Final Results

BlackRock Greater Europe Investment Trust plc
LEI:  5493003R8FJ6I76ZUW55

Annual results announcement
for the year ended 31 August 2017

 

FINANCIAL HIGHLIGHTS



Attributable to ordinary shareholders 
As at 
31 August 
2017 
As at 
31 August 
2016 

Change 
Assets
Net asset value per ordinary share 347.05p  287.43p  +20.7 
– with income reinvested** –  –  +23.0 
Net assets (£’000)*  330,727   294,908  +12.1 
Ordinary share price (mid-market) 328.00p  272.00p  +20.6 
– with income reinvested** –  –  +22.9 
 ========   ========   ======== 

   

For the year 
ended 
31 August 
2017 
For the year 
ended 
31 August 
2016 


Change 
Revenue
Net profit return after taxation (£’000) 5,172  5,782  -10.5 
Revenue profit per ordinary share – basic and diluted 5.33p  5.60p  -4.8 
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*     The change in net assets reflects the tender offer implemented in the year, buyback of shares into treasury and market movements.
**    Net asset value and share price performance include the dividend reinvestments

CHAIRMAN’S STATEMENT

I am pleased to present my first annual statement to you since becoming Chairman last November.

PERFORMANCE OVERVIEW
The European economy began to show signs of a slow but steady recovery in the fourth quarter of 2016 and, with a number of leading economic indicators showing strong improvement during 2017, years of investor pessimism on Europe have shifted towards cautious optimism. This positive sentiment was supported by the European Central Bank maintaining its accommodative stance, as well as the pro-European results of the French and German elections. The strength of company earnings in the first half of the year has also been particularly encouraging.

During the year to 31 August 2017, the Company’s net asset value per share (NAV) increased by 23.0%, compared with a rise of 26.0% in the FTSE World Europe ex UK Index. The share price rose by 22.9% over the same period. (All percentages calculated in sterling terms with income reinvested.) Returns for UK investors were positively impacted by sterling weakness in the period under review. However, notwithstanding that returns were positive, the Company lagged behind the reference index in this period principally due to sector allocation and stock selection. Further information is set out in the Investment Manager’s Report. Over the longer term, performance remains strong as set out in the chart on page 3 of the Annual Report and Financial Statements.

Since the financial year end and up to close of business on 19 October 2017, the Company’s NAV per share has increased by 2.0% compared with a rise in the FTSE World Europe ex UK Index of 1.3% over the same period.

REVENUE EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the year ended 31 August 2017 amounted to 5.33p per share, which compares with 5.60p per share for the previous year, a decrease of 4.8%. This in part reflects the absence this year of the one-off receipt of French withholding tax reclaims which was a feature of earnings in the first half of 2016. In April the Board declared an interim dividend of 1.75p per share (2016: 1.65p). The Board is proposing the payment of a final dividend of 3.70p per share for the year (2016: 3.65p). This, together with the interim dividend, makes a total dividend for the year of 5.45p per share (2016: 5.30p), an increase of 2.8%. Subject to shareholder approval, the dividend will be paid on 8 December 2017 to shareholders on the Company’s register on 3 November 2017, the ex-dividend date being 2 November 2017.

DISCOUNT CONTROL AND TENDER OFFERS
The Board has the option to implement a tender offer in order to assist in controlling the discount to NAV at which the shares are traded. In addition, it will consider buying back shares in the market between tenders when it is considered to be in the interests of shareholders to do so.

The Directors exercised their discretion to operate the half yearly tender offer in November 2016, which in common with previous tenders, was for up to 20% of the ordinary shares in issue at the prevailing NAV. Valid tenders for 6,582,160 shares (6.45% of the shares in issue excluding treasury shares) were received at a price of 272.08p per share. The Board concluded that it was not in the interests of shareholders to implement the May semi-annual tender offer, having taken into account the narrow discount and costs of the tender.

It was announced on 14 September 2017 that the next semi-annual tender offer will take place on 30 November 2017. The tender offer will be for up to 20% of the ordinary shares in issue (excluding treasury shares) at the prevailing cum income fully diluted NAV per share, subject to a discount of 2%. A Circular relating to the tender offer is enclosed with this Annual Report. The Circular will be available on the BlackRock website at blackrock.co.uk/brge, and additional copies may be requested from the Company’s registered office c/o The Secretary, BlackRock Greater Europe Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.

In addition to the tender offer, during the year and up to the date of this report, the Company has repurchased 725,000 ordinary shares in the market.

Resolutions to renew the Company’s semi-annual tender offer and share buyback authorities will be put to shareholders at the forthcoming Annual General Meeting.

PORTFOLIO MANAGER CHANGE
The Board is pleased to report that Stefan Gries was appointed as co-portfolio manager with effect from 20 June 2017. Mr Gries succeeds Vincent Devlin, who co-managed the Company’s portfolio from 31 July 2008.

Stefan joined BlackRock’s European equity team in 2008, after previous roles at Scottish Widows, Aberdeen Asset Management and Deutsche Bank. Sam Vecht will continue as co-manager with particular responsibility for Emerging Europe.

Following this change the number of holdings in the portfolio has been reduced to give emphasis to those holdings which the Portfolio Managers' believe offer the best long term returns.

SECONDARY LISTING IN SOUTH AFRICA
The Company continues to explore the possibility of a secondary listing of its shares on the Main Board of the Johannesburg Stock Exchange, whilst maintaining its primary listing on the Main Market of the London Stock Exchange, and the new Portfolio Manager has had a number of positive exploratory meetings with potential investors in South Africa. Any issue of shares would fall within the existing authorities granted by shareholders at last year’s Annual General Meeting. In the event that sufficient demand exists to make a secondary listing worthwhile, a listing is planned for the end of November and the Company will make an announcement in due course.

BOARD COMPOSITION
I am pleased to report that the Board appointed Dr Paola Subacchi as a non-executive Director of the Company with effect from 27 July 2017. Paola also serves as a member of the Company’s Audit and Management Engagement Committee. In accordance with the Company’s Articles of Association, she will stand for election at the forthcoming Annual General Meeting in November and her biography can be found on page 17 of the Annual Report and Financial Statements.

Having served on the Board since the Company’s inception in 2004, with three of the thirteen years as Chairman of the Company, Carol Ferguson will retire following the conclusion of the Annual General Meeting. On behalf of the Board, I would like to take this opportunity to thank Carol for her invaluable contribution during her tenure and we wish her well for the future.

OUTLOOK
Europe’s economy is enjoying a cyclical upswing, supported by an accommodative European Central Bank and subdued inflation. Additionally, after several years of stagnation, European companies have been reporting strong earnings, driven by rising sales, and economic indicators show that growth may be sustainable.

Notwithstanding some continuing political uncertainty in certain countries, positive economic and corporate results have underpinned the attraction of European equities and the Euro and, following a protracted period of outflows, investors appear to be responding to optimism over Europe’s prospects. As unemployment falls and business confidence grows, we believe that the European recovery remains intact and retain our confidence that investors will continue to increase weightings to this asset class.

ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 29 November 2017 at 12 noon. As in previous years, the Portfolio Managers will make a presentation to shareholders on the Company’s progress and the outlook for the year ahead.

We, the Directors of your Company, regard the Annual General Meeting as the most important meeting of the year and we encourage you to come along. We have considered the resolutions proposed in the Notice of the Annual General Meeting and believe that all are in the interests of shareholders as a whole. We therefore recommend that you vote in favour of each resolution as we intend to do in respect of our beneficial holdings.

ERIC SANDERSON
23 October 2017

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 31 August 2017. The aim of the Strategic Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company for the collective benefit of shareholders.

PRINCIPAL ACTIVITY
The Company carries on business as an investment trust and its principal activity is portfolio investment. Investment trusts are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment, thus spreading, although not eliminating, investment risk.

OBJECTIVE
The Company’s objective is the achievement of capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe. The Company will also have the flexibility to invest in any country included in the FTSE World Europe ex UK Index, as well as the freedom to invest in developing countries not included in the Index but considered by the Manager and the Directors as part of greater Europe.

STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
The Company invests in accordance with the investment objective. The Board is collectively responsible to shareholders for the long term success of the Company and is its governing body. There is a clear division of responsibility between the Board and the Manager. Matters for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, capital structure, governance, and appointing and monitoring of performance of service providers, including the Manager.

Business model
The Company’s business model follows that of an externally managed investment trust. Therefore the Company does not have any employees and outsources its activities to third party service providers including the Manager who is the principal service provider. The management of the investment portfolio and the administration of the Company have been contractually delegated to BlackRock Fund Managers Limited (the Manager) who in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to the Investment Manager. The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.

Other service providers include the Depositary, currently BNY Mellon Trust & Depositary (UK) Limited (BNYMTD). With effect from 1 November 2017, the role of the Depositary will be transferred from BNYMTD to its parent company, The Bank of New York Mellon (International) Limited. The Company delegates fund accounting services to BlackRock Investment Management (UK) Limited (BIM (UK) or the Investment Manager), which in turn sub-delegates these services to Bank of New York Mellon (International) Limited. The Company delegates registration services to the Registrar, Computershare Investor Services PLC.

Investment policy
The Company’s policy is that the portfolio should consist of approximately 30-70 securities and the majority of the portfolio will be invested in larger capitalisation companies, being companies with a market capitalisation of over €5 billion. Up to 25% of the portfolio may be invested in companies in developing Europe. The Company may also invest up to 5% of the portfolio in unquoted investments. However, overall exposure to developing European companies and unquoted investments will not in aggregate exceed 25% of the Company’s portfolio.

As at 31 August 2017, the Company held 35 investments and 7.6% of the portfolio was invested in developing Europe. The Company had no unquoted investments.

Investment in developing European securities may be either direct or through other funds, including those managed by BlackRock Fund Managers Limited, subject to a maximum of 15% of the portfolio. Direct investment in Russia is limited to 10% of the Company’s assets. Investments may also include depositary receipts or similar instruments representing underlying securities.

The Company also has the flexibility to invest up to 20% of the portfolio in debt securities, such as convertible bonds and corporate bonds. No bonds were held at 31 August 2017. The use of any derivative instruments such as financial futures, options and warrants and the entering into of stock lending arrangements will only be for the purposes of efficient portfolio management.

While the Company may hold shares in other investment companies (including investment trusts), the Board has agreed that the Company will not invest more than 15%, in aggregate, of its gross assets in other listed closed-ended investment funds (save to the extent that such closed-ended investment funds have published investment policies to invest no more than 15% of their total assets in such other listed closed-ended investment funds).

The Company achieves an appropriate spread of risk by investing in a diversified portfolio of securities.

The Investment Manager believes that appropriate use of gearing can add value over time. This gearing typically is in the form of an overdraft facility which can be repaid at any time. The level and benefit of any gearing is discussed and agreed regularly by the Board. The Investment Manager generally aims to be fully invested and it is anticipated that gearing will not exceed 15% of the net asset value (NAV) at the time of draw down of the relevant borrowings. At the balance sheet date the Company had net gearing of 1.2% (2016: 0.2%).

INVESTMENT PROCESS
The Investment Manager takes a bottom-up approach to investing, meaning companies are analysed on an individual basis upon a number of qualitative and quantitative measures. Research is comprehensive and collaborative, backed by a team of 20 European Equity analysts and a further seven Emerging European analysts who conduct over 1,200 company meetings a year.

Idea generation is the first step of the investment process and important in ensuring that there is a continuous flow of new ideas entering the team’s proprietary research process. There is a structured approach to research, a dedicated research coordinator, and a formal research pipeline to ensure that efficient use is made of team resources and to prioritise research to take advantage of the most promising investment opportunities.

As part of their research, the analyst will conduct a thorough industry and company analysis using a range of valuation techniques depending on the company and sector. Time is spent analysing a company’s market dynamics, revenue drivers, financial statements, valuations and risks to the central scenario. The team also seek to understand the factors that influence a share price, as well as what the market is anticipating or missing.

As part of the company analysis, the analyst completes a proprietary research template which has been designed to capture all data relevant to the investment case in a concise and consistent framework. This consistency drives focus on debate and discussion and helps to ensure the investment case is robust.

Research on each company belongs to the analyst; however, portfolio construction and investment decisions within the Company are entirely the responsibility of the Investment Manager. Primary investment criteria the Investment Manager looks for includes:

  • Quality management

  • Strong free cash flow conversion

  • Options to invest in growth

  • Unique aspects

We believe this focus on sustainable cash returns and unique franchises will help concentrate the portfolio towards the best ideas delivered by the European and Emerging European Equity teams and drive positive outcomes for our clients.

PERFORMANCE
In the year to 31 August 2017, the Company’s NAV per share returned +23.0% (compared with a return in the FTSE World Europe ex UK Index of +26.0%) and the share price returned +22.9% (all percentages calculated in sterling terms with income reinvested).

The Investment Manager’s Report includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.

RESULTS AND DIVIDENDS
The results for the Company are set out in the Income Statement. The total profit for the year, after taxation, was £61,227,000 (2016: £42,881,000). The revenue return amounted to £5,172,000 (2016: £5,782,000) and relates to net revenue earnings from dividends received during the year after adjusting for expenses.

As explained in the Company’s half yearly financial report, the Directors declared an interim dividend of 1.75p per share (2016: 1.65p). The Directors recommend the payment of a final dividend of 3.70p per share making a total dividend of 5.45p per share (2016: 5.30p). Subject to approval at the forthcoming Annual General Meeting, the dividend will be paid on 8 December 2017 to shareholders on the register of members at the close of business on 3 November 2017.

KEY PERFORMANCE INDICATORS
The Directors consider a number of performance measures to help assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to those reported by other investment trusts are set out below.

As at 
31 August 
2017 
As at 
31 August 
2016 
Net asset value per share 347.05p  287.43p 
Net asset value total return1 +23.0%  +16.9% 
Share price 328.00p  272.00p 
Share price total return1 +22.9%  +13.8% 
Discount to net asset value2 5.5%  5.4% 
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Year ended 
31 August 
2017 
Year ended 
31 August 
2016 
Revenue return per share 5.33p  5.60p 
Ongoing charges*3 1.10%  1.07% 
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1.   This measures the Company’s share price and NAV total return, which assumes dividends paid by the Company have been reinvested.
2.   This is the difference between the share price and the NAV per share with debt at par. It is an indicator of the need for shares to be bought back or, in the event of a premium to NAV per share, issued.
3.   This data shows whether the Company is being run efficiently. It measures the running costs as a percentage of average net assets.
*     Ongoing charges (excluding interest costs and after any relief for taxation) as a % of average shareholders’ funds.

The Board monitors the above KPIs on a regular basis. Additionally, it regularly reviews a number of indices and ratios to understand the impact on the Company’s relative performance of the various components such as asset allocation and stock selection. The Board also assesses the Company’s performance against its peer group of investment trusts with similar investment objectives.

DISCOUNT
The Directors recognise that it is in the long term interests of shareholders that shares do not trade at a significant discount to their prevailing NAV. The Board believes that this may be achieved through the use of regular tender offers and the use of share buy back powers. In the year to 31 August 2017, the Company’s share price discount to NAV ranged from 2.4% to 9.5% calculated on an undiluted cum income NAV.

PRINCIPAL RISKS
The key risks faced by the Company are set out below. The Board has put in place a robust process to assess and monitor these risks. A core element of this process is the Company’s risk register which identifies the risks facing the Company, the likelihood and potential impact of each risk and the quality of controls established for mitigation. A residual risk rating is then calculated for each risk based on the outcome of the assessment. This approach allows the effect of any mitigating procedures to be reflected in the final assessment.

The risk register, its method of preparation and the operation of key controls in the Manager’s and other third party service providers’ systems of internal control, are reviewed on a regular basis by the Audit and Management Engagement Committee. In order to gain a more comprehensive understanding of the Manager’s and other third party service providers’ risk management processes and how these apply to the Company’s business, the Audit and Management Engagement Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis teams and receives internal control reports from the Company’s service providers.

In relation to the 2016 UK Corporate Governance Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period. The Board will continue to assess the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity, on an ongoing basis.

The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors are set out in the table below.

Principal Risk  Mitigation/Control 
Counterparty
The potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments.

Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties.

The Depositary is now liable for restitution for the loss of financial instruments held in custody unless able to demonstrate the loss was a result of an event beyond its reasonable control.
Investment performance
Returns achieved are reliant primarily upon the performance of the portfolio.

An inappropriate investment policy may lead to underperformance compared to the benchmark index, a loss of capital and dissatisfied shareholders.

To manage this risk the Board:

- regularly reviews the Company's investment mandate and long term strategy;

- has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;

- receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio;

- 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 investment policy;

- 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; and

- ensures that the Investment Manager has training and development programmes in place for its employees and its recruitment and remuneration packages are developed in order to retain key staff.
Legal & Compliance
The Company has been accepted by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.

Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio.

Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010.

The Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the UK Listing Rules, Disclosure Rules and Transparency Rules and the Market Abuse Regulation.

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. The results are reported to the Board at each meeting. Compliance with the accounting rules affecting investment trusts are also carefully and regularly monitored.

The Company Secretary, Manager and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations. The Board and Manager also monitor changes in government policy and legislation which may have an impact on the Company.
Market
Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements.

Changes in general economic and market conditions, such as currency exchange rates, interest rates, rates of inflation, industry conditions, tax laws, political events and trends, including the impact of the UK leaving the EU, can also substantially and adversely affect the securities and, as a consequence, the Company’s prospects and share price.

The Board considers the diversification of the portfolio, asset allocation, stock selection, 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.
Operational
In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third parties and is dependent on the control systems of the Manager, Depositary, and the Bank of New York Mellon (International) Limited, who maintain the Company’s assets, dealing procedures and accounting records. The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of these third party service providers.

Failure by any service provider to carry out its obligations could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position.

Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board.

Third party service providers produce internal control reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit and Management Engagement Committee.

The Company’s assets are subject to a strict liability regime and, in the event of a loss of assets, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control.

The Board reviews the overall performance of the Manager, Investment Manager and all other third party service providers on a regular basis and compliance with the Investment Management Agreement annually.
The Board also considers the business continuity arrangements of the Company’s key service providers.
Financial
The Company’s investment activities expose it to a variety of financial risks which include market risk, counterparty credit risk, liquidity risk and the valuation of financial instruments.

Details of these risks are disclosed in note 18 on pages 54 to 60 of the Annual Report and Financial Statements, together with a summary of the policies for managing these risks.
Marketing
Marketing efforts are inadequate or do not comply with relevant regulatory requirements. There is a failure to communicate adequately with shareholders or reach out to potential new shareholders resulting in reduced demand for the Company’s shares and a widening of the discount.

The Board reviews marketing strategy and initiatives and the Manager is required to provide regular updates on progress. BlackRock has a dedicated investment trust sales team visiting both existing and potential clients on a regular basis. Data on client meetings and issues raised are provided to the Board on a regular basis.

All investment trust marketing documents are subject to appropriate review and authorisation.

VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines. The Board conducted this review for a period of three years. This is generally the investment holding period investors consider while investing in the European sector. In its assessment of the viability of the Company, the Directors have noted that:

  • the Company invests predominantly in highly liquid, large listed companies so its assets are readily realisable;

  • the Company has limited gearing and no concerns around facilities, headroom or covenants;

  • the Company’s forecasts for revenues, expenses and liabilities are relatively stable and it has largely fixed overheads which comprise a small percentage of net assets (1.10%); and

  • the business model should remain attractive for much longer than three years, unless there is significant economic or regulatory change.

The Directors have also reviewed:

  • the Company’s principal risks and uncertainties as set out above;

  • the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment; and

  • the level of demand for the Company’s shares.

The Directors reviewed the assumptions and considerations underpinning the Company’s existing going concern assertion which are based on:

  • processes for monitoring costs;

  • key financial ratios;

  • evaluation of risk management controls;

  • compliance with the investment objective;

  • portfolio risk profile;

  • share price discount;

  • gearing; and

  • counterparty exposure and liquidity risk.

Based on the results of their analysis, the Directors have concluded that there is a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due over the period of their assessment.

FUTURE PROSPECTS
The Board’s main focus is to achieve capital growth. The future performance of the Company is dependent upon the success of the investment strategy and, to a large extent, on the performance of financial markets. The outlook for the Company in the next twelve months is discussed in both the Investment Manager’s Report and Chairman’s Statement.

SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no direct social or community responsibilities or impact on the environment. However, the Company believes that it is in shareholders’ interests to consider human rights issues and environmental, social and governance factors when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 31 of the Annual Report and Financial Statements.

MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 31 August 2017 are set out in the Governance Structure and Directors’ Biographies on page 17 of the Annual Report and Financial Statements. The Board currently consists of two male Directors and three female Directors. The Company’s policy on diversity is set out on page 29 of the Annual Report and Financial Statements. The Company does not have any employees.

The Chairman’s Statement and the Investment Manager’s Report and portfolio analysis forms part of this Strategic Report. The Strategic Report was approved by the Board at its meeting on 23 October 2017.

BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED

Company Secretary
23 October 2017

RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM with effect from 2 July 2014, having been authorised as an AIFM by the FCA on 1 May 2014. The management contract is terminable by either party on six months’ notice. Under the agreement, the Board continues to be independent from the AIFM. The agreement provides the appropriate balance between the Board’s control over the Company, its investment policies and compliance with regulatory obligations.

BFM (the Manager) has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)) the Company’s Investment Manager. BIM (UK) also acted as the Secretary of the Company throughout the year. The Manager receives an investment management fee which is calculated based on 0.85% of net asset value. Where the Company invests in other investment or cash funds managed by BIM (UK), any underlying fee charged is rebated. Fees are adjusted by adding all dividends declared during the period. Further details are disclosed in note 4. No penalty on termination of the investment management contract would be payable by the Company in the event that six months’ written notice is given to the Manager. There are no provisions relating to the payment of fees in lieu of notice.

The Company contributes to a focused investment trust sales and marketing initiative operated by BIM (UK) on behalf of the investment trusts under its management. The Company’s contribution to the consortium element of the initiative, which enables the trusts to achieve efficiencies by combining certain sales and marketing activities, represents a budget of up to 0.025% per annum of its net assets (£281.2 million) as at 31 December 2016 and this contribution is matched by BIM (UK). In addition, a budget of a further £15,000 has been allocated for Company specific sales and marketing activity. Total fees paid or payable for these services for the year ended 31 August 2017 amounted to £90,000 (excluding VAT) (2016: £49,000). For the year ended 31 August 2017, £70,000 (including VAT) has been accrued in respect of these initiatives. The purpose of the programme overall is to ensure effective communication with existing shareholders and to attract new shareholders to the Company. This has the benefit of improving liquidity in the Company’s shares and helps sustain the stock market rating of the Company.

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. The Chairman receives an annual fee of £36,500, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £30,000 and each other Director receives an annual fee of £26,000. Three members of the Board hold shares in the Company. Carol Ferguson holds 73,216 ordinary shares, Eric Sanderson holds 4,000 ordinary shares and Peter Baxter holds 5,000 ordinary shares.

As at 31 August 2017, fees of £12,000 (2016: £9,000) were outstanding to Directors in respect of their annual fees.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:

  • present fairly the financial position, financial performance and cash flows of the Company;

  • select suitable accounting policies in accordance with United Kingdom Generally Accepted Accounting Practice and then apply them consistently;

  • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

  • make judgements and estimates that are reasonable and prudent;

  • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit and Management Engagement Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company’s corporate and financial information included on the BlackRock website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors at the date of this report, whose names are listed on page 17 of the Annual Report and Financial Statements, 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 Strategic Report contained in the Annual Report and Financial Statements 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.

The 2016 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit and Management Engagement Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Management Engagement Committee’s Report on pages 32 to 35 of the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report for the year ended 31 August 2017, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

FOR AND ON BEHALF OF THE BOARD
ERIC SANDERSON
Chairman
23 October 2017

INVESTMENT MANAGER’S REPORT

MARKET OVERVIEW
The Company enjoyed positive performance over the year with a share price increase of 22.9% and a NAV increase of 23.0% in the twelve months to 31 August 2017. However, by way of comparison, the FTSE World Europe ex UK Index gained 26.0% over the period. (All figures in sterling terms with income reinvested.)

Whilst European market performance was positive over the year, drivers of return varied. The election of President Trump at the beginning of the period had a strong influence on market direction as investors believed his policies would bring greater growth to the US and, by extension, Europe. With this, a ‘reflationary narrative’ became a dominant driver of investment decisions across the market. Consequently, according to surveys of investment managers, the ownership of European banking shares rose to the highest level since the financial crisis, as investors expected rising interest rates to drive profitability. Thus far, interest rates in Europe have remained historically low, with the European Central Bank (ECB) continuing to inject liquidity into the system via its quantitative easing programme.

Despite the potential for political disruption with numerous elections across Europe, economic growth has strengthened over the period. European Purchasing Manager Indices, a reliable gauge of economic activity, have risen to their highest rate in six years. Job creation in the euro area has also been the strongest recorded over the past decade as firms continue to expand capacity in response to rising demand. Perhaps, to an extent, this can also be attributed to the sense of reduced political risk within the region as fears of populism spreading across Europe have subsided for the time being. The election of Emmanuel Macron as the President of France, and further legitimisation of his reform mandate with his party winning the largest majority in parliament, has the potential to aid political and economic cohesion in the European Union (EU) and instil a sense of greater stability. However, it must be highlighted that risks remain around this scenario given the history of reform efforts, particularly related to labour, within France.

In this more constructive environment, we have seen an improvement in company earnings. The first quarter earnings reporting season in Europe proved especially strong with earnings per share (EPS) growth up 23% year-on-year. Earnings growth continued into the second quarter, albeit at a slower rate. Importantly, earnings growth was primarily driven by an improvement in sales rather than rationalisation and cost cutting initiatives. This environment has proved beneficial for stock selection as share prices have reacted to changing company fundamentals.

PORTFOLIO ACTIVITY
Over the year, sector allocation detracted from the Company’s returns. In particular, this was exhibited by the higher allocation to the consumer services sector when compared with the reference index which underperformed the market, as well as the lower weighting towards the financials sector which proved the best performing area of the market. As mentioned, banks performed strongly over the year as we witnessed a small increase in interest rates. Whilst the sector has rerated, we have not seen any improvement in Eurozone banks’ net interest income, a key measure for profitability; we therefore remain very selective within this space. Positively, a lower allocation to health care and a higher allocation to information technology benefited the Company’s performance over the year.

Stock selection was negative overall during the period but varied by sector. A number of consumer names detracted from returns, including a holding in international food retailer group, Ahold Delhaize. While the company had relatively robust results over the period and stable margins which are poised to rise further with the synergies from the Delhaize deal, the share price suffered due to fears of food retail deflation in the US, which was also evident across a number of Ahold’s competitors. The shares suffered further towards the end of the period as the announcement came that Amazon had bought Wholefoods and, subsequently, significantly cut pricing. Whilst the current market crossover for Ahold with Wholefoods is limited, this competitive threat is concerning for the entire industry, especially in regard to online strategy; we therefore opted to exit the position.

The Company also saw weaker performance from a holding in building materials group CRH. As rhetoric grew around President Trump and his potential infrastructure spending plans towards the start of the period, many construction names exposed to the US, such as CRH, saw strong performance outcomes. However, as Trump’s credibility and ability to pass policy came into question, the market witnessed an unwinding in many of these associated names. We continue to believe that CRH is an attractive investment, boasting a strong management team. The company has balance sheet capacity for M&A opportunities and has a history of executing strongly on these deals and creating value for shareholders.

More positively, the Company saw strong performance from a holding in Finnish industrial company Wartsila. The company has seen robust results over the period, with orders growing particularly within their marine division. Their most recent results for the second quarter of 2017 showed further evidence of marine recovery with orders up by 11% year-on-year. We believe Wartsila continues to be an attractive investment given its ability to grow aftermarket sales, which is the highest margin area of the business and also allows for strong visibility. In addition to its cost cutting programme, we believe the group will grow earnings and move to a net cash position, with potential for cash generated to be returned to shareholders.

The Company also saw strong performance from a holding in dental implant manufacturer Straumann. Straumann has been a long-term holding in the Company and has grown its top line by c.15% over the last 18 months. This growth has been driven by new products such as bond level tapered implants. Market share in this area, relative to their other products, is low. We therefore believe that the company can improve penetration of this product and continue to support top line growth, as reflected by the company’s recent upgrade of revenue growth guidance.

In the Emerging Europe portion of the portfolio we have seen mixed outcomes over the year. The Company has seen strong performance from a holding in Sberbank, Russia’s largest state-owned bank. It continues to build on its restructuring strategy which has driven much of its success over the past few years, improving its services and the efficiency with which they are delivered. Positive performance also came from a holding in Poland’s largest insurance company PZU. Less positively, holdings in Gazprom and IT outsourcer Luxoft detracted. The latter fell following disappointing earnings and a lowering of guidance as the company is experiencing slowing trends from their clients on IT outsourcing.

PORTFOLIO POSITIONING
Following the change in Portfolio Manager, we have made a number of changes in an attempt to deliver more consistent and stable outperformance to the Company’s shareholders going forward. This includes increasing the conviction present in the portfolio, ensuring all ideas have a strong fundamental investment case and offering the most attractive upside to current value. In this vein, we have concentrated the number of holdings to 35 and ensured the highest conviction ideas coming out of our codified investment process are weighted appropriately within the Company. We also intend to use gearing and the allocation to the Emerging Europe portion of the portfolio more fully in the future, in line with the opportunities present in the market.

We have acted to increase the allocation to the health care sector, weighted more towards med-tech companies which offer specialised products and greater opportunities for earnings growth than large-cap pharmaceuticals. We have also increased the weighting towards consumer services, adding a holding in luxury brand Kering, which has recently seen a strong reacceleration in growth from their revived Gucci brand, which delivered organic growth in the second quarter of 39%.

We further reduced exposure to financials and remain very selective within the banking space. We continue to believe that the euro area is an overbanked market with significant pressure on margins which is unlikely to be relieved by the small amount of loan growth that has come back to the market. Where we do hold investments in banks, we have invested in more consolidated markets which have better pricing discipline and more potential for margin upgrades, such as Danish bank Danske.

At the end of the period, the portfolio was particularly weighted (when compared with the reference index) towards positions in the industrials, consumer services, technology, health care and oil & gas sectors. The portfolio had lower exposure to the financials, consumer goods, utilities, telecoms and basic materials sectors.

OUTLOOK
Overall we are positive on the European economy as the recovery remains on track. We are cautious about valuations given the strong run the market has enjoyed but would note that valuations remain undemanding relative to other developed market equities and bonds, and indeed the Emerging Europe portion of the portfolio is attractively valued. With the positive inflection in both cash flows and earnings in Emerging European markets, we believe there is potential for a number of attractive investment opportunities in this region in the coming years.

The potential for political cohesion in the euro area should also support markets if the EU is to become more stable and robust going forward. With core elections in the euro area now passed, we believe investor focus is likely to fall to central bank action, as the ECB nears the end of its bond buying programme. Given the continued deflationary pressures present in the economy and the structural drivers apparent that keep downward pressure on rates, such as high levels of debt, demographics and technological innovation, we believe Mario Draghi will take a cautious approach to increasing rates. A slow, steady and considered increase in rates parallel to a sustained economic expansion should continue to be supportive for European equities going forward.

STEFAN GRIES AND SAM VECHT
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED

23 October 2017

TEN LARGEST INVESTMENTS AS AT 31 AUGUST 2017

Unilever: 4.4% (2016: nil) is a transnational consumer goods company with more than 400 brands. Management have set out clear targets to 2020 to improve margins, returns and cash-flow conversion which we believe has the potential to create significant value for shareholders. In addition, the measures taken should translate into sector leading earnings growth and will allow the company to return significant amounts of capital via share buy backs and dividends.

Bayer: 4.4% (2016: 2.7%) is a German Life Science company, with M&A optionality. The proposed deal to buy Monsanto reinforces Bayer’s core business segments as well as targeting attractive long-term growth in agriculture protection and seeds. Monsanto is an innovative biotech business which is highly cash generative; the deal is expected to be accretive to core earnings and will ultimately create the leading global provider of crop sciences creating a platform for Bayer to offer sustainable growth at high returns.

Lonza Group: 4.1% (2016: 2.0%) is a Swiss multinational chemicals and biotechnology company. We believe the company offers attractive growth which is less dependent upon the economic cycle, given their large and diversified biopharma and speciality chemicals client base. The recent acquisition of Cappsugel, which adds 25% to revenues, adds valuable technologies to the existing group offering and thereby further enhances barriers to entry as well as the competitive position for the group.

SAP: 4.1% (2016: nil) is one of the leading global enterprise software providers. Its recently launched S4/Hana software and database solution appears ‘a must own’ product for a large existing client base in need of enhanced data analytics capabilities. We believe this has created a platform for profitable, multi-year growth at high returns. With the balance sheet turning net cash we also see potential for a further enhanced shareholder return policy.

ASML: 4.0% (2016: 2.1%) is a Dutch company which specialises in the supply of photolithography systems for the semiconductor industry. The company is at the forefront of technological change and invests in leading research and development to capture the structural growth opportunity supported by growth in mobile devices and microchip components. The high barriers to entry within the industry give ASML a protected position which allows growth in margins whilst they continue to innovate. The company has strong management who aim to create long-term value for the business whilst returning excess cash to shareholders.

Compagnie Financière Richemont: 3.9% (2016: nil) is a Swiss-based luxury goods holding company, which owns some of the world’s most high-end jewellery and watch brands. The company has great potential for a significant recovery in both growth and returns, with the return of the chairman Johann Rupert who is aiming to drive better results in the business going forward. Profit margins are likely to rise as operational efficiency increases and growth comes through within jewellery, particularly the branded category which the company is positively exposed to through brands such as Cartier.

Kering: 3.6% (2016: nil) is a global luxury group. The group has experienced a strong revival of its largest and most valuable brand, Gucci, which represents circa 65% of group earnings. The Gucci business, as well as seeing a reacceleration in sales growth, has been able to improve the percentage of full price sales which is supportive for margins. Despite strong performance over the last twelve months, we see the company delivering sector leading growth in earnings and cash-flows at a very attractive valuation.

Wartsila: 3.6% (2016: 1.5%) is a Finnish industrial company producing high technology engines for the marine and energy markets. As a global leader in its field, the company is positioned for solid growth at high returns as its engines are used for back-up power in energy generation and its marine end market is at the start of a multi-year recovery following several years of stagnation. Lastly, with 43% of sales coming from aftermarket services earnings and cash flows it is strongly underpinned by activities that grow regardless of general macro-economic conditions.

RELX: 3.5% (2016: 2.9%) is a multinational information and analytics company. The company is aiming to promote organic development, transforming its core business and building out new products. RELX has established high barriers to entry, giving confidence to its competitive position and allowing for more predictable revenues going forward. The stock offers steady compounding growth.

Novo Nordisk: 3.4% (2016: nil) is a Danish multinational pharmaceutical company which is a leader in diabetes care. The stock suffered underperformance in 2016 as drug pricing deteriorated, particularly in the US. Recent results have re-instilled confidence as pricing pressure has abated and there is now significantly enhanced visibility over the further trajectory in earnings and cash flows. We believe the company offers attractive long-term growth potential, at high returns and sector leading cash-flow conversion with any excess cash being returned to shareholders.

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 2016.
Together, the ten largest investments represent 39.0% of the Company’s portfolio (31 August 2016: 28.4%).

INVESTMENTS AS AT 31 AUGUST 2017


Country of
operation 
Market 
value 
£’000 

% of 
investments 
Industrials
Wartsila Finland   12,079   3.6 
CRH Ireland   10,801   3.2 
DSV Denmark   10,651   3.2 
Vinci France   10,516   3.1 
Assa Abloy Sweden   9,768   2.9 
Volvo Sweden   9,453   2.8 
Eiffage France   9,349   2.8 
Sika Switzerland   9,102   2.7 
Hexagon Sweden   8,724   2.6 
Thales France   8,138   2.4 
 --------   -------- 
 98,581   29.3 
 --------   -------- 
Health Care
Lonza Group Switzerland   13,750   4.1 
Novo Nordisk Denmark   11,284   3.4 
Fresenius Medical Care Germany   10,936   3.3 
Straumann Switzerland   10,572   3.2 
Chr.Hansen Denmark   7,691   2.3 
 --------   -------- 
 54,233   16.3 
 --------   -------- 
Consumer Services
Kering France   12,205   3.6 
RELX Netherlands   11,776   3.5 
Telenet Belgium   10,418   3.1 
Industria De Diseño Textil Inditex Spain   9,431   2.8 
 --------   -------- 
 43,830   13.0 
 --------   -------- 
Consumer Goods
Unilever Netherlands   14,708   4.4 
Compagnie Financière Richemont Switzerland   12,961   3.9 
Remy Cointreau France   8,368   2.5 
Renault France   7,475   2.2 
 --------   -------- 
 43,512   13.0 
 --------   -------- 
Financials
Danske Bank Denmark   10,225   3.1 
KBC Groep Belgium   7,901   2.4 
Alpha Bank Greece   5,794   1.7 
Sberbank Russia   4,392   1.3 
Nets Denmark   3,769   1.1 
 --------   -------- 
 32,081   9.6 
 --------   -------- 
Technology
SAP Germany   13,559   4.1 
ASML Netherlands   13,311   4.0 
Luxoft Ukraine   4,126   1.2 
 --------   -------- 
 30,996   9.3 
 --------   -------- 
Oil & Gas
Novatek Russia   6,245   1.9 
Gazprom Russia   6,053   1.8 
Rosneft Oil Company Russia   4,556   1.4 
 --------   -------- 
 16,854   5.1 
 --------   -------- 
Basic Materials
Bayer Germany   14,573   4.4 
 --------   -------- 
 14,573   4.4 
 --------   -------- 
Total investments  334,660   100.0 
 --------   -------- 

All investments are in ordinary shares unless otherwise stated. The total number of investments held at 31 August 2017 was 35 (31 August 2016: 59).
As at 31 August 2017 the Company did not hold any equity interests comprising more than 3% of any company’s share capital.

INVESTMENT EXPOSURE

MARKET CAPITALISATION AS AT 31 AUGUST 2017

% of Portfolio
<€1bn 1.2
€1bn to €10bn 16.7
€10bn to €20bn 25.0
€20bn to €50bn 32.7
>€50bn 24.4

INVESTMENT SIZE AS AT 31 AUGUST 2017

Number of Investments % of Portfolio
<£1m – –
£1m to £3m – –
£3m to £5m 4 5.0
£5m to £10m 14 33.9
>£10m 17 61.1

DISTRIBUTION OF INVESTMENTS AS AT 31 AUGUST 2017

Industrials 29.3
Health Care 16.3
Consumer Services 13.0
Consumer Goods 13.0
Financials 9.6
Technology 9.3
Oil & Gas 5.1
Basic Materials 4.4

Source:  BlackRock

INCOME STATEMENT FOR THE YEAR ENDED 31 AUGUST 2017



Notes 
Revenue 
2017 
£’000 
Revenue 
2016 
£’000 
Capital 
2017 
£’000 
Capital 
2016 
£’000 
Total 
2017 
£’000 
Total 
2016 
£’000 
Gains on investments held at fair value through profit or loss –  –  57,909  38,028  57,909  38,028 
Gains on foreign exchange –  –  270  967  270  967 
Income from investments held at fair value through profit or loss 3 7,236  6,306  –  –  7,236  6,306 
Other income 3 –  162  –  –  –  162 
    --------   --------   --------   --------   --------   -------- 
Total income 7,236  6,468  58,179  38,995  65,415  45,463 
    --------   --------   --------   --------   --------   -------- 
Expenses
Investment management fees 4 (515) (462) (2,058) (1,850) (2,573) (2,312)
Other operating expenses 5 (720) (544) (29) (36) (749) (580)
    --------   --------   --------   --------   --------   -------- 
Total operating expenses (1,235) (1,006) (2,087) (1,886) (3,322) (2,892)
    --------   --------   --------   --------   --------   -------- 
Net profit on ordinary activities before finance costs and taxation 6,001  5,462  56,092  37,109  62,093  42,571 
Finance costs (52) (53) (37) (10) (89) (63)
    --------   --------   --------   --------   --------   -------- 
Net profit on ordinary activities before taxation 5,949  5,409  56,055  37,099  62,004  42,508 
Taxation (charge)/credit (777) 373  –  –  (777) 373 
    --------   --------   --------   --------   --------   -------- 
Net profit on ordinary activities after taxation 7 5,172  5,782  56,055  37,099  61,227  42,881 
    ========   ========   ========   ========   ========   ======== 
Earnings per ordinary share 7 5.33p  5.60p  57.76p  35.94p  63.09p  41.54p 
    ========   ========   ========   ========   ========   ======== 

The total column of this statement represents the Company’s profit and loss account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Company.

The net profit for the year disclosed above represents the Company’s total comprehensive income.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 AUGUST 2017




Note
Called up 
share 
capital 
£’000 
Share 
premium 
account 
£’000 
Capital
redemption
reserve 
£’000 

Capital 
reserves 
£’000 

Special 
reserve 
£’000 

Revenue 
reserve 
£’000 


Total 
£’000 
For the year ended 31 August 2017
At 31 August 2016 110  63,214  130  216,059  4,555  10,840  294,908 
Total comprehensive income:
Profit for the year –  –  –  56,055  –  5,172  61,227 
Transaction with owners, recorded directly to equity:
Ordinary shares purchased into treasury –  –  –  (357) (1,665) –  (2,022)
Tender offer into Treasury –  –  –  (15,027) (2,882) –  (17,909)
Share purchase and tender costs –  –  –  (189) (8) –  (197)
Tender cost accruals written back –  –  –  111  –  –  111 
Dividends paid (a) –  –  –  –  –  (5,391) (5,391)
 --------   --------   --------   --------   --------   --------   -------- 
At 31 August 2017 110  63,214  130  256,652  –  10,621  330,727 
 --------   --------   --------   --------   --------   --------   -------- 
For the year ended 31 August 2016
At 31 August 2015 130  61,899  110  178,960  10,115  10,245  261,459 
Total comprehensive income:
Profit for the year –  –  –  37,099  –  5,782  42,881 
Transaction with owners, recorded directly to equity:
Exercise of subscription shares –  1,315  –  –  –  –  1,315 
Ordinary shares purchased into treasury –  –  –  (5,582) –  (5,582)
Ordinary shares purchased and cancelled (20) –  20  –  –  –  – 
Share purchase costs written back –  –  –  –  22  –  22 
Dividends paid (b) –  –  –  –  –  (5,187) (5,187)
    --------   --------   --------   --------   --------   --------   -------- 
At 31 August 2016 110  63,214  130  216,059  4,555  10,840  294,908 
 --------   --------   --------   --------   --------   --------   -------- 


(a)  Interim dividend paid in respect of the year ended 31 August 2017 of 1.75p per share was declared on 26 April 2017 and paid on 26 May 2017. Final dividend paid in respect of the year ended 31 August 2016 of 3.65p per share was declared on 19 October 2016 and paid on 5 December 2016.

(b)  Interim dividend paid in respect of the year ended 31 August 2016 of 1.65p per share was declared on 19 April 2016 and paid on 27 May 2016. Final dividend paid in respect of the year ended 31 August 2015 of 3.35p per share was declared on 22 October 2015 and paid on 18 December 2015.

BALANCE SHEET AS AT 31 AUGUST 2017


Notes 
2017 
£’000 
2016 
£’000 
Fixed assets
Investments held at fair value through profit or loss 334,660  295,592 
    --------   -------- 
Current assets
Debtors 5,010  1,841 
Cash and cash equivalents –  432 
    --------   -------- 
5,010  2,273 
    --------   -------- 
Creditors – amounts falling due within one year
Bank overdraft (5,748) – 
Other creditors (3,195) (2,957)
    --------   -------- 
(8,943) (2,957)
    --------   -------- 
Net current liabilities (3,933) (684)
    --------   -------- 
Net assets 330,727  294,908 
    ========   ======== 
Capital and reserves
Called up share capital 110  110 
Share premium account 63,214  63,214 
Capital redemption reserve 130  130 
Capital reserves 256,652  216,059 
Special reserve –  4,555 
Revenue reserve 10,621  10,840 
    --------   -------- 
Total shareholders’ funds 330,727  294,908 
    ========   ======== 
Net asset value per ordinary share 347.05p  287.43p 
    ========   ======== 

STATEMENT OF CASH FLOWS FOR YEAR ENDED 31 AUGUST 2017

2017 
£’000 
2016 
£’000 
Operating activities
Net profit before taxation 62,004  42,508 
Add back finance costs 89  63 
Gains on investments held at fair value through profit or loss (57,909) (38,028)
Net gains on foreign exchange (270) (997)
Sales of investments 342,583  191,634 
Purchase of investments (326,523) (188,018)
Increase in debtors (110) (100)
Increase/(decrease) in other creditors 189  (761)
Tax on investment income (1,256) (858)
Refund of withholding tax reclaim 312  1,024 
 --------   -------- 
Net cash generated from operating activities 19,109  6,467 
 --------   -------- 
Financing activities
Purchase of ordinary shares (19,931) (5,582)
Share issue and share repurchase costs (paid)/refunded (183) 65 
Proceeds from issue of subscription shares –  1,315 
Interest paid (54) (63)
Dividends paid (5,391) (5,187)
 --------   -------- 
Net cash used in financing activities (25,559) (9,452)
 --------   -------- 
Decrease in cash and cash equivalents (6,450) (2,985)
 --------   -------- 
Cash and cash equivalents at the beginning of the year 432  2,420 
Effect of foreign exchange rate changes 270  997 
 --------   -------- 
Cash and cash equivalents at the end of the year (5,748) 432 
 --------   -------- 
Comprised of:
Cash at bank – 
Bank overdraft (5,748) – 
BlackRock's Institutional Cash Series plc – Euro Assets Liquidity Fund –  430 
 --------   -------- 
(5,748) 432 
 ========   ======== 

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
The principal accounting policies adopted by the Company are set out below:

(a) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with FRS 102 and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in November 2014 and the provisions of the Companies Act 2006.

The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. 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 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.

Special dividends are recognised on an ex-dividend basis and treated as capital or revenue depending on the facts or circumstances of each dividend.

Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable, without adjustment for tax credits attaching to the dividend. Dividends from overseas companies continue to be shown gross of withholding tax.

Deposit interest receivable is accounted for on an accruals basis.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.

(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 treated as capital. Details of transaction costs on the purchases and sales of investments are disclosed in note 10, on page 52 of the Annual Report and Financial Statements;

  • the investment management fee has been allocated 80% to the capital column and 20% to the revenue column of the Income Statement 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;

  • expenses relating to tender costs are taken to capital reserves.

(f) Finance costs
Finance costs are accounted for on an effective yield method and on an accrual basis. Finance costs are allocated, insofar as they relate to the financing of the Company’s investments, 80% to the capital column and 20% to the revenue column of the Income Statement, 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
The current tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.

Deferred taxation is recognised in respect of all timing differences at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to less taxation in the future have occurred at the balance sheet date. Deferred tax is measured on a non-discounted basis, at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by 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 Section 11 and 12 of FRS102 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. Purchases of investments are recognised on a trade date basis. Sales are recognised at the trade date of the disposal and the proceeds are measured at fair value, which is regarded as the proceeds of the sale less any transaction costs.

The fair value of the financial investments is based on their quoted bid price at the balance sheet date on the exchange on which the investment is quoted, without deduction for the estimated future selling costs.

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.

The fair value hierarchy consists of the following three levels:

Level 1 – Quoted prices for identical instruments in active markets

Level 2 – Valuation techniques using observable inputs

Level 3 – Valuation techniques using significant unobservable inputs

(i) Debtors
Debtors include sales for future settlement, other debtors and pre-payments and accrued income in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

(j) Creditors
Creditors include purchases for future settlements, interest payable, share buy back costs and accruals in the ordinary course of business. Creditors are classified as creditors - amounts due within one year if payment is due within one year or less. If not, they are presented as creditors - amounts due after more than one year.

(k) Dividends payable
Under Section 32 of FRS 102, 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 Statement of Changes in Equity when they have been approved by shareholders and have become a liability of the Company. Interim dividends are only recognised in the financial statements in the period in which they are paid.

 (l) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents include bank overdrafts repayable on demand and short term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

(m) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to nominate a functional currency being the currency in which the Company predominately operates. The functional and reporting currency is sterling, reflecting the primary economic environment in which the Company operates. Transactions in foreign currencies are translated into sterling at the rates of exchange ruling on the date of the transaction. Foreign currency monetary assets and liabilities and non-monetary assets held at fair value are translated into sterling at the rates of exchange ruling at the Balance Sheet date. Profits and losses thereon are recognised in the capital column of the Income Statement and taken to the capital reserve.

3. INCOME

2017 
£’000 
2016 
£’000 
Investment income:
Overseas dividends 6,922  6,126 
Overseas special dividends 314  180 
 --------   -------- 
7,236  6,306 
 --------   -------- 
Other income:
Interest on WHT reclaims –  162 
 --------   -------- 
–  162 
 --------   -------- 
Total 7,236  6,468 
 ========   ======== 

Dividends and interest received during the period amounted to £7,131,000 and £nil respectively (2016: £6,198,000 and £162,000).
Special dividends of £nil have been recognised in capital (2016: £410,000) and deducted from investment costs.

4. INVESTMENT MANAGEMENT FEE

2017 2016
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Investment management fee 515  2,058  2,573  462  1,850  2,312 
 --------   --------   --------   --------   --------   -------- 
Total 515  2,058  2,573  462  1,850  2,312 
 ========   ========   ========   ========   ========   ======== 

The investment management fee is levied quarterly, based on 0.85% per annum of net asset value on the last day of each month. The investment management fee is allocated 80% to capital reserves and 20% to the revenue reserve.

5. OTHER OPERATING EXPENSES

2017 
£’000 
2016 
£’000 
Taken to revenue
Custody fees 38  30 
Depositary fees 41  37 
Audit fees 24  24 
Registrars’ fees 75  84 
Directors’ emoluments 117  116 
Marketing fees 90  49 
Other administration costs 335  204 
 --------   -------- 
720  544 
Taken to capital: --------  --------
Transaction charges 29  36 
 --------   -------- 
749  580 
The Company’s ongoing charges, calculated as a percentage of average shareholders’ funds and using operating expenses, finance costs, and taxation were:
1.10% 

1.07% 
 ========   ======== 

6. DIVIDENDS

Record 
date 
Payment 
date 
2017 
£’000 
2016 
£’000 
2015 Final dividend of 3.35p 6 November 2015  18 December 2015  –  3,494 
2016 Interim dividend of 1.65p 29 April 2016  27 May 2016  –  1,693 
2016 Final dividend of 3.65p 3 November 2016  5 December 2016  3,723  – 
2017 Interim dividend of 1.75p 4 May 2017  26 May 2017  1,668  – 
 --------   -------- 
5,391  5,187 
 ========   ======== 

The Directors have proposed a final dividend of 3.70p per share in respect of the year ended 31 August 2017. The dividend will be paid on 8 December 2017, subject to shareholders’ approval on 29 November 2017, to shareholders on the Company’s register on 3 November 2017. 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 total dividends payable in respect of the year which form the basis of determining retained income for the purpose 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 2017, meet the relevant requirements as set out in this legislation.

Dividends paid or proposed on equity shares 2017 
£’000 
2016 
£’000 
Interim paid of 1.75p (2016: 1.65p) 1,668  1,693 
Final proposed of 3.70p* (2016: 3.65p) 3,526  3,723 
 --------   -------- 
5,194  5,416 
 --------   -------- 

*     Based on 95,295,953 ordinary shares (excluding treasury shares) in issue on 23 October 2017.

All dividends paid or payable are distributed from the Company’s revenue profits.

7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue and capital earnings per share are shown below and have been calculated using the following:

2017  2016 
Net revenue profit attributable to ordinary shareholders (£’000) 5,172  5,782 
Net capital profit attributable to ordinary shareholders (£’000) 56,055  37,099 
 --------   -------- 
Total profit attributable to ordinary shareholders (£’000) 61,227  42,881 
 --------   -------- 
Total shareholders’ funds (£’000) 330,727  294,908 
 --------   -------- 
Earnings per share
The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: 97,046,595  103,222,155 
 --------   -------- 
The actual number of ordinary shares in issue at the end of the year on which the net asset value was calculated was: 95,295,953  102,603,113 
 --------   -------- 
The number of ordinary shares in issue, including treasury shares at the year end was: 110,328,938  110,328,938 
 --------   -------- 
Calculated on weighted average number of ordinary shares
Revenue profit 5.33p  5.60p 
Capital profit 57.76p  35.94p 
 --------   -------- 
Total 63.09p  41.54p 
 ========   ======== 

   

2017  2016 
Net asset value 347.05p  287.43p 
 --------   -------- 
Ordinary share price  328.00p   272.00p 
 --------   -------- 

There are no dilutive securities at the year end.

8. SHARE CAPITAL

Ordinary 
shares 
number 
Treasury 
shares 
number 

Total 
shares 


£’000 
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 0.1p each
At 31 August 2016 102,603,113  7,725,825  110,328,938  110 
Shares repurchased and held in treasury (725,000) 725,000  –  – 
Shares bought back to treasury pursuant to tender offer (6,582,160) 6,582,160  –  – 
 --------   --------   --------   -------- 
At 31 August 2017 95,295,953  15,032,985  110,328,938  110 
 ========   ========   ========   ======== 

During the year 725,000 ordinary shares were repurchased and held in treasury (2016: 1,000,000) for a total consideration, including expenses, of £2,032,000 (2016: £2,461,000). During the year there was also a tender offer and 6,582,160 shares were transferred into treasury (2016: 1,236,927) for a total consideration of £18,096,000 (2016: £3,099,000). The number of ordinary shares in issue at the year end was 110,328,938 (2016: 110,328,938) of which 15,032,985 were held in treasury (2016: 7,725,825). No treasury shares were issued or cancelled during the year (2016: nil).

9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). Section 11 of FRS102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note in the Annual Report and Financial Statements on page 47.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

The fair value hierarchy has the following levels:

Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.

Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.

This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.

The table below is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.

Financial assets at fair value through profit or loss at
31 August 2017
Level 1 
£’000 
Level 2 
£’000 
Level 3 
£’000 
Total 
£’000 
Equity investments 334,660  –  –  334,660 
 ========   ========   ========   ======== 

   

Financial assets at fair value through profit or loss at
31 August 2016 
Level 1 
£’000 
Level 2 
£’000 
Level 3 
£’000 
Total 
£’000 
Equity investments 295,592  –  –  295,592 
 ========   ========   ========   ======== 

There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31 August 2017 and 31 August 2016. The Company did not hold any Level 3 securities throughout the financial year or as at 31 August 2017 (2016: nil).

10. TRANSACTIONS WITH MANAGER AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report on pages 18 and 19 of the Annual Report and Financial Statements.

The investment management fee is levied quarterly, based on 0.85% per annum of net asset value on the last day of each month. The investment management fee due for the year ended 31 August 2017 amounted to £2,573,000 (2016: £2,312,000). At the year end, £1,352,000 was outstanding in respect of the management fee (2016: £1,190,000).

At 31 August 2017 the Company did not hold an investment in BlackRock’s Institutional Cash Series plc - Euro Liquidity Fund liquidity (2016: £430,000).

In addition to the above services BlackRock provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 August 2017 amounted to £90,000 excluding VAT (2016: £49,000). Marketing fees of £70,000 excluding VAT were outstanding at 31 August 2017 (2016: £45,000).

11. RELATED PARTY DISCLOSURE
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report on pages 26 and 27 of the Annual Report and Financial Statements. At 31 August 2017, £12,000 (2016: £9,000) was outstanding in respect of Directors’ fees.

12. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 August 2017 (2016: nil).

13. 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 2017 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 2017 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 2016, 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.

14. ANNUAL REPORT

Copies of the Annual Report and Financial Statements 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.

15. ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held at the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 29 November 2017 at 12.00 noon.

ENDS

The Annual Report will also be available on the BlackRock website at 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 Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284

Stefan Gries, Fund Manager, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000

Press enquiries:

Lucy Horne, Lansons Communications – Tel:  020 7294 3689
E-mail: lucyh@lansons.com

12 Throgmorton Avenue
London
EC2N 2DL
23 October 2017
 

UK 100

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