Half-yearly Report

BlackRock Greater Europe Investment Trust plc Half Yearly Financial Report 28 February 2014 For further information please contact: Simon White, Head of Investment Trusts, BlackRock Investment Management (UK) Limited - 020 7743 5284 Vincent Devlin, Fund Manager, BlackRock Investment Management (UK) Limited - 020 7743 3000 Emma Phillips, Media & Communications, BlackRock Investment Management (UK) Limited - 020 7743 2922 Chairman's statement In my first half yearly report to you as Chairman, I am pleased to be able to report further growth in the Company's net asset value (NAV) per share over the six month period to 28 February 2014. For the first time we are declaring an interim dividend. Overview European markets delivered positive returns in the autumn of 2013, rounding off the best calendar year for Europe since 2009. Economic conditions showed signs of improvement, with increased business and consumer confidence, a relatively stable political environment and some easing in austerity measures put in place after the financial crisis. Data for the Euro area continued to improve into 2014 and with increased business confidence and stabilising inflation, the European Central Bank recently opted to leave interest rates unchanged. Less positively, despite the growing optimism in developed markets, emerging European equities remained out of favour during the period amid concerns that the 'tapering' of the US Federal Reserve's bond buying programme would lead to reduced support for all emerging markets. This, combined with political uncertainty, slowing growth and fears of higher interest rates, led to considerable volatility. Countries with significant current account deficits and more dependent on external financing, such as Turkey, fared particularly badly and towards the end of the period growing turmoil in Ukraine also contributed to reduced investor appetite. Performance During the six month period, the Company's undiluted NAV per share returned 11.5%, compared with a return of 11.3% in the FTSE World Europe ex UK Index. The Company's share price returned 10.6% over the same period (all percentages calculated in sterling terms with income reinvested). Since the period end, the Company's undiluted NAV has declined by 3.3% compared with a fall in the FTSE World Europe ex UK Index of 0.8% over the same period. Earnings and dividend Revenue earnings per share for the period to 28 February 2014 amounted to 0.10p (2013: 0.54p). The net revenue return for the six months ended 28 February 2013 included one-off special dividend receipts of £570,000. No special dividends were received during the six months ended 28 February 2014. Given the growth in earnings in recent years we are proposing that, in future, the Company pays both an interim and a final dividend. Accordingly, I am pleased to report that the Board has declared an interim dividend of 1.50p per share. This dividend will be paid on 30 May 2014 to shareholders on the register on 2 May 2014; the ex-dividend date is 30 April 2014. Tender offers The Directors exercised their discretion to operate the half yearly tender offer on 30 November 2013, which in common with previous tender offers was for up to 20% of the shares in issue at the prevailing NAV less 2%. Valid tenders for 2,627,623 shares were received at a price of 240.27p per share, representing 2.39% of the shares in issue excluding treasury shares. All shares tendered in November were repurchased by the Company and cancelled. In addition, 88,677 shares previously held in treasury were cancelled in line with the Directors' policy to limit the number of treasury shares to 5% of the ordinary shares in issue at such time. The Directors announced on 24 March 2014 that they had decided not to implement a semi-annual tender offer in May 2014 as the shares had traded at an average discount to NAV of 2.2% over the six month period to 28 February 2014. Taking into consideration the tight discount and the costs of the exercise, the Board concluded that it was not in the interests of shareholders as a whole to operate the tender. However, it remains the Board's intention to offer shareholders the opportunity to tender shares on a regular basis when the Board believes that it is in shareholders' interests to do so. Treasury shares During the period, 100,000 ordinary shares held in treasury have been subsequently reissued at a discount of less than 2% to the prevailing NAV per ordinary share. Since the period end, a further 100,000 ordinary shares were issued from treasury on similar terms. Total proceeds (before broker commission) amounted to £499,000. Subscription shares A total of 23,254,813 subscription shares were allotted to shareholders in April 2013 by way of a bonus issue. Following three conversions of the subscription shares since the bonus issue, the Company has issued 1,354,737 ordinary shares. Total proceeds amounted to £3,157,000. The Company currently has 107,575,830 ordinary shares (excluding treasury shares) and 21,900,076 subscription shares in issue. Subscription share rights conferred by the subscription shares are exercisable quarterly on the last business day of January, April, July and October up to the last business day in April 2016, after which the subscription share rights will lapse. The detailed terms and conditions of the subscription shares are set out in the combined Prospectus and Circular dated 25 March 2013. Subscription shareholders have one final opportunity to subscribe for all of or any of the ordinary shares to which their subscription shares relate on 30 April 2014 at a price of 233p per share. Thereafter, the exercise price will rise to 248p per share. A reminder letter was posted to subscription shareholders on 31 March 2014. The ordinary shares resulting from the exercise of the subscription share rights on 30 April 2014, will not qualify for the interim dividend payment. Facilitating retail investments The Company currently conducts its affairs so that its securities can be recommended by independent financial advisers to ordinary retail investors in accordance with the Financial Conduct Authority (FCA) rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an investment trust. Outlook Russia's military ventures in Ukraine are likely to cast a blight over emerging European markets and further afield. Russia has promised to respond to any sanctions proposed by Western nations with economic sanctions of her own, actions that could inflict real damage on the economies of its near neighbours. Meanwhile, further 'tapering' of the 'quantitative easing', or bond purchasing programme, underway in the US could yet unsettle all financial markets, as there is no precedent for the withdrawal of central bank support on this scale. A stronger Euro and fears of deflation taking hold could also prove tough headwinds for many European companies, although the European Central Bank has a number of options at its disposal to loosen monetary conditions further and combat the risks of low growth and deflation, should it choose to use them. More encouragingly, sentiment towards the developed European markets has improved markedly over the last six months, boosted by investor inflows. In historical terms, European equities are attractively priced compared with other markets around the world and the potential for positive earnings momentum remains. Carol Ferguson 17 April 2014 Interim management report and responsibility statement The Chairman's Statement and the Investment Manager's Report give details of the important events which have occurred during the period and their impact on the financial statements. Principal risks and uncertainties The principal risks faced by the Company can be divided into various areas as follows: - Performance; - Income/dividend; - Regulatory; - Operational; - Market; - Financial; - Gearing; and - Third party. The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 August 2013. A detailed explanation can be found in the Directors' Report on pages 13 and 14 and in note 18 on pages 42 to 47 of the Annual Report and Financial Statements which are available on the website maintained by the Investment Manager, BlackRock Investment Management (UK) Limited, at blackrock.co.uk/brge. In the Board's opinion, an additional uncertainty to those outlined in the Annual Report and Financial Statements now exists. As at the date of this document, it is unclear to what extent events in Ukraine will impact Europe as a whole. Related party disclosure and transactions with Investment Manager The Investment Manager is regarded under the Listing Rules as a related party and details of the management and marketing fees payable are set out in note 4 and note 10. The related party transactions with the Directors are set out in note 9. Going concern The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Directors' responsibility statement The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements. The Directors confirm to the best of their knowledge that: - the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable UK Accounting Standards and the Accounting Standards Board's Statement 'Half Yearly Financial Reports'; and - the Interim Management Report, together with the Chairman's Statement and Investment Manager's Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules. This half yearly financial report has not been audited or reviewed by the Company's auditor. The half yearly financial report was approved by the Board on 17 April 2014 and the above responsibility statement was signed on its behalf by the Chairman. Carol Ferguson For and on behalf of the Board 17 April 2014 Investment manager's report Overview The Company's share price and underlying NAV gained over the last six months to 28 February 2014. In the six month period, the Company's share price returned 10.6% and the underlying NAV 11.5%. By way of comparison, the FTSE World Europe ex UK Index returned 11.3% (all percentages calculated in sterling terms with income reinvested). European markets delivered strong returns in the latter half of 2013 rounding off the best calendar year for European equities since 2009. Whilst 2014 started off at a sluggish pace with January delivering a negative return, this was offset in February with the best return since the summer of 2013. The European market was able to move upwards in the latter half of 2013 as the political environment became relatively benign, economies began to show signs of improvement and austerity measures began to ease. However, emerging economies suffered during the period after the US Federal Reserve mentioned the potential for the US to begin reducing the rate of their asset purchase programme. This particularly affected countries with significant current account deficits such as Turkey. However, this was somewhat overshadowed by the ongoing events in Ukraine which led to the Russian market seeing a large sell-off. Portfolio activity Sector allocation was the main driver of the Company's portfolio performance during the period, especially taking the decision to have a low exposure to the oil & gas sector and a high exposure to the financial sector. Stock selection detracted overall as the strong returns made in the consumer goods and health care sectors were offset by stock selection in financials and consumer services. The portfolio also benefited from the use of gearing during the period. Within consumer goods, positions in the auto sector performed well, especially German tyre and auto part manufacturer Continental and French car manufacturer Renault, as the European autos market strengthened and the demand for cars improved globally. Also, within consumer goods, a position in Danish jeweller Pandora performed well as its declining raw material costs continued to help margins and it saw growing sales. Within health care, a position in Danish diabetes treatment company Novo Nordisk and Spanish plasma specialist Grifols, performed notably. Novo Nordisk reported solid earnings and benefited from the news that a competitor's new rival drug has not demonstrated any improved efficiencies over its own product offering. Grifols performed well after announcing strong results and the acquisition of a blood diagnostic unit from Swiss health care company Novartis. The purchase of the unit will help expand the company's core plasma business. The Company's financial holdings including Société Générale, KBC, Commerzbank and ING were all top performing stocks over the period. However, positions in Turkish banks Garanti Bankasi and Halk Bankasi, along with Russian bank Sberbank, offset these returns. As emerging markets suffered on the back of the discussion around US tapering, Turkey in particular saw a material market sell-off and its currency lost significant value. The ongoing political situation in the Ukraine has also caused Russian stocks to lose value as investors move out of the market. Other notably poor performers over the period have been stocks with high emerging market exposure such as Remy Cointreau, which derives a significant amount of its revenue from China. Positions in Russian oil & gas company Gazprom and Hungarian bank OTP Bank also detracted from performance. At the end of the period, the portfolio was particularly weighted towards positions in the consumer services, financial and health care sectors. The portfolio had lower exposure to the basic materials, oil & gas, consumer goods, telecoms, utilities, industrials and technology sectors. Outlook Events in Ukraine have dominated the headlines. The political turmoil comes at a time when the macroeconomic environment in Russia, which is one of sluggish growth, looks set to continue. Sanctions in their current form are unlikely to have a significant impact on the earnings of listed Russian companies. That said, geo-political risk has risen and valuations in Russia are adjusting to reflect this. Nevertheless, the general outlook for Europe continues to improve, with growing evidence of a European economic recovery. Economic conditions are showing signs of improvement; public policy and political uncertainties have eased and the Eurozone has passed the peak of austerity measures. The fly in the ointment remains the ability of corporates to improve profits. However, lower labour and input costs combined with economic momentum should provide the much needed impetus following a prolonged period of falling profits. We expect equity markets to provide a return of 10% to 12% this year given the potential for positive earnings surprise, valuation and dividend attractions and investors returning to European equities. However, it is worth reminding ourselves that there is risk surrounding any scenario. The recovery in Europe remains fragile and while much progress has been made in unifying the banking system, banking stress tests and lack of credit may hinder economic recovery. European elections could also bring in some increased volatility but are unlikely to have a significant impact on future Eurozone policies. Vincent Devlin and Sam Vecht BlackRock Investment Management (UK) Limited 17 April 2014 Ten largest investments 28 February 2014 Roche - 6.6% (2013: 6.1%) is a Swiss pharmaceuticals and diagnostics company with global exposure. Roche has gone through a period of strong growth but has now transitioned to focusing on profitability and improving shareholder returns. Continued cost control, combined with a growing and attractive dividend yield and a strong pipeline of drugs coming to market, make this an attractive investment case. Novo Nordisk - 4.2% (2013: 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 significant potential to continue its track record of delivering double-digit earnings growth per year for the foreseeable future. Bayer - 3.9% (2013: 3.3%) is a German company with divisions in health care, nutrition and high-tech materials. The company offers strong growth over the next 3 to 5 years, especially within its pharmaceuticals and crop science businesses fuelled by new products coming to market. The company also trades at a discount to the sector average and offers an attractive free cash flow profile. Société Générale - 3.4% (2013: 2.0%) is a French banking and financial services company, split into three divisions: retail banking, specialised financial services and corporate & investment banking. The company offers a significant market share in an oligopolistic retail market and is attractively valued on a medium term view. Zurich Insurance Group - 3.2% (2013: 3.0%) is a Swiss-based insurance company. The company is relatively defensive when compared to the broad insurance sector due to its exposure to non-life products and has a resilient balance sheet in our view. The company also offers a high and stable dividend yield paid net of withholding tax and has a solid management team. ING - 3.0% (2013: 1.9%) is a Dutch banking and financial services company with its primary businesses being retail banking, commercial banking, investment banking, direct banking, asset management and insurance. The company has been undergoing a restructuring process to dispose of several insurance assets focusing more on its banking divisions. The company is attractively priced with further upside potential as the macro environment improves and interest rates start to rise. Adecco - 2.7% (2013: nil) is a Swiss-based human resource consulting company. The company has been a beneficiary of the improving macro environment in Europe and particularly Germany, where it has a strong presence and the macro environment has recovered as many businesses begin to hire temporary staff. Deutsche Post - 2.7% (2013: 2.0%) is a German-based courier and mail business. The company has undergone several years of heavy investment and restructuring costs and is now starting to produce strong cash flow conversion. The express parcel business has been growing steadily, although e-commerce is still immature in Germany so there is significant potential for this business to grow in the future. Continental - 2.7% (2013: 3.4%) is a German auto supplier. We believe it is one of the highest quality large cap auto-related stocks in Europe and is able to benefit from the 'mega trends' of CO2 emission reduction and active safety in the global car market. The company is priced at a very attractive valuation given the potential growth rate and could benefit from a rebound in the depressed European car market. Publicis - 2.6% (2013: nil) is a French advertising and public relations company. It announced it would merge with Omnicom in July 2013. This merger provides better synergies and offers a whole range of services to clients putting the company ahead of the curve as it brings technology, data and creativity into one company. It has a leading global market share and is in a prime position with the infrastructure to respond to further technological change and respond to clients' needs. 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 2013. Together, the ten largest investments represent 35.0% of the Company's portfolio (ten largest investments at 31 August 2013: 36.1%). Investments 28 February 2014 Country of Market value % of operation £'000 investments Financials Société Générale France 9,287 3.4 Zurich Insurance Group Switzerland 8,752 3.2 ING Netherlands 8,266 3.0 Swiss Re Switzerland 6,654 2.4 KBC Belgium 6,551 2.4 Nordea Bank Sweden 6,291 2.3 AXA France 5,553 2.0 Türkiye Garanti Bankasi Turkey 4,820 1.8 Sberbank Russia 4,605 1.7 Unibail-Rodamco France 4,277 1.6 Commerzbank Germany 4,086 1.5 Partners Group Switzerland 3,269 1.2 OTP Bank Hungary 2,854 1.1 Türkiye Halk Bankasi Turkey 2,749 1.0 GAM Switzerland 2,278 0.8 Cembra Money Bank Switzerland 1,622 0.6 Azimut Italy 828 0.3 -------- -------- 82,742 30.3 -------- -------- Health Care Roche Switzerland 17,914 6.6 Novo Nordisk Denmark 11,434 4.2 Sanofi France 6,809 2.5 GN Store Nord Denmark 4,660 1.7 Grifols Spain 4,280 1.5 -------- -------- 45,097 16.5 -------- -------- Industrials Adecco Switzerland 7,498 2.7 Deutsche Post Germany 7,241 2.7 Airbus Netherlands 6,992 2.6 Assa Abloy Sweden 4,291 1.6 Koninklijke Boskalis Westminster Netherlands 4,165 1.5 CTT - Correios de Portugal Portugal 3,868 1.4 Hexagon Sweden 3,620 1.3 Geberit Switzerland 3,032 1.1 -------- -------- 40,707 14.9 -------- -------- Consumer Goods Continental Germany 7,149 2.7 Renault France 6,590 2.4 Anheuser-Busch InBev Belgium 4,951 1.8 Beiersdorf Germany 4,102 1.5 BMW Germany 3,930 1.4 Pandora Denmark 3,245 1.2 OSRAM Licht Germany 3,202 1.2 Norma Germany 2,773 1.0 Autoliv Sweden 2,695 1.0 -------- -------- 38,637 14.2 -------- -------- Consumer Services Publicis France 7,144 2.6 Ryanair Ireland 6,397 2.3 Reed Elsevier Netherlands 6,099 2.3 Ahold Netherlands 4,209 1.5 ProSiebenSat.1 Media Germany 4,000 1.5 Jerónimo Martins Portugal 3,274 1.2 Inditex Spain 2,205 0.8 Kuoni Reisen Switzerland 1,276 0.5 -------- -------- 34,604 12.7 -------- -------- Technology ASML Netherlands 4,891 1.8 Capgemini France 3,485 1.3 Yandex Netherlands 2,495 0.9 -------- -------- 10,871 4.0 -------- -------- Basic Materials Bayer Germany 10,606 3.9 -------- -------- 10,606 3.9 -------- -------- Utilities GDF SUEZ France 5,878 2.2 -------- -------- 5,878 2.2 -------- -------- Oil & Gas Gazprom Russia 3,517 1.3 -------- -------- 3,517 1.3 -------- -------- Total investments 272,659 100.0 ======== ======== All investments are in ordinary shares unless otherwise stated. The total number of investments held at 28 February 2014 was 53 (31 August 2013: 53). Income statement for the six months ended 28 February 2014 Revenue £'000 Capital £'000 Total £'000 Six months Year Six months Year Six months Year ended ended ended ended ended ended Notes 28.02.14 28.02.13 31.08.13 28.02.14 28.02.13 31.08.13 28.02.14 28.02.13 31.08.13 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) Gains on investments held at fair value through profit or loss - - - 30,502 57,784 57,436 30,502 57,784 57,436 Income from investments held at fair value through profit or loss 3 711 1,220 9,181 - - - 711 1,220 9,181 Investment management and performance fees 4 (182) (164) (339) (1,377) (1,816) (2,492) (1,559) (1,980) (2,831) Operating expenses 5 (330) (350) (688) - - - (330) (350) (688) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return before finance costs and taxation 199 706 8,154 29,125 55,968 54,944 29,324 56,674 63,098 Finance costs (14) (10) (26) (54) (39) (105) (68) (49) (131) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return on ordinary activities before taxation 185 696 8,128 29,071 55,929 54,839 29,256 56,625 62,967 Taxation on ordinary activities (78) (60) (833) - - (15) (78) (60) (848) -------- -------- -------- -------- -------- -------- -------- -------- -------- Return on ordinary activities after taxation 7 107 636 7,295 29,071 55,929 54,824 29,178 56,565 62,119 -------- -------- -------- -------- -------- -------- -------- -------- -------- Return per ordinary share - basic 7 0.10p 0.54p 6.32p 26.88p 47.29p 47.50p 26.98p 47.83p 53.82p -------- -------- -------- -------- -------- -------- -------- -------- -------- Return per ordinary share - diluted 7 0.10p 0.54p 6.32p 26.72p 47.29p 47.50p 26.82p 47.83p 53.82p -------- -------- -------- -------- -------- -------- -------- -------- -------- 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 (AIC). The Company had no recognised gains 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. There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year stated above and their historical cost equivalents. Reconciliation of movements in shareholders' funds for the six months ended 28 February 2014 and comparative periods Called-up Share Capital share premium redemption Special Capital Revenue capital account reserve reserve reserves reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 For the six months ended 28 February 2014 (unaudited) At 31 August 2013 138 55,672 102 27,660 158,879 12,490 254,941 Return for the period - - - - 29,071 107 29,178 Exercise of subscription shares - 2,968 - - - - 2,968 Issue of ordinary shares held in treasury - 25 - 219 - - 244 Ordinary shares purchased into treasury - - - (6,310) - - (6,310) Cancellation of treasury shares (3) - 3 - - - - Share purchase costs - - - (132) - - (132) Dividend paid* - - - - - (5,979) (5,979) ------- -------- -------- -------- -------- -------- -------- At 28 February 2014 135 58,665 105 21,437 187,950 6,618 274,910 ------- -------- -------- -------- -------- -------- -------- For the six months ended 28 February 2013 (unaudited) At 31 August 2012 148 53,420 68 55,124 104,055 10,226 223,041 Return for the period - - - - 55,929 636 56,565 Exercise of subscription shares - 2,111 - - - - 2,111 Cancellation of subscription shares (22) - - - 22 - - Ordinary shares purchased into treasury - - - (9,080) - - (9,080) Cancellation of treasury shares (4) - 4 - - - - Share purchase costs - - - (132) - - (132) Dividend paid* - - - - - (5,031) (5,031) -------- -------- -------- -------- -------- -------- -------- At 28 February 2013 122 55,531 72 45,912 160,006 5,831 267,474 -------- -------- -------- -------- -------- -------- -------- For the year ended 31 August 2013 (audited) At 31 August 2012 148 53,420 68 55,124 104,055 10,226 223,041 Return for the year - - - - 54,824 7,295 62,119 Ordinary shares purchased - - - (26,839) - - (26,839) Exercise of 2010 and 2013 subscription shares - 2,276 - - - - 2,276 Bonus issue of 2013 subscription shares 24 (24) - - - - - Cancellation of treasury shares (12) - 12 - - - - 2010 subscription shares expired (22) - 22 - - - - Share purchase costs - - - (625) - - (625) Dividend paid** - - - - - (5,031) (5,031) -------- -------- -------- -------- -------- -------- -------- At 31 August 2013 138 55,672 102 27,660 158,879 12,490 254,941 ======= ======= ======= ======= ======= ======= ======= * In respect of the year ended 31 August 2013 a final dividend of 4.50p per share and a special dividend of 1.00p per share were declared on 21 October 2013 and paid on 13 December 2013. ** Final dividend in respect of the year ended 31 August 2012 of 4.20p per share was declared on 10 October 2012 and paid on 7 December 2012. The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to £312,000 for the six months ended 28 February 2014 (six months ended 28 February 2013: £352,000; year ended 31 August 2013: £865,000). Balance sheet as at 28 February 2014 28 February 28 February 31 August 2014 2013 2013 £'000 £'000 £'000 Notes (unaudited) (unaudited) (audited) Fixed assets Investments held at fair value through profit or loss 272,659 271,607 268,376 ======= ======= ======= Current assets Debtors 7,540 748 1,226 Cash at bank and in hand 1 - - -------- -------- -------- 7,541 748 1,226 -------- -------- -------- Creditors - amounts falling due within one year Bank overdraft (1,277) (1,455) (10,840) Other creditors (4,013) (3,426) (3,821) -------- -------- -------- (5,290) (4,881) (14,661) -------- -------- -------- Net current assets/(liabilities) 2,251 (4,133) (13,435) -------- -------- -------- Net assets 274,910 267,474 254,941 ======= ======= ======= Capital and reserves Called-up share capital 8 135 122 138 Share premium account 58,665 55,531 55,672 Capital redemption reserve 105 72 102 Special reserve 21,437 45,912 27,660 Capital reserves 187,950 160,006 158,879 Revenue reserve 6,618 5,831 12,490 -------- -------- -------- Total equity shareholders' funds 274,910 267,474 254,941 ======= ======= ======= Net asset value per share - undiluted 7 255.79p 230.02p 234.49p ======= ======= ======= Net asset value per share - diluted 7 251.93p 230.02p 234.23p ======= ======= ======= Summarised cash flow statement for the six months ended 28 February 2014 Six months Six months ended ended Year ended 28 February 28 February 31 August 2014 2013 2013 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Net cash (outflow)/inflow from operating activities (845) (672) 4,725 Servicing of finance (68) (64) (131) Taxation refunded 295 - 218 ======= ======= ======= Capital expenditure and financial investment Purchase of investments (123,970) (127,774) (287,717) Proceeds from sale of investments 143,246 161,291 324,588 Realised gains/(losses) on foreign currency transactions 453 (197) (801) -------- -------- -------- Net cash inflow from capital expenditure and financial investment 19,729 33,320 36,070 -------- -------- -------- Equity dividends paid (5,979) (5,031) (5,031) -------- -------- -------- Net cash inflow before financing 13,132 27,553 35,851 -------- -------- -------- Financing Purchase of ordinary shares (6,427) (9,080) (26,839) Exercise of subscription shares 2,968 2,111 - Proceeds from issue of ordinary shares out of treasury 244 - 2,276 Net proceeds/(costs) from issue of ordinary shares to acquire Charter European Trust plc's investment portfolio 50 (75) (75) Share purchase costs paid (404) (55) (144) -------- -------- -------- Net cash outflow from financing (3,569) (7,099) (24,782) -------- -------- -------- Increase in cash 9,563 20,454 11,069 ======= ======= ======= Reconciliation of net return before finance costs and taxation to net cash flow from operating activities Six months Six months ended ended Year ended 28 February 28 February 31 August 2014 2013 2013 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Net return before finance costs and taxation 29,324 56,674 63,098 Less: Capital return before finance costs and taxation (29,125) (55,968) (54,944) -------- -------- -------- Net revenue return before finance costs and taxation 199 706 8,154 Expenses charged to capital (1,377) (1,816) (2,507) Decrease/(increase) in accrued income 98 114 (24) Decrease in other debtors - 3 4 Increase in other creditors 313 381 468 Tax on investment income included within gross income (78) (60) (1,370) -------- -------- -------- Net cash (outflow)/inflow from operating activities (845) (672) 4,725 ======= ======= ======= Notes to the financial statements for the six months ended 28 February 2014 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. Basis of preparation The half yearly financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 31 August 2013. The financial statements have been prepared on a going concern basis on the historical cost basis of accounting, modified to include the revaluation of fixed asset investments in accordance with the Companies Act 2006, UK Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended Practice (SORP) for investment trusts and venture capital trusts issued by the Association of Investment Companies, revised in January 2009. 3. Income Six months Six months Year ended ended ended 28 February 28 February 31 August 2014 2013 2013 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Investment income: Overseas dividends 711 1,220 9,181 -------- -------- -------- Total 711 1,220 9,181 ======= ======= ======= 4. Investment management and performance fees Six months ended Six months ended Year ended 28 February 2014 28 February 2013 31 August 2013 (unaudited) (unaudited) (audited) Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investment management fees 182 730 912 164 656 820 339 1,355 1,694 Performance fees - 647 647 - 1,160 1,160 - 1,137 1,137 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total 182 1,377 1,559 164 1,816 1,980 339 2,492 2,831 ======= ======= ======= ======= ======= ======= ======= ======= ======= The investment management fee is levied quarterly, based on the value of the market capitalisation of the Company's ordinary shares on the last day of each month. The investment management fee is allocated 80% to the capital reserves and 20% to the revenue reserve. A performance fee has been accrued of £647,000 for the six months ended 28 February 2014 (six months ended 28 February 2013: £1,160,000; year ended 31 August 2013: £1,137,000). The performance fee accrued at 28 February 2014 is based on the outperformance of the Company's share price relative to the FTSE World Europe ex UK Index over a three year rolling period. 5. Operating expenses Six months Six months Year ended ended ended 28 February 28 February 31 August 2014 2013 2013 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Custody fee 18 18 37 Other administration costs 312 332 651 -------- -------- -------- 330 350 688 ======= ======= ======= 6. Dividend The Board has declared an interim dividend of 1.50p per share for the period ended 28 February 2014 payable on 30 May 2014 to shareholders on the register on 2 May 2014. The total cost of the dividend based on 107,575,830 ordinary shares in issue at 17 April 2014 is £1,614,000 (28 February 2013: £nil). 7. Return and net asset value per ordinary share 28 February 28 February 31 August 2014 2013 2013 (unaudited) (unaudited) (audited) Net revenue return attributable to ordinary shareholders (£'000) 107 636 7,295 Net capital return attributable to ordinary shareholders (£'000) 29,071 55,929 54,824 -------- -------- -------- Total return (£'000) 29,178 56,565 62,119 -------- -------- -------- Equity shareholders' funds (£'000) 274,910 267,474 254,941 -------- -------- -------- The weighted average number of ordinary shares in issue during the period on which the undiluted return per ordinary share was calculated was: 108,165,496 118,266,456 115,410,120 ----------- ----------- ----------- The actual number of ordinary shares in issue at the end of each period on which the undiluted net asset value was calculated was: 107,475,830 116,285,355 108,719,211 ----------- ----------- ----------- Return per share Undiluted Calculated on weighted average number of shares Revenue return 0.10p 0.54p 6.32p Capital return 26.88p 47.29p 47.50p -------- -------- -------- Total 26.98p 47.83p 53.82p -------- -------- -------- Net asset value per share - undiluted 255.79p 230.02p 234.49p -------- -------- -------- Calculated on actual number of shares Revenue return 0.10p 0.55p 6.71p Capital return 27.05p 48.09p 50.43p -------- -------- -------- Total 27.15p 48.64p 57.14p -------- -------- -------- Return per share Diluted The weighted average number of ordinary shares in issue during the period on which the diluted return per ordinary share was calculated was: 108,773,546 118,266,456 115,410,120 ----------- ----------- ----------- The actual number of ordinary shares in issue, including subscription shares, at the end of each period on which the fully diluted net asset value was calculated was: 129,375,906 116,285,355 131,903,529 ----------- ----------- ----------- Calculated on weighted average number of shares Revenue return 0.10p 0.54p 6.32p Capital return 26.72p 47.29p 47.50p -------- -------- -------- Total 26.82p 47.83p 53.82p Net asset value per share - diluted 251.93p 230.02p 234.23p ======= ======= ======= Dilution for subscription shares is assessed at the reporting date and over the duration of the reporting period. A diluted NAV is calculated to the extent that the period end NAV and the mid-market closing share price are both above the exercise price for the subscription shares. Diluted returns are calculated where, over the reporting period, the mid-market closing share price is above the subscription share exercise price. The diluted NAV per share at 28 February 2014 and 31 August 2013 is calculated by adjusting equity shareholders' funds for the consideration receivable on the exercise of the subscription shares (six months ended 28 February 2014: 21,900,076; year ended 31 August 2013: 23,184,318) at the exercise price of 233p per share and dividing by the total number of shares that would have been in issue at those dates had all the subscription shares been exercised. Diluted returns per share for a reporting period are calculated using the weighted average number of subscription shares in issue and the notional equivalent number of ordinary shares based on the average mid-market closing prices during the reporting period. At 28 February 2014, the Company had 5,529,676 shares held in treasury. The treasury shares will not have a dilutive effect if they are cancelled. The Company's policy on issuing treasury shares, set out on page 18 of the Annual Report for the year ended 31 August 2013, permits the Board of Directors to sell treasury shares at a price below NAV in certain circumstances. As a result this would have a dilutive effect. 8. Share capital and shares held in treasury Number of Number of Number of ordinary treasury subscription Nominal shares shares shares value in issue in issue in issue Total £ Allotted, called up and fully paid share capital comprised: Ordinary shares of 0.1p each: At 1 September 2013 108,719,211 5,718,353 - 114,437,564 114,438 Shares repurchased and cancelled pursuant to tender offer on 9 December 2013 (2,627,623) - - (2,627,623) (2,627) Cancellation of treasury shares - (88,677) - (88,677) (89) Issue of shares out of treasury on 14 February 2014 100,000 (100,000) - - - ----------- --------- -------- ----------- -------- 106,191,588 5,529,676 - 111,721,264 111,722 Subscription shares of 0.1p each: At 1 September 2013 - - 23,184,318 23,184,318 23,184 Conversion of subscription shares into ordinary shares 1,284,242 - (1,284,242) - - ----------- --------- ---------- ----------- ------- At 28 February 2014 107,475,830 5,529,676 21,900,076 134,905,582 134,906 =========== ========= ========== =========== ======= On 4 April 2014, the Company issued 100,000 ordinary shares from the shares held in treasury for net proceeds of £252,000. 9. Related party disclosure 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. The Chairman receives an annual fee of £33,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £27,500 and each other Director receives an annual fee of £23,000. Three members of the Board hold shares in the Company. Carol Ferguson holds 48,000 ordinary shares and 9,600 subscription shares, Gerald Holtham holds 13,320 ordinary shares and Eric Sanderson holds 4,000 ordinary shares. Davina Curling does not hold any shares in the Company. 10. Transactions with the Investment Manager BlackRock Investment Management (UK) Limited (BlackRock) provides management and administration services to the Company under a contract which is terminable on six months' notice. BlackRock receives an annual fee in relation to these services of 0.70% of market value plus a performance fee of 15% of any outperformance of the FTSE World Europe ex UK Index, up to a maximum total investment management fee of 1.15%. Where the Company invests in other investments or cash funds managed by BlackRock, any underlying fee charged is rebated. The investment management and performance fees for the six months ended 28 February 2014 were £1,559,000 (six months ended 28 February 2013: £1,980,000; year ended 31 August 2013: £2,831,000). At the period end, an amount of £2,050,000 (excluding the 2013 performance fee accrual) was outstanding in respect of the investment management and performance fees (28 February 2013: £2,341,000; 31 August 2013: £2,011,000). In addition to the above services, with effect from 1 November 2013, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the period ended 28 February 2014 amounted to £67,000 including VAT (six months ended 28 February 2013: nil; year ended 31 August 2013: nil) of which £67,000 (28 February 2013: nil; 31 August 2013: nil) was outstanding at 28 February 2014. 11. Contingent liabilities There were no contingent liabilities at 28 February 2014 (28 February 2013: nil; 31 August 2013: nil). 12. Publication of non statutory accounts The financial information contained in this half yearly report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 28 February 2014 and 28 February 2013 has not been audited. The information for the year ended 31 August 2013 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006. 13. Annual results The Board expects to announce the annual results for the year ending 31 August 2014 as prepared under UK GAAP in late October 2014. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000. The annual report should be available by the beginning of November 2014, with the Annual General Meeting being held in December 2014. 12 Throgmorton Avenue London EC2N 2DL e 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.

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