Final Results

Merrill Lynch Greater Europe IT PLC 17 October 2006 MERRILL LYNCH GREATER EUROPE INVESTMENT TRUST plc Preliminary announcement of results for the year ended 31 August 2006 â€¢ Net asset value per ordinary share increased by 23.5% (2005: 29.9%), compared with a rise in the FTSE World Europe ex UK Index of 20.3% (2005: 24.0%) (all percentages calculated in sterling terms with net income reinvested). â€¢ Revenue return per share for the year was 2.53p (2005: 1.82p). â€¢ The Directors recommend the payment of a final dividend of 2.00p (2005: 1.60p) per ordinary share payable on 30 November 2006 to shareholders on the register on 27 October 2006. â€¢ The share price stood at a discount of 4.7% to the NAV at 31 August 2006 (31 August 2005: 5.3%), compared to a peer group average of 4.9% (31 August 2005: 7.3%). â€¢ The NAV and share price as at close of business on 13 October 2006 were 166.68p and 160.25p respectively reflecting a narrowing of the discount to 3.9% from the year end position of 4.7%. For further information please contact: Jonathan Ruck Keene 020 7743 2178 James Macmillan 020 7743 2289 Nigel Webb 020 7743 5938 BlackRock Investment Management (UK) Ltd Or William Clutterbuck 020 7379 5151 The Maitland Consultancy The Chairman, John Walker-Haworth, comments: 'During the year, the Company's net asset value per share increased by 23.5% (compared with an increase of 20.3% in the FTSE World Europe ex UK Index) and the share price increased by 24.4% (all percentages calculated in sterling terms with net income reinvested). 'Revenue return per share for the year was 2.53p. The Company expects to pay a single annual dividend and is recommending a final dividend of 2.00p (2005: 1.60p) per share. 'The dividend is proposed to be paid on 30 November 2006 to shareholders on the register on 27 October 2006. 'The Company held its third semi-annual tender offer on 31 May 2006. As with the previous offers this was for up to 20% of the shares in issue, at the prevailing net asset value less 2%. In the event, 2.48% of the shares were tendered at a price of 152.93p, which was an encouraging result for the Board and the Investment Manager. 'On 31 July 2006 the Board announced that the next semi annual tender offer would take place on 30 November 2006 in line with previous tenders, for up to 20% of shares in issue at the prevailing net asset value less 2%. 'The name of the Company's Investment Manager was changed at the end of September from Merrill Lynch Investment Managers Limited to BlackRock Investment Management (UK) Limited. I explained the background to this in the Interim Statement of April. This does have implications for the name of the Company, and this is the subject of discussions between the Board and the Investment Manager. I will report to shareholders on the outcome of these discussions in due course. 'The Investment Manager has once again had a very successful year. Despite the expectation of further interest rate increases by the European Central Bank, the Investment Manager remains positive on the prospects for the Company.' Commenting upon the outlook for the Company, James Macmillan of BlackRock Investment Management (UK) Limited, the Investment Manager, notes: 'Recent surveys show that both business and consumer confidence are at high levels in Continental Europe signalling that economic growth has accelerated significantly in 2006. Unlike previous years, growth is not simply driven by strong export demand: after many years of weakness there are signs that domestic demand is now picking up in the lagging countries such as Germany and Italy; growth rates in periphery countries such as Denmark, Greece, Ireland, Norway, Spain and Sweden remain buoyant. This provides a very favourable backdrop for corporate profits in Europe. The corollary is that most observers expect the European Central Bank to raise interest rates further in the coming months to counter the threat of higher inflation. Meanwhile, the operating performance of European listed companies remains highly satisfactory as a result of strenuous cost control and restructuring efforts. Another year of positive returns from European stock markets is in prospect. 'The expectations for returns in emerging Europe are positive. Above average economic growth, ongoing economic liberalisation and inexpensive valuations should continue to support equity markets in the region. 'In the absence of an external shock we believe European equities should remain on an upward trajectory.' INCOME STATEMENT for the year ended 31 August 2006 Revenue Return Year ended Period ended 31 August 31 August 2006 2005* Â£'000 Â£'000 (audited) (audited) Notes Gains on investments held at fair value through profit or loss - - Income from investments held at fair value through profit or loss 2 5,958 4,836 Investment management fees 3 (241) (77) Operating expenses 4 (768) (617) ---------- ---------- Net return before finance costs and taxation 4,949 4,142 Finance costs (180) (25) ---------- ---------- Return on ordinary activities before taxation 4,769 4,117 Taxation on ordinary activities (1,373) (1,235) ---------- ---------- Return on ordinary activities after taxation 3,396 2,882 ---------- ---------- Return per ordinary share 6 2.53p 1.82p ====== ====== * Restated (see note 8) The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies. The Company had no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movement in Shareholders' Funds. All items in the above statement derive from continuing activities. No operations were acquired or discontinued during the year. INCOME STATEMENT - continued for the year ended 31 August 2006 Capital Return Year ended Period ended 31 August 31 August 2006 2005 Â£'000 Â£'000 (audited) (audited) Notes Gains on investments held at fair value through profit or loss 38,614 43,425 Income from investments held at fair value through profit or loss 2 - - Investment management fees 3 (1,432) (307) Operating expenses 4 - - ---------- ---------- Net return before finance costs and taxation 37,182 43,118 Finance costs (719) (100) ---------- ---------- Return on ordinary activities before taxation 36,463 43,018 Taxation on ordinary activities 645 122 ---------- ---------- Return on ordinary activities after taxation 37,108 43,140 ---------- ---------- Return per ordinary share 6 27.65p 27.22p ====== ====== The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies. The Company had no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movement in Shareholders' Funds. All items in the above statement derive from continuing activities. No operations were acquired or discontinued during the year. INCOME STATEMENT - continued for the year ended 31 August 2006 Total Return Year ended Period ended 31 August 31 August 2006 2005* Â£'000 Â£'000 (audited) (audited) Notes Gains on investments held at fair value through profit or loss 38,614 43,425 Income from investments held at fair value through profit or loss 2 5,958 4,836 Investment management fees 3 (1,673) (384) Operating expenses 4 (768) (617) ---------- ---------- Net return before finance costs and taxation 42,131 47,260 Finance costs (899) (125) ---------- ---------- Return on ordinary activities before taxation 41,232 47,135 Taxation on ordinary activities (728) (1,113) ---------- ---------- Return on ordinary activities after taxation 40,504 46,022 ---------- ---------- Return per ordinary share 6 30.18p 29.04p ====== ====== * Restated (see note 8) The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies. The Company had no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movement in Shareholders' Funds. All items in the above statement derive from continuing activities. No operations were acquired or discontinued during the year. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Share Share Capital Special Other Revenue Total capital premium redemption reserve reserve Â£'000 reserve capital Â£'000 Â£'000 account Â£'000 Â£'000 reserves Â£'000 Â£'000 For the year ended 31 August 2006 At 31 August 2005 (audited)* 140 - 24 136,153 43,140 2,882 182,339 Return for the year - - - - 37,108 3,396 40,504 Shares purchased (6) - 6 (15,588) - - (15,588) Share purchase costs - - - (293) - - (293) Shares sold out of treasury - 151 - 1,407 - - 1,558 Dividends paid** - - - - - (2,247) (2,247) --------- --------- ----------- ----------- ---------- ----------- ----------- At 31 August 2006 134 151 30 121,679 80,248 4,031 206,273 ===== ===== ======= ======== ======= ====== ======== For the period ended 31 August 2005 (audited) At launch 164 164,684 - - - - 164,848 Issue costs - (600) - - - - (600) Cancellation of share premium account - (164,084) - 164,084 - - - Return for the period - - - - 43,140 2,882 46,022 Shares purchased (24) - 24 (27,673) - - (27,673) Share purchase costs - - - (310) - - (310) Issue costs written back - - - 52 - - 52 --------- --------- ----------- ------------ ---------- --------- ----------- At 31 August 2005* 140 - 24 136,153 43,140 2,882 182,339 ===== ===== ======= ======== ======= ====== ======== * Restated (see note 8) Transaction costs of Â£480,000 were incurred on the acquisition of investments (period ended 31 August 2005: Â£631,000). Costs relating to the disposal of investments during the year amounted to Â£426,000 (period ended 31 August 2005: Â£389,000). All transaction costs have been included within the capital reserve. ** Final dividend paid in respect of the period ended 31 August 2005 of 1.60p per share declared on 17 October 2005 and paid on 28 November 2005. BALANCE SHEET as at 31 August 2006 2006 2005* Â£'000 Â£'000 Notes (audited) (audited) Non-current assets Investments held at fair value through profit or loss 215,221 192,614 Current assets Debtors 4,140 3,801 Cash 4,038 - ---------- ---------- 8,178 3,801 ---------- ---------- Creditors - amounts falling due within one year Bank overdraft (11,703) (8,365) Other creditors (5,350) (5,684) ---------- ---------- (17,053) (14,049) ---------- ---------- Net current liabilities (8,875) (10,248) ---------- ---------- Total assets less current liabilities 206,346 182,366 Provision for liabilities and charges (73) (27) ----------- ---------- Net assets 206,273 182,339 ======= ======= Capital and reserves Share capital 7 134 140 Share premium account 151 - Capital redemption reserve 30 24 Capital reserve - realised 54,039 18,753 Capital reserve - unrealised 26,209 24,387 Special reserve 121,679 136,153 Revenue reserve 4,031 2,882 ----------- ----------- Total equity shareholders' funds 206,273 182,339 ======= ======= Net asset value per ordinary share 6 158.38p 129.86p ======= ======= * Restated (see note 8) CASH FLOW STATEMENT for the year ended 31 August 2006 Year ended Period ended 31 August 31 August 2006 2005 Â£'000 Â£'000 (audited) (audited) Net cash inflow from operating activities 2,661 3,518 Servicing of finance (875) (125) Tax (paid)/received (147) 3 Capital expenditure and financial investment Purchase of investments (226,064) (226,920) Proceeds from the sale of investments 241,731 213,280 Realised losses on foreign currency transactions (90) (216) ----------- ----------- Net cash inflow/(outflow) from capital expenditure and financial investment 15,577 (13,856) ----------- ----------- Equity dividends paid (2,247) - ----------- ----------- Net cash inflow/(outflow) before financing 14,969 (10,460) ----------- ----------- Financing Issue of ordinary shares 1,558 30,555 Purchase of ordinary shares (15,588) (27,673) Issue expenses - (548) Tender offer costs (239) (239) ---------- ---------- Net cash (outflow)/inflow from financing (14,269) 2,095 ---------- ---------- Increase/(decrease) in cash 700 (8,365) ====== ====== RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES Year ended Period ended 31 August 2006 31 August 2005 Â£'000 Â£'000 (audited) (audited) Net return before finance costs and taxation 42,131 47,260 Less: Gains on investments held at fair value through profit or loss (38,614) (43,425) Increase in accrued income (182) (157) Increase in creditors 272 754 Tax on investment income included within gross income (946) (914) ---------- ---------- Net cash inflow from operating activities 2,661 3,518 ====== ====== Notes to the PRELIMINARY RESULTS 1. Accounting policies a) Basis of preparation The financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ('SORP') (revised 2005). All of the Company's operations are of a continuing nature. The same accounting policies used for the period ended 31 August 2005 have been applied with the following exceptions which have arisen from new accounting regulations which apply for the financial year ended 31 August 2006. Under FRS 21 - Events after the Balance Sheet Date, final dividends are recognised in the financial statements from the date they are approved by shareholders. As a result of this change, the financial statements for the period ended 31 August 2005 have been restated and this restatement is recognised in the Reconciliation of Movements in Shareholders' Funds. In addition, the Company has adopted a change in the basis of measurement of the valuation of listed investments to comply with FRS 26 - Financial Instruments: Recognition and Measurement. Prior to 1 January 2005, listed investments were valued at middle market prices. Following the introduction of FRS 26, listed investments are now valued at bid market prices. Unlisted investments are fair valued by the Directors using International Private Equity and Venture Capital Association Guidelines. The effect of this change is to decrease by Â£150,000 the value of listed investments at 31 August 2006 and the net return on ordinary activities after taxation for the year ended 31 August 2006. As permitted by FRS 26, comparatives have not been restated for the change in basis of valuation from mid to bid prices. However, if investments at 31 August 2005 had been restated this would have resulted in a decrease in valuation of Â£141,000. As comparatives were not restated, the impact of the change in the basis of valuation on investments at 31 August 2005 has been taken instead through the Income Statement and resulted in a decrease in gains on investments of Â£150,000 in the year to 31 August 2006 to Â£38,614,000. b) Presentation of Income Statement In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies ('AIC'), supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. In accordance with the Company's status as a UK investment company under section 266 of the Companies Act 1985, net capital returns may not be distributed by way of dividend. c) Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business being investment business. d) Income Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the year. Fixed returns on non-equity securities are recognised on a time apportionment basis. Interest income and expenses are accounted for on an accruals basis. e) Expenses All expenses are accounted for on an accruals basis. Expenses have been treated as revenue except as follows: - expenses which are incidental to the acquisition of an investment are treated as capital and separately disclosed; - the investment management fee has been allocated 80% to capital reserve - realised and 20% to revenue account in line with the Board's expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio. - performance fees have been allocated 100% to capital reserve - realised as performance has been predominantly generated through capital returns of the investment portfolio. f) Finance costs Finance costs are accounted for on an accruals basis. Finance costs are allocated, insofar as they relate to the financing of the Company's investments, 80% to capital reserve - realised and 20% to revenue account, in line with the Board's expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio. g) Taxation Deferred tax is recognised in respect of all timing differences at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. h) Investments designated as held at fair value through profit or loss Purchases of investments are recognised on a trade date basis and designated upon initial recognition as held at fair value through profit or loss. These sales of assets are recognised at the trade date of the disposal. Proceeds will be measured at fair value which will be regarded as the proceeds of sale less any transaction costs. The fair value of the financial instruments is based on their quoted bid price at the balance sheet date, without deduction for the estimated future selling costs. Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Association Guidelines. Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as 'Gains or losses on investments held at fair value through profit or loss'. Also included within this heading are transaction costs in relation to the purchase or sale of investments. i) Dividends payable Under FRS 21 final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the balance sheet date. Interim dividends are recognised within the financial statements when they are paid. Dividends payable to equity shareholders are recognised in the Reconciliation of Movement in Shareholders' Funds when they have been approved by the shareholders and become a liability of the Company. There is no impact from this change on the recognised gains and losses in either 2005 or 2006. However the net assets at 31 August 2005 and 31 August 2006 have been impacted as disclosed in note 8. j) Foreign currency translation All transactions in foreign currencies are translated into sterling at the rates of exchange ruling on the dates of such transactions. Foreign currency assets and liabilities at the balance sheet date are translated into sterling at the exchange rates ruling at that date. Exchange differences arising on the revaluation of investments held as fixed assets are included in capital reserve - unrealised. Exchange differences arising on the translation of foreign currency assets and liabilities are taken to capital reserve - realised. 2. Income Year ended Period ended 31 August 2006 31 August 2005 Â£'000 Â£'000 (audited) (audited) Investment income: - Overseas dividends 5,952 4,691 Other operating income: - Deposit interest 6 145 -------- -------- Total income 5,958 4,836 ===== ===== 3. Investment management fees Revenue Capital Total 2006 2005 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment management fees 215 67 860 269 1,075 336 Performance fees - - 415 - 415 - Irrecoverable VAT 26 10 157 38 183 48 ----- ----- ------- ----- ------- ----- 241 77 1,432 307 1,673 384 === === ===== === ===== === The investment management fee is levied quarterly, based on the value of the market capitalisation on the last day of each month. Investment management fees for the year amounted to Â£1,075,000 excluding VAT (2005: Â£884,000 of which the Investment Manager waived the first Â£548,000). A performance fee of Â£415,000, excluding VAT, has been accrued based on outperformance of the Company's share price relative to the FTSE World Europe ex UK Index over the period from launch to 31 August 2006. Thereafter, any performance fee will be based on the outperformance of the Index over a three year rolling period. No performance fee was payable in respect of the period ended 31 August 2005. 4. Operating expenses Year ended Period ended 31 August 2006 31 August 2005 Â£'000 Â£'000 (audited) (audited) Custody fee 76 69 Auditor's remuneration: - audit services 21 21 - non-audit services 4 17 Directors' emoluments 67 64 Registrar's fees and other operating expenses 600 446 ------- ------- 768 617 ==== ==== The Company's total expense ratio, calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs, after relief for taxation was: 0.7% 0.8% 5. Dividends Year ended Period ended 31 August 2006 31 August 2005 Â£'000 Â£'000 (audited) (audited) Dividends payable on equity shares: Final proposed of 2.00p (2005: 1.60p) 2,605 2,247 ------- -------- 2,605 2,247 ===== ===== 6. Return and net asset value per ordinary share Revenue and capital returns per share are shown below and have been calculated using the following: Year ended Period ended 31 August 2006 31 August 2005 Â£'000 Â£'000 (audited) (audited) Net revenue attributable to ordinary shareholders Â£3,396,000 Â£2,882,000 Net capital gains attributable to ordinary shareholders Â£37,108,000 Â£43,140,000 Net total return Â£40,504,000 Â£46,022,000 Equity shareholders' funds Â£206,273,000 Â£182,339,000* The weighted average number of ordinary shares during the period, on which the return per ordinary share was calculated, was: 134,222,051 158,469,040 The actual number of ordinary shares at the end of each period, on which the net asset value was calculated, was: 130,238,932 140,414,347 The number of ordinary shares in issue including treasury shares, was: 133,705,096 140,414,347 31 August 2006 31 August 2005 Revenue Capital Total Revenue Capital Total Return per share Calculated on weighted shares 2.53p 27.65p 30.18p 1.82p 27.22p 29.04p Calculated on actual shares 2.61p 28.49p 31.10p 2.05p 30.72p 32.77p Net asset value per share 158.38p 129.86p* ======= ======= * Restated - see note 8 As the Company's share price at 31 August 2006 stood at a discount of greater than 2%, shares could not be sold out of treasury and consequently there was no dilution to the Company's net asset value or return per share as a result. 7. Share capital Ordinary Treasury shares shares number number Total (nominal) (nominal) Shares Â£ Authorised share capital comprised: Ordinary shares of 0.1p each 900,000,000 - 900,000,000 900 Allotted, issued and fully paid: Shares in issue at 31 August 2005 (ordinary shares of 0.1p each) 140,414,347 - 140,414,347 140,414 Shares transferred into treasury pursuant to tender offer on 30 November 2005 (7,020,000) 7,020,000 - - Shares repurchased and cancelled pursuant to tender offer on 30 November 2005 (689,251) - (689,251) (689) Shares sold out of treasury on 16 January 2006 250,000 (250,000) - - Shares sold out of treasury on 9 March 2006 250,000 (250,000) - - Shares sold out of treasury on 7 April 2006 500,000 (500,000) - - Shares cancelled from treasury 31 May 2006 - (6,020,000) (6,020,000) (6,020) Shares transferred into treasury pursuant to tender offer on 31 May 2006 (3,466,164) 3,466,164 - - At 31 August 2006 130,238,932 3,466,164 133,705,096 133,705 During the year, 6,709,251 ordinary shares were purchased and cancelled (2005: 24,426,938). The total cost of purchasing these shares was Â£8,953,000 (2005: Â£27,673,000). The number of ordinary shares in issue at the year end was 133,705,096 of which 3,466,164 were held in treasury (2005: 140,414,347). A total of 1,000,000 ordinary shares were sold out of treasury at discounts of less than 2%. 8. Change in presentation and restatement The Income Statement no longer reflects payments of dividends; these are now shown in the Reconciliation of Movement in Shareholders' Funds during the period in which they are approved by shareholders, in the case of final dividends, or in the period in which they are paid for interim dividends. The Income Statement, revenue reserve and Reconciliation of Movement in Shareholders' Funds for the period ended 31 August 2005 have been restated accordingly. The effect on the Balance Sheet at 31 August 2005 Pence per Â£'000 ordinary share Net assets as at 31 August 2005 as previously stated 180,092 128.26 Add back 2005 final dividend declared on 17 October 2005 2,247 1.60 ---------- ---------- Restated net assets as at 31 August 2005 182,339 129.86 ======= ======= 9. Publication of non-statutory accounts The financial information contained in this announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The 2006 annual report and financial statements will be filed with the Registrar of Companies after the Annual General Meeting. The report of the auditor for the year ended 31 August 2005 contains no qualification or statement under section 237(2) or (3) of the Companies Act 1985. 10. Copies of the annual report will be sent to members shortly and will be available from the registered office, c/o The Company Secretary, Merrill Lynch Greater Europe Investment Trust plc, 33 King William Street, London EC4R 9AS. This report will also be available on the BlackRock Investment Management website at www.blackrock.co.uk/its. 11. The Annual General Meeting of the Company will be held at BlackRock Investment Management (UK) Limited, 33 King William Street, London EC4R 9AS on Tuesday 21 November 2006 at 2.30 p.m. 33 King William Street London EC4R 9AS 17 October 2006 This information is provided by RNS The company news service from the London Stock Exchange

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