Final Results
BLACKROCK GREATER EUROPE INVESTMENT TRUST plc
Annual results announcement
for the year ended 31 August 2013
Chairman's Statement
Overview
Equity markets performed well for most of the year under review. In the
Eurozone, the provision of additional liquidity from the European Central Bank
and the two Long-Term Refinancing Operations helped to calm markets. In
addition, the European Central Bank's Outright Monetary Transactions programme,
announced by Mario Draghi in September 2012 against the backdrop of renewed
concerns over a possible disintegration of the Euro, has also been effective in
stabilising financial markets.
Against this background, I am pleased to report that in the year ended
31 August 2013 the Company's undiluted net asset value (NAV) per share
returned 28.7%, compared with a return of 26.3% in the FTSE World Europe ex
UK Index. The Company's share price returned 33.7% over the same period. All
percentages are calculated in Sterling terms with income reinvested.
Since the year end, the Company's undiluted NAV per share has increased by
7.2% compared with a rise in the FTSE World Europe ex UK Index of 7.8% over the
same period.
Revenue return and dividends
The Company's revenue return for the year amounted to 6.32p per share compared
with 5.52p for the previous year. The Directors are recommending the payment of
a final dividend of 4.50p per share (2012: 4.20p) and have declared a special
dividend of 1.00p per share (2012: nil). The dividends will be paid on
13 December 2013 to shareholders on the Company's register on 1 November 2013;
the ex dividend date is 30 October 2013.
Tender offers
The Directors exercised their discretion to operate the half yearly tender
offer on 31 May 2013. The offer was for up to 20% of the shares in issue
(excluding treasury shares) at the prevailing NAV less 2%. Valid tenders for
7,636,639 shares were received at a price of 232.56p per share, representing
6.56% of the shares in issue, excluding treasury shares. All shares tendered
in May were repurchased by the Company and cancelled. In addition, 333,946
shares previously held in treasury were cancelled to maintain the 5% limit
on treasury shares which has been determined by the Board.
It was announced on 23 September 2013 that the next semi-annual tender offer
will take place on 2 December 2013 being the succeeding business day to
30 November 2013, for up to 20% of the shares in issue (excluding treasury
shares) at the prevailing fully diluted NAV per share subject to a discount of
2%. A Circular relating to the tender offer will be posted with the Annual
Report or will be available on the BlackRock Investment Management website at
www.blackrock.co.uk/brge and in hard copy on request from the Company's
registered office c/o The Secretary, BlackRock Greater Europe Investment Trust
plc, 12 Throgmorton Avenue, London EC2N 2DL.
A resolution for the renewal of the Company's semi-annual tender authority will
be put to shareholders at the forthcoming Annual General Meeting.
Subscription shares
The subscription share rights in respect of the remaining 22,330,058
subscription shares issued in 2010 lapsed on 14 November 2012.
The Company has issued a total of 70,495 ordinary shares following the first
conversion of the 2013 subscription shares. Total proceeds amounted to
£164,000. The Company currently has 108,719,211 ordinary shares (excluding
treasury shares) and 23,184,318 subscription shares in issue.
Subscription shares are exercisable quarterly on the last business day of
January, April, July and October between and including the last business day in
July 2013 and the last business day in April 2016, after which the subscription
share rights will lapse. Between July 2013 and April 2014 the subscription
price is 233p per ordinary share and thereafter until April 2016,
248p per ordinary share.
Board of Directors
After serving as Chairman since the incorporation of the Company in 2004, I
will step down from the Board following the forthcoming Annual General Meeting.
Carol Ferguson, who is currently Chairman of the Audit & Management Engagement
Committee, will replace me as Chairman, and Eric Sanderson will become Chairman
of the Audit & Management Engagement Committee.
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive (the Directive) is a
European directive which seeks to reduce potential systemic risk by regulating
alternative investment fund managers (AIFMs). AIFMs are responsible for
investment products that fall within the category of Alternative Investment
Funds (AIFs) and investment trusts are included in this. The Directive was
implemented with effect from 22 July 2013 although it has been confirmed that
the Financial Conduct Authority will permit a transitional period of one year
within which UK AIFMs must seek authorisation. The Board is currently taking
independent advice on the consequences for the Company and has decided in
principle that BlackRock will be appointed as it's AIFM in advance of the end
of the transitional period on 22 July 2014.
Annual General Meeting
The Annual General Meeting of the Company will be held at 12.00 noon at the
offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday,
4 December 2013. We hope that as many shareholders as possible will attend.
The Portfolio Managers will make a presentation to shareholders on the Company's
performance and the outlook for the year ahead.
Outlook
The outlook for global economic growth currently appears patchy with the
possibility of a slowdown in some emerging markets. However, there has also
been growing evidence that the Eurozone economy, taken as a whole, is no longer
contracting. There is some optimism that the new approach, providing forward
guidance on the likely course of future interest rates adopted by both the
European Central Bank and the Bank of England, may eventually encourage more
corporate investment. Accordingly, we believe that many of the headwinds
evident in recent years are subsiding and that European equities will see
further support from the continuing shift in investors' allocations towards
Europe.
John Walker-Haworth
21 October 2013
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. Past performance is not
necessarily a guide to future performance and the value of your investment in
the Company and the income from it can fluctuate as the value of the underlying
investments fluctuate.
- 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
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. The Company
must also comply with the provisions of the Companies Act 2006 and, as its
shares are admitted to the Official List, the UKLA Listing Rules, the Disclosure
and Transparency Rules and the Prospectus Rules. A breach of the Companies Act
2006 could result in the Company and/or the Directors being fined or the subject
of criminal proceedings. A breach of the UKLA Listing Rules could result in the
Company's shares being suspended from listing, which in turn would breach the
requirements of Chapter 4 of Part 24 of the Corporation Tax Act 2010. The Board
relies on the services of its professional advisers and its Company Secretary to
ensure compliance with all relevant regulations. The Company Secretary has
stringent compliance procedures in place and monitors regulatory developments
and changes.
- 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 have been regularly tested and monitored and
an internal controls 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 at least twice a
year. The custodian (the Bank of New York Mellon (International) Limited
(BNYM), a subsidiary of the Bank of New York Mellon), BNP Paribas Securities
Services (the Fund Accountant) and the Investment Manager also produce regular
Service Organisation Reports (SOC1) or AAF 01/06 Reports which are reviewed by
their reporting accountants and give assurance regarding the effective
operation of controls and are also reviewed by the Audit and Management
Engagement Committee.
- Market risk - Market risk arises from volatility in the prices of the
Company's investments. It represents the potential loss the Company might
suffer through holding investments in the face of negative market movements. 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. Changes in general economic and market conditions in certain countries,
such as interest rates, exchange rates, rates of inflation, industry
conditions, competition, political events and trends, tax laws, national and
international conflicts, economic sanctions and other factors can also
substantially and adversely affect the securities and, as a consequence, the
Company's prospects and share price. The Board considers asset allocation,
stock selection, unquoted investments and levels of gearing on a regular basis
and has set investment restrictions and guidelines which are monitored and
reported on by the Investment Manager. The Board monitors the implementation
and results of the investment process with the Investment Manager.
- 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.
- Gearing risk - The Company has the power to borrow money (gearing) and does
so when the Investment Manager is confident that market conditions and
opportunities exist to enhance investment returns. However, if the investments
fall in value, any borrowings will magnify the extent of this loss. All
borrowings require the approval of the Board and gearing levels are discussed
by the Board and the Investment Manager at each meeting.
- Third party risk - The Company has no employees and the Directors have all
been appointed on a non-executive basis. The Company must therefore rely upon
the performance of third party service providers to perform its executive
functions. In particular, the Investment Manager, the Administrator, the
Registrar, the Custodian and their respective delegates, if any, will perform
services that are integral to the Company's operations and financial
performance. The Company, and where appropriate the Investment Manager,
undertake extensive due diligence prior to the appointment of any third party
service provider in order to mitigate this risk. Terms of appointment are
agreed in advance and service level agreements are put in place with providers
to ensure that a high level of service is provided. Failure by any service
provider to carry out its obligations to the Company in accordance with the
terms of its appointment, to exercise due care and skill, or to perform its
obligations to the Company at all as a result of insolvency, bankruptcy or
other causes could have a material adverse effect on the Company's performance
and returns to holders of ordinary shares. The termination of the Company's
relationship with any third party service provider or any delay in appointing a
replacement for such service provider, could materially disrupt the business of
the Company and could have a material adverse effect on the Company's
performance and returns to holders of ordinary shares.
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
John Walker-Haworth
Chairman
21 October 2013
Investment Manager's Report
Overview
The Company's share price and underlying NAV both saw strong returns over the
twelve months to 31 August 2013. The Company's share price returned 33.7% and
the undiluted NAV returned 28.7%. By way of comparison, the FTSE World Europe
ex UK Index returned 26.3% during the same period. All percentages are
calculated in sterling terms with income reinvested.
The period saw ten continuous months of positive returns before a reversal in
June 2013. At the beginning of the year, Mario Draghi had made it clear that
the European Central Bank (ECB) would, within its mandate, do, 'whatever it
takes' to save the Euro, and this squarely addressed the potential break-up
risk of the single currency. German attitudes towards European support for the
weaker nations softened and the German Constitutional Court ratified further
support measures to assist any ailing Eurozone country, an important (if
broadly expected) step. This led the way for the market to rally through the
remainder of 2012 and into 2013. Nonetheless, a number of risks remained on the
horizon including the prospect of political stalemate after the Italian
election and worries surrounding a bailout for Cyprus. As these were generally
resolved in the second quarter, European equities advanced as investors decided
that the risk of financial dislocation had subsided.
However, a speech by US Federal Reserve Chairman Ben Bernanke caused further
market jitters in June as he floated the possibility that central bank support
for the U.S. economy via its bond purchasing programme could start to 'taper
off' which led to a sharp, albeit temporary, retrenchment in markets. The market
rebounded quickly as it anticipated a potential recovery and the Eurozone
Purchasing Managers' Index, a measure of economic activity, moved above 50 for
the first time in two years, signalling expansion. Despite the equity market
gains, corporate earnings were on the whole disappointing in Europe but
investors chose to ignore the recent past, opting instead to look forward to
potential improvement towards the end of 2013.
Portfolio activity
During the year the Company benefited from both good sector allocation and
stock selection. At a sector level the decision to have lower weightings in the
telecommunications and utilities sectors proved successful. However, a lower
weighting in the financial sector hindered performance as it was one of the best
performing sectors in the market, rallying strongly throughout the period and
benefiting especially from the policy support delivered by the ECB.
At the stock level, positions within consumer services accounted for the
largest positive contribution to portfolio performance. In particular, two
positions in the short-haul airline sector both delivered strong returns: Irish
airline Ryanair enjoyed strong growth, especially in ancillary passenger
charges, and the holding in German airline Deutsche Lufthansa also performed
well benefiting from a new cost-cutting programme put in place by the
management team. Within consumer goods, Swiss luxury goods company Compagnie
Financière Richemont performed well after reporting further strong organic
growth despite fears of a slowdown in consumption growth in key emerging
markets.
Another area of strong performance was the auto sector where tyre and auto part
manufacturer Continental and French car manufacturer Renault added to returns.
The latter benefited from the pick-up in domestic European economies, with the
former continuing to innovate and grow ahead of the competition within its auto
parts business.
The largest detractor from performance was chemical company Lanxess. After
several quarters of low volumes in tyre sales which led to pressure on pricing
they downgraded their profit outlook causing a significant sell-off. Another
negative contributor was insulin manufacturer Novo Nordisk whose share price
fell after one of their key drugs had to undergo further trials before being
approved in the U.S. Although this was a significant setback to the company, we
still have strong conviction in their ability to grow earnings in the medium to
long term. The oil & gas sector was the largest detractor from returns.
Specifically, positions in oil services companies Technip and Saipem
underperformed.
At the end of the year, the portfolio was particularly weighted towards the
technology, consumer services and health care sectors. Within technology the
portfolio is focused on companies with unique products in markets with high
barriers to entry and the potential to dominate their chosen market. Within
consumer services the focus has moved more towards companies with exposure to
the domestic European economy where we see a significant potential for growth.
Within health care the portfolio's focus continues to be on the larger
pharmaceutical companies that have strong product offerings, good pricing power
and the ability to grow earnings over the coming years. The portfolio continues
to have lower market exposure to the utilities, telecoms and oil & gas sectors.
Emerging Europe underperformed developed Europe during the period as developed
Europe began to recover from the challenges presented by both political and
economic problems in the region. In light of this, we took a selective approach
to investing in Emerging Europe during the year. The Company had an average
allocation of 7% of NAV to companies in Emerging Europe, with positions in Russia,
Hungary and Ukraine. Holdings in Russian internet search leader Yandex and
telecom Mobile Telesystems added value whilst the position in Russian financial,
Sberbank, was a notable detractor. Looking forward, we expect the region to
benefit from a wider European recovery and believe that valuations are attractive
with the region trading at a discount to developed Europe.
Outlook
The outlook in our view remains positive for the remainder of 2013 and into
2014. Supportive monetary policies, recovering economic momentum and a
relatively stable political backdrop all provide a reassuring environment for
European equities. This should also help create an environment in which further
reforms in the Eurozone can take place. We expect that European Equities will
continue to be supported by additional allocations from international investors
as the evidence of an improving macroeconomic environment gathers pace.
Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
21 October 2013
Ten Largest Investments
31 August 2013
Roche - 6.1% (2012: 4.9%) is a Swiss pharmaceuticals and diagnostics company
with global exposure. Roche has gone through a strong period of growth but has
now transitioned to focusing on profitability and improving shareholder
returns. Continued cost control combined with a growing and attractive dividend
yield and a strong pipeline of drugs coming to market make this an attractive
investment case.
Anheuser-Busch InBev - 3.5% (2012: 2.2%) is the largest brewer in the world.
The company offers strong free cash flow generation and best-in-class
profitability, especially following its recent acquisition of Grupo Modelo. The
company also benefits from its scale and has the potential to improve its
market share position in key markets moving into 2014/2015.
Continental - 3.4% (2012: 1.9%) is a German auto supplier. We believe it is one
of the highest quality large cap auto-related stocks in Europe and is able to
benefit from the 'mega trends' of CO2 emission reduction and active safety in
the global car market. The company is priced at a very attractive valuation
given the potential growth rate and could benefit from a rebound in the
depressed European car market.
Novo Nordisk - 3.4% (2012: 4.8%) is a Danish pharmaceuticals 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, and we believe that the company has significant potential to continue
its strong track record of delivering double-digit earnings growth per year for
the foreseeable future.
Bayer - 3.3% (2012: nil) is a German company with divisions in health care,
nutrition and high-tech materials. The company offers strong growth over the
next 3 to 5 years, especially within its pharmaceuticals and crop science
businesses fuelled by new products coming to market. The company also trades at
a discount to the sector average and offers an attractive free cash flow
profile.
SAP - 3.2% (2012: 3.2%) is a German software services business, mainly selling
licenses to and providing software solutions for customers. The company offers
an attractive growth profile through its new products which can greatly
increase the speed of data retrieval and reduce the need for databases, but
also offers resilience in more challenging environments through its licensing
model.
Sanofi - 3.1% (2012: nil) is a French-based pharmaceutical company. Sanofi
discovers, develops and distributes therapeutic solutions focused on patients'
needs. Sanofi has attractive exposures through its emerging market business and
offers further potential for cost cutting. The stock is currently priced
attractively relative to its solid earnings growth profile and healthy dividend
yield.
Zurich Insurance Group - 3.0% (2012: 3.8%) is a Swiss-based insurance company.
The company is relatively defensive when compared to the broad insurance sector
due to its exposure to non-life products and has a resilient balance sheet in
our view. The company also offers a high and stable dividend yield paid net of
withholding tax and has a solid management team.
Swiss Re - 2.9% (2012: 3.2%) is a Swiss re-insurance business. The attraction
of Swiss Re lies in its strong underwriting skills, defensive asset allocation,
high dividend yield and more active management of spare capital. The company's
solvency ratios based on the Swiss Solvency Test remain strong and Swiss Re has
very little exposure to the peripheral European countries in its investment
portfolio. We view Swiss Re as a resilient business with an attractive and
sustainable dividend yield.
Reed Elsevier - 2.8% (2012: 2.3%) is a provider of professional information
solutions, mostly in the scientific and legal fields. Within the media sector,
it offers a structurally sound, defensive business model when compared with its
peers as well as a solid growth profile and an attractive dividend yield.
All percentages reflect the value of the holding as a percentage of total
investments.
Percentages in brackets represent the value of the holding as at
31 August 2012.
Together, the ten largest investments represent 34.7% of the
Company's portfolio (31 August 2012: 36.1%).
Investments
31 August 2013
Market
Country of value % of
operation £'000 investments
Financials
Zurich Insurance Group Switzerland 8,009 3.0
Swiss Re Switzerland 7,912 2.9
KBC Belgium 6,949 2.6
Nordea Bank Sweden 5,748 2.1
Société Générale France 5,289 2.0
AXA France 5,200 1.9
ING Netherlands 5,048 1.9
Unibail-Rodamco France 4,102 1.5
Partners Group Switzerland 3,618 1.3
Commerzbank Germany 3,388 1.3
Sberbank Russia 2,850 1.1
GAM Switzerland 2,559 1.0
OTP Bank Hungary 2,157 0.8
-------- --------
62,829 23.4
-------- --------
Consumer Goods
Anheuser-Busch InBev Belgium 9,323 3.5
Continental Germany 9,235 3.4
Compagnie Financière Richemont Switzerland 6,115 2.3
Rémy Cointreau France 4,788 1.8
LVMH Möet Hennessy Louis Vuitton France 4,665 1.7
Pernod-Ricard France 3,948 1.5
Renault France 2,996 1.1
MHP Ukraine 1,704 0.6
-------- --------
42,774 15.9
-------- --------
Health Care
Roche Switzerland 16,315 6.1
Novo Nordisk Denmark 9,009 3.4
Sanofi France 8,463 3.1
Grifols Spain 3,419 1.3
Chr. Hansen Denmark 2,238 0.8
-------- --------
39,444 14.7
-------- --------
Industrials
EADS Netherlands 7,130 2.7
Rexel France 6,383 2.4
Deutsche Post Germany 5,311 2.0
SKF Sweden 4,635 1.7
Schneider Electric France 4,153 1.5
Assa Abloy Sweden 4,031 1.5
Kone Finland 2,770 1.0
Geberit Switzerland 2,643 1.0
-------- --------
37,056 13.8
-------- --------
Consumer Services
Reed Elsevier Netherlands 7,501 2.8
Ryanair Ireland 6,146 2.3
Kering France 3,469 1.3
Koninklijke Ahold Netherlands 3,445 1.3
Paddy Power Ireland 3,078 1.1
Jerónimo Martins Portugal 2,549 0.9
Inditex Spain 2,293 0.9
Kuoni Reisen Switzerland 1,915 0.7
-------- --------
30,396 11.3
-------- --------
Technology
SAP Germany 8,555 3.2
ASML Netherlands 5,540 2.1
Infineon Technologies Germany 4,518 1.7
Mail.Ru Russia 4,017 1.5
Yandex Netherlands 3,237 1.2
Capgemini France 2,742 1.0
-------- --------
28,609 10.7
-------- --------
Basic Materials
Bayer Germany 8,956 3.3
Linde Germany 5,636 2.1
-------- --------
14,592 5.4
-------- --------
Telecommunications
Ziggo Netherlands 7,156 2.7
VimpelCom Netherlands 2,650 1.0
-------- --------
9,806 3.7
-------- --------
Oil & Gas
Gazprom Russia 2,870 1.1
-------- --------
2,870 1.1
-------- --------
Total investments 268,376 100.0
======== ========
All investments are in ordinary shares. The total number of
investments held at 31 August 2013 was 53 (31 August 2012: 46).
Investment Exposure
Investment Size as at 31 August 2013
Number of Investments % of Portfolio
less than £1m 0.0 0.0
£1m to £3m 14.0 13.0
£3m to £5m 16.0 23.2
£5m to £10m 22.0 57.7
more than £10m 1.0 6.1
Market Capitalisation as at 31 August 2013
% of Portfolio % of Index
less than €1bn 0.0 0.0
€1bn to €10bn 28.7 19.3
€10bn to €20bn 11.3 14.6
€20bn to €50bn 33.8 30.7
more than €50bn 26.2 35.4
Distribution of Investments as at 31 August 2013
% of Portfolio
Financials 23.4
Consumer Goods 15.9
Health Care 14.7
Industrials 13.8
Consumer Services 11.3
Technology 10.7
Basic Materials 5.4
Telecommunications 3.7
Oil & Gas 1.1
Source: BlackRock.
Income Statement
for the year ended 31 August 2013
Revenue Revenue Capital Capital Total Total
2013 2012 2013 2012 2013 2012
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments
held at fair value
through profit or
loss - - 57,436 1,121 57,436 1,121
Income from
investments held at
fair value through
profit or loss 3 9,181 7,411 - - 9,181 7,411
Other income 3 - 19 - - - 19
Investment management
and performance fees 4 (339) (262) (2,492) (2,264) (2,831) (2,526)
Operating expenses 5 (688) (504) - (6) (688) (510)
-------- -------- -------- -------- -------- --------
Net return/(loss)
before finance costs
and taxation 8,154 6,664 54,944 (1,149) 63,098 5,515
Finance costs (26) (7) (105) (26) (131) (33)
-------- -------- -------- -------- -------- --------
Return/(loss) on
ordinary activities
before taxation 8,128 6,657 54,839 (1,175) 62,967 5,482
Taxation on ordinary
activities (833) (673) (15) - (848) (673)
-------- -------- -------- -------- -------- --------
Return/(loss) on
ordinary activities
after taxation 7 7,295 5,984 54,824 (1,175) 62,119 4,809
======== ======== ======== ======== ======== ========
Return/(loss) perordinary share -
basic and diluted 7 6.32p 5.52p 47.50p (1.08p) 53.82p 4.44p
======== ======== ======== ======== ======== ========
The total column of this statement represents the profit and loss account 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 profits 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.
There is no material difference between the profit on ordinary activities
before taxation and the profit for the financial year stated above and their
historical equivalents.
Reconciliation of Movements in Shareholders' Funds
Share Capital
Share premium redemption Capital Special Revenue
capital account reserve reserves reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year ended
31 August 2013
At 31 August 2012 148 53,420 68 104,055 55,124 10,226 223,041
Return for the year - - - 54,824 - 7,295 62,119
Ordinary shares
purchased - - - - (26,839) - (26,839)
Exercise of 2010 and
2013 subscription
shares - 2,276 - - - - 2,276
Bonus issue of 2013
subscription shares 24 (24) - - - - -
Cancellation of
treasury shares (12) - 12 - - - -
2010 subscription
shares expired (22) - 22 - - - -
Share purchase costs - - - - (625) - (625)
Dividend paid* - - - - - (5,031) (5,031)
-------- -------- -------- -------- -------- -------- --------
At 31 August 2013 138 55,672 102 158,879 27,660 12,490 254,941
-------- -------- -------- -------- -------- -------- --------
For the year ended
31 August 2012
At 31 August 2011 116 2,813 68 105,230 60,284 10,024 178,535
(Loss)/return for the
year - - - (1,175) - 5,984 4,809
Ordinary shares and
2010 subscription
shares issued*** 32 50,490 - - - - 50,522
Ordinary shares
purchased - - - - (5,855) - (5,855)
Exercise of 2010
subscription shares - 117 - - - - 117
Sale of shares out of
treasury - - - - 825 - 825
Share purchase costs - - - - (130) - (130)
Dividend paid** - - - - - (5,782) (5,782)
-------- -------- -------- -------- -------- -------- --------
At 31 August 2012 148 53,420 68 104,055 55,124 10,226 223,041
-------- -------- -------- -------- -------- -------- --------
* Final dividend paid in respect of the year ended 31 August 2012 of 4.20p per
share declared on 10 October 2012 and paid on 7 December 2012.
** Final dividend paid in respect of the year ended 31 August 2011 of 3.50p per
share and a special dividend of 2.50p per share declared on 12 October 2011 and
paid on 8 December 2011.
*** Shares issued following the acquisition of assets of Charter European Trust
plc (Charter) as part of the reconstruction and winding-up of Charter.
Balance Sheet
as at 31 August 2013
2013 2012
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit or
loss 268,376 245,575
-------- --------
Current assets
Debtors 1,226 3,032
-------- --------
1,226 3,032
Creditors - amounts falling due within one year
-------- --------
Bank overdraft (10,840) (21,909)
Other creditors (3,821) (3,657)
-------- --------
(14,661) (25,566)
-------- --------
Net current liabilities (13,435) (22,534)
-------- --------
Net assets 254,941 223,041
======== ========
Capital and reserves
Called-up share capital 8 138 148
Share premium account 55,672 53,420
Capital redemption reserve 102 68
Capital reserves 158,879 104,055
Special reserve 27,660 55,124
Revenue reserve 12,490 10,226
-------- --------
Total equity shareholders' funds 254,941 223,041
======== ========
Net asset value per ordinary share - undiluted 7 234.49p 186.19p
======== ========
Net asset value per ordinary share - diluted 7 234.23p 185.67p
======== ========
Cash Flow Statement
for the year ended 31 August 2013
2013 2012
Notes £'000 £'000
Net cash inflow from operating activities 5(b) 4,725 4,474
Servicing of finance (131) (30)
Taxation recovered 218 718
-------- --------
Capital expenditure and financial investment
Purchase of investments (287,717) (395,537)
Proceeds from sale of investments 324,588 327,727
Realised losses on foreign currency transactions (801) (571)
-------- --------
Net cash inflow/(outflow) from capital expenditure
and financial investment 36,070 (68,381)
-------- --------
Equity dividends paid (5,031) (5,782)
-------- --------
Net cash inflow/(outflow) before financing 35,851 (69,001)
-------- --------
Financing
Purchase of ordinary shares (26,839) (5,855)
Share purchase costs (144) (114)
Proceeds from issue of ordinary shares out of
treasury 2,276 1,538
Proceeds from issue of 2012 subscription shares - 117
(Costs)/proceeds from issue of ordinary shares to
acquire Charter European Trust plc portfolio (75) 50,565
-------- --------
Net cash (outflow)/inflow from financing (24,782) 46,251
======== ========
Increase/(decrease) in cash in the year 11,069 (22,750)
======== ========
Notes to the Financial Statements
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 a capital nature has been presented alongside the Income
Statement.
(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. 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 within 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 returns 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 timing differences at the
balance sheet date, where transactions or events that result in an obligation
to pay more tax in the future or a 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 timing 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 fixed 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 should not be 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
2013 2012
£'000 £'000
Investment income:
Overseas dividends 9,181 7,411
-------- --------
9,181 7,411
Other income:
Deposit interest - 19
-------- --------
Total 9,181 7,430
======== ========
4. Investment management and performance fees
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fee 339 1,355 1,694 262 1,049 1,311
Performance fee - 1,137 1,137 - 1,215 1,215
-------- -------- -------- -------- -------- --------
Total 339 2,492 2,831 262 2,264 2,526
======== ======== ======== ======== ======== ========
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 £1,694,000
(2012: £1,311,000). A performance fee of £1,137,000 was accrued for the year
ended 31 August 2013 (2012: £1,215,000) 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
2013 2012
£'000 £'000
(a) Operating expenses
Custody fee 37 32
Auditor's remuneration:
- statutory audit 26 25
- other audit services* 5 5
Directors' emoluments 112 97
Registrar's fees and other operating expenses 508 345
-------- --------
688 504
======== ========
The Company's ongoing charges, calculated as a percentage
of average net assets and using expenses, excluding
performance fees and interest costs, after relief for any
taxation were: 0.9% 0.9%
======== ========
* Other audit services relate to the review of the half yearly financial statements.
2013 2012
£'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 63,098 5,515
(Less)/add: capital (return)/loss before finance costs and
taxation (54,944) 1,149
-------- --------
Net revenue return before finance costs and taxation 8,154 6,664
Expenses charged to capital (2,507) (2,270)
Increase in accrued income (24) (74)
Decrease in debtors 4 8
Increase in accrued expenditure 468 1,208
Tax on investment income included within gross income (1,370) (1,062)
-------- --------
Net cash inflow from operating activities 4,725 4,474
======== ========
6. Dividends
The Directors have proposed a final dividend of 4.50p per share and have
declared a special dividend of 1.00p per share in respect of the year ended
31 August 2013. The dividends will be paid on 13 December 2013, subject to
shareholders' approval on 4 December 2013, to shareholders on the Company's
register on 1 November 2013. 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, or in the case of special dividends not recognised until they
are paid.
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 amount proposed for the year ended
31 August 2013 meets the relevant requirements as set out in this legislation.
2013 2012
£'000 £'000
Dividend payable on equity shares:
Special declared of 1.00p* per ordinary share (2012: nil) 1,087 -
Final proposed of 4.50p* per ordinary share (2012: 4.20p) 4,893 5,031
-------- --------
5,980 5,031
======== ========
* Based on 108,719,211 ordinary shares in issue on 21 October 2013.
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:
Undiluted 2013 2012
Net revenue return attributable to ordinary shareholders
(£'000) 7,295 5,984
Net capital return/(loss) attributable to ordinary
shareholders (£'000) 54,824 (1,175)
-------- --------
Total return (£'000) 62,119 4,809
-------- --------
Equity shareholders' funds (£'000) 254,941 223,041
-------- --------
The weighted average number of ordinary shares in issue
during the year, on which the return per ordinary share
was calculated, was: 115,410,120 108,410,736
----------- -----------
The actual number of ordinary shares in issue at the
year end, on which the net asset value was calculated,
was: 108,719,211 119,793,123
----------- -----------
The number of ordinary shares in issue, including
treasury shares, at the year end, was: 114,437,564 124,553,760
=========== ===========
2013 2012
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on
weighted average
number of shares 6.32 47.50 53.82 5.52 (1.08) 4.44
Calculated on actual
number of shares in
issue at year end 6.71 50.43 57.14 4.99 (0.98) 4.01
-------- -------- -------- -------- -------- --------
Net asset value per
share 234.49 186.19
Ordinary share price 228.75 175.00
Subscription share
price 23.38 2.00
======== ======== ======== ======== ======== ========
Diluted 2013 2012
Net revenue return attributable to ordinary shareholders
(£'000) 7,295 5,984
Net capital return attributable to ordinary shareholders
(£'000) 54,824 (1,175)
-------- --------
Total return (£'000) 62,119 4,809
======== ========
Equity shareholders' funds* (£'000) 308,960 266,017
-------- --------
The weighted average number of ordinary shares in issue
during the year, on which the diluted return per
ordinary share was calculated, was: 115,410,120 108,410,736
----------- -----------
The actual number of ordinary shares and 2013
subscription shares (2012: 2010 subscription shares), at
the year end on which the fully diluted net asset value
was calculated, was: 131,903,529 143,277,136
=========== ===========
2013 2012
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on
weighted average
number of shares** 6.32 47.50 53.82 5.52 (1.08) 4.44
-------- -------- -------- -------- -------- --------
Net asset value per
share* 234.23 185.67
======== ======== ======== ======== ======== ========
* In accordance with the AIC SORP, to the extent that the Company's NAV is in
excess of the exercise price, the subscription shares are considered to be
dilutive for the calculation of the NAV per share. The diluted NAV per share at
31 August 2013 is calculated by adjusting equity shareholders' funds for
consideration receivable on the exercise of 23,184,318 subscription shares, at
the exercise price of 233 pence per share, and dividing by the total number of
shares that would have been in issue at 31 August 2013 had all the subscription
shares been exercised.
** In accordance with FRS 22 "Earnings per share", there is no dilutive impact
on the return per share for the year ended 31 August 2013 as the average
mid-market price of the ordinary shares for the year of 228.75p is below the
exercise price of the subscription shares of 233 pence per share.
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
At 31 August 2012 119,793,123 4,760,637 - 124,553,760 124,554
Shares cancelled or
transferred into
treasury pursuant to
tender offer on
4 December 2012 (4,661,723) 1,291,662 - - -
Shares cancelled
pursuant to
tender offer on
10 June 2013 (7,636,639) - - - -
Cancellation of treasury
shares - (333,946) - (11,340,646) (11,341)
----------- ---------- ------ ----------- -------
107,494,761 5,718,353 - 113,213,114 113,213
Subscription shares of
0.1p each:
At 31 August 2012 - - 23,484,013 23,484,013 23,484
Conversion of 2010
subscription shares into
ordinary shares 1,153,955 - (1,153,955) - -
2010 subscription shares
expired - - (22,330,058) (22,330,058) (22,330)
Bonus issue of 2013
subscription shares - - 23,254,813 23,254,813 23,255
Conversion of 2013
subscription shares into
ordinary shares 70,495 - (70,495) - -
----------- --------- ---------- ----------- --------
At 31 August 2013 108,719,211 5,718,353 23,184,318 137,621,882 137,622
=========== ========= ========== =========== ========
During the year, 12,298,362 ordinary shares were purchased (2012: 3,520,849)
for a total consideration, including expenses, of £27,464,000 (2012:
£5,985,000). The number of ordinary shares in issue at the year end was
114,437,564 (2012: 124,553,760) of which 5,718,353 were held in treasury (2012:
4,760,637) and the number of 2013 subscription shares in issue was 23,184,318
(2012: 23,484,013 2010 subscription shares). The number of shares cancelled out
of treasury during the year was 333,946 (2012: nil). As a result of the
conversion of 1,153,955 2010 subscription shares and 70,495 2013 subscription
shares (2012: 64,060 2010 subscription shares), new ordinary shares were issued
for a total consideration of £2,276,000 (2012: £117,000).
9. Related party disclosure
The investment management fee for the year was £1,694,000 (2012: £1,311,000) and the
performance fee for the year was £1,137,000 (2012: £1,215,000).
At the year end, the following amounts were outstanding in respect of the investment
management fee: £874,000 (2012: £1,022,000) and performance fee: £1,137,000
(2012: £1,215,000).
The Board consists of five non-executive Directors all of whom are considered to be
independent by the Board. None of the Directors has a service contract with the Company.
With effect from 1 September 2013 the Chairman receives an annual fee of £33,000, the
Chairman of the Audit and Management Engagement Committee receives an annual fee of
£27,500, and each other Director receives an annual fee of £23,000. Three members of
the Board hold shares in the Company. Mr Walker-Haworth holds 40,718 ordinary shares
and 8,143 subscription shares, Ms Ferguson 48,000 ordinary shares and 9,600 subscription
shares and Mr Holtham 11,100 ordinary shares and 2,220 subscription shares. Ms Curling
and Mr Sanderson do not hold any shares in the Company.
10. Contingent liabilities
There were no contingent liabilities at 31 August 2013 (2012: nil).
11. 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 2013 will be filed with the Registrar of Companies after the
Annual General Meeting.
The figures set out above have been reported upon by the Auditor, whose report for the year
ended 31 August 2012 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 2012, which have been filed
with the Registrar of Companies. The report of the Auditor on those financial statements
contained no qualification or statement under section 498 of the Companies Act.
12. Annual Report
Copies of the annual report will be published shortly and will be available from the
registered office, c/o The Company Secretary, BlackRock Greater Europe Investment Trust plc,
12 Throgmorton Avenue, London EC2N 2DL.
13. Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of BlackRock Investment
Management (UK) Limited, 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 4 December 2013
at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management website at
www.blackrock.co.uk/brge. Neither the contents of the Manager's website nor the contents of
any website accessible from hyperlinks on the Manager's website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information please contact:
Simon White, Managing Director, Investment Company Division - 020 7743 5284
Vincent Devlin, Fund Manager - 020 7743 3000
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Ltd
12 Throgmorton Avenue
London
EC2N 2DL
21 October 2013
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