Interim Results
Merrill Lynch Greater Europe IT PLC
13 April 2006
MERRILL LYNCH GREATER EUROPE INVESTMENT TRUST plc
Interim results for the period ended 28 February 2006
• The undiluted net asset value ('NAV') per share rose by 22.2% over the six months to 28 February 2006
(with net income reinvested). During the same period the FTSE World Europe ex UK Index returned 16.9%.
• The share price rose by 27.2% over the six months to 28 February 2006.
• NAV was 163.30p undiluted and 163.21p diluted (incorporating treasury shares) at 11 April 2006.
• Share price was 161.25p at 11 April 2006.
For further information please contact:
James Macmillan 020 7743 2289
Nigel Webb 020 7743 2302
Merrill Lynch Investment Managers
OR
William Clutterbuck 020 7379 5151
The Maitland Consultancy
The Chairman, John Walker-Haworth, commented:
'I am pleased to report that the Company continued to perform well during the six months to 28 February 2006, through a
combination of good stock selection and strong returns from the Emerging European portfolio. The Company's undiluted
net asset value per share increased by 22.2% and the share price increased by 27.2%, both with net income reinvested.
During the same period, the FTSE World Europe (ex UK Index) returned 16.9%.
'Tender Offer and Discount
'The Company's second semi-annual tender offer took place on 30 November 2005. This offer, like its predecessor, was
for up to 20% of shares in issue at the prevailing net asset value less 2%. Consequently, 7,709,251 shares
representing 5.5% of the shares then in issue were tendered at a price of 133.44p per share. In the event, 689,251
shares were cancelled and the remaining 7,020,000 shares held in treasury from which 250,000 were sold out of treasury
in January 2006 at a price of 144.75p and a discount to net asset value of 1.9%. Since 28 February 2006 a further
750,000 shares have been sold out of treasury at discounts ranging from 1.8% to 1.9%. Further information is given in
note 9.
'The current discount of 1.3% compares favourably with the Company's peer group average of 4.1% and reflects, in the
opinion of the Board, a combination of good investment performance and the beneficial effects of the tender process.
'Investment Manager
'It was announced on 15 February 2006 that MLIM is to merge with BlackRock, the US based investment management
business. The transaction is scheduled to be completed in the second half of 2006 and the new company will be one of
the world's major asset management businesses.
'The direct impact on your Company is expected to be minimal but after the completion of the transaction, the name of
the Investment Manager's combined firm will be BlackRock and eventually most products will assume the BlackRock name.
The Board will communicate with shareholders as and when it is proposed that your Company's name should be changed to
reflect the merger.
'Outlook
'The continued rise in business confidence in Continental Europe and the positive outlook for Emerging Europe has
resulted in your Company enjoying another successful period. Your Board and the Investment Manager believe that
prospects for the second half of the financial year are encouraging.'
Commenting upon the outlook for the Company, James Macmillan of Merrill Lynch Investment Managers, the Investment
Manager, noted:
'The Company continues to have a bias towards financials, mainly through banks but also the diversified financial
services and insurance sectors. We believe the combination of increased real loan demand, limited credit risk and
gains from technology implementation will help companies to grow their earnings. Other key sector weights include
utilities, where we favour the generation companies that are well positioned to benefit from the increase in wholesale
electricity prices, and energy where we prefer refiners and oil service companies to the large oil companies.
'Business confidence continues to rise in Continental Europe with economic developments generally surprising on the
upside. European companies are in a healthier financial position than they have been for many years. The global
economic recovery since 2003 has resulted in very strong cash flow generation, magnified by the dramatic improvement in
profitability due to radical restructuring that we have seen across many European industries. Now that balance sheet
strength has been regained companies are increasingly looking for suitable acquisition candidates, and the market is
now prepared to reward companies that aim to boost the sustainable growth rate of their businesses through increased
investment spending and merger and acquisition activity. European equity valuations are still attractive, earnings
growth is robust and earnings revisions remain positive.
'We continue to believe that the long-term outlook for Emerging Europe is positive, driven by solid domestic economies
and attractive growth rates (higher than those seen in Western Europe), combined with relatively attractive valuations.
'
INCOME STATEMENT
for the six months ended 28 February 2006
Revenue Return £'000
(Restated
see note 3)
Period from Period from
1 June 1 June
Six months 2004 2004
ended to to
28 February 28 February 31 August
2006 2005* 2005*
Notes (unaudited) (unaudited) (audited)
Gains on investments held at fair value through - - -
profit or loss 4 876 443 4,836
5 (116) - (77)
Income 6 (351) (289) (617)
---------- ---------- ----------
Investment management fees
Operating expenses
Net return before finance costs and taxation 409 154 4,142
(109) (5) (25)
Finance costs ---------- ---------- ----------
Return on ordinary activities before taxation 300 149 4,117
(80) (45) (1,235)
Taxation on ordinary activities ---------- ---------- ----------
Return on ordinary activities after taxation 220 104 2,882
====== ====== ======
8 0.16p 0.06p 1.82p
Return per ordinary share - basic and diluted ====== ====== ======
* The Company was incorporated on 1 June 2004 but did not commence trading until 20 September 2004.
INCOME STATEMENT
for the six months ended 28 February 2006
Capital Return £'000
Period from Period from
1 June 1 June
Six months 2004 2004
ended to to
28 February 28 February 31 August
2006 2005* 2005*
Notes (unaudited) (unaudited) (audited)
Gains on investments held at fair value through 40,157 25,983 43,425
profit or loss 4 - - -
5 (1,461) - (307)
Income 6 - - -
---------- ---------- ----------
Investment management fees
Operating expenses
Net return before finance costs and taxation 38,696 25,983 43,118
(435) (18) (100)
Finance costs ---------- ---------- ----------
Return on ordinary activities before taxation 38,261 25,965 43,018
- - 122
Taxation on ordinary activities ---------- ---------- ----------
Return on ordinary activities after taxation 38,261 25,965 43,140
====== ====== ======
8 28.00p 15.75p 27.22p
Return per ordinary share - basic and diluted ====== ====== ======
* The Company was incorporated on 1 June 2004 but did not commence trading until 20 September 2004.
INCOME STATEMENT
for the six months ended 28 February 2006
Total £'000
(Restated
see note 3)
Period from Period from
1 June 1 June
Six months 2004 2004
ended to to
28 February 28 February 31 August
2006 2005* 2005*
Notes (unaudited) (unaudited) (audited)
Gains on investments held at fair value through 40,157 25,983 43,425
profit or loss 4 876 443 4,836
5 (1,577) - (384)
Income 6 (351) (289) (617)
---------- ---------- ----------
Investment management fees
Operating expenses
Net return before finance costs and taxation 39,105 26,137 47,260
(544) (23) (125)
Finance costs ---------- ---------- ----------
Return on ordinary activities before taxation 38,561 26,114 47,135
(80) (45) (1,113)
Taxation on ordinary activities ---------- ---------- ----------
Return on ordinary activities after taxation 38,481 26,069 46,022
====== ====== ======
8 28.16p 15.81p 29.04p
Return per ordinary share - basic and diluted ====== ====== ======
The total column of this statement represents the profit and loss account of the Company.
The Company has no recognised gains and losses other than those disclosed in the Income Statement and the Reconciliation
of Movements in Shareholders' Funds.
* The Company was incorporated on 1 June 2004 but did not commence trading until 20 September 2004.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Share Share Capital Special Other Revenue
capital premium redemption reserve capital reserve Total
£'000 account reserve £'000 reserves £'000 £'000
£'000 £'000 £'000
for the period from
1 June 2004 to
28 February 2005*
At launch 164 164,684 - - - - 164,848
Issue costs - (600) - - - - (600)
Cancellation of share
premium account - (164,084) - 164,084 - - -
Unamortised
management
fee waiver - - - - 196 - 196
Net profit from ordinary
activities - - - - 25,965 104 26,069
------- ------- ------- ------------ ---------- -------- ------------
At 28 February 2005 164 - - 164,084 26,161 104 190,513
==== ==== ==== ======= ====== ==== =======
for the period from
1 June 2004 to
31 August 2005*
At launch 164 164,684 - - - - 164,848
Issue costs - (600) - - - - (600)
Cancellation of share
premium account - (164,084) - 164,084 - - -
Net profit from ordinary
activities - - - - 43,140 2,882 46,022
Share buy backs (24) - 24 (27,673) - - (27,673)
Share buy back costs - - - (310) - - (310)
Issue costs written back - - - 52 - - 52
------- ------- ------- ------------ ----------- --------- ------------
At 31 August 2005 140 - 24 136,153 43,140 2,882 182,339
==== ==== ==== ======= ====== ===== =======
for the six months
ended 28 February 2006
At 31 August 2005
(as restated, see note 3) 140 - 24 136,153 43,140 2,882 182,339
Net profit from ordinary
activities - - - - 38,261 220 38,481
Share buy backs - - - (10,287) - - (10,287)
Share buy back costs - - - (171) - - (171)
Share issue - 28 - 334 - - 362
Dividends paid** - - - - - (2,247) (2,247)
------- ------- ------- ------------ ---------- ------- ------------
At 28 February 2006 140 28 24 126,029 81,401 855 208,477
==== ==== ==== ======= ====== ==== =======
The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserve
and amounted to £509,000 for the six months ended 28 February 2006 (period ended 28 February 2005: £540,000; period
ended 31 August 2005: £1,020,000.)
* The Company was incorporated on 1 June 2004 but did not commence trading until 20 September 2004.
** Final dividend in respect of the period ended 31 August 2005 of 1.60p per share proposed on 17 October 2005 and paid
on 28 November 2005.
BALANCE SHEET
as at 28 February 2006
28 February 28 February * 31 August
2006 2005 2005
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Investments designated as held at fair value
through profit or loss 232,742 196,658 192,614
Current assets
1,310 586 3,801
Debtors ------------ ------------ ------------
1,310 586 3,801
Creditors: amounts falling due within one year
(22,805) (4,188) (8,365)
Bank overdraft (2,770) (2,543) (5,684)
------------ ------------ ------------
Other creditors
(25,575) (6,731) (14,049)
------------ ------------ ------------
Net current liabilities (24,265) (6,145) (10,248)
------------ ------------- ------------
Total assets less current liabilities 208,477 190,513 182,366
Provision for liabilities and charges - - (27)
------------ ------------ ------------
Net assets 208,477 190,513 182,339
======= ======= =======
Capital and reserves
9 140 164 140
Share capital
Share premium account 28 - -
Capital redemption reserve 24 - 24
Capital reserve - realised 35,782 5,882 18,753
Capital reserve - unrealised 45,619 20,279 24,387
Special reserve 126,029 164,084 136,153
Revenue reserve 855 104 2,882
------------ ------------ ------------
Total equity shareholders' funds 208,477 190,513 182,339
======= ======= =======
Undiluted net asset value per share 8 156.80p 115.57p 129.86p
======= ======= =======
Diluted net asset value per share
(diluted from treasury shares) 8 156.69p - -
======= ======= =======
* Restated see note 3.
SUMMARISED CASH FLOW STATEMENT
for the six months ended 28 February 2006
Period from Period from
1 June 1 June
Six months 2004 2004
ended to to
28 February 28 February 31 August
2006 2005 2005
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash (outflow)/inflow from operating activities (84) 353 3,518
Returns on investment and servicing of finance (544) (23) (125)
Taxation received 39 - 3
Capital expenditure and financial investment:
(125,925) (226,920)
Purchase of investments (113,685)
Proceeds from the sale of investments 124,306 79,372 213,280
Realised losses on foreign currency transactions (53) (212) (216)
------------ ------------ ------------
Net cash outflow from capital expenditure and
financial investment (1,672) (34,525) (13,856)
------------ ------------ ------------
Equity dividends paid (2,247) - -
Financing
Issue of ordinary shares 362 30,555 30,555
- (548) (548)
Issue expenses paid (10,287) - (27,673)
(7) - (239)
Purchase of ordinary shares ------------ ------------ ------------
Tender offer costs
Net cash (outflow)/inflow from financing (9,932) 30,007 2,095
------------ ------------ ------------
Decrease in cash in the period (14,440) (4,188) (8,365)
======= ====== ======
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATING
ACTIVITIES
Period from Period from
1 June 1 June
Six months 2004 2004
ended to to
28 February 28 February 31 August
2006 2005 2005
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net return before finance costs and taxation 409 154 4,142
Investment management fees capitalised (1,461) - (307)
Decrease/(increase) in debtors 32 (7) (157)
Increase in creditors 1,059 257 754
Tax on investment income included within gross
income (123) (51) (914)
----------- --------- -----------
Net cash (outflow)/inflow from operating activities (84) 353 3,518
====== ====== ======
Notes to the interim announcement
1. Principal activity
The Company conducts its business so as to qualify as an investment trust company within the meaning of
section 842 of the Income and Corporation Taxes Act 1988.
2. Basis of preparation
The interim financial statements have been prepared on the basis of the accounting policies set out in the
Company's financial statements at 31 August 2005 with the following exceptions:
a) Following the introduction of FRS 26 - Financial Instruments: Recognition and Measurement, quoted
investments are now designated as held at fair value through profit or loss with fair value deemed to
be bid market prices. The effect of this change on the valuation of quoted investments at 28
February 2006 was a decrease of £139,000. As permitted by FRS 26, comparatives have not been
restated for this change in basis of valuation from mid to bid prices. However, if comparatives had
been restated the effect of this change would have been to decrease the value of quoted investments
at 28 February 2005 by £120,000 and 31 August 2005 by £141,000. As comparatives were not restated,
the impact of the change in basis of valuation on investments has been taken instead through the
Income Statement and resulted in a decrease in gains on investments of £141,000 in the current period
to £40,157,000.
b) Under FRS 21 - Events after the Balance Sheet Date, final dividends are no longer accrued in the
accounts but are recognised in the period in which they are approved by the shareholders. As a
result of this change, the financial statements for the period ended 31 August 2005 have been
restated as set out in note 3.
3. Restatement of Balance Sheet at 31 August 2005
Previously
reported Restated
31 August FRS 21 31 August
2005 adjustments 2005
£'000 £'000 £'000
Fixed asset investments 192,614 - 192,614
Current assets 3,801 - 3,801
Creditors: amounts falling due within one year* (16,296) 2,247 (14,049)
------------ ------------ ------------
Total assets less current liabilities 180,119 2,247 182,366
Provision for liabilities and charges (27) - (27)
------------ ------------ ------------
180,092 2,247 182,339
======= ======= =======
Capital and reserves
Share capital 140 - 140
Capital redemption reserve 24 - 24
Special reserve 136,153 - 136,153
Other capital reserves 43,140 - 43,140
Revenue reserve* 635 2,247 2,882
------------ ------------ ------------
180,092 2,247 182,339
======= ======= =======
Undiluted net asset value per ordinary share 128.26p 1.60p 129.86p
======= ======= =======
* No provision has been made for the final dividend on ordinary shares for the period ended 31 August 2005
of £2,247,000.
4. Income
Period from Period from
1 June 1 June
Six months 2004
ended to 2004
28 February 28 February to
2006 2005 31 August
£'000 £'000 2005
(unaudited) (unaudited) £'000
(audited)
Income from investments:
873 314 4,691
- Overseas dividends
Interest receivable and other income:
3 129 145
- Deposit and cash fund interest --------- --------- ---------
Total income 876 443 4,836
===== ===== =====
5. Investment management fees
REVENUE RETURN £'000 Period from Period from
1 June 1 June
Six months 2004 2004
ended to to
28 February 28 February 31 August
2006 2005 2005
(unaudited) (unaudited) (audited)
Investment management fees 103 - 67
Irrecoverable VAT thereon 13 - 10
---------- ---------- ----------
116 - 77
Performance fee - - -
Irrecoverable VAT thereon - - -
---------- ---------- ----------
- - -
---------- ---------- ----------
Total 116 - 77
====== ====== ======
CAPITAL RETURN £'000 Period from Period from
1 June 1 June
Six months 2004 2004
ended to to
28 February 28 February 31 August
2006 2005 2005
(unaudited) (unaudited) (audited)
Investment management fees 413 - 269
Irrecoverable VAT thereon 51 - 38
---------- ---------- ----------
464 - 307
Performance fee 887 - -
Irrecoverable VAT thereon 110 - -
---------- ---------- ----------
997 - -
---------- ---------- ----------
Total 1,461 - 307
====== ====== ======
TOTAL £'000 Six months Period from Period from
ended 1 June 1 June
28 February 2004 2004
2006 to to
(unaudited) 28 February 31 August
2005 2005
(unaudited) (audited)
Investment management fees 516 - 336
Irrecoverable VAT thereon 64 - 48
---------- ---------- ----------
580 - 384
Performance fee 887 - -
Irrecoverable VAT thereon 110 - -
---------- ---------- ----------
997 - -
---------- ---------- ----------
Total 1,577 - 384
====== ====== ======
The Manager agreed to waive its fees in respect of the first accounting period to 31 August 2005 up to a maximum of
£600,000 excluding VAT. As a consequence no management fees were payable for the interim period to 28 February 2005.
The investment management fee is levied quarterly, based on the value of the market capitalisation of the Company on
the last day of each month. A performance fee of £887,000 (excluding VAT) is also payable, which has been calculated
based on the outperformance of the Company's share price relative to the FTSE Europe (ex UK) Index for the period.
6. Operating expenses
Period from Period from
1 June 1 June
Six months 2004
ended to 2004
28 February 28 February
2006 2005 to
£'000 £'000 31 August
(unaudited) (unaudited) 2005
£'000
(audited)
Administration fee 141 110 239
Custody fee 41 26 69
Other administrative costs 169 153 309
------- ------- -------
351 289 617
==== ==== ====
7. Dividend
The Board has not declared an interim dividend, as dividends are considered and paid annually in respect of each
accounting period.
8. Return and net asset value per ordinary share
28 February 28 February 31 August
2006 2005 2005
(unaudited) (unaudited) (audited)
The weighted average number of ordinary shares
during the period, on which the return per
ordinary share was calculated, was: 136,641,791 164,841,285 158,469,040
The actual number of ordinary shares at the
end of each period, on which the net asset value was
calculated, was: 132,955,096 164,841,285 140,414,347
The number of shares in issue including treasury
shares, on which the fully diluted net asset value was
calculated, was: 139,725,096 - -
As at 28 February 2006 the Company had 6,770,000 shares held in treasury which if sold would have resulted in a diluted
net asset value of 156.69p. No fully diluted return per share has been disclosed as calculations indicate the treasury
shares do not have a potentially dilutive effect at this date.
9. Share capital and shares held in treasury
Ordinary shares Treasury shares
number number Total
Shares in issue at 31 August 2005 (ordinary shares
of 0.1p each, issued and allotted, called up and
fully 140,414,347 - 140,414,347
paid)
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)
Shares sold out of treasury on 16 January 2006 250,000 (250,000) -
------------------ --------------- ------------------
Shares in issue at 28 February 2006 132,955,096 6,770,000 139,725,096
========== ======== ==========
250,000 shares were sold out of treasury on 9 March 2006 at a price of 152.75p and a discount of 1.8%. A further
500,000 shares were sold out of treasury on 7 April 2006 at a price of 163.50p and a discount of 1.9%.
Any shares held in treasury will be cancelled if not sold by 31 May 2006.
10. Publication of non-statutory accounts
The financial information contained in this interim report does not constitute statutory accounts as defined in section
240 of the Companies Act 1985. The financial information for the six months ended 28 February 2006 and the period to
28 February 2005 has not been audited.
The information for the period ended 31 August 2005 (as restated) has been extracted from the latest published audited
financial statements, which have been filed with the Registrar of Companies. The report of the independent auditor on
those accounts contained no qualification or statement under sections 237(2) or (3) of the Companies Act 1985.
11. Annual Results
The Company expects to announce the results for the year ending 31 August 2006 in October 2006. The annual report
should be available by the end of October 2006, with the Annual General Meeting being held on 21 November 2006.
33 King William Street
London
EC4R 9AS
12 April 2006
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