Final Results
BlackRock Greater Europe Investment Trust plc
LEI: 5493003R8FJ6I76ZUW55
Annual results announcement
for the year ended 31 August 2018
FINANCIAL HIGHLIGHTS
Attributable to ordinary shareholders |
As at 31 August 2018 |
As at 31 August 2017 |
Change % |
| Assets | |||
| Net asset value per ordinary share | 382.17p | 347.05p | +10.1 |
| - with dividends reinvested* | – | – | +11.8 |
| Net assets (£’000)** | 330,419 | 330,727 | -0.1 |
| Ordinary share price (mid-market) | 363.00p | 328.00p | +10.7 |
| - with dividends reinvested* | – | – | +12.5 |
| FTSE World Europe ex UK Index (total return) | 1,390.67 | 1,371.28 | +1.4 |
| ===== | ===== | ===== |
| For the year ended 31 August 2018 |
For the year ended 31 August 2017 |
Change % |
|
| Revenue | |||
| Net profit after taxation (£’000) | 5,347 | 5,172 | +3.4 |
| Revenue profit per ordinary share – basic and diluted | 5.95p | 5.33p | +11.6 |
| ===== | ===== | ===== |
* Net asset value and share price performance include the dividend reinvestments. Further details of the calculation of performance with dividends reinvested are given in the glossary on pages 75 and 76 of the Annual Report and Financial Statements.
** The change in net assets reflects the tender offers implemented in the year, buyback of shares into treasury and market movements.
CHAIRMAN’S STATEMENT
PERFORMANCE OVERVIEW
It is very encouraging that in the year to 31 August 2018 the Company’s net asset value per share (NAV) increased by 11.8%, well ahead of a rise of 1.4% in the FTSE World Europe ex UK Index. The share price rose by 12.5% over the same period. (All percentages calculated in sterling terms with dividends reinvested.)
The significant outperformance of the Company’s NAV over the year was largely attributable to good stock selection. More details of contributors to performance can be found in the Investment Manager’s Report.
Following a strong start to the year which saw economic growth and improving corporate profitability in the region, equity returns have been more subdued of late. After a brief period of optimism following last year’s French elections, political uncertainty returned to the fore in Europe, mainly in response to Italy’s new populist coalition government, and the future tensions which might arise with the European Union (EU) over public spending. Escalating trade tensions between the U.S. and China and a moderation in headline indicators also led to a more volatile environment, although economic growth in Europe appears to remain firm.
Since the financial year end and up to close of business on 22 October 2018, the Company’s NAV has decreased by 9.8% compared with a fall in the FTSE World Europe ex UK Index of 7.2% over the same period.
REVENUE EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the year ended 31 August 2018 amounted to 5.95p per share, which compares with 5.33p per share for the previous year, an increase of 11.6%. Underlying earnings rose, compared with 2017, due to the receipt of £430,000 in French withholding tax reclaims.
In April the Board declared an interim dividend of 1.75p per share (2017: 1.75p). The Board is proposing the payment of a final dividend of 4.00p per share for the year (2017: 3.70p). This, together with the interim dividend, makes a total dividend for the year of 5.75p per share (2017: 5.45p), an increase of 5.5%. Subject to shareholder approval, the dividend will be paid on 10 December 2018 to shareholders on the Company’s register on 2 November 2018, the ex-dividend date being 1 November 2018.
FRANKED INVESTMENT INCOME (FII) GROUP LITIGATION ORDER (GLO) V HMRC
We were pleased to receive a positive outcome on a tax ruling relating to overseas dividends during the year.
By way of background, in 2003 The Prudential Assurance Company Limited filed a case against HM Revenue & Customs (HMRC) on the treatment of foreign sourced dividends, which the Company joined as a GLO participant. The litigation has been ongoing for many years and concerned the tax treatment of UK-resident companies (including investment funds) that received dividends from portfolio shareholdings in non-UK companies. It had previously been settled that the UK dividend tax regime that applied to portfolio dividends prior to 2009 was contrary to EU law, as UK dividends were not subject to tax whereas non-UK dividends were taxable.
On 25 July 2018 the UK Supreme Court handed down its judgement in the Prudential case. The two points of most relevance to investment funds were how should the UK tax rules treat portfolio dividends to remedy the breach with EU law, and where repayments of overpaid tax are made should accompanying interest be calculated on a compound or simple basis. On the first question the Supreme Court confirmed the approach laid out in the High Court that non-UK dividends remain taxable but credit should be given for the underlying foreign tax at the foreign nominal corporate income tax rate of the source country. On the second point the Supreme Court held that only simple interest need be paid on repayments of overpaid tax.
It is not yet clear how the decision will be practically implemented, or the quantum of the tax repayable to the Company, but it is expected that HMRC will be responding in due course as to how it will resolve the cases of the GLO participants, including the Company. It will not be recognised in the NAV until HMRC has advised that the funds will be remitted.
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 2017, which in common with previous tenders was for up to 20% of the ordinary shares in issue at the prevailing NAV. Valid tenders for 6,494,090 shares (6.81% of the shares in issue excluding treasury shares) were received at a price of 333.76p per share. The Directors also exercised their discretion to operate the half yearly tender offer in May 2018, which in common with previous tenders was for up to 20% of the ordinary shares in issue at the prevailing NAV. Valid tenders for 2,317,172 shares (2.61% of the shares in issue excluding treasury shares) were received at a price of 351.43p per share.
It was announced on 17 September 2018 that the next semi-annual tender offer will take place on 30 November 2018. 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 will be enclosed with the 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 25,000 ordinary shares in the market. No shares have been purchased since the year end, up to and including the date of this report.
Resolutions to renew the Company’s semi-annual tender offers and share buy back authorities will be put to shareholders at the forthcoming Annual General Meeting.
OUTLOOK
European markets have recently been characterised by a higher degree of uncertainty about the economic outlook and higher levels of volatility. A further sharp escalation in trade actions globally could derail economic expansion and have consequences for corporate profits. So far, however, the global economy remains strong and corporate earnings are growing at a healthy pace. Additionally, whilst the European Central Bank plans to end its asset purchases by the end of 2018, it is likely that the Bank will keep interest rates on hold into the second half of 2019, thereby creating a favourable interest rate backdrop.
The Company’s Portfolio Managers remain positive on the outlook for Europe, as underlying fundamentals are robust across domestic and export-led markets. They believe an active investment approach and careful stock picking will continue to uncover attractive investment opportunities in Europe and continue to produce rewarding results for shareholders.
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 Thursday, 6 December 2018 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
24 October 2018
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31 August 2018. 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, 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 The 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 2018, the Company held 41 investments and 3.5% 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 2018. 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 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 1.9% (2017: 1.2%).
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 21 European Equity analysts and a further six 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 2018, the Company’s NAV per share returned +11.8% (compared with a return in the FTSE World Europe ex UK Index of +1.4%) and the share price returned +12.5% (all percentages calculated in sterling terms with dividends 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 £34,784,000 (2017: £61,227,000) which is reflected in the increase in the net asset value of the Company. The revenue return amounted to £5,347,000 (2017: £5,172,000) 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 (2017: 1.75p). The Directors recommend the payment of a final dividend of 4.00p per share, making a total dividend of 5.75p per share (2017: 5.45p). Subject to approval at the forthcoming Annual General Meeting, the dividend will be paid on 10 December 2018 to shareholders on the register of members at the close of business on 2 November 2018.
KEY PERFORMANCE INDICATORS
The Board measures the development and success of the Company’s business through the Company’s investment objective, the achievement of capital growth, which is considered to be the most significant key performance indicator for the Company.
Performance measured against various indices
The Board reviews and compares, at each meeting, the performance of the portfolio as well as the net asset value and share price for the Company and various indices. Information on the Company’s performance is given in the Chairman’s Statement and the Investment Manager’s Report. The Company outperformed its benchmark index in the year ended 31 August 2018.
Share price discount to net asset value (NAV) per share
The Company publishes a NAV per share figure on a daily basis through the official newswire of the London Stock Exchange. This figure is calculated in accordance with the Association of Investment Companies (AIC) formula. At each Board meeting, the Board monitors the level of the Company’s discount to NAV and reviews the average discount/premium for the Company’s relevant sector.
The Board considers the use of share buybacks and semi-annual tender offers to enhance shareholder value. At its regular meetings, it also undertakes reviews of marketing/investor relations and sales reports from the Manager and considers their effectiveness, as well as measures of investor sentiment.
Further details setting out how the discount or premium at which the Company’s shares trade is calculated is included in the glossary on page 75 of the Annual Report and Financial Statements.
Ongoing charges
The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Board reviews the Company’s ongoing charges and monitors expenses to ensure that the total costs incurred by shareholders in the running of the Company remain competitive when measured against peer group funds. An analysis of the Company’s costs, including the management fee, Directors’ fees and general expenses, is submitted to each Board meeting. The management fee is reviewed at least annually. A definition setting out in detail how the operating charges ratio is calculated is included in the glossary on page 76 of the Annual Report and Financial Statements.
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 2018 |
As at 31 August 2017 |
|
| Net asset value per share | 382.17p | 347.05p |
| Net asset value total return1# | +11.8% | +23.0% |
| Share price | 363.00p | 328.00p |
| Share price total return1# | +12.5% | +22.9% |
| Discount to net asset value2 | 5.0% | 5.5% |
| ===== | ===== |
| Year ended 31 August 2018 |
Year ended 31 August 2017 |
|
| Revenue return per share | 5.95p | 5.33p |
| Ongoing charges3*# | 1.09% | 1.10% |
| ===== | ===== |
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 transaction costs, interest costs and after any relief for taxation) as a % of average shareholders’ funds.
# Refer to the Glossary on page 76 of the Annual Report and Financial Statements.
The Board monitors the 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.
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 2018, the Company’s share price discount to NAV ranged from 0.8% to 7.4% calculated on an undiluted cum income NAV.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. The Board has put in place a robust process to assess and monitor the principal 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. Risks are assessed and the risk environment in which the Company operates is also monitored and regularly appraised. New risks are added to the register as they are identified which ensures that the document continues to be an effective risk management tool.
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 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 following table.
| 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 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 maintains 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 - has been assured 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 Guidance and Transparency Rules, the Market Abuse Regulations, the Bribery Act 2010 and Criminal Finances Act 2017. |
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. Following authorisation under the Alternative Investment Fund Managers’ Directive (AIFMD), the Company and its Alternative Investment Fund Manager (AIFM) are subject to the risks that the requirements of the Directive are not correctly complied with. The Board and the AIFM monitor changes in government policy and legislation which may have an impact on the Company. The Market Abuse Regulations came into force across the European Union on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated. |
| 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 and The Bank of New York Mellon (International) Limited, the Depositary, who also 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 15 on pages 56 to 62 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 2016 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 (1.09%); 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 32 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 2018 are set out in the Governance Structure and Directors’ Biographies on page 18 of the Annual Report and Financial Statements. The Board currently consists of two male Directors and two female Directors. The Company’s policy on diversity is set out on page 30 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, form part of this Strategic Report. The Strategic Report was approved by the Board at its meeting on 24 October 2018.
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
24 October 2018
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 investments 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 (£308.2 million) as at 31 December 2017 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 2018 amounted to £99,000 (excluding VAT) (2017: £90,000). 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 currently consists of four non-executive Directors, all of whom are considered to be independent of the Company’s Manager. 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. Two members of the Board hold shares in the Company. Eric Sanderson holds 4,000 ordinary shares and Peter Baxter holds 5,000 ordinary shares.
As at 31 August 2018, fees of £10,000 (2017: £12,000) 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 Guidance 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, 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 34 to 37 of the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report for the year ended 31 August 2018, 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
24 October 2018
INVESTMENT MANAGER’S REPORT
OVERVIEW
The Company enjoyed positive performance with a share price increase of 12.5% and an underlying NAV increase of 11.8% in the twelve months to 31 August 2018. By way of comparison, the FTSE World Europe ex UK Index gained 1.4% over the year (all percentages calculated in sterling terms with dividends reinvested). In Euros, the Company produced a NAV total return of 15.3% in the year to 31 August 2018.
Europe returned to growth in 2017, both from an economic point of view, but also in terms of earnings. The global synchronicity of growth supported European companies which source over 60% of their revenues from outside of the region. Whilst global growth has continued in 2018, a phenomenon particularly evident in the U.S., European confidence has been hit by political upheaval. Where we saw positive opportunities for political and economic reform following the French election in May 2017, optimism has faded following the Italian election in March 2018.
Uncertainty for the political trajectory of Italy has weighed upon confidence in the region. The populist government have moved to undo the reform efforts of the previous governments, and Europe has seen weaker confidence with indicators such as the German IFO, a business climate survey, dropping from the highs reached in 2017, although seeing a slight positive inflection more recently. Interest rate expectations have also been reassessed, with the European Central Bank seen to be unlikely to enact the first interest rate rise until the second half of 2019.
However, whilst leading indicators may have fallen this year, the underlying economic situation in Europe remains robust. Growth continues to progress at above the trend rate, parallel to unemployment falling and consumer confidence remaining buoyant. Company earnings growth also remains positive. Political narratives have been disruptive in the region and have led to a shift in sentiment towards European equities, with investors withdrawing over US$40 billion from the asset class between January and August 2018. However, we believe Europe offers ample opportunities for an active stock picker to generate alpha, irrespective of political or economic agendas.
PORTFOLIO ACTIVITY
The Company outperformed the market over the year, primarily through accurate stock selection. Sector allocation also proved positive for performance with contributions from the higher weighting towards industrials versus the reference index. The sector continued to be supported by positive earnings trends, particularly within construction and materials and aerospace and defence markets. The latter has benefited from a strong inflection in demand for airplanes, so much so that some are being taken out of ‘retirement’. This has been positive for our holding in Safran which has executed strongly on its new LEAP engine roll-out. Their long-term service contracts also look robust, with aftermarket sales performance healthy, both of which are positive for the company’s cash flow. A position in Thales has also performed well with management announcing earnings growth 10% ahead of expectations for the first half of 2018. Despite increasing the group’s Research and Development spending by 14% year-on-year, the profit margins have continued to increase.
Technology has been another area where the Company realised positive returns. A holding in Hexagon, a market leader in measurement quality tools for industrial and consumer industries, performed strongly over the period. At the onset of the year, the CEO was cleared of insider trading accusations which led to a relief rally for the shares. Further to this, the company continues to execute strongly. Their second quarter results highlighted a sequential increase in organic sales growth to 9%, complemented by both margins and earnings numbers ahead of consensus expectations.
Elsewhere in technology, allocation to an Initial Public Offering (IPO) in payments processor Adyen contributed strongly to performance. We allocated to this stock as we felt that Adyen’s approach to customer penetration and ability to win market share in a structurally growing market was positive for potential earnings. Management are guiding for 40%+ growth in 2018. The stock performed exceptionally strongly given the high level of demand for the shares, with order books for the IPO reaching 40x coverage. The company reported results towards the end of August, showing +67% revenue growth year-on-year.
Holdings in the health care sector have also been rewarding for the Company in the year to 31 August 2018. We continue to have a preference for allocating to medical technology stocks over large-cap pharmaceutical companies, where we see idiosyncratic stock issues across a number of companies pertaining to price, pipeline and patents. Lonza Group, a leading chemicals and biotechnology company and the largest holding within the Company at present, provided robust returns over the year. Lonza continues to see accelerating growth rates which led management to upgrade their underlying revenue target at their latest results.
The Company's performance was negatively impacted from being underweight the oil & gas market, which rallied over the year in response to the rising oil price. A mix of sanctions on eastern countries, coupled with the implosion of production in Venezuela and bottle-necks in the Permian basin, led to a constraint in supply and consequently an increase in the price of oil. Whilst this has been supportive for European oil majors, we do not fundamentally believe they have the ability to sustainably improve earnings due to years of underinvestment. As the oil price rises, so do the costs associated with the required investment. We have preferred to hold oil exposed assets in the Emerging European market where we find superior fundamentals.
The lower allocation to financials versus the reference index also contributed to performance over the period. The financial sector, and in particular the banking sector, fell over the period in response to the changing expectations for interest rates in the Eurozone. Following the increase in uncertainty emanating from the Italian political situation, expectations for rates rises were pushed out to the second half of 2019. Banks, as an industry positively exposed to rising rates, saw expectations for earnings fall on this move, aiding the Company. Stock selection in this area, however, was less positive. The largest detractor over the year was a holding in Danske Bank. Whilst Danske operates in superior markets for banking than most Eurozone players, realising higher rates of loan growth with a stronger pricing discipline, they have been plagued by headlines surrounding investigations into money laundering in Estonia. The said event is thought to have taken place between 2011 and 2015. Although the primary regulators have broadly resolved this issue and imposed only small fines, Danske has committed to donate the entire income from that division, which will be taken as a cost on this year’s income statement. Whilst revenue growth continues, this additional cost has led to lower net interest income this year. At present, we continue to hold the stock as we still believe Danske Bank is one of the highest quality names within the European banking sector.
Within the emerging market space, we also realised negative performance in financials holdings. A holding in Greek listed Alpha Bank fell in line with the European financial sell-off given increased political risk. Russian listed Sberbank declined as the market took a pessimistic position on the state-owned bank, again due to political tensions around the fresh round of sanctions imposed on Russia for its actions in Ukraine and Syria and cyber activities aimed at the West.
Overall, however, Emerging Markets continue to be a rich source of returns for the Company, contributing positively to both absolute and relative returns. To specify a few, the holding in Israeli Chemicals contributed to returns as the stock rallied in response to rising potash prices driven by Chinese demand and escalating production issues at its competitors. Stock selection in Russia also contributed with the overweight in Russian energy names, such as Novatek, Gazprom and Rosneft, generating strong returns following the rally in oil prices. The underweight in Turkey benefited relative performance, as the market declined on currency weakness arising from concerns of the persistently high inflation and expanding twin deficits.
Over the period, the Company increased its weighting towards the health care sector, adding to holdings in Lonza and Novo Nordisk which we believe have strong growth opportunities. A position in Grifols was also added. Grifols is a Spanish pharmaceutical and chemical company which operates in the blood plasma market. We believe they are in a strong position to capitalise on the demand in this market and expand margins alongside this.
We added to financials, purchasing a position in FinecoBank. FinecoBank is a leading Italian online bank combining home banking, online trading and investments via the integration of a unique digital platform and an advisory network. FinecoBank has a strong management team which has executed well in investing in low cost digital platform and technology tools. The company has seen improving margins and has a lean cost structure with a strong balance sheet.
The Company reduced its exposure to the consumer segment of the market over the year. After a period of strong performance, we reduced the weighting in luxury goods names. We think a number of these businesses have strong pricing power and continue to hold positions where we believe management execution remains robust but have a cautious eye on valuation. Within media, a holding in Telenet was sold where we saw a weakening in the earnings trajectory and key performance indicators.
At the end of the year, the Company had a higher allocation to industrials, health care, technology and consumer services when compared with the reference index. It held a lower weighting towards financials, consumer goods, utilities, oil & gas, basic materials and telecommunications.
OUTLOOK
The apparent attractiveness of European equities has waned year-to-date. Political headlines have shifted sentiment towards the region and expectations have been reset lower. These expectations, and indeed market positioning, have however come from bullish levels at the onset of 2018. We continue to see earnings progressing positively in the region and note that foreign exchange impacts are probably past their worst. The continued global growth has supported revenues in Europe. Risks are clearly present in the market, but resolutions on trade wars could prove a catalyst for the region and particularly for stocks with depressed valuations. We believe navigating risks and extreme valuations through active stock selection is increasingly important at this stage in the cycle. From a fundamental standpoint, there are ample attractive investment opportunities within Europe which can deliver earnings growth and strong cash flow irrespective of the political environment.
STEFAN GRIES AND SAM VECHT
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
24 October 2018
TEN LARGEST INVESTMENTS AS AT 31 AUGUST 2018
Lonza Group: 5.8% (2017: 4.1%) is a Swiss biotechnology and speciality chemicals company. Through its Pharma & Biotech division, Lonza is one of the leading players in contract development and manufacturing of high-end drugs. We believe the company offers attractive growth, which should ultimately be less dependent upon the general economic cycle, given their large and diversified biopharma and speciality chemicals client base. The recent acquisition of Capsugel, 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.
Novo Nordisk: 4.7% (2017: 3.4%) 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 U.S. 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.
Safran: 4.7% (2017: nil) is a French multinational supplier of systems and equipment for aerospace, defence and security. We believe Safran is a structural winner within the European aerospace sector, with strong execution in its new LEAP engine and growing after-market servicing for previous engine models. The recent acquisition of the underperforming Zodiac business provides further optionality for earnings growth.
SAP: 4.6% (2017: 4.1%) 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.
Sika: 4.6% (2017: 2.7%) is a speciality chemical company with a leading position in both the building sector and automotive industry. Sika has proprietary technology within adhesives, which has an increasing array of applications as technology advances. The company has a growing addressable market, which helps drive attractive organic growth rates. They further support growth via M&A across regions and markets and have a strong balance sheet to facilitate this, as well as a strong track record of integrating these acquired businesses.
Unilever: 3.7% (2017: 4.4%) 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.
Fresenius Medical Care: 3.6% (2017: 3.3%) is the global leader in providing dialysis care and related services to patients suffering from end-stage renal disease. FMC’s most important market is North America where volumes are growing 3% to 4% per annum, which in combination with positive pricing should allow for attractive growth in earnings and cash flows, as well as continued improvement in returns in coming years. Through its Care Coordination business, FMC also benefits from the long-term structural shift towards value based care to aid cost savings in the U.S. health care system.
Thales: 3.2% (2017: 2.4%) is a French multinational company which designs and builds tools servicing aerospace, defence and transportation. In addition to defence, Thales is a leader in digital technology and recently acquired Gemalto, making them the world’s largest digital security business. Thales generates a high return on capital and has a very strong net cash balance sheet, which gives the company significant flexibility and the possibility to pursue acquisitions. We believe the company has an excellent management team who have executed on turnaround, driving organic growth and repairing margins.
Hexagon: 3.2% (2017: 2.6%) is a global technology group headquartered in Sweden. They are a market leader in measurement quality tools for industrial and consumer products, which are essential for productivity in the construction industry. Their increasing focus on software content and product innovation is driving gross margins higher, whilst their strong cash flow and balance sheet can support bolt-on acquisitions to further support growth. We believe their unique technology offering creates a strong competitive position which helps provide high operational leverage and robust growth.
DSV: 3.0% (2017: 3.2%) is a Danish transport and logistics company which provides worldwide transport services by road, air, sea and train. DSV management has heavily invested in a strong digital offering which allows revenue to grow with less incremental cost, supporting the earnings profile. The company also has a strong balance sheet position. They have used this successfully in the past to make acquisitions which they integrate onto their platform and extract value from.
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 2017.
Together, the ten largest investments represent 41.1% of the Company’s portfolio (31 August 2017: 39.0%).
INVESTMENTS AS AT 31 AUGUST 2018
| Country of operation |
Market value £’000 |
% of investments |
|
| Industrials | |||
| Safran | France | 15,725 | 4.7 |
| Sika | Switzerland | 15,413 | 4.6 |
| Thales | France | 10,923 | 3.2 |
| Hexagon | Sweden | 10,658 | 3.2 |
| DSV | Denmark | 10,015 | 3.0 |
| Wartsila | Finland | 9,908 | 2.9 |
| Vinci | France | 8,193 | 2.4 |
| Eiffage | France | 8,063 | 2.4 |
| Schindler Holding | Switzerland | 7,641 | 2.3 |
| Kingspan | Ireland | 7,100 | 2.1 |
| Volvo | Sweden | 6,649 | 2.0 |
| Assa Abloy | Sweden | 6,464 | 1.9 |
| Adyen | Netherlands | 1,124 | 0.3 |
| -------- | -------- | ||
| 117,876 | 35.0 | ||
| -------- | -------- | ||
| Health Care | |||
| Lonza Group | Switzerland | 19,689 | 5.8 |
| Novo Nordisk | Denmark | 15,910 | 4.7 |
| Fresenius Medical Care | Germany | 12,149 | 3.6 |
| Straumann | Switzerland | 7,411 | 2.2 |
| Grifols | Spain | 7,283 | 2.2 |
| Chr. Hansen | Denmark | 4,561 | 1.3 |
| Stratec Biomedical Systems | Germany | 3,599 | 1.1 |
| -------- | -------- | ||
| 70,602 | 20.9 | ||
| -------- | -------- | ||
| Consumer Goods | |||
| Unilever | Netherlands | 12,429 | 3.7 |
| Ferrari | Italy | 8,472 | 2.5 |
| Compagnie Financière Richemont | Switzerland | 6,668 | 2.0 |
| Rémy Cointreau | France | 6,002 | 1.8 |
| Adidas | Germany | 5,135 | 1.5 |
| -------- | -------- | ||
| 38,706 | 11.5 | ||
| -------- | -------- | ||
| Financials | |||
| Danske Bank | Denmark | 6,780 | 2.0 |
| Partners Group | Switzerland | 6,415 | 1.9 |
| Sberbank | Russia | 6,161 | 1.8 |
| KBC Groep | Belgium | 5,652 | 1.7 |
| FinecoBank | Italy | 4,805 | 1.4 |
| Alpha Bank | Greece | 3,973 | 1.2 |
| -------- | -------- | ||
| 33,786 | 10.0 | ||
| -------- | -------- | ||
| Technology | |||
| SAP | Germany | 15,503 | 4.6 |
| ASML | Netherlands | 9,276 | 2.8 |
| Infineon Technologies | Germany | 6,300 | 1.9 |
| -------- | -------- | ||
| 31,079 | 9.3 | ||
| -------- | -------- | ||
| Consumer Services | |||
| Industria de Diseño Textil (Inditex) | Spain | 9,167 | 2.7 |
| RELX | Netherlands | 8,478 | 2.5 |
| Kering | France | 3,254 | 1.0 |
| -------- | -------- | ||
| 20,899 | 6.2 | ||
| -------- | -------- | ||
| Basic Materials | |||
| Israel Chemicals | Israel | 6,377 | 1.9 |
| IMCD | Netherlands | 5,757 | 1.7 |
| -------- | -------- | ||
| 12,134 | 3.6 | ||
| -------- | -------- | ||
| Telecommunications | |||
| Bezeq – Israeli Telecomunication | Israel | 6,030 | 1.8 |
| -------- | -------- | ||
| 6,030 | 1.8 | ||
| -------- | -------- | ||
| Oil & Gas | |||
| Gazprom | Russia | 5,720 | 1.7 |
| -------- | -------- | ||
| 5,720 | 1.7 | ||
| -------- | -------- | ||
| Total investments | 336,832 | 100.0 | |
| -------- | -------- |
All investments are in ordinary shares unless otherwise stated. The total number of investments held at 31 August 2018 was 41 (31 August 2017: 35).
As at 31 August 2018, 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 2018
| % of Portfolio | |
| <€1bn | 1.1 |
| €1bn to €10bn | 14.3 |
| €10bn to €20bn | 23.5 |
| €20bn to €50bn | 39.8 |
| >€50bn | 21.3 |
Source: BlackRock.
INVESTMENT SIZE AS AT 31 AUGUST 2018
| Number of investments | % of Portfolio | |
| <£1m | 0 | 0 |
| £1m to £3m | 1 | 0 |
| £3m to £5m | 5 | 6 |
| £5m to £10m | 25 | 53 |
| >£10m | 10 | 41 |
Source: BlackRock.
DISTRIBUTION OF INVESTMENTS AS AT 31 AUGUST 2018
| % | |
| Industrials | 35.0 |
| Health Care | 20.9 |
| Consumer Goods | 11.5 |
| Financials | 10.0 |
| Technology | 9.3 |
| Consumer Services | 6.2 |
| Basic Materials | 3.6 |
| Telecommunications | 1.8 |
| Oil & Gas | 1.7 |
Source: BlackRock.
INCOME STATEMENT FOR THE YEAR ENDED 31 AUGUST 2018
Notes |
Revenue 2018 £’000 |
Revenue 2017 £’000 |
Capital 2018 £’000 |
Capital 2017 £’000 |
Total 2018 £’000 |
Total 2017 £’000 |
|
| Gains on investments held at fair value through profit or loss | – | – | 31,646 | 57,909 | 31,646 | 57,909 | |
| Gains on foreign exchange | – | – | 100 | 270 | 100 | 270 | |
| Income from investments held at fair value through profit or loss | 3 | 6,948 | 7,236 | – | – | 6,948 | 7,236 |
| Other income | 3 | 41 | – | – | – | 41 | – |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total income | 6,989 | 7,236 | 31,746 | 58,179 | 38,735 | 65,415 | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Expenses | |||||||
| Investment management fees | 4 | (537) | (515) | (2,147) | (2,058) | (2,684) | (2,573) |
| Other operating expenses | 5 | (779) | (720) | (44) | (29) | (823) | (749) |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total operating expenses | (1,316) | (1,235) | (2,191) | (2,087) | (3,507) | (3,322) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit on ordinary activities before finance costs and taxation | 5,673 | 6,001 | 29,555 | 56,092 | 35,228 | 62,093 | |
| Finance costs | (51) | (52) | (118) | (37) | (169) | (89) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit on ordinary activities before taxation | 5,622 | 5,949 | 29,437 | 56,055 | 35,059 | 62,004 | |
| Taxation charge | (275) | (777) | – | – | (275) | (777) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit on ordinary activities after taxation | 7 | 5,347 | 5,172 | 29,437 | 56,055 | 34,784 | 61,227 |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Earnings per ordinary share (pence) | 7 | 5.95 | 5.33 | 32.76 | 57.76 | 38.71 | 63.09 |
| ===== | ===== | ===== | ===== | ===== | ===== |
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 2018
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 2018 | ||||||||
| At 31 August 2017 | 110 | 63,214 | 130 | 256,652 | – | 10,621 | 330,727 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | 29,437 | – | 5,347 | 34,784 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Cancellation of share premium account(a) | – | (63,214) | – | – | 63,214 | – | – | |
| Ordinary shares purchased into treasury | – | – | – | – | (78) | – | (78) | |
| Tender offer into treasury | – | – | – | (21,675) | (8,143) | – | (29,818) | |
| Share purchase and tender costs | – | – | – | (203) | (124) | – | (327) | |
| Tender cost accruals written back | – | – | – | 211 | – | – | 211 | |
| Dividends paid(b) | 6 | – | – | – | – | – | (5,080) | (5,080) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 August 2018 | 110 | – | 130 | 264,422 | 54,869 | 10,888 | 330,419 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| 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: | ||||||||
| Net 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(c) | 6 | – | – | – | – | – | (5,391) | (5,391) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 August 2017 | 110 | 63,214 | 130 | 256,652 | – | 10,621 | 330,727 | |
| ===== | ===== | ===== | ===== | ===== | ===== | ===== |
(a) Share premium account cancelled pursuant to Court approval on 13 February 2018 and £63,214,000 was transferred to a special reserve.
(b) Interim dividend paid in respect of the year ended 31 August 2018 of 1.75p per share was declared on 25 April 2018 and paid on 31 May 2018. Final dividend paid in respect of the year ended 31 August 2017 of 3.70p per share was declared on 23 October 2017 and paid on 8 December 2017.
(c) 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.
BALANCE SHEET AS AT 31 AUGUST 2018
Notes |
2018 £’000 |
2017 £’000 |
|
| Fixed assets | |||
| Investments held at fair value through profit or loss | 336,832 | 334,660 | |
| -------- | -------- | ||
| Current assets | |||
| Debtors | 1,635 | 5,010 | |
| -------- | -------- | ||
| 1,635 | 5,010 | ||
| -------- | -------- | ||
| Creditors – amounts falling due within one year | |||
| Bank overdraft | (5,589) | (5,748) | |
| Other creditors | (2,459) | (3,195) | |
| -------- | -------- | ||
| (8,048) | (8,943) | ||
| -------- | -------- | ||
| Net current liabilities | (6,413) | (3,933) | |
| -------- | -------- | ||
| Net assets | 330,419 | 330,727 | |
| ===== | ===== | ||
| Capital and reserves | |||
| Called up share capital | 8 | 110 | 110 |
| Share premium account | – | 63,214 | |
| Capital redemption reserve | 130 | 130 | |
| Capital reserves | 264,422 | 256,652 | |
| Special reserve | 54,869 | – | |
| Revenue reserve | 10,888 | 10,621 | |
| -------- | -------- | ||
| Total shareholders’ funds | 330,419 | 330,727 | |
| ===== | ===== | ||
| Net asset value per ordinary share (pence) | 7 | 382.17 | 347.05 |
| ===== | ===== |
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 AUGUST 2018
Note |
2018 £’000 |
2017 £’000 |
|
| Operating activities | |||
| Net profit before taxation | 35,059 | 62,004 | |
| Add back: Finance costs expense | 169 | 89 | |
| Gains on investments held at fair value through profit or loss | (31,646) | (57,909) | |
| Net gains on foreign exchange | (100) | (270) | |
| Sales of investments | 228,091 | 342,583 | |
| Purchase of investments | (195,027) | (326,523) | |
| Decrease/(increase) in debtors | 16 | (110) | |
| (Decrease)/increase in other creditors | (556) | 189 | |
| Tax on investment income | (1,349) | (1,256) | |
| Interest paid | (169) | (54) | |
| Refund of withholding tax reclaim | 804 | 312 | |
| -------- | -------- | ||
| Net cash generated from operating activities | 35,292 | 19,055 | |
| -------- | -------- | ||
| Financing activities | |||
| Ordinary shares purchased into treasury | (78) | (2,022) | |
| Tender offer into treasury | (29,818) | (17,909) | |
| Share purchase and tender costs | (257) | (183) | |
| Dividends paid | 6 | (5,080) | (5,391) |
| -------- | -------- | ||
| Net cash used in financing activities | (35,233) | (25,505) | |
| -------- | -------- | ||
| Increase/(decrease) in cash and cash equivalents | 59 | (6,450) | |
| -------- | -------- | ||
| Cash and cash equivalents at the beginning of the year | (5,748) | 432 | |
| Effect of foreign exchange rate changes | 100 | 270 | |
| -------- | -------- | ||
| Cash and cash equivalents at the end of the year | (5,589) | (5,748) | |
| -------- | -------- | ||
| Comprised of: | |||
| Bank overdraft | (5,589) | (5,748) | |
| -------- | -------- | ||
| (5,589) | (5,748) | ||
| ===== | ===== |
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 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (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 updated in January 2017, 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 preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance. The Directors do not believe that any accounting judgements or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
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 reflect better 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 54 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; and
-
expenses relating to tender costs are charged to capital reserves and the special reserve.
(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 taxation 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 FRS 102 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 market price for identical investments 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.
(n) Shares repurchased/tendered and held in treasury
The full cost of shares repurchased/tendered and held in treasury is charged to capital reserves and the special reserve.
3. INCOME
| 2018 £’000 |
2017 £’000 |
|
| Investment income: | ||
| Overseas listed dividends | 6,836 | 6,922 |
| Overseas listed special dividends | 112 | 314 |
| -------- | -------- | |
| 6,948 | 7,236 | |
| -------- | -------- | |
| Other income: | ||
| Bank interest | 2 | – |
| Interest on withholding tax reclaims | 39 | – |
| -------- | -------- | |
| 41 | – | |
| -------- | -------- | |
| Total | 6,989 | 7,236 |
| ===== | ===== |
Dividends and interest received during the period amounted to £6,999,000 and £41,000 respectively (2017: £7,131,000 and £nil).
No special dividends have been recognised in capital during the year (2017: £nil).
4. INVESTMENT MANAGEMENT FEE
| 2018 | 2017 | |||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fee | 537 | 2,147 | 2,684 | 515 | 2,058 | 2,573 |
| ===== | ===== | ===== | ===== | ===== | ===== | |
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
| 2018 £’000 |
2017 £’000 |
|
| Taken to revenue: | ||
| Broker fees | 48 | 42 |
| Custody fees | 42 | 38 |
| Depositary fees | 44 | 41 |
| Audit fees | 26 | 24 |
| Legal fees | 84 | 66 |
| Registrar’s fees | 81 | 75 |
| Directors’ emoluments | 131 | 117 |
| Marketing fees | 99 | 90 |
| Printing and postage fees | 64 | 58 |
| Tax agent fees | 33 | 66 |
| Other administration costs | 127 | 103 |
| -------- | -------- | |
| 779 | 720 | |
| -------- | -------- | |
| Taken to capital: | ||
| Transaction costs | 44 | 29 |
| -------- | -------- | |
| 823 | 749 | |
| -------- | -------- | |
| The Company’s ongoing charges – calculated as a percentage of average shareholders’ funds using operating expenses and excluding transaction costs, finance costs and taxation were: | 1.09% | 1.10% |
| ===== | ===== |
6. DIVIDENDS
Record date |
Payment date |
2018 £’000 |
2017 £’000 |
|
| 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 |
| 2017 Final dividend of 3.70p | 3 November 2017 | 8 December 2017 | 3,526 | – |
| 2018 Interim dividend of 1.75p | 4 May 2018 | 31 May 2018 | 1,554 | – |
| -------- | -------- | |||
| 5,080 | 5,391 | |||
| ===== | ===== |
The Directors have proposed a final dividend of 4.00p per share in respect of the year ended 31 August 2018. The dividend will be paid on 10 December 2018, subject to shareholders’ approval on 6 December 2018, to shareholders on the Company’s register on 2 November 2018. 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 2018, meet the relevant requirements as set out in this legislation.
| Dividends paid or proposed on equity shares | 2018 £’000 |
2017 £’000 |
| Interim paid of 1.75p (2017: 1.75p) | 1,554 | 1,668 |
| Final proposed of 4.00p* (2017: 3.70p) | 3,458 | 3,526 |
| -------- | -------- | |
| 5,012 | 5,194 | |
| ===== | ===== |
* Based on 86,459,691 ordinary shares (excluding treasury shares) in issue on 24 October 2018.
All dividends paid or payable are distributed from the Company’s revenue profits.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue, capital earnings and net asset value per ordinary share are shown below and have been calculated using the following:
| 2018 | 2017 | |
| Net revenue profit attributable to ordinary shareholders (£’000) | 5,347 | 5,172 |
| Net capital profit attributable to ordinary shareholders (£’000) | 29,437 | 56,055 |
| ---------------- | ---------------- | |
| Total profit attributable to ordinary shareholders (£’000) | 34,784 | 61,227 |
| ---------------- | ---------------- | |
| Total shareholders’ funds (£’000) | 330,419 | 330,727 |
| ---------------- | ---------------- | |
| 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: | 89,850,956 | 97,046,595 |
| ---------------- | ---------------- | |
| The actual number of ordinary shares in issue at the end of the year on which the net asset value was calculated was: | 86,459,691 | 95,295,953 |
| ---------------- | ---------------- | |
| 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 (pence) | 5.95 | 5.33 |
| Capital profit (pence) | 32.76 | 57.76 |
| ---------------- | ---------------- | |
| Total (pence) | 38.71 | 63.09 |
| ========= | ========= |
| 2018 | 2017 | |
| Net asset value per share (pence) | 382.17 | 347.05 |
| -------- | -------- | |
| Ordinary share price (pence) | 363.00 | 328.00 |
| ===== | ===== |
There were 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 2017 | 95,295,953 | 15,032,985 | 110,328,938 | 110 |
| Shares repurchased and held in treasury | (25,000) | 25,000 | – | – |
| Shares bought back to treasury pursuant to tender offer | (8,811,262) | 8,811,262 | – | – |
| ---------------- | ---------------- | ---------------- | ---------------- | |
| At 31 August 2018 | 86,459,691 | 23,869,247 | 110,328,938 | 110 |
| ========= | ========= | ========= | ========= |
During the year 25,000 ordinary shares were repurchased and held in treasury (2017: 725,000) for a total consideration, including expenses, of £79,000 (2017: £2,032,000). Additionally, during the year there were two tender offers and 8,811,262 shares were transferred to treasury (2017: 6,582,160) for a total consideration of £30,144,000 (2017: £18,096,000). The number of ordinary shares in issue at the year end was 110,328,938 (2017: 110,328,938) of which 23,869,247 were held in treasury (2017: 15,032,985). No treasury shares were issued or cancelled during the year (2017: 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 34 of FRS 102 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 49.
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 prices in active markets 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 observable market data and the observable 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 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. 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 2018 |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Equity investments | 336,832 | – | – | 336,832 |
| ===== | ===== | ===== | ===== |
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 |
| ===== | ===== | ===== | ===== |
There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31 August 2018 and 31 August 2017. The Company did not hold any Level 3 securities throughout the financial year or as at 31 August 2018 (2017: nil).
10. TRANSACTIONS WITH THE 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 19 and 20 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 2018 amounted to £2,684,000 (2017: £2,573,000). At the year end, £687,000 was outstanding in respect of the management fee (2017: £1,352,000).
In addition to the above services, BIM (UK) provided the Company with marketing services. The total fees paid or payable for these services for the period ended 31 August 2018 amounted to £99,000, excluding VAT (2017: £90,000). Marketing fees of £74,000 were outstanding at 31 August 2018 (2017: £70,000).
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 27 and 28 of the Annual Report and Financial Statements. At 31 August 2018, £10,000 (2017: £12,000) was outstanding in respect of Directors’ fees.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 August 2018 (2017: 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 2018 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 2018 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 2017, 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 Thursday, 6 December 2018 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
24 October 2018
COMPANIES COVERED:
Latest directors dealings
- 1 day ago Cerillion
- 1 day ago Associated British Foods
- 1 day ago B&M European Value Retail S.A. (DI)
- 1 day ago B&M European Value Retail S.A. (DI)
- 1 day ago Haleon