257301 Frostrow FEET Cover 6mm spine.qxp 05/03/2020 14:09 Page 1
Annual Report
for the year ended 31 December 201(cid:153)
t psurs Teitiuqg Engiremh EtimsdnuF
cl
F
u
n
d
s
m
i
t
h
E
m
e
r
g
i
n
g
E
q
u
i
t
i
e
s
T
r
u
s
t
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
9
A member of the Association of Investment Companies
Fundsmith Emerging Equities Trust plc
33 Cavendish Square, London W1G 0PW
www.feetplc.co.uk
Perivan 257301
257301 Frostrow FEET pp01.qxp 05/03/2020 13:57 Page 1
Contents
1
1
Strategic Report
2
4
6
9
10
12
24
27
Company Summary
Financial Highlights
Chairman’s Statement
Investment Objective and Policy
Investment Portfolio
Investment Manager’s Review
Investment Philosophy
Business Review
3
Financial Statements
54
62
63
64
65
66
Independent Auditor’s Report
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
2
Governance
33
35
42
46
Board of Directors
Corporate Governance Report
Report of the Directors
Statement of Directors’
Responsibilities
Audit Committee Report
Directors’ Remuneration Report
Directors’ Remuneration
Policy Report
47
51
53
4
Further Information
83
84
Shareholder Information
Alternative Investment Fund
Managers Directive Disclosures
Glossary of Terms
How to Invest
Notice of Annual General Meeting
Explanatory Notes
to the Resolutions
101 Company Information
87
90
92
98
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 2
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.
*See Fundsmith’s Investment Philosophy on page 24 for further information
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 3
3
Company Summary
The Company
The Company is an investment trust and its shares are listed on the
premium segment of 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 2019 were
£323.1 million (2018: £322.5 million) and the market capitalisation
was £293.0 million (2018: £314.0 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 27.
Performance is measured against the MSCI Emerging and Frontier
Markets Index measured on a net sterling adjusted basis.
Capital Structure
The Company’s capital structure is composed of Ordinary Shares.
Further details are given in note 13 to the financial statements on
page 77.
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 ordinary 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.
Further details of the Company’s investment policy are set out in the Strategic Report on page 9.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 4
4
Financial Highlights
Strategic Report
Performance Summary
Share price
Net asset value per share
Discount 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*
Index total return1
As at
31 December 2019
As at
31 December 2018
1,100.0p
1,213.0p
9.3%
1.4%
1,190.0p
1,222.0p
2.6%
1.5%
For the year ended
31 December 2019
For the year ended
31 December 2018
-0.5%
-7.4%
+13.9%
-3.0%
-9.4%
-9.3%
*Alternative Performance Measure (see Glossary beginning on page 87)
1MSCI Emerging and Frontier Markets Index (measured on a net sterling adjusted basis)
Please refer to the Glossary on pages 87 to 89 for definitions of these terms and the basis of their calculation.
Performance over one year
)
p
(
1,200
1,150
1,100
1,050
1,000
950
900
D
e
c-1
8
Ja
n-1
9
F
e
b-1
9
M
ar-1
9
A
pr-1
9
M
ay-1
9
Ju
n-1
9
Jul-1
9
A
u
g-1
9
S
e
p-1
9
O
ct-1
9
N
ov-1
9
D
e
c-1
9
Share Price
NAV
MSCI Emerging + Frontier Markets Index
Source: MSCI/Bloomberg
Figures rebased to 1,000 as at 31 December 2018
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 5
5
Performance since launch
1,300
1,200
1,100
)
p
(
1,000
900
800
L
a
u
n
c
h
S
e
p-1
4
D
M
e
c-1
4
ar-1
5
n-1
5
S
e
p-1
D
e
c-1
5
5
Ju
M
ar-1
6
Ju
n-1
6
S
e
p-1
6
D
M
e
c-1
6
ar-1
7
Ju
S
D
M
n-1
7
e
p-1
7
e
c-1
7
ar-1
8
Ju
S
e
p-1
n-1
8
e
c-1
8
8
D
M
ar-1
9
n-1
9
Ju
S
e
p-1
9
D
e
c-1
9
Share Price
NAV
Source: MSCI/Bloomberg
Five Year Record
Premium/
discount
of the
share price
Shareholders’ Net asset to the net
funds value per Share asset value
31 December £’000 share price per share
2015 179,344 927.4p 955.0p 3.0%
2016 238,583 1039.0p 1055.5p 1.6%
2017 310,673 1259.7p 1314.0p 4.3%
2018 322,486 1222.0p 1190.0p -2.6%
2019 323,143 1213.0p 1100.0p -9.3%
Dividend
per share
Ongoing
charges
N/A
N/A
N/A
2.0p
3.2p
1.7%
1.7%
1.7%
1.5%
1.4%
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 6
6
Chairman’s Statement
Strategic Report
“Demand for the Company’s shares led to the issue of a total of 1,727,500
Introduction
I present our sixth Annual Report which covers the year ended 31 December 2019.
new shares during the year, raising £21.5 million”
Although the performance of the portfolio this year is disappointing,
both in absolute terms and by reference to the Index, the Board
believes that shareholders should be reassured by the positive
financial characteristics of the underlying investee companies,
further details of which can be found in the Investment Manager’s
report. The Investment Manager is researching the reasons why the
good financial performance of investee companies is not reflected
fully in their share prices and hence our NAV. They will report more
fully on this to shareholders at our forthcoming Annual General
Meeting (‘AGM’). Nevertheless, your Board shares Fundsmith’s
confidence in these high-quality companies and continues to believe
that their strong underlying characteristics will ultimately determine
the long-term performance of the Company.
Performance
Management
The Company’s net asset value (NAV) per share total return* for the
year was -0.5% (2018: -3.0%) and the share price total return* was
-7.4% (2018: -9.4%). At the year end, the shares stood at a 9.3%
discount* to the NAV per share (2018: 2.6%). The MSCI Emerging
and Frontier Markets Index, measured on a total return, net sterling
adjusted basis, rose by 13.9% over the same period (2018: -9.3%).
*Alternative Performance Measure
During the year, Fundsmith, in consultation with the Board,
promoted Michael O’Brien and Sandip Patodia to the roles of
portfolio manager and assistant portfolio manager, respectively.
Terry Smith, in his capacity as chief investment officer of Fundsmith
LLP, continues to meet with the Board and is always accessible to
the Board as required. He also provides advice and support to
Michael and Sandip.
This was a difficult year for the Company, particularly in terms of
share price performance, which is discussed in more detail later in
this Statement. Substantial inflows into Exchange Traded Funds
continue to have a significant impact on the Index and the
Company’s relative performance, inflating the prices of larger but
(in our Investment Manager’s opinion) poorer-quality companies,
which are not within our investment universe. Fundsmith LLP
(‘Fundsmith’), our Investment Manager, provides a thorough
explanation of this relative underperformance and a comprehensive
analysis of the performance of the Company’s portfolio during the
year, in their report beginning on page 12.
This new arrangement is working well and the Board has been
impressed with Michael and Sandip’s approach since the transition
in May. Michael’s first contribution to the annual report on behalf
of Fundsmith begins on page 12.
Also during the year, and as previously reported, the Board agreed
with Fundsmith a reduction in the investment management fee from
1.25% to 1.00% per annum of the Company’s net asset value. The
fee reduction brings the charges closer into line with Fundsmith’s
other funds (as well as the Company’s peer group) whilst
recognising the relatively small size of our Company and the greater
geographical research coverage that needs to be maintained on the
Company’s portfolio.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 7
7
“The Board considers it desirable that the Company’s shares do not trade at
“The previous year was a turbulent one in many respects in many parts of the
world and your Board believes that this volatility will continue in 2019.
a price, which on average, represents a discount that is out of line with the
Company’s peer group.”
However, the Board believes your Company is well diversified to protect and
sustain value within the international constraints of its Investment Policy.”
Share Issuance
Demand for the Company’s shares in the first three months of 2019
led to the issue of a total of 250,000 new shares during the year
(2018: 1,727,500 shares), raising gross proceeds of £3.0 million
(2018: £21.5 million). This was in line with the policy of enlarging
the Company’s invested capital to the benefit of all shareholders,
rather than seeing the shares rise to a material premium to NAV per
share in the market.
As at 31 December 2019, the Company had 26,640,056 shares of
1p each in issue (2018: 26,390,056). The net proceeds received
from the issue of these new shares were invested in line with the
Company’s investment objective.
At the last AGM in May 2019, shareholders granted the Board
authority to issue up to 10% of the Company’s issued share capital
without pre-emption rights. The Board will ask for the same authority
again, to issue up to 10% of issued share capital without
pre-emption rights, at the forthcoming AGM.
Share Price Discount
Shortly after the Company’s AGM in May 2019, the Company’s
share price fell to a discount to the NAV per share. The Board has,
in consultation with its advisers, been monitoring the share price
discount very closely and considering ways in which it may be
addressed, principally through share buybacks but also through the
Company’s marketing strategy.
period of time to assess the new portfolio management
arrangements and the resulting performance.
However, the Board considers it desirable that the Company’s
shares do not trade at a price which, on average, represents a
discount that is out of line with the Company’s peer group (the AIC
Global Emerging Markets Sector). The Board will continue to monitor
the discount and, should a material and sustained deviation emerge
in the Company’s discount from that of its peer group, it has the
authority to buy back shares in the market.
Dividend
The Company made a small revenue profit during the year and, as
a result, the Board recommends to shareholders the payment of a
dividend to allow the Company to comply with the investment trust
rules regarding distributable income.
Subject to shareholder approval at the forthcoming AGM, a final
dividend of 3.2p per share will be paid on 3 June 2020 to
shareholders on the register on 15 May 2020. The associated ex-
dividend date will be 14 May 2020.
The Company’s principal objective remains to provide shareholder
returns through capital growth in its investments rather than income
and the Board is maintaining its current policy to pay only those
dividends required to maintain UK investment trust status. Subject
to the investment trust rules, any dividends and distributions will
continue to be at the discretion of the Board from time to time.
To date the Board has been of the opinion that share buybacks are
not always in the best interests of shareholders as they reduce the
size of the Company and therefore increase the ongoing charges
ratio. The Board is also conscious that emerging markets have been
under pressure generally and that selling has been piecemeal,
rather than as a result of a single large seller. For these reasons,
the Board has thus far not taken action, opting to give the market a
The Board
There have been no changes to the Board during the year. In
accordance with the Board’s policy and the revised AIC Code of
Corporate Governance, all Directors will be standing for re-election
at the forthcoming AGM. You will find the appropriate resolutions in
the Notice of the AGM on page 92 and a summary of the
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 8
8
Chairman’s Statement
Strategic Report
“We remain optimistic on the longer-term outlook for Emerging Markets and
believe that the investment thesis on which the Company was launched
remains valid.”
contribution each Director makes to the Board and the Company in
the explanatory notes on page 98.
Communications with Shareholders
As communicated in the last interim report, during the year the
Board decided to offer shareholders the option to receive all
Company information electronically. This has led to a 92% reduction
in the number of hard copy annual reports printed this year, further
impact on the
reducing the Company’s already minimal
environment, as well as producing a small cost saving.
Shareholders who elect to receive Company communications
electronically still have the right to request (at no extra charge) hard
copy versions of the documents sent or supplied via the website.
Shareholders who have elected to continue receiving hard copies
may be reassured to know that this year, the annual report
(including the front cover) is printed on 100% recycled and
recyclable paper.
Outlook
As predicted, there was considerable volatility in emerging markets
throughout 2019 and this looks set to persist; geopolitical factors
are likely to continue affecting global economic growth in 2020. The
emergence and spread of the new coronavirus is also causing
disruption and this is considered further on page 31. Your
Investment Manager and your Board will continue to monitor
developments and the potential impact upon the Company’s
portfolio holdings.
Fundsmith will therefore remain focused on selecting high-quality
companies with superior returns on capital, profit margins and
growth than many of the companies in the Index.
Annual General Meeting
The Company’s AGM will be held on Wednesday, 27 May 2020 at
12 noon and will again be held at Barber-Surgeons’ Hall, Monkwell
Square, Wood Street, London EC2Y 5BL. Further details can be
found on pages 92 to 100.
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
Secretary whose details are set out on page 101. An edited video
of the Investment Manager’s presentation will be made available
on the Company’s website (www.feetplc.co.uk) shortly after
the event.
Shareholders who hold their shares directly can vote online by
visiting www.myfeetshares.co.uk and following instructions. Any
shareholders who require a hard copy form of proxy may request
one from the Registrar, Link Asset Services (instructions are
provided on page 97). Shareholders who hold their shares through
an investment platform or a nominee will need to contact them to
enquire about voting arrangements.
However, while there will inevitably be periods of volatility, the Board
remains confident that an investment in the Company should prove
rewarding over the long term. We remain optimistic on the longer-
term outlook for emerging markets and believe that the investment
thesis on which the Company was launched remains valid.
Martin Bralsford
Chairman
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 9
Investment Objective and Policy
9
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 Policy
issuer
The Company maintains a portfolio diversified by
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. Where, as a result of investment performance, the
total value of the companies in a particular jurisdiction exceeds
40% of gross assets, this restriction shall not apply to a portfolio
rebalancing transaction (an investment funded from the
proceeds of a disposal of shares in a company domiciled in the
same jurisdiction, executed at the same time).
(iii) not more than 20% of the Company’s gross assets can be in
deposits held with a single bank or financial institution. In
applying this limit all uninvested cash (except cash representing
distributable income or credited to a distribution account that
the Depositary holds) should be included;
(iv) not more than 20% of the Company’s gross assets can consist
of shares and approved money market instruments issued by
the same group. When applying the limits set out in (i) this
provision would allow the Company to invest not more than 5%
in the shares of each of four group member companies, or 10%
in two of them (if applying the 40% limit);
(v) the Company’s holdings in any combination of shares or
deposits issued by a single company or fund must not exceed
20% of the Company’s gross assets overall;
(vi) the Company must not acquire shares issued by a company
and carrying rights to vote at a general meeting of that company
if the Company has the power to influence significantly the
conduct of business of that company (or would be able to do
so after the acquisition of the shares). The Company is to be
taken to have power to influence significantly if it exercises or
controls the exercise of 20% or more of the voting rights in that
company; and
(vii) the Company must not acquire shares which do not carry a right
to vote on any matter at a general meeting of the company that
issued them and represent more than 10% of these securities
issued by that company.
Uninvested cash or surplus capital or assets may be invested on a
temporary basis in:
• cash or cash equivalents, money market instruments, bonds,
commercial paper or other debt obligations with banks or other
counterparties having a single-A (or equivalent) or higher credit
rating as determined by an internationally recognised rating
agency; or
• any “government and public securities” as defined for the
purposes of the FCA rules.
In general, the Company will not use portfolio management
techniques such as interest rate hedging and credit default swaps.
However, the Company may use currency hedging, through
derivatives if necessary, as a portfolio management technique.
Whilst the Company, generally, will not hedge its currency exposure,
it does reserve the right to do so in the circumstances where, in the
opinion of the Investment Manager, a significant depreciation of a
currency has become likely but the Investment Manager wishes to
continue owning the companies in the portfolio denominated in that
currency and where the cost of hedging that currency is unlikely, in
the opinion of the Investment Manager, to extinguish any gains from
hedging.
*See Fundsmith’s Investment Philosophy beginning on page 24 for further information
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 10
10
Investment Portfolio
Strategic Report
Investments held as at 31 December 2019
Security Country of incorporation Fair value £’000
Vitasoy International Holdings Ltd Hong Kong 16,414
MercadoLibre Inc USA1 15,026
Foshan Haitian Flavouring & Food Co Ltd China 14,768
Eastern Company S.A.E Egypt 14,749
Asian Paints Ltd India 13,127
Godrej Consumer Products Ltd India 12,390
Philippine Seven Corp Philippines 12,333
Nestlé India Ltd India 12,127
Hypera SA Brazil 11,675
Travelsky Technology Ltd China 10,827
% of investments
5.3
4.8
4.7
4.7
4.2
4.0
3.9
3.9
3.7
3.5
Top 10 Investments 133,436
42.7
Hindustan Unilever Ltd India 10,735
Marico Ltd India 10,698
Info Edge (India) Ltd India 10,269
Havells India Ltd India 10,022
Britannia Industries Ltd India 9,628
Vietnam Dairy Products JSC Vietnam 9,312
Dali Foods Group Co Ltd China 8,190
Metropolis Healthcare Ltd India 8,131
Integrated Diagnostics Holdings Plc Jersey2 7,751
Eris Lifesciences Ltd India 7,649
3.4
3.4
3.3
3.2
3.1
3.0
2.6
2.6
2.5
2.4
Top 20 Investments 225,821
72.2
Walmart De Mexico SAB de CV Mexico 7,540
Procter & Gamble Hygiene and Health Care Ltd India 7,367
Dr Lal Pathlabs Ltd India 7,229
Nestlé Nigeria Plc Nigeria 6,266
Dabur India Ltd India 6,154
Clicks Group Ltd South Africa 5,814
East African Breweries Ltd Kenya 5,665
Bim Birlesik Magazalar AS Turkey 5,526
Thyrocare Technologies Ltd India 5,122
Ceylon Tobacco Co Plc Sri Lanka 4,984
Top 30 Investments 287,488
Avenue Supermarts Ltd India 4,874
Tiger Brands Ltd South Africa 4,660
PT Prodia Widyahusada Tbk Indonesia 4,387
British American Tobacco Bangladesh
Company Limited Bangladesh 4,011
Edita Food Industries SAE Egypt 3,617
DP Eurasia NV Netherlands3 3,230
2.4
2.4
2.3
2.0
2.0
1.9
1.8
1.8
1.6
1.6
92.0
1.6
1.5
1.4
1.3
1.2
1.0
Total Investments 312,267
100.0
1 Principal place of business Argentina
2 Principal place of business Egypt
3 Principal place of business Turkey
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 11
11
By Geography (by Country of Incorporation)
10.9%
18.4%
43.4%
● India
● Asia (ex India)
● Eastern Europe, Middle
East and Africa
● Latin America
27.3%
By Geography (by Country of Incorporation)
6.8%
19.8%
30.1%
43.3%
● India
● Asia (ex India)
● Eastern Europe, Middle
East and Africa
● Latin America
● Food & Beverage
● Healthcare
● Fast Moving Consumer
Goods
● IT
● Retail
● Tobacco
● Cash
● Decorative Paint
● Household Electronics
● Fast food
● Industrials
● Auto
● Food & Beverage
● Fast Moving Consumer
Goods
● Healthcare
● Retail
● Tobacco
● IT
● Fast food
● Auto
● Decorative Paint
● Industrials
● Household Electronics
● Cash
Portfolio Distribution
as at 31 December 2019
By Sector (based on net asset value)
1%
3%
4%
28%
4%
7%
11%
11%
16%
15%
as at 31 December 2018
By Sector (based on net asset value)
2%
2%
1%
3%
3%
31%
10%
12%
14%
22%
Top 10 Purchases and Sales in 2019
Info Edge (India) Ltd
Top 10 Purchases
Security
1
2 MercadoLibre Inc
Avenue Supermarts Ltd
3
4 Metropolis Healthcare Ltd
Eastern Company S.A.E
5
Havells India Ltd
6
Integrated Diagnostics Holdings Plc
7
Godrej Consumer Products Ltd
8
9
Tiger Brands Ltd
10 Vietnam Dairy Products JSC
Country of incorporation
India
USA1
India
India
Egypt
India
Jersey2
India
South Africa
Vietnam
Colgate-Palmolive (India) Ltd
PT Unilever Indonesia Tbk
Britannia Industries Ltd
Emami Ltd
Foshan Haitian Flavouring & Food Co Ltd
Top 10 Sales
Security
1
2
3
4
5
6 Mr Price Group Ltd
7
8
9
10 Nestlé Pakistan Ltd
PT HM Sampoerna TBK
Eicher Motors Ltd
Ajanta Pharmaceutical Ltd
Country of incorporation
India
Indonesia
India
India
China
South Africa
Indonesia
India
India
Pakistan
1 Principal place of business Argentina
2 Principal place of business Egypt
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 14:23 Page 12
12
Investment Manager’s Review
Strategic Report
“Since launch to the end of 2019, the Company has produced a cumulative
NAV return of 22%, or a return of 3.7% on an annualised basis.”
Performance in more detail is shown below:
Since
incep- Annual-
2019 2018 2017 2016 2015 2014* tion ised
%
FEET NAV 1 -0.5 -3.0 +21.2 +12.0 -7.0 +0.1 +22.0 +3.7
FEET Share
Price 2 -7.4 -9.4 +24.5 +10.5 -10.9 +7.2 +10.2 +1.8
Emerging
Markets 3 +13.9 -9.3 +25.3 +32.4 -10.0 +0.5 +55.0 +8.3
UK Bonds 4 +3.8 +1.2 +1.4 +6.5 +1.0 +7.4 +23.0 +3.8
UK Cash 5 +0.8 +0.7 +0.4 +0.5 +0.6 +0.3 +3.3 +0.6
Table 2:
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 June 2014
As we have previously stated, the composition of the Index is very
different to our portfolio. In 2019 emerging markets experienced
net outflows of US$17.7bn. This net outflow figure was comprised
of net inflows into emerging markets ETFs of almost US$14bn which
were dwarfed by net outflows from “active” funds of US$31.6bn.
Fundsmith Emerging Equities Trust plc (“FEET” or the “Company”)
had a disappointing 2019, both in terms of absolute and relative
performance.
Total return
1 January – 31 December 2019 %
FEET Net Asset Value per Share -0.5
FEET Share Price -7.4
MSCI Emerging & Frontier Markets Index +13.9
Table 1: Source: MSCI/Bloomberg
Cumulative EM fund flows since 2016
The net asset value (“NAV”) fall of 0.5% compared to an increase in
the MSCI Emerging & Frontier Markets Index (the “Index”) of 13.9%.
The share price fall of 7.4% was more pronounced than the fall in
the NAV as a result of the discount widening in the year. Since
launch to the end of 2019, the Company has produced a cumulative
NAV total return of 22%, or a return of 3.7% on an annualised basis.
Whereas in 2018 the performance was encouraging in a year when
the Index fell and our strategy seemed well placed to deliver value
preservation in a downturn, 2019 was a strong year for emerging
markets and our performance on a relative basis lagged.
200
150
100
50
0
-50
-100
Ja
n-1
6
Jul-1
6
ETF Only
Ja
n-1
7
Jul-1
7
Ja
n-1
8
Jul-1
8
Ja
n-1
9
Jul-1
9
Non-ETF
Figure 1: Source: EPFR Global
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 13
13
“It increasingly strikes us that emerging markets are currently viewed as a
“The composition of the MSCI Emerging and Frontier Markets Index is very
different to our Company, so these ETF flows are mostly going into stocks and
homogeneous single asset class by asset allocators who, rather than having
a strategy of which stocks to buy and why, simply buy the Index.”
sectors which we do not and will not own”
At present we have no investments in any of the top 10 Index
constituents, which are shown below:
Top 10 MSCI E+FM Index constituents Weight % ROCE1 %
Alibaba
Tencent
TSMC
Samsung Electronics
China Construction Bank
Naspers
Ping An Insurance
Reliance Industries
HDFC Bank
China Mobile
Total Average
Table 3: Source: MSCI
1 See Glossary on page 87.
5.7
4.4
4.3
3.6
1.3
1.1
1.0
1.0
0.9
0.8
24.0
8
19
20
10
6
-2
3
10
12
12
10
Collectively they account for 24% of the Index and thus are the major
beneficiaries of ETF fund flows.
This concentration is far more marked in emerging markets than it
is in developed markets. The top five MSCI Emerging & Frontier
Markets Index constituents account for almost 20% of that Index,
whereas the top five constituents of the MSCI World Index account
for just 9% of that index. This magnifies the impact of ETF flows into
the major constituents of the Index. It could also produce some
problems if or when these flows reverse. Just one company, Taiwan
Semiconductor Manufacturing Company (“TSMC”), accounts for
40% of the value of the Taiwanese stock market. Yet TSMC is
overwhelmingly held by foreign investors. It may be that in this and
other emerging market stocks, local demand may not be able to
supply the necessary liquidity if international investors, represented
by ETF fund flows, decide to sell out.
Alibaba, Tencent, Samsung, TSMC and Naspers (whose main asset
was its stake in Tencent) accounted for over 40% of the increase in
the Index in 2019 and were the largest determinant of the Index’s
relative performance in the year (in contrast, the top five
constituents of the MSCI World Index (Apple, Microsoft, Amazon,
JP Morgan and Facebook) contributed 14% of the absolute
performance of that index).
It increasingly strikes us that emerging markets are currently viewed
as a homogeneous single asset class by asset allocators who, rather
than having a strategy of which stocks to buy and why, simply buy
the Index.
Whilst we continue to analyse some of the stocks which dominate
the Index to see if they are developing into businesses we would be
comfortable investing in, as yet we have not found this to be the
case, as illustrated by the ROCEs in the table above.
There are other issues which derive from the composition of the
Index and therefore our Company’s divergence from it. One is that
the China element of the Index is not predominantly, as you might
think, made up of Chinese companies listed on Chinese markets.
Instead it comprises Chinese companies listed in the US, Chinese
companies listed in Hong Kong, and Hong Kong companies. The
smallest element of the Index element categorised as ‘China’ is
Chinese companies listed in mainland China.
Concerns about these ‘Chinese’ stocks in particular, which were
identified in our due diligence ahead of launching the Company in
2014, include issues around corporate governance, accounting
standards, shareholding structures and voting rights, government
intervention and legal ownership of business assets. Equally, a large
proportion of the China weighting in the Index is either listed in the
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 14
14
Investment Manager’s Review
Strategic Report
“We continue to focus on buying good companies and won’t shy from this
“FEET owns shares in good companies – companies which have returns on
capital, profit margins and growth which are superior to the companies in the
regardless of what the Index is doing. FEET owns stakes in companies which,
as a whole, have superior financial characteristics to the Index.”
benchmark Index and which convert far more of their profits into cash”
US and priced in dollars or Hong Kong listed (whose currency is
pegged to the dollar), thus adding an additional layer of complexity.
higher returns and margins, stronger cash conversion and faster
rates of cashflow growth.
These issues continue to concern us, yet seem to us to be
disregarded by many investors, particularly those ‘hugging the
Index’. That does not mean we have ruled out investing in China-
focused companies, it just means that our exacting standards have
to date limited the number of companies suitable for the Company.
Ideally the companies we own will have no debt, and if not certainly
only a conservative level of financial leverage. Ultimately, we believe
that these characteristics will be reflected in the share prices of the
companies that the Company owns. The characteristics of the FEET
portfolio as at 31 December 2019 compared with the Index were:
2019 saw the joint listing of Alibaba in Hong Kong. Alibaba’s share
price performed strongly after that point, not necessarily because
of what the listing brought to the business, but from what the listing
brought to the market. The Hong Kong Exchange has only recently
liberalised the rules for joint listings, particularly regarding
companies which have preferential voting rights for founders.
It appears to us that such joint listings of Chinese stocks in Hong
Kong will lead to rises in these stocks as they ultimately become
eligible for inclusion in the local indices in Hong Kong. In addition,
the listing of the business in Hong Kong (in contrast to the US)
allows Chinese investors to buy stock in what is a household name
in the People’s Republic.
LTM ROCE
LTM Gross Margin
LTM Operating Margin
LTM NFCF Conversion
LFY Revenue Growth
LFY NFCF Growth
MSCI E+FM
Index
FEET (ex-Financials)
%
%
39
48
19
98
14
15
14
32
18
86
18
7
Table 4: Source: Fundsmith, MSCI, Bloomberg
Abbreviations: LTM: last twelve months, LFY: last full year, ROCE:
return on capital employed, NFCF: neutral free cash flow. See
Glossary beginning on page 87.
Other Chinese companies listed in the US have already said they
are likely to follow Alibaba’s joint listing move. If by doing so they
have a similar impact on their share price performance as Alibaba
had, then we are set for other instances where Index constituents
benefit from technical changes, not fundamentals.
Unsurprisingly, our stocks are significantly more highly rated than
the Index based upon either the measures of Price Earnings (“PE”)
ratio or Neutral Free Cash Flow yield (“Neutral” as in assuming that
capital expenditure above the level of depreciation is expansionary
and can therefore be disregarded in this calculation).
We continue to focus on buying good companies and won’t shy from
this regardless of what the Index is doing. FEET owns stakes in
companies which, as a whole, have superior
financial
characteristics to the Index. Relative to the Index, FEET offers
emerging market investors the ability to invest in companies with
LTM PE Ratio
LTM NFCF Yield
LTM Dividend Yield
FEET
38.0
3.8
2.0
MSCI E&FM
(ex-financials)
27.4
5.1
2.4
Table 5: Source: Fundsmith, MSCI, Bloomberg
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 15
15
“It is disappointing that much of the cashflow growth demonstrated by the
“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
portfolio companies has not been captured in the performance of the
Company. Much of this is due to currency movements.”
long-term”
Valuation is, we believe, unlikely to be the main determinant of the
performance of our strategy in the long term. Instead, we believe
quality, with continued reinvestment of earnings at high rates of
return, will be the main determinant in the long term.
It is disappointing that much of the cash flow growth demonstrated
by the portfolio companies has not been captured in the
performance of the Company. Much of this is due to currency
movements (cash flow growth is recorded in local currency whilst
the Company reports in sterling). This is a problem that we are
mindful of and hope to ultimately rectify by the portfolio changes
we are implementing.
Portfolio turnover in the year was 28% (or 27% when adjusted for
new issuance). This is higher than we anticipated at the start of the
year, but reflective of our continued move to concentrate the
portfolio in those stocks and countries in which we have the greatest
confidence. We will continue this exercise in the current year.
We took three new positions in the year, all in India. Two were new
for the portfolio, the third a company where we previously had been
a shareholder. We took a stake in Metropolis, the medical testing
and diagnostics business, at its IPO. We also acquired a stake in
Info Edge, the largest online classified advertiser in India, focusing
mainly on the jobs and property segments, with an overall market
share of around 20%. The third, Avenue Supermarkets, is a business
we initially acquired at IPO and subsequently sold as we did not get
an adequate shareholding. We remain impressed by the business’s
ability to execute in a highly fragmented grocery market.
We made 11 disposals from the portfolio in the year. Four of these
were in India- Ajanta Pharmaceuticals, Eicher Motors, Colgate
Palmolive India and Emami.
We sold our holding in Colgate India as a result of the business
losing market share due to increasing competition from domestic
competitors. We fully exited our position in Emami, a business which
has seen its competitive position erode following the introduction
of the Goods and Services Tax (“GST”) which impacted the group’s
wholesale customers. We sold our stakes in Ajanta Pharmaceuticals
and Eicher Motors due to concerns over the predictability and
cyclicality of their business models.
Two stocks were sold in Indonesia in the year, HM Sampoerna and
Unilever Indonesia. The stake in Unilever Indonesia was sold as we
took the view that the competitive environment was becoming more
intense, particularly in the ice cream segment. We sold our holding
in HM Sampoerna because we felt the next round of tobacco duty
increases in the country would be higher than they traditionally had
been as the government sought funds to plug its budget deficit
amidst falling growth forecasts. This proved to be the case.
We also sold two of our three holdings in Nigeria, Guinness Nigeria
and Nigerian Breweries. This leaves us with just one company in
Nigeria, Nestlé Nigeria. Although the longer-term outlook for beer
consumption in the country remains positive, the market is being
disrupted by a price war led by a third player seeking to gain market
share.
We exited three other companies - Nestlé Pakistan, Mr Price and
Fan Milk. All were relatively small holdings in the portfolio and were
suffering from adverse trading conditions which we felt would be
difficult to recover from in an appropriate period of time.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 16
16
Investment Manager’s Review
Strategic Report
“As well as the constituent companies of the indices which attract ETF flows
“Weakness in emerging market currencies adversely affected our performance”
being distinctly different to those we would be willing to invest in, the
geographical weightings of the Index remain very different to where the
Company’s portfolio is invested.”
By sector, the breakdown of FEET as at 31 December 2019 is as
below:
FEET GICS Sector Split
Consumer Staples
Healthcare
Consumer Discretionary
Materials
Technology
Communication Services
Industrials
Cash
Table 6: Source: Fundsmith, Bloomberg
Compared with the Index:
MSCI GICS Sector Split
Financials
Communication Services
Information Technology
Consumer Discretionary
Energy
Materials
Consumer Staples
Industrials
Real Estate
Health Care
Utilities
Table 7: Source: Fundsmith, Bloomberg
%
60.9
16.0
5.6
4.0
3.4
3.2
3.1
3.8
100
%
24.9
11.1
15.4
13.9
7.3
7.3
6.3
5.3
3.1
2.8
2.6
100
By sector, the breakdown of FEET at 31 December 2019 as we
would describe the sectors rather than those used by the Index
(which are rather generic) was:
Sector (%) 2019 2018
Food & Beverage 28 31
Fast Moving Consumer Goods 15 22
Healthcare 16 14
Retail 11 12
Information Technology 11 3
Tobacco 7 10
Decorative Paint 4 2
Household Electricals 3 0
Fast Food 1 3
Auto 0 2
Industrials 0 1
Cash 4 0
100 100
Table 8: Source: Fundsmith
As you can see, the portfolio changes significantly boosted the
investment in Technology.
As well as the constituent companies of the indices which attract
ETF flows being distinctly different to those we would be willing to
invest in, the geographical weightings of the Index remain very
different to where the Company’s portfolio is invested. Last year we
commented that Qatar, rising by 38% was the best performing
market in 2018. This year its near neighbour, Bahrain, took that
mantle, rising by 55%. As with Qatar, Bahrain is a stock market
dominated by banks, property companies and (esoterically enough)
an aluminium smelter. All sectors where we are happy to say we
have no investments.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 17
17
“After being the second biggest contributor to performance in 2018, Foshan
“In India we are now experiencing strong company results as the disruptive effects
of the GST implementation have waned and its benefits have become apparent”
Haitian was the most significant positive contributor to the Company in 2019.
The business continues to exhibit strong, above industry average growth and
generate attractive returns.”
Our geographical weightings and those of the Index are shown
below:
FEET Country Breakdown
India
China (incl. Hong Kong)
Egypt
US
Philippines
Other Emerging Markets
Frontier Markets
Cash
Table 9: Source: Fundsmith
MSCI E+FM Index Country Breakdown
China (incl. Hong Kong)
South Korea
Taiwan
India
Brazil
Other Frontier & Emerging Markets
Weight %
41.4
15.6
5.7
4.6
3.8
15.6
9.4
3.9
100
Weight %
33.6
11.5
11.5
8.5
7.3
27.6
100
Table 10: Source: MSCI, Bloomberg
In terms of contributors to performance, the table below shows the
top five contributors to our performance by stock:
Top 5 Contributors Country %
Foshan Haitian China 2.1
MercadoLibre Inc Argentina 1.2
Metropolis Healthcare Ltd India 0.8
Nestlé India Ltd India 0.8
Dr Lal Pathlabs Ltd India 0.8
Table 11: Source: Fundsmith
After being the second biggest contributor to performance in 2018,
Foshan Haitian was the most significant positive contributor to the
Company in 2019. The business continues to exhibit strong, above
industry average growth and generate attractive returns. The markets
in which it operates remain fragmented and increasing awareness of
both food provenance and the group’s brands in the People’s
Republic of China stand the business in good stead going forward.
MercadoLibre (which at the time of writing is now the largest holding
in the portfolio) was the second biggest contributor to performance
in the year. We increased our stake in the business after PayPal
invested US$750m in the business alongside a broader public
offering in the spring to support growth. We believe the PayPal
investment and associated collaboration with PayPal offers the
group the chance to dominate the payments space in Latin America.
The next three best performers were Indian stocks- Metropolis
Healthcare (acquired in the year), Nestlé India and Dr Lal Pathlabs.
Dr Lal and Metropolis have benefitted from strong growth in the
diagnostic sector in India and market share gains from informal
players because of their focus on quality, brand and network
expansion into new areas across the country. National and regional
chains have a share of only around 15% of the diagnostic
laboratories segment in India, alongside considerable scope for
geographical expansion. Nestlé India, a business which has
renewed focus and vigour following the product recall of 2015,
continued its strong operating performance.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 18
18
Investment Manager’s Review
Strategic Report
“Currencies impacted the Company negatively by 430 basis points of
“We hope and expect that the combination of these reforms will help to
performance.”
transform India’s economy to the benefit of our investee companies as well as
ordinary Indians”
The table below shows the top five detractors from performance by
stock:
Top Five Detractors Country %
Eris Lifesciences Ltd India -1.2
DP Eurasia NV Netherlands -1.0
Godrej Consumer Products Ltd India -0.8
Mr Price Group Ltd South Africa -0.7
Marico Ltd India -0.5
Godrej saw a significant increase in competition in its insecticides
business from illegal incense stick product launches by informal
players, something which we expect the authorities to clamp down
on. It has also seen lower than expected growth in its African hair
care business. Marico has seen a slowdown in rural consumption
due to liquidity issues in the trade channel and increasing
competition in the hair oil segment due to renewed competitive
focus from rival Dabur, another portfolio holding for us.
Table 12: Source: Fundsmith
The biggest negative contributor to portfolio performance was Eris
Lifesciences. Eris was impacted by a slowdown in the growth rate
of the Indian pharmaceutical market and a structural decline in
inventory levels within the distribution network following the
introduction of the GST in India. The company is also seeing slower
than expected growth in its diabetes and cardiology business and
recently acquired neurology portfolio.
Eris was followed by DP Eurasia, the master franchisee for Domino’s
Pizza in Turkey and Russia. We believe that a large element of the
underperformance of DP Eurasia comes not from the operating
performance of the business itself (it continues to post robust like
for like sales growth), but the fact that the business is listed on the
London Stock Exchange. Post-float share price underperformance
has led to the company effectively becoming a small cap company
listed in London, not the natural home for emerging markets
investors, and to reinforce our earlier point about the impact on
indices and ETF flows, it is entirely excluded from emerging markets
indices.
The other biggest detractors from performance were Godrej, Marico
and Mr Price. We note elsewhere that we sold our stake in Mr Price
in the year, primarily as the group was seeing negative same store
sales growth with little imminent signs of recovery, not ideal for an
operationally geared business.
Shown below, the impact of currencies on the portfolio in the year.
Currencies impacted the Company negatively by 430 basis points
of performance.
Top Five
Egypt
Indonesia
Mexico
South Africa
Sri Lanka
%
0.5
0.0
0.0
0.0
0.0
Bottom Five
India
China
Turkey
Brazil
US
%
-2.8
-0.6
-0.3
-0.3
-0.2
Table 13: Source: Fundsmith
Yet again the Indian rupee was the biggest detractor from
performance and in 2019 it was the biggest sole impact on the
Company’s performance. The other big negative currency impacts
on the portfolio were the Chinese Yuan and Hong Kong dollar, the
Turkish Lira, the Brazilian Real and the US dollar. The only currency
which made any positive contribution of note to the portfolio was
the Egyptian Pound which had a second year of strong performance
following the implementation of an IMF restructuring programme.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 19
19
“As we have always invested focused on the quality of the company and the
opportunity open to them rather than putting the economic fundamentals of
a particular country first, the Company’s position in India is an outcome rather
than a design. Despite this, our investments anywhere cannot be immune from
macro-economic or political risk.”
The regional geographic breakdown of the portfolio as at the end
of December 2019 is shown below:
Region
Asia (ex-India)
Eastern Europe, Middle East and Africa
India
Latin America
Cash
%
27
15
43
11
4
100
Table 14: Source: Fundsmith
India remains our largest geographical exposure and the Indian
economy entered one of its weakest spells for a while. As we opined
last year, the elections were likely to bring a degree of disruption,
which certainly proved to be the case. Although the election results
ultimately saw a resounding victory for incumbent Prime Minister
Modi’s BJP party, India’s economic growth slowed ahead of the
election and was slower to recover than most commentators
predicted. Indeed, the IMF has recently cut its 2019/20 growth
forecast for India to 4.8%, and to 5.8% for the 2020/21 budgetary
year.
The Indian stock market did, however, witness a major one-off
positive move in September when the government announced
major corporate tax cuts. We would not be surprised if further major
economic reform measures are announced during this year,
especially as 2019 saw the Indian economy grow at under 6% for
two consecutive quarters for the first time since 2013. We suspect
such measures would focus on consumption and increasing liquidity
in a banking system already seeing major reform. Encouragingly, we
note that India’s position in the World Bank’s ease of doing business
rankings has increased from 130th to 63rd over the past three
years.
As we have always invested focused on the quality of the company
and the opportunity open to them rather than putting the economic
fundamentals of a particular country first, the Company’s position
in India is an outcome rather than a design. Despite this, our
investments anywhere cannot be immune from macro-economic or
political risk. Over the last three years or so companies operating
in India have had to deal with both demonetisation and the
implementation of the GST. We are now over a year beyond both
events, and the impact of the first is somewhat more opaque than
the side effects we have seen from the second, where businesses
more reliant on wholesalers as a route to market have generally not
seen the same level of benefit as those reliant on direct sales to
retail channels.
With regards to our investments operating in India which we have
not yet touched on, Hindustan Unilever continues delivering above
market revenue growth and strong double-digit profit growth led by
margins gains from faster growth in premium products, new product
launches and cost savings. We believe it is worth noting that around
98% of households in India use one or more of Hindustan Unilever’s
brands - it’s distribution reach is a great strength. Asian Paints, the
largest decorative paints company in India, continues to deliver
double digit volume growth with strong demand from smaller towns,
continued market share gains and
increasing per capita
consumption of paints in India. Most of its sales are derived from
repainting rather than sales into the new build market. Havells is
well placed to benefit from growth in penetration and availability of
electricity in India, its strong distribution network and the pricing
power of its electrical product brands in the market over the
medium-to-long-term.
Our second largest geography by exposure is China. We have four
China exposed holdings, three of which are listed in Hong Kong
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 20
20
Investment Manager’s Review
Strategic Report
“Our investment approach is to seek resilient business models, something
which we feel is likely to be tested in China over coming years.”
(which to us typically provides greater transparency and governance
standards to mainland listed comparators) but at the end of 2019,
two of our largest three holdings were companies which derive the
bulk of their revenues from the People’s Republic.
We have opined in recent years that China has specific issues which
have reduced the investment opportunities for the Company. These
include the lack of an independent legal system, poor corporate
governance, government ‘guidance’ in the economy, regulation and,
in the case of Chinese companies listed overseas, the use of
weighted voting rights and variable interest entities which deprive
overseas investors of any control.
Based on this, our investment approach is to seek resilient business
models, something which we feel is likely to be tested in China over
coming years. China’s economic progress since the post-Mao
liberalisation has been staggering but its main economic indicators
are starting to slow. 2020 GDP growth is likely to be below 6% which
will be a 30-year low. Setting aside the economic model of
investment driven growth and the misallocation of capital that
brings, there remains unanswered questions in the Chinese
economy which we believe could catch investors unawares.
The Chinese economy has weathered the trade spat with the US
well, potentially too well. In spite of the signing of an ‘interim deal’,
reaching a broader second round agreement with the US in an
election year may be a somewhat harder task. We would also not
be surprised if US authorities start to take a greater interest in
imports from China which are routed into the US by way of third-
party countries.
Then there is China’s debt. The Institute of International Finance
estimates that China’s total corporate, household and government
debt is now somewhere in the order of 300% of GDP and close to
15% of global debt. Most of China’s debt is not issued by the central
government but by local governments (often in special purpose
vehicles) or state-owned enterprises, the latter area quite often
operating in industries with major overcapacity. Although there has
been some success in curbing the activities of the shadow banking
sector in the country, its role in the economy has increased in 2019
amidst tighter credit conditions. One study suggested that shadow
lenders accounted for 45% of corporate lending in Q3 2019. We
also note that the level of margin lending in the stock market, after
several years of the authorities trying to reduce it, is now back over
the RMB1trn level. Throw property into the mix, and China appears
to have a triple bubble in investment, real estate and credit.
Arguably the People’s Bank, with eight cuts to its reserve ratio
requirement in the last 24 months, is exacerbating this.
Very few countries have accumulated debt at the rate of China in
its economic boom and have made it beyond the middle-income
trap. And China’s position is not helped by a birth rate which is at a
multi-decade low and a rapidly aging population.
Of our holdings in Asia, Vitasoy which started the year as our largest
holding had, in footballing terms, a year of two halves. The first half
saw continued upwards share price momentum and the entry of the
stock into the MSCI index series which was announced in May. The
second half of 2019 saw share price weakness following the
announcement of the full year results which saw the group reduce
its profit growth expectations as a result of both brand and physical
asset investment. We are not concerned about this as it follows on
from several years of sustained, above forecast growth. Given the
opportunities open to the group in mainland China, it is bringing
forward measures to support growth.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 21
21
“As the Company becomes longer established, we believe we have increasing
insights into what we do well, or where applying the Fundsmith approach to
emerging markets has not worked as well as we initially thought it would do.”
Of our other two China focused holdings, 2019 was a
disappointment on the implementation front for Dali Foods as the
launch of both its fresh bread and plant-based drinks ranges failed
to meet the more bullish expectations in the market. Despite this,
the share price rose marginally on the hope of growth in these
categories in 2020 and a commitment to a high dividend pay-out
ratio from the group’s cash rich balance sheet. Travelsky’s shares
fell as a result of the broader slowdown of the Chinese economy
and growth rates for air passenger travel below the long-term
average. The recent outbreak of a coronavirus in the city of Wuhan
has caused further share price weakness post the year-end.
Moving outside of Hong Kong and China, Philippine Seven shares
performed well as the group continued to outperform its
convenience store rivals in the country, helped by the footfall
generated by the continued introduction of ancillary services, coffee
and take-away food into its store portfolio. We are, however,
increasingly cognisant of the risk posed by the rapid expansion of
the Alfamart minimarket chain in the country which operates from
larger size stores and has impacted 7-Eleven sales when opening
nearby.
Vinamilk had a disappointing year as a result of increased
competition and weak demand, particularly in rural areas. The group
has just gained control of one of its major rivals, which we see as
positive. Two external factors are, in our view, likely to be beneficial
for performance in the current year - first, the Vietnamese
government reducing its stake further and second any fund flows
should Kuwait leave the Frontier Markets Index, which would
significantly increase the country weighting of Vietnam, an economy
the IMF forecasts will grow at 6.5% this year.
Prodia’s share price has been volatile as a result of the
implementation of Indonesia’s public healthcare scheme, although
we believe that the impact of this is now behind the group and it is
well placed to capitalise on its market leading position in this
country of over a quarter of a billion people.
We continue to own two tobacco stocks in Asia. Ceylon Tobacco
continues to capitalise on its near-monopoly position in Sri Lanka,
but competition from locally made beedi and government policies
continue to drag on the business’s true potential. British American
Tobacco Bangladesh has meanwhile seen the impact of the
acquisition of its largest competitor by Japan Tobacco and the
increased competition which has followed in the world’s eighth
largest cigarette market.
Moving on to Turkey, setting aside DP Eurasia which we commented
on earlier, our other Turkish focused investment is BIM, a
neighbourhood value-based retailer. BIM has performed well in
Turkey’s period of economic stress and to us remains a very well-
run business, even if its international ambitions have not exactly
gone to plan.
Egypt is also seeing falling inflation and improving growth following
the IMF reform package agreed in 2016. Eastern Company remains
our largest holding in the country and we are watching with interest
efforts to improve the operating performance and capital efficiency
of the business. We believe that Edita is well placed to benefit from
both its market position in Egypt and growth opportunities across
the wider region. Our third Egyptian holding, Integrated Diagnostics
(which is listed on the London Stock Exchange) saw encouraging
volume and revenue per patient growth, although the group’s
operations in Nigeria and Sudan have underperformed the rest of
the Group.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 22
22
Investment Manager’s Review
Strategic Report
“FEET has thus proved to be a good vehicle at preserving capital in bad
markets, but has been less impressive in markets with a greater appetite for
risk. The greatest challenge for the Company as we now see it, is to try and
keep the former, whilst improving the latter.”
Elsewhere in Africa we believe that Nestlé Nigeria remains the most
attractive way in which the Company can gain exposure to that
country’s burgeoning consumer classes (we likewise believe that
East African Breweries provides the Company with similar upside to
volume and value growth in the African beer and spirits market). We
have recently increased our stake in South Africa’s Clicks as we
believe that this is a very well-run business with strong operating
metrics and exposed to the growth of the middle class in Africa’s
second largest economy. The holding in Tiger Brands has continued
to disappoint in the aftermath of the Listeria outbreak and we are
closely watching how management try and improve returns.
MercadoLibre has been our standout performer in Latin America.
Of our other investments in the region, Walmart de Mexico
continues to outperform a seemingly slowing retail environment in
the country, whilst Hypera (the Brazilian pharmaceuticals company)
has performed satisfactorily as a result of seemingly reduced
regulatory risk and the acquisition of two over-the-counter brands
from Boehringer for US$320m.
As the Company becomes longer established, we believe we have
increasing insights into what we do well, or where applying the
Fundsmith approach to emerging markets has not worked as well
as we initially thought it would do.
Although we have discussed the Company’s performance
elsewhere, it is increasingly clear that the Company’s relative
performance is heavily dependent on market conditions. This is
shown below:
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Average Monthly Return in
DOWN Market
-1.45
-2.89
MARKET
FEET
Average Monthly Return in
UP Market
3.58
MARKET
1.80
FEET
Figure 2: Source: MSCI, Bloomberg, Fundsmith
In months where the market (as judged by the Index) has gone
down, the Company has typically outperformed, whilst in those
months where the market has gone up, the Company has
underperformed.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 23
23
“We are convinced that there remains an attractive opportunity for the
Company in the years ahead.”
FEET has thus proved to be a good vehicle at preserving capital in
bad markets, but has been less impressive in markets with a greater
appetite for risk. The greatest challenge for the Company as we now
see it, is to try and keep the former, whilst improving the latter.
We believe we can achieve that by way of a greater weighting
towards segments such as healthcare and technology, a reduced
exposure to some of the more economically challenged countries
in our universe and awareness that listed multinational subsidiaries
often lack the agility of their rivals. Our portfolio is moving towards
being able to capture these performance characteristics more
adeptly than it has been in the past.
We also clearly hold some very good companies in FEET. The
operating performance of those businesses demonstrates it.
We are therefore convinced that there remains an attractive
opportunity for the Company in the years ahead.
Michael O’Brien
Fundsmith LLP
Investment Manager
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 24
24
Investment Philosophy
Strategic Report
Fundsmith Emerging Equities Trust plc (‘FEET’) invests in companies
which have the majority of their operations in, or revenue derived
from, Developing Economies* and which provide direct exposure to
the rise of the consumer classes in those countries.
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
in
manufacturers of consumer durables.
intend to
invest
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. Since stock markets
*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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 25
25
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 every company after tax and interest,
but before dividends and other distributions, and after adding back
any discretionary capital expenditure which is not needed to
maintain the business. Otherwise we would penalise companies
which can invest in order to grow. Our aim is to invest only when free
cash flow per share as a percentage of a company’s share price (the
free cash flow yield) is high relative to long-term interest rates and
when compared with the free cash flow yields of other investment
candidates both within and outside the portfolio. Our goal is to buy
securities that we believe will grow and compound in value, which
bonds cannot, at yields that are similar to or better than what we
would get from a bond.
3. We aim to buy and hold
We aim to be long-term, buy-and-hold investors. We seek to own only
stocks that will compound in value over the years. Accordingly, we
try to be very careful about the stocks we pick. We do not have a
good new investment idea every day, or indeed, not even every year.
Even when we are able to find a new company we would like to invest
in, we have to wait, sometimes forever, for a price and valuation at
which we can justify investing. The resulting low level of dealing
activity also minimises the frictional costs of trading, a cost which is
often overlooked by investors as it is not normally disclosed as part
of the costs of running funds.
Our investment philosophy is also defined by a number of things we
don’t do:
(A) We try never to engage in so-called “Greater Fool Theory”
We really want to own all of the companies that we invest in. We do
not buy them knowing that they are not good businesses or are over-
valued in the hope that someone more gullible will come along and
pay an even higher price for them. We assume that there is no
greater fool than us.
(B) Indices are not used for portfolio construction
We are interested in indices in order to benchmark our 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
performance than the crowd, you must do things differently from
the crowd.”
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 26
26
Investment Philosophy
Strategic Report
There is also the problem that the MSCI Emerging Markets Index is
dominated by companies of a sort that we would never own.
The top ten companies in the MSCI Emerging Markets Index are all
in the banking, energy, technology and telecoms sectors. They all
fall into sectors which we would never invest in because they are
cyclical, rely on leverage to deliver an adequate return, are subject
to rapid and unpredictable change and/or have returns controlled
by governments.
In contrast, under 10% of the Index is in Consumer Staples, which
is the bedrock of the Fundsmith strategy and a consistent producer
of shareholder value with high unlevered returns on capital in cash.
(C) We do not attempt market timing
Once we are fully invested we will not attempt to manage the
percentage invested in equities in our portfolio to reflect any view
of market levels, timing or developments. Getting market timing
right is a skill we do not possess. We assume that if you own shares
in FEET you have already taken the decision to invest that portion
of your portfolio in Emerging Market equities, managed in the
manner we describe.
Our inability and unwillingness to try to make market timing calls is
one factor which prevents us from investing in sectors which are
highly cyclical. It is possible to deliver performance from such
investments, but it requires a good sense of timing for the economic
cycle and how the market cycle relates to it. It also requires strong
nerves, because such investments are often counter-intuitive, as
exemplified in the investment adage “Only buy cyclicals when they
look expensive”. This is because when they have little or no
earnings, and so look expensive on the basis of their price/earnings
ratio, they are at, or close, to the bottom of the cycle. The converse
applies: you should sell them when they look cheap, as they are
then at, or close, to peak earnings.
We are not sure we have either the skill set or the constitution for
such investing. In any event, investing in cyclical businesses has one
big disadvantage. They are mostly poor quality businesses which
struggle to make adequate returns on their capital. Whilst you wait
to see whether you have got your timing right, the underlying value
of your investment is more likely to erode than compound whilst you
await the upturn, and of course occasionally they do not survive a
cycle at all.
(D) Corporate Governance
Investment in Emerging Markets has dangers which might loosely
be labelled as problems of corporate governance. There are
examples of companies which have had assets confiscated by
governments, which have had their know-how taken by a local joint
venture partner who has set up in competition with them, of minority
investment in business controlled by local families which have gone
awry.
We do not intend to bring enlightenment to Emerging Markets in the
form of improved corporate governance via our investments. We are
minority investors and we will assume that the corporate
governance landscape we see is the one we have to deal with rather
than assuming we can change it. Then we will select investments
in that environment the same way that porcupines make love –
carefully.
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 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.
Fundsmith LLP
Investment Manager
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 27
Business Review
27
The Strategic Report on pages 2 to 32 has been prepared to provide
information to shareholders to assess how the Directors have
performed their duty to promote the success of the Company. Further
information on how the Directors have discharged their duty under
s172 of the Companies Act 2006 can be found in the Corporate
Governance Report beginning on page 35.
The Strategic Report contains certain forward-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 listed on the premium segment of the Official List and
traded on the main market of the London Stock Exchange.
The purpose of the Company is to provide a vehicle for investors to
gain exposure to a portfolio of companies in Developing Economies,
through a single investment.
its
The Company’s strategy is to create value for shareholders by
addressing
is to provide
investment objective, which
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 buybacks, 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 35.
Investment Manager and AIFM
Fundsmith LLP (“Fundsmith”) under the terms of the Investment
Management Agreement provides, inter alia, the following services:
• seeking out and evaluating investment opportunities;
• recommending the manner by which monies should be
invested, disinvested, retained or realised;
• advising on how rights conferred by the investments should be
exercised;
• analysing the performance of investments made;
• advising the Company in relation to trends, market movements
and other matters which may affect the investment policy of
the Company; and
• acting as AIFM to the Company.
During the year, the periodic fee payable to Fundsmith reduced from
1.25% to 1.00% per annum of the Company’s net asset value. The
change took effect on 31 May 2019.
The Investment Management Agreement may be terminated by
either party giving notice of not less than 12 months.
Depositary
During the year, Northern Trust Global Services SE (the
“Depositary”) acted as the Company’s depositary in accordance
with the AIFMD on the terms and subject to the conditions of the
depositary 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:
• safekeeping and custody of the Company’s custodial
investments and cash;
• processing of transactions and foreign exchange services;
• taking reasonable care to ensure that the Company is managed
in accordance with the AIFMD, the FUND 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
• monitoring the Company’s compliance with
investment
restrictions and leverage limits set in its offering documents.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 28
28
Business Review
Strategic Report
The Depositary Agreement may be terminated upon three months’
written notice from the Company to the Depositary or the Depositary
to the Company.
During the year under review the Company’s net asset value per
share total return was -0.5%, underperforming the benchmark by
14.4% (2018: -3.0%, outperforming the benchmark by 6.3%).
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.
The Depositary 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.
Key Performance Indicators
The Board of Directors reviews performance against the following
Key Performance Indicators (KPIs). They comprise specific financial
and shareholder-related measures and are also considered to be
the Company’s alternative performance measures (APMs). The KPIs
have not changed from the prior year:
• Net asset value total return against the MSCI Emerging and
Frontier Markets Index measured on a net sterling adjusted
basis;
• Share price total return;
• Premium/discount of share price to net asset value per share;
and
• Ongoing charges ratio.
Please refer to the Glossary beginning on page 87 for definitions of
these terms and an explanation of how they are calculated.
Net asset value return against the Index
The Company’s net asset value per share is shown on the Statement
of Financial Position on page 63. The Directors regard the Company’s
net asset value return as being the overall measure of value
delivered to shareholders over the long-term. The Board considers
the most important comparator to be the MSCI Emerging and
Frontier Markets Index measured on a total return, net sterling
adjusted basis. Fundsmith’s
is such that
performance is likely to deviate from that of the Index.
investment style
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. Share price performance is
monitored closely by the Board.
During the year under review the Company’s share price total return
was -7.4%, underperforming the benchmark by 21.3% (2018 -9.4%,
underperforming the benchmark by 0.1%).
Premium/discount of share price to net asset value per share
The Board monitors the level of premium/discount as a key
indicator of shareholder sentiment and demand for the Company’s
shares. The Board aims to achieve a sustainable low discount or
premium to the NAV per share, taking account of market conditions.
The Board therefore considers ways in which share price
performance may be enhanced, including the effectiveness of
marketing, share issuance and buybacks, where appropriate. The
making or timing of any share issuance and/or buyback is at the
discretion of the Board.
As at 31 December 2019, the discount of the Company’s share
price to the NAV per share was 9.3% (2018: 2.6%). The Chairman’s
Statement, beginning on page 6, describes the actions the Board
took to address share price performance during the year.
Ongoing charges ratio
Ongoing charges represent the costs that shareholders can
reasonably expect to pay from one year to the next, under normal
circumstances. The Board continues to be conscious of expenses
and works hard to maintain a sensible balance between good
quality service and costs. The Board therefore considers the
ongoing charges ratio to be a KPI and reviews the figure both in
absolute terms and in comparison to the Company’s peers.
As at 31 December 2019, the ongoing charges ratio was 1.4%
(2018: 1.5%).
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 29
29
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 emerging and
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency and
liquidity. The risks are broadly unchanged from the previous year.
Principal Risks and Uncertainties
Mitigation
The Board has categorised the risks faced by the Company under
five headings as follows:
• Corporate strategy;
• Investment strategy & activity;
• Operational (service providers);
• Financial; and
• Legal & regulatory.
The following sections detail the risks the Board considers to be the
most significant to the Company under these headings:
Corporate Strategy
The share price return may differ materially from
the NAV per share i.e. the shares may trade at a
material discount to the NAV per share.
In consultation with its advisers, the Board regularly reviews the level of share
price premium or discount to the net asset value per share and consideration
is given to ways in which share price performance may be enhanced, including
the effectiveness of share issuance, marketing and share buybacks, where
appropriate.
Investment Strategy and Activity
be
unsuccessful
The investment strategy adopted by Fundsmith
result
may
in
the Company’s
underperformance against
principal performance comparator and peer
companies.
and
The portfolio may be affected by volatile market
movements (in both equity and foreign exchange
markets) in the sectors and regions in which it
invests.
The Board receives regular reports on shareholder activity and is kept
informed of shareholder sentiment. Regular contact is maintained with major
shareholders.
The Board regularly reviews the Company’s investment mandate and
Fundsmith’s long-term investment strategy in relation to market and economic
conditions, and the performance 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 discuss current and potential investment
holdings with the Board on a regular basis. The Board sets appropriate
investment restrictions and guidelines.
The Board has appointed Fundsmith to manage the portfolio within the remit of
the investment objective and policy. The investment policy limits ensure that the
portfolio is diversified, reducing the risks associated with individual stocks and
markets. Compliance with the investment restrictions is monitored by Fundsmith
on a daily basis. The Board monitors exposure to investments, performance, and
compliance with the investment objective and policy. The Board sets the policy
on hedging, which is detailed on page 9.
The departure of a key member of Fundsmith’s
investment team may affect the Company’s
performance.
The Investment Manager reports to the Board on developments at Fundsmith
at each Board meeting. During the year new portfolio management
arrangements were put in place which reduce reliance on any single individual.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 30
30
Business Review
Strategic Report
Principal Risks and Uncertainties
Mitigation
Operational (Service Providers)
for dealing,
As an externally-managed investment trust, the
Company is reliant on the systems of its service
providers
trade processing,
administrative services, financial and other
functions. If such systems were to fail or be
disrupted (including as a result of cyber-crime) this
could lead to a failure to comply with applicable
laws, regulations and governance requirements
and/or to a financial loss.
The Audit Committee reviews the internal controls reports and key policies
(including disaster recovery procedures) put in place by its principal service
providers. These reviews include consideration of the associated cyber security
risks facing the Company. Fundsmith provides a quarterly compliance report
to the Audit Committee, which details their compliance with applicable laws
and regulations. The Audit Committee maintains the Company’s risk matrix
which details the risks to which the Company is exposed, the approach to
managing those risks, the key controls relied upon and the frequency of the
controls operation. Further details are set out in the Audit Committee Report
on pages 48 and 49.
Financial
The Company is exposed to liquidity risk and credit
risk arising from the use of counterparties. If a
counterparty were to fail, it could adversely affect
the Company through either delay in settlement or
loss of assets. 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 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 16 to the financial statements
beginning on page 77.
The Board reviews the services provided by the Depositary and the internal
controls report of the Custodian to ensure that the security of the Company’s
custodial assets is maintained. Fundsmith 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.
Legal and Regulatory
The regulatory or political environment in which the
Company operates could change to the extent that
it affects the Company’s viability.
The Board monitors regulatory developments but relies on the services of its
external advisers to ensure compliance with applicable law and regulations.
The Board has appointed a specialist investment trust company secretary who
provides industry and regulatory updates at each Board meeting.
The Board believes that the UK’s exit from the European Union (‘Brexit’) 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 31
31
Brexit
Viability Statement
The Board has considered whether the UK’s exit from the European
Union (“Brexit”) poses a unique threat to the Company. At the date
of this report, the UK had entered into a “transition period” while it
negotiates new arrangements with the EU. There is, therefore, still
considerable uncertainty about the effects of Brexit.
The effects of Brexit are likely to be very limited on the Company’s
investee companies as they have an immaterial exposure to the UK
market. As the Company is priced in sterling, however, sharp
movements in exchange rates can affect the net asset value (see
page 80 for the foreign currency sensitivity analysis). This is not a
reflection of the underlying value of the companies in their base
currencies but may lead to an increase or decrease in the Company’s
net asset value simply because of currency movements.
Furthermore, whilst the Company’s current shareholders are
predominantly UK based holders, sharp or unexpected changes in
investor sentiment, or tax or regulatory changes, could lead to short
term selling pressure on the Company’s shares which potentially could
lead to the share price discount widening.
Overall, however, the Board believes that over the longer term, Brexit
is unlikely to affect the Company’s business model or whether the
shares trade at a premium or discount to the net asset value per
share. The Board will continue to monitor developments as they occur.
Coronavirus
The Board has considered whether the emergence and spread of
coronavirus (COVID-19) poses a significant risk to the Company’s
portfolio. At the date of this report, approximately 15% of the
Company’s portfolio was comprised of stocks listed in China or Hong
Kong and the Company had no exposure to Taiwan or South Korea
where there has also been significant disruption.
While there has been significant volatility in trading recently, the
Investment Manager expects that the Chinese holdings will not suffer
a material long-term impact and should recover quickly once
containment measures ease. The Board and the Investment Manager
will continue to monitor developments as they occur.
In accordance with the AIC Code of Corporate Governance 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 29 to 30 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:
• the Board and the Investment Manager will continue to adopt
a long-term view when making investments;
• investors will continue to wish to have exposure to listed
companies in emerging markets;
• there will continue to be demand for investment trusts;
• regulation will not increase to a level that makes the running
of the Company uneconomical; and
• the performance of the Company will be satisfactory.
Based on the results of this review, the Directors have formed a
reasonable expectation that the Company will continue operating
and meet its expenses and liabilities as they fall due over the next
four years.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 32
32
Business Review
Strategic Report
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 the website at www.feetplc.co.uk. The policy is reviewed
annually by the Audit Committee.
Prevention of the Facilitation of Tax Evasion
In 2017, 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 four non-executive Directors. Therefore, the
Company has no material, direct impact on the environment or any
particular 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
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 24.
The Investment Manager’s investment process includes an
evaluation of potential
investee companies’ social and
environmental impact and corporate governance. They maintain a
sustainability database of company comments on a range of issues
including environmental, governance, social and innovation matters.
Further information can be found in the Investment Manager’s
stewardship policy, which
is published on their website:
www.fundsmith.co.uk.
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 Slavery 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
performance and the Investment Manager’s investment approach,
and on factors that may have an effect on this approach. The Board
is regularly updated on wider investment trust industry issues and
discussions are held at each Board meeting concerning the
Company’s future development and strategy.
An overview of the main trends and factors affecting the
performance 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 2 to 32 has been signed for and
on behalf of the Board.
Martin Bralsford
Chairman
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 33
Board of Directors
Governance
33
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.
Rachel de Gruchy
Rachel has over thirty years of international investment industry experience having held senior roles in Jersey
and Australia. She began her career with Laurie, Milbank & Co in Jersey and was a Director of Matheson
Securities (Cl) Ltd (owned by the Jardine Matheson Group) from 1993 to 1997, subsequently moving to a role
specialising in advisory and client portfolio management services with Wilson Investment Group Ltd in Australia.
From 2013 to 2018 Rachel was Managing Director, Jersey Branch of IAM Advisory, which provides an
independent investment advisory service, including performance measurement and manager research, to
professional trustees, charities, sovereign wealth and UHNWI clients. Rachel is a Chartered Fellow of the
Chartered Institute for Securities and Investment (CISI), having been previously elected a Member of the London
Stock Exchange in 1989 and is a designated Chartered Wealth Manager. She holds the CISI Diploma and has
a Masters of Applied Finance, the Institute of Directors (loD) Diploma in Company Direction and is a Member
of the loD.
David Potter
Chairman of the Management Engagement Committee and Senior Independent Director
After 35 years in the City (CSFB, Montagu, Midland, Guinness Mahon, Investec) David has spent the last
20 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, Illustrated London News Limited, and
Chairman of the Bryanston Foundation.
John Spencer
Chairman of the Audit Committee
John 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.
John is an Independent Member for Value Assessment at Fundsmith LLP (see page 38 for further details).
All Directors are members of the Audit and Management Engagement Committees.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp02-pp34.qxp 05/03/2020 13:57 Page 34
34
Board of Directors
Governance
Meeting Attendance
The number of Board and Committee meetings held during the year ended 31 December 2019, and each Director’s attendance, is
shown below:
Type and number of meetings
held during the year ended 31 December 2019
Martin Bralsford
Rachel de Gruchy
David Potter
John Spencer
Directors’ Interests
Board
(4)
4
4
4
4
Audit Committee
(2)
2
2
2
2
Management
Engagement
Committee
(1)
1
1
1
1
The beneficial interests of the Directors and their families in the Company were as set out below:
Martin Bralsford
Rachel de Gruchy
David Potter
John Spencer
Ordinary Shares of 1p each
31 December 2019
100,000
2,000
19,969
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, the CEO of Fundsmith LLP, the Investment Manager, held interests in 847,000 (2018: 580,000)
shares in the Company. Michael O’Brien, the Company’s Portfolio Manager at Fundsmith LLP, held interests in 20,925 shares in the
Company.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 35
Corporate Governance Report
35
The Board and Committees
Responsibility for effective governance lies with the Board whose role is to promote the long-term success of the Company. The governance
framework of the Company reflects the business model as an externally managed investment company; it has no employees and outsources
investment management, risk management, company management, company secretarial, administrative and marketing services to third
parties. The Board generates value for shareholders through its oversight of the service providers and management of costs associated
with running the Company.
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 and will not chair any discussions relating to the appointment of his successor.
Chairman – Martin Bralsford
Three additional non-executive Directors, all 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 service providers.
– to make recommendations to the Board regarding the
continuing appointment of the AIFM.
Key roles and responsibilities:
– to review the Company’s financial reports;
– to oversee the risk and control environment; and
– to review the performance of the Company’s external
Auditor.
The work of the Management Engagement Committee and the Audit Committee during the year is set out on pages 43 and 47 to 50
respectively.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 36
36
Corporate Governance Report
Governance
Corporate Governance
The Board has considered the principles and provisions of the AIC
Code of Corporate Governance (the “AIC Code”) published in
February 2019. The AIC Code addresses the principles and
provisions set out in the UK Corporate Governance Code (the “UK
Code”), as well as setting out additional provisions on issues that
are of specific relevance to the Company.
The Board considers that reporting against the principles and
provisions of the AIC Code (which has been endorsed by the
Financial Reporting Council) will provide better information
to shareholders. By reporting against the AIC Code, the Company
meets its obligations under the UK Code (and associated disclosure
requirements under paragraph 9.8.6 of the Listing Rules) and as
such does not need to report further on issues contained in the UK
Code which are irrelevant to the Company.
The AIC Code is available 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 AIC Code includes an explanation of
how the AIC Code adapts the principles and provisions set out in
the UK Code to make them relevant for investment companies.
The Company has complied with the principles and provisions of the
AIC Code.
Board Leadership and Purpose
Purpose and Strategy
The purpose and strategy of the Company are described in the
Strategic Report on page 27.
Board Culture
The Board aims to fully enlist differences of opinion, unique vantage
points and areas of expertise. The Chairman encourages open
debate to foster a supportive and co-operative approach for all
participants. Strategic decisions are discussed openly and
constructively. The Board aims to be open and transparent with
shareholders and other stakeholders.
The Board has gained assurance on whistleblowing procedures at
the Company’s principal service providers to ensure employees at
those companies are supported in speaking up and raising
concerns. No concerns relating to the Company were raised during
the year.
Shareholder Relations
During the year, representatives of Fundsmith and Investec Bank
plc (the Company’s corporate stockbroker) regularly met with
institutional shareholders and private client asset managers to
understand their views on governance and the Company’s
performance. Reports on investor sentiment and the feedback from
investor meetings were discussed with the Directors at the following
Board meeting. The Chairman and the Senior Independent Director
met with investors on request. They discussed topics including
investment performance and the Board’s approach to addressing
the share price discount (see Chairman’s Statement on page 7 for
further information). As a result of one shareholder meeting, the
Board asked the Investment Manager to research why the good
financial performance of the portfolio companies is not always
reflected in their share prices and Fundsmith have undertaken to
report on this matter at the forthcoming AGM.
Shareholder Communications
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 forthcoming 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. An edited video of Fundsmith’s presentation will
subsequently be made available on the Company’s website. 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.
importance on communications with
The Directors welcome the views of all shareholders and place
them.
considerable
Shareholders wishing to communicate with the Chairman, or any
other member of the Board, may do so by writing to the Company
Secretary. The Chairman and the SID are also now contactable by
email (see page 101 for details).
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 37
37
The Directors, sitting as the Management Engagement Committee,
also review the performance and ongoing appointment of the
Company’s other principal service providers. The Directors receive
regular reports from them throughout the year and invite
representatives to attend Board meetings where appropriate. During
the year, the Board held a ‘deep dive’ session at the offices of
Northern Trust to better understand their depositary, custodian and
fund administration operations.
In summary, the need to foster business relationships with the
service providers and maintain a reputation for high standards of
business conduct are central to the Directors’ decision-making as
the Board of an externally managed investment trust. The Directors
believe that fostering constructive and collaborative relationships
with the Company’s service providers will assist in their promotion
of the success of the Company for the benefit of all shareholders.
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.
During the year, John Spencer was appointed as an Independent
Member for Value Assessment at Fundsmith LLP. As this is a paid
role with the Investment Manager, it was deemed to be a potential
conflict of interest. Following consultation with its advisers, the
Board resolved to authorise the matter on the grounds that there
was no conflict with the interests of the Company for the reasons
set out on page 38 under the heading ‘Director Independence’.
There were no other direct or indirect interests of a Director that
conflicted, or potentially conflicted, with the interests of the
Company during the year. Appropriate authorisation will be sought
prior to the appointment of any new director or if any new conflicts
or potential conflicts arise.
Significant Holdings and Voting Rights
Details of the shareholders with 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 42 to 45.
Stakeholder Interests and Board Decision-making
Under the new AIC Code, the Directors must now explain more fully
how they have discharged their duty under s172 of the Companies
Act 2006 in promoting the success of the Company for the benefit
of the members as a whole. This includes the likely consequences
of the Directors’ decisions in the long-term and how they have taken
wider stakeholders’ needs into account.
The Directors aim to act fairly as between the Company’s
shareholders. The Board’s approach to shareholder relations, and
the actions taken as a result of the Board’s engagement with
shareholders, is summarised earlier in this Corporate Governance
Report. The Chairman’s Statement beginning on page 6 also
provides an explanation of the actions taken by the Directors during
the year to achieve the Board’s long-term aim of ensuring that the
Company’s shares trade at a price close to the NAV per share, as
well as steps that the Board has taken to reduce the Company’s
impact on the environment.
As an externally managed investment trust, the Company has no
employees, customers (in the traditional sense), operations or
premises. Therefore, the Company’s key stakeholders (other than
its shareholders) are considered to be its service providers.
The principal service provider is Fundsmith. As the Investment
Manager and AIFM, the services they provide are fundamental to
the long-term success of the Company. The Board formally engages
with representatives from Fundsmith at each Board meeting.
Further details about the matters discussed in Board meetings and
the relationship between Fundsmith and the Directors are set out
later in this Corporate Governance Report. The Chairman’s
Statement beginning on page 6 and the Report of the Directors on
page 42 describe the key decisions taken during the year relating
to Fundsmith. In particular, they describe changes to the Company’s
portfolio management arrangements and the reduction in the
investment management fee, which were decisions taken in
consultation with Fundsmith and which the Board and Fundsmith
believe will be of benefit to shareholders over the longer term.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 38
38
Corporate Governance Report
Governance
Division of Responsibilities
Responsibilities of the Chairman and the SID
The Chairman’s primary role is to provide leadership to the Board,
assuming responsibility for its overall effectiveness in directing the
Company. The Chairman is responsible for:
• taking the chair at general meetings and Board meetings,
conducting meetings effectively and ensuring all Directors are
involved in discussions and decision-making
• setting the agenda for Board meetings and ensuring the
Directors receive accurate, timely and clear information for
decision-making
• taking a leading role in determining the Board’s composition
and structure
• overseeing the induction of new directors and the development
of the Board as a whole
• leading the annual board evaluation process and assessing the
contribution of individual Directors
• supporting and also challenging the Investment Manager (and
other suppliers where necessary)
• ensuring effective communications with shareholders and,
where appropriate, stakeholders
• engaging with shareholders to ensure that the Board has a
clear understanding of shareholder views
The Senior Independent Director (SID) serves as a sounding board
for the Chairman and acts as an intermediary for other Directors
and shareholders. The SID is responsible for:
• working closely with the Chairman and providing support
• leading the annual assessment of the performance of the
Chairman
• holding meetings with the other non-executive Directors without
the Chairman being present, on such occasions as necessary
• carrying out succession planning for the Chairman’s role
• working with the Chairman, other Directors and shareholders
to resolve major issues
the Company’s
Induction/Development
New appointees to the Board are provided with a full induction
programme. The programme covers the Company’s investment
strategy, policies and practices. Directors are also given key
information on
regulatory and statutory
requirements as they arise including information on the role of the
Board, matters reserved for its decision, the terms of reference for
the Board committees, the Company’s corporate governance
practices and procedures and the latest financial information.
Directors are encouraged to participate in training courses
where appropriate.
Director Independence
The Board consists of four non-executive Directors, each of whom
the Board considers to be independent of Fundsmith and the Board
believes that there are no relationships or circumstances which are
likely to impair or could appear to impair their judgement.
During the year, John Spencer accepted a role with Fundsmith LLP
as an Independent Member for Value Assessment. Following
its advisers, the Board concluded that
consultation with
notwithstanding this appointment, Mr Spencer continues to be
independent in character and judgement for the following reasons:
• the scope of the role with Fundsmith is limited to assessing the
value that Fundsmith delivers to investors in their open-ended
funds;
• such independent members are required by the FCA to be
independent in character and judgement;
• independent members do not share in Fundsmith’s profits and
the remuneration for the role (£27,000 per annum) is not
considered to be sufficiently material to impact Mr Spencer’s
independence on the FEET Board.
Directors’ Other Commitments
During the year, save for the above, none of the Directors took on
any significant new commitments or appointments. All of the
Directors consider that they have sufficient time to discharge their
duties.
• being available to shareholders and other Directors to address
any concerns or issues they feel have not been adequately
dealt with through the usual channels of communication (i.e.
through the Chairman or the Investment Manager)
Board Meetings
The primary focus at regular Board meetings is the review of
investment performance and associated matters, including asset
allocation, marketing/investor relations, gearing, peer group
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 39
information and industry issues. The Board reviews key investment
and financial data, revenue and expenses projections, analyses of
asset allocation, transactions, performance comparisons, share
price and net asset value performance. The Board’s approach to
addressing share price performance during the year is described in
the Chairman’s Statement on page 7.
The Board is responsible for setting the Company’s corporate
strategy and reviews the continued appropriateness of the
investment strategy and
Company’s
investment restrictions at each meeting.
investment objective,
The number of meetings and the individual attendance by Directors
is set out on page 34.
Matters Reserved for Decision by the Board
The Board has adopted a schedule of matters reserved for its
decision. This includes, inter alia, the following:
• Requirements under the Companies Act 2006, including
approval of the half year and annual financial statements,
recommendation of the final dividend (if any), the appointment
or removal of the Company Secretary, and determining the
policy on share issuance and buybacks.
• Matters relating to certain Stock Exchange requirements and
announcements, the Company’s internal controls, and the
Company’s
policy
and procedures.
governance
structure,
corporate
• Decisions relating to the strategic objectives and overall
management of the Company, including appointment or
removal of the AIFM and other service providers, and review of
the Investment Policy.
• Matters relating to the Board and Board committees, including
the terms of reference and membership of the committees, the
appointment of directors (including the Chairman and the SID)
and the determination of Directors’ remuneration.
Day-to-day operational and investment management is delegated
to Fundsmith as AIFM.
The Board takes responsibility for the content of communications
regarding major corporate issues, even if Fundsmith acts as
spokesman. The Board is kept informed of relevant promotional
material that is issued by Fundsmith.
39
Relationship with the Investment Manager
Representatives from Fundsmith are in attendance at each Board
meeting to address questions on specific matters and seek approval
for specific transactions which Fundsmith is required to refer to the
Board. There is a respectful and constructive partnership between
the Board and the Investment Manager, and the two parties worked
closely together throughout the year.
The Management Engagement Committee evaluates Fundsmith’s
performance and reviews the terms of the Investment Management
Agreement at least annually. The outcome of this year’s review is
described on page 43.
Relationship with Other Service Providers
The Management Engagement Committee monitors and evaluates
all of the Company’s other service providers, including the Company
Secretary, Depositary, Registrar and Broker. At the most recent
review in November 2019, the Committee concluded that all the
service providers were performing well and should be retained for
a further year on their existing terms and conditions.
Stewardship and the Exercise of Voting Powers
The Board has delegated authority to Fundsmith (as AIFM and
Investment Manager) to engage with companies held in the portfolio
and to vote the shares owned by the Company. The Board has
instructed that Fundsmith submit votes for such shares wherever
possible. Fundsmith may refer to the Board on any matters of a
contentious nature.
Fundsmith’s approach to stewardship, including their consideration
of environmental, social and governance issues, is set out in their
stewardship policy which can be found on their website
www.fundsmith.co.uk. During the year, the Board reviewed
Fundsmith’s updated stewardship policy and a summary of their
voting and engagement record.
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. No such advice was
sought during the year.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 40
40
Corporate Governance Report
Governance
Company Secretary
The Directors have access to the advice and services of an
investment trust specialist Company Secretary through
its
appointed representative, which is responsible for advising the
Board on all governance matters. The Company Secretary ensures
governance procedures are followed and that the Company
complies with applicable statutory and regulatory requirements.
During the year, the Board reviewed the policy on Directors’ tenure
and considered the overall length of service of the Board as a whole.
As three of the four Directors have been appointed since the launch
of the Company, the Chairman initiated a review process to ensure
that there is an orderly succession when the time comes for those
Directors to retire from the Board.
Composition, Succession and Evaluation
Board Evaluation
During the course of 2019, the performance of the Board, its
committees and the individual Directors (including each Directors’
independence) was evaluated through a formal assessment process
led by the Chairman.
The Chairman and the Board as a whole are satisfied that the
structure and operation of the Board continues to be effective and
there is a satisfactory mix of skills, experience and knowledge. This
year, board succession was identified as an area requiring further
consideration and this is discussed in the following section.
During the year, Mr Potter led the appraisal of the Chairman’s
performance, in line with the AIC Code.
All Directors submit themselves for annual re-election by
shareholders. Further information on the contribution of each
individual Director can be found in the explanatory notes to the
notice of the AGM on page 98. Following the evaluation process, the
Board recommends that shareholders vote in favour of the
Directors’ re-election at the forthcoming AGM.
Succession Planning
The Board regularly considers its structure and recognises the need
for progressive refreshment.
The Board has an approved succession planning policy to ensure
that (i) there is a formal, rigorous and transparent procedure for the
appointment of new directors; 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 policy is 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 AGM. The minimum number of
directors is two and the maximum is 10. When considering new
appointments, the Board endeavours to ensure that it has the
capabilities required to be effective and oversee the Company’s
strategic priorities. This will include an appropriate range, balance
and diversity of skills, experience and knowledge. The Company is
committed to ensuring that any vacancies arising are filled by the
most qualified candidates.
No new appointments were made during the year.
Policy on the Director Tenure
The tenure of each independent, non-executive director, including
the Chairman, is not expected to exceed nine years. However, in the
case of the Chairman, a limited extension may be granted provided
it is conducive to the Board’s overall orderly succession. The Board
believes that this more flexible approach to the tenure of the
Chairman is appropriate in the context of the regulatory rules that
apply to investment companies, which ensure that the chair remains
independent after appointment, while being consistent with the
need for regular refreshment and diversity.
Notwithstanding this expectation, the Board considers that a
director’s tenure does not necessarily reduce his or her ability to act
independently and will continue to assess each Director’s
independence annually, through a formal performance evaluation.
Diversity Policy
The Board supports the principle of Boardroom diversity, of which
gender is one important aspect. The Company’s policy is that the
Board should be comprised of directors who collectively display the
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
41
Remuneration
The Directors’ Remuneration Report beginning on page 51 and the
Directors’ Remuneration Policy Report on page 53 set out the levels
of remuneration for each Director and explain how Directors’
remuneration is determined.
By order of the Board
Frostrow Capital LLP
Company Secretary
5 March 2020
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 41
necessary balance of professional skills, experience, length of
service and industry knowledge and that appointments to the Board
should be made on merit, against objective criteria, including
diversity in its broadest sense.
The objective of the policy is to have a broad range of approaches,
backgrounds, skills, knowledge and experience represented on the
Board. The Board believes that this will make the Board more
effective at promoting the long-term sustainable success of the
company and generating value for all shareholders by providing a
range of perspectives and the challenge needed to support good
decision making. To this end, achieving a diversity of perspectives
and backgrounds on the Board will be a key consideration in any
Director search process.
The gender balance of three men and one woman meets the
original recommendation of Lord Davies’ report on Women on
Boards. The Board is aware that new gender representation
objectives have been set for FTSE 350 companies and that targets
concerning ethnic diversity have been recommended for FTSE 250
companies. While the Company is not a FTSE 350 constituent and
the Board is small in size, the Board will continue to monitor
developments in this area and will consider diversity during any
director search process.
Audit, Risk and Internal Control
The Statement of Directors’ Responsibilities on page 46 describes
the Directors’ responsibility for preparing this report.
The Audit Committee Report, beginning on page 47, explains the
work undertaken to allow the Directors to make this statement and
to apply the going concern basis of accounting. It also sets out the
main roles and responsibilities and the work of the Audit Committee
and describes the Directors’ review of the Company’s risk
management and internal control systems.
A description of the principal risks facing the Company and an
explanation of how they are being managed is provided in the
Strategic Report on pages 29 and 30.
The Board’s assessment of the Company’s longer-term viability is
set out in the Strategic Report on page 31.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 42
42
Report of the Directors
Governance
The Directors present their annual report on the affairs of the
Company together with the audited financial statements and the
Independent
ended
31 December 2019.
Auditor’s Report
year
the
for
report. Disclosures
The Corporate Governance Report on pages 35 to 41 forms part of
this
future
relating
developments and risk management can be found in the Strategic
Report on pages 2 to 32.
to performance,
Business and Status of the Company
The Company is registered as a public limited company in England
and Wales (Registered Number 08756681) and is an investment
company within the terms of Section 833 of the Companies Act 2006
(the ‘Act’). Its shares are listed on the premium segment of the Official
List and traded on the main market of the London Stock Exchange.
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 9 and the
Investment Philosophy beginning on page 24.
Results and Dividend
The results attributable to shareholders for the year are shown on
page 62.
In 2019, the Company made a revenue profit. Under investment trust
rules regarding distributable income, a final dividend will be paid to
allow the Company to comply with those rules. The Company’s
objective remains to provide capital growth rather than income and,
subject to the investment trust rules, any dividends and distributions
will continue to be at the discretion of the Board from time to time.
Subject to shareholder approval at the forthcoming AGM, a final
dividend of 3.2p per ordinary share will be paid on 3 June 2020 to
shareholders on the register on 15 May 2020. The associated
ex-dividend date is 14 May 2020.
Information on the Company’s dividend policy is also detailed in the
Chairman’s Statement on page 7.
Alternative Performance Measures
the Company’s
The Financial Statements (on pages 62 to 82) set out the required
statutory reporting measures of
financial
performance. In addition, the Board assesses the Company’s
performance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are summarised
on page 4 and explained in greater detail in the Strategic Report,
under the heading ‘Key Performance Indicators’ on page 28. 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 87 to 89.
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 (see Glossary on page 87 for further details). 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 84.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 43
43
Continuing Appointment of the Investment
Manager and AIFM
The performance of Fundsmith LLP, the Company’s Investment
Manager and AIFM, is reviewed continuously by the Board and its
Management Engagement Committee (the “MEC”) with a formal
evaluation process undertaken each year.
During the year, the MEC met to consider a proposal from Fundsmith
regarding the Company’s portfolio management arrangements and
the investment management fee payable to Fundsmith, with a
recommendation being made to the Board. It was subsequently
announced that the Board had agreed with Fundsmith a reduction
in the investment management fee from 1.25% to 1.00% per annum
of the Company’s net asset value, with effect from 31 May 2019.
The MEC reviewed Fundsmith’s performance and the continuing
appropriateness of Fundsmith’s appointment on the new terms in
November 2019, with a recommendation being made to the Board.
The Board believes the continuing appointment of Fundsmith, under
the terms summarised on page 27, is in the interests of
shareholders as a whole. In coming to this decision, the MEC and
the Board took into consideration, inter alia, the following:
• the terms of the Investment Management Agreement, in
particular the level and method of remuneration and the notice
period, and the comparable arrangements of a group of the
Company’s peers;
• the quality of service provided by the portfolio management
team and the Company’s investment performance in absolute
terms and in comparison to the MSCI Emerging and Frontier
Markets Index; and
• the quality of service provided by the company management,
administrative and marketing teams that Fundsmith allocates
to the management of the Company.
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 performance 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.
Continuation of the Company
The Company’s constitutional documents require that, if after the
end of the fourth financial year of the Company’s existence (being
the year ended 31 December 2018) or any subsequent year, the
Company’s Ordinary Shares have traded, on average, at a discount
in excess of 10% of the net asset value per ordinary share in that
year, the Directors will consider proposing a special resolution at
the Company’s next annual general meeting that the Company
ceases to continue in its present form. As the Company’s shares
traded at an average discount of 4.7% during the year ended 31
December 2019, no such resolution will be proposed at the
forthcoming AGM.
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 33.
Martin Bralsford (Chairman)
Rachel de Gruchy
David Potter
John Spencer
All Directors seek re-election by shareholders at each Annual
General Meeting.
Directors’ & Officers’ Liability Insurance
Directors’ & officers’ liability insurance cover was maintained during
the year ended 31 December 2019. It is intended that this cover
will continue for the year ending 31 December 2020 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
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 44
44
Report of the Directors
Governance
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.
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
Interactive Investor
AJ Bell Securities
Alliance Trust
Mr Duncan Cameron
Mr Terry Smith
Charles Stanley Group
3 February 2020
31 December 2019
Number of
shares
2,686,812
2,000,000
1,645,445
1,155,477
1,069,673
1,000,000
847,000
805,347
% of issued
share capital
10.09
7.51
6.18
4.34
4.02
3.75
3.18
3.02
Number of
shares
2,774,550
2,000,000
1,651,093
1,197,513
1,071,446
1,000,000
847,000
816,503
% of issued
share capital
10.42
7.51
6.20
4.50
4.02
3.75
3.18
3.06
As at 31 December 2019 and the date of this report, the Company had 26,640,056 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 13 on
page 77.
Share Capital
At the start of the year under review, the Directors had shareholder
authority to issue up to 1,983,755 ordinary shares of 1 penny each
on a non-pre-emptive basis. At the Company’s annual general
meeting held on Wednesday, 22 May 2019, this authority expired
and a new authority to allot up to 2,659,005 ordinary shares
(representing 10% of the Company’s issued share capital) on a
non-pre-emptive basis was granted. Authority to repurchase up to
3,985,849 ordinary shares was also granted.
During the year, the Company issued 250,000 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 13 and 14 to
the Financial Statements on page 77.
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
repurchase shares are set out in the Notice of Annual General
Meeting beginning on page 92.
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 95.
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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 45
45
Political Donations
Nominee Share Code
The Company has not made, and does not intend to make, any
political donations.
Where shares are held in a nominee company name, the Company
undertakes:
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic
Reports and Directors’ Reports) Regulations 2013 or the
Companies (Directors’ Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations 2018.
Listing Rule 9.8.4
The Directors confirm that there are no disclosures to be made in
regard of Listing Rule 9.8.4.
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 this Annual Report.
• to provide the nominee company with multiple copies of
shareholder communications, so long as an indication of
quantities has been provided in advance; and
• to allow investors holding shares through a nominee company
to attend general meetings, provided the correct authority from
the nominee company is available.
Nominee companies are encouraged to provide the necessary
authority to underlying shareholders to attend the Company’s
general meetings.
Annual General Meeting
The Company’s Annual General Meeting (“AGM”) will be held at
Barber Surgeons’ Hall, Monkwell Square, Wood Street, London
EC2Y 5BL on Wednesday, 27 May 2020 at 12 noon.
The Notice of the AGM and the explanatory notes to the proposed
resolutions can be found on pages 92 to 100.
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 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.
Events after the Reporting Period
Since the year end and up to the date of this report, there have been
no events that would require adjustment of or disclosure in the
financial statements.
By order of the Board
Frostrow Capital LLP
Company Secretary
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp35-pp46.qxp 05/03/2020 13:59 Page 46
46
Statement of Directors’ Responsibilities
Governance
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the Directors have elected
to prepare the financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union. Under company law the directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the company and of the profit
or loss of the company for the period. In preparing these financial
statements, the Directors have:
• selected suitable accounting policies and then applied them
consistently;
• made
judgements and accounting estimates that are
reasonable and prudent;
• presented information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provided additional disclosures when compliance with the
specific requirements in IFRS were insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the Company’s financial position and
financial performance; and
• prepared the financial statements on a going concern basis.
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.
• 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.
Statement of Directors’ Responsibilities:
The Financial Statements are published on the Company’s website
(www.feetplc.co.uk). The maintenance and integrity of the website
is the responsibility of the AIFM. The work carried out by the Auditor
does not involve consideration of the maintenance and integrity of
the website and, accordingly, the Auditors accept no responsibility
for any changes that have occurred to the Financial Statements
since they were initially presented on the website. Visitors to the
website need to be aware that legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors consider that the Annual Report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
Each of the Directors, who are listed on page 33 confirm that, to
the best of their knowledge:
• the financial statements, which have been prepared in
accordance with applicable accounting standards, give a true
and fair view of the assets, liabilities, financial position and net
return of the Company for the year ended 31 December 2019;
and
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
On behalf of the Board
Disclosure of Information to the Auditor
The Directors at the time of approving the Report of the Directors
are listed on page 33. Each Director in office at the date of this
report confirms that:
Martin Bralsford
Chairman
5 March 2020
• 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
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp47-pp53.qxp 05/03/2020 14:01 Page 47
Audit Committee Report
47
Statement from the Chairman
I am pleased to present the Audit Committee report for the year
ended 31 December 2019. The Committee met twice during the
year. Attendance by each Director is shown in the table on page 34.
The Committee also met on 27 February 2020 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 of the Directors whose
biographies are set out on page 33. The Committee as a whole has
experience relevant to the investment trust industry with Committee
members having a range of commercial, financial and investment
experience. Both Mr Spencer and Mr Bralsford are chartered
accountants. In light of Mr Bralsford’s relevant experience, his
continued independence and his valued contributions in Committee
meetings, the Audit Committee considers it appropriate that he
continues to be a member.
Responsibilities
The Committee’s main responsibilities during the year were:
1. To review the Company’s half-year and annual financial
statements. In particular, the Committee considered whether
the annual financial statements were fair, balanced and
understandable, and provided the information necessary for
shareholders to 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-bribery and corruption
policy.
3. To recommend the appointment of an external auditor and
agree the scope of its work and its remuneration, reviewing its
independence and the effectiveness of the audit process.
4. To consider any non-audit work to be carried out by the
auditor. The Audit Committee 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.
Deloitte did not provide any non-audit services to the Company
during the year. An analysis of the Auditor’s remuneration can be
found on page 72.
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:
March 2019
– Review of the Company’s annual results;
– Approval of the 2018 annual report and financial statements;
– Review of risk management, internal controls and compliance;
and
– Review of the outcome of the audit.
July 2019
– Review of the Committee’s terms of reference and non-audit
services policy;
– Review of the Auditor’s plan and terms of engagement for the
2019 audit;
– Review of risk management, internal controls and compliance;
– Review of the Company’s anti bribery and corruption policy and
the measures put in place by the Company’s service providers;
– Review of the Company’s half-year results; and
– Approval of the half-year report.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp47-pp53.qxp 05/03/2020 14:01 Page 48
48
Audit Committee Report
Governance
Financial Statements
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 necessary for shareholders to assess the Company’s
financial position, performance, business model and strategy. The
Committee has given this confirmation on the basis of:
• its review of the whole document, underpinned by involvement
in the planning for its preparation; and
• the comprehensive control framework around the production
of the Annual Report, including the verification process in place
to ensure 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 in place to record investment income and transactions.
The Committee sought confirmation that all dividends receivable
have been accounted for correctly.
Other Reporting Matters
Accounting Policies
The current accounting policies, as set out on pages 66 to 69, have
been applied consistently throughout the year and the prior period
where applicable.
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 43.
Viability Statement
The Audit Committee reviewed the Company’s financial position and
principal risks in connection with the Board’s statement on the
longer term viability of the Company, which is set out on page 31 of
the Strategic Report.
Risk Management and Internal Controls
The Board has overall responsibility for risk management and for
the review of the internal controls of the Company, undertaken in
the context of the Company’s investment objective.
The review covers the key business, operational, compliance and
financial risks facing the Company. In arriving at its judgement of
the risks, the Board has considered the Company’s operations in
light of the following factors:
• the nature of the Company, with all management functions
outsourced to third party service providers;
• the nature and extent of risks which it regards as acceptable
for the Company to bear within its overall investment objective;
• the threat of such risks becoming a reality; and
• the Company’s ability to reduce the incidence and impact of
risk on its performance.
A summary of the principal risks facing the Company is provided in
the Strategic Report on pages 29 and 30.
Against this background, a risk matrix has been developed which
covers all key risks that the Company faces, the likelihood of their
occurrence and their potential impact, how these risks are
monitored and the mitigating controls in place.
The Board has delegated to the Audit Committee responsibility for
the review and maintenance of the risk matrix. The Committee
reviews the risk matrix each time it meets, bearing in mind any
changes to the Company, its environment or service providers since
the last review. The Board considers whether any new risks are
emerging as a result of any such changes and any significant
changes to the risk matrix are discussed with the Board. 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp47-pp53.qxp 05/03/2020 14:01 Page 49
49
The Committee reviews the internal controls reports from its
principal service providers on an annual basis. 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.
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.
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
23 July 2019.
The Committee met Deloitte LLP (the “Auditor”) on 27 February 2020
to review the outcome of the audit and the draft 2019 Annual Report
and financial statements.
Independence and Effectiveness:
In order to fulfil the Committee’s responsibility regarding the
independence of the Auditor, the Committee reviewed:
– the senior audit personnel in the audit plan for the year;
– the Auditor’s arrangements concerning any 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.
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 services by the Auditor is permissible where no conflict of
interest arises, where the independence of the Auditor is not likely
to be impinged by undertaking the work and the quality and the
objectivity of both the non-audit work and audit work will not be
compromised. 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, non-audit fees must not exceed 70% of
the average audit fees paid in the last three years.
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 72.
Audit Tendering
Deloitte LLP has been the appointed Auditor since the Company’s
launch in 2014. Deloitte carried out the audit for the years ended
31 December 2014-2019 and was considered independent by the
Board. This year Chris Hunter became the designated audit partner.
As a public company listed on the London Stock Exchange, the
Company is subject to mandatory auditor rotation requirements. 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, remuneration or independence reasons. Unless any
such grounds for change arise in the interim, it is expected that the
next audit tender will take place in 2023.
The Committee has adopted formal audit tender guidelines to
govern the audit tender process.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp47-pp53.qxp 05/03/2020 14:01 Page 50
50
Audit Committee Report
Governance
Auditor Reappointment
The Committee conducted a review of the performance of the
Auditor during the year and concluded that performance was
satisfactory and there were no grounds for change.
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 next Annual
General Meeting.
Performance Evaluation
The Committee reviewed the results of the annual evaluation of its
performance in November 2019. As part of the evaluation, the
Committee reviewed the following:
• the composition of the Committee;
• the leadership of the Committee Chairman;
• the Committee’s monitoring of compliance with corporate
governance regulations;
• the Committee’s review of the quality and appropriateness of
financial accounting and reporting;
• the Committee’s review of significant risks and internal
controls; and
• the Committee’s assessment of
independence,
competence and effectiveness of the Company’s external
auditor.
the
It was concluded that the Committee was performing satisfactorily
and there were no formal recommendations made to the Board.
John Spencer
Chairman of the Audit Committee
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp47-pp53.qxp 05/03/2020 14:01 Page 51
Directors’ Remuneration Report
51
Statement from the Chairman
Single Total Figure of Remuneration (audited)
I am pleased to present the Directors’ Remuneration Report to
shareholders. An Ordinary Resolution for the approval of this report
will be put to shareholders at the Company’s forthcoming Annual
General Meeting. The law requires the Company’s Auditor to audit
certain disclosures provided in this report. Where disclosures have
been audited, they are indicated as such and the Auditor’s audit
opinion is included in its report to shareholders on pages 54 to 61.
The Board considers the framework for the remuneration of the
Directors on an annual basis.
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.
reviews
It
Directors’ fees during the year were unchanged from the previous
year: £30,000 per annum for the Chairman and £25,000 per
annum for Directors, with Directors who chair a board committee
receiving an additional £2,000 per annum. At a review meeting held
on 19 November 2019, it was decided that Directors fees would
remain unchanged for the year ending 31 December 2020. The
projected fees for 2020 are set out on page 53. No remuneration
consultants were appointed during the year (2018: none).
All levels of remuneration reflect both the time commitment and
responsibility of the role. The simple fee structure reflects the non-
executive nature of the Board, which itself reflects the Company’s
business model as an externally-managed investment trust (please
refer to the Business Review beginning on page 27 for more
information). Accordingly, statutory requirements relating to
executive directors’ and employees’ pay do not apply.
Directors’ Fees
The Directors, as at the date of this report, received the fees listed
in the table above. 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 (2018: nil).
Percentage
Date of
Appointment
Fees change
to the Board 2019 (£)2018 (£) (%)
Fees
Director
Martin Bralsford 23 May 2014
Rachel de Gruchy 1 June 2018
23 May 2014
David Potter
John Spencer
23 May 2014
Total
30,000 30,000 0
25,000 14,600* 0*
27,000 27,000 0
27,000 27,000 0
109,000 98,600
*Ms de Gruchy was paid a pro rata fee in 2018 as she was appointed mid-way through
the year. The percentage change reflects the fact that her annual rate of pay did not
change in 2019.
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
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. There were no
claims for taxable benefits during the year.
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 commenced trading on 25 June 2014, the
performance comparison is shown for the period from 25 June
2014 to 31 December 2019 using the MSCI Emerging and Frontier
Markets Index (measured on a total return, net sterling adjusted
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp47-pp53.qxp 05/03/2020 14:01 Page 52
52
Directors’ Remuneration Report
Governance
basis) which the Board has adopted as the principal comparator for
both the Company’s performance and that of the Investment
Manager for the period.
Total Shareholder Return for the period 25 June 2014 to
31 December 2019
Statement of Voting at the Annual General Meeting
At the AGM held on 22 May 2019, 3,417,380 votes (99.93%) were
received in favour of the resolution seeking approval of the
Directors’ Remuneration Report, 2,234 (0.06%) were against, and
2,215 votes were withheld; the percentage of votes excludes votes
withheld.
1600
1500
1400
1300
1200
1100
1000
900
800
Launch
Sep-14
D ec-14
M ar-15
Jun-15
Sep-15
D ec-15
M ar-16
Jun-16
Sep-16
D ec-16
M ar-17
Jun-17
Sep-17
D ec-17
M ar-1 8
Jun-1 8
Sep-1 8
D ec-1 8
M ar-19
Jun-19
Sep-19
D ec-19
FEET Share Price
MSCI EM + FM
Source: MSCI/Bloomberg
Directors’ Interests in the Company’s Shares as at
31 December 2019 (audited)
Martin Bralsford (Chairman)
Rachel de Gruchy
David Potter
John Spencer
Total
Ordinary shares
of 1p each
2019
2018
100,000
2,000
19,969
5,000
100,000
2,000
14,511
5,000
126,969
121,511
Directors are not required to hold shares in the Company.
No changes have been notified to the date of this report.
Approved by the Board and signed on its behalf by:
Relative Cost of Directors’ Remuneration
The bar chart below shows the comparative cost of Directors’ fees
compared with the proposed level of dividend distribution and
Company expenses for the years ended 31 December 2018 and
2019.
Martin Bralsford
Chairman
5 March 2020
£’000
6000
5000
4000
3000
2000
1000
0
4,757
5,189
2019
2018
852
533
109
99
Directors’
Fees
Company
Expenses
Dividends
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp47-pp53.qxp 05/03/2020 14:01 Page 53
Directors’ Remuneration Policy Report
53
During the year, no communications were 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 23 May 2018. 2,563,535 votes
(99.63%) were received in favour, 9,628 (0.37%) were against, and
11,263 votes were withheld; the percentage of votes excludes votes
withheld. Accordingly, it is expected that an Ordinary Resolution for
the approval of this policy will next be considered by shareholders
at the Annual General Meeting in 2021. As no changes have been
proposed, it is expected that this Remuneration Policy will continue
to be applied throughout 2020.
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’ performance, 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. There were no such
events in 2019 (2018: none) and so no additional fees were paid
to any of the Directors. The projected Directors’ fees for 2020 are
shown in the table below. The Company does not have any
employees.
Directors’ Fees Projected and Current
Martin Bralsford
Rachel de Gruchy
David Potter
John Spencer
Total
Fees
2020 (£)
30,000
25,000
27,000
27,000
109,000
Fees
2019 (£)
30,000
25,000
27,000
27,000
109,000
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 54
54
Independent Auditor’s Report
Financial Statements
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Fundsmith Emerging Equities Trust plc (the
‘Company’):
● give a true and fair view of the state of the Company’s affairs as at 31 December 2019
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 IFRSs as issued by the
International Accounting Standards Board (IASB); and
● have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements 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 18.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European
Union.
2. 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 Financial Reporting Council’s (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.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
● Valuation of investments; and
● Ownership of investments.
Materiality
Significant changes in our approach
The materiality that we used in the current year was £3.2 million which was determined on
the basis of 1% of net assets as at 31 December 2019.
In the prior year we considered revenue recognition in dividend income as a key audit matter.
After considering the control environment and our knowledge gained from previous years’
audits, we assessed that it is no longer a key audit matter in the current year.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 55
55
4. Conclusions relating to going concern, principal risks and viability statement
4.1 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 considered as part of our risk assessment the nature of the Company, its business model and
related risks including where relevant the impact of Brexit, the requirements of the applicable financial
reporting framework and the system of internal control. We evaluated the Directors’ assessment of
the Company’s ability to continue as a going concern, including challenging the underlying data and
key assumptions used to make the assessment, and evaluated the Directors’ plans for future actions
in relation to their going concern assessment.
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.
Going concern is the basis of
preparation of the financial
statements that assumes an
entity will remain in operation
for a period of at least 12
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.
4.2 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:
● the disclosures on pages 29-30 that describe the principal risks, procedures to identify emerging
risks, and an explanation of how these are being managed or mitigated;
● the Directors’ confirmation on page 29 that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would threaten its business
model, future performance, solvency or liquidity; or
● the Directors’ explanation on page 31 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.
Viability means the ability of
the Company to continue
over
horizon
considered appropriate by the
directors.
time
the
We confirm that we have
nothing material to report, add
or draw attention to in respect
of these matters.
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.
5. 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 56
56
Independent Auditor’s Report
Financial Statements
5.1 Valuation of Investments
Key audit matter description
As an investment entity, the Company holds investments of £312m as at 31 December
2019 (2018: £321m) which has decreased by 3% from the prior year-end. These represent
the most quantitatively significant financial statement line on the balance sheet and as
such we deem this more susceptible to manipulation by fraud.
In addition, the investments held at fair value through profit or loss are the main driver of
the Company’s performance 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 profit or loss and
also the fair value hierarchy for investments disclosures.
Investments are valued by Northern Trust (fund administrator) on behalf of the Company.
Refer to note 1e to the financial statements for the accounting policy on investments and
details of the investments are disclosed in note 10 to the financial statements. The valuation
of investment risk is included within the Audit Committee Report on page 48.
How the scope of our audit responded
to the key audit matter
We performed the following procedures to address the valuation of investments key audit
matter:
● We obtained an understanding over the controls at Northern Trust relating to valuation
of investments by using an assurance report over Northern Trust’s controls, and receiving
reconfirmation from Northern Trust that these controls were in effect during the year;
● We assessed the professional competence and independence of the auditor who
provided the assurance report; and
● We agreed 100% of the last traded prices of quoted investments on the schedule of
investments at year-end to closing bid prices published by an independent pricing source
and investigated total portfolio difference that is above the reporting threshold.
In addition, we performed the following procedures to address whether the investment
portfolio was actively traded and designated with the correct fair value hierarchy:
● We identified investments that were not actively traded and considered indicators of
impairment;
● We monitored the post year-end volume of trade data, the number of ‘zero trade’ days
and also the bid-ask spreads on investment holdings that were not traded out within
10 business days from the year end; and
● We reviewed the completeness and appropriateness of disclosures in relation to fair value
measurements and liquidity risk.
Based on the work performed we concluded that the valuation of investments and their
disclosure in the fair value hierarchy is appropriate.
Key observations
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:39 Page 57
57
5.2 Ownership of Investments
Key audit matter description
The Company holds investments of £312m as at 31 December 2019 (2018: £321m) which
has decreased by 3% from the prior year-end. These represent the most quantitatively
significant financial statement line on the balance sheet. There is a risk that investments
recorded may not be owned by the Company at year end and as such we deem this more
susceptible to manipulation by fraud.
Refer to note 1e for the accounting policy on investments and details of the investments are
disclosed in note 10. The ownership of investment risk is included within the Audit Committee
report on page 48.
How the scope of our audit responded to We performed the following procedures to address this risk:
the key audit matter
Key observations
● We obtained an understanding over the controls at Northern Trust relating to ownership
of investments by using an assurance report over Northern Trust’s controls and obtaining
confirmation from Northern Trust that these controls were in effect during the year. We
also assessed the professional competence and independence of the auditor who
provided the assurance report;
● We confirmed the ownership of 100% of investments at the year-end date by obtaining
independent third party confirmations directly from the custodian; and
● We agreed the schedule of investments holding as at the year-end to the independently
obtained custodian confirmation and investigated any differences in the holdings.
Based on the work performed we did not identify differences in the investment holdings
when agreeing the Company’s investment portfolio to the confirmation received directly
from the custodian.
6. Our application of materiality
6.1 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
£3.2 million (2018: £3.2 million)
Basis for determining materiality
1% (2018: 1%) of net assets.
Rationale for the benchmark applied
Net assets has been chosen as it is considered the most relevant benchmark for investors
and is a key driver of shareholder value.
Net assets £323m
Net assets
Materiality
Materality £3(cid:17)(cid:21)m
Audit Committee
reporting threshold
£0.16m
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 58
58
Independent Auditor’s Report
Financial Statements
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 70% of materiality for
the 2019 audit (2018: 70%). In determining performance materiality, we considered the following factors:
a. We have not identified any significant changes in business structure and operations and prior year errors; and
b. our experience from previous audits, which shows which has indicated a low number of corrected and uncorrected misstatements
identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.16m (2018: £0.06m),
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.
7. An overview of the scope of our audit
7.1 Scoping
Our audit was scoped by obtaining an understanding of the Company and its environment, including internal control and assessing the
risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit
engagement team.
7.2 Our consideration of the control environment
As part of our risk assessment, we assessed the control environment in place at the fund administrator, Northern Trust to the extent
relevant to our audit.
8. 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 otherwise 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 necessary for shareholders to assess
the group’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.
We have nothing to report in respect of these matters.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 59
59
9. 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.
10. 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws
and regulations are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
● the nature of the industry and sector, control environment and business performance including the design of the Company’s
remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
● results of our enquiries of management and the Audit Committee about their own identification and assessment of the risks of
irregularities;
● any matters we identified having obtained and reviewed the Company’s documentation of their policies and procedures relating to:
❍ identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
❍ detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
❍ the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
● the matters discussed among the audit engagement team regarding how and where fraud might occur in the financial statements and
any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: valuation of investments and ownership of investments. In common with
all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Company operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The
key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Company’s ability to operate or to avoid a material penalty. These included the
Company’s qualification as an Investment Trust under UK tax legislation.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 60
60
Independent Auditor’s Report
Financial Statements
11.2 Audit response to risks identified
As a result of performing the above, we identified valuation of investments and ownership of investments as key audit matters related to
the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific
procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
● reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
● enquiring of management and the Audit Committee concerning actual and potential litigation and claims;
● performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
● reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC and the FCA; and
● in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating
the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, and remained
alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. 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.
13. Matters on which we are required to report by exception
13.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
● we have not received all the information and explanations we require for our audit; or
● adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited
by us; or
● the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
13.2 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.
We have nothing to report in respect of these matters.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 61
61
14. Other matters
14.1 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 6 years, covering the years ending 31 December 2014 to
31 December 2019.
14.2 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).
15. 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.
Chris Hunter CA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Edinburgh, United Kingdom
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 62
62
Statement of Comprehensive Income
Financial Statements
For the year ended
31 December 2019
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
For the year ended
31 December 2018
Income from investments held at
fair value through profit or loss 2 6,833 – 6,833 6,970 – 6,970
Losses on investments held at fair
value through profit or loss:
Losses on investments held at fair
value through profit or loss 10 – (2,738) (2,738) – (10,441) (10,441)
(Losses)/gains on foreign exchange
transactions – (215) (215) 17 22 39
Investment management fee 4 (3,650) – (3,650) (3,933) – (3,933)
Other expenses including transaction costs 5 (901) (206) (1,107) (1,119) (137) (1,256)
Profit/(loss) before finance costs
and taxation 2,282 (3,159) (877) 1,935 (10,556) (8,621)
Finance costs 6 (2) – (2) – – –
Profit/(loss) before taxation 2,280 (3,159) (879) 1,935 (10,556) (8,621)
Taxation 7 (468) (500) (968) (552) (433) (985)
Profit/(loss) for the year 1,812 (3,659) (1,847) 1,383 (10,989) (9,606)
Return per share
(basic and diluted) (p) 8 6.81 (13.75) (6.94) 5.35 (42.47) (37.12)
The Company does not have any income or expenses which are not included in the profit for the year.
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 Statement of Comprehensive Income, 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 66 to 82 are an integral part of these financial statements.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 63
Statement of Financial Position
63
As at
31 December 2018
Notes £’000 £’000 £’000 £’000
As at
31 December 2019
Non-Current Assets
Investments held at fair value through profit or loss 10 312,267 321,493
312,267 321,493
Current Assets
Receivables 11 792 676
Cash and cash equivalents 12,798 2,709
13,590 3,385
324,878
Current Liabilities
Trade and other payables 12 (2,714) (2,392)
(2,714) (2,392)
323,143 322,486
Equity Attributable to Equity Shareholders
Ordinary Share capital 13 266 264
Share premium 14 81,595 78,560
Capital reserves 238,732 242,391
Revenue reserve 2,550 1,271
323,143 322,486
Net Asset Value per share (p) 15 1,213.0 1,222.0
The financial statements on pages 62 to 82 were approved by the Board on 5 March 2020 and were signed on its behalf by:
Martin Bralsford
Chairman
The accompanying notes on pages 66 to 82 are an integral part of these financial statements.
Fundsmith Emerging Equities Trust plc – Company Registration Number 08756681 (Registered in England and Wales)
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 64
64
Statement of Changes in Equity
Financial Statements
For the year ended 31 December 2019
Share Share Capital Revenue
Capital Premium Reserves Reserve Total
Notes £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2019 264 78,560 242,391 1,271 322,486
(Loss)/profit for the year (3,659) 1,812 (1,847)
264 78,560 238,732 3,083 320,639
Issue of Share Capital 2 3,035 3,037
Dividends paid 9 – – – (533) (533)
Balance at 31 December 2019 15 266 81,595 238,732 2,550 323,143
For the year ended 31 December 2018
Share Share Capital Revenue
Capital Premium Reserves Reserve Total
£’000 £’000 £’000 £’000 £’000
Balance at 1 January 2018 246 57,159 253,380 (112) 310,673
(Loss)/profit for the year – – (10,989) 1,383 (9,606)
246 57,159 242,391 1,271 301,067
Issue of Share Capital 18 21,401 – – 21,419
Balance at 31 December 2018 15 264 78,560 242,391 1,271 322,486
The accompanying notes on pages 66 to 82 are an integral part of these financial statements.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp54-pp65.qxp 05/03/2020 14:04 Page 65
Statement of Cash Flows
65
For the year ended For the year ended
31 December 2019 31 December 2018
£’000 £’000
Cash Flows used in Operating Activities
Net loss for the year before taxation (879) (8,621)
Adjustments for:
Add back finance costs 2 –
Net loss on investments held at fair value through profit or loss 2,944 10,441
Net (loss)/gain on foreign exchange 215 (39)
Increase in other receivables (124) (345)
(Decrease)/increase in other payables (179) 337
Overseas taxation paid (459) (552)
Net Cash Flow from Operating Activities 1,520 1,221
Cash Flows used in Investing Activities
Sales of investments held at fair value through profit or loss 50,123 28,294
Purchases of investments held at fair value through profit or loss (43,841) (53,582)
Net Cash Flow from Investing Activities 6,282 (25,288)
Cash Flows used in Financing Activities
Proceeds from issue of new shares 3,052 21,526
Issue costs relating to new shares (15) (107)
Finance costs (2) –
Dividends paid (533) –
Net Cash Flow from Financing Activities 2,502 21,419
Net Increase/(decrease) in Cash and Cash Equivalents 10,304 (2,648)
Effect of foreign exchange rates (215) 39
Change in cash and cash equivalents 10,089 (2,609)
Cash and cash equivalents at start of the year 2,709 5,318
Cash and cash equivalents at end of the year 12,798 2,709
Comprised of:
Cash at bank 12,798 2,709
Cash Flow from Operating Activities includes
Interest paid (2) (4)
Dividends received 6,733 6,099
The accompanying notes on pages 66 to 82 are an integral part of these financial statements.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 66
66
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 (and updated in October 2019).
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 43. The Company is a UK listed company with a predominantly UK shareholder base. The results and the financial
position of the Company are expressed in sterling, which is the functional and presentational currency of the Company. The
accounting policies have been disclosed consistently and in line with Companies Act 2006.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to
which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement
in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at
the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either
directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
Capital accounting judgements and sources 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 carrying 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 Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC,
supplementary information which analyses the Income Statement between items of a revenue and capital nature has been
presented alongside the Statement of Comprehensive Income. Net revenue return 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 67
Notes to the Financial Statements
67
1. Accounting Policies continued
(c) Income
Income from investments (other than capital dividends), including taxes deducted at source, is included in revenue by reference
to the date on which the investment is quoted ex-dividend, or where no ex-dividend date is quoted, when the Company’s right to
receive payment is established. Special dividends are credited to capital or revenue, according to the circumstances. Income from
underwriting commission is recognised as earned.
Interest receivable and payable, management fees, and other expenses are treated on an accruals basis.
(d) Expenses
The management fee is recognised as a revenue item in the Statement of Comprehensive Income. All other expenses are charged
to the revenue column except expenditure of a capital nature, in which case they are charged to the capital column. 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 Statement of Comprehensive Income 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 or 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 or loss”.
All investments are designated upon initial recognition as held at fair value through profit or 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 capital on the Statement of Comprehensive
Income.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 68
68
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) Other Receivables and Other Payables
Other receivables and other payables do not carry any interest and are short term in nature. Accordingly, they are stated at their
amortised cost, which is the same as fair value.
Financial assets held at amortised cost are reviewed for impairment using the credit loss model. Given the nature of the Company’s
short-term receivables, no credit losses have occurred to date and no credit losses are currently expected to occur in the future.
(j) Nature and Purpose of Reserves
Share capital
Represents the nominal value of the issued share capital.
Share premium account
The share premium arose on the issue of new shares.
Capital reserve
This reserve reflects any:
• gains or losses on the disposal of investments
• exchange differences of a capital nature
• the increases and decreases in the fair value of investments which have been recognised in the capital column of the Income
Statement
• expenses which are capital in nature
Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital
reserve.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 69
69
1. Accounting Policies continued
Revenue reserve
This reserve reflects all income and expenditure recognised in the revenue column of the statement of comprehensive income
and is distributable by way of dividend.
(k) 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.
(l) Adoption of New and Revised Standards
At the date of authorisation of these financial statements the following standards and amendments to standards, which have not
been applied in these financial statements, were in issue but not yet effective:
• Amendments to IFRS 3 ‘Definition of Business’ (effective for accounting periods beginning on or after 1 January 2020)
• Amendments to IAS 1 & IAS 8 ‘Definition of Material’ (effective for accounting periods beginning on or after 1 January 2020)
• IFRS 17 ‘Insurance contracts’ (effective for accounting periods beginning on or after 1 January 2021)
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.
The following standard, effective for accounting periods beginning on or after 1 January 2019, has not been applied in preparing
these financial statements:
• IFRS 16 ‘Leases’ specifies accounting for leases and removes the distinction between operating and finance leases.
This standard is not applicable to the Company as it has no leases.
For the financial year under review, the Company has applied the following interpretation:
• IFRIC 23 ‘Uncertainty over Income Tax’ provides guidance on uncertain income tax treatments and specifies that an entity
must consider whether it is probable that the relevant tax authority will accept each tax treatment or group of tax treatments,
that it plans to use in its income tax filing. Where deemed to be more than probable, uncertain tax positions should be disclosed
in the financial statements of the company.
There is no material impact on the Company in relation to the adoption of this standard.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 70
70
Notes to the Financial Statements
Financial Statements
2. Dividend Income
2019 2018
£’000 £’000
Overseas dividends 6,833 6,970
Total 6,833 6,970
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 Statement of Comprehensive Income on
page 62. A geographical split of the portfolio can be seen on page 11.
4. Investment Management Fee
2019 2018
£’000 £’000
Investment management fee 3,650 3,933
As at 31 December 2019, an amount of £840,000 (2018: £965,000) was payable to the Investment Manager.
The investment management fee was reduced from 1.25% to 1.00% of the net asset value of the Company, with effect from 31 May 2019.
Details of the terms of the Investment Management Agreement are provided on page 27.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 71
71
5. Other Expenses
Transactions costs on fair value
Revenue
£’000
2019 2018
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
through profit or loss investments – 206 206 – 137 137
Directors’ fees 109 – 109 99 – 99
Employers’ National Insurance contributions 3 – 3 – – –
Auditor’s remuneration 31 – 31 43 – 43
Registrar fees 32 – 32 29 – 29
Broker fee 37 – 37 35 – 35
Company Secretarial fees 100 – 100 115 – 115
Custody fees 311 – 311 308 – 308
Depositary fees 48 – 48 50 – 50
Postage and printing 32 – 32 25 – 25
Legal fees 8 – 8 41 – 41
Administration fees 107 – 107 2 – 2
Other expenses 83 – 83 372 – 372
Total expenses 901 206 1,107 1,119 137 1,256
Transaction costs on fair value through profit or loss investments represent such costs incurred on both purchase and sales of those
investments. Transaction costs on purchases amounted to £74,000 (2018: £83,000) and on sales amounted to £132,000
(2018: £54,000).
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 72
72
Notes to the Financial Statements
Financial Statements
5. Other Expenses continued
Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
2019 2018
Revenue £’000 £’000
Fees payable to the Company’s Auditor for the audit of the Company’s annual
financial statements 31 31
Total audit fees 31 31
Tax compliance services – 12
Total non-audit fees – 12
Total fees paid 31 43
6. Finance Costs
2019 2018
Revenue £’000 £’000
Finance costs 2 –
7. Taxation
(a) Analysis of tax charge in the year
Revenue
£’000
2019 2018
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
Taxation on ordinary activities
UK corporation tax at 19% – – – – – –
Irrecoverable overseas withholding tax 468 – 468 552 – 552
Overseas capital gains tax – 500 500 – 433 433
Total tax (7b) 468 500 968 552 433 985
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 73
73
7. Taxation continued
(b) The effective corporation tax rate was 19% (2018: 19%). 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/(loss) before taxation
2,280
(3,159)
(879) 1,935 (10,989) (9,054)
Revenue
£’000
2019 2018
Capital
£’000
Total Revenue Capital Total
£’000 £’000 £’000 £’000
Corporation tax at effective rate of
19% (2018: 19%) 433 (600) (167) 368 (2,088) (1,720)
Effects of:
Expenses not deductable for tax purposes – 39 39 – 108 108
Net losses on investments held at fair value
through profit or loss 520 520 1,984 1,984
Foreign exchange loss 41 41 (4) (4)
Overseas dividends not taxable (1,298) – (1,298) (1,328) – (1,328)
Overseas tax suffered 468 – 468 552 – 552
Overseas capital gain tax – 500 500 – 433 433
Increase in excess management expenses 865 – 865 960 – 960
Total tax 468 500 968 552 433 985
As at 31 December 2019, the Company had unutilised management expenses of £22.6 million (2018: £18.0 million) carried forward. It
is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax
asset in respect of these expenses has been recognised. 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 UK tax on capital
gains and losses arising on the revaluation or disposal of investments.
(c) The Company has made a provision for capital gains payable on Indian stocks of £1,653,000 (2018: £1,153,000).
8. Return per Share
Return per Ordinary Share is as follows:
2019 2018
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Return/(loss) per Ordinary Share 6.81 (13.75) (6.94) 5.35 (42.47) (37.12)
Return per share is calculated based on returns for the year and the weighted average number of shares in issue during the year.
The total loss per share of (6.94p) (2018: (37.12p)) is based on a total loss attributable to equity shareholders of (£1,847,000) (2018: loss
of (£9,606,000)).
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 74
74
Notes to the Financial Statements
Financial Statements
8. Return per Share continued
The revenue profit per share of 6.81p (2018: 5.35p) is based on a revenue profit attributable to equity shareholders of £1,812,000
(2018: £1,383,000).
The capital loss per share of (13.75p) (2018: (42.47p)) is based on a capital loss attributable to equity shareholders of (£3,659,000)
(2018: loss of (£10,989,000)).
The total revenue profit and total capital loss per share are based on the weighted average number of shares in issue of 26,612,549
(2018: 25,875,583) during the year.
9. Dividends
Dividends relating to the year ended 31 December 2019 which is the basis on which the requirements of Section 1159 of the Corporation
Tax Act 2010 are considered below:
Dividends proposed:
2019 2019 2018 2018
pence £’000 pence £’000
Final dividend proposed* 3.2 852 2.00 532
* Not included as a liability in the year ended 31 December 2019 accounts.
The final dividend proposed is based on shares in issue at the record date or, if the record date has not been reached, on shares in issue
on the date the Statement of Financial Position is signed.
The final dividend proposed will be paid on 3 June 2020 to shareholders on the register on 15 May 2020. The associated ex-dividend date
is 14 May 2020.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 75
75
10. Investments Held at Fair Value Through Profit or 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.
2019 2018
£’000 £’000
Opening cost at 1 January 248,132 230,382
Opening unrealised gain/(loss) at 1 January 73,361 76,264
Valuation at 1 January 321,493 306,646
Purchases at cost 43,841 53,582
Sales – proceeds (50,123) (28,294)
Investment holding (loss) (2,944) (10,441)
Closing Fair Value at 31 December 312,267 321,493
Closing cost at 31 December 236,547 248,132
Closing unrealised gain at 31 December 75,720 73,361
Valuation at 31 December 312,267 321,493
The Company received £50,123,000 from investments sold in the year (2018: £28,294,000). The book cost of the investments when they
were purchased was £55,426,000 (2018: £35,832,000). These investments have been revalued over time until they were sold and
unrealised gains/losses were included in the fair value of investments.
The total losses of £2,944,000 include the dealing costs of £206,000 as shown in note 5.
All investments are listed.
Fair value of financial instruments
Under IFRS 13 ‘Fair Value Measurement’ an entity is required to classify investments using a fair value hierarchy that reflects the
significance of the inputs used in making the measurement decision.
The following shows the analysis of financial assets recognised at fair value based on:
• Level 1 – quoted prices in active markets for identical instruments. As at 31 December 2019, £282,812,000 (2018: £282,795,000)
of the investment portfolio was classified as level 1.
• Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk,
etc). As at 31 December 2019, £29,455,000 (2018: £38,698,000) of the investment portfolio was classified as level 2.
• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
There are no level 3 investments.
During the year to 31 December 2019, British American Tobacco Bangladesh (2018: £5,138,000) was transferred from level 2 to level 1.
This was due to a higher volume of trade. During the year, the following level 2 securities were sold: Nestlé Pakistan (2018: £2,519,000),
Fan Milk Ltd (2018: £1,682,000) and Edita Foods (2018: £3,007,000).
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 76
76
Notes to the Financial Statements
Financial Statements
10. Investments Held at Fair Value Through Profit or Loss continued
Fair value measurements recognised in the Statement of Financial Position
2019
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 282,812 29,455 – 312,267
Total 282,812 29,455 – 312,267
2018
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 282,795 38,698 – 321,493
Total 282,795 38,698 – 321,493
11. Receivables
2019 2018
£’000 £’000
Accrued income 732 632
Other receivables 60 44
792 676
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.
12. Payables
2019 2018
£’000 £’000
Management fee payable 840 965
Other payables 1,874 1,427
2,714 2,392
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 77
77
13. Share capital
2019 2019 2018 2018
Number £’000 Number £’000
Issued, allotted and fully paid (ordinary) 26,640,056 266 26,390,056 264
During the year ended 31 December 2019, the Company issued 250,000 shares of £0.01 each (2018: 1,727,500) for a net consideration
of £3,037,000 (2018: £21,419,000). Details of the shareholder authorities granted to Directors to issue and buy back shares during the
year are provided on page 44.
14. Share Premium Account
2019 2018
£’000 £’000
Balance at 1 January 78,560 57,159
Premium arising on issue of new shares 3,050 21,508
Costs of issuing new shares (15) (107)
81,595 78,560
15. Net Asset Value per Share
2019 2018
pence pence
Net asset value per share 1,213.0 1,222.0
The net asset value per share is based on the net assets attributable to equity shareholders of £323,143,000 (2018: £322,486,000) and
on 26,640,056 (2018: 26,390,056) shares in issue at 31 December 2019.
16. Risk Management and Financial Instruments
The Company’s investing activities undertaken in pursuit of its investment objective, as set out on page 9, 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 quarterly, designed to manage the risk inherent in managing a portfolio of investments.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 78
78
Notes to the Financial Statements
Financial Statements
16. Risk Management and Financial Instruments continued
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.
The carrying amounts of financial assets best represents the maximum credit risk exposure at the statement of financial position date,
and the main exposure to credit risk is via the Company’s Custodian who is responsible for the safeguarding of the Company’s Investments
and cash balances.
At the reporting date, the Company’s financial assets exposed to credit risk amounted to the following:
2019
£’000
Cash and cash equivalents 12,798
Receivables 792
All the assets of the Company which are traded on a recognised exchange are held by Northern Trust, the Company’s Custodian. Bankruptcy
or insolvency of the Custodian may cause the Company’s rights with respect to securities held by the Custodian to be delayed or limited.
The Board monitors the Company’s risk as described in the Strategic Report on pages 29 to 30.
Currency risk
The income and capital value of the Company’s investments and liabilities can be affected by exchange rate movements as some of the
Company’s assets and income are denominated in currencies other than sterling, which is the Company’s reporting currency. The key
areas where foreign currency risk could have an impact on the Company are:
• movements in rates that would affect the value of investments and liabilities; and
• movements in rates that would affect the income received.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 79
79
16. Risk Management and Financial Instruments continued
The Company had the following currency exposures, all of which are included in the Statement of Financial Position at fair value based on
the exchange rates ruling at the year end.
31 December 2019
Investments Cash Receivables Payables Total
£’000 £’000 £’000 £’000 £’000
Bangladeshi Taka 4,011 – – – 4,011
Brazilian Real 11,675 – 298 11,973
Chinese Yuan 14,768 – – – 14,768
Egyptian Pound 18,366 – 354 – 18,720
Hong Kong Dollar 35,431 – – – 35,431
Indian Rupee 135,521 – – (1,653) 133,868
Indonesian Rupiah 4,387 – – – 4,387
Kenyan Shilling 5,665 – – – 5,665
Mexican Peso 7,540 – – – 7,540
Nigerian Naira 6,266 – – – 6,266
Philippino Peso 12,333 – – – 12,333
South African Rand 10,474 – – – 10,474
Sri Lankan Rupee 4,984 – 4,984
Turkish Lira 5,527 – – – 5,527
US Dollar 22,777 – – – 22,777
Vietnam Dong 9,312 22 80 – 9,414
309,037 22 732 (1,653) 308,138
As at 31 December 2019, the investment portfolio included £6.266 million of Nigerian securities out of the total investment portfolio of
£312.3 million. 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 80
80
Notes to the Financial Statements
Financial Statements
16. Risk Management and Financial Instruments continued
31 December 2018
Investments Cash Receivables Payables Total
£’000 £’000 £’000 £’000 £’000
Bangladeshi Taka 5,138 – – – 5,138
Brazilian Real 10,640 6 262 – 10,908
Chinese Yuan 13,117 – – – 13,117
Egyptian Pound 13,029 – 258 – 13,287
Ghanaian Cedi 1,682 – – – 1,682
Hong Kong Dollar 38,172 – – – 38,172
Indian Rupee 139,615 73 44 (1,153) 138,579
Indonesian Rupiah 12,716 – – – 12,716
Kenyan Shilling 3,700 – – – 3,700
Mexican Peso 6,947 – – – 6,947
Nigerian Naira 8,627 – – – 8,627
Pakistani Rupee 2,519 – – – 2,519
Philippino Peso 10,369 – – – 10,369
South African Rand 15,118 – 8 – 15,126
Sri Lankan Rupee 6,590 – – – 6,590
Turkish Lira 5,950 – – – 5,950
US Dollar 13,890 – – – 13,890
Vietnam Dong 8,162 – 68 – 8,230
315,981 79 640 (1,153) 315,547
The Company mitigates the risk of loss due to exposure to a single currency by way of diversification of the portfolio.
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit after tax for the year and the net assets for the year in relation to foreign exchange
movements. The analysis below assumes that exchange rates may move +/-5% against sterling which is a reasonable approximation of
possible changes.
2019 2018 2019 2018
as at 31 December £’000 £’000 £’000 £’000
+5% +5% -5% -5%
Effect on net assets for the year 15,407 15,778 (15,407) (15,778)
Effect on capital return 15,452 15,800 (15,452) (15,800)
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 81
81
16. Risk Management and Financial Instruments continued
Interest rate risk
The majority of the Company’s financial assets are equity shares and other investments which neither pay interest nor have a maturity
date. The Company’s cash balance of £12,798,000 (2018: £2,709,000) 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 £64,000
(2018: £14,000). 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 £64,000 (2018: £14,000). 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 had fallen by 10% at 31 December 2019, the impact on profit or loss and net assets would have been negative
£31.2 million (2018: £32.1 million). If the investment portfolio valuation rose by 10% at 31 December 2019, the impact on profit or loss
and net assets would have been positive £31.2 million (2018: £32.1 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.
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
2019
£’000
2018
£’000
Assets at fair value through profit or loss 312,267 321,493
Cash 12,798 2,709
Investment income receivable 732 632
Other receivables 60 44
Other payables (2,714) (2,392)
323,143 322,486
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.
Liquidity risk is not significant as the majority of the Company’s assets are investments in quoted securities that are easily and readily
realisable. The Company does not have any borrowing facilities and as at 31 December held £12,798,000 cash.
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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp66-pp82.qxp 05/03/2020 14:05 Page 82
82
Notes to the Financial Statements
Financial Statements
16. Risk Management and Financial Instruments continued
The Company’s capital is its equity share capital and reserves that are shown in the Statement of Financial Position at a total of
£323,143,000 (2018: £322,486,000).
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.
The Company is subject to the following externally imposed capital requirements:
• as a public company, the Company has a minimum share capital of £50,000; and
• in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital
restriction tests imposed on investment companies by company law.
The Company has complied with both of the above requirements.
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.
17. Contingent Liabilities
As at 31 December 2019 there were no contingent liabilities or capital commitments.
18. 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 and the terms of their appointments are set out in the Directors’ Remuneration Report on
page 51. There were no other 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 70.
Terry Smith, the Managing Partner at Fundsmith LLP, the Company’s AIFM and Investment Manager holds interests in 847,000 shares in
the Company (2018: 580,000) amounting to 3.2% (2018: 2.2%) of the Company’s issued share capital as at the date of this report.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp83-pp89.qxp 05/03/2020 14:05 Page 83
Shareholder Information
Further Information
Financial Calendar
31 December
Financial Year End
March
May
June
30 June
July/August
Final Results Announced
Annual General Meeting
Final Dividend Paid
Half Year End
Half Year End Results Announced
83
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, 27 May 2020 at 12 noon.
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 2019
31 December 2018
● Retail 81.2%
● Corporate 12.5%
● Banks 4.3%
● Pension Funds 1.5%
● Investment Companies 0.5%
● Retail 80.3%
● Corporate 11.8%
● Banks 4.0%
● Pension Funds 1.5%
● Investment Companies 2.4%
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp83-pp89.qxp 05/03/2020 14:05 Page 84
84
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:
• information on the investment strategy, geographic and sector investment focus and principal stock exposures are included in the
Strategic Report.
• None of the Company’s assets are subject to special arrangements arising from their illiquid nature.
• The Strategic Report and note 16 to the financial statements set out the risk profile and risk management systems in place. There
have been no changes to the risk management systems in place in the year under review and no breaches of any of the risk limits set,
with no breach expected.
• There are no new arrangements for managing the liquidity of the Company or any material changes to the liquidity management
systems and procedures employed by Fundsmith.
Leverage
For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company’s
exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and its
net asset value and can be calculated on a Gross and a Commitment method. Under the Gross method, exposure represents the sum of
the Company’s positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements.
Under the Commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and
netting positions are offset against each other.
The table below sets out the current maximum permitted limit and actual level of leverages for the Company:
Maximum level of leverage
Actual level at 31 December 2019
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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp83-pp89.qxp 05/03/2020 14:05 Page 85
Alternative Investment Fund Managers Directive Disclosures (Unaudited)
85
Remuneration Disclosure
During the year ending 31 March 2019, Fundsmith LLP (‘Fundsmith’) had 26 members of personnel in total, including employees and
Partners. The total amount of remuneration paid to Fundsmith personnel during this period was £34,106,798. Out of this figure, the total
amount of remuneration paid to the Partners of Fundsmith LLP was £26,387,125 whilst the total amount of remuneration paid to the
employees of Fundsmith LLP was £7,719,673.
Of the £7,719,673 paid to Fundsmith employees, £5,290,012 was variable remuneration and £2,429,661 was fixed remuneration.
The partners of Fundsmith LLP are not paid a bonus. All of their remuneration is fixed as it is based on a fixed proportion 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 financial report and accounts of Fundsmith LLP for the period 1 April 2018 to
31 March 2019. 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 and the Fund Managers.
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 1.3% 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp83-pp89.qxp 05/03/2020 14:05 Page 86
86
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 £13,000,000 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.
Fundsmith LLP
AIFM
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp83-pp89.qxp 05/03/2020 14:05 Page 87
Glossary of Terms
87
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.
Alternative Performance Measures (“APMs”)
The measures the Board of Directors uses to assess the Company’s performance, which are not specifically defined under the International
Financial Reporting Standards but which are viewed as particularly relevant for investment trusts. Definitions of the terms used and the
basis of calculation are set out in this Glossary and the APMs are indicated with an asterisk (*).
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 net asset value per share from the price per share and is usually expressed as a percentage (%) of the net asset value
per share. If the share price is higher than the net asset value per share the result is a premium. If the share price is lower than the net
asset value per share, the shares are trading at a discount.
Gearing
In simple terms gearing is borrowing. An investment trust can borrow money to invest in additional investments for its portfolio. The effect
of the borrowing on the shareholders’ assets is called ‘gearing’. If the Company’s assets grow shareholders’ assets grow proportionately
more because the debt remains the same. But if the value of the Company’s assets falls, the situation is reversed. Gearing can therefore
enhance 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp83-pp89.qxp 05/03/2020 14:05 Page 88
88
Glossary of Terms
Further Information
NAV Total Return*
The theoretical total return on shareholders’ funds per share, 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 the investment management performance of
investment trusts which is not affected by movements in the share price.
Opening NAV
Increase/(decrease) in NAV
Closing NAV
% increase/(decrease) in NAV
Impact of reinvested dividends
NAV Total Return
31 Dec
2019
1,222.0p
(9.0p)
1,213.0p
(0.7%)
0.2%
(0.5%)
31 Dec
2018
1,259.7p
(37.7p)
1,222.0p
(3.0%)
–
(3.0%)
Neutral Free Cash Flow (“NFCF”)
A company’s free cash flow after adding back capital expenditures in excess of depreciation.
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
One off expense write offs
Average net assets during the year
Ongoing charges (annualised)
31 Dec
2019
£’000
4,552
–
331,375
1.40%
31 Dec
2018
£’000
5,052
(291)
312,711
1.52%
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.
Return Per Share
The proportion of a Company’s profit allocated to each ordinary share.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp83-pp89.qxp 05/03/2020 14:05 Page 89
Glossary of Terms
89
Share Price Total Return*
The return to the investor reflecting the change in the share price, on a last traded price to a last traded price basis, assuming that all
dividends paid were reinvested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend.
Opening share price
Increase/(decrease) in share price
Closing share price
% increase/(decrease) in share price
Impact of reinvested dividends
Share Price Total Return
* Alternative Performance Measures.
31 Dec
2019
1,190.0p
(90.0p)
1,100.0p
(7.6%)
0.2%
(7.4%)
31 Dec
2018
1,314pp
(124.0p)
1,190.0p
(9.4%)
–
(9.4%)
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 90
90
How to Invest
Further Information
Investment Platforms
The Company’s shares are traded openly on the London Stock Exchange and can be purchased through a stockbroker or other financial
intermediary. The shares are available through savings plans (including Investment Dealing Accounts, ISAs, Junior ISAs and SIPPs) which
facilitate both regular monthly investments and lump sum investments in the Company’s shares. There are a number of investment
platforms that offer these facilities. A list of some of them, that is not comprehensive nor constitutes any form of recommendation, can be
found below:
AJ Bell Youinvest http://www.youinvest.co.uk/
Barclays Stockbrokers https://www.barclays.co.uk/smart-investor/
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
Halifax Share Dealing http://www.halifax.co.uk/Sharedealing/
Hargreaves Lansdown http://www.hl.co.uk/
HSBC https://hsbc.co.uk/investments/
iDealing http://www.idealing.com/
Interactive Investor http://www.ii.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 https://www.home.saxo/
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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 91
91
Risk Warnings
• Past performance is no guarantee of future performance.
• The value of your investment and any income from it may go down as well as up and you may not get back the amount invested. This
is because the share price is determined, in part, by the changing conditions in the relevant stock markets in which the Company
invests and by the supply and demand for the Company’s shares.
• As the shares in an investment trust are traded on a 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.
• 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.
• Investors should note that tax rates and reliefs may change at any time in the future.
• The value of ISA and Junior ISA tax advantages will depend on personal circumstances. The favourable tax treatment of ISAs and
Junior ISAs may not be maintained.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 92
92
Notice of the Annual General Meeting
Further Information
Notice is hereby given that the Annual General Meeting of Fundsmith Emerging Equities Trust plc will be held at Barber-Surgeons’ Hall,
Monkwell Square, Wood Street, London EC2Y 5BL on Wednesday, 27 May 2020 at 12 noon for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive the Annual Report for the year ended 31 December 2019, including the financial statements and the directors’ and auditors’
reports thereon.
2. To approve the Directors’ Remuneration Report for the year ended 31 December 2019.
3. To approve the payment of a final dividend of 3.2 pence per ordinary share for the year ended 31 December 2019.
4. To re-elect Martin Bralsford as a Director of the Company.
5. To re-elect Rachel de Gruchy as a Director of the Company.
6. To re-elect David Potter as a Director of the Company.
7. To re-elect John Spencer as a Director of the Company.
8. 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 and 13 will be proposed as special resolutions:
Authority to Issue Shares
9. 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 £26,640.05 (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 2,664,005
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 2021
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.
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 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:
(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
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 93
93
be) to the respective numbers of Shares held by them but subject to such exclusions or other arrangements in connection with
the issue as the Directors may consider necessary, appropriate, or expedient to deal with equity securities representing fractional
entitlements or to deal with legal or practical problems arising in any overseas territory, the requirements of any regulatory body
or stock exchange, or any other matter whatsoever; and
(b)
(otherwise than pursuant to sub-paragraph (a) above) an offer or offers of equity securities of up to an aggregate nominal value
of £26,640.05;
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.
Treasury Shares
11. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolution 10 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 £26,640.05, being 10% of the
issued share capital of the Company as at the date of this Notice of Annual General Meeting and representing 2,664,005 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 resolution 10 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 94
94
Notice of the Annual General Meeting
Further Information
Authority to Repurchase Ordinary Shares
12. 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 3,993,344 (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)
(d)
(e)
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;
the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2021
or, if earlier, on the expiry of 15 months from the date of the passing of this resolution unless such authority is renewed prior to
such time; and
the Company may make a contract to purchase Shares under this authority before the expiry of such authority which will or may
be executed wholly or partly after the expiration of such authority, and may make a purchase of Shares in pursuance of any such
contract.
General Meetings
13. THAT the Directors be authorised to call general meetings (other than annual general meetings) on not less than 14 clear days’ notice,
such authority to expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, until expiry of 15 months
from the date of the passing of this resolution.
By order of the Board
Registered office:
33 Cavendish Square
London W1G 0PW
Frostrow Capital LLP
Company Secretary
5 March 2020
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 95
95
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.
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. Hard copy forms of proxy have not been included with this notice. Members can vote by: logging onto www.myfeetshares.co.uk and following instructions;
requesting a hard copy form of proxy directly from the registrars, Link Asset Services, at enquires@linkgroup.co.uk or in the case of CREST members,
utilising the CREST electronic proxy appointment service in accordance with the procedures set out below. To be valid any appointment of a proxy must
be completed, signed and received at Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF no later than 12 noon on
22 May 2020.
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 20 May 2020 (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 4 March 2020 (being the last business day prior to the publication of this notice) the Company’s issued share capital consists of
26,640,056 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 4 March 2020 are 26,640,056.
10. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a
service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
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).
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 96
96
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 a 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.
20. Members representing at least 5% of the total voting rights of the Company (excluding any voting rights attached to any Treasury Shares), or at least
100 members who have a right to vote at the AGM, may require the Company to give notice of a resolution which may properly be moved and is intended
to be moved at the meeting. Such members may also request the Company to include in the business to be dealt with at an annual general meeting
any matter (other than a proposed resolution) which may properly be included in the business. Any such requests may be in hard copy or electronic
form; must identify the resolution of which notice is to be given (if applicable); must be authenticated by the person or persons making it; and must be
received by the Company not later than six weeks before the meeting.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 97
97
LOCATI ON O F TH E ANNUAL GENERA L MEE TIN G
Barber-Surgeons’ Hall, Monkwell Square, Wood Street, London EC2Y 5BL
Barbican
Barber-Surgeons’ Hall
Monkwell Square
P
P
T
E
E
R
T
S
E
T
A
G
S
R
E
D
L
A
Moorgate
Moorgate
FORE STREET
T
E
E
R
T
D S
O
O
W
LONDON WALL
T
S
L
L
A
H
G
N
I
S
A
B
GRESHAM STREET
ROPEMAKER ST
S
D
L
FIE
R
O
O
M
E
T
A
G
R
O
O
M
LONDON WAL
LOTHBURY
P
R
I
N
C
E
S
S
S
T
St. Pauls
CHEAPSIDE
POULTRY
Bank
How To Vote
If you would like to attend and vote in person, shareholders should bring proof of identity to the meeting. If you have a disability or
impairment, please let us know so that we may try to make suitable arrangements at the meeting.
If you are unable to attend the meeting, you can appoint a proxy to vote on your behalf.
If you hold your shares directly you can:
• Log on to www.myfeetshares.co.uk and follow instructions; or
• Request a hard copy form of proxy from the Company’s registrars, Link Asset Services, by emailing enquiries@linkgroup.co.uk and
returning the completed and signed form to Link Asset Services, PXS 1, 34 Beckenham Road, Beckenham, Kent, BR3 4ZF no later
than 12 noon on 22 May 2020.
If you hold your shares via an investment platform (e.g. Hargreaves Lansdown) or a nominee, you should contact them to inquire about
arrangements to vote.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 98
98
Explanatory Notes to the Resolutions
Further Information
Resolution 1 – To receive the Annual Report and Financial Statements
The Annual Report for the year ended 31 December 2019 will be presented to the Annual General Meeting. The financial statements and
the Directors’ & Auditor’s reports thereon accompanied this Notice of Meeting and shareholders will be given an opportunity at the meeting
to ask questions.
Resolution 2 – Remuneration Report
The Directors’ Remuneration Report is set out in full in this annual report on pages 51 to 52.
Resolution 3 – To approve a Final Dividend
The rationale for the payment of a final dividend is set out in the Chairman’s Statement on page 7 and in the Report of the Directors on
page 42.
Resolutions 4 to 7 – Re-Election of Directors
Resolutions 4 to 7 deal with the re-election or election of each Director. Biographies of each of the Directors can be found on page 33 of
this Annual Report.
The Chairman has confirmed, following a performance review, that all the Directors continue to perform effectively. The specific reasons
why (in the Board’s opinion) each Director’s contribution is, and continues to be, important to the Company’s long-term sustainable success
are as follows:
Martin Bralsford
Martin’s leadership of the Board draws on his long and varied experience on the boards of a number of commercial, banking and investment
companies. Martin’s openness and style are considered important in maintaining a good relationship and constructive engagement with
with Investment Manager. He focuses on long-term strategic issues, which are a central topic of Board discussion.
David Potter
David brings a wealth of experience to the Board as a result of his long career in the City. As Chairman of the Management Engagement
Committee, David chaired the discussions with Fundsmith regarding the changes to their portfolio management team structure and the
reduction in the investment management fee during the year (see page 43 for further information).
John Spencer
As a chartered accountant with extensive experience from a variety of boards and audit committees, John brings to the Board, and the
Audit Committee under his chairmanship, an incisive perspective on the Company’s financial position and its risk control environment.
Rachel de Gruchy
Rachel has over thirty years of international investment industry experience and her first-hand knowledge enables the Board to engage
authoritatively with the Investment Manager on their investment strategy.
Resolution 8 – Re-Appointment of Auditor and the determination of their remuneration
Resolution 8 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 99
99
Resolutions 9 and 10 – Issue of Shares
Ordinary Resolution 9 in the Notice of Annual General Meeting will renew the authority to allot unissued share capital up to an aggregate
nominal amount of £26,640.05 (equivalent to 2,664,005 shares, or 10% of the Company’s existing issued share capital on 4 March 2020,
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.
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 4 March 2020, 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 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. This authority will not be used in connection with a rights issue by the Company.
The Directors intend to use the authority given by Resolutions 9 and 10 to allot shares and disapply pre-emption rights only in circumstances
where this will be clearly beneficial to shareholders as a whole. The issue proceeds would be available for investment in line with the
Company’s investment policy. No issue of shares will be made which would effectively alter the control of the Company without the prior
approval of shareholders in general meeting.
Resolution 11 – 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 Resolution 10, Special Resolution 11,
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 11. 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 Resolution 10, 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 12 – 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.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 100
100
Explanatory Notes to the Resolutions
Further Information
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 12 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 4 March 2020, being the nearest practicable date prior to the signing of this Annual Report (amounting to
3,993,344 shares). Such authority will expire on the date of the next Annual General Meeting or after a period of 15 months from the date
of passing of the resolution, whichever is earlier. This means in effect that the authority will have to be renewed at the next Annual General
Meeting or earlier if the authority has been exhausted.
Resolution 13 – General Meetings
Special Resolution 13 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.
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 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 126,969
shares.
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 101
Company Information
101
Directors
Martin Bralsford, (Chairman)
Rachel de Gruchy
David Potter (Chairman of the Management Engagement
Committee and Senior Independent Director)
John Spencer (Chairman of the Audit Committee)
The Chairman can be contacted by writing to The Company
Secretary or by email: FEETchairman@fundsmith.co.uk. The
Senior Independent Director can be contacted by emailing
FEETSID@fundsmith.co.uk
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.
Administrator
Northern Trust Global Services Limited
50 Bank Street
Canary Wharf
London E14 5NT
Depositary
Northern Trust Global Services SE
50 Bank Street
Canary Wharf
London E14 5NT
Authorised by the Prudential Regulation Authority and regulated
by the Financial Conduct Authority and the Prudential Regulation
Authority.
Custodian and Banker
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
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone (in UK): 0371 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 are charged at the standard geographic rate and will vary by
provider. 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
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET pp90-end.qxp 05/03/2020 14:07 Page 102
102
Company Information
Further Information
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
Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2019
257301 Frostrow FEET Cover 6mm spine.qxp 05/03/2020 14:09 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.
257301 Frostrow FEET Cover 6mm spine.qxp 05/03/2020 14:09 Page 1
Annual Report
for the year ended 31 December 201(cid:153)
t psurs Teitiuqg Engiremh EtimsdnuF
cl
F
u
n
d
s
m
i
t
h
E
m
e
r
g
i
n
g
E
q
u
i
t
i
e
s
T
r
u
s
t
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
9
A member of the Association of Investment Companies
Fundsmith Emerging Equities Trust plc
33 Cavendish Square, London W1G 0PW
www.feetplc.co.uk
Perivan 257301