Final Results
MERRILL LYNCH GREATER EUROPE INVESTMENT TRUST plc
Preliminary announcement of results
for the year ended 31 August 2007
* The total return net asset value per ordinary share increased by 18.0%
(2006: 23.5%), compared with a rise in the FTSE World Europe ex UK Index
of 18.8% (2006: 20.3%) (all percentages calculated in sterling terms
with income reinvested).
* Revenue return per share for the year was 3.06p (2006: 2.53p).
* The Directors recommend the payment of a final dividend of 2.40p (2006:
2.00p) per ordinary share payable on 6 December 2007 to shareholders on the
register on 26 October 2007.
* The share price stood at a discount of 1.4% to the NAV at 31 August 2007
(31 August 2006: 3.1%), compared to a peer group average of 4.8%
(31 August 2006: 4.9%) (all percentages sourced from AIC data and
calculated on a capital only basis).
* The NAV as at close of business on 15 October 2007 was 193.72p and the
share price stood at 191.50p, reflecting a narrowing of the discount to
1.1% from the year end position of 1.4%.
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:
"In the final two months of the Company's financial year, European equity
markets experienced marked volatility as global financial markets were
dominated by the crisis in the US sub-prime mortgage market resulting in credit
being repriced and reassessed across capital markets.
"Despite the recent rollercoaster ride, the Company's net asset value ("NAV")
with income reinvested ended the year up by 18.0% and the share price increased
by 20.0% on the same basis. By comparison, the Company's reference index, the
FTSE World Europe ex UK Index, increased by 18.8% (calculated in sterling
terms with income reinvested).
"Revenue return and dividends
Revenue return per share for the year amounted to 3.06p compared with 2.53p for
the previous year, a rise of 20.9%. The Directors are recommending a final
dividend of 2.40p per share, which represents an increase of 20.0% on 2006.
The dividend is payable on 6 December 2007 to shareholders on the Company's
register on 26 October 2007.
"Tender offers
The Directors exercised their discretion to operate the fifth semi-annual
tender offer on 31 May 2007 which was restricted to a maximum of 20% in
aggregate of the shares in issue at the prevailing NAV less 2%. Valid tenders
for 4,885,076 shares were received at a price of 189.41p per share,
representing 3.75% of the shares in issue at the time. All shares tendered in
May have been placed in treasury and the 5,509,887 shares previously held in
treasury were cancelled in line with the Directors' policy.
"It was announced on 28 August 2007 that the next semi-annual tender offer
would take place on 30 November 2007, for up to 20% of shares in issue at the
prevailing NAV per share subject to a discount of 2%. A circular relating to
the tender offer will be posted to shareholders on 26 October 2007.
"Company name
Following the merger of Merrill Lynch Investment Managers with BlackRock in
September 2006, BlackRock became the master brand for the merged business.
Accordingly, a full product rebrand is underway and the Board now expects to
put forward proposals with regard to your Company's name in the Spring of 2008.
"VAT
The Board welcomed the European Court of Justice's ruling in the JP Morgan
Claverhouse case which endorses the AIC claim that investment trusts should be
entitled to a VAT exemption on their management expenses.
"Whilst this should be beneficial for the Company, HM Revenue & Customs
("HMRC") has yet to comment on the judgement and the case has still to be
decided at the UK VAT tribunal to which it has been referred. In addition, in
view of the Company's short history, any amounts recovered from HMRC are not
expected to have a significant impact on the Company's net asset value.
"Outlook
With a wary eye on the US economy, which affects all markets, the Investment
Manager continues to look favourably on the prospects for European equity
markets across the region."
Commenting upon the outlook for the Company, James Macmillan of BlackRock
Investment Management (UK) Limited, the Investment Manager, notes:
"We remain optimistic on the prospects for both Continental and Emerging
European markets. The current equity market sell-off is clearly not the result
of any specific issues in Europe, although some banks in the region have
moderate exposure to the credit market crisis. The extent to which the US
economy is impacted by the challenges in the housing sector will determine the
outcome in global equity markets. In the absence of a consumer driven recession
which would lead to global growth estimates being revised down, the prospects
for European equity markets remain attractive, particularly at current
valuations.
"In the developed parts of Continental Europe recent surveys indicate that both
business and consumer confidence continue to run at high levels; this suggests
that the momentum in economic growth is likely to be sustained in 2007 and
2008. Unlike in previous years, growth is not simply driven by strong export
demand: after many years of weakness there are signs that, as a result of
falling unemployment, domestic demand has picked up in the previously laggard
countries such as Germany and Italy; however, there are some indications that
GDP growth rates in formerly buoyant periphery countries such as Ireland and
Spain, may be slowing as a result of weaker construction activity. Combined
with strong demand growth in emerging market countries (particularly Eastern
Europe, China, India and Latin America) this provides a favourable backdrop for
corporate profits in Europe despite the continued weakness of the US dollar and
we expect a continuation of strong corporate earnings growth in the year ahead.
"In Emerging Europe, economic growth continues to be strong, particularly in
Russia, where the ongoing domestic consumer story acts as a positive driver. We
remain cautious on oil stocks, with concerns over production volumes as well as
taxation, instead preferring the gas sector, where impending price
liberalisation is likely to lift the share price even further. In Turkey, the
AK Party's commitment to continuing reforms is a very positive sign.
"We believe a combination of strong earnings growth and attractive valuations
should allow the equity market to make further progress against what has
become a more challenging international backdrop and we are actively looking
for buying opportunities."
INCOME STATEMENT
for the year ended 31 August 2007
Revenue return Capital return Total
£'000 £'000 £'000
Year Year Year Year Year Year
ended ended ended ended ended ended
31 August 31 August 31 August 31 August 31 August 31 August
2007 2006 2007 2006 2007 2006
Notes (audited) (audited) (audited) (audited) (audited) (audited)
Gains on
investments
held at fair
value through
profit or loss - - 34,318 38,614 34,318 38,614
Income from
investments
held at fair
value through
profit or loss 3 6,642 5,952 - - 6,642 5,952
Other income 3 7 6 - - 7 6
Investment
management fees 4 (252) (241) (1,472) (1,432) (1,724) (1,673)
Operating
expenses 5 (775) (768) - - (775) (768)
----- ----- ----- ----- ----- -----
Net return
before
finance costs
and taxation 5,622 4,949 32,846 37,182 38,468 42,131
Finance costs (212) (180) (850) (719) (1,062) (899)
----- ----- ----- ----- ----- -----
Return on
ordinary
activities
before
taxation 5,410 4,769 31,996 36,463 37,406 41,232
Taxation on
ordinary
activities (1,587) (1,373) 310 645 (1,277) (728)
----- ----- ----- ----- ----- -----
Return on
ordinary
activities
after
taxation 3,823 3,396 32,306 37,108 36,129 40,504
----- ----- ----- ----- ----- -----
Return per
ordinary
share 7 3.06p 2.53p 25.87p 27.65p 28.93p 30.18p
===== ===== ====== ====== ====== ======
The total column of this statement represents the Income Statement 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 operations. No operations
were acquired or discontinued during the year.
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
Share Capital Capital Capital
Share premium redemption Special reserve- reserve- Revenue
capital account reserve reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year
ended
31 August 2007
At 31 August 2006 134 151 30 121,679 54,039 26,209 4,031 206,273
Return for
the year - - - - 32,011 295 3,823 36,129
Shares
purchased (9) - 9 (18,187) - - - (18,187)
Share
purchase
costs - - - (279) - - - (279)
Dividend paid* - - - - - - (2,605) (2,605)
--- --- --- ------- ------ ------ ----- -------
At 31 August 2007 125 151 39 103,213 86,050 26,504 5,249 221,331
=== === === ======= ====== ====== ===== =======
For the year
ended
31 August 2006
At 31 August 2005 140 - 24 136,153 18,753 24,387 2,882 182,339
Return for
the year - - - - 35,286 1,822 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
Dividend paid** - - - - - - (2,247) (2,247)
--- --- --- ------- ------ ------ ----- -------
At 31 August 2006 134 151 30 121,679 54,039 26,209 4,031 206,273
=== === === ======= ====== ====== ===== =======
* Final dividend paid in respect of the year ended 31 August 2006 of 2.00p per
share declared on 16 October 2006 and paid on 30 November 2006.
** 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 2007
2007 2006
£'000 £'000
Notes (audited) (audited)
Non-current assets
Investments held at fair value through profit
or loss 237,326 215,221
Current assets
Debtors 7,121 4,140
Cash 49 4,038
------- -------
7,170 8,178
------- -------
Creditors - amounts falling due within one
year
Bank overdrafts (19,783) (11,703)
Other creditors (3,341) (5,350)
------- -------
(23,124) (17,053)
------- -------
Net current liabilities (15,954) (8,875)
------- -------
Total assets less current liabilities 221,372 206,346
Provision for liabilities and charges (41) (73)
------- -------
Net assets 221,331 206,273
======= =======
Capital and reserves
Share capital 8 125 134
Share premium account 151 151
Capital redemption reserve 39 30
Special reserve 103,213 121,679
Capital reserve - realised 86,050 54,039
Capital reserve - unrealised 26,504 26,209
Revenue reserve 5,249 4,031
------- -------
Total equity shareholders' funds 221,331 206,273
======= =======
Net asset value per ordinary share 7 184.68p 158.38p
======= =======
CASH FLOW STATEMENT
for the year ended 31 August 2007
Year ended Year ended
31 August 31 August
2007 2006
£'000 £'000
(audited) (audited)
Net cash inflow from operating activities 3,354 2,661
Servicing of finance (1,086) (875)
Tax paid (455) (147)
Capital expenditure and financial investment
Purchases of investments (230,290) (226,064)
Proceeds from sale of investments 237,238 241,731
Gains/(losses) on foreign currency
transactions 138 (90)
-------- -------
Net cash inflow from capital expenditure
and financial investment 7,086 15,577
-------- --------
Equity dividends paid (2,605) (2,247)
-------- -------
Net cash inflow before financing 6,294 14,969
-------- -------
Financing
Issue of ordinary shares - 1,558
Purchase of ordinary shares (18,187) (15,588)
Share purchase costs (176) (239)
------- ------
Net cash outflow from financing (18,363) (14,269)
------- ------
(Decrease)/increase in cash (12,069) 700
======= ======
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Year ended Year ended
31 August 31 August
2007 2006
£'000 £'000
(audited) (audited)
Net return before finance costs and taxation 38,468 42,131
Gains on investments held at fair value
through profit or loss (34,318) (38,614)
Decrease/(increase) in accrued income 104 (182)
Decrease in other debtors 10 -
Increase in creditors 81 272
Tax on investment income included within gross
income (991) (946)
----- -----
Net cash inflow from operating activities 3,354 2,661
===== =====
Notes to the PRELIMINARY RESULTS
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 842 of the Income and Corporation Taxes Act 1988.
2. Accounting policies
a) Basis of preparation
The Company's financial statements have been prepared in accordance with UK
Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies'
("SORP") revised in December 2005. The principal accounting policies adopted by
the Company are set out below. All of the Company's operations are of a
continuing nature.
The Company's financial statements are presented in sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£'000) except where
otherwise indicated.
b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the Association of Investment Companies
("AIC"), supplementary information which analyses the Income Statement between
items of a revenue and 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. Provisions are
made for dividends not expected to be received. 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
included with the cost of the investment;
- 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 the revenue account,
in line with the Board's expected long term split of returns, in the form of
capital gains and income respectively, from the investment portfolio.
g) Taxation
Deferred tax is recognised in respect of all temporary 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 held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with FRS 26 - Financial Instrument: Recognition and
Measurement and are managed and evaluated on a fair value basis in accordance
with its investment strategy.
All investments are designated upon initial recognition as held at fair value
through profit or loss. These sales of assets are recognised at the trade date
of the disposal. 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. This
policy applies to all current and non current asset investments of the Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
"Gains or losses on investments held at fair value through profit or loss".
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
i) Dividends payable
Under FRS 21 final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the balance sheet date.
Dividends payable to equity shareholders are recognised in the Reconciliation
of 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 2006 or 2007.
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.
3. Income
Year ended Year ended
31 August 2007 31 August 2006
£'000 £'000
(audited) (audited)
Investment income:
UK dividends 33 -
Overseas dividends 6,609 5,952
------ ------
6,642 5,952
Other operating income:
Deposit interest 7 6
----- -----
Total income 6,649 5,958
===== =====
4. Investment management fees
Revenue Capital Total
2007 2006 2007 2006 2007 2006
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fees 223 215 891 860 1,114 1,075
Performance fees - - 409 415 409 415
Irrecoverable VAT 29 26 172 157 201 183
--- --- ----- ----- ----- -----
Total 252 241 1,472 1,432 1,724 1,673
=== === ===== ===== ===== =====
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 £1,114,000 excluding VAT (2006: £1,075,000).
A performance fee of £409,000, excluding VAT, has been accrued based on
outperformance of the Company's share price relative to the FTSE World Europe
ex UK Index over a three year rolling period (2006: £415,000 excluding VAT,
based on outperformance of the Company's share price relative to the FTSE World
Europe ex UK Index over the three years from launch to 31 August 2006).
5. Operating expenses
Year ended Year ended
31 August 2007 31 August 2006
£'000 £'000
(audited) (audited)
Custody fee 89 76
Auditor's remuneration:
- audit services 22 21
- non audit services* 4 4
Directors' emoluments 67 67
Registrar's fees and other operating
expenses 593 600
---- ----
775 768
==== ====
* Non audit services relate to the review of the interim financial statements.
The Company's total expense ratio ("TER"),
calculated as a percentage of average
net assets and using expenses, excluding
performance fees and interest costs,
after relief for taxation was: 0.7% 0.7%
6. Dividends
Year ended Year ended
31 August 2007 31 August 2006
£'000 £'000
(audited) (audited)
Dividend payable on equity shares:
Final proposed of 2.40p (2006: 2.00p) 2,876 2,605
----- -----
2,876 2,605
===== =====
7. Return and net asset value per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
Year ended Year ended
31 August 2007 31 August 2006
(audited) (audited)
Net revenue attributable to ordinary
shareholders (£'000) 3,823 3,396
Net capital return attributable to ordinary
shareholders (£'000) 32,306 37,108
------- -------
Net total return (£'000) 36,129 40,504
======= =======
Equity shareholders' funds (£'000) 221,331 206,273
The weighted average number of ordinary
shares in issue during the year, on which the
return per ordinary share was calculated, was: 124,871,436 134,222,051
The actual number of ordinary shares in
issue at the year end, on which the net asset
value was calculated, was: 119,843,969 130,238,932
The number of ordinary shares in issue
including treasury shares at the year end, was: 124,729,045 133,705,096
31 August 2007 31 August 2006
Revenue Capital Total Revenue Capital Total
Return per share
Calculated on weighted
shares 3.06p 25.87p 28.93p 2.53p 27.65p 30.18p
Calculated on actual
shares 3.19p 26.96p 30.15p 2.61p 28.49p 31.10p
Net asset value per
share 184.68p 158.38p
As the Company's share price at 31 August 2007 and 31 August 2006 stood at a
discount to NAV of greater than 2%, shares could not be sold out of treasury
and consequently there was no dilution to the Company's NAV or return per share
as a result.
8. Share capital
Ordinary Treasury
shares shares
number number Total
(nominal) (nominal) shares £
Authorised share capital
comprised:
Ordinary shares of 0.1p each 900,000,000 - 900,000,000 900,000
----------- ------ ----------- -------
Allotted, issued and fully paid:
Shares in issue at 31 August 2006
(ordinary shares of 0.1p each) 130,238,932 3,466,164 133,705,096 133,705
Shares repurchased and cancelled
pursuant to tender offer on
31 May 2006 - (3,466,164) (3,466,164) (3,466)
Shares transferred into treasury
pursuant to tender offer on
30 November 2006 (5,509,887) 5,509,887 - -
Shares repurchased and cancelled
pursuant to tender offer on
30 November 2006 - (5,509,887) (5,509,887) (5,510)
Shares transferred into treasury - -
pursuant to tender offer on
31 May 2007 (4,885,076) 4,885,076 - -
----------- --------- ----------- -------
At 31 August 2007 119,843,969 4,885,076 124,729,045 124,729
=========== ========= =========== =======
During the year, 10,394,963 ordinary shares were purchased (2006: 6,709,251)
for a total consideration of £18,187,000 (2006: £8,953,000) and a total of
8,976,051 (2006: 6,709,251) shares were subsequently cancelled. The number of
ordinary shares in issue at the year end was 124,729,045 of which 4,885,076
were held in treasury (2006: 3,466,164). There were no sales of shares out of
treasury during the year (2006: 1,000,000).
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
2007 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 2007 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
Wednesday 28 November 2007 at 2.30 p.m.
33 King William Street
London
EC4R 9AS
17 October 2007
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