Half-yearly Report
BlackRock Greater Europe Investment Trust plc
Half Yearly Financial Report 28 February 2015
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
Market background
The performance of European equities was mixed during the period under review.
Although Eurozone economic data for the most part remained lacklustre, the
European Central Bank's (ECB's) moves to stimulate growth, through announcing
the start of a 'Quantitative Easing' (QE) programme, reversed the prevailing
negative sentiment towards the end of the period. The ECB's announcement at the
beginning of the year that it would buy €60 billion of debt each month from
March until at least September 2016 led to the region registering its best
monthly returns in over three years in January, as all market sectors recorded
gains.
Performance
During the six month period, the Company's undiluted net asset value (NAV) per
share returned +8.1%, compared with a return of +6.0% in the FTSE World Europe
ex UK Index. At the same time, the discount widened somewhat, with the result
that the share price returned +5.8% over the same period (all percentages
calculated in sterling terms with income reinvested).
Since the period end, the Company's undiluted NAV has increased by 5.4% compared
with a rise in the FTSE World Europe ex UK Index of 3.9%. In the same period,
the Company's shares have traded in the range of a discount of 1.4% and 6.8% on
an undiluted cum income basis and were trading at a discount of 5.4% as at close
of business on 22 April 2015.
Earnings and dividend
The Company's revenue earnings per share for the six months to 28 February 2015
amounted to 0.64p (2014: 0.10p). The Board has declared an interim dividend of
1.65p (2014: 1.50p) per share. This dividend will be paid on 29 May 2015 to
shareholders on the register on 1 May 2015; the ex-dividend date is
30 April 2015.
Tender offers
The Directors exercised their discretion to operate the half yearly tender
offer in November which, in common with previous tender offers, was for up to
20% of the ordinary shares in issue at the prevailing NAV less 2%. Valid
tenders for 3,166,263 ordinary shares were received at a price of 239.08p per
share, representing 2.91% of the ordinary shares in issue excluding treasury
shares. Of the shares tendered, 3,034,286 were repurchased by the Company and
cancelled and 131,977 were placed in treasury.
It was announced on 30 March 2015 that the next semi-annual tender offer will
take place with a calculation date as at close of business on 1 June 2015,
being the succeeding business day to 31 May 2015. The tender offer will be for
up to 20% of the ordinary shares in issue (excluding treasury shares) at the
prevailing fully diluted NAV per share subject to a discount of 2%. A Circular
relating to the tender offer is enclosed with this half yearly financial
report. The Circular will also be available on the website at blackrock.co.uk/
brge and additional copies may be requested from the Company's registered
office c/o the Secretary, BlackRock Greater Europe Investment Trust plc,
12 Throgmorton Avenue, London EC2N 2DL.
Subscription shares
A total of 23,254,813 subscription shares were allotted to shareholders in
April 2013 by way of a bonus issue. Following seven conversions of the
subscription shares since the bonus issue, the Company has issued 2,621,513
ordinary shares. Total proceeds amounted to £6,112,000. The Company currently
has 105,676,343 ordinary shares (excluding 5,561,653 treasury shares) and
20,633,300 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. The
exercise price is 248.00p per share.
The ordinary shares resulting from the exercise of the subscription share
rights on 30 April 2015 will not qualify for the interim dividend payment.
Board
My colleagues and I are pleased to welcome Peter Baxter as a member of the
Board with effect from 1 April 2015. He will also join the Company's Audit and
Management Engagement Committee.
Peter has over 25 years' experience in the investment management industry. He
was chief executive of Old Mutual Asset Managers from 2005 until 2011, having
joined the firm in 2000 as chief investment officer. He previously worked for
Schroders and Hill Samuel in various equity analysis, fund management and
investment strategy roles. He is a member of the board of Trust for London,
where he chairs the investment committee.
Investment management fee
Following a review of the investment management and performance fees, the
Board has agreed with the Manager that with effect from 1 September 2015, the
beginning of the Company's financial year, there will no longer be a
performance fee and the existing arrangements will be replaced with a base fee
of 0.85% of Net Asset Value.
Outlook
The Eurozone region has started 2015 with a number of reasons to be positive.
In addition to QE, recent Euro weakness, particularly relative to the US
dollar, has improved the competitiveness of many European exporting companies.
Furthermore, the recent sharp drop in the oil price will reduce input costs for
many companies and should also boost consumer spending. Corporate earnings for
Eurozone businesses still remain at very depressed levels compared with their
US counterparts and closing the gap could drive the next phase of share price
gains.
Given the above, current valuation levels suggest that European equities remain
attractive and that opportunities continue to be available in companies with
good pricing power and encouraging earnings prospects. However, although
prospects are brighter, the likelihood of a rise in US interest rates later in
the year and ongoing political uncertainty in Greece and Ukraine, could yet
create volatility in European stock markets.
Carol Ferguson
23 April 2015
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; and
- Gearing.
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 2014. A detailed explanation can be found in the Strategic Report
on pages 7 and 8 and in note 18 on pages 47 to 52 of the Annual Report and
Financial Statements which are available on the website maintained by
BlackRock at blackrock.co.uk/brge.
In the view of the Board, there have not been any changes to the fundamental
nature of these risks since the previous report and these principal risks and
uncertainties are equally applicable to the remaining six months of the
financial year as they were to the six months under review.
Going concern
The Directors, having considered the nature and liquidity of the portfolio, the
Company's investment objective and the Company's projected income and
expenditure, 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. Ongoing charges
(including any performance fees but excluding interest costs and taxation) are
approximately 0.9% of net assets.
Related party disclosure and transactions with the AIFM and Investment Manager
BlackRock Fund Managers Limited (BFM) was appointed as the Company's AIFM with
effect from 2 July 2014. BFM has (with the Company's consent) delegated certain
portfolio and risk management services, and other ancillary services, to
BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK)
are regarded as related parties under the Listing Rules. Details of the
management and performance fees payable are set out in note 4 and note 10. The
related party transactions with the Directors are set out in note 9.
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 23 April 2015 and
the above responsibility statement was signed on its behalf by the Chairman.
Carol Ferguson
For and on behalf of the Board
23 April 2015
Investment manager's report
Overview
The Company's share price and underlying NAV gained over the six months to
28 February 2015. In this period, the Company returned +5.8% and +8.1% in share
price and NAV terms respectively. By way of comparison, the FTSE World Europe
ex UK Index returned +6.0% during the same period (all percentages calculated
in sterling terms with income reinvested).
The second half of the last financial year was dominated by three main themes.
First, concerns over the strength of recovery in the Eurozone came to the fore,
as data releases suggested weakness in the German economy and a lack of growth
in Italy. Second, optimism about the potential impact of 'Quantitative Easing'
(QE) by the European Central Bank (ECB) increased from mid-August onwards as
rumours of the likely onset of a bond-buying programme by the central bank grew
stronger; the measures announced in early September provided further scope for
optimism as Mario Draghi indicated that he was 'not finished' with his policy
action. Third, the rapid fall in the oil price led to the energy sector
significantly underperforming, declining by more than 15% in the fourth
quarter. European earnings were also marginally supportive, as the third
quarter earnings season proved better than expected. However, by the end of
2014, this was overshadowed by the growing political uncertainty in Greece,
which created fears for the wider Euro area.
Since the beginning of 2015, the European market has rallied, outperforming
most other equity markets globally. Towards the end of January, sentiment was
buoyed by the ECB's confirmation that QE would be employed and there were hopes
of an eventual extension to the Greek bailout package by four months. Economic
indicators for Europe also continued to pick up, with consumer confidence
increasing, manufacturing data being positive and German New Orders for
December significantly exceeding expectations.
Portfolio activity
Sector allocation detracted from performance over the period. In particular,
the decision to have lower exposure to consumer staples and the materials
sectors impacted negatively upon performance, as did a high exposure to
financials. In contrast, the portfolio's high exposure to health care was
beneficial. The portfolio also benefited from the use of gearing, which
averaged 1.8% during the period.
The Euro weakened materially over the six months as weaker economic data at
the beginning of the period combined with higher expectations of loosening
monetary policy at the ECB (and ultimately QE in January). Against the US
dollar, the exchange rate fell from 1.30 in September 2014 to 1.12 in
February 2015, and has plunged lower since. This aided performance in
companies which derive revenues internationally, notably holdings in
health care and consumer sectors.
While high exposure to financials detracted from returns, stock selection
within this sector was beneficial. Specifically, the Company saw strong returns
from Zurich Insurance, which performed well in the period, benefiting from its
strong balance sheet, potential for capital return, cost saving measures and
the relative strength of the dollar through their American operations. The
Company's portfolio also saw positive performance coming from Europe's largest
commercial real estate company, Unibail-Rodamco. Real estate companies are
beneficiaries of the ECB's monetary policy, which drives demand for the sector,
and they are attractive to income investors as they offer reliable and growing
dividends. The holding in Russian Sberbank detracted from performance as
geo-political tension grew in the area.
Within the health care sector, positions in Bayer, Fresenius and Novo Nordisk
contributed to performance. The latter has performed well due to its ability to
exercise pricing power for key drugs in insulin and diabetes care, especially in
North America where price increases for these drugs have directly impacted
company profitability. All three names reported positive results during the
period helping to drive share price performance.
The top performing name during the six months was Irish airline, Ryanair. The
company increased its full-year net profit guidance by around 20% after
experiencing strong passenger growth in the latter half of the year. The firm
has effectively revamped their offer to attract customers back and is starting
to tackle the business market by offering an attractively priced business
ticket with flexible fares. Additionally, Ryanair is a beneficiary of lower oil
prices, as this is their single largest cost.
It has been an active period for implementing changes to the portfolio. Purchases
included Daimler, Heineken and LVMH in the consumer goods section; these were
funded from the sales of GDF Suez (utilities), ENI (oil & gas) and Saint-Gobain
(construction).
At the end of the period, the portfolio was particularly weighted towards
positions in the financials, technology and consumer services sectors. The
portfolio had lower exposure to oil & gas, basic materials, utilities, telecoms
and consumer goods.
Outlook
The European economy now appears to be recovering, driven by supportive action
in terms of QE, the weaker Euro and lower oil price. QE is injecting €60
billion a month into Europe and this will not only apply downward pressure on
government bond yields, but will also have a beneficial impact on borrowing
costs for European companies. The cost of debt for companies has fallen
markedly over the last six months and we believe that companies will take
advantage of the favourable financing conditions to issue more and cheaper
debt, both to refinance existing debt and/or to acquire other businesses.
Moreover, an economic recovery should drive consumer demand and earnings
higher, which also should be supportive for markets. As the recovery continues
to gather momentum, and as the ECB rolls out its QE programme, we believe that
European equities can rally further. Markets are likely to remain volatile
though, given the political uncertainties in Greece and Ukraine, and this
should open up opportunities to acquire undervalued stocks.
Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
23 April 2015
Ten largest investments
28 February 2015
Novo Nordisk: 4.7% (2014: 4.6%) 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 strong track record of delivering double-digit earnings growth per year for
the foreseeable future.
Novartis: 4.3% (2014: nil) is a Swiss multinational pharmaceuticals company
which is ranked number one in sales among the worldwide industry in 2013. The
business is becoming more focused in 2015 and emphasis is being placed on cost
savings. Closing deals in 2015 will add to profits and further rationalise the
business and the drug pipeline remains strong.
Roche: 4.0% (2014: 6.0%) is a Swiss pharmaceuticals and diagnostics company
with global exposure. Roche has gone through a strong period of 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 good pipeline of drugs coming to market, make this an
attractive investment case.
Bayer: 3.7% (2014: 4.2%) 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. We see good value in the
company and it has a superior growth rate for the sector.
KBC Groep: 3.5% (2014: 2.5%) is a Belgian bank which is involved in multiple
businesses, including retail and merchant banking. KBC is one of the largest
banks in Europe and has a significant presence in central and eastern Europe.
The bank has significantly increased its capital ratio and provisioned for
losses on its Irish loan book ahead of the Asset Quality Review which we
believe it will comfortably get through. It remains one of our top picks in the
sector.
AXA: 3.3% (2014: nil) is a French based holding company engaged in the business
of financial protection, insurance and asset management. The insurance business
can weather the low yield environment due to its strong balance sheet. There is
value in this business relative to its sector and it has experienced sound
earnings growth which is set to continue.
Daimler: 3.3% (2014: nil) is a German multinational automotive corporation. The
stock is a strong beneficiary of the move in USD/EUR, which will help drive
earnings further. Momentum in their key models (Mercedes) is strong and their
dividend pay-out looks safe.
Intesa Sanpaolo: 3.2% (2014: 1.6%) is a banking group based in Italy. The stock
benefits from a positive macroeconomic environment in Italy, but more
importantly, the bank has a good, and safe looking dividend yield and a strong
balance sheet. The bank has focused on growing fees and commissions, as opposed
to lending, allowing it a strong return on its equity position.
Deutsche Telekom: 2.9% (2014: nil) is a German telecommunications company. The
stock has an attractive valuation and potential for solid revenue growth. The
company should benefit from market consolidation in Germany and continued
growth of T-Mobile in the US. With this exposure, the stock is a beneficiary of
the strengthening US dollar relative to the Euro.
Heineken: 2.8% (2014: nil) is a Dutch brewing company which owns over 190
breweries in more than 70 countries. The company has come through a five year
period of cost cutting and restructuring programmes, as well as a major
acquisition and integration of Asia-Pacific Brewers. This makes Heineken well
positioned to deliver strong earnings growth.
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 2014. Together, the ten largest investments represent 35.7% of the
Company's portfolio (ten largest investments at 31 August 2014: 34.4%).
Investments
28 February 2015
Country of Market value % of
operation £'000 investments
Financials
KBC Groep Belgium 9,299 3.5
AXA France 8,943 3.3
Intesa Sanpaolo Italy 8,520 3.2
Zurich Insurance Group Switzerland 7,200 2.7
Sampo Oyj Finland 6,977 2.6
Unibail-Rodamco France 5,782 2.1
Türkiye Halk Bankasi Turkey 5,480 2.0
Nordea Bank Sweden 5,170 1.9
Bank of Ireland Ireland 4,634 1.7
Azimut Italy 4,175 1.5
Helvetia Switzerland 3,678 1.4
Türkiye Garanti Bankasi Turkey 3,559 1.3
Sberbank Russia 3,398 1.3
Anima Italy 3,260 1.2
Crédit Agricole France 1,273 0.5
Avanza Bank Sweden 123 -
------- -------
81,471 30.2
------- -------
Consumer Goods
Daimler Germany 8,791 3.3
Heineken Netherlands 7,423 2.8
LVMH Moët Hennessy France 7,420 2.8
Luxottica Italy 6,305 2.3
Pernod Ricard France 6,229 2.3
Continental Germany 5,858 2.2
Autoliv Sweden 3,306 1.2
Norma Germany 3,198 1.1
Pandora Denmark 2,081 0.8
------- -------
50,611 18.8
------- -------
Industrials
Assa Abloy Sweden 5,894 2.2
Aéroports de Paris France 4,622 1.7
Hexagon Sweden 4,536 1.7
Geberit Switzerland 4,175 1.6
Thales France 4,109 1.5
CRH Ireland 4,001 1.5
Kingspan Ireland 3,477 1.3
Atlantia Italy 3,176 1.1
Ferrovial Spain 3,081 1.1
Saft Groupe France 1,182 0.5
Cargotec Finland 350 0.1
------- -------
38,603 14.3
------- -------
Health Care
Novo Nordisk Denmark 12,800 4.7
Novartis Switzerland 11,668 4.3
Roche Switzerland 10,672 4.0
------- -------
35,140 13.0
------- -------
Consumer Services
Reed Elsevier Netherlands 5,946 2.2
Ryanair Ireland 5,624 2.1
TUI Germany 4,031 1.5
ProSieben Germany 3,547 1.3
------- -------
19,148 7.1
------- -------
Technology
ASML Netherlands 6,766 2.5
Capgemini France 5,876 2.2
United Internet Germany 4,149 1.5
------- -------
16,791 6.2
------- -------
Basic Materials
Bayer Germany 9,910 3.7
Uralkali Russia 3,467 1.3
------- -------
13,377 5.0
------- -------
Telecommunications
Deutsche Telekom Germany 7,803 2.9
------- -------
7,803 2.9
------- -------
Utilities
Enel Italy 6,612 2.5
------- -------
6,612 2.5
------- -------
Total investments 269,556 100.0
======= =======
All investments are in ordinary shares unless otherwise stated. The total
number of investments held at 28 February 2015 was 50 (31 August 2014: 55).
Income statement
for the six months ended 28 February 2015
Revenue £'000 Capital £'000 Total £'000
Six months Year Six months Year Six months Year
ended ended ended ended ended ended
28.02.15 28.02.14 31.08.14 28.02.15 28.02.14 31.08.14 28.02.15 28.02.14 31.08.14
Notes (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains on
investments
held at
fair value
through
profit or
loss - - - 20,459 30,502 8,253 20,459 30,502 8,253
Income from
investments
held at
fair value
through
profit or
loss 3 1,063 711 6,873 - - - 1,063 711 6,873
Other
income 3 189 - 42 - - - 189 - 42
Investment
management
and
performance
fees 4 (173) (182) (364) (692) (1,377) (1,454) (865) (1,559) (1,818)
Operating
expenses 5 (315) (330) (678) (13) - (19) (328) (330) (697)
------ ------ ----- ------ ------ ------ ------ ------ ------
Net return
before
finance
costs
and
taxation 764 199 5,873 19,754 29,125 6,780 20,518 29,324 12,653
Finance
costs (1) (14) (151) (4) (54) (48) (5) (68) (199)
------ ------ ----- ------ ------ ------ ------ ------ ------
Return
on
ordinary
activities
before
taxation 763 185 5,722 19,750 29,071 6,732 20,513 29,256 12,454
Taxation on
ordinary
activities (72) (78) (758) (87) - - (159) (78) (758)
------ ------ ----- ------ ------ ------ ------ ------ ------
Return on
ordinary
activities
after
taxation 7 691 107 4,964 19,663 29,071 6,732 20,354 29,178 11,696
------ ------ ----- ------ ------ ------ ------ ------ ------
Return per
ordinary
share -
basic 7 0.64p 0.10p 4.59p 18.31p 26.88p 6.22p 18.95p 26.98p 10.81p
------ ------ ----- ------ ------ ------ ------ ------ ------
Return per
ordinary
share -
diluted 7 0.64p 0.10p 4.59p 18.31p 26.72p 6.22p 18.95p 26.82p 10.81p
------ ------ ------ ------ ------ ------ ------ ------ ------
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 equivalents.
Reconciliation of movements in shareholders' funds
for the six months ended 28 February 2015 and comparative periods
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 2015
(unaudited)
At
31 August 2014 135 61,644 105 21,630 165,611 9,862 258,987
Return for the
period - - - - 19,663 691 20,354
Exercise of
subscription
shares - 36 - - - - 36
Ordinary
shares
purchased into
treasury - - - (316) - - (316)
Ordinary
shares
purchased and
cancelled (3) - 3 (7,254) - - (7,254)
Share purchase
costs - - - (93) - - (93)
Dividend paid* - - - - - (3,482) (3,482)
----- ------ ----- ------ ------- ------ -------
At
28 February 2015 132 61,680 108 13,967 185,274 7,071 268,232
----- ------ ----- ------ ------- ------ -------
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 year
ended
31 August 2014
(audited)
At
31 August 2013 138 55,672 102 27,660 158,879 12,490 254,941
Return for the
year - - - - 6,732 4,964 11,696
Issue of
ordinary
shares held in
treasury - 60 - 439 - - 499
Ordinary
shares
purchased and
cancelled (3) - 3 (6,313) - - (6,313)
Exercise of
2013
subscription
shares - 5,912 - - - - 5,912
Share issue
and share
purchase costs - - - (156) - - (156)
Dividends paid*** - - - - - (7,592) (7,592)
----- ------ ----- ------ ------- ------ -------
At
31 August 2014 135 61,644 105 21,630 165,611 9,862 258,987
----- ------ ----- ------ ------- ------ -------
* In respect of the year ended 31 August 2014, a final dividend of 3.20p per
share was declared on 21 October 2014 and paid on 12 December 2014.
** 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.
*** In respect of the year ended 31 August 2014, an interim dividend of 1.50p
per share was declared on 17 April 2014 and paid on 30 May 2014. 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.
The transaction costs incurred on the acquisition and disposal of investments
are included within the capital reserves and amounted to £419,000 for the six
months ended 28 February 2015 (six months ended 28 February 2014: £312,000;
year ended 31 August 2014: £811,000).
Balance sheet
as at 28 February 2015
28 February 28 February 31 August
2015 2014 2014
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Fixed assets
Investments held at fair value
through profit or loss 269,556 272,659 256,083
======== ======== ========
Current assets
Debtors 12,228 7,540 5,585
Cash at bank - 1 88
-------- -------- --------
12,228 7,541 5,673
-------- -------- --------
Creditors - amounts falling due
within one year
Bank overdraft (9,414) (1,277) (4)
Other creditors (4,138) (4,013) (2,765)
-------- -------- --------
(13,552) (5,290) (2,769)
-------- -------- --------
Net current (liabilities)/assets (1,324) 2,251 2,904
-------- -------- --------
Net assets 268,232 274,910 258,987
======== ======== ========
Capital and reserves
Called-up share capital 8 132 135 135
Share premium account 61,680 58,665 61,644
Capital redemption reserve 108 105 105
Special reserve 13,967 21,437 21,630
Capital reserves 185,274 187,950 165,611
Revenue reserve 7,071 6,618 9,862
-------- -------- --------
Total equity shareholders' funds 268,232 274,910 258,987
======== ======== ========
Net asset value per ordinary
share - undiluted 7 253.82p 255.79p 237.98p
======== ======== ========
Net asset value per ordinary
share - diluted 7 253.82p 251.93p 237.98p
======== ======== ========
Cash flow statement
for the six months ended 28 February 2015
Six months ended Six months ended Year ended
28 February 28 February 31 August
2015 2014 2014
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash inflow/(outflow) from
operating activities 623 (845) 1,550
Servicing of finance (5) (68) (60)
Taxation recovered 730 295 526
======== ======== ========
Capital expenditure and financial
investment
Purchase of investments (208,363) (123,970) (349,819)
Proceeds from sale of investments 208,510 143,246 366,341
Realised losses on foreign currency
transactions 145 453 422
-------- -------- --------
Net cash inflow from capital
expenditure and financial investment 292 19,729 16,944
-------- -------- --------
Equity dividends paid (3,482) (5,979) (7,592)
-------- -------- --------
Net cash (outflow)/inflow before
financing (1,842) 13,132 11,368
-------- -------- --------
Financing
Purchase of ordinary shares (7,254) (6,427) (6,313)
Share issue and share purchase costs
paid (122) (404) (578)
Proceeds from issue of ordinary
shares out of treasury - 244 499
Costs of purchase of ordinary shares
into treasury (316) - -
Proceeds from exercise of 2013
subscription shares 36 2,968 5,912
Net proceeds from issue of ordinary
shares to acquire Charter European
Trust plc investment portfolio - 50 36
-------- -------- --------
Net cash outflow from financing (7,656) (3,569) (444)
-------- -------- --------
(Decrease)/increase in cash in the
period/year (9,498) 9,563 10,924
======== ======== ========
Reconciliation of net return before finance costs and taxation to net cash flow
from operating activities
Six months ended Six months ended Year ended
28 February 28 February 31 August
2015 2014 2014
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net return before finance costs and
taxation 20,518 29,324 12,653
Less: Capital return before finance
costs and taxation (19,667) (29,125) (6,780)
-------- -------- --------
Net revenue return before finance
costs and taxation 851 199 5,873
Expenses charged to capital (705) (1,377) (1,473)
Decrease in accrued income 31 98 13
Increase in other debtors (14) - (11)
Increase/(decrease) in other
creditors 619 313 (1,767)
Tax on investment income included
within gross income (159) (78) (1,085)
----- ----- ------
Net cash inflow/(outflow) from
operating activities 623 (845) 1,550
===== ===== ======
Notes to the financial statements
for the six months ended 28 February 2015
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 2014.
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 ended Six months ended Year ended
28 February 2015 28 February 2014 31 August 2014
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment income:
Overseas dividends 1,063 711 6,873
------ ------ ------
1,063 711 6,873
Other income:
Bank interest 3 - 1
Interest on WHT reclaims 186 - 41
------ ------ ------
189 - 42
------ ------ ------
Total 1,252 711 6,915
====== ====== ======
4. Investment management and performance fees
Six months ended Six months ended Year ended
28 February 2015 28 February 2014 31 August 2014
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
management
fee 173 692 865 182 730 912 364 1,454 1,818
Performance
fee - - - - 647 647 - - -
----- ----- ----- ----- ----- ----- ----- ----- -----
Total 173 692 865 182 1,377 1,559 364 1,454 1,818
===== ===== ===== ===== ===== ===== ===== ===== =====
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 is allocated 80% to capital reserves and 20% to
the revenue reserve.
No performance fee has been accrued for the six months ended 28 February 2015
(six months ended 28 February 2014: £647,000; year ended 31 August 2014: nil).
The performance fee accrued at 28 February 2014 was 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 ended Six months ended Year ended
28 February 28 February 31 August
2015 2014 2014
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Custody fee 12 18 33
Other administration costs 303 312 645
---- ---- ----
315 330 678
==== ==== ====
6. Dividend
The Board has declared an interim dividend of 1.65p per share for the period ended
28 February 2015, payable on 29 May 2015 to shareholders on the register on
1 May 2015. The total cost of the dividend based on 105,676,343 ordinary shares
in issue at 23 April 2015 was £1,744,000 (28 February 2014: £1,612,000).
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:
28 February 28 February 31 August
2015 2014 2014
(unaudited) (unaudited) (audited)
Net revenue return attributable to
ordinary shareholders (£'000) 691 107 4,964
Net capital return attributable to
ordinary shareholders (£'000) 19,663 29,071 6,732
------- ------- -------
Total return (£'000) 20,354 29,178 11,696
------- ------- -------
Equity shareholders' funds (£'000) 268,232 274,910 258,987
------- ------- -------
Return per share
Undiluted
The weighted average number of ordinary
shares in issue during the period, on
which the undiluted return per ordinary
share was calculated was: 107,399,899 108,165,496 108,236,562
----------- ----------- -----------
The actual number of ordinary shares in
issue at the period end, on which the
undiluted net asset value was calculated
was: 105,676,343 107,475,830 108,828,058
----------- ----------- -----------
Calculated on weighted average number of
shares
Revenue return 0.64p 0.10p 4.59p
Capital return 18.31p 26.88p 6.22p
------- ------- -------
Total 18.95p 26.98p 10.81p
------- ------- -------
Net asset value per share - undiluted 253.82p 255.79p 237.98p
------- ------- -------
Calculated on actual number of shares
Revenue return 0.65p 0.10p 4.56p
Capital return 18.61p 27.05p 6.19p
------- ------- -------
Total 19.26p 27.15p 10.75p
------- ------- -------
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: 107,399,899 108,773,546 108,236,562
----------- ----------- -----------
The actual number of ordinary shares in
issue, including subscription shares, at
the period end, on which the fully
diluted net asset value was calculated
was: 126,309,643 129,375,906 129,475,906
----------- ----------- -----------
Calculated on weighted average number of
shares
Revenue return 0.64p 0.10p 4.59p
Capital return 18.31p 26.72p 6.22p
------- ------- -------
Total 18.95p 26.82p 10.81p
Net asset value per share - diluted 253.82p 251.93p 237.98p
======= ======= =======
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 of 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 2015 and 31 August 2014 is calculated
by adjusting equity shareholders' funds for the consideration receivable on the
exercise of 20,633,300 subscription shares (six months ended 28 February 2014:
21,900,076; 31 August 2014: 23,184,318) at the exercise price of 248.00p 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. The subscription
shares were not dilutive at 28 February 2015 (six months ended 28 February 2014:
dilutive; year ended 31 August 2014: not dilutive).
In accordance with FRS 22 'Earnings per share', there is no dilutive impact on
the return per share for the period ended 28 February 2015 as the average
mid-market price of the ordinary shares for the period of 227.60p is below the
exercise price of the subscription shares of 248.00p per share.
At 28 February 2015, the Company had 5,561,653 (28 February 2014: 5,529,676;
31 August 2014: 5,429,676) 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 pages 19 and 20 of the Annual Report and
Financial Statements for the year ended 31 August 2014, permits the Directors
to sell treasury shares at a price below the NAV in certain circumstances. As a
result, the treasury shares 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 2014 108,828,058 5,429,676 - 114,257,734 114,257
Shares bought back
into treasury (tender
offer) (131,977) 131,977 - - -
Conversion of
subscription shares
into ordinary shares 14,548 - - 14,548 14
Share cancellation
(tender offer) (3,034,286) - - (3,034,286) (3,034)
----------- --------- -------- ----------- -------
105,676,343 5,561,653 - 111,237,996 111,237
Subscription shares
of 0.1p each:
At 1 September 2014 - - 20,647,848 20,647,848 20,648
Conversion of
subscription shares
into ordinary shares - - (14,548) (14,548) (14)
----------- --------- ---------- ----------- -------
At 28 February 2015 105,676,343 5,561,653 20,633,300 131,871,296 131,871
=========== ========= ========== =========== =======
9. Related party disclosure
The Board consists of five 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.
The following members of the Board hold shares in the Company: Carol Ferguson
holds 57,600 ordinary shares, Gerald Holtham holds 13,320 ordinary shares and
Eric Sanderson holds 4,000 ordinary shares.
Since the period end and up to the date of this report there have been no
changes in Directors' holdings.
10. Transactions with the AIFM and Investment Manager
BlackRock Investment Management (UK) Limited (BIM (UK)) provided management and
administration services to the Company under a contract which was terminated
with effect from 2 July 2014. BlackRock Fund Managers Limited (BFM) was
appointed as the Company's AIFM with effect from 2 July 2014.
BFM provides management and administration services to the Company under a
contract which is terminable on six months' notice. BFM has (with the Company's
consent) delegated certain portfolio and risk management services, and other
ancillary services, to BlackRock Investment Management (UK) Limited. BFM
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 fee and performance fee (if applicable) for the six
months ended 28 February 2015 were £865,000 (six months ended 28 February 2014:
£1,559,000; year ended 31 August 2014: £1,818,000). At the period end an amount
of £1,142,000 was outstanding in respect of the investment management fee; no
performance fee was outstanding (28 February 2014: £2,050,000; 31 August 2014:
£440,000).
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 2015 amounted to
£65,000 excluding VAT (six months ended 28 February 2014: £56,000;
31 August 2014: £113,000). Marketing fees of £178,000 were outstanding at
28 February 2015 (28 February 2014: £56,000; 31 August 2014: £113,000).
11. Contingent liabilities
There were no contingent liabilities at 28 February 2015 (28 February 2014:
nil; 31 August 2014: nil).
12. Publication of non statutory accounts
The financial information contained in this half yearly financial 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 2015
and 28 February 2014 has not been audited.
The information for the year ended 31 August 2014 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 2015 as prepared under UK GAAP in mid October 2015. Copies of the
results announcement can be obtained from the Secretary on 020 7743 3000. The
Annual Report and Financial Statements should be available by the beginning of
November 2015, with the Annual General Meeting being held in December 2015.
12 Throgmorton Avenue
London
EC2N 2DL
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of, this announcement.
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