Final Results
BLACKROCK GREATER EUROPE INVESTMENT TRUST plc
Annual results announcement
for the year ended 31 August 2011
MANAGEMENT REPORT
Chairman's Statement
Overview
Europe has been struggling to deal with the aftermath of the 2008 financial
crisis and this has weighed heavily on investor sentiment. The continuing
turmoil in sovereign debt markets, with Greece and other economies facing
severe structural issues with no immediate resolution, and the problems this
might cause for European bank balance sheets, has undermined European equities.
Despite this, earnings and share prices increased and in the year ended
31 August 2011 the Company's net asset value ("NAV") per share grew by 7.6%,
compared with a rise of 3.4% in the FTSE World Europe ex UK Index. The
Company's share price rose by 15.6% over the same period. All percentages are
calculated in Sterling terms with income reinvested.
Since the year end, the Company's undiluted NAV per share has declined by 6.8%
compared with a fall in the FTSE World Europe ex UK Index of 3.3% over the same
period.
Revenue return and dividends
The Company's undiluted revenue return for the year to 31 August 2011 amounted
to 6.77p per share compared with 3.13p for the previous year. During this past
year we have seen many of our portfolio companies increasing their
distributions due to excess cash flows. On the basis of this exceptional
income, the Directors are recommending a final dividend of 3.50p per share
(2010: 3.30p), and have declared a special dividend of 2.50p per share. The
dividends will be paid together as a single payment on 8 December 2011 to
shareholders on the Company's register on 28 October 2011; the ex dividend
date is 26 October 2011.
Tender offers
The Directors exercised their discretion to operate the half yearly tender
offer on 31 May 2011. The offer was for up to 20% of the shares in issue at the
prevailing NAV less 2%. In the event, valid tenders for 2,229,788 shares were
received at a price of 219.50p per share, representing 2.29% of the shares in
issue, excluding treasury shares. All shares tendered in May were placed in
treasury and 990,000 shares have subsequently been reissued at a premium to NAV
for total proceeds of £1,723,000. The 2,898,166 shares previously held in
treasury were cancelled.
It was announced on 19 September 2011 that the next semi-annual tender offer
would take place on 30 November 2011, 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 available at the end of October either on the BlackRock
Investment Management website at www.blackrock.co.uk/brge or in hard copy on
request from the Company's registered office c/o The Secretary, BlackRock
Greater Europe Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
Subscription shares
During the year and up to the date of this report, the Company has issued a
total of 1,454,845 ordinary shares following the conversion of 1,454,845
subscription shares. Total proceeds amounted to £2,662,000. The Company now has
97,599,102 ordinary shares (including treasury shares) and 18,351,675
subscription shares in issue.
Subscription shareholders have further opportunities to subscribe for all or
any of the ordinary shares to which their subscription shares relate on each of
31 January, 30 April, 31 July and 31 October until 31 October 2012 at a price
of 183p per share.
Board of Directors
Béatrice Philippe has chosen not to seek re-election as a Director at the
forthcoming Annual General Meeting and so will retire as a Director of the
Company. Béatrice joined the Board at the formation of the Company seven years
ago and I wish to express the thanks and appreciation of the Board for all her
helpful advice and enthusiasm over this period.
Annual General Meeting
The Annual General Meeting of the Company will be held at BlackRock's new
offices at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday,
30 November 2011 at 12.00 noon. The Investment Manager will be making a
presentation to shareholders on the Company's progress and the outlook
for European equity markets.
Outlook
Since the year end on 31 August, the political and economic difficulties and
uncertainties affecting the Eurozone have deepened and European stock markets
have declined, as have the Company's NAV and share price as noted above;
investors must be prepared for continuing market volatility. Despite this most
unhelpful background, there exists and will continue to exist many first class
and profitable companies in Europe and the Company will continue to seek to
invest in the most attractive of these.
John Walker-Haworth
12 October 2011
Key risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
- Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objective and monitoring the performance
of the Investment Manager. An inappropriate strategy may lead to
underperformance against the reference index and the Company's peer group.
To manage this risk the Investment Manager provides an explanation of
significant stock selection decisions and the rationale for the composition
of the investment portfolio. The Board monitors and mandates an adequate
spread of investments, in order to minimise the risks associated with
particular countries or factors specific to particular sectors, based on
the diversification requirements inherent in the Company's investment
policy. The Board also 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.
- Income/dividend risk - The amount of dividends and future dividend growth
will depend on the Company's underlying portfolio. Any change in the tax
treatment of the dividends or interest received by the Company (including
as a result of withholding taxes or exchange controls imposed by
jurisdictions in which the Company invests) may reduce the level of
dividends received by shareholders. The Board monitors this risk through
the receipt of detailed income forecasts and considers the level of income
at each meeting.
- Regulatory risk - The Company operates as an investment trust in accordance
with the requirements of Chapter 4 of Part 24 of the Corporation Tax Act
2010. As such, the Company is exempt from capital gains tax on the sale of
its investments. 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 and the results are reported
to the Board.
- Operational risk - In common with most other investment trust companies,
the Company has no employees. The Company therefore relies upon the
services provided by third parties and is dependent on the control systems
of the Investment Manager and the Company's service providers. The
security, for example, of the Company's assets, dealing procedures,
accounting records and maintenance of regulatory and legal requirements,
depend on the effective operation of these systems. These are regularly
tested and monitored and an internal control report, which includes an
assessment of risks together with procedures to mitigate such risks, is
prepared by the Investment Manager and reviewed by the Audit and Management
Engagement Committee twice a year. The custodian and the Investment Manager
also produce annual internal control reports which are reviewed by their
respective auditors and give assurance regarding the effective operation of
controls and are also reviewed by the Audit and Management Engagement
Committee.
- Market risk - Market risk arises from volatility in the prices of the
Company's investments. It represents the potential loss the Company might
suffer through holding investments in the face of negative market
movements. The Board considers asset allocation, stock selection, unquoted
investments 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.
- Financial risks - The Company's investment activities expose it to a
variety of financial risks that include market price risk, foreign currency
risk, interest rate risk, liquidity risk and credit risk. In addition, it
should be noted that emerging markets tend to be more volatile than more
established stock markets and therefore present a greater degree of risk.
Related party transactions
The Investment Manager is regarded as a related party and details of the
investment management fees payable are set out in note 4.
Statement of Directors' Responsibilities
In accordance with Disclosure and Transparency Rule 4.1.12, each of the
Directors 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 annual report 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.
For and on behalf of the Board
John Walker-Haworth
Chairman
12 October 2011
INVESTMENT MANAGER'S REPORT
Overview
European equity markets continued to be volatile over the twelve months to
31 August 2011. In many ways, the effects of the recent global recession were
still being felt, especially with regards to levels of sovereign indebtedness
and fiscal imbalances. Towards the end of 2010, Ireland's €85 billion bail-out
by the European Financial Stability Facility caused returns in the peripheral
European region, principally in Greece, Portugal, Ireland and Spain, to decline
as the potential for a sovereign default became more evident. Despite an
increase in optimism at the beginning of 2011 about the potential for a
resolution to the sovereign debt crisis, at the end of the year uncertainty
about both the likelihood and method of a solution remained. Later in the
period, concerns arose regarding the solvency of Italy as the yield on Italian
sovereign debt increased, causing the European Central Bank to intervene
directly in the debt markets during August 2011 in an effort to calm the
markets.
Other global events also impacted on the macroeconomic climate. These included
political unrest in North Africa and the Middle East, which caused the oil
price temporarily to reach US$120 per barrel during February 2011, and the
tragic earthquake and subsequent tsunami in Japan during March 2011, which led
to a disruption of the supply chain in some industries and caused power prices
to rise further as the sustainability of nuclear energy was brought into
question. Global markets declined during July and August 2011, caused by
increasing concerns about the levels of debt in the Eurozone and the US, which
was downgraded from its AAA rating by S&P after politicians prevaricated over
raising the ceiling level for national debt.
However, for most of this period of uncertainty, economic data in Northern
Europe continued to be strong with both consumer confidence and industrial
production significantly healthier in Germany and Scandinavia than in southern
Europe. Moreover, corporate profitability remained strong for most of the period
with aggregate earnings beating expectations on the whole and optimistic outlook
statements from company management teams signalling a continuation of recovery in
the region. This recovery somewhat stalled towards the end of the period as global
purchasing manager indices, which indicate levels of industrial productivity,
began to signal a slowdown in the global economy, leading to the market declines
experienced in July and August 2011.
Performance
In this market environment, we are pleased to report that the Company's net
asset value per share increased by 7.6% and its share price gained 15.6% in the
twelve months to 31 August 2011, both in Sterling terms and with income
reinvested. By comparison, the FTSE World Europe ex UK Index rose by 3.4% (with
income reinvested) in the same period.
Portfolio activity
Both the Company's sector allocation and stock selection contributed to returns
during the year. The decision to have lower weightings in the financials sector
benefited returns when measured against the market, as did the decision to have
a higher weighting in the consumer goods sector. At a stock level, positions in
the consumer goods and oil & gas sectors proved the most successful, although
holdings in the industrials and consumer services sectors also performed well.
Holdings in high quality industrial companies performed well throughout the
twelve months, in particular a position in Finnish elevator and escalator
company Kone. Kone generates the majority of its earnings through servicing its
existing installed base; as a result, its earnings are very defensive by nature
and offer attractive growth potential through margin expansion. The company is
also able to benefit from the increase in non-residential construction in the
emerging markets through new equipment sales and is increasing its market
presence in China. Along a similar theme, a position in French electrical
engineering company Legrand performed well during the year. In our view,
Legrand offers best-in-class profitability and strong financial discipline, as
well as valuable access to emerging market growth. Legrand also reported strong
organic growth for the first half of 2011, causing the stock to perform well at
the end of the period.
Within the consumer goods sector, a position in Finnish winter tyre producer
Nokian Renkaat continued to benefit from strong demand in global car sales.
Nokian Tyres offers very strong profitability, especially through its
operations in Russia, and now operates on a leaner cost base than previously,
further aiding the company's growth in profitability following the recession.
The Company's positions in luxury goods also continued to perform well during
the period. In particular, a holding in LVMH contributed strongly to returns.
LVMH currently enjoys sound earnings momentum and increasing demand in Asia,
where consumption continues to grow at a high rate.
Less successful positions included some cyclical industrial companies which
suffered towards the end of the year from a downgrade in global growth
expectations. These included Finnish crane company, Konecranes, and Dutch
staffing company, USG People, which suffered from a disappointing rate of
employment growth in its local markets.
The portfolio maintained a lower than average weight in the financials sector
during the twelve months. Where we did have exposure, we favoured positions in
companies with less vulnerability to European peripheral debt, favourable
capital positions and higher quality loan books. Within the emerging Europe
region, a position in Russian chemical company, Uralkali, performed well for
the Company, benefiting from the increase in demand for potash.
Gearing
The Company made use of its gearing facility for the majority of the year, with
average gearing of 5.1%, although this was lowered at the end of 2010 and in
August 2011 as market volatility increased.
Income
Due to the high corporate profitability, several companies in Europe have been
earning high levels of free cash flow that are enabling them to increase
ordinary dividends and, for certain companies, pay special dividends. This
high profitability has been caused, in part, by cost cutting during the global
recession that has resulted in an increase in corporate profit margins as
revenues have recovered and the re-instatement of ordinary dividends which had
previously been postponed. The Company invests in high return, highly cash
flow-generative businesses and has therefore benefited from this trend.
Outlook
The global economic slowdown and worsening political crisis in the Eurozone and
the US has been more severe than anticipated. We have revised down our
expectations to account for this more challenging environment. That said,
corporate balance sheets remain very strong; we continue to find quality growth
and defensive companies on attractive valuations. Over the long term we
continue to believe that corporate earnings and cash generation of companies
are the key drivers of equity returns. European equities have sold off
significantly in recent weeks and whilst we are conscious of the risks
currently pervading the region, we are also aware of the buying opportunity
that this represents for investors prepared to ride out short term volatility.
Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
12 October 2011
Ten Largest Investments
31 August 2011
Nestlé - 5.6% (2010: 2.8%) is a Swiss company engaged in the nutrition, health
and wellness sectors. Nestlé has one of the world's leading product and brand
portfolios offering consistent, structural growth. The company has achieved
organic sales growth of more than 4% per year in 20 of the last 22 years and is
a high quality stable growth company. Nestlé also offers strong free cash flow
generation and has maintained or increased dividend payments every year since
1959.
LVMH Moet Hennessy Louis Vuitton - 4.6% (2010: nil) is a French luxury goods
company with exposure to the global high-end consumer. The company owns a
number of highly regarded luxury brands in five main areas: wines and spirits,
perfumes and cosmetics, watches and jewellery, fashion and leather goods and
selective retailing. The company offers attractive exposure to consumption
growth in some of the fastest growing markets in the world and enjoys strong
profitability due to the strength of its branding and the quality of its
product range.
Novo Nordisk - 4.6% (2010: 3.4%) is a Danish pharmaceuticals company and the
dominant global franchise in diabetes treatment. The company has high levels of
market share in Asia ex-Japan, which is a rapidly growing market for insulin
demand, and we believe that the company has the most attractive pipeline of
short and long term acting insulin products on the market.
Compagnie Financière Richemont - 3.7% (2010: nil) is a Swiss luxury goods
company and the owner of Mont Blanc, Jaeger LeCoultre, Cartier, Alfred Dunhill
and a number of other well-known brands. Richemont offers attractive exposure
to consumption growth, especially in Asia and other high-growth global markets,
and is currently priced at a valuation that is very attractive relative to its
growth potential.
Kone - 3.6% (2010: 1.6%) is a Finnish elevator and escalator company. Kone is a
high quality business with a global installed base and a significant
after-market servicing operation. The company has consistently expanded its
profit margin over recent years and is set to continue to improve its
profitability as the incremental cost of servicing decreases. In addition, Kone
offers attractive access to growth in emerging markets and an increasing trend
towards products with higher levels of energy efficiency.
Danone - 3.1% (2010: nil) is a French-based company operating in the dairy,
water, baby nutrition and medical nutrition markets. Danone exhibits the
highest organic growth of its large cap peers within the food producers sector
and its baby food division has strong growth potential in the emerging markets.
The company also benefits from its strong brand portfolio and leadership in its
key segments.
DnB NOR - 3.0% (2010: nil) is a Norwegian retail bank and financial services
company. DNB offers relatively attractive levels of retail lending growth in
its domestic market and operates in a far healthier economy than many other
banks in Europe. DNB is also well capitalised relative to the sector and has a
strong management team with an attractive market share in Norway.
Galp Energia - 2.9% (2010: nil) is a Portuguese-listed global business engaged
in exploration, production and refining in the energy sector. Galp owns
attractive assets in Brazil and will be drilling six new exploration wells in
Brazil and Mozambique, generating a significant boost to free cash flow in
2012. The company currently trades on attractive valuations relative to the
sector.
Syngenta - 2.9% (2010: 1.9%) is a Swiss agribusiness company operating in the
crop protection and seeds businesses. The company's crop protection division,
in which it has high market share, benefits from farmers looking to maximise
yields and is a high quality, cash-generative business operating in an industry
with high barriers to entry. We believe the company will continue to benefit
from rising volumes and increasing margin expansion ahead of market
expectations.
Merck - 2.9% (2010: nil) is a German listed pharmaceutical and chemical
business company, engaged in both over-the-counter pharmaceutical products and
specialty chemical products for a number of industries. We view Merck as an
attractive restructuring story as a new management team begins to cut costs and
improve profitability. The stock currently trades on attractive valuations and
has the opportunity to significantly improve margins in its pharma business
over the long term.
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 2010.
Investments
31 August 2011
Market
Country of value % of
operation £'000 investments
Consumer Goods
Nestlé Switzerland 9,858 5.6
LVMH Moet Hennessy Louis Vuitton France 8,069 4.6
Compagnie Financière Richemont Switzerland 6,572 3.7
Danone France 5,480 3.1
Pernod Ricard France 4,816 2.6
L'Oréal France 3,451 2.0
Anheuser-Busch Belgium 3,408 1.9
Nokian Renkaat Finland 2,280 1.3
Daimler Germany 2,218 1.3
Continental Germany 2,034 1.2
Elringklinger Germany 1,869 1.1
------ ----
50,055 28.4
------ ----
Industrials
Kone Finland 6,286 3.6
Legrand France 4,564 2.6
Atlas Copco Sweden 4,228 2.4
Vopak Netherlands 3,480 2.0
Amadeus Spain 3,023 1.7
Schneider Electric France 2,810 1.6
Geberit Switzerland 2,374 1.3
SKF Sweden 2,300 1.3
USG People Netherlands 1,225 0.6
TNT Express Netherlands 715 0.4
PostNL Netherlands 448 0.3
Mostotrest Russia 444 0.3
------ ----
31,897 18.1
------ ----
Health Care
Novo Nordisk Denmark 8,030 4.6
Merck Germany 5,136 2.9
Fresenius Germany 4,848 2.8
Novartis Switzerland 3,830 2.2
Rhön-Klinikum Germany 2,444 1.3
Teva Israel 1,443 0.8
------ ----
25,731 14.6
------ ----
Oil & Gas
Galp Energia Portugal 5,148 2.9
Technip France 3,830 2.2
Transneft Russia 2,666 1.5
KazMunaiGas Kazakhstan 2,481 1.4
CGG Veritas France 2,215 1.3
Saipem Italy 2,207 1.2
DoÄŸan Turkey 1,108 0.6
------ ----
19,655 11.1
------ ----
Financials
DnB NOR Norway 5,279 3.0
AXA France 3,114 1.8
Credit Suisse Switzerland 2,679 1.5
BNP Paribas France 2,603 1.5
GAM Switzerland 2,474 1.4
Julius Baer Switzerland 2,354 1.3
KBC Belgium 927 0.5
------ ----
19,430 11.0
------ ----
Basic Materials
Syngenta Switzerland 5,140 2.9
Bayer Germany 4,393 2.5
----- ---
9,533 5.4
----- ---
Telecommunications
Vimpelcom Russia 2,576 1.5
Millicom International Cellular Sweden 2,346 1.3
Deutsche Telekom Germany 1,744 1.0
Sistema Russia 1,499 0.8
----- ---
8,165 4.6
----- ---
Consumer Services
Ryanair Ireland 4,240 2.4
Okey Russia 1,451 0.8
----- ---
5,691 3.2
----- ---
Technology
SAP Germany 3,825 2.2
----- ---
3,825 2.2
----- ---
Utilities
České Energetické Závody Czech Republic 2,532 1.4
----- ---
2,532 1.4
------- -----
Total investments 176,514 100.0
======= =====
All investments are in ordinary shares. The total number of investments held at
31 August 2011 was 53 (31 August 2010: 64). At 31 August 2011 the Company did
not hold equity interests comprising more than 3% of any investee company's
share capital.
Investment Exposure
Investment Size as at 31 August 2011
Number of % of
Investments Portfolio
<£1m 4 1.4
£1m to £2m 7 5.9
£2m to £3m 18 24.8
£3m to £4m 8 15.8
>£4m 16 52.1
-- -----
53 100.0
== =====
Market Capitalisation as at 31 August 2011
% of
% of Reference
Portfolio Index
<€1bn 2.7 0.2
€1bn to €10bn 27.3 22.4
€10bn to €20bn 25.5 19.9
€20bn to €50bn 30.2 30.9
>€50bn 14.3 26.6
----- -----
100.0 100.0
===== =====
Distribution of Investments as at 31 August 2011
% of
Portfolio
Consumer Goods 28.4
Industrials 18.1
Health Care 14.6
Oil & Gas 11.1
Financials 11.0
Basic Materials 5.4
Telecommunications 4.6
Consumer Services 3.2
Technology 2.2
Utilities 1.4
-----
100.0
=====
Source: BlackRock
Income Statement
for the year ended 31 August 2011
Revenue Revenue Capital Capital Total Total
2011 2010 2011 2010 2011 2010
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on
investments
held at
fair value
through
profit or
loss - - 9,345 13,828 9,345 13,828
Income from
investments
held at
fair value
through
profit or
loss 3 8,115 4,518 - - 8,115 4,518
Other income 3 68 40 - - 68 40
Investment
management
and
performance
fees 4 (268) (224) (1,649) (1,249) (1,917) (1,473)
Operating
expenses 5 (453) (514) (4) - (457) (514)
------ ------ ------ ------ ------ ------
Net return
before
finance
costs and
taxation 7,462 3,820 7,692 12,579 15,154 16,399
Finance costs (41) (23) (162) (91) (203) (114)
------ ------ ------ ------ ------ ------
Return on
ordinary
activities
before
taxation 7,421 3,797 7,530 12,488 14,951 16,285
Taxation on
ordinary
activities (840) (603) - - (840) (603)
------ ------ ------ ------ ------ ------
Return on
ordinary
activities
after
taxation 7 6,581 3,194 7,530 12,488 14,111 15,682
===== ===== ===== ====== ====== ======
Return per
ordinary
share
- undiluted 7 6.77p 3.13p 7.74p 12.26p 14.51p 15.39p
Return per
ordinary
share
- diluted 7 6.69p 3.13p 7.66p 12.26p 14.35p 15.39p
===== ===== ===== ====== ====== ======
The total column of this statement represents the profit or loss of the Company.
The supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies. The Company had no
recognised profits or losses other than those disclosed in the Income Statement
and the Reconciliation of Movements in Shareholders' Funds. All items in the
above statement derive from continuing operations. No operations were acquired
or discontinued during the year.
Reconciliation of Movements in Shareholders' Funds
Share Capital
Share premium redemption Capital Special Revenue
capital account reserve reserves reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
For the
year ended
31 August 2011
At
31 August 2010 122 151 62 97,681 69,648 6,711 174,375
Return for the
year - - - 7,530 - 6,581 14,111
Ordinary shares
purchased (6) - 6 - (10,298) - (10,298)
Exercise of
subscription
shares - 2,662 - - - - 2,662
Write back of
prior years'
tender and
subscription
share costs - - - 19 218 - 237
Sale of shares
out of
treasury - - - - 898 - 898
Share purchase
costs - - - - (182) - (182)
Dividend paid* - - - - - (3,268) (3,268)
--- ----- -- ------- ------ ------ -------
At
31 August 2011 116 2,813 68 105,230 60,284 10,024 178,535
--- ----- -- ------- ------ ------ -------
For the
year ended
31 August 2010
At
31 August 2009 107 151 57 85,491 80,079 6,828 172,713
Return for the
year - - - 12,488 - 3,194 15,682
Ordinary shares
purchased (5) - 5 - (10,245) - (10,245)
Issue of
subscription
shares 20 - - (20) - - -
Issue costs on
subscription
shares - - - (278) - - (278)
Share purchase
costs - - - - (186) - (186)
Dividend paid** - - - - - (3,311) (3,311)
--- --- -- ------ ------ ----- -------
At
31 August 2010 122 151 62 97,681 69,648 6,711 174,375
--- --- -- ------ ------ ----- -------
* Final dividend paid in respect of the year ended 31 August 2010 of 3.30p per
share, declared on 14 October 2010 and paid on 9 December 2010.
** Final dividend paid in respect of the year ended 31 August 2009 of 3.15p per
share, declared on 15 October 2009 and paid on 9 December 2009.
Balance Sheet
as at 31 August 2011
2011 2010
Notes £'000 £'000
Fixed assets
Investments held at fair value through
profit or loss 2(h) 176,514 182,631
------- -------
Current assets
Debtors 3,192 6,014
Cash 841 869
------- -------
4,033 6,883
------- -------
Creditors - amounts falling due within
one year
Bank overdraft - (13,325)
Other creditors (2,012) (1,814)
------- -------
(2,012) (15,139)
------- -------
Net current assets/(liabilities) 2,021 (8,256)
------- -------
Net assets 178,535 174,375
======= =======
Capital and reserves
Share capital 8 116 122
Share premium account 2,813 151
Capital redemption reserve 68 62
Capital reserves 105,230 97,681
Special reserve 60,284 69,648
Revenue reserve 10,024 6,711
------- -------
Total equity shareholders' funds 178,535 174,375
======= =======
Net asset value per ordinary share -
undiluted 7 186.25p 176.06p
Net asset value per ordinary share -
diluted 7 185.73p 176.06p
======= =======
Cash Flow Statement
for the year ended 31 August 2011
2011 2010
Notes £'000 £'000
Net cash inflow from operating activities 5(b) 4,926 1,890
Servicing of finance (191) (114)
Taxation recovered/(paid) 1,198 (747)
------ -------
Capital expenditure and financial investment
Purchase of investments (344,498) (413,696)
Proceeds from sale of investments 363,378 414,555
Realised (losses)/gains on foreign currency
transactions (392) 682
------ -------
Net cash inflow from capital expenditure and
financial investment 18,488 1,541
------ -------
Equity dividends paid (3,268) (3,311)
------ -------
Net cash inflow/(outflow) before financing 21,153 (741)
------ -------
Financing
Purchase of ordinary shares (10,298) (10,245)
Share purchase costs (405) (170)
Proceeds from issue of ordinary shares 2,847 -
------ -------
Net cash outflow from financing (7,856) (10,415)
------ -------
Increase/(decrease) in cash in the year 13,297 (11,156)
====== =======
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT
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
(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 January 2009. 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 833 of the Companies Act 2006 and section 1158 of the Corporation
Tax Act 2010, 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 debt
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 or disposal of an investment
are included within the cost of the investment.
- the investment management fee has been allocated 80% to capital reserves 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.
- performance fees have been allocated 100% to capital reserves, 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 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 taxation 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 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 FRS 26 - 'Financial Instruments: 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. Disposals 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 Reconcilation of
Movements in Shareholders' Funds when they have been approved by shareholders
and become a liability of the Company.
(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
reserves. Exchange differences arising on the translation of foreign currency
assets and liabilities are taken to capital reserves.
3. Income
2011 2010
£'000 £'000
Investment income:
Overseas dividends 8,115 4,518
----- -----
8,115 4,518
Other income:
Deposit interest 68 40
----- -----
Total 8,183 4,558
===== =====
4. Investment management and performance fees
2011 2010
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment
management
fee 268 1,072 1,340 224 896 1,120
Performance
fee - 577 577 - 353 353
--- ----- ----- --- ----- -----
Total 268 1,649 1,917 224 1,249 1,473
=== ===== ===== === ===== =====
The investment management fee is levied quarterly, based on the market
capitalisation of the Company's ordinary shares on the last day of each
month. The investment management fee for the year amounted to £1,340,000
(2010: £1,120,000). A performance fee of £577,000 was accrued for the year
ended 31 August 2011 (2010: £353,000) based on the outperformance of the
Company's share price relative to the FTSE World Europe ex UK Index. The
performance fee is based on the outperformance of the Index over a three
year rolling period.
5. Operating activities
2011 2010
£'000 £'000
(a) Operating expenses
Custody fee 40 88
Auditors' remuneration:
- statutory audit 25 24
- other audit services* 5 5
Directors' emoluments 90 74
Registrar's fees and other operating expenses 293 323
--- ---
453 514
=== ===
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 any taxation was: 0.9% 0.9%
==== ====
* Other audit services relate to the review of the half yearly financial
statements
2011 2010
£'000 £'000
(b) Reconciliation of net return before finance
costs and taxation to net cash flow from operating
activities
Net return before finance costs and taxation 15,154 16,399
Capital return before finance costs and taxation (7,692) (12,579)
------ -------
Net revenue return before finance costs and taxation 7,462 3,820
Expenses charged to capital (1,653) (1,249)
Decrease in accrued income 1 5
Increase in creditors 253 228
Tax on investment income included within gross
income (1,137) (914)
------ -----
Net cash inflow from operating activities 4,926 1,890
===== =====
6. Dividends
The Directors have proposed a final dividend of 3.50p per share and have
declared a special dividend of 2.50p per share in respect of the year
ended 31 August 2011. The dividends will be paid on 8 December 2011,
subject to shareholders' approval on 30 November 2011, to shareholders on
the Company's register on 28 October 2011. 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 dividends disclosed in the note below have been considered in view of
the requirements of section 1158 of the Corporation Tax Act 2010 and
section 833 of the Companies Act 2006, and the amounts proposed meet the
relevant requirements as set out in this legislation.
2011 2010
£'000 £'000
Dividend payable on equity shares:
Special declared of 2.50p* per ordinary share
(2010: nil) 2,409 -
Final proposed of 3.50p* per ordinary share
(2010: 3.30p) 3,373 3,268
-------- -----
5,782 3,268
======== =====
* Based on 96,359,314 ordinary shares in issue on 12 October 2011.
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:
Undiluted 2011 2010
Net revenue return attributable to ordinary
shareholders (£'000) 6,581 3,194
Net capital return attributable to ordinary
shareholders (£'000) 7,530 12,488
------- -------
Total return (£'000) 14,111 15,682
======= =======
Equity shareholders' funds (£'000) 178,535 174,375
------- -------
The weighted average number of ordinary shares in
issue during the year, on which the return per
ordinary share was calculated, was: 97,224,326 101,902,293
---------- -----------
The actual number of ordinary shares in issue at
the year end, on which the net asset value was
calculated, was: 95,859,314 99,042,423
---------- -----------
The number of ordinary shares in issue, including
treasury shares, at the year end, was: 97,599,102 101,684,469
========== ===========
2011 2010
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on
weighted average
number of shares 6.77 7.74 14.51 3.13 12.26 15.39
Calculated on actual
number of shares 6.87 7.85 14.72 3.22 12.61 15.83
---- ---- ----- ---- ----- -----
Net asset value per
share 186.25 176.06
==== ==== ====== ==== ===== ======
Ordinary share price 181.00 159.25
Subscription share
price 14.75 10.75
==== ==== ===== ==== ===== =====
Diluted 2011 2010
Net revenue return attributable to ordinary
shareholders (£'000) 6,581 3,194
Net capital return attributable to ordinary
shareholders (£'000) 7,530 12,488
----- ------
Total return (£'000) 14,111 15,682
====== ======
Equity shareholders' funds* (£'000) 212,119 174,375
------- -------
The weighted average number of ordinary shares in
issue during the year, on which the diluted return
per ordinary share was calculated, was: 98,364,252 -
---------- -------
The actual number of ordinary shares, including
subscription shares, at the year end on which the
fully diluted net asset value was calculated, was: 114,210,989 -
=========== =======
2011 2010
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on
weighted average
number of shares 6.69 7.66 14.35 3.13 12.26 15.39
---- ---- ----- ---- ----- -----
Net asset value per
share* 185.73 176.06
==== ==== ====== ==== ===== ======
* To the extent that the Company's NAV is in excess of the exercise price, the
subscription shares are considered to be dilutive. The diluted NAV per share at
31 August 2011 is calculated by adjusting equity shareholders' funds for
consideration receivable on the exercise of 18,351,675 subscription shares, at
the exercise price of 183 pence per share, and dividing by the total number of
shares that would have been in issue at 31 August 2011 had all the subscription
shares been exercised. There was no dilution for the year ended 31 August 2010.
The diluted return per share has been calculated as the average price of the
ordinary shares for the year is above the exercise price of the subscription
shares of 183 pence per share.
8. Share capital
Ordinary Treasury Subscription
shares shares shares Total
number number number shares £
Allotted,
called up
and fully
paid share
capital
comprised:
Ordinary shares
of 0.1p each
At
31 August 2010 99,042,423 2,642,046 - 101,684,469 101,684
Shares
transferred
into treasury
pursuant to
tender offer on
2 December 2010 (2,898,166) 2,898,166 - - -
Shares cancelled
from treasury on
1 December 2010 - (2,642,046) - (2,642,046) (2,642)
Shares transferred
into treasury
pursuant to tender
offer on
2 June 2011 (2,229,788) 2,229,788 - - -
Shares cancelled
from treasury on
1 June 2011 - (2,898,166) - (2,898,166) (2,898)
Sale of shares
out of treasury 490,000 (490,000) - - -
---------- --------- ---------- ----------- -------
94,404,469 1,739,788 - 96,144,257 96,144
Subscription
shares of
0.1p each:
At
31 August 2010 - - 19,806,520 19,806,520 19,807
Conversion of
subscription
shares into
ordinary shares 1,454,845 - (1,454,845) - -
---------- --------- ---------- ----------- -------
At
31 August 2011 95,859,314 1,739,788 18,351,675 115,950,777 115,951
========== ========= ========== =========== =======
During the year 5,127,954 ordinary shares were purchased (2010: 6,082,175) for
a total consideration, including expenses, of £10,480,000 (2010: £10,431,000)
and a total of 5,540,212 (2010: 5,136,221) shares were subsequently cancelled.
The number of ordinary shares in issue at the year end was 97,599,102 of which
1,739,788 were held in treasury (2010: 2,642,046) and the number of
subscription shares in issue was 18,351,675 (2010: 19,806,520). The number of
shares sold out of treasury during the year was 490,000 (2010: nil) for a total
consideration of £898,000. Subsequent to the year end, a further 500,000
treasury shares have been sold for total proceeds of £825,000. As a result of
the conversion of subscription shares, 1,454,845 ordinary shares were issued
for a total consideration of £2,662,000.
9. Related party disclosure
The investment management fee for the year was £1,340,000 (2010: £1,120,000)
and the performance fee for the year was £577,000 (2010: £353,000). At the year
end, the following amounts were outstanding in respect of the investment
management fee: £326,000 (2010: £276,000); and performance fee £577,000 (2010:
£353,000).
The Board consists of four non-executive Directors all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. With effect from 1 September 2011 the Chairman receives an
annual fee of £30,000, the Chairman of the Audit and Management Engagement
Committee receives an annual fee of £25,000, and each other Director receives
an annual fee of £21,000. Three members of the Board hold shares in the
Company. Mr Walker-Haworth holds 33,932 ordinary shares and 6,786 subscription
shares, Ms Ferguson 40,000 ordinary shares and 8,000 subscription shares and
Mr Holtham 11,100 ordinary shares and 1,620 subscription shares. Mrs Philippe
does not hold any shares in the Company.
10. Contingent liabilities
There were no contingent liabilities at 31 August 2011 (2010: nil).
11. 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 2011 will be filed with the
Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the Auditors, whose report
for the year ended 31 August 2011 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 2010,
which have been filed with the Registrar of Companies. The report of the
Auditors on those financial statements contained no qualification or statement
under section 498 of the Companies Act.
12. Annual Report
Copies of the annual report 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.
13. Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of
BlackRock Investment Management (UK) Limited, 12 Throgmorton Avenue, London
EC2N 2DL on Wednesday, 30 November 2011 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management
website at www.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 Company Division - 020 7743 5284
Vincent Devlin, Fund Manager - 0131 472 7376
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Ltd
12 Throgmorton Avenue
London
EC2N 2DL
12 October 2011
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