Final Results
BLACKROCK GREATER EUROPE INVESTMENT TRUST plc
Annual results announcement
for the year ended 31 August 2010
MANAGEMENT REPORT
Chairman's Statement
Overview
The severe sovereign debt crisis in Europe continued into the second half of
the Company's financial year. Although markets initially rose in March on the
announcement that the European Union had finally agreed on a rescue package for
Greece, they subsequently resumed their downward trend, driven notably by a
return of investor caution amid renewed concerns over a double-dip recession. A
number of austerity packages were introduced across southern European
countries, including Greece, Spain and Portugal, and negative sentiment was
also reflected in the foreign exchange market where the Euro continued to slide
against other major currencies.
European equity markets rallied in July as fears of slipping back into
recession began to subside and positive company earnings were released. However,
investor concerns came to the fore in the final month of the Company's financial
year with most major indices declining.
Performance
Against this backdrop, in the year ended 31 August 2010, the Company's net
asset value per share ("NAV") grew by 10.6% (compared with a fall of 0.2% in
the FTSE World Europe ex UK Index). The Company's share price rose by 7.1% over
the same period (all percentages calculated in Sterling terms with income
reinvested).
Since the year end, the Company's NAV has risen by 15.1% compared with a
rise in the FTSE World Europe ex UK Index of 14.7% over the same period.
Revenue return and dividends
The Company's revenue return per share for the year amounted to 3.13p compared
with 3.26p for the previous year, representing a fall of 4.0%. The Directors
are recommending a final dividend of 3.30p per share (2009: 3.15p), which
represents an increase of 4.8% on the previous year. The dividend is payable on 9
December 2010 to shareholders on the Company's register on 29 October 2010.
Tender offers
The Directors exercised their discretion to operate the semi-annual tender
offer on 31 May 2010, which in common with previous tender offers was for up to
a maximum of 20% of the shares in issue (excluding treasury shares) at the
prevailing NAV less 2%. Valid tenders for 2,642,046 shares were received at a
price of 166.60p per share, representing 2.60% of the shares in issue at the
time. All shares tendered in May have been placed in treasury and the 3,440,129
shares previously held in treasury were cancelled in line with the Directors'
policy.
It was announced on 22 September 2010 that the next semi-annual tender offer
would take place on 30 November 2010, for up to 20% of shares in issue at the
prevailing NAV per share subject to a discount of 2%. A Circular relating to
the tender offer will be posted to shareholders on 28 October 2010.
Subscription shares
At a General Meeting held on 27 July 2010, shareholders approved the proposal
to make a bonus issue of subscription shares. A total of 19,806,520 shares were
allotted to ordinary shareholders on the Company's register on 23 July 2010 by
way of a bonus issue on the basis of one subscription share for every five
ordinary shares held at that date.
The subscription share rights conferred by the subscription shares are
exercisable on each of 31 January, 30 April, 31 July and 31 October between 31
October 2010 and 31 October 2012 at a price of 183p per share. The detailed
terms and conditions of the subscription share offer are set out in the
combined Prospectus and Circular dated 24 June 2010.
Outlook
Despite the well-documented current economic difficulties within Europe, the
long term outlook remains positive. Many exporters operating in the core of
Europe are doing well. Furthermore, following two challenging years in emerging
Europe, we are beginning to see growth returning to the region and, as a
result, the number of investment opportunities has increased significantly.
There are also many opportunities to buy stocks on attractive valuations and a
number of European companies are offering attractive dividend yields.
Key risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
- Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objective and monitoring the performance
of the Investment Manager. An inappropriate strategy may lead to
underperformance against the reference index and the Company's peer group.
To manage this risk the Investment Manager provides an explanation of
significant stock selection decisions and the rationale for the composition
of the investment portfolio. The Board monitors and mandates an adequate
spread of investments, in order to minimise the risks associated with
particular countries or factors specific to particular sectors, based on
the diversification requirements inherent in the Company's investment
policy. The Board also receives and reviews regular reports showing an
analysis of the Company's performance against the FTSE World Europe ex UK
Index and other similar indices.
- Income/dividend risk - The amount of dividends and future dividend growth
will depend on the Company's underlying portfolio. Any change in the tax
treatment of the dividends or interest received by the Company (including
as a result of withholding taxes or exchange controls imposed by
jurisdictions in which the Company invests) may reduce the level of
dividends received by shareholders. The Board monitors this risk through
the receipt of detailed income forecasts and considers the level of income
at each meeting.
- Regulatory risk - The Company operates as an investment trust in accordance
with the requirements of Chapter 4 of Part 24 of the Corporation Tax Act
2010. As such, the Company is exempt from capital gains tax on the sale of
its investments. The Investment Manager monitors investment movements, the
level and type of forecast income and expenditure and the amount of
proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of
the Corporation Tax Act 2010 are not breached and the results are reported
to the Board.
- Operational risk - In common with most other investment trust companies,
the Company has no employees. The Company therefore relies upon the
services provided by third parties and is dependent on the control systems
of the Investment Manager and the Company's service providers. The
security, for example, of the Company's assets, dealing procedures,
accounting records and maintenance of regulatory and legal requirements,
depend on the effective operation of these systems. These are regularly
tested and monitored and an internal control report, which includes an
assessment of risks together with procedures to mitigate such risks, is
prepared by the Investment Manager and reviewed by the Audit and Management
Engagement Committee twice a year. The custodian and the Investment Manager
also produce annual internal control reports which are reviewed by their
respective auditors and give assurance regarding the effective operation of
controls and are also reviewed by the Audit and Management Engagement
Committee.
- Financial risks - The Company's investment activities expose it to a
variety of financial risks that include market price risk, foreign currency
risk, interest rate risk, liquidity risk and credit risk. In addition, it
should be noted that emerging markets tend to be more volatile than more
established stock markets and therefore present a greater degree of risk.
Related party transactions
The Investment Manager is regarded as a related party and details of the
investment management fees payable are set out in note 4.
Statement of Directors' Responsibilities
In accordance with Disclosure and Transparency Rule 4.1.12, each of the
Directors confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
- the annual 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.
For and on behalf of the Board of Directors
John Walker-Haworth
Chairman
14 October 2010
INVESTMENT MANAGER'S REPORT
European financial markets have been erratic since the beginning of 2010,
rotating on a monthly basis from positive to negative returns. Increased
concerns for a global economic double-dip recession intensified over the
summer, as the US economy appeared to be faltering and investors avoided
equities in favour of bonds. Much of the positive news from European company
results has been overshadowed by sovereign debt concerns, continued dialogue on
European banks' capital adequacy and double-dip rhetoric.
Against this backdrop, in the year to 31 August 2010, the Company's underlying
NAV and share price gained by 10.6% and 7.1% respectively, both in Sterling
terms and with income reinvested. By comparison, the FTSE World Europe ex UK
Index fell by 0.2% (with income reinvested). The Company's performance has been
driven by good stock selection across a range of sectors.
Equity markets fell in January and February, fuelled by concerns over Greece's
solvency. Investor aversion spread to Spain, Portugal and Ireland over their
respective debt issues and then more broadly to an aversion for European
equities as a whole. Equity markets moved higher in July as the banking sector
received some respite on the announcement of European banking stress test
results and, since the financial year end, the news that BASEL III regulations
were less stringent than had been anticipated.
The Company maintained a lower exposure to the financials sector, relative to
the reference index, throughout the year which proved beneficial. However, this
was offset to a degree by exposure to Greek Bank EFG Eurobank as the shares
were sold off on rising Greek debt concerns.
Holdings within the industrial sector provided the strongest performance, as
the Company maintained a positive view reflected in a higher weighting to the
sector relative to the reference index and notably from holdings within
transportation. Swiss logistics company Kuehne + Nagel has performed strongly
over the year, benefiting from a recovery in air and sea freight volumes as
international trade has picked up. Dutch oil and chemicals storage company
Vopak has proved resilient in the economic downturn given its 'defensive'
earnings characteristics, dominant market position and high barriers to entry.
The auto sector also delivered strong performance with holdings in Finnish
winter tyre company Nokian Renkaat, and car maker Daimler, delivering strong
results. Nokian began production of winter tyres in the 1930's and has become
the global leader in this niche market. Daimler reported over 100% sales growth
for the Mercedes in China. Orders for the luxury car have outstripped supply
this year, allowing the company to maintain pricing power and margins.
The Company has maintained exposure to global growth trends and the strong
Asian consumer through its successful investment in Swiss watch company Swatch,
with its leading brands and dominant position in the manufacture of watch
movements. The beer industry is another example of an area benefiting from
changing consumption trends in emerging markets. The Company's holding in beer
producer Carlsberg has benefited from its dominance of the Russian market.
Consolidation across the industry in recent years has also allowed beer
companies to maintain pricing power, translating into strong results.
The Company's investments in emerging markets contributed to outperformance,
with an average weighting of 6.9% of the Company's total NAV. Performance was
largely driven by stock selection within Russia, notably Rushhydro, the largest
green energy company in the world, and media company Central European Media,
domiciled in the Czech Republic.
On the whole the Company did not make use of its gearing facility during the
year. However, it was utilised during the first half as markets rallied and
towards the end of the year when gearing represented 6.5% of the Company's NAV.
The Company's exposure to the strengthening Swiss Franc boosted performance, as
the currency was seen as a safe haven as the Euro weakened.
More recently the Company has increased holdings within materials as commodity
prices have begun to pick up and taken a holding in Givaudan the global market
leader in flavours and fragrances used in consumer products and the food
industry. The Company reduced its significant weighting to industrials and took
profits in a number of successful holdings in the technology and telecoms
sectors. While the Company maintained an above index weighting in industrials,
this is at a more moderate level compared to the beginning of the financial
year. Financials has remained an underweight sector position as the
uncertainties continue to cast a shadow over the banking sector.
Outlook
Despite the well publicised economic headwinds within Europe, the Company
remains optimistic for European equities in the coming months. European
valuations look attractive on an historical and relative basis providing good
entry points for European companies with international business models and with
significant exposure to global growth trends.
Following a strong results season it is anticipated that M&A activity should
continue to gain momentum, as companies seek to utilise the high levels of cash
on their balance sheets. This should provide a further boost for markets as we
progress through the remainder of 2010.
While a weakening Euro has been of some concern over the year under review, the
Company has benefited from its positioning in export led international
companies which are benefiting from the translation effects.
Vincent Devlin & Sam Vecht
BlackRock Investment Management (UK) Limited
14 October 2010
Ten Largest Investments
31 August 2010
Novartis - 3.6% (2009: nil) is a Swiss based company engaged in the research,
development and marketing of health care products. Novartis remains one of our
major stock selections in the European pharmaceutical sector. The company
offers one of the strongest drug pipelines and also operates one of the most
diversified business models. In addition, the group enjoys one of the lowest US
off-patent exposures within the European peer group. Lastly, with close to 25%
of sales derived from emerging markets, Novartis is in a position to post
superior earnings growth relative to its peers. Novartis trades on an
attractive multiple and offers a generous dividend yield making it a highly
attractive investment proposition.
Novo Nordisk - 3.4% (2009: 1.0%) is a Danish pharmaceutical company and the
dominant global franchise in diabetes treatment. The company has high levels of
market share in Asia ex-Japan, which is a rapidly growing market for insulin
demand. The company trades on an attractive valuation and is delivering
consistent earnings growth as diabetes diagnosis and the trend towards
increased health care spending in Asia accelerates.
Credit Suisse - 3.1% (2009: 2.7%) is a Swiss based leading global investment
and private bank. Credit Suisse is regarded as one of the highest quality banks
in Europe due to its highly profitable private bank and its attractive dividend
yield. We believe that the private banking arm should offer a good source of
earnings growth once clients regain the confidence to increase their risk
appetite. The current valuation does not take this opportunity into account.
Banco Santander - 3.0% (2009: 2.0%) is a Spanish banking conglomerate which has
been de-rated over the past year or two as market concerns over the state of
the Spanish economy increased. While the bank is domiciled in Spain it actually
generates the majority of its earnings from a combination of Brazil and the UK.
Banco Santander also offers one of the most attractive dividend yields in the
European banking sector.
Ryanair - 3.0% (2009: nil) is an Irish airline with a dominant market share in
European short haul traffic. The company continues to grow its share of budget
air traffic in Europe via expansion of its network and very aggressive pricing
policies. It is run by a highly motivated management team with equity ownership
in the company. Ryanair operates one of the youngest fleets at three years'
average age and has the highest utilisation rates of its aircraft. Management
has recently altered its growth at all costs strategy to concentrate on
improving yields, and its growing focus on shareholders with a €500 million
cash return this October and the prospect of further payments and/or share
buy backs in the future.
Nestlé - 2.8% (2009: 4.1%) is a Swiss based company and the world's leading
food manufacturer with activities in coffee, bottled water, milk products and
dietetics, prepared dishes and pet food, chocolate and confectionery and
pharmaceuticals. Nestlé offers an attractive dividend yield of around 3% and,
with high levels of free cash flow, provides an opportunity for structural
growth in the near future.
Société Générale - 2.6% (2009: nil) is a French based banking group. The
company suffered from a number of profit warnings in 2009 and we felt that
management had addressed the problems sufficiently to warrant an investment.
The valuation was also very compelling, as the market was unwilling to look at
the future potential of the group. We still view the current valuation as
attractive so remain invested.
Schneider Electric - 2.5% (2009: 1.4%) is a French diversified electrical
company. The company's business model is increasingly focused around energy
requirements of buildings and industries. The company enjoys high
profitability, strong cash generation and a healthy dividend yield. Management
has demonstrated the ability to successfully integrate acquisitions and have
the potential to improve margins further through other attractive deals.
Nokian Renkaat - 2.4% (2009: nil) is a Finnish tyre producer and a market
leader in specialty winter tyres. The company has a large market share in
Russia and is well positioned to benefit from a continued rebound in Russian
auto demand. Nokian Renkaat has also relocated significant parts of its
manufacturing activities to lower cost sites within Russia which should further
boost profitability. The company enjoys strong pricing power and is likely to
continue to beat earnings expectations.
Givaudan - 2.4% (2009: nil) is the Swiss based global leader in the flavours
and fragrance market and well positioned to benefit from future growth trends.
This industry is characterised by stable, defensive top line earnings growth,
high profitability and good free cash flow generation. Volume growth in 2010
should be strong on the back of inventory restocking, product innovation and
good exposure to growing emerging markets and there is also potential for
further profit margin expansion.
Investments
31 August 2010
Book Market
Country of cost value % of
operation £'000 £'000 investments
Industrials
Schneider Electric France 4,873 4,521 2.5
Vopak Netherlands 2,464 3,604 2.0
Técnicas Reunidas Spain 3,646 3,499 1.9
KCI Konecranes Finland 2,950 3,372 1.9
Wärtsilä Finland 2,741 3,020 1.6
Kone Finland 2,476 2,999 1.6
Kuehne + Nagel Switzerland 2,086 2,670 1.5
Legrand France 2,040 2,423 1.3
Amadeus Spain 2,007 2,348 1.3
Koza Turkey 1,755 1,697 0.9
Cargotec Finland 1,795 1,649 0.9
USG People Netherlands 2,328 1,573 0.9
Imtech Netherlands 1,517 1,494 0.8
Adecco Switzerland 1,328 1,430 0.8
------ ------ ----
34,006 36,299 19.9
------ ------ ----
Financials
Credit Suisse Switzerland 5,397 5,631 3.1
Banco Santander Spain 5,475 5,520 3.0
Société Générale France 5,076 4,754 2.6
Julius Baer Switzerland 3,633 3,726 2.0
Euler Hermes France 2,582 3,392 1.9
Topdanmark Denmark 3,455 3,151 1.7
KBC Belgium 1,858 2,099 1.2
Yapi Kredi Turkey 1,698 1,750 1.0
BNP Paribas France 1,828 1,626 0.9
AXA France 1,924 1,500 0.8
Azimut Italy 1,066 823 0.4
Globe Trade Centre Poland 654 561 0.3
------ ------ ----
34,646 34,533 18.9
------ ------ ----
Consumer Goods
Nestlé Switzerland 4,114 5,184 2.8
Nokian Renkaat Finland 3,627 4,388 2.4
Daimler Germany 3,842 3,732 2.0
Carlsberg Denmark 2,610 3,397 1.9
Swatch Switzerland 2,084 3,285 1.8
Chr. Hansen Denmark 2,859 3,129 1.7
Central European Distribution Poland 2,474 1,824 1.0
Heineken Netherlands 1,809 1,773 1.0
ElringKlinger Germany 517 992 0.5
------ ------ ----
23,936 27,704 15.1
------ ------ ----
Health Care
Novartis Switzerland 6,246 6,467 3.6
Novo Nordisk Denmark 6,396 6,259 3.4
Sonova Switzerland 3,376 3,476 1.9
Teva Israel 1,785 1,810 1.0
------ ------ ---
17,803 18,012 9.9
------ ------ ---
Consumer Services
Ryanair Ireland 5,283 5,391 3.0
Jerónimo Martins Portugal 2,639 3,678 2.0
Eutelsat France 2,569 2,878 1.6
Metro Germany 2,621 2,412 1.3
X5 Retail Russia 1,538 1,712 0.9
Central European Media Czech Republic 427 432 0.2
------ ------ ---
15,077 16,503 9.0
------ ------ ---
Basic Materials
Givaudan Switzerland 4,134 4,312 2.4
Syngenta Switzerland 3,485 3,478 1.9
Air Liquide France 3,532 3,448 1.9
Bayer Germany 1,902 2,005 1.1
K & S Germany 1,844 1,738 0.9
------ ------ ---
14,897 14,981 8.2
------ ------ ---
Oil & Gas
Total France 4,506 4,170 2.3
Technip France 3,873 3,733 2.0
Gazprom Russia 2,035 1,936 1.1
Rosneft Russia 1,898 1,549 0.8
StatoilHydro Norway 1,610 1,357 0.7
------ ------ ---
13,922 12,745 6.9
------ ------ ---
Telecommunications
TeliaSonera Sweden 3,488 3,810 2.1
Magyar Telekom Hungary 2,451 2,347 1.3
Millicom International Cellular Sweden 1,486 1,967 1.1
Comstar United TeleSystems Russia 1,419 1,626 0.9
----- ----- ---
8,844 9,750 5.4
----- ----- ---
Utilities
E.ON Germany 5,090 3,681 2.0
Fortum Finland 3,725 3,462 1.9
České Energetické Závody Czech Republic 1,841 1,573 0.9
------ ----- ---
10,656 8,716 4.8
------ ----- ---
Technology
Wincor Nixdorf Germany 1,825 1,783 1.0
SAP Germany 1,681 1,605 0.9
----- ----- ---
3,506 3,388 1.9
------- ------- -----
Total investments 177,293 182,631 100.0
======= ======= =====
All investments are in ordinary shares. The total number of investments held at
31 August 2010 was 64 (31 August 2009: 53).
Investment Exposure
Investment Size as at 31 August 2010
Number of % of
Investments Portfolio
<£1m 4 1.5
£1m to £2m 21 19.2
£2m to £3m 9 12.1
£3m to £4m 19 36.2
>£4m 11 31.0
-- -----
64 100.0
== =====
Market Capitalisation as at 31 August 2010
% of
% of Reference
Portfolio Index
<€1bn 0.0 0.0
€1bn to €10bn 22.4 20.7
€10bn to €20bn 18.3 16.8
€20bn to €50bn 33.2 35.3
>€50bn 26.1 27.2
----- -----
100.0 100.0
===== =====
Distribution of Investments as at 31 August 2010
% of
Portfolio
Industrials 19.9
Financials 18.9
Consumer Goods 15.1
Health Care 9.9
Consumer Services 9.0
Basic Materials 8.2
Oil & Gas 6.9
Telecommunications 5.4
Utilities 4.8
Technology 1.9
-----
100.0
=====
Source: BlackRock
INCOME STATEMENT
for the year ended 31 August 2010
Notes Revenue Revenue Capital Capital Total Total
2010 2009 2010 2009 2010 2009
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses)
on investments
held at fair
value through
profit or loss - - 13,828 (8,914) 13,828 (8,914)
Income from
investments
held at fair
value through
profit or loss 3 4,518 5,514 - - 4,518 5,514
Other income 3 40 55 - - 40 55
Investment
management and
performance
fees 4 (224) (142) (1,249) (568) (1,473) (710)
Write back of
prior years'
VAT 4 - 75 - 299 - 374
Operating
expenses 5 (514) (668) - - (514) (668)
----- ----- ------ ------ ------ ------
Net return
before finance
costs and
taxation 3,820 4,834 12,579 (9,183) 16,399 (4,349)
Finance costs (23) (4) (91) (14) (114) (18)
----- ----- ------ ------ ------ ------
Return on
ordinary
activities
before
taxation 3,797 4,830 12,488 (9,197) 16,285 (4,367)
Taxation on
ordinary
activities (603) (1,311) - (16) (603) (1,327)
----- ------ ------ ------ ------ ------
Return on
ordinary
activities
after taxation 7 3,194 3,519 12,488 (9,213) 15,682 (5,694)
----- ----- ------ ------ ------ ------
Return per
ordinary share
- basic and
diluted 7 3.13p 3.26p 12.26p (8.54p) 15.39p (5.28p)
===== ===== ====== ====== ====== ======
The total column of this statement represents the Income Statement of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. The Company had
no recognised gains or losses other than those disclosed in the Income
Statement and the Reconciliation of Movements in Shareholders' Funds. All items
in the above statement derive from continuing operations. No operations were
acquired or discontinued during the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Share Capital
Share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year
ended
31 August 2010
At 31 August
2009 107 151 57 80,079 85,491 6,828 172,713
Return for the
year - - - - 12,488 3,194 15,682
Shares purchased (5) - 5 (10,245) - - (10,245)
Issue of
subscription
shares 20 - - - (20) - -
Issue costs on
subscription
shares - - - - (278) - (278)
Share purchase
costs - - - (186) - - (186)
Dividend paid* - - - - - (3,311) (3,311)
--- --- --- ------ ------ ------ -------
At 31 August
2010 122 151 62 69,648 97,681 6,711 174,375
=== === === ====== ====== ===== =======
For the year
ended
31 August 2009
At 31 August
2008 115 151 49 89,340 94,704 6,681 191,040
Return for the
year - - - - (9,213) 3,519 (5,694)
Shares purchased (8) - 8 (9,114) - - (9,114)
Share purchase
costs - - - (147) - - (147)
Dividend paid** - - - - - (3,372) (3,372)
--- --- --- ------ ------ ------ -------
At 31 August
2009 107 151 57 80,079 85,491 6,828 172,713
=== === === ====== ====== ===== =======
* Final dividend paid in respect of the year ended 31 August 2009 of 3.15p per
share, declared on 15 October 2009 and paid on 9 December 2009.
** Final dividend paid in respect of the year ended 31 August 2008 of 3.00p per
share, declared on 16 October 2008 and paid on 3 December 2008.
BALANCE SHEET
as at 31 August 2010
2010 2009
Notes £'000 £'000
Fixed assets
Investments held at fair value through
profit or loss 182,631 170,983
Current assets
Debtors 6,014 5,142
Cash 869 6,010
------ ------
6,883 11,152
------ ------
Creditors - amounts falling due within
one year
Bank overdraft (13,325) (7,310)
Other creditors (1,814) (2,112)
------- -------
(15,139) (9,422)
------- -------
Net current (liabilities)/assets (8,256) 1,730
------- -------
Total assets less current liabilities 174,375 172,713
Provision for liabilities and charges - -
------- -------
Net assets 174,375 172,713
======= =======
Capital and reserves
Share capital 8 122 107
Share premium account 151 151
Capital redemption reserve 62 57
Capital reserves 97,681 85,491
Special reserve 69,648 80,079
Revenue reserve 6,711 6,828
------- -------
Total equity shareholders' funds 174,375 172,713
======= =======
Net asset value per ordinary share -
basic and diluted 7 176.06p 164.29p
======= =======
CASH FLOW STATEMENT
for the year ended 31 August 2010
2010 2009
Note £'000 £'000
Net cash inflow from operating activities 5(b) 1,890 3,852
Servicing of finance (114) (25)
Taxation paid (747) (644)
Capital expenditure and financial investment
Purchase of investments (413,696) (423,640)
Proceeds from sale of investments 414,555 429,976
Realised gains on foreign currency
transactions 682 23
------- ------
Net cash inflow from capital expenditure and
financial investment 1,541 6,359
------- ------
Equity dividends paid (3,311) (3,372)
------- ------
Net cash (outflow)/inflow before financing (741) 6,170
------- ------
Financing
Purchase of ordinary shares (10,245) (9,114)
Share purchase costs (170) (91)
------- ------
Net cash outflow from financing (10,415) (9,205)
------- ------
Decrease in cash in the year (11,156) (3,035)
======= ======
Notes to the ANNUAL RESULTS ANNOUNCEMENT
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. Accounting policies
a) Basis of preparation
The Company's financial statements have been prepared in accordance with UK
Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies'
("SORP") revised in January 2009. The principal accounting policies adopted by
the Company are set out below. All of the Company's operations are of a
continuing nature.
The Company's financial statements are presented in Sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£'000) except where
otherwise indicated.
b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the Association of Investment Companies
("AIC"), supplementary information which analyses the Income Statement between
items of a revenue and capital nature has been presented alongside the Income
Statement. In accordance with the Company's status as a UK investment company
under section 833 of the Companies Act 2006 and section 1158 of the Corporation
Tax Act 2010, net capital returns may not be distributed by way of dividend.
c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. Where no ex-dividend date is available, dividends receivable
on or before the year end are treated as revenue for the year. Provisions are
made for dividends not expected to be received. Fixed returns on debt
securities are recognised on a time apportionment basis using the effective
interest rate. Interest income and expenses are accounted for on an accruals
basis.
e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been treated
as revenue except as follows:
- expenses which are incidental to the acquisition or disposal of an investment
are included with the cost of the investment;
- the investment management fee has been allocated 80% to capital reserves and
20% to the revenue account in line with the Board's expected long term split
of returns, in the form of capital gains and income respectively, from the
investment portfolio;
- performance fees have been allocated 100% to capital reserves, as
performance has been predominantly generated through capital outperformance
of the investment portfolio.
f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are
allocated, insofar as they relate to the financing of the Company's
investments, 80% to capital and 20% to the revenue account, in line with the
Board's expected long term split of returns, in the form of capital gains and
income respectively, from the investment portfolio.
g) Taxation
Deferred taxation is recognised in respect of all temporary differences at the
balance sheet date, where transactions or events that result in an obligation
to pay more tax in the future or right to pay less tax in the future have
occurred at the balance sheet date. This is subject to deferred taxation 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 temporary differences
can be deducted.
h) Investments held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with FRS 26 - Financial Instruments: Recognition and
Measurement and are managed and evaluated on a fair value basis in accordance
with its investment strategy.
All investments are designated upon initial recognition as held at fair value
through profit or loss. These sales of assets are recognised at the trade date
of the disposal. Disposals will be measured at fair value which will be
regarded as the proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid price
at the balance sheet date, without deduction for the estimated future selling
costs. Unquoted investments are valued by the Directors at fair value using
International Private Equity and Venture Capital Association Guidelines. This
policy applies to all current and non current asset investments of the Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
"Gains or losses on investments held at fair value through profit or loss".
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
i) Dividends payable
Under FRS 21, final dividends are not accrued in the financial statements
unless they have been approved by shareholders before the balance sheet date.
Dividends payable to equity shareholders are recognised in the Reconciliation
of Movements in Shareholders' Funds when they have been approved by
shareholders and become a liability of the Company.
j) Foreign currency translation
All transactions in foreign currencies are translated into Sterling at the
rates of exchange ruling on the dates of such transactions. Foreign currency
assets and liabilities at the balance sheet date are translated into Sterling
at the exchange rates ruling at that date. Exchange differences arising on the
revaluation of investments held as fixed assets are included in capital
reserves. Exchange differences arising on the translation of foreign currency
assets and liabilities are taken to capital reserves.
3. Income
2010 2009
£'000 £'000
Investment income:
Overseas dividends 4,518 5,514
----- -----
4,518 5,514
Other income:
Deposit interest 40 55
----- -----
Total 4,558 5,569
===== =====
4. Investment management and performance fees
2010 2009
---------------------------------------------------
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 224 896 1,120 142 568 710
Performance fee - 353 353 - - -
Write back of prior
years' VAT - - - (75) (299) (374)
--- ----- ----- --- ---- ----
224 1,249 1,473 67 269 336
=== ===== ===== == === ===
The investment management fee is levied quarterly, based on the market
capitalisation of the Company's ordinary shares on the last day of each month.
The investment management fee for the year amounted to £1,120,000 (2009:
£710,000). A performance fee of £353,000 was accrued for the year ended 31
August 2010 (2009: nil) based on the outperformance of the Company's share
price relative to the FTSE World Europe ex UK Index. The performance fee is
based on the outperformance of the Index over a three year rolling period.
5. Operating activities
2010 2009
£'000 £'000
(a) Operating expenses
Custody fee 88 41
Auditors' remuneration:
- statutory audit 24 24
- other audit services* 5 5
Directors' emoluments 74 74
Registrar's fees and other operating expenses 323 524
--- ---
514 668
=== ===
* Other audit services relate to the review of the half yearly financial
statements.
The Company's total expense ratio ("TER"),
calculated as a percentage of average net assets
and using expenses, excluding performance fees,
interest costs and VAT written back, after any
relief for taxation was: 0.9% 0.6%
2010 2009
£'000 £'000
(b) Reconciliation of net return before finance
costs and taxation to net cash flow from operating
activities
Net return before finance costs and taxation 16,399 (4,349)
Capital (gain)/loss before finance costs and
taxation (12,579) 9,183
------- ------
Net revenue before finance costs and taxation 3,820 4,834
Expenses charged to capital (1,249) (269)
Decrease in accrued income 5 97
Increase in creditors 228 235
Tax on investment income included within gross
income (914) (1,045)
----- ------
Net cash inflow from operating activities 1,890 3,852
===== =====
6. Dividends
The Directors have proposed a final dividend of 3.30p per share in respect of the
year ended 31 August 2010. The dividend will be paid on 9 December 2010,
subject to shareholders' approval on 1 December 2010, to shareholders on the
Company's register on 29 October 2010. The proposed final dividend has not been
included as a liability in these financial statements, as final dividends are
only recognised in the financial statements when they have been approved by
shareholders.
The dividends disclosed in the note below have been considered in view of the
requirements of section 1158 of the Corporation Tax Act 2010 and section 833 of
the Companies Act 2006, and the amounts proposed meet the relevant requirements
as set out in this legislation.
2010 2009
£'000 £'000
Dividend payable on equity shares:
Final proposed of 3.30p* per ordinary share
(2009: 3.15p) 3,268 3,311
----- -----
3,268 3,311
===== =====
*Based on 99,042,423 ordinary shares in issue on 14 October 2010.
7. Return and net asset value per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
2010 2009
Net revenue return attributable to ordinary
shareholders (£'000) 3,194 3,519
Net capital return attributable to ordinary
shareholders (£'000) 12,488 (9,213)
------ ------
Net total return (£'000) 15,682 (5,694)
====== ======
Equity shareholders' funds (£'000) 174,375 172,713
The weighted average number of ordinary shares in
issue during the year, on which the return per
ordinary share was calculated, was: 101,902,293 107,841,142
The actual number of ordinary shares in issue at
the year end, on which the net asset value was
calculated, was: 99,042,423 105,124,598
The number of ordinary shares in issue, including
treasury shares, at the year end, was: 101,684,469 106,820,690
2010 2009
-----------------------------------------------------
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share -
basic and diluted
Calculated on weighted
average number of
shares 3.13 12.26 15.39 3.26 (8.54) (5.28)
Calculated on actual
number of shares 3.22 12.61 15.83 3.35 (8.77) (5.42)
Net asset value per
share - basic and
diluted 176.06 164.29
The Company had in issue at the year end 19,806,520 subscription shares which
confer the right, but not the obligation, to subscribe at set times for all or
any of the ordinary shares to which the subscription shares relate at a price
of 183p per share. To the extent that the Company's NAV per share is in excess
of the exercise price, the subscription shares are considered to be dilutive
and a fully diluted net asset value per share is calculated by adjusting
shareholders' funds for the consideration receivable on the exercise of all
subscription shares and dividing the total number of shares that would have
been in issue at 31 August 2010 had all the subscription shares been converted.
As the Company's NAV was below the exercise price at 31 August 2010, the
subscription shares are deemed not to be dilutive.
As the Company's share price at 31 August 2010 stood at a discount of greater
than 2%, in line with the Company's policy, shares could not be sold out of
treasury and consequently there was no dilution to the Company's net asset
value or return per share as a result.
8. Share capital
Ordinary Treasury Subscription
shares shares shares Total
number number number shares £
Allotted, called up
and fully paid share
capital comprised:
Ordinary shares of
0.1p each
-------------------------------------------------------------
Shares in issue at
31 August 2009 105,124,598 1,696,092 - 106,820,690 106,821
Shares transferred
into treasury
pursuant to tender
offer on
1 December 2009 (3,440,129) 3,440,129 - - -
Shares cancelled
from treasury on
2 December 2009 - (1,696,092) - (1,696,092) (1,696)
Shares transferred
into treasury
pursuant to tender
offer on 1 June 2010 (2,642,046) 2,642,046 - - -
Shares cancelled
from treasury on
2 June 2010 - (3,440,129) - (3,440,129) (3,440)
Issue of
subscription shares - - 19,806,520 19,806,520 19,807
---------- --------- ---------- ----------- -------
At 31 August 2010 99,042,423 2,642,046 19,806,520 121,490,989 121,492
========== ========= ========== =========== =======
During the year, 6,082,175 ordinary shares were purchased into treasury (2009:
7,264,360) for a total consideration, including expenses, of £10,431,000 (2009:
£9,335,000) and a total of 5,136,221 (2009: 8,297,101) shares were subsequently
cancelled. The number of ordinary shares in issue at the year end was
101,684,469 of which 2,642,046 were held in treasury (2009: 1,696,092). The
number of subscription shares in issue was 19,806,520. There were no sales of
shares out of treasury during the year (2009: nil).
9. Publication of non-statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The annual report and
financial statements for the year ended 31 August 2010 will be filed with the
Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the Auditors, whose report
for the year ended 31 August 2010 contains no qualification or statement under
section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of
BlackRock Greater Europe Investment Trust plc for the year ended 31 August
2009, which have been filed with the Registrar of Companies. The report of the
Auditors on those financial statements contained no qualification or statement
under section 498 of the Companies Act.
10. Copies of the annual report will be sent to members shortly and will be
available from the registered office, c/o The Company Secretary, BlackRock
Greater Europe Investment Trust plc, 33 King William Street, London EC4R 9AS.
This report will also be available on the BlackRock Investment Management
website at www.blackrock.co.uk/its.
11. The Annual General Meeting of the Company will be held at the offices of
BlackRock Investment Management (UK) Limited, 33 King William Street, London
EC4R 9AS on Wednesday, 1 December 2010 at 12.00 noon.
For further information please contact:
Jonathan Ruck Keene, Managing Director,
Investment Company Division - 020 7743 2178
Vincent Devlin, Fund Manager - 0131 472 7376
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Ltd
Or
William Clutterbuck 020 7379 5151
The Maitland Consultancy
33 King William Street
London
EC4R 9AS
14 October 2010
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