
Shareholder Information
Alternative Investment Fund
Managers Directive Disclosures
Glossary of Terms
How to Invest
Notice of Annual General Meeting
Explanatory Notes
to the Resolutions
Company Information
79
81
83
89
92
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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2
Company Summary
Strategic Report
Fundsmith Emerging Equities Trust plc (“FEET” or
the “Company”) 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.
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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 2017
were £310.7 million (2016: £238.6 million) and the market
capitalisation was £324.1 million (2016: £242.4 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 24.
Per formance 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 Ordinar y
Shares. Further details are given in note 11 to the financial
statements on page 68.
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 21 for further information.
Further details of the Company’s investment policy are set out in the Strategic Report on page 8.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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4
Financial Highlights
Strategic Report
Performance Summary
Share Price
Net asset value per share
Premium of the share price to the net asset
value per share
Ongoing charges ratio
Net asset value per share total return
Share price total return
Benchmark total return1
As at
31 December 2017
As at
31 December 2016
1,314.0p
1,259.7p
4.3%
1.7%
1,055.5p
1,039.0p
1.6%
1.7%
For the year ended
31 December 2017
For the year ended
31 December 2016
+21.2%
+24.5%
+25.3%
+12.0%
+10.5%
+32.4%
1MSCI Emerging and Frontier Markets Index (measured on a net sterling adjusted basis)
Please refer to the Glossary on pages 79 to 80 for definitions of these terms and the basis of their calculation.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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Chairman’s Statement
5
Introduction
I am pleased to present our fourth Annual Report which covers the year
ended 31 December 2017.
Performance
The Company’s net asset value per share total return for the year
was +21.2% (2016: +12.0%) and the share price total return was
+24.5% (2016: +10.5%). The MSCI Emerging and Frontier
Markets Index, measured on a net sterling adjusted basis, rose
by 25.3% over the same period (2016: +32.4%).
We are pleased with the overall good per formance of the
Company over the year and that the relative underperformance
against the benchmark index is lower than in previous years. The
reasons for this underper formance have been referred to in
previous reports but our Investment Manager provides a
thorough explanation
together with a
comprehensive analysis of the performance of the Company’s
portfolio during the year, in their report beginning on page 12.
to shareholders,
Shareholders should continue to be reassured by the positive
returns on capital and profit margins generated by the underlying
investee companies; further details of which can be found in the
Investment Manager’s report. Your Board shares their confidence
in these high-quality companies whose strong underlying
characteristics will ultimately determine
long-term
performance of growth in the net asset value of the Company.
the
Share Capital
Demand for the Company’s shares led to the issue of a total of
1,700,000 new shares during the year, raising gross proceeds
of £19.2 million. As at 31 December 2017, the Company had
24,662,556 shares of 1p each in issue (2016: 22,962,556), an
increase of 7.4%. The net proceeds received from the issue of
these new shares were invested in line with the Company’s
investment objective. The net increment to the Company’s NAV
arising from share issuance was approximately £0.2 million in
the year.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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6
Chairman’s Statement
Strategic Report
“Demand for the Company’s shares led to the issue of a total of 1,700,000
new shares during the year, raising £19.2 million”
Since the financial year-end, to 7 March 2018 (the latest
practicable date prior to publication of this report), a further
575,000 shares have been issued, raising gross proceeds
of £7.2 million. At the date of this report there were
25,237,556 shares in issue.
The share issuance programme:
(cid:129) allows the Company to issue shares tactically, so as to
manage the premium to NAV per share at which the shares
trade;
(cid:129) increases the size of the Company, thereby spreading
operating costs over a larger capital base which should
reduce the ongoing charges ratio;
(cid:129) enhances the NAV per share of existing shares through share
issuance at a premium to the prevailing cum-income NAV per
share; and
(cid:129) potentially improves the liquidity in the market for the shares.
In addition, the shareholder authorities under which the Company
issues shares are limited so that issuance can only occur when
the result of the fundraising would not cause the Company to
have more than 10% of its assets in cash, which protects
investors from so-called “cash-drag” i.e. the negative impact on
equity returns of having uninvested cash in a rising equity market.
At the last Annual General Meeting (“AGM”) in May 2017,
shareholders granted the Board authority to issue up to 10% of
the Company’s issued share capital without pre-emption rights
and, in a separate resolution, an additional authority to issue a
further 15% of the Company’s issued share capital without
pre-emption rights. The Board will ask shareholders to renew
similar authorities again at this year’s AGM, albeit that the
second authority will now be for 10% of issued share capital.
Further details of these resolutions are set out on pages 83 to
91 of this report.
The Board is aware that the second of these resolutions asks
for authority over and above the limits set by the Pre-Emption
Group (a group which considers the principles to be taken into
account when considering the case for disapplying pre-emption
rights). However, the additional 15% authority has facilitated the
smooth running of the share issuance programme, allowing the
Company to continue issuing shares without the need to hold
additional general meetings during the year, which can be costly
for shareholders. Accordingly, the Board will once again give
shareholders the opportunity to grant the Board an additional
authority in order to ensure the continued efficient and
cost-effective administration of the share issuance programme.
We look for ward to receiving shareholder support for these
resolutions which your Board unanimously believes to be in the
best interests of shareholders.
Investment Policy Review
I reported in the Company’s half-yearly report for the six months
ended 30 June 2017 that the Board was considering whether it
may be appropriate to increase the single jurisdiction limit
contained in the Investment Policy, from 40% of gross assets (at
the time each investment is made), to allow the Company to take
advantage of compelling investment opportunities, as they arise.
Following further consideration of this matter and consultation
with major shareholders, the Board has decided not to seek
shareholder approval for such a change in policy at this time.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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7
“The Board and Investment Manager are confident in the quality of the
Company’s underlying investee companies and believe that their returns
on capital, profit margins and growth are superior to the companies in the
benchmark index”
Management Developments
During the year, the Board appointed a new depositar y and
administrator, Northern Trust Global Services Limited (“Northern
Trust”). The Company’s new custodian is The Northern Trust
Company. The change became effective after the year-end, on
2 January 2018. Details of Northern Trust’s responsibilities and
the new fee arrangements are summarised in the Strategic
Report on pages 24 to 25. It is expected that the new custodial
fee arrangements will result in a reduction of the Company’s
ongoing charges ratio.
Dividends
Shareholders will note that in 2017 the Company made a
revenue profit but that this was not large enough to reverse the
revenue losses from previous years. As such, the Board has not
declared or recommended a dividend this year.
The Company will comply with the investment trust rules
regarding distributable income but the Company’s objective is to
provide capital growth rather than income. Subject to the
investment trust rules, any dividends and distributions will
continue to be at the discretion of the Board from time to time.
The Board
There have been no changes to the Board during the year and in
accordance with our policy of all Directors standing for re-election
annually, you will find the appropriate resolutions in the Notice
of the Annual General Meeting on page 83.
addressing this over the next few months, taking into account
peer group investment companies and the views of our financial
advisers, and will keep shareholders informed of progress.
Outlook
The Board and Investment Manager are confident in the quality
of the Company’s underlying investee companies, and believe
that their returns on capital, profit margins and growth are
superior to the companies in the benchmark index. The Board
believes that this strategy will continue to deliver attractive
returns to shareholders over the long term.
Annual General Meeting
The Company’s AGM, to be held on Wednesday, 23 May 2018 at
1.00pm, will again be held at the Barber-Surgeons’ Hall,
Monkwell Square, Wood Street, London EC2Y 5BL. Further
details can be found on pages 83 to 91.
The AGM provides shareholders with an opportunity to meet the
Directors and to receive a presentation from our Investment
Manager and we hope as many shareholders as possible will
attend. I look forward to meeting you at that time, together with
my Board colleagues. If any shareholders are unable to attend
or wish to raise a matter with the Board, please contact me
through the Company Secretar y whose details are set out on
page 92.
The Directors are conscious that the Board comprises only three
directors and that there has been no refreshment since the launch
of the Company just over three years ago. Accordingly, we will be
Martin Bralsford
Chairman
8 March 2018
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8
Investment Objective and Policy
Strategic Report
Investment Objective
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
to a
distribution account that the Depositar y holds) should be
included;
income or credited
(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:
(cid:129) 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
(cid:129) 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 necessar y, as a portfolio management
technique. Whilst the Company, generally, will not hedge its
currency exposure, it does reser ve 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 beginning on page 21 for further information
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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Investment Portfolio
9
Investments held as at 31 December 2017
Security Country of incorporation Fair value £’000
Britannia Industries Ltd India 12,417
Eastern Tobacco Egypt 11,982
Godrej Consumer Products Ltd India 11,125
Vietnam Dairy Products JSC Vietnam 11,039
Emami Ltd India 11,025
Vitasoy International Holdings Ltd Hong Kong 10,233
Philippine Seven Corp Philippines 10,004
Hypermarcas SA Brazil 9,559
Marico Ltd India 9,542
Foshan Haitian Flavouring China 8,983
% of investments
4.1%
3.9%
3.6%
3.6%
3.6%
3.3%
3.3%
3.1%
3.1%
2.9%
Top 10 Investments 105,909
34.5%
Eris Lifesciences Ltd India 8,705
Hindustan Unilever Ltd India 8,340
Colgate Palmolive (India) Ltd India 7,878
Dali Foods Group Co Ltd China 7,762
Asian Paints Ltd India 7,715
Dabur India Ltd India 7,588
Mr Price Group Ltd South Africa 7,215
Travelsky Technology Ltd China 7,096
Nestlé India Ltd India 7,063
Integrated Diagnostics Holdings Plc Jersey 1 6,750
2.9%
2.7%
2.6%
2.5%
2.5%
2.5%
2.4%
2.3%
2.3%
2.2%
Top 20 Investments 182,021
59.4%
1 Principal place of business Egypt
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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10
Investment Portfolio
Strategic Report
Investments held as at 31 December 2017 – continued
Security Country of incorporation Fair value £’000
PT Unilever Indonesia Tbk Indonesia 6,730
Procter + Gamble Hygiene India 6,655
Walmart De Mexico SAB de CV Mexico 6,338
Nestlé Nigeria Plc Nigeria 6,247
PT HM Sampoerna Tbk Indonesia 5,343
Thyrocare Technologies Ltd India 5,248
Ajanta Pharma Ltd India 5,225
Ceylon Tobacco Co Plc Sri Lanka 5,052
Tiger Brands Ltd South Africa 4,979
Raia Drogasil SA Brazil 4,917
% of investments
2.2%
2.2%
2.1%
2.0%
1.8%
1.7%
1.7%
1.6%
1.6%
1.6%
Top 30 Investments 238,755
77.9%
East African Breweries Ltd Kenya 4,766
British American Tobacco Bangladesh 4,698
Eicher Motors Ltd India 4,688
Dr Lal Pathlabs Ltd India 4,291
Famous Brands Ltd South Africa 4,111
Spur Corp Ltd South Africa 3,965
Olympic Industries Ltd Bangladesh 3,878
Kimberly Clark De Mexico SAB de CV Mexico 3,874
Havells India Ltd India 3,759
Biotoscana Investments SA Luxembourg2 3,434
1.6%
1.5%
1.5%
1.4%
1.3%
1.3%
1.3%
1.3%
1.2%
1.1%
Top 40 Investments 280,219
91.4%
Clicks Group Ltd South Africa 3,431
Nestlé Pakistan Ltd Pakistan 3,333
Fan Milk Ltd Ghana 3,267
Edita Food Industries Reg Egypt 2,968
PT Prodia Widyahusada Tbk Indonesia 2,714
Nigerian Breweries Plc Nigeria 2,705
PT Matahari Department Store Tbk Indonesia 2,648
Mercadolibre Inc Argentina 2,479
Guinness Nigeria Plc Nigeria 1,290
DP Eurasia NV Netherlands3 783
Top 50 Investments 305,837
Avi Ltd South Africa 499
Edita Food Industries SAE Egypt 310
Total Investments 306,646
2 Principal place of business Uruguay
3 Principal place of business Turkey
1.1%
1.1%
1.0%
1.0%
0.9%
0.9%
0.9%
0.8%
0.4%
0.2%
99.7%
0.2%
0.1%
100.0%
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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Portfolio Distribution
as at 31 December 2017
By Sector (based on net asset value)
2%
2%
1%
3%
3%
11
By Geography (by Country of Incorporation)
8.9%
9%
30%
22.3%
11%
15%
24%
as at 31 December 2016
● Food & Beverage
● FMCG
● Healthcare
● Retail
● Tobacco
● Fast Food
● IT
● Chemicals
● Auto
● Industrial
By Sector (based on net asset value)
3%
4%
4%
7%
7%
12%
● Food & Beverage
● FMCG
● Retail
● Health Care
● Tobacco
● Cash
● Fast Food
● Chemicals
25%
Top 10 Purchases and Sales in 2017
Top 10 Purchases
Security
1
Eris Lifesciences Ltd
2
Travelsky Technology Ltd
3
Ajanta Pharma Ltd
4
Thyrocare Technologies Ltd
5
Biotoscana Investments SA
6
Eicher Motors Ltd
Raia Drogasil SA
7
8 Havells India Ltd
9
10 PT Prodia Widyahusada Tbk
PT Matahari Department Store Tbk
Country of incorporation
India
China
India
India
Luxembourg*
India
Brazil
India
Indonesia
Indonesia
39.6%
● India
● Asia (ex India)
● Eastern Europe,
Middle East and Africa
● Latin America
29.2%
By Geography (by Country of Incorporation)
10.4%
25.2%
38%
34.6%
● India
● Asia (ex India)
● Eastern Europe,
Middle East and Africa
● Latin America
29.8%
Top 10 Sales
Security
1
2
3
4
5
6
7
8
9
10 Magnit PJSC Spon GDR Regs
Universal Robina Corp
Tanzania Breweries Ltd
Forus SA
Bajaj Corp Ltd
Ambev SA
PT Indofood CBP Sukses Makmur Tbk
GlaxoSmithKline Consumer Healthcare Ltd
Nestlé Lanka Plc
Shoprite Holdings Ltd
Country of incorporation
Philippines
Tanzania
Chile
India
Brazil
Indonesia
India
Sri Lanka
South Africa
Russia
* Principal place of business Uruguay
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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12
Investment Manager’s Review
Strategic Report
“The per formance of Fundsmith Emerging Equities Trust plc improved
markedly in 2017”
2017
2016
%
2015
Since
2014* inception Annualised
FEET NAV 1
+21.2
+12.0
-7.0
+0.1
+26.5
+6.9
FEET share
price 2
Emerging
Markets 3
UK bonds 4
UK cash 5
Table 2:
+24.5
+10.5
-10.9
+7.2
+31.4
+8.1
+25.3
+32.4
-10.0
+1.4
+0.4
+6.5
+0.5
+1.0
+0.6
+0.5
+7.4
+0.3
+50.1
+12.3
+17.1
+1.8
+4.6
+0.5
1 Net of fees, priced at UK market close (source: Fundsmith)
2 At LSE close (source: Fundsmith)
3 MSCI Emerging & Frontier Markets Index (£ Net) priced at close of business US
EST (source: www.msci.com)
4 Bloomberg/EFFAS Bond Indices UK Govt 5-10yr (source: Bloomberg)
5 3m £ LIBOR Interest Rate (source: Bloomberg)
* From 25.6.14
However, in some respects I am surprised that the performance
over the past year has been that good for two related reasons.
One we have discussed before is the fact that more than 100%
of the inflows into emerging markets since 2015 have gone into
Exchange Traded Funds (“ETFs”). This trend continued in 2017
although flows into active funds, including FEET, have begun to
recover.
Cumulative EM fund flows since 2012
100
80
60
40
20
0
Jan-12
n
b
$
-20
-40
-60
-80
Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
ETF only
Non-ETF
FEET IPO
The per formance of Fundsmith Emerging Equities Trust plc
(“FEET”) improved markedly in 2017:
Total return
1 January – 31 December %
FEET Net Asset Value per Share +21.2
FEET Share Price +24.5
MSCI Emerging & Frontier Markets Index +25.3
Table 1: Source: MSCI/Bloomberg
The Net Asset Value, and more particularly the share price, came
close to keeping up with the Index.
Whilst this is a welcome improvement, it is still not in line with
our aim which is to per form significantly better than the
benchmark and we are still some way short of that, especially
with regard to the performance since inception.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
Figure 1: Source: EPFR Global
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13
“None of the top ten constituents of the MSCI Emerging and Frontier
Markets Index are, in our opinion, of sufficient quality for inclusion in our
portfolio”
The obvious issue is that the composition of the MSCI Emerging and Frontier Markets Index looks very different to our portfolio so
these ETF flows are mostly going into stocks and sectors which we do not and will not own.
FEET GICS Sector Split
Consumer Staples
Health Care
Consumer Discretionary
Information Technology
Industrials
Materials
Cash
Weight %
69.6
14.8
6.0
3.1
2.7
2.5
1.3
100
MSCI GICS Sector Split
IT
Financials
Consumer Discretionary
Materials
Energy
Consumer Staples
Industrials
Telecoms
Real Estate
Health Care
Utilities
Weight %
27
24
10
7
7
7
5
5
3
3
2
100
Table 3: Source: Fundsmith, Bloomberg
GICS – Global Industry Classification Standard
Secondly, to compound the problem and probably linked to the first point about ETF inflows, the best performing emerging market
last year was China in which FEET is significantly underweight compared with the Index.
None of the top ten constituents of the MSCI Emerging and Frontier Markets Index, which collectively represent 25% of that Index,
are, in our opinion, of sufficient quality for inclusion in our portfolio, as they consist of Chinese banks, a Chinese insurer, ecommerce
platforms, consumer electronics and semiconductor manufacturers. These companies bring with them risks of cyclicality, leverage,
opaque accounting, lack of clear ownership rights and inadequate financial returns.
FEET country breakdown
India
China (inc. Hong Kong)
South Africa
Egypt
Indonesia
Brazil
Other emerging markets
Frontier markets
Table 4: Source: Bloomberg, MSCI
Weight %
39.6
11.0
7.9
7.2
5.8
4.7
9.1
14.7
100
MSCI E+FM Index country breakdown
China (inc. Hong Kong)
South Korea
Taiwan
India
South Africa
Brazil
Other emerging markets
Frontier markets
Weight %
29.0
15.1
11.0
8.6
6.8
6.7
17.5
5.3
100
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Investment Manager’s Review
Strategic Report
“We will not be altering our strategy of seeking to invest in good companies
which benefit from the rise of the consumer in emerging and frontier
markets no matter how much money flows into ETFs or how companies
which fail our standards perform”
Top 10 MSCI E+FM Index constituents Weight % ROCE %
Tencent Holdings
Samsung Electronics
Alibaba Group Holding
Taiwan Semiconductor
Naspers
China Construction Bank
Baidu
China Mobile
ICBC
Ping An Insurance
Total Average
Table 5: Source: MSCI, Bloomberg
5.3
4.2
3.6
3.4
2.2
1.4
1.2
1.1
1.1
1.0
24.5
23
22
15
24
-2
6
8
12
7
2
12
To make matters even more difficult, the returns generated in
Emerging Markets in 2017 were extremely concentrated:
(cid:129) 40% of the MSCI Emerging and Frontier Markets Index total
return came from just four stocks: Tencent (and Naspers
which owns a stake in Tencent), Alibaba, Samsung and
Taiwan Semiconductor, none of which we own or wish to own;
(cid:129) 70% of the 2017 return came from China (incl. Hong Kong),
Korea and Taiwan – we are underweight in China and do not
have any holdings in Korea or Taiwan (in fact we would
dispute whether their economies would qualify as emerging
markets – we think they have long since emerged
economically – just the nature of their stock markets keeps
them classified in the Index);
(cid:129) 70% of the 2017 return came from the IT and Financials
sectors, which we also do not own or wish to own (mostly in
the case of IT).
Faced with all these headwinds I am pleasantly surprised by how
the FEET portfolio performed.
In any event, we will not be altering our strategy of seeking to
invest in good companies which benefit from the rise of the
consumer in emerging and frontier markets no matter how much
money flows into ETFs or how companies which fail our standards
per form. We may well miss the opportunity to obtain better
per formance in the short term by sticking to our last but we
simply do not wish to assume the risk of weighting a significant
proportion of the portfolio in stocks which carr y the risks
associated with cyclicality, leverage, opaque accounting and poor
protection for minority shareholders. It may be that most buyers
of ETFs do not know or care what their constituents are, or they
and other investors who take a different view from us may be
playing “greater fool theory”, and assuming that they will be able
to sell these lower quality stocks at an appropriate time and
realise a large gain. We do not have that skill. I suspect that
neither do many other investors but it won’t stop them trying,
often with other people’s money.
Returning to the portfolio’s performance, it is an essential part
of our investment strategy – in fact the most important part –
that FEET owns shares in good companies – companies which
have returns on capital, profit margins and growth which are
superior to the companies in the benchmark Index and which
convert far more of their profits into cash. They need to be able
to accomplish this with much less 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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“This would seem to demonstrate that FEET owns stakes in companies
which are at the very least superior to the Index in terms of their financial
characteristics”
The characteristics of the FEET portfolio as at 31 December
2017 compared with the companies in the MSCI Emerging and
Frontier Markets Index were:
By sector the breakdown of FEET at 31 December 2017 as we
would describe the sectors, rather than those used by the Index
which are often a bit general, was:
LTM ROCE
LTM ROCE (ex-goodwill)
LTM Gross margin
LTM Operating margin
LTM NFCF conversion
LFY Revenue growth
LFY NFCF growth
FEET MSCI E+FM
Index %
%
45.2
51.0
50.2
21.2
109.2
12.9
23.8
15.0
N/A
31.7
17.9
92.3
17.7
10.2
Table 6: Source: Fundsmith, MSCI, Bloomberg
Abbreviations: LTM: last twelve months, LFY: last full year, ROCE:
return on capital employed, NFCF: neutral free cash flow.
This would seem to demonstrate that FEET owns stakes in
companies which are at the very least superior to the Index in
terms of their financial characteristics. The only metric where this
is not the case is in revenue growth where the FEET companies
lag the Index stocks with 12.9% growth versus 17.7%. Cyclical
recovery plays a part here for the Index stocks, and it is worth
noting that the FEET companies’ earnings and cash flow (“NFCF”)
growth are significantly better than those of companies in the
index.
This is how we would generally prefer it to be. Anyone can grow
revenues if they sell things which make a poor return. I suspect
we could develop a large and growing business selling £1 coins
for 95p but I doubt it would create any value for the owners.
Sector
2017 %
2016 %
Food & Beverage
Fast Moving Consumer Goods
Healthcare
Retail
Tobacco
Fast food
IT
Chemicals
Auto
Industrials
Cash
Table 7: Source: Fundsmith
30
23
15
11
9
3
3
2
2
1
1
100
39
25
7
12
7
4
0
2
0
0
3
100
FEET’s exposure to healthcare stocks roughly doubled during the
year as we found opportunities to purchase stocks in this sector
which are not as well represented in the developing economies’
stock markets as they are in developed markets. In particular,
we started building positions in pharmacy retailers in Brazil (Raia
Drogasil) and South Africa (Clicks), Indian branded generic
pharmaceutical companies Ajanta Pharmaceuticals and Eris
Lifesciences, Indian and Indonesian diagnostic lab businesses
Thyrocare and Prodia Widyahusada, and Uruguay based drug
delivery company Grupo Biotoscana.
We also purchased stakes in Mercadolibre, the Argentina based
ecommerce business and TravelSky Technology, the Chinese
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Investment Manager’s Review
Strategic Report
“We remain convinced that an exposure to healthcare spend in Emerging
Markets should prove positive”
airline reservation business as opportunities to own Emerging
Markets IT stocks fit our investment criteria for the first time.
In addition, we purchased two Indian consumer durables
companies – Eicher which makes Royal Enfield motorcycles and
Havells which makes consumer electrical appliances (and which
we have owned before).
Acquiring a large exposure to healthcare stocks has produced
some issues. Biotoscana, the Uruguay based drug deliver y
company has performed poorly since its IPO. This often presents
an investment opportunity as failed IPOs can become over-sold
as those shareholders who subscribed in the hope of a quick
profit exit. We wait to see if Biotoscana is such an opportunity.
Prodia Widyahusada which we started buying in Indonesia is also
a stock which has per formed poorly since its IPO. Dr Lal
Pathlabs, the Indian diagnostic labs business which we already
held in the FEET portfolio, has suffered from the influx of private
equity into its sector, attracted by the returns and growth
available. However, we remain convinced that an exposure to
healthcare spend in Emerging Markets should prove positive.
Famous Brands caught the disease which a number of
companies in Emerging Markets contract and which leads them
to buy businesses in the developed world with its slower growth
and frequently more competitive markets. In the case of Famous
Brands it bought Gourmet Burger Kitchen in the UK which has
duly started to produce losses. The Peter, Paul and Mary song
from the 60s (“When Will They Ever Learn”) springs to mind when
we see companies in the developing world doing this. In the case
of Magnit it was difficult to foresee a recovery in its trading and
Nestlé Lanka appears to have become a bit of a backwater of
the Nestlé empire. We sold all these positions (Famous Brands
early in 2018) as we thought we could reallocate the capital
released to more promising investments.
What about the valuation of our portfolio? Table 9 (overleaf)
shows the price/earnings ratio (“PE”), free cash flow yield
(actually the neutral free cash flow yield “NFCF” with capital
expenditure taken as equal to depreciation – otherwise we would
value all companies that can invest their free cash flow to grow
as having a reduced FCF yield or none which would be unhelpful
in evaluating them) and dividend yield for the portfolio for the last
In terms of contribution to the performance, the table below shows the top five contributors to and detractors from our performance
by stock:
Top Five Contributors Country % Top Five Detractors Country %
Eastern Tobacco Egypt 3.6 Famous Brands South Africa -0.7
Vietnam Dairy Products Vietnam 1.9 Magnit Russia -0.4
Godrej Consumer Products India 1.7 Biotoscana Brazil -0.4
Britannia Industries India 1.6 Dr Lal Pathlabs India -0.4
Foshan Haitian Flavouring China 1.4 Nestlé Lanka Sri Lanka -0.1
Table 8: Source: Fundsmith
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“Valuation is not likely to be the key determinant of the outcome of our
strategy. The quality of the companies in our portfolio is, at least over the
long term”
twelve months (“LTM”) compared with companies in the
benchmark Index:
LTM PE ratio
LTM NFCF yield
LTM Dividend yield
MSCI E&FM
Index
(ex-financials)
33.3x
4.7%
1.8%
FEET
44.6x
3.2%
1.5%
Table 9: Source: Fundsmith, MSCI, Bloomberg
Our stocks are significantly more highly rated than the Index
based upon the PE ratio and the neutral free cash flow yield which
is our preferred measure, and which we believe is a better
comparator. However, neither could be regarded as lowly-rated,
although that is a different concept to being “cheap”– a stock
can be lowly-rated but not cheap if it is justifiably low, and a highly
rated stock might not be “expensive” if its prospects – such as
its growth rate and incremental returns – can justify the rating.
Moreover, valuation is not likely to be the main determinant of
the outcome of our strategy. The quality of the companies in our
portfolio is, at least over the long term. If we have succeeded in
assembling a portfolio of companies which can deliver and
sustain a 45% Return On Capital Employed and invest about half
(which equates to dividend cover of 2x-FEET’s portfolio and was
2.1x at the end of 2017) of their earnings at this rate of return,
which is currently three times the ROCE of the Index, this will be
a much bigger determinant of the outcome of our investment than
the valuation.
It is interesting that they are only about 14% more expensive than
the stocks in the Fundsmith Equity Fund, based upon their Free
Cash Flow yield. Yet the returns they are generating and the
revenue growth they are delivering are materially higher. This is
perhaps a better comparison than the Index given that the
Fundsmith Equity Fund owns comparable companies based in the
developed world, several of which are the parent companies of
companies in the FEET portfolio.
The top ten purchases and sales are listed on page 11 of these
accounts.
Our portfolio turnover during 2017 was 34% (ignoring turnover
caused by inflows from share issues) which remains higher than
we would ideally like it to be. A part of this turnover was caused
by the increase in FEET’s healthcare exposure and its addition
of IT companies – as a closed-end fund we need to sell
something in order to realise the liquidity to invest.
A few other purchases and disposals during the year are
noteworthy.
We bought and sold one stock during the year – Avenue
Supermarkets the Indian retailer which trades as DMart, which
IPO’d. However, our IPO allocation was so small and the rating
to which it went was so high that we could not build a meaningful
stake.
We sold our holding in the South African retailer Shoprite when it
announced plans to merge with its major shareholder Christopher
Wiese’s other retail business interest – Steinhoff. As it happens
the proposed merger was abandoned before Steinhoff was
vaporised but we did not know that would be the outcome when
we took the precautionary action of running away.
The ongoing charges figure (“OCF”) for 2017 was 1.65%
compared with 1.73% in 2016. However, the OCF does not
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Investment Manager’s Review
Strategic Report
“India remains by far the largest single country exposure and has seen
some dramatic reforms in recent years”
include the cost of dealing. The Total Cost of Investment (“TCI”)
in 2017 including trading commission and taxes was 1.8%. Some
of the turnover was involuntary insofar as it resulted from the
investment of funds raised from shares issued during the year.
The spread incurred from voluntary dealing in which we decided
to buy or sell without any inflows was 0.18% which gives another
perspective on our dealing activity.
In terms of currencies, the only positive impact upon our
per formance was a ver y marginal one from the South African
Rand. The largest detractor was the Indian Rupee:
Top Five
South Africa
Mexico
Chile
Ghana
Pakistan
%
0.1
-0.1
-0.1
-0.2
-0.2
Bottom Five
India
Indonesia
Hong Kong
Brazil
Bangladesh
%
-2.8
-0.7
-0.7
-0.6
-0.5
Table 10: Source: Fundsmith
Sterling has continued to stay strong so far in 2018 for reasons
which are not entirely clear to us which will affect FEET’s
performance for as long as it continues.
As at 31 December 2017, the FEET portfolio’s geographic
breakdown was as follows:
India remains by far the largest single country exposure and also
remains close to the maximum of 40% of the portfolio which FEET
is permitted to purchase in any one country.
India has seen some dramatic reforms in recent years under
Prime Minister Modi. We have remarked upon two of these at
length in previous reports, namely “demonetisation” in November
2016 in which the highest denomination bank notes, the R500
and R1,000 notes (roughly £6 and £12) were declared no longer
to be legal tender. Holders of these notes were left with the
choice of paying them into a bank account, exchanging them for
smaller denomination notes – but with a limit of R2,000 (£24)
per person – or seeing them become worthless.
This move which was intended to shrink the “informal” economy
and bring a wider section of Indian businesses and society into
the tax system (India has a low tax take as a percentage of GDP
– about 17% which is not helpful if you need to finance
infrastructure spend – as a yardstick the UK is twice that level)
was followed on 1st July 2017 by the implementation of a
countr ywide Goods and Ser vices Tax (“GST”) which replaced
state taxation (India is comprised of 29 states). This was in our
view a massive step towards turning India into a single economy
for the first time and has undoubtedly begun to reap benefits in
terms of efficiency for manufacturers and distributors.
Region
India
Asia (ex-India)
Eastern Europe, Middle East and Africa
Latin America
Table 11: Source: Fundsmith
%
39.6
29.2
22.3
8.9
100
However, as we also pointed out in previous reports, the
near-term performance of our Indian investee companies in the
light of these dramatic changes was highly likely to be, shall we
say, bumpy. Having some 85% of banknotes by value withdrawn
without warning is obviously disruptive to economic activity. So
was the implementation of the GST. Aside from the fact that the
new GST regime was almost certainly initially too complex with
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“We hope and expect that these reforms will help to transform India’s
economy to the benefit of our investee companies as well as ordinar y
Indians”
too many bands, it led to stocking up in advance of
implementation in some sectors and destocking in others
depending upon the view of how GST would affect them. Even
the revenue numbers produced by any companies are not truly
comparable with their pre-GST numbers because of changes in
the way some of their goods are treated for input and output tax.
The informal sector of the economy has been hardest hit by this
and whilst we might applaud that, as the modern retail sector is
of growing importance to our investee companies and this could
be expected to stimulate it, some of their sales do rely upon
wholesalers and informal retailers who might have cash flow
issues and problems with having previously, shall we say,
under-reported their sales and profits.
fingerprints or a retina scan. It is hard to over-estimate either the
scale of this achievement or its implications. Those in the
developed world who were responsible for fiascos like the NHS
computerised patient record system which was abandoned after
some £10 billion had been spent on it should look at Aadhaar
and hang their heads in shame, and maybe give the money back.
The aim is to bring hundreds of millions of Indians who could not
prove their identity into modern society with the ability to make
payments digitally, open bank accounts and own land. If you have
tried to open a bank account recently, even with all the required
documentation to hand, you may have some appreciation of what
this process would be like if you did not have a birth certificate,
did not own any property and could not prove your identity.
The Jan Dhan initiative launched by the government in 2014 with
the aim of ensuring that almost ever y household in India has
access to a bank account. Some 285 million accounts have been
opened over the past three years. APIs (application programming
interfaces) are being developed using Aadhaar to launch payment
systems
transactions without needing any
infrastructure except a mobile phone. It also enables the
completion of an electronic KYC (Know Your Customer).
that allow
We hope and expect that the combination of these reforms will
help to transform India’s economy to the benefit of our investee
companies as well as ordinary Indians.
The good news is that we have already passed the anniversary
of demonetisation and by mid-year the same will be true for GST
so that the associated disruption should be fading into the past
and the benefits in terms of more efficient manufacturing plant
location and distribution, less corruption and the stimulation of
the modern retail channel should be increasingly evident.
Whilst we have mentioned these developments before there is
one other major non-fiscal change in India which we have not and
which is worth considering in this context.
Over the past few years India has undertaken two major reforms
which might be termed as digitisation. The first involved schemes
to biometrically identify all Indian citizens (Aadhaar) and the
second to promote broad financial inclusion (Jan Dhan).
Aadhaar, which in Hindi means "foundation" was launched in
2010. The project is an ambitious one involving biometric
identification of all India's people (1.3 billion of them). It is
almost complete, with 1.2 billion Indians identifiable with either
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Investment Manager’s Review
Strategic Report
“FEET’s performance in late 2017 may be a sign that the ketchup bottle of
performance is sputtering into life”
What is the collective “see through” per formance of FEET’s
Indian companies like?
The pattern of FEET’s per formance in 2017 is shown by this
graph:
As at Dec-17
FEET
India
MSCI
E+FM Index
Ex-India (ex-financials)
LTM ROCE
43.8%
LTM ROCE (ex-goodwill) 52.9%
57.5%
LTM Gross margin
21.8%
LTM Operating margin
103.7%
LTM NFCF conversion
22.6%
LFY NFCF growth
46.1%
49.8%
45.6%
20.8%
112.7%
24.6%
Table 12: Source: Fundsmith, Bloomberg, MSCI
15.0%
n/a
31.7%
17.9%
92.3%
10.2%
You will note that their returns are about the same as the rest of
the FEET portfolio, although they are more profitable, and their
growth rates are about the same. Both the Indian companies and
the rest of the FEET portfolio are per forming better than the
Index. But the Indian companies are growing slightly more slowly
than the rest of the portfolio. This is affected by the
demonetisation and GST changes. It is what happens to these
growth rates next which will be interesting.
Share Price
Net Asset Value (NAV)
1350
1300
1250
1200
1150
1100
1050
1000
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Figure 2: Source Bloomberg
It is evident that almost all the performance came in February and the last two months of the year. Markets do not deliver their
performance evenly. A rise of 25% in one year, which FEET’s shares did in 2017, is some 0.1% each working day. But it never arrives
like that. The analogy which I like for investment performance is that it is like trying to get ketchup out of a new bottle. At first none
will emerge. So you shake it and try again. Nothing. So you start smacking the bottom with your hand and at some point a deluge of
ketchup hits your plate.
If our views about our largest country exposure in India, and indeed about the other 60% of FEET’s portfolio are correct, then FEET’s
performance in late 2017 may be a sign that the ketchup bottle of performance is sputtering into life.
Terry Smith
Fundsmith LLP
Investment Manager
8 March 2018
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Investment Philosophy
21
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.
Fundsmith LLP applies 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, ingredients and packaging to sell to 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.
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 very 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 service, spares,
repairs, renewals, consumables and transactions. Some
combination of such intangibles defines a company’s franchise.
*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.
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Investment Philosophy
Strategic Report
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
undervalued. 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, 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 service 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 ever y 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
performance but not as a tool to aid our portfolio construction.
The simplest reason for this is that we wish to perform better
than the relevant indices and the majority of fund managers who
hug the index composition with their portfolio selections. As the
legendary 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.”
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There is also the problem that the MSCI Emerging Markets Index
is dominated by companies of a sort that we would never own.
erode than compound whilst you await the upturn, and of course
occasionally they do not survive a cycle at all.
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.
(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 ner ves, 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.
(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.
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.
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
Terry Smith
Fundsmith LLP
Investment Manager
8 March 2018
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Business Review
Strategic Report
The Strategic Report on pages 3 to 29 has been prepared to
provide information to shareholders to assess how the Directors
have performed their duty to promote the success of the Company.
The Strategic Report contains certain
for ward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time
of their approval of this report and such statements should be
treated with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such
forward-looking information.
Business Model
The Company is an externally managed 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’s strategy is to create value for shareholders by
addressing its investment objective, which is to provide
shareholders with an attractive return by investing in a portfolio
of shares issued by listed 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.
The Company is an alternative investment fund (“AIF”) under the
European Union’s alternative investment fund managers’
directive (“AIFMD”) and has appointed Fundsmith LLP as its
alternative investment fund manager (“AIFM”).
As an externally managed investment trust, all of the Company’s
day to day management and administrative functions are
outsourced to service providers. As a result, the Company has
no executive directors, employees or internal operations.
The Board is responsible for all aspects of the Company’s affairs,
including setting the parameters for monitoring the investment
strategy and the review of investment performance and policy. It
also has responsibility for all strategic policy issues, including
share
issuance and buy backs, share price and
discount/premium monitoring, corporate governance matters,
dividends and gearing.
Further information on the Board’s role and the topics it
discusses with the Investment Manager is provided in the
Corporate Governance Report beginning on page 32.
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:
(cid:129) seeking out and evaluating investment opportunities;
(cid:129) recommending the manner by which monies should be
invested, disinvested, retained or realised;
(cid:129) advising on how rights conferred by the investments should
be exercised;
(cid:129) analysing the performance of investments made;
(cid:129) advising the Company in relation to trends, market
movements and other matters which may affect the
investment policy of the Company; and
(cid:129) 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.
Depositary
During the year, State Street Trustees Limited acted as the
Company’s depositar y. With effect from 2 Januar y 2018,
Northern Trust Global Services Limited (the “Depositary”) acts
as the Company’s depositary in accordance with the AIFMD on
the terms and subject to the conditions of the depositar y
agreement between the Company, Fundsmith and the Depositary
(the “Depositary Agreement”). Under the terms of the Depositary
Agreement, the Depositary is entitled to receive an annual fee
of the higher of (i) £25,000; or (ii) an amount equivalent to
0.015% of the net assets of the Company.
The Depositary provides the following services:
(cid:129) safekeeping and custody of the Company’s custodial
investments and cash;
(cid:129) processing of transactions and foreign exchange services;
(cid:129) taking reasonable care to ensure that the Company is
managed in accordance with the AIFMD, the FUND
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sourcebook and the Company’s articles of association in
relation to the net asset value per share and the application
of income of the Company; and
(cid:129) monitoring the Company’s compliance with investment
restrictions and leverage limits set in its offering documents.
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.
The Depositar y Agreement may be terminated upon three
months’ written notice from the Company to the Depositary or
the Depositary to the Company.
Custodian
The Depositary has delegated the custody and safekeeping of
the Company’s assets to The Northern Trust Company which in
turn appoints sub-custodians in each of the jurisdictions in which
the Company’s assets are held. The liability of the Depositary is
not affected by the fact that it has delegated safekeeping to a
third party.
During the year under review the Company’s net asset value per
share total return was 21.2%, underperforming the benchmark
by 4.1% (2016: 12.0%, underper forming the benchmark by
20.4%).
A full description of performance during the year under review is
contained in the Investment Manager’s Review commencing on
page 12 of this annual report.
Share price total return
The Directors also regard the Company’s share price total return
to be a key indicator of performance. This is monitored closely
by the Board.
The Depositar y is entitled to a variable custody fee which
depends on the type and location of the custodial assets of the
Company. Variable transaction charges are also chargeable.
During the year under review the Company’s share price total
return was 24.5%, underper forming the benchmark by 0.8%
(2016: 10.5%, underperforming the benchmark by 21.9%).
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:
(cid:129) Net asset value return against the MSCI Emerging and Frontier
Markets Index measured on a net sterling adjusted basis;
(cid:129) Share price total return;
(cid:129) Premium/discount of share price to net asset value per
share; and
(cid:129) Ongoing charges ratio.
Please refer to the Glossary beginning on page 79 for definitions
of these terms and an explanation of how they are calculated.
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 per formance may be enhanced, including the
effectiveness of marketing, share issuance and buy-backs, where
appropriate. The making and timing of any share issuance and/or
buy-backs is at the discretion of the Board.
As at 31 December 2017 the premium of the Company’s share
price to the net asset value per share was 4.3% (2016: 1.6%). 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 implemented a share issuance programme.
Further details are provided in the Chairman’s Statement on
pages 5 to 7.
Net asset value return against the benchmark
The Company’s net asset value per share is shown on the
Statement of Financial Position on page 57. The Directors regard
the Company’s net asset value return as being the overall
measure of value delivered to shareholders over the long-term.
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 2017 the ongoing charges ratio
was 1.7% (2016: 1.7%).
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Business Review
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 has established a process for the regular review of
these risks and their mitigation. This process accords with the
UK Corporate Governance Code and the FRC Guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting. The Directors have carried out a robust
assessment of the principal risks facing the Company, including
future
those that would threaten
per formance, solvency and liquidity. The risks are broadly
its business model,
unchanged from the previous year. The Board has categorised
the risks faced by the Company under five headings as follows:
(cid:129) Investment activity and strategy;
(cid:129) Financial;
(cid:129) Shareholder relations and corporate governance;
(cid:129) Operational; and
(cid:129) Accounting, legal and regulatory.
The following sections detail the risks the Board considers to be
the most significant to the Company under these headings:
Principal Risks and Uncertainties
Mitigation
Investment Activity and Strategy
An unsuccessful investment strategy leads to
underper formance against
the Company’s
benchmark index and peer companies, thereby
failing to achieve the Company’s investment
objective.
The Board regularly reviews the Company’s investment mandate and its
long-term investment strategy in relation to market and economic
conditions, and the per formance of the Company’s peers. 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. The Board
sets appropriate investment restrictions and guidelines.
The departure of a key individual at Fundsmith
may affect the Company’s performance.
The Investment Manager reports to the Board on developments at
Fundsmith including succession and business continuity plans.
Financial
The financial risks associated with the Company
include market risk (including counterparty risk),
liquidity risk and credit risk.
A counterparty fails adversely affecting the
Company through either delay in settlement or
loss of assets.
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.
The Company’s assets comprise 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 69.
The most significant counterparty to which the Company is exposed is the
Depositary, which is responsible for the safekeeping of the Company’s custodial
assets. The Company’s Investment Manager is responsible for undertaking
reviews of the credit worthiness of the counterparties that it uses. The Board
reviews the Investment Manager’s approved list of counterparties and their
internal control reports.
The Board sets the Company’s policy on hedging, which is detailed on page 8.
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Principal Risks and Uncertainties
Mitigation
Shareholder Relations and Corporate
Governance
The Board receives regular reports on shareholder activity and is kept informed
of shareholder sentiment. Regular contact is maintained with major shareholders.
The Company becomes unattractive to investors,
leading to the Company’s shares trading at a
significant discount to the net asset value per
share.
Poor adherence to corporate governance best
practice or errors or irregularities in published
information could lead to censure by the FCA and/or
result in reputational damage to the Company.
Operational
Disruption to, or failure of, accounting, dealing
or payments systems in place at the Company’s
service providers, including the Custodian and
appointed sub-custodians and the Depositar y,
could prevent accurate reporting and monitoring
of the Company’s financial position.
Accounting, Legal and Regulatory
The regulator y environment
in which the
Company operates may change, affecting the
Company’s modus operandi.
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.
Details of the Company’s compliance with corporate governance best
practice, including information on relations with shareholders, are set out
in the Corporate Governance Report beginning on page 32.
The Board reviews both the internal controls and the disaster recover y
procedures put in place by its principal ser vice 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 report from the 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 43.
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. With regard
to the UK’s exit from the European Union (“Brexit”), the Board believes
that this does not pose a unique risk to the Company and is unlikely to
affect the Company’s share price or how its shares are sold. However, the
Board will continue to monitor regulatory developments.
Failure to comply with appropriate law and
regulations could expose the Company to
serious financial loss and reputational damage.
The Company’s Depositary reports twice yearly 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.
The Directors attend conferences and events to keep up to date on
regulatory changes and the Board has appointed a specialist investment
trust Company Secretary who provides industry and regulatory updates at
each meeting.
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Business Review
Strategic Report
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. Taking account of the anticipated
investment holding periods and the medium term prospects of
the Company’s investment portfolio, the Board decided that a
four year period was appropriate for their assessment.
In reviewing the Company’s viability, the Board considered the
Company’s position with reference to its business model, the
principal risks and uncertainties as detailed on pages 26 to 27
of this report, and its present and expected financial position. In
considering the Company’s financial position, the Board reviewed
the liquidity of the Company’s portfolio and the Company’s
forecast expenses and cash flows. In addition, the Board
considered the appropriateness of the Company’s current
investment objective in the prevailing investment market and
environment.
The Board regularly reviews the prospects for the Company’s
portfolio and receives reports from the Investment Manager on
the opportunities for new investments. The Board also reviews
the Company’s financing arrangements at least quarterly to
ensure that the Company is able to continue to meet its liabilities
as they fall due.
The Directors have assumed that:
(cid:129) the Board and the Investment Manager will continue to adopt
a long-term view when making investments;
(cid:129) investors will continue to wish to have exposure to listed
companies in emerging markets;
(cid:129) there will continue to be demand for investment trusts;
(cid:129) regulation will not increase to a level that makes the running
of the Company uneconomical; and
(cid:129) the per formance of the Company will continue to be
satisfactory.
Based on the results of this review, the Directors have formed a
reasonable expectation that the Company will continue in its
operations and meet its expenses and liabilities as they fall due
over the next four years.
Non-financial Information
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 service 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.
Prevention of the Facilitation of Tax Evasion
During the year and in response to the implementation of the
Criminal Finances Act 2017, the Board adopted a zero-tolerance
approach to the criminal facilitation of tax evasion. A copy of the
Company’s policy on preventing the facilitation of tax evasion can
be found on the Company’s website www.feetplc.co.uk. The policy
is reviewed annually by the Audit Committee.
Social, Human Rights and Environmental Matters
The Company is an externally-managed investment trust, with no
employees and three non-executive Directors. Therefore, the
Company has no material, direct impact on the environment or
the community and the Company itself has no environmental,
human rights, social or community policies. In carrying out its
activities and in relationships with suppliers, the Company aims
to conduct itself responsibly, ethically and fairly.
The Directors, through the Investment Manager, encourage
companies in which investments are made to adhere to best
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practice with regard to corporate governance. The Investment
Manager’s approach to corporate governance in emerging
markets is set out in their Investment Philosophy beginning on
page 21.
As an investment company, the Company does not provide goods
and services in the normal course of business and does not have
customers or employees. Accordingly, the Company falls outside
the scope of the Modern Slaver y Act 2015. The Company’s
suppliers are typically professional advisers and the Company’s
supply chains are considered to be low risk in this regard.
Performance and Future Developments
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 industr y issues and discussions are held at
each Board meeting concerning
future
development and strategy.
the Company’s
An over view of the main trends and factors affecting the
per formance of the Company is set out in the Investment
Manager’s Review beginning on page 12.
The Directors continue to believe that the emerging markets
sector together with Fundsmith’s Investment Strategy should
provide good returns for the long-term investor.
It is expected that the Company’s overall corporate and
investment strategies will remain unchanged in the coming year.
This Strategic Report on pages 3 to 29 has been signed for and
on behalf of the Board.
Martin Bralsford
Chairman
8 March 2018
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Board of Directors
Governance
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
Chairman of the Management Engagement Committee
After 35 years in the City (CSFB, Montagu, Midland, Guinness Mahon, Investec) David has spent the last
17 years as a chairman, non-executive director, trustee and advisor 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
Bryanston and National Film & TV School Foundations and a member of the Investment Committee of
King’s College London of which he is a fellow.
John Spencer
Chairman of the Audit Committee
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, ICAP SEF (US) LLC and ICAP Global Derivatives Limited.
All Directors are members of the Audit and Management Engagement Committees.
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Meeting Attendance
The number of Board and Committee meetings held during the year to 31 December 2017, and each Director’s attendance, is
shown below:
Type and number of meetings
held during the year ended 31 December 2017
Martin Bralsford
David Potter
John Spencer
Directors’ Interests
Board
(4)
4
4
4
Audit Committee
(2)
2
2
2
Management
Engagement
Committee
(1)
1
1
1
The beneficial interests of the Directors and their families in the Company were as set out below:
Martin Bralsford
David Potter
John Spencer
Shares of 1p each
31 December 2017
100,000
14,511
5,000
There have been no changes in the above Directors’ interests to the date of this report.
Manager’s Interests
As at the date of this report, Terry Smith of Fundsmith LLP, the Company’s Investment Manager, held interests in 530,000 (2016:
500,000) shares in the Company.
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Corporate Governance Report
Governance
Corporate Governance
Statement of Compliance
The Board has considered the principles and recommendations
of the AIC Code of Corporate Governance (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 principles set out in the UK
Corporate Governance Code (the “UK Code”), as well as setting
out additional principles and recommendations on issues that
are of specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code will provide better information
to shareholders and the Financial Reporting Council has
confirmed that by following the AIC Code and the AIC Guide,
boards of investment companies will meet their obligations in
relation to the UK Corporate Governance Code and paragraph
9.8.6 of the UK Listing Rules.
The AIC Code and the AIC Guide can be viewed on the AIC’s
website www.theaic.co.uk and the UK Code can be viewed on the
Financial Reporting Council website www.frc.org.uk.
The Company has complied with the recommendations of the AIC
Code and the relevant 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 particular, all of the Company’s day-to-
day management and administrative functions are outsourced to
third parties. As a result, the Company has no executive
directors, employees or internal operations. The Company has
therefore not reported further in respect of these provisions.
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The Board and Committees
Responsibility for effective governance lies with the Board. The governance framework of the Company reflects the fact that as an
investment company, it has no employees and outsources investment management, risk management, company management,
company secretarial, administrative and marketing services to third parties.
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 Directors have decided that, given the size of the Board, it is unnecessary to form separate remuneration and nomination
committees; the duties that would ordinarily fall to those committees are carried out by the Board as a whole. However, the Chairman
takes no part in discussions involving his own remuneration.
Chairman – Martin Bralsford
Two additional non-executive Directors, both considered independent.
The Board
Key roles and responsibilities:
– to provide leadership and set strategy within a framework of prudent, effective controls which enable risk to be assessed
and managed;
– to ensure that a robust corporate governance framework is implemented; and
– to challenge constructively and scrutinise performance of all outsourced activities.
Management Engagement Committee
Audit Committee
Chairman – David Potter
All Directors
Chairman – John Spencer
All Directors
Key roles and responsibilities:
– to review regularly the contracts, the performance and
the remuneration of the Company’s principal ser vice
providers.
Key roles and responsibilities:
– to review the Company’s financial reports;
– to oversee the risk and control environment; and
– to review the per formance of the Company’s external
Auditor.
Risk Management and Internal Controls
A description of the Company’s risk management systems and the Board’s review of internal controls is provided in the Strategic
Report on pages 26 and 27 and the Audit Committee Report on page 43.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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Corporate Governance Report
Governance
Board of Directors
Directors’ Independence
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. Accordingly,
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.
Board Evaluation
During the course of 2017 the per formance 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 Chairman is satisfied that the structure and operation of the
Board continues to be effective and relevant and that there is a
satisfactor y mix of skills, experience, length of ser vice and
knowledge of the Company.
All Directors submit themselves for annual re-election by
shareholders. Following the evaluation process, the Board
recommends that shareholders vote in favour of their re-election
at the Annual General Meeting.
Succession Planning
The Board regularly considers its structure and recognises the
need for progressive refreshments.
During the year, the Board approved a succession planning policy
to ensure that (i) there is a formal, rigorous and transparent
procedure for the appointment of new directors to the Board; and
(ii) the Board is comprised of members who collectively display
the necessary balance of professional skills, experience, length
of service and industry/Company knowledge. The plan will be
reviewed annually and at such other times as circumstances may
require.
Appointments to the Board
The rules governing the appointment and replacement of
directors are set out in the Company’s Articles of Association
and the aforementioned Succession Planning Policy. Where the
Board appoints a new director during the year, that director will
stand for election by shareholders at the next Annual General
Meeting. The minimum number of directors is two and the
maximum is 10. When considering new appointments, the Board
will review the skills of the Directors and seek to add persons
with complementary skills, or skills and experience which fill any
gaps in the Board’s knowledge, and who can devote sufficient
time to the Company to carr y out their duties effectively. The
Company is committed to ensuring that any vacancies arising are
filled by the most qualified candidates.
Policy on Director Tenure
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
directors’
tenure necessarily reduces his ability to act
independently. 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 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 will be appointed with the
expectation that they will ser ve for a minimum of three years
subject to shareholder approval.
Board Diversity
The Company is supportive of the recommendations of Lord
Davies’ Report that the performance 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 will take 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. The Board is currently comprised
of three men.
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35
Induction/Development
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. Directors are also given key
information on the Company’s regulator y and statutor y
requirements as they arise including information on the role of
the Board, matters reser ved for its decision, the terms of
reference for the Board committees, the Company’s corporate
governance practices and procedures and the latest financial
information. Directors are encouraged to participate in training
courses where appropriate.
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, The Northern 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
every 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.
Independent Professional Advice
The Board has formalised arrangements under which the
Directors, in the furtherance of their duties, may seek
independent professional advice at the Company’s expense.
Company Secretary
The Directors have access to the advice and ser vices of a
Company Secretary through its appointed representative which
is responsible to the Board for ensuring that the Board
procedures are followed and that the Company complies with
applicable rules and regulations. The Company Secretary is also
responsible for ensuring good information flows between all
parties.
Board Meetings and Relations with the
Investment Manager
The Board meets regularly throughout the year and a
representative from Fundsmith is in attendance at each Board
meeting to address questions on specific matters and to seek
approval for specific transactions which Fundsmith is required to
refer to the Board. The Chairman encourages open debate to
foster a supportive and co-operative approach for all participants.
The primar y focus at regular Board meetings is the review of
investment per formance and associated matters, including
gearing, asset allocation, marketing/investor relations, peer
group information and industry issues. The Board reviews key
revenue and expenses
investment and
projections, analyses of asset allocation,
transactions,
per formance comparisons, share price and net asset value
performance.
financial data,
The Board reviews the discount or premium to net asset value
per share of the Company’s share price at each Board meeting
and considers the effectiveness of the Company’s marketing and
communication strategies, as well as any recommendations on
share buybacks and issuance.
The Board is responsible for strategy and reviews the continued
appropriateness of the Company’s investment objective, strategy
and investment restrictions at each meeting.
Shareholder Communications
The Company has also arranged Directors’ and Officers’ Liability
Insurance which provides cover for legal expenses under certain
circumstances. This was in force for the entire period under
review and up to the date of this report.
Shareholder Relations
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
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36
Corporate Governance Report
Governance
applicable, to discuss corporate governance issues. The results
of such meetings are reported at the following Board meeting.
An analysis of the shareholder register of the Company is
provided to the Directors at each Board meeting. Reports from
the Company’s broker are submitted to the Board on investor
sentiment and industry issues.
Shareholder Communications
The Company aims to provide shareholders with a full
understanding of the Company’s investment objective, policy and
activities, its performance and the principal investment risks by
means of informative annual and half yearly reports. This is
supplemented by the daily publication through the London Stock
Exchange of the net asset value of the Company’s shares.
The Company’s website (www.feetplc.co.uk) is regularly updated
with monthly fact sheets and provides useful information about
the Company, including the Company’s financial reports and
announcements.
All substantive communications regarding any major corporate
issues are discussed by the Board taking into account
representations from Fundsmith, the Company Secretar y, the
Auditor, legal advisers and the Corporate Stockbroker.
The Board supports the principle that the AGM be used to
communicate with private investors. It is the intention that the full
Board will attend the AGM under the chairmanship of the Chairman
of the Board. All shareholders are encouraged to attend the AGM,
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
performance and strategy of the Company at the forthcoming
AGM. 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, www.feetplc.co.uk.
The Directors welcome the views of all shareholders and place
considerable importance on communications with them.
Shareholders wishing to communicate with the Chairman, or any
other member of the Board, may do so by writing to the Company
Secretary at the offices of Frostrow.
Significant Holdings and Voting Rights
Details of the substantial interests in the Company’s shares, the
Directors’ authorities to issue and repurchase the Company’s
shares, and the voting rights of the shares are set out in the
Report of the Directors on pages 37 to 40.
Nominee Share Code
Where shares are held in a nominee company name, the
Company undertakes:
(cid:129) to provide the nominee company with multiple copies of
shareholder communications, so long as an indication of
quantities has been provided in advance; and
(cid:129) 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
8 March 2018
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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Report of the Directors
37
The Directors present their annual report on the affairs of the
Company together with the audited financial statements and the
year ended
Independent Auditor’s Report
31 December 2017.
the
for
The Corporate Governance report on pages 32 to 36 forms part
of this report. Disclosures relating to per formance, future
developments and risk management can be found in the
Strategic Report on pages 3 to 29.
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’).
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. 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 8 and the
Investment Philosophy beginning on page 21.
Results and Dividend
The results attributable to shareholders for the year are shown
on page 56. No dividends were declared during the year and the
Directors have not recommended a final dividend for the year.
Information on the Company’s dividend policy is detailed in the
Chairman’s Statement on page 7.
Alternative Performance Measures
The Financial Statements (on pages 56 to 74) set out the
required statutory reporting measures of the Company’s financial
per formance. In addition, the Board assesses the Company’s
per formance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are summarised
on page 3 and explained in greater detail in the Strategic Report,
under the heading ‘Key Performance Indicators’ on page 25. The
Directors believe that these measures enhance the comparability
of information between reporting periods and aid investors in
understanding the Company’s performance. The measures used
for the year under review have remained consistent with the prior
year.
Definitions of the terms used and the basis of calculation
adopted are set out in the Glossary on page 79 to 80.
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
beginning on page 76.
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38
Report of the Directors
Governance
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 services provided.
The Board also reviewed the appropriateness of the terms of the
Investment Management Agreement, in particular the length of
the notice period and the fee structure.
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 liquid securities and, accordingly, the Company
has adequate financial resources to continue in operational
existence for at least the next 12 months.
Directors’ & Officers’ Liability Insurance Cover
Directors’ & officers’ liability insurance cover was maintained by
the Company during the year ended 31 December 2017. It is
intended that this policy will continue for the year ending
31 December 2018 and subsequent years.
Directors’ Indemnities
As at the date of this report, indemnities are in force between
the Company and each of its Directors under which the Company
has agreed to indemnify each Director, to the extent permitted
by law, in respect of certain liabilities incurred as a result of
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.
Directors
The Directors of the Company who held office during the year and
up to the date of signature of the financial statements are shown
below. Further information on the Directors can be found on
page 30.
Martin Bralsford (Chairman)
David Potter
John Spencer
All Directors seek re-election by shareholders at each Annual
General Meeting.
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Substantial Share Interests
The Company was aware of the following substantial interests in the voting rights of the Company:
Shareholder
Hargreaves Lansdown
Mr Simon Justin Nixon
AJ Bell Securities
Mr Duncan Russell Cameron
Interactive Investor Sharedealing
2 February 2018
31 December 2017
Number of
shares
3,013,299
2,000,000
1,132,564
1,000,000
968,198
% of issued
share capital
11.9
8.0
4.5
4.0
3.8
Number of
shares
2,891,494
2,000,000
1,068,072
1,000,000
942,569
% of issued
share capital
11.7
8.1
4.3
4.1
3.8
As at 31 December 2017 the Company had 24,662,556 shares in issue. As at 7 March 2018 (the latest practicable date before
publication of the Annual Report) the Company had 25,237,556 shares in issue.
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, Link Asset Services, or
to the Company directly.
Capital Structure
The Company’s capital structure is summarised in note 11 on
page 68.
Share Capital
At the start of the year under review, the Directors had
shareholder authority to issue up to 2,247,730 ordinary shares
of 1 penny each on a non-pre-emptive basis. At the Company’s
annual general meeting held on Wednesday, 24 May 2017, this
authority expired and a new authority to allot up to 5,825,638
ordinar y shares on a non-pre-emptive basis was granted.
Authority to repurchase up to 3,493,053 ordinary shares was
also granted.
During the year, the Company issued 1,700,000 ordinary shares
at a minimum premium of 1.5% to the last published cum-income
net asset value per share. Details are provided in notes 11 and
12 to the Financial Statements on page 68. Since the year-end
and to the date of this report, a further 575,000 new shares
have been issued under the same issuance criteria.
No shares were repurchased during the year and there are no
shares held in Treasury.
The giving of powers to issue or buy-back the Company’s shares
requires the relevant resolutions to be passed by Shareholders.
Proposals for the renewal of the Board’s powers to issue and
buy-back shares are set out in the Notice of Annual General
Meeting beginning on page 83.
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 87.
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.
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40
Report of the Directors
Governance
Global Greenhouse Gas Emissions
Annual General Meeting
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.
The Company’s Annual General Meeting (“AGM”) will be held at
the Barber Surgeons’ Hall, Monkwell Square, Wood Street,
London EC2Y 5BL on Wednesday, 23 May 2018 at 1.00pm.
Explanatory notes to the proposed resolutions can be found on
pages 89 to 91.
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.
The Board considers that the resolutions relating to the proposed
items of special business are in the best interests of the
shareholders as a whole. Accordingly, the Board unanimously
recommends to the shareholders that they vote in favour of the
resolutions to be proposed at the forthcoming AGM as the
Directors intend to do in respect of their own beneficial holdings.
By order of the Board
Frostrow Capital LLP
Company Secretary
8 March 2018
Common Reporting Standard (CRS)
CRS is a global standard for the automatic exchange of
information commissioned by the Organisation for Economic
Cooperation and Development and incorporated into UK law by
the International Tax Compliance Regulations 2015. CRS
requires the Company to provide certain additional details to
HMRC in relation to certain shareholders. The reporting
obligation began in 2016 and is an annual requirement. The
Company’s registrar, Link Asset Services, has been engaged to
collate such information and file the reports with HMRC on behalf
of the Company.
Key Information Document
The European Union’s Packaged Retail Investment and
Insurance-based Products (PRIIPs) Regulations cover investment
trusts and require Boards or AIFMs to prepare a Key Information
Document (KID) in respect of their companies. FEET’s KID is
available on the Company’s website. Investors should note that
the processes for calculating the risks, costs and potential
returns in the KID are prescribed by EU law and the Company has
no discretion over the format or content of the document. The
illustrated performance returns in the KID cannot be guaranteed
and, together with the prescribed cost calculation and risk
categorisation, may not reflect figures for the Company derived
using other methods. Accordingly, the Board recommends that
investors also take account of information from other sources,
including the Annual Report.
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Statement of Directors’ Responsibilities
41
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 these financial statements, International
Accounting Standard 1 requires that directors:
Disclosure of Information to the Auditor
The Directors at the time of approving the Report of the Directors
are listed on page 38. Each Director in office at the date of this
report confirms that:
(cid:129) to the best of each Director’s knowledge and belief, there is
no information relevant to the preparation of their report of
which the Company’s Auditor is unaware; and
(cid:129) each Director has taken all the steps a director might
reasonably be expected to have taken to be aware of
relevant audit information and to establish that the
Company’s Auditor is aware of that information.
(cid:129) properly select and apply accounting policies;
Responsibility Statement of the Directors
(cid:129) present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
(cid:129) provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity's financial position
and financial performance; and
(cid:129) 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, whose details can be found on page 30, confirm
to the best of their knowledge that:
(cid:129) 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 2017;
(cid:129) 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 Guidance and Transparency
Rules; and
(cid:129) the Annual Report and financial statements taken as a whole
are fair, balanced and understandable and provide the
information necessary to assess the Company’s position,
performance, business model and strategy.
On behalf of the Board
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.
Martin Bralsford
Chairman
8 March 2018
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42
Audit Committee Report
Governance
Statement from the Chairman
I am pleased to present the Audit Committee report for the year
ended 31 December 2017. The Committee met twice during the
year. Attendance by each Director is shown in the table on
page 31. The Committee also met on 28 Februar y 2018 to
consider this report.
The role of the Committee is to ensure that shareholder interests
are properly protected in relation to the application of financial
reporting and internal control principles and to assess the
effectiveness of the audit. The Committee’s role and
responsibilities are set out in full in its terms of reference which
are available on request from the Company Secretary and can
be seen on the Company’s website (www.feetplc.co.uk).
A summary of the Committee’s main responsibilities and how it
has fulfilled them is set out below.
Composition
The Audit Committee comprises all the Directors whose
biographies are set out on page 30. The Committee considers
that each member has recent and relevant experience in
accounting or auditing and that the Committee as a whole has
experience relevant to the investment trust industry.
Responsibilities
4. To consider any non-audit work to be carried out by the
auditor. The Audit Committee reviews the need for non-audit
services to be performed by the Auditor in accordance with the
Company’s non-audit services policy, and authorises such on
a case by case basis having given consideration to the cost-
effectiveness of the services and the objectivity of the Auditor.
The Auditor did not carry out any non-audit work during the year.
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.
Meetings and Business
The following matters were dealt with at the Committee’s
meetings:
February 2017
– Review of the Committee’s terms of reference and non-audit
services policy;
– Review of the Company’s annual results;
– Approval of the annual report and financial statements;
– Review of
risk management,
internal controls and
compliance; and
The Committee’s main responsibilities during the year were:
– Review of the outcome of the audit and discussion of
1. To review the Company’s half-year and annual financial
statements.
In particular, the Committee considered
whether the annual financial statements were fair, balanced
and understandable, allowing shareholders to more easily
assess the Company’s strategy, investment policy, business
model, position and financial performance.
2. To review the risk management and internal control
processes of the Company and its key service providers. As
part of this review the Committee again reviewed the
appropriateness of
the Company’s anti-briber y 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.
matters arising.
July 2017
– Review of the Auditor’s plan and terms of engagement for
the 2017 audit;
– Review of
compliance;
risk management,
internal controls and
– Review of the Company’s anti bribery and corruption policy
and the measures put in place by the Company’s service
providers;
– Review and approval of formal audit tender guidelines;
– Review of the Company’s half-year results; and
– Approval of the half-year report.
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43
Financial Statements
Risk Management and Internal Controls
The Board has asked 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 necessar y 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 and ownership of the Company’s Investments
The Committee reviews the valuation and existence of
investments every six months. Controls are in place to ensure
that valuations are appropriate and existence is verified through
reconciliations with the Depositary.
Recognition of Revenue from Investments
The Committee took steps to gain an understanding of the
processes
income and
record
transactions. The Committee sought confirmation that all
dividends receivable have been accounted for correctly.
investment
in place
to
Accounting Policies
The current accounting policies, as set out on pages 60 to 62,
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.
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 38.
The Directors have identified (Strategic Report pages 26 to 27)
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.
There were no changes to the Company’s risk management
processes during the year and no significant failings or
weaknesses were identified from the Committee’s most recent
risk review.
The Board has overall responsibility for the Company’s risk
management and 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. The Committee is satisfied that appropriate
systems have been in place for the year under review and up to
the date of approval of this report.
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 28 July
2017.
The Committee met Deloitte LLP (the “Auditor”) on 28 February
2018 to review the outcome of the audit and the draft 2017
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:
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44
Audit Committee Report
Governance
– the senior audit personnel in the audit plan for the year;
non-audit fees must not exceed 70% of the average audit fees
paid in the last three years.
– the Auditor’s arrangements concerning any potential
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.
In order to consider the effectiveness of the audit process, the
Committee reviewed:
– the Auditor’s fulfilment of the agreed audit plan;
– the report arising from the audit itself; and
– feedback from Frostrow Capital LLP (as Company Secretary)
and Fundsmith LLP (as AIFM) on the conduct of the audit.
Details of the fees paid to the Auditor for audit services and non-
audit services are set out in note 5 to the Financial Statements
on page 64.
Audit Tendering
Deloitte LLP has been the appointed Auditor, and Stuart McLaren
the designated audit partner, since the Company’s launch in
2014. Deloitte carried out the audit for the years ended
31 December 2014-2017 and was considered independent by
the Board.
As a public company listed on the London Stock Exchange, the
Company is subject to the mandator y 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.
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.
During the year, the Committee adopted formal audit tender
guidelines to govern the audit tender process.
Non-Audit Services
The Audit Committee monitors the level of non-audit work carried
out by the Auditor, if any, and seeks assurances from the Auditor
that they maintain suitable policies and procedures ensuring
independence, and monitors compliance with the relevant
regulatory requirements on an annual basis.
The Company operates on the basis whereby the provision of
non-audit ser vices by the Auditor is permissible where no
conflicts 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. In particular, non-audit services
may be provided by the Auditor if they are inconsequential or
would have no direct effect on the Company’s financial
statements and the audit firm would not place significant reliance
on the work for the purposes of the statutory audit. In addition,
Auditor Reappointment
The Committee conducted a review of the per formance of the
Auditor during the year and concluded that per formance was
satisfactory and there were no grounds for change.
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.
John Spencer
Chairman of the Audit Committee
8 March 2018
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Directors’ Remuneration Report
45
Statement from the Chairman
Single Total Figure of Remuneration (audited)
I am pleased to present the Directors’ Remuneration Report to
shareholders. An Ordinar y 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 48 to 55.
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.
The Directors’ fees have remained unchanged since the launch
of the Company in 2014. At the latest review, and following
informal consultation with professional advisers, it was agreed
to increase the fees as follows, with effect from 1 January 2018:
Chairman increase of £5,000 per annum from £25,000 to
£30,000. Directors’ increase of £5,000 from £20,000 to
£25,000. In addition, directors who chair a Board committee will
receive an additional £2,000 per annum.
All levels of remuneration reflect both the time commitment and
responsibility of the role.
The projected fees for 2018 are set out on page 47.
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.
No payments were made to former directors of the Company
during the year (2016: nil).
Date of
Appointment
to the Board
23 May 2014
23 May 2014
23 May 2014
Fees
2017 (£)
Fees
2016 (£)
25,000
20,000
20,000
65,000
25,000
20,000
20,000
65,000
Martin Bralsford
(Chairman)
David Potter
John Spencer
Total
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 services 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
performance 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 performance comparison is required to be presented in this
report. As the Company was incorporated on 31 October 2013
and commenced trading on 25 June 2014, the per formance
comparison is shown for the period from 25 June 2014 to
31 December 2017 using the MSCI Emerging and Frontier
Markets Index on a net sterling adjusted basis, which the Board
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46
Directors’ Remuneration Report
Governance
has adopted as the measure for both the Company’s
performance and that of the Investment Manager for the period.
Directors’ Interests in the Company’s Shares as at
31 December 2017 (audited)
Martin Bralsford (Chairman)
David Potter
John Spencer
Total
Ordinary shares
of 1p each
2017
2016
100,000
14,511
5,000
119,511
100,000
13,107
5,000
118,107
Directors are not required to hold shares in the Company.
No changes have been notified to the date of this report.
Martin Bralsford
Chairman
8 March 2018
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
Board has not yet recommended or declared a dividend, there is
no such information to include.
Total Shareholder Return for the period 25 June 2014 to
31 December 2017
%
160
150
140
130
120
110
100
90
80
Launch
Jun-1 4
Aug-1 4
Oct-1 4
D ec-1 4
Feb-1 5
Apr-1 5
Jun-1 5
Aug-1 5
Oct-1 5
D ec-1 5
Feb-1 6
Apr-1 6
Jun-1 6
Aug-1 6
Oct-1 6
D ec-1 6
Feb-1 7
Apr-1 7
Jun-1 7
Aug-1 7
Oct-1 7
D ec-1 7
MSCI EM + FM
FEET
Source: MSCI/Bloomberg
Statement of Voting at the Annual General Meeting
At the AGM held on 24 May 2017, 5,525,900 votes (99.97%)
were received in favour of the resolution seeking approval of the
Directors’ Remuneration Report, 1,509 (0.03%) were against,
and 700 votes were withheld; the percentage of votes excludes
votes withheld.
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Directors’ Remuneration Policy Report
47
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. This policy was last approved by
shareholders at the AGM held on 26 May 2015. Accordingly, an
Ordinar y Resolution for the approval of this policy will be
considered by shareholders at the next Annual General Meeting
to be held on 23 May 2018. Further details are provided in the
notice of the meeting beginning on page 83.
The Company’s Remuneration Policy provides that fees payable
to the Directors should reflect the value of 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.
Directors are authorised to claim reasonable expenses from the
Company in relation to the performance of their duties. Directors
may also earn a pro rata day rate in connection with extraordinary
corporate events or transactions requiring them to commit
significant extra time to the Company. The current and projected
Directors’ fees for 2017 and 2018 are shown in the table below.
The Company does not have any employees.
Directors’ Fees Projected and Current
Martin Bralsford
David Potter
John Spencer
Total
Fees
2018 (£)
30,000
27,000
27,000
84,000
Fees
2017 (£)
25,000
20,000
20,000
65,000
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Independent Auditor’s Report
Financial Statements
Report on the audit of the financial statements
Opinion
In our opinion the financial statements:
● give a true and fair view of the state of the Company’s affairs as at 31 December 2017
and of its profit 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.
We have audited the financial statements of Fundsmith Emerging Equities Trust plc (the
‘Company’) which comprise:
● the Income Statement;
● 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s
Ethical Standard were not provided to the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
● Valuation of Investments
● Ownership of Investments
● Revenue recognition
Materiality
Scoping
All risks within this report are in line with the prior year.
The materiality that we used in the current year was £3.1 million which was determined
on the basis of 1% of net assets as at 31 December 2017.
All audit work was performed directly by the audit engagement team.
Significant changes in our approach
There were no significant changes to our audit approach from the prior year.
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Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the Directors’ statement in note 1a 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.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We are required to state whether we have anything material to add or draw attention to in relation
to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially
inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in
the evaluation of the Directors’ assessment of the Company’s ability to continue as a going
concern, we are required to state whether we have anything material to add or draw attention to
in relation to:
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
● the disclosures on pages 26 to 27 that describe the principal risks and explain how they are
being managed or mitigated;
● the Directors’ confirmation on page 26 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; or
● the Directors’ explanation on page 28 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 are also required to report whether the Directors’ statement relating to the prospects of the Company required by Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
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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Independent Auditor’s Report
Financial Statements
Valuation of Investments
Key audit matter description
As an investment entity, the Company holds investments of £307 million as at
31 December 2017 (2016: £231 million). These represent the most quantitatively
significant financial statement line on the balance sheet and there has been a significant
increase of 33% from the previous balance sheet date. The Company engaged State
Street as an administrator prior to January 2018.
In addition, the investments held at fair value through the income statement are the
main driver of the Company’s per formance and net asset value. The portfolio of
investments has a wide geographical spread and 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. This may result in a material misstatement within the investments held at
fair value through the income statement and also the fair value hierarchy for investments
disclosures.
Refer to note 1e for the accounting policy on investments and details of the investments
are disclosed in note 8. The valuation of investment significant risk is included within
Audit Committee report on page 43.
How the scope of our audit responded
We performed the following procedures to address the valuation of investments risk:
to the key audit matter
Key observations
● We critically assessed the design and implementation of controls in place to value
the investment portfolio within the State Street ser vice organisation report on
controls. We have also assessed whether the service auditor’s scope of the controls
tested were appropriate to give us assurance over the risk identified.
● We agreed 100% of the last traded 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 per formed the following procedures to address whether the investment portfolio
was actively traded and designated with the correct fair value hierarchy:
● To determine whether these investments were actively traded or not we monitored
the post year-end volume of trade and price movements from an independent source.
● In addition, the audit team reviewed the investment holdings at the year end and
calculated the number of days there were zero volume of trade days for the month of
January 2018 and also bid-ask spreads for a selection of thinly traded investment
holdings during the month of January 2018.
● We identified and challenged management’s valuation of investments that are not
actively traded and considered indicators of impairment and fair value hierachy.
There were no 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.
We found from our analysis detailed above, that five investments (2016: six) held at
the year end with a total fair value of £20.8 million (2016: £24.7 million) were not
trading actively. This indicated that a level 2 fair value measurement should be applied
to these investments. Management changed 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 fair value categorisation of investments at year end has been
appropriately disclosed in note 8 of the financial statements.
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51
Ownership of Investments
Key audit matter description
The Company holds a substantial investment portfolio of £307 million as at
31 December 2017 (2016: £231 million) which has increased by 33% from the prior
year-end. There is a risk that investments are not held in the name of the Company or
that the Company did not have ownership of the investments at year-end. The Company
engaged State Street as a custodian and depositary until 2 January 2018.
Refer to note 1e for the accounting policy on investments and details of the investments
are disclosed in note 8. The ownership of investment significant risk is included within
the Audit Committee report on page 43.
How the scope of our audit responded to We performed the following procedures to address this risk:
the key audit matter
Key observations
Revenue recognition
Key audit matter description
● We critically assessed the State Street ser vice organisation control report to
understand and document the design and implementation of controls over ownership
of investments within the State Street service organisation control report. We have
also assessed whether the State Street service auditor was professionally competent
and that the scope of the controls tested were appropriate to give us assurance over
the reliability of controls in regards to controls ownership; and
● We agreed 100% of the Company’s investment portfolio at the year end to
confirmations received directly from the independent custodian.
No issues were identified from our review of the State Street service organisation report
and assessment of the related service auditor.
We did not identify any differences in the investment holdings when agreeing the
Company’s investment portfolio to the confirmation received directly from the custodian.
Dividend income of £6 million for the year ended 31 December 2017 (2016: £4 million)
from equity investments is accounted for on an ex-dividend basis. Overseas dividends
are included gross of any withholding tax. We identified the risk of fraud in revenue
recognition as a key audit risk since dividend income may not be fully captured.
1. There is a risk that dividend income from the various overseas equity investments
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. Dividends
declared for the investments held may not all be recorded on the general-ledger.
Refer to note 1c for the revenue accounting policy and details of revenue are disclosed
in note 2. The revenue recognition significant risk is included within the Audit Committee
report on page 43.
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Independent Auditor’s Report
Financial Statements
How the scope of our audit responded
We performed the following procedures to address this risk:
to the key audit matter
Key observations
1. We have critically assessed and documented the design and implementation of
controls over revenue recognition within the State Street service organisation control
report as administrator of the Company until 2 January 2018. We have also assessed
whether the service auditor was professionally competent and that the scope of the
controls tested were appropriate to give us assurance over the risk identified;
2. 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 was 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;
3. For a sample of listed investments 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
4. We gained comfort over the completeness of dividend income by selecting our sample
from an independent population. We obtained the dividend history for each investment
held at the year end from a third-party resource.
No misstatements in relation to revenue recognition, revenue cut off, and revenue
completeness were identified which required reporting to those charged with
governance.
Our application of materiality
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£3.1 million (2016: £2.4 million)
Basis for determining materiality
1% (2016: 1%) of net assets.
Rationale for the benchmark applied
Net assets has been chosen as a benchmark as it is considered the most relevant
benchmark for investors and is a key driver of shareholder value.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £62,135 (2016:
£47,717), 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.
An overview of the scope of our audit
There were no changes to the scope of our audit from the prior year. Our audit was scoped by obtaining an understanding of the
entity and its environment, including internal control, and assessing the risks of material misstatement performed directly by the
audit engagement team.
We note that the accounting and administration for the Company has been outsourced to State Street as a third-party service
organisation until 2 January 2018. As part of our audit we assessed the design and implementation of controls in place of relevant
controls in place at State Street who prepare the financial statements.
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53
We have nothing to report in
respect of these matters.
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the annual report other than the financial statements and our Auditor’s
report thereon.
Our opinion on the financial statements does not cover the other information and, except to the
extent other wise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that
fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
● Fair, balanced and understandable – the statement given by the Directors that they consider
the annual report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessar y for shareholders to assess the
Company’s position and performance, business model and strategy, is materially inconsistent
with our knowledge obtained in the audit; or
● Audit committee reporting – the section describing the work of the audit committee does not
appropriately address matters communicated by us to the Audit Committee; or
● Directors’ statement of compliance with the UK Corporate Governance Code – the parts of
the Directors’ statement required under the Listing Rules relating to the Company’s compliance
with the UK Corporate Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from
a relevant provision of the UK Corporate Governance Code.
Responsibilities of directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
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Independent Auditor’s Report
Financial Statements
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s report.
Use of our report
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.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
● the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
● the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have
not identified any material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
We have nothing to report in
respect of these matters.
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 by the Company, or returns adequate for our
audit have not been received from branches not visited by us; or
● the Company financial statements are not in agreement with the accounting records and
returns.
Directors’ remuneration
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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
We have nothing to report in
respect of these matters.
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Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 11 November 2014 to audit
the financial statements for the year ending 31 December 2014 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is four years, covering the years ending 31 December
2014 to 31 December 2017.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs
(UK).
Stuart McLaren (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
8 March 2018
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Income Statement
Financial Statements
For the year ended
31 December 2017
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
For the year ended
31 December 2016
Dividend income 2 5,989 – 5,989 4,132 – 4,132
Other operating income – – – 3 – 3
5,989 – 5,989 4,135 – 4,135
Gains on investments
Gains on investments held through
profit and loss 8 – 53,350 53,350 – 23,211 23,211
Losses on foreign exchange transactions (34) (479) (513) (113) (1,460) (1,573)
Management fees 4 (3,409) – (3,409) (2,665) – (2,665)
Other expenses including
dealing costs 5 (1,183) (930) (2,113) (1,004) (588) (1,592)
Profit before tax 1,363 51,941 53,304 353 21,163 21,516
Tax 6 (368) – (368) (335) – (335)
Profit for the year 995 51,941 52,936 18 21,163 21,181
Earnings per share
(basic and diluted) (p) 7 4.12 215.37 219.49 0.09 102.22 102.31
The Company does not have any income or expenses which are not included in the profit for the year. Accordingly the “profit for the
year” is also the “total comprehensive income for the year” as defined in IAS 1 (revised).
All of the profit 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 60 to 74 are an integral part of these financial statements.
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Statement of Financial Position
57
As at
31 December 2016
Notes £’000 £’000 £’000 £’000
As at
31 December 2017
Non-Current Assets
Investments held at fair value through profit and loss 8 306,646 230,838
306,646 230,838
Current Assets
Receivables 9 331 2,101
Cash and Cash Equivalents 5,318 6,522
5,649 8,623
312,295 239,461
Current Liabilities
Trade and other payables 10 (1,622) (878)
(1,622) (878)
310,673 238,583
Equity Attributable to Equity Shareholders
Ordinary share capital 11 246 229
Share Premium 12 57,159 38,022
Capital Reserves 253,380 201,439
Accumulated Losses (112) (1,107)
310,673 238,583
Net Asset Value per share (p) 13 1,259.7 1,039.0
The financial statements on pages 56 to 74 were approved by the Board on 8 March 2018 and were signed on its behalf by:
Martin Bralsford
Chairman
The accompanying notes on pages 60 to 74 are an integral part of these financial statements.
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
For the year ended 31 December 2017
Share Share Capital Accumulated
Capital Premium Reserves Losses Total
Notes £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2017 229 38,022 201,439 (1,107) 238,583
Profit for the year – – 51,941 995 52,936
229 38,022 253,380 (112) 291,519
Issue of Share Capital 17 19,137 – – 19,154
Balance at 31 December 2017 11 246 57,159 253,380 (112) 310,673
For the year ended 31 December 2016
Share Share Capital Accumulated
Capital Premium Reserves Losses Total
£’000 £’000 £’000 £’000 £’000
Balance at 1 January 2016 193 – 180,276 (1,125) 179,344
Profit for the year – – 21,162 19 21,181
193 – 201,439 (1,107) 200,525
Issue of Share Capital 36 38,022 – – 38,058
Balance at 31 December 2016 11 229 38,022 201,438 (1,106) 238,583
The accompanying notes on pages 60 to 74 are an integral part of these financial statements.
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Statement of Cash Flows
59
For the year ended For the year ended
31 December 2017 31 December 2016
£’000 £’000
Cash Flows used in Operating Activities
Profit for the year 52,936 21,181
Adjustments for:
Gain on investments (53,350) (23,211)
Sale of investments [a] 44,854 43,517
Purchases of investments [a] (67,312) (73,438)
Decrease/(increase) in receivables 1,770 (2,061)
Increase/(decrease) in payables 744 (215)
Net Cash Flow from operating activities (20,358) (34,227)
Cash Flows used in Financing Activities
Proceeds from issue of new shares 19,250 38,312
Issue costs relating to new shares (96) (254)
Net Cash Flow from Financing Activities 19,154 38,058
Net (Decrease)/Increase in Cash and Cash Equivalents (1,204) 3,831
Cash and Cash Equivalents at start of the year 6,522 2,691
Cash and Cash Equivalents at end of the year 5,318 6,522
[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 60 to 74 are an integral part of these financial statements.
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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 38. The Company is a UK listed company with a predominantly UK shareholder base. The results
and the financial position of the Company are expressed in sterling, which is the functional and presentational currency of
the Company. The accounting policies have been disclosed consistently and in line with Companies Act 2006.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
(cid:129)
(cid:129)
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
(cid:129)
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. Uncertainty about these assumptions and estimates could result in outcomes that could require a material
adjustment to the carr ying amount of the asset or liability affected in future periods. 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 Income Statement. All other expenses are charged to revenue
except expenditure of a capital nature, in which case they are treated as capital, or 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 have been designated upon initial recognition at 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. For any unlisted investments, the fair value will be determined by using valuation
techniques. These valuations will maximise the use of observable market data where it is available and with minimal reliance
on entity specific estimates. For other investments which do not fit within this criteria the fair value will be determined by the
Audit Committee with valuations recommended to the Board of the Company. The Audit Committee will consider the
appropriateness of the valuations, models and inputs, using the various valuation methods in accordance with the Company’s
valuations policy.
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.
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Notes to the Financial Statements
Financial Statements
1. Accounting Policies Continued
(f) Foreign Currencies
Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the
date of the balance sheet or at the related forward contract rate. Transactions in foreign currency are converted to sterling
at the rate ruling at the date of the transaction or, where forward foreign currency contracts have been taken out, at contractual
rates and included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain
or loss is of a capital or revenue nature.
(g) Cash and Cash Equivalents
Cash at bank and in hand comprises cash and demand deposits which are readily convertible to a known amount of cash
and are subject to insignificant risk of changes in value.
(h) Equity Dividends
Interim dividends are recognised in the period in which they are paid. Final dividends are not recognised until approved by
shareholders in the annual general meeting.
(i) Capital Reserves
Gains or losses on realisation of investments and changes in fair values of investments are transferred to the capital reserve.
Any changes in fair values of investments that are not readily convertible to cash are treated as unrealised gains or losses
within the capital reserve.
(j) Taxation
The charge for taxation is based upon the revenue for the year and is allocated according to the marginal basis between
revenue and capital using the company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet
date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred
at the balance sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred
tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the
future reversal of the underlying temporary differences can be deducted. Timing differences are differences arising between
the company’s taxable profits and its results as stated in the 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 Standards, which have not been applied in these
financial statements, were in issue but not yet effective:
IFRS 9 Financial Instruments (effective for accounting periods beginning on or after 1 January 2018).
IFRS 15 Revenue from Contracts with Customers (effective for accounting periods beginning on or after 1 January 2018).
IFRS 16 Leases (effective for accounting periods beginning on or after 1 January 2019)
The Company does not believe that there will be a material impact on the financial statements or the amounts reported from
the adoption of these standards.
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2. Dividend Income
2017 2016
£’000 £’000
Overseas dividends 5,989 4,132
Total 5,989 4,132
3. Segmental Reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being the investment business. The Company’s
objective is to be a core investment for investors seeking increasing capital growth and income over the long term. The accounting
policies of the operating segment, which operates in the UK, are the same as those described in the summary of significant accounting
policies. The Company evaluates performance based on total profit before tax, which is shown in the Income Statement on page 54.
A geographical split of the portfolio can be seen on page 11.
4. Investment Management Fee
2017 2016
£’000 £’000
Investment Management Fee 3,409 2,665
As at 31 December 2017, an amount of £904,604 (2016: £759,629) was payable to the Investment Manager.
Details of the terms of the Investment Management Agreement are provided on page 24.
5. Other Expenses
Transactions Costs on fair value
Revenue
£’000
2017 2016
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
through profit or loss assets – 281 281 – 365 365
Directors' Fees 65 – 65 65 – 65
Employers’ National Insurance Contributions 11 – 11 11 – 11
Auditor's Remuneration 32 – 32 53 – 53
Registrar Fees 30 – 30 34 – 34
Broker Fee 35 – 35 45 – 45
Company Secretarial Fees 90 – 90 85 – 85
Custody Fees 655 – 655 520 – 520
Depositary Fees 61 – 61 39 – 39
Postage and Printing 21 – 21 26 – 26
Legal Fees 61 – 61 41 – 41
Administration Fees 105 – 105 68 – 68
Other Expenses 17 649 666 17 223 240
Total Expenses 1,183 930 2,113 1,004 588 1,592
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Notes to the Financial Statements
Financial Statements
5. Other Expenses Continued
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 £106,000 (2016: £233,000) and on sales amounted to £175,000
(2016: £132,000).
Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
2017 2016
Revenue £’000 £’000
Fees payable to the Company’s Auditor for the audit of the Company’s annual
financial statements 31 28
Total audit fees 31 28
Tax services
(a) tax compliance service 1 15
(b) other tax advisory services – 10
Total non-audit fees 1 25
Total fees paid 32 53
6. Taxation
(a) Analysis of tax charge in the year
Taxation on ordinary activities
UK corporation tax at 19.2493%
Revenue
£’000
2017 2016
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
(2016: 20.00%) – – – – – –
Irrecoverable overseas withholding tax 368 – 368 335 – 335
Total current tax for the year 368 – 368 335 – 335
The effective corporation tax rate of 19.2493% is based on a marginal tax rate due to a change in rate during 2017 from 20% to 19%.
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6. Taxation Continued
(b) The effective corporation tax rate was 19.2493% (2016: 20.00%). 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:
Profit before tax
Corporation tax at effective
Revenue
£’000
2017 2016
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
1,363
51,941
53,304 353 21,163 21,516
rate of 19.2493% (2016: 20.00%) 262 9,998 10,260 71 4,232 4,303
Effects of:
Expenses not allowable for tax purposes – 179 179 – 118 118
Non-taxable gains on investments – (10,177) (10,177) – (4,350) (4,350)
Overseas dividends not taxable (1,146) – (1,146) (803) – (803)
Overseas tax suffered 368 – 368 335 – 335
Increase in excess management and
loan expenses 884 – 884 732 – 732
Total current year tax charge
for the year 368 – 368 335 – 335
As at 31 December 2017, the Company had unutilised management expenses of £12.9 million (2016: £8.3 million) 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 per Ordinary Share is as follows:
2017 2016
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Earnings per Ordinary Share 4.12 215.37 219.49 0.09 102.22 102.31
Earnings per share is calculated based on returns for the year and the weighted average number of shares in issue during the year.
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Notes to the Financial Statements
Financial Statements
7. Earnings per Share Continued
The total gain per share of 219.49p (2016: 102.31p) is based on a total gain attributable to equity shareholders of £52,936,000
(2016: £21,181,000).
The revenue gain per share of 4.12p (2016: 0.09p) is based on a revenue gain attributable to equity shareholders of £995,000
(2016: £18,000).
The capital gain per share of 215.37p (2016: 102.22p) is based on a capital gain attributable to equity shareholders of £51,941,000
(2016: £21,163,000).
The total revenue gain and total capital gain per share are based on the weighted average number of shares in issue of 24,117,407
(2016: 20,701,820) during the year.
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.
2017 2016
£’000 £’000
Opening cost at 1 January 208,669 183,968
Opening unrealised gain/(loss) at 1 January 22,169 (6,262)
Valuation at 1 January 230,838 177,706
Purchases at cost 67,312 73,438
Sales – proceeds (44,854) (43,517)
Realised loss on sales (745) (4,581)
Investment holding unrealised gain 54,095 27,792
Closing Fair Value at 31 December 306,646 230,838
Closing cost at 31 December 230,382 208,669
Closing unrealised gain at 31 December 76,264 22,169
Valuation at 31 December 306,646 230,838
(Loss)/gain on investments
Loss on sales of investments (745) (4,581)
Unrealised gain 54,095 27,792
Gain on investments 53,350 23,211
All investments are listed.
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8. Investments Held at Fair Value Through Profit and Loss Continued
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:
(cid:129) Level 1 – quoted prices in active markets for identical instruments. As at 31 December 2017, £285,829,000 (2016:
£206,131,000) of the investment portfolio was classified as level 1.
(cid:129) Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit
risk, etc). As at 31 December 2017, £20,817,000 (2016: £24,707,000) of the investment portfolio was classified as level 2.
(cid:129) Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
There are no level 3 investments.
During the year to 31 December 2017, Philippine Seven Corp (£10,004,000) was transferred from level 2 to level 1. This was due
to this security having a higher volume of trade.`
Fair value measurements recognised in the Statement of Financial Position
2017
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments held at fair value through profit and loss 285,829 20,817 – 306,646
Total 285,829 20,817 – 306,646
2016
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments held at fair value through profit and loss 206,131 24,707 – 230,838
Total 206,131 24,707 – 230,838
9. Receivables
2017 2016
£’000 £’000
Trade receivables – 2,001
Accrued income 278 38
Other receivables 53 62
331 2,101
The above receivables do not carry any interest and are short term in nature. The Directors consider that the carrying values of
these receivables approximate their fair value.
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Notes to the Financial Statements
Financial Statements
10. Payables
2017 2016
£’000 £’000
Management fee payable 905 760
Other fees payable 717 118
1,622 878
11. Share capital
2017 2017 2016 2016
Number £’000 Number £’000
Issued, allotted and fully paid (ordinary) 24,662,556 246 22,962,556 229
During the year ended 31 December 2017, the Company issued 1,700,000 shares of £0.01 each (2016: 3,624,635) for a net
consideration of £19,153,986 (2016: £38,058,280). Details of the shareholder authorities granted to Directors to issue and buy
back shares during the year are provided on page 39.
12. Share Premium Account
2017 2016
£’000 £’000
Balance at 1 January 38,022 –
Premium arising on issue of new shares 19,233 38,276
Costs of issuing new shares (96) (254)
57,159 38,022
13. Net Asset Value per Share
2017 2016
£’000 £’000
Net asset value per share 1,259.7 1,039.0
The net asset value per share is based on the net assets attributable to equity shareholders of £310,673,000 (2016: £238,583,000)
and on 24,662,556 (2016: 22,962,556) shares in issue at 31 December 2017.
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14. Risk Management and Financial Instruments
The Company’s investing activities undertaken in pursuit of its investment objective, as set out on page 8, 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.
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.
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70
Notes to the Financial Statements
Financial Statements
14. Risk Management and Financial Instruments Continued
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:
(cid:129) movements in rates that would affect the value of investments and liabilities; and
(cid:129) movements in rates that would affect the income received.
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 2017
Investments Cash Receivables Payables Total
£’000 £’000 £’000 £’000 £’000
Bangladeshi Taka 8,576 – 52 – 8,628
Brazilian Real 17,910 – 13 – 17,923
Chinese Yuan 8,983 – – – 8,983
Egyptian Pound 12,292 – 85 – 12,377
Ghanaian Cedi 3,267 – – – 3,267
Hong Kong Dollar 25,091 – – – 25,091
Indian Rupee 121,266 – 29 – 121,295
Indonesian Rupiah 17,435 – – – 17,435
Kenyan Shilling 4,766 – – – 4,766
Mexican Peso 10,212 – – – 10,212
Nigerian Naira 10,242 – – – 10,242
Pakistani Rupee 3,332 – 18 – 3,350
Philippino Peso 10,004 – – – 10,004
Pounds Sterling 783 5,318 54 (1,654) 4,501
South African Rand 24,199 – – – 24,199
Sri Lankan Rupee 5,052 – – – 5,052
US Dollar 12,197 – 1 32 12,230
Vietnam Dong 11,039 – 79 – 11,118
306,646 5,318 331 (1,622) 310,673
As at 31 December 2017, the investment portfolio included £10.242m of Nigerian securities out of the total investment portfolio of
£306.6m. These Nigerian securities are affected by the repatriation of the Nigerian Naira into sterling. This may take some time to
convert to sterling and may be subject to foreign exchange movements.
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71
14. Risk Management and Financial Instruments Continued
31 December 2016
Investments Cash Receivables Payables Total
£’000 £’000 £’000 £’000 £’000
Bangladeshi Taka 7,753 – 38 – 7,791
Brazilian Real 11,616 (204) – – 11,412
Chilean Peso 4,826 – – – 4,826
Chinese Yuan 5,037 – – – 5,037
Egyptian Pound 4,300 5 – – 4,305
Ghanaian Cedi 2,378 – – – 2,378
Hong Kong Dollar 11,595 20 – – 11,615
Indian Rupee 79,808 63 – – 79,871
Indonesian Rupiah 12,030 33 – – 12,063
Kenyan Shilling 4,038 – – – 4,038
Mexican Peso 7,542 – – – 7,542
Nigerian Naira 8,978 31 – – 9,009
Pakistani Rupee 2,844 52 – – 2,896
Philippino Peso 13,836 (252) – – 13,584
Pounds Sterling – 6,443 62 (896) 5,609
South African Rand 21,840 311 2,001 – 24,152
Sri Lankan Rupee 8,836 – – – 8,836
Tanzanian Shilling 4,689 – – – 4,689
US Dollar 12,068 16 – 18 12,102
Vietnam Dong 6,824 4 – – 6,828
230,838 6,522 2,101 (878) 238,583
The Company mitigates the risk of loss due to exposure to a single currency by way of diversification of the portfolio.
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72
Notes to the Financial Statements
Financial Statements
14. Risk Management and Financial Instruments Continued
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.
2017 2016 2017 2016
as at 31 December £’000 £’000 £’000 £’000
+2% +2% -2% -2%
Effect on net assets for the year 6,123 4,659 (6,123) (4,659)
Effect on capital return 6,117 4,617 (6,117) (4,617)
Interest rate risk
The majority of the Company’s financial assets are equity shares and other investments which neither pay interest nor have a maturity
date. The Company’s cash balance of £5,318,000 (2016: £6,522,000) 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 £30,000
(2016: £33,000). 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 £30,000 (2016: £33,000). 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 2017, the impact on profit or loss and net assets would have been negative
£30.7 million (2016: £23.1 million). If the investment portfolio valuation rose by 10% at 31 December 2017, the impact on profit
or loss and net assets would have been positive £30.7 million (2016: £23.1 million). The calculations are based on the portfolio
valuations as at the respective year-end date and are not representative of the period as a whole, as well as the assumption that all
other variables remained constant.
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14. Risk Management and Financial Instruments Continued
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
2017
£’000
2016
£’000
Assets at fair value through profit and loss 306,646 230,838
Cash 5,318 6,522
Investment income receivable 278 2,039
Other receivables 53 62
Other payables (1,622) (878)
310,673 238,583
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.
The Company’s capital is its equity share capital and reserves that are shown in the Statement of Financial Position at a total of
£310,673,000 (2016: £238,583,000).
The Company is subject to the following externally imposed capital requirements:
(cid:129) as a public company, the Company has a minimum share capital of £50,000; and
(cid:129) 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.
The Board, with the assistance of the AIFM, monitors and reviews the broad structure of the Company’s capital on an ongoing basis.
This includes a review of the planned level of gearing, the need to repurchase or issue equity shares, and the extent to which any
revenue in excess of that which is required to be distributed be retained.
15. Contingent Liabilities
As at 31 December 2017, there were no contingent liabilities or capital commitments for the Company.
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74
Notes to the Financial Statements
Financial Statements
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 Directors’ Remuneration Report on page 45. 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 63.
Terry Smith, the Managing Partner at Fundsmith LLP, the Company’s AIFM and Investment Manager holds 530,000 shares in the
Company (2016: 500,000) amounting to 2.1% (2016: 2.2%) of the Company’s issued share capital as at the date of this report.
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Shareholder 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
75
Annual General Meeting
The Annual General Meeting of Fundsmith Emerging Equities Trust plc will be held at Barber-Surgeons’ Hall, Monkwell Square,
Wood Street, London EC2Y 5BL on Wednesday, 23 May 2018 at 1.00 p.m.
Share Price
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 Registrar, Link 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 2017
31 December 2016
● Retail 70.9%
● Corporate 19.4%
● Banks 6.9%
● Pension Funds 1.9%
● Investment Companies 0.9%
● Retail 68.8%
● Corporate 21.9%
● Pension Funds 4.3%
● Banks 3.8%
● Investment Companies 1.2%
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Alternative Investment Fund Managers Directive Disclosures (Unaudited)
Further Information
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:
(cid:129) information on the investment strategy, geographic and sector investment focus and principal stock exposures are included in
the Strategic Report.
(cid:129) None of the Company’s assets are subject to special arrangements arising from their illiquid nature.
(cid:129) 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.
(cid:129) 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 2017
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.
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Remuneration Disclosure
During the year ending 31 March 2017, Fundsmith LLP (‘Fundsmith’) had 19 members of personnel in total, including employees
and Partners. The total amount of remuneration paid to Fundsmith personnel during this period was £19,052,741. Out of this figure,
the total amount of remuneration paid to the Partners of Fundsmith LLP was £14,158,194 whilst the total amount of remuneration
paid to the employees of Fundsmith LLP was £4,894,547.
Of the £4,894,547 paid to Fundsmith employees, £3,720,469 was variable remuneration and £1,174,078 was fixed remuneration.
The Partners of Fundsmith LLP are not paid a bonus. All of their remuneration is a fixed percentage of Fundsmith LLP’s net profits.
Explanatory Note
Fundsmith LLP is 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 financial statements of Fundsmith LLP for the
year from 1 April 2016 to 31 March 2017. These figures have been independently audited and filed with Companies House.
The rules require Fundsmith 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 it has not been broken down by reference to the Company or the
other funds that Fundsmith manages. Nor has the proportion of remuneration which relates to the income Fundsmith earns from
their management of the Company been shown. Fundsmith has not provided such a breakdown because this does not reflect the
way they work or the way Fundsmith is organised. All of the Partners and most of the employees are involved in the management of
the Company.
The Company represents approximately 2.16% 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. The employees are paid a competitive salary. At the end of each
year, the 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.
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Alternative Investment Fund Managers Directive Disclosures (Unaudited)
Further Information
The Partners are each paid a fixed proportion of Fundsmith LLP’s net profits. They consider that this is the best way to ensure that
the Partners’ interests are completely aligned with their investors’ interests over the long-term. This alignment of interest is reinforced
by the fact that Fundsmith personnel have invested approximately £8,000,000 in the Company. They have a clear and direct interest
in the long-term success of the Company.
Any investor who would like more information on how Fundsmith adheres to the Principles of the Remuneration Code may request a
summary of our Remuneration Policy.
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Glossary of Terms
79
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.
Earnings Per Share (“EPS”)
The proportion of a Company’s profit allocated to each ordinary share.
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 performance 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”) Per Share
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.
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Glossary of Terms
Further Information
NAV Total Return
The theoretical total return on shareholders’ funds per share, including an assumed £100 original investment at the beginning of the
period specified, reflecting the change in NAV assuming that dividends paid to shareholders were reinvested at NAV at the time
the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not
affected by movements in the share price discount/premium.
Neutral Free Cash Flow (“NFCF”)
An entity has neutral free cash flow if its expenses equal its income.
Ongoing Charges
Ongoing charges are calculated by taking the Company’s annualised operating expenses, and expressing them as a percentage of
the average daily net asset value of the Company over the year. The costs of buying and selling investments are excluded, as are
interest costs, taxation, costs of buying back or issuing shares and other non-recurring costs. These items are excluded because if
included, they could distort the understanding of the Company’s performance for the year and the comparability between periods.
Operating expenses
Average net assets during the year
Ongoing charges
31 Dec
2017
£’000
4,531
274,654
1.65%
31 Dec
2016
£’000
3,628
210,245
1.73%
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.
Share Price Total Return
The return to the investor on mid-market prices assuming that all dividends paid were reinvested.
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How to Invest
81
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
Bestinvest http://www.bestinvest.co.uk/
Charles Stanley Direct https://www.charles-stanley-direct.co.uk/
Club Finance http://www.clubfinance.co.uk/
FundsDirect http://www.fundsdirect.co.uk/Default.asp?
Halifax Share Dealing http://www.halifax.co.uk/Sharedealing/
Hargreaves Lansdown http://www.hl.co.uk/
HSBC https://investments.hsbc.co.uk/
iDealing http://www.idealing.com/
Interactive Investor http://www.iii.co.uk/
IWEB http://www.iweb-sharedealing.co.uk/share-dealing-home.asp
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/
Link Asset Services – Share Dealing Service
A quick and easy share dealing service is available to existing shareholders through the Company’s Registrar, Link 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 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.linksharedeal.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
(cid:129) Past performance is no guarantee of future performance.
(cid:129) 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 stock markets in which the
Company invests and by the supply and demand for the Company’s shares.
(cid:129) As the shares in an investment trust are traded on a stock market, 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.
(cid:129) Although the Company’s financial statements are denominated in sterling, most 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.
(cid:129) Investors should note that tax rates and reliefs may change at any time in the future.
(cid:129) 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
83
Notice is hereby given that the Annual General Meeting of Fundsmith Emerging Equities Trust plc will be held at Barber-Surgeons’
Hall, Monkwell Square, Wood Street, London EC2Y 5BL on Wednesday, 23 May 2018 at 1.00 p.m. for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive and, if thought fit, to accept the Annual Report for the year ended 31 December 2017.
2. To re-elect Martin Bralsford as a Director of the Company.
3. To re-elect David Potter as a Director of the Company.
4. To re-elect John Spencer as a Director of the Company.
5. To approve the Directors’ Remuneration Report for the year ended 31 December 2017.
6. To approve the Directors’ Remuneration Policy.
7. 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 10, 11, 12, 13 and 14 will be proposed as special
resolutions:
Authority to Issue Shares
8. THAT, in substitution for all existing authorities, the Directors be and are hereby generally and unconditionally authorised in
accordance with Section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot relevant
securities (within the meaning of section 551 of the Act) up to a maximum aggregate nominal amount of £25,237.55 (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 2,523,755 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 2019 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.
9. THAT, in addition to the authority conferred by resolution 8 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 £25,237.55
(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 2,523,755 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 2019 or
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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Notice of the Annual General Meeting
Further Information
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.
Disapplication of Pre-emption Rights
10. THAT, in substitution of all existing powers, the Directors be and are hereby generally empowered pursuant to sections 570 and
573 of the Companies Act 2006 (the “Act”) to allot equity securities (within the meaning of section 560 of the Act) for cash
pursuant to the authority conferred on them by resolution 8 set out in the notice convening the Annual General Meeting at which
this resolution is proposed or otherwise as if section 561(1) of the Act did not apply to any such allotment and to sell relevant
shares (within the meaning of section 560 of the Act) for cash as if section 561(1) of the Act did not apply to any such sale,
provided that this power shall be limited to the allotment of equity securities pursuant to:
(a) 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 territor y, 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 £25,237.55;
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.
11. THAT, in addition to the authority conferred by resolution 10 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 9 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 £25,237.55 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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85
Treasury Shares
12. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolutions 10 and 11 set out in
the Notice of Annual General Meeting) the Directors be and are hereby generally empowered pursuant to Section 570 of the
Companies Act 2006 (the “Act”) to sell relevant shares (within the meaning of Section 560 of the Act) if, immediately before the
sale, such shares are held by the Company as treasury shares (as defined in Section 724 of the Act (“Treasury Shares”)), for
cash as if Section 561(1) of the Act did not apply to any such sale provided that:
(a) where any Treasury Shares are sold pursuant to this power at a discount to the then prevailing net asset value of ordinary
shares of 1p each in the Company (“Shares”), such discount must be (i) lower than the discount to the net asset value per
Share at which the Company acquired the Shares which it then holds in treasury and (ii) not greater than 5% to the last
published net asset value per Share at the time of such sale (and for this purpose the Directors shall be entitled to determine
in their reasonable discretion the discount to the net asset value at which such Shares were acquired by the Company and
the net asset value per Share at the time such Shares are sold pursuant to this power); and
(b)
this power shall be limited to the sale of relevant shares having an aggregate nominal value of £25,237.55, being 10% of
the issued share capital of the Company as at the date of this Notice of Annual General Meeting and representing 2,523,755
Shares, and provided further that the number of relevant shares to which power applies shall be reduced from time to time
by the number of Shares which are allotted for cash as if Section 561(1) of the Act did not apply pursuant to the power
conferred on the Directors by resolutions 10 and 11 set out in the Notice of Annual General Meeting;
and such power shall expire 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 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 otherwise require treasury shares to be sold after such expiry and the
Directors may sell Treasury Shares pursuant to such offer or agreement as if the power conferred hereby had not expired.
Authority to Repurchase Ordinary Shares
13. 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”) (either for retention as Treasury Shares for future reissue, resale,
transfer or cancellation) provided that:
(a)
the maximum aggregate number of Shares authorised to be purchased is 3,783,109 (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);
(b)
the minimum price (exclusive of expenses) which may be paid for a Share is 1 penny;
(c)
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;
(d)
the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company to be held in
2019 or, if earlier, on the expiry of 15 months from the date of the passing of this resolution unless such authority is
renewed prior to such time; and
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Notice of the Annual General Meeting
Further Information
(e)
the Company may make a contract to purchase Shares under this authority before the expiry of such authority which will or
may be executed wholly or partly after the expiration of such authority, and may make a purchase of Shares in pursuance
of any such contract.
General Meetings
14. 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.
Registered office:
By order of the Board
33 Cavendish Square
London W1G 0PW
Frostrow Capital LLP
Company Secretary
8 March 2018
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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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. 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.
3. 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 Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF no later than 1.00 p.m. on 21 May 2018.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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 close of business on 21 May 2018 (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.
9. As at 7 March 2018 (being the last business day prior to the publication of this notice) the Company’s issued share capital consists of
25,237,556 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 7 March 2018 are 25,237,556.
10. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment ser vice 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.
11. 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.
12. 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.
13. 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.
14. 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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Notice of the Annual General Meeting
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 Link 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. 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.
18. 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 Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF.
19. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer
of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a
duly certified copy of such power of attorney) must be included with the revocation notice. If a member attempts to revoke their proxy appointment
but the revocation is received after the time for receipt of proxy appointments (see above) then, subject to paragraph 4, the proxy appointment
will remain valid.
LOCATION OF THE ANNUAL GENERAL MEETING
Barber-Surgeons’ Hall, Monkwell Square, Wood Street, London EC2Y 5BL
Barbican
Barber-Surgeons’ Hall
Monkwell Square
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Moorgate
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LONDON WALL
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ROPEMAKER ST
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Explanatory Notes to the Resolutions
89
Resolution 1 – To receive the Annual Report and Financial Statements
The Annual Report for the year ended 31 December 2017 will be presented to the Annual General Meeting. The 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 30 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 Directors’ Remuneration Report is set out in full in this annual report on pages 45 to 46.
Resolution 6 – Remuneration Policy
The Directors’ Remuneration Policy is set out in full on page 47.
Resolution 7 – Re-Appointment of Auditor and the determination of their remuneration
Resolution 7 relates to the re-appointment of Deloitte LLP as the Company’s independent Auditor to hold office until the next Annual
General Meeting of the Company and also authorises the Audit Committee to set their remuneration.
Resolutions 8 to 11 – Issue of Shares
Ordinary Resolution 8 in the Notice of Annual General Meeting will renew the authority to allot unissued share capital up to an
aggregate nominal amount of £25,237.55 (equivalent to 2,523,755 shares, or 10% of the Company’s existing issued share capital
on 7 March 2018, 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 9 in the Notice of Annual General Meeting will give authority to the Directors to allot unissued share capital up
to a nominal amount of £25,237.55 (equivalent to 2,523,755 shares, or 10% of the Company’s existing issued share capital on
7 March 2018). 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 10 will, if passed, give the Directors power to allot for cash equity securities up to 10%
of the Company’s existing share capital on 7 March 2018, as if Section 551 of the Act does not apply. This is the same nominal
amount of share capital which the Directors are seeking the authority to allot pursuant to Resolution 8. This authority will also expire
on the date of the next Annual General Meeting or after a period of 15 months, whichever is earlier. This authority will not be used
in connection with a rights issue by the Company.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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Explanatory Notes to the Resolutions
Further Information
Special Resolution 11 will, if passed, give the Directors power to allot shares up to a further 10% of the Company’s issued share
capital (as at 7 March 2018) 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 9. This authority will also expire on the date of the next Annual General Meeting
or after a period of 15 months, whichever is earlier.
The Directors intend to use the authority given by Resolutions 8 to 11 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 12 – Treasury Shares
Under Section 724 of the Companies Act 2006 (“s724”) the Company is permitted to buy back and hold shares in treasury and then
sell them at a later date for cash, rather than cancelling them. It is a requirement of s724 that such sale be on a pre-emptive, pro
rata, basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly,
in addition to giving the Directors power to allot unissued share capital on a non pre-emptive basis pursuant to Resolutions 10 and
11, Special Resolution 12, if passed, will give the Directors authority to sell shares held in treasury on a non pre-emptive basis. The
benefit of the ability to hold treasury shares is that such shares may be resold. This should give the Company greater flexibility in
managing its share capital, and improve liquidity in its shares. Any re-sale of treasury shares would only take place at a narrower
discount to the net asset value per share than that at which they had been bought into treasury, and in any event at a discount no
greater than 5% to the prevailing net asset value per share, and this is reflected in the text of Resolution 12. It is also the intention
of the Board that sales from treasury would only take place when the Board believes that to do so would assist in the provision of
liquidity to the market. The number of treasury shares which may be sold pursuant to this authority is limited to 10% of the Company’s
existing share capital as at the date of this report (reduced by any equity securities allotted for cash on a non-pro rata basis pursuant
to Resolutions 10 and 11, as described above). This authority will also expire on the date of the next Annual General Meeting or after
a period of 15 months, whichever is earlier.
Resolution 13 – 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 13 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 7 March 2018, being the nearest practicable date prior to the signing of this Annual Report, (amounting
to 3,783,109 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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91
Resolution 14 – General Meetings
Special Resolution 14 seeks shareholder approval for the Company to hold General Meetings (other than the Annual General Meeting)
at 14 clear days’ notice. The Company will only use this shorter notice period where it is merited by the purpose of the meeting and
will endeavour to give at least 14 working days’ notice if possible, in line with the recommendations of the UK Corporate Governance
Code.
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
totalling 119,511 shares.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
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92
Company Information
Further Information
Directors
Martin Bralsford, (Chairman)
David Potter (Chairman of the Management Engagement
Committee)
John Spencer (Chairman of the Audit Committee)
Depositary2
Northern Trust Global Services Limited
50 Bank Street
Canary Wharf
London E14 5NT
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, please contact
Frostrow Capital using the stated
e-mail address.
Administrator1
Northern Trust Global Services Limited
50 Bank Street
Canary Wharf
London E14 5NT
Custodian and Banker3
The Northern Trust Company
50 Bank Street
Canary Wharf
London E14 5NT
Independent Auditor
Deloitte LLP
Statutory Auditor
2 New Street Square
London EC4A 3B2
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone (in UK): 0871 664 0300†
Telephone (from overseas): +44 (0)371 664 0300
E-Mail: enquiries@linkgroup.co.uk
Website: www.linkassetservices.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. Calls outside the UK will be
charged at the applicable International rate. Lines are open from
9.00 a.m. to 5.30 p.m. Monday to Friday excluding public holidays in
England and Wales.
Broker
Investec Bank plc
2 Gresham Street
London EC2V 7QP
1 During the year under review, the Company’s Administrator was State Street Bank and Trust Company. The new Administrator was appointed with effect
from 2 January 2018.
2 During the year under review, the Company’s Depositary was State Street Trustees Limited. The new Depositary was appointed with effect from
2 January 2018.
3 During the year under review, the Company’s Custodian and Banker was State Street Bank and Trust Company. The new Custodian and Banker was
appointed with effect from 2 January 2018.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
248080 Frostrow FEET pp81-pp94 08/03/2018 20:00 Page 93
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
Legal Entity Identifier
2138003EL6XV8JYU8V55
93
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2017
248080 Frostrow FEET Cover 6mm spine 08/03/2018 18:57 Page 2
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,
Link Registrars, which has installed telephones to allow speech and hearing impaired people who have their own telephone to contact them
directly, without the need for an intermediate operator, for this service please call 0800 731 1888. Specially trained operators are available during
normal business hours to answer queries via this service. Alternatively, if you prefer to go through a ‘typetalk’ operator (provided by RNID) you
should dial 18001 from your textphone followed by the number you wish to dial.
This report is printed on Revive 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.
248080 Frostrow FEET Cover 6mm spine 08/03/2018 18:57 Page 1
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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 248080