Annual Financial Report

BLACKROCK GREATER EUROPE INVESTMENT TRUST plc Annual results announcement for the year ended 31 August 2014 Financial Highlights Attributable to ordinary As at As at shareholders 31 August 2014 31 August 2013 Change % Assets Net asset value per ordinary share - undiluted 237.98p 234.49p +1.5 - with income reinvested** +4.3 Net asset value per ordinary share - diluted 237.98p 234.23p +1.6 - with income reinvested** +4.5 Net assets (£'000)* 258,987 254,941 +1.6 Ordinary share price (mid-market) 228.50p 228.75p -0.1 - with income reinvested** +2.8 Subscription share price (mid-market) 10.00p 23.38p -57.2 ------- ------- ------- For the For the year ended year ended 31 August 2014 31 August 2013 Change % Revenue Net revenue return after taxation (£'000) 4,964 7,295 -32.0 Revenue return per ordinary share - basic and diluted 4.59p 6.32p -27.4 ------ ------ ------ Dividends: Interim 1.50p - Final 3.20p 4.50p+ ------ ------ ------ Total dividends paid and payable 4.70p 4.50p +4.4 ------ ------ ------ * The change in net assets reflects the tender offer implemented in the year, market movements and the exercise of subscription shares. ** Net asset value and share price performance include the dividend reinvestment. + Excluding a special dividend of 1.00p per share. Chairman's statement Overview After enjoying excellent returns at the interim stage, market conditions in the second half of our financial year proved to be much more challenging. A perception of growing political risks in Ukraine and the Middle East combined with the sluggish pace of economic recovery to create a volatile background against which long term investors struggled to hold their nerve as the more short term investors unwound their positions. Meanwhile, lack of clarity about the direction of central bank policy was an added uncertainty in unsettled markets. Performance Against this background, the Company underperformed the market for the year as a whole, despite the good performance reported at the interim. For the twelve months ended 31 August 2014, the undiluted net asset value (NAV) per share returned 4.3%, compared with a return of 10.4% in the FTSE World Europe ex UK Index. The share price returned 2.8% over the same period. All percentages are calculated in Sterling terms with income reinvested. A full explanation of market factors and the background to the underperformance is set out in the Investment Managers' Report. Since the year end, the Company's undiluted NAV per share decreased by 6.4% compared with a fall in the FTSE World Europe ex UK Index of 7.0% over the same period. Revenue return and dividends The revenue return for the year was 4.59p per share compared with 6.32p per share for the previous year. The reduction in revenue compared with the previous year is due to sales of the Company's higher yielding stocks and a fall in special dividends. The Board declared a dividend at the half year stage of 1.50p per share and this was paid to shareholders on 30 May 2014 (2013: nil). The Directors now recommend the payment of a final dividend of 3.20p per share making a total dividend for the year of 4.70p per share (2013: 4.50p plus a special dividend of 1.00p per share). The dividend will be paid on 12 December 2014 to shareholders on the Company's register on 31 October 2014. The ex dividend date is 30 October 2014. Discount control and tender offers The Directors recognise the importance to shareholders that the Company's shares should not trade at a significant discount to their underlying NAV. As the Company's shares had traded at an average discount to NAV of 2.2% over the six month period to 28 February 2014, the Directors decided not to implement a semi-annual tender offer in May 2014. It was announced on 19 September 2014 that the next semi-annual tender offer will take place on 1 December 2014 being the first business day after 30 November 2014. The tender offer will be for up to 20% of the 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 Annual Report. The Circular will be available on the BlackRock 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. Resolutions to renew the Company's semi-annual tender authorities will be put to shareholders at the forthcoming Annual General Meeting. Alternative Investment Fund Managers' Directive (AIFMD) BlackRock Fund Managers Limited (BFM) was appointed as the Company's Alternative Investment Fund Manager (AIFM or Manager) on 2 July 2014. The Board has also appointed BNY Mellon Trust & Depositary (UK) Limited to act as the Company's depositary. In complying with its new regulatory obligations, the Board takes this opportunity to reassure shareholders that it continues to act independently of the AIFM and the arrangements in respect of the management and performance fees remain unchanged. BlackRock Investment Management (UK) Limited (BIM (UK)) continues to act as the Company's Investment Manager under a delegation agreement with BFM. New reporting requirements This Annual Report has been restructured to comply with the new framework for reporting to shareholders. A new Strategic Report replaces the Business Review, previously part of the Directors' Report. Other changes cover the Directors' Remuneration Report, including remuneration policy, which will be the subject of a binding shareholder vote; the work and responsibilities of the Audit and Management Engagement Committee; the report of the Independent Auditor; and regulatory disclosures including those in respect of the AIFMD. Board Having decided to step down from the Board, my predecessor as Chairman, John Walker-Haworth, who was Chairman from the Company's launch on 20 September 2004, did not seek re-election at the last Annual General Meeting in December 2013. On behalf of the Board, I would like to take this opportunity to thank him for his enormous contribution over the years and especially for his careful stewardship, guidance and leadership. We wish him well for the future. The Board's composition is reviewed on a regular basis to ensure that it has the appropriate balance of skills, knowledge and experience to fulfil its obligations. With a view to planning for succession and keeping the Board membership refreshed, we have appointed an independent search consultant to help us in appointing an additional Board member. Outlook Despite disappointing macroeconomic news during the second quarter, our Portfolio Managers remain broadly positive on European equities. Valuations are reasonable relative to other asset classes and to U.S. equities. European earnings expectations for 2014 are also now more realistic and the weakening of the Euro should support revised growth forecasts. In late August, Mario Draghi, president of the European Central Bank (ECB), indicated that he is willing to see some economic stimulus and this should increase interest in European stocks in the coming months. Draghi's clear objective is to protect the Euro while promoting nominal growth in Europe and recent measures announced by the ECB are designed to provide a boost in liquidity with the ultimate aim of reducing the cost of corporate debt. Developments are not expected to be rapid, but more performance central bank policy should help to support any European economic recovery which has faltered in recent months and provide a positive catalyst for markets. Annual General Meeting The Annual General Meeting of the Company will be held at 12.00 noon at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 3 December 2014. The Portfolio Managers, Vincent Devlin and Sam Vecht, will make a presentation highlighting the performance of the past year and prospects for the year to come and they will be available to answer questions. We, the Directors of your Company, regard the Annual General Meeting as the most important meeting of the year and we encourage you to come along. We have considered the resolutions proposed in the Notice of the Annual General Meeting and believe that all are in the interests of shareholders as a whole. We therefore recommend that you vote in favour of each resolution. Carol Ferguson 21 October 2014 Strategic report The Directors present the Strategic Report of the Company for the year ended 31 August 2014. The aim of the Strategic Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company for the collective benefit of shareholders. Principal Activity The Company carries on business as an investment trust and its principal activity is portfolio investment. Objective The Company's objective is the achievement of capital growth, primarily through investment in a focused portfolio constructed from a combination of the securities of large, mid and small capitalisation European companies, together with some investment in the developing markets of Europe. The Company will also have the flexibility to invest in any country included in the FTSE World Europe ex UK Index, as well as the freedom to invest in developing countries not included in the Index but considered by the Manager and the Directors as part of greater Europe. Strategy, Business Model and Investment Policy The Company's policy is that the portfolio should consist of approximately 30-70 securities and the majority of the portfolio will be invested in larger capitalisation companies, being companies with a market capitalisation of over €5 billion. Up to 25% may be invested in companies in developing Europe with the flexibility to invest up to 5% of the portfolio in unquoted investments. However, overall exposure to developing European companies and unquoted investments together will not exceed 25% of the Company's portfolio. As at 31 August 2014, the Company held 55 investments. 7.7% of the portfolio was invested in developing Europe. The Company had no unquoted investments. Investment in developing European securities may be either direct or through other funds, including those managed by BlackRock Investment Management (UK) Limited (BIM (UK)), subject to a maximum of 15% of the portfolio. Direct investment in Russia is limited to 10% of the Company's assets. Investments may also include depositary receipts or similar instruments representing underlying securities. The Company also has the flexibility to invest up to 20% of the portfolio in debt securities, such as convertible bonds and corporate bonds. No bonds were held at 31 August 2014. The use of any derivative instruments such as financial futures, options and warrants and the entering into of stock lending arrangements will only be for the purposes of efficient portfolio management. While the Company may hold shares in other investment companies (including investment trusts), the Board has agreed that the Company will not invest more than 15%, in aggregate, of its gross assets in other listed closed-ended investment funds (save to the extent that such closed-ended investment funds have published investment policies to invest no more than 15% of their total assets in such other listed closed-ended investment funds). The Company achieves an appropriate spread of risk by investing in a diversified portfolio of securities. The Investment Manager believes that appropriate use of gearing can add value over time. This gearing typically is in the form of an overdraft facility which can be repaid at any time. The level and benefit of any gearing is discussed and agreed regularly by the Board. The Investment Manager generally aims to be fully invested and it is anticipated that gearing will not exceed 15% of net asset value (NAV) at the time of draw down of the relevant borrowings. At the year end, the Company did not have any gearing (2013: 4.3%). The Directors recognise that it is in the long term interests of shareholders that shares do not trade at a significant discount to their prevailing NAV. The Board believes this may be achieved through the use of regular tender offers and the use of share buy back powers. In the year to 31 August 2014, the Company's share price to NAV traded from a premium of 0.5% to a discount of 6.0% calculated on an undiluted cum income basis (diluted NAV: from a premium of 1.2% to a discount of 6.0% respectively). Performance In the year to 31 August 2014, the Company's undiluted NAV per share returned 4.3% (compared with a return in the FTSE World Europe ex UK Index of 10.4%) and the share price returned 2.8% (all percentages calculated in Sterling terms with income reinvested). The Investment Manager's Report on pages 9 and 10 of the Annual Report includes a review of the main developments during the year, together with information on investment activity within the Company's portfolio. Results and dividends The results for the Company are set out in the Income Statement. The total profit for the year, after taxation, was £11,696,000 (2013: £62,119,000). The reduction in profit primarily arises from a decrease in investment holding gains. The revenue return amounted to £4,964,000 (2013: £7,295,000). As explained in the Company's Half Yearly Financial Report, the Directors declared an interim dividend of 1.50p per share (2013: nil). The Directors recommend the payment of a final dividend of 3.20p per share making a total of 4.70p (2013: 4.50p and a special dividend of 1.00p per share). Subject to approval at the forthcoming Annual General Meeting, the dividend will be paid on 12 December 2014 to shareholders on the register of members at the close of business on 31 October 2014. Key performance indicators At each Board meeting, the Directors consider a number of performance measures to help assess the Company's success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to those reported by other investment trusts are set out below. As at As at 31 August 2014 31 August 2013 Net asset value per share - undiluted 237.98p 234.49p Net asset value per share - diluted 237.98p 234.23p Share price 228.50p 228.75p Discount to net asset value - undiluted 4.0% 2.4% Discount to net asset value - diluted 4.0% 2.3% ------- ------- Year ended Year ended 31 August 2014 31 August 2013 Revenue return per share - undiluted 4.59p 6.32p Ongoing charges* 0.9% 0.9% Ongoing charges# 0.9% 1.3% ------- ------- * Ongoing charges (excluding interest costs and any performance fees, after any relief for taxation) as a % of average shareholders' funds. # Ongoing charges (including any performance fees but excluding interest costs, after any relief for taxation) as a % of average shareholders' funds. The Board monitors the above KPIs on a regular basis. Additionally, it regularly reviews a number of indices and ratios to understand the impact on the Company's relative performance of the various components such as asset allocation and stock selection. The Board also assesses the Company's performance against its peer group of investment trusts with similar investment objectives. Whilst the NAV has appreciated, the share price (excluding income reinvested) has fallen, which is disappointing. This was as a result of poor investor sentiment and the strong market rotation as explained in the Investment Manager's Report. The reduction in revenue compared with the previous year is due to sales of the Company's higher yielding stocks and a fall in special dividends. Principal 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. Past performance is not necessarily a guide to future performance and the value of your investment in the Company and the income from it can fluctuate as the value of the underlying investments fluctuate. - 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 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. Following authorisation under the Alternative Investment Fund Managers' Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM) are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and the Manager also monitor changes in government policy and legislation which may have an impact on the Company. - 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 Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the Bank of New York Mellon (International) Limited, who maintain the Company's accounting records. The security 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 have been regularly tested and monitored throughout the period which is evidenced through their Service Organisation Control (SOC) reports to provide assurance regarding the effective operation of internal controls which are reported on by their reporting accountants and give assurance regarding the effective operation of controls. The Board also considers succession arrangements for key employees of the Investment Manager and the business continuity arrangements for the Company's key service providers. - 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. 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. Changes in general economic and market conditions in certain countries, such as interest rates, exchange rates, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts, economic sanctions and other factors can also substantially and adversely affect the securities and, as a consequence, the Company's prospects and share price. 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 risk - The Company's investment activities expose it to a variety of financial risks that include market risk, currency risk, interest rate risk, market price risk, liquidity risk and credit risk. Further details are disclosed in note 18 on pages 47 to 52 of the Annual Report together with a summary of the policies for managing these risks. - Gearing risk - The Company has the power to borrow money (gearing) and does so when the Investment Manager is confident that market conditions and opportunities exist to enhance investment returns. However, if the investments fall in value, any borrowings will magnify the extent of this loss. All borrowings require the approval of the Board and gearing levels are discussed by the Board and the Investment Manager at each meeting. Future prospects The Board's main focus is to achieve capital growth. The future performance of the Company is dependent upon the success of the investment strategy and, to a large extent, on the performance of financial markets. The outlook for the Company in the next twelve months is discussed in the Investment Manager's Report and the Chairman's Statement. Social, community and human rights issues As an investment trust, the Company has no direct social or community responsibilities. However, the Company believes that it is in shareholders' interests to consider human rights issues, and environmental, social and governance factors when selecting and retaining investments. Details of the Company's policy on socially responsible investment are set out on page 27 of the Annual Report. Directors, gender representation and employees The Directors of the Company on 31 August 2014, all of whom held office throughout the year, are set out in the Directors' biographies on page 15 of the Annual Report. The Board consists of two male Directors and two female Directors. The Company does not have any employees. The information set out on pages 9 to 14 of the Annual Report, including the Investment Manager's Report, forms part of the Strategic Report. The Strategic Report was approved by the Board at its meeting on 21 October 2014. By order of the Board BlackRock Investment Management (UK) Limited Company Secretary 21 October 2014 Related party transactions 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. BIM (UK) continues to act as the Company's Investment Manager under a delegation agreement with BFM. The investment management fee due to BIM (UK) and BFM for the year ended 31 August 2014 amounted to £1,818,000 (2013: £1,694,000). No performance fee was accrued for the year ended 31 August 2014 (2013: £1,137,000). Any performance fee 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. At the year end, £440,000 was outstanding in respect of the management fee (2013: £874,000) and nil (2013: £1,137,000) in respect of the performance fee. The investment management and performance fees were until 2 July 2014 paid to BIM (UK) and thereafter to BFM. In addition to the above services, with effect from 1 November 2013, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 August 2014 amounted to £113,000 excluding VAT (2013: nil), of which £113,000 (2013: nil) was outstanding at 31 August 2014. 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 57,600 ordinary 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. As at 31 August 2014, fees of £9,000 (2013: £10,000) were outstanding to Directors in respect of their annual fees. Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to: - present fairly the financial position, financial performance and cash flows of the Company; - select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; - present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; - make judgements and estimates that are reasonable and prudent; - state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing the Strategic Report, Directors' Report, the Directors' Remuneration Report, the Corporate Governance Statement and the Report of the Audit and Management Engagement Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company's corporate and financial information included on the BlackRock website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Each of the Directors, whose names are listed on page 15 of the Annual Report, 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 Strategic Report contained in the Annual Report and Financial Statements 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. The 2012 UK Corporate Governance Code requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit and Management Engagement Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Management Engagement Committee's Report on pages 29 to 31 of the Annual Report. As a result, the Board has concluded that the Annual Report for the year ended 31 August 2014, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. For and on behalf of the Board Carol Ferguson Chairman 21 October 2014 Investment manager's report Market overview The Company's share price and underlying NAV gained over the last twelve months to 31 August 2014, but performance was disappointing when compared with the broad market. In the year, the Company's undiluted NAV returned 4.3% and the share price returned 2.8%. By way of comparison, the FTSE World Europe ex UK Index returned 10.4% over the same period. All percentages are calculated in Sterling terms with income reinvested. We have seen two distinct periods in European equities over the last twelve months. First, from September to February, equities rose in anticipation of a long-awaited economic recovery in the Eurozone. Despite a lack of earnings growth in Europe, markets rallied as leading indicators of consumer spending and business conditions indicated economic expansion in the Eurozone. The financial system showed signs of healing for the first time since the recession, with bank funding costs falling in southern Europe and loan demand beginning to pick up towards the end of 2013. The European Central Bank (ECB) had already taken action in 2012 to indicate that it would do 'whatever it takes' to keep the more troubled economies solvent. Markets were also buoyed by international investors buying into Europe in order to take advantage of cheap valuations and, in the periphery, the turning point in economic fortunes. The second period, from mid-March to the end of August, saw a change in direction for Europe, both at a headline level (the market return was flat in this period, having gained from September to February) and in the composition of the types of stocks that were favoured by investors. The Company's weaker performance during the year can be attributed to this period, especially in April, July and August. This reversal was characterised by stocks and sectors that had performed well over the previous 'recovery' phase subsequently underperforming sharply, such as the technology, financials and industrials sectors. In some cases, shares fell by more than 20% in a matter of weeks despite no observable deterioration in the earnings or cash flow profile of the business. Simultaneously, the stocks and sectors that had underperformed over the 'recovery' period began to outperform such as the oil & gas, utilities and basic material sectors. Indeed, during April, the oil & gas sector outperformed the technology sector by more than 10%. Moving into July and August, weaker macroeconomic data from many European countries during the summer, along with continued escalation of geopolitical issues in Russia, Ukraine and the Middle East, caused stocks with higher sensitivity to the economy (often called 'cyclicals') to underperform. Portfolio activity Positions in both emerging Europe and developed Europe detracted from performance over the year. Within developed Europe, the sharp rotation in market leadership outlined above caused losses across various parts of the portfolio. Stocks within the consumer services, financial and technology sectors proved the most challenged as investors rotated away from these areas. The Company's biases to certain sectors also detracted from performance, especially the higher exposure to the industrials sector and a lower exposure to utilities. The portfolio's average exposure to emerging Europe was 8% during the full year; within this, positions in Russia hindered performance the most, as the impact of tensions between Russia and Ukraine was felt in the equity markets. The portfolio had an average gearing of -1.0% during the period; this modestly benefited portfolio performance. Banks were among the worst performing positions in the Company during the reporting year. A position in Russian bank Sberbank had the most impact, with the share price falling by more than 25%. The Russian market has been largely ignoring fundamental valuations with geopolitical tension between Russia and Ukraine being the dominant driver of market direction. While there is still room for downside in the event of more serious sanctions, it is crucial to emphasise that the prospects for returns would be very positive if there is stabilisation in the region. The recent announcement of a cease-fire is indicative of a de-escalation of the crisis with an increased likelihood that a political resolution will be found. Also within the financial sector, not holding Spanish bank Banco Santander detracted from performance. The stock performed strongly, returning over 44% on the back of improving economic conditions in Spain. However, we still feel that there are too many uncertainties surrounding their Brazilian business and in our view the current valuation of the stock remains relatively expensive. In contrast, several domestically exposed European banks performed well earlier in the year as the potential for earnings to normalise increased. The most notable of these were German business Commerzbank, which benefited from the disposal of part of its non-core asset book, and Belgian retail bank KBC. In the consumer sectors, businesses with a higher degree of emerging market exposure (especially in Asia) performed worst. A position in Remy Cointreau detracted from returns, falling over 26% as the market became cautious around its significant exposure to China, for which economic data was weakening, and the effect of the clampdown on the Chinese custom of gifting. A position in Portuguese retailer Jeronimo Martins also detracted due to negative sentiment in relation to its eastern European exposure and, later in the period, deflationary pressures in Poland as competition in the food retail market increased. Within telecoms, a position in French telecom business Iliad fell 21% over the period after they announced their intention to acquire a majority stake in US mobile business T-Mobile. This had a negative impact on the share price as investors saw this as a significant divergence from their core business and the original investment case which was predicated on the management team's competitive approach in its domestic market. On a more positive note, some positions enjoyed significant share price gains during the reporting year. Positions in the auto sector performed well as the European autos market began to recover from very depressed levels. German tyre and auto part manufacturer Continental and French car manufacturer Renault performed especially well in this context. Within health care, a position in Danish diabetes treatment company Novo Nordisk was one of the Company's best performers, with the share price rising by 30% over the period. Following a relatively poor 2013 for the company, the market is now focusing on the potential for a new drug, which combines two of Novo Nordisk's existing diabetes treatments, to help drive growth further for the company over the next few years. There was also news that a competitor's rival offering had not demonstrated any efficiency over one of its own key pipeline product offerings. Finally, within the consumer sector, a holding in Danish jeweller Pandora performed well gaining by more than 33% due to a combination of falling raw materials costs and rising sales across the majority of regions. The Company's basic positioning did not change very significantly during the period. This reflects the fact that, in our view, the direction of the earnings cycle in Europe did not significantly change despite the volatility seen in the market during the second half of the reporting year. For example, the Company had more exposure to health care, consumer services, financials and technology, and less exposure to basic materials, utilities, telecoms and consumer goods for most of the period. The most notable shift was away from consumer goods businesses such as autos and beverages and into industrials such as construction and engineering businesses. This change took place during the first quarter of 2014. Otherwise, changes were limited to some additions in the oil & gas sector and a reduction in telecoms, which despite an increase in industry consolidation does not yet offer the vital ingredient of pricing growth. As a result, we believe that many of the holdings in the Company today offer greater potential upside than they would have following the recent period of weaker performance and that the solid fundamentals of these businesses remain intact. Portfolio analysis Information regarding the Company's investment exposures is contained within the investment listing on pages 12 and 13 of the Annual Report and the investment size, market capitalisation and distribution of investment charts on page 14 of the Annual Report. Outlook The economic recovery in Europe has faltered in recent months and this has exacerbated the problems faced by Europe's cyclical businesses following a difficult second quarter. Whilst the recovery in Europe is more muted than initially expected, we believe that we are unlikely to see a 'triple-dip' recession in the region, given that economic momentum in the U.S. continues to be strong and the ECB package of measures should have a positive impact on growth over the next 12 months. While the ECB measures directly address the supply of credit, many investors remain worried about the lack of demand at both company and household levels. In our view, after a muted five years, there is some pent up demand in corporate spending, with companies' investment intentions improving. Demand for credit has also been encouraged by current lower business loan rates. European valuations have re-rated over the last year and look to be in line with their long term average. However, European equities are still under-priced versus the U.S. and are at extremely cheap valuations on longer term metrics. Consensus earnings estimates have been cut this year but they now are beginning to be adjusted upwards from a low base, and the Euro weakness is likely to provide support to earnings with over 50% of European listed companies' turnover coming from outside Europe. On balance, the European recovery is in our view intact, albeit the pace remains sluggish. Vincent Devlin and Sam Vecht BlackRock Investment Management (UK) Limited 21 October 2014 Ten largest investments as at 31 August 2014 Roche: 6.0% (2013: 6.1%) is a Swiss pharmaceuticals 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 solid pipeline of drugs coming to market, make this an attractive investment case. Novo Nordisk: 4.6% (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 strong track record of delivering double-digit earnings growth per year for the foreseeable future. Bayer: 4.2% (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 3-5 years, especially within its pharmaceuticals and crop science businesses, fuelled by new products coming to market. We see good value in the company as it looks cheap for the growth profile it offers. Zurich Insurance Group: 3.3% (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. ENI: 3.2% (2013: nil) is an Italian oil and gas company. Management at ENI have demonstrated a willingness to address investor concerns, in particular announcing a cost cutting programme, accelerated downstream restructuring and options for their engineering and construction division. Our view that their free cash flow generation is improving due to the cost cutting programme and downstream restructuring is one of the key drivers for this stock. The increased cash generation will allow the company to cover its dividend organically by 2016. GDF Suez: 3.0% (2013: nil) is a diversified French utility company which has operations from upstream generation down to transmission and distribution. GDF Suez has the highest dividend yield in the sector; however, it has no longer been trading on the premium it once did. This has presented an interesting investment case based on valuation. The company has also been taking action on its balance sheet by launching a cost cutting and disposal programme which adds an element of self-help to the stock. Continental: 2.6% (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. ING: 2.5% (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 rates potential rise. Schneider Electric: 2.5% (2013: 1.5%) is a French electrical distribution and industry automation specialist which focuses on energy efficiencies. The company has a good market position, high operating returns and strong cash flow generation. However, the stock now trades on a discount to its peers after several acquisitions have resulted in poor returns on capital employed. This has presented an opportunity as management have stated their intention to focus on organic growth and improving returns on capital employed which should help drive the share price going forward. KBC: 2.5% (2013: 2.6%) 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 get through comfortably. It remains one of our top picks in the sector. 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 34.4% of the Company's portfolio (31 August 2013: 34.7%). Investments as at 31 August 2014 Country of Market value % of operation £'000 investments Financials Zurich Insurance Group Switzerland 8,365 3.3 ING Netherlands 6,361 2.5 KBC Belgium 6,312 2.5 Sberbank Russia 5,070 2.0 Sampo Oyj Finland 4,899 1.9 Unibail-Rodamco France 4,675 1.8 Nordea Bank Sweden 4,347 1.7 Intesa Sanpaolo Italy 4,139 1.6 Türkiye Garanti Bankasi Turkey 3,641 1.4 Partners Group Switzerland 3,559 1.4 Türkiye Halk Bankasi Turkey 3,545 1.4 Banca Popolare di Milano Italy 3,046 1.2 OTP Bank Hungary 2,953 1.1 Anima Italy 2,699 1.1 UniCredit Italy 2,640 1.0 Bank of Ireland Ireland 2,359 0.9 Cembra Money Bank Switzerland 1,519 0.6 BlackRock's Institutional Cash Fund Ireland 1,023 0.4 ------- ------- 71,152 27.8 ------- ------- Industrials Schneider Electric France 6,358 2.5 Compagnie de Saint-Gobain France 5,410 2.1 Airbus France 5,125 2.0 Assa Abloy Sweden 4,567 1.8 Aeroports de Paris France 4,376 1.7 CTT - Correios de Portugal Portugal 4,002 1.6 Alfa Laval Sweden 3,955 1.5 Hexagon Sweden 3,580 1.4 Geberit Switzerland 3,517 1.4 Holcim Switzerland 3,299 1.3 Adecco Switzerland 2,605 1.0 Kingspan Ireland 1,914 0.8 Saft Groupe France 719 0.2 ------- ------- 49,427 19.3 ------- ------- Health Care Roche Switzerland 15,470 6.0 Novo Nordisk Denmark 11,753 4.6 Fresenius Germany 5,530 2.2 Grifols Spain 3,290 1.3 GN Store Nord Denmark 872 0.3 ------- ------- 36,915 14.4 ------- ------- Consumer Goods Continental Germany 6,718 2.6 Unilever Netherlands 5,410 2.1 Compagnie Financiére Richemont Switzerland 5,259 2.1 Autoliv Sweden 3,088 1.2 Norma Germany 2,497 1.0 ------- ------- 22,972 9.0 ------- ------- Basic Materials Bayer Germany 10,766 4.2 Syngenta Switzerland 5,409 2.1 Uralkali Russia 4,480 1.8 ------- ------- 20,655 8.1 ------- ------- Consumer Services Ryanair Ireland 6,093 2.4 Reed Elsevier Netherlands 4,735 1.8 ProSieben Germany 3,591 1.4 Mediaset Italy 2,812 1.1 Jerónimo Martins Portugal 2,797 1.1 ------- ------- 20,028 7.8 ------- ------- Oil & Gas ENI Italy 8,202 3.2 Total France 5,698 2.2 ------- ------- 13,900 5.4 ------- ------- Technology ASML Netherlands 5,774 2.3 Iliad France 4,123 1.6 Capgemini France 3,399 1.3 ------- ------- 13,296 5.2 ------- ------- Utilities GDF Suez France 7,738 3.0 ------- ------- 7,738 3.0 ------- ------- Total Investments 256,083 100.00 ======= ======= All investments are in ordinary shares unless otherwise stated. The total number of investments held at 31 August 2014 was 55 (31 August 2013: 53). Investment exposure Market Capitalisation as at 31 August 2014 % of % of Portfolio Index less than €1bn 4.2 0.1 €1bn to €10bn 29.4 23.8 €10bn to €20bn 13.6 15.2 €20bn to €50bn 30.4 27.6 more than €50bn 22.4 33.3 ------ ------ Source: BIM (UK). Investment Size as at 31 August 2014 Number of % of investments Index Less than £1m 3 0.8 £1m to £3m 10 10.2 £3m to £5m 22 33.4 £5m to £10m 17 40.7 more than £10m 3 14.9 ------ ------ Source: BIM (UK). Distribution of Investments as at 31 August 2014 % Financials 27.8 Industrials 19.3 Health Care 14.4 Consumer Goods 9.0 Basic Materials 8.1 Consumer Services 7.8 Oil & Gas 5.4 Technology 5.2 Utilities 3.0 ------ Source: BIM (UK). Income statement for the year ended 31 August 2014 Revenue Revenue Capital Capital Total Total 2014 2013 2014 2013 2014 2013 Notes £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments held at fair value through profit or loss - - 8,253 57,436 8,253 57,436 Income from investments held at fair value through profit or loss 3 6,873 9,181 - - 6,873 9,181 Other income 3 42 - - - 42 - Investment management and performance fees 4 (364) (339) (1,454) (2,492) (1,818) (2,831) Operating expenses 5 (678) (688) (19) - (697) (688) ------ ------ ------ ------- ------- ------- Net return before finance costs and taxation 5,873 8,154 6,780 54,944 12,653 63,098 Finance costs (151) (26) (48) (105) (199) (131) ------ ------ ------ ------- ------- ------- Return on ordinary activities before taxation 5,722 8,128 6,732 54,839 12,454 62,967 Taxation on ordinary activities (758) (833) - (15) (758) (848) ------ ------ ------ ------- ------- ------- Return on ordinary activities after taxation 7 4,964 7,295 6,732 54,824 11,696 62,119 ====== ====== ====== ======= ======= ======= Return per ordinary share - basic and diluted 7 4.59p 6.32p 6.22p 47.50p 10.81p 53.82p ====== ====== ====== ======= ======= ======= The total column of this statement represents the profit and loss account 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. 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 for the year ended 31 August 2014 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 2014 At 31 August 2013 138 55,672 102 158,879 27,660 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 61,644 105 165,611 21,630 9,862 258,987 ----- ------- ----- ------- ------- ------- ------- For the year ended 31 August 2013 At 31 August 2012 148 53,420 68 104,055 55,124 10,226 223,041 Return for the year - - - 54,824 - 7,295 62,119 Ordinary shares purchased and cancelled - - - - (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 55,672 102 158,879 27,660 12,490 254,941 ===== ======= ===== ======= ======= ======= ======= * Interim dividend paid in respect of the year ended 31 August 2014 of 1.50p per share was declared on 17 April 2014 and paid on 30 May 2014. Final dividend paid in respect of the year ended 31 August 2013 of 4.50p per share was recommended on 21 October 2013 and paid on 13 December 2013 and special dividend paid in respect of the year ended 31 August 2013 of 1.00p per share was declared on 21 October 2013 and paid on 13 December 2013. ** Final dividend paid in respect of the year ended 31 August 2012 of 4.20p per share recommended on 10 October 2012 and paid on 7 December 2012. Balance sheet as at 31 August 2014 2014 2013 Notes £'000 £'000 Fixed assets Investments held at fair value through profit or loss 256,083 268,376 -------- -------- Current assets Debtors 5,585 1,226 Cash 88 - -------- -------- 5,673 1,226 -------- -------- Creditors - amounts falling due within one year Bank overdraft (4) (10,840) Other creditors (2,765) (3,821) -------- -------- (2,769) (14,661) -------- -------- Net current assets/(liabilities) 2,904 (13,435) -------- -------- Net assets 258,987 254,941 ======== ======== Capital and reserves Called-up share capital 8 135 138 Share premium account 61,644 55,672 Capital redemption reserve 105 102 Capital reserves 165,611 158,879 Special reserve 21,630 27,660 Revenue reserve 9,862 12,490 -------- -------- Total equity shareholders' funds 258,987 254,941 ======== ======== Net asset value per ordinary share - undiluted 7 237.98p 234.49p ======== ======== Net asset value per ordinary share - diluted 7 237.98p 234.23p ======== ======== Cash flow statement for year ended 31 August 2014 2014 2013 Notes £'000 £'000 Net cash inflow from operating activities 5(b) 1,550 4,725 Servicing of finance (60) (131) Taxation recovered 526 218 ------- -------- Capital expenditure and financial investment Purchase of investments (349,819) (287,717) Proceeds from sale of investments 366,341 324,588 Realised gains/(losses) on foreign currency transactions 422 (801) ------- ------- Net cash inflow from capital expenditure and financial investment 16,944 36,070 ------- ------- Equity dividends paid (7,592) (5,031) ------- ------- Net cash inflow before financing 11,368 35,851 ------- ------- Financing Purchase of ordinary shares (6,313) (26,839) Share issue and share purchase costs paid (578) (144) Proceeds from issue of ordinary shares out of treasury 499 - Proceeds from issue of 2010 subscription shares - 2,112 Proceeds from issue of 2013 subscription shares 5,912 164 Proceeds/(costs) arising from the acquisition of portfolio assets of Charter European Trust plc 36 (75) ------- ------- Net cash outflow from financing (444) (24,782) ------- ------- Increase in cash in the year 10,924 11,069 ======= ======= Notes to the Financial Statements 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 the Income Statement In order to reflect better 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 a capital nature has been presented alongside the Income Statement. (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 gross of withholding taxes. 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. Details of transaction costs on the purchases and sales of investments are disclosed in note 11, on pages 44 and 45 of the Annual Report; - 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 are 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. The purchase and sales of assets are recognised at the trade date of the transaction. Disposals will be measured at fair value which will be regarded as the proceeds of sale less any transaction costs. The investments are measured on initial recognition and subsequently at fair value. 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. 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 fixed asset investments of the Company. (i) Dividends payable Under FRS 21, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the balance sheet date. Dividends payable to equity shareholders are recognised in the Reconciliation of 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 2014 2013 £'000 £'000 Investment income: Overseas dividends 6,873 9,181 ------ ------ 6,873 9,181 ------ ------ Other income: Bank interest 1 - Interest on withholding tax reclaims 41 - ------ ------ 42 - ------ ------ Total 6,915 9,181 ====== ====== 4. Investment management and performance fees 2014 2013 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 364 1,454 1,818 339 1,355 1,694 Performance fee - - - - 1,137 1,137 ------ ------ ------ ------ ------ ------ Total 364 1,454 1,818 339 2,492 2,831 ====== ====== ====== ====== ====== ====== 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 due to BIM (UK) and BFM for the year amounted to £1,818,000 (2013: £1,694,000). No performance fee was accrued for the year ended 31 August 2014 (2013: £1,137,000). Any performance fee 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 activities 2014 2013 £'000 £'000 (a) Operating expenses Custody fee 33 37 Auditor's remuneration: - statutory audit 26 26 - other audit services* - 5 Depositary fees 7 - Directors' emoluments and expenses 115 112 Registrar's fees and other operating expenses 497 508 ------ ------ 678 688 ------ ------ Transaction costs - capital 19 - ------ ------ The Company's ongoing charges, calculated as a percentage of average net assets and using expenses, excluding performance fees and finance costs, after relief for any taxation were: 0.94% 0.87% ------ ------ The Company's ongoing charges, calculated as a percentage of average net assets and using expenses, including performance fees but excluding finance costs, after relief for any taxation were: 0.94% 1.33% ------ ------ * Other audit services in 2013 relate to the review of the half yearly financial statements. 2014 2013 £'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 12,653 63,098 Less capital return before finance costs and taxation (6,780) (54,944) ------ ------- Net revenue return before finance costs and taxation 5,873 8,154 Expenses charged to capital (1,473) (2,507) Decrease/(increase) in accrued income 13 (24) (Increase)/decrease in debtors (11) 4 (Decrease)/increase in accrued expenditure (1,767) 468 Tax on investment income included within gross income (1,085) (1,370) ------ ------ Net cash inflow from operating activities 1,550 4,725 ====== ====== 6. Dividends Dividends paid on 2014 2013 equity shares: Record date Payment date £'000 £'000 2012 final dividend of 4.20p 26 October 2012 7 December 2012 - 5,031 2013 final dividend of 4.50p 4 December 2013 13 December 2013 4,893 - 2013 special dividend of 1.00p 4 December 2013 13 December 2013 1,087 - 2014 interim dividend paid of 1.50p 2 May 2014 30 May 2014 1,612 - ------ ------ 7,592 5,031 ====== ====== The Directors have proposed a final dividend of 3.20p per share in respect of the year ended 31 August 2014. The dividend will be paid on 12 December 2014, subject to shareholders' approval on 3 December 2014, to shareholders on the Company's register on 31 October 2014. 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 interim/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 amount paid and proposed for the year ended 31 August 2014 meets the relevant requirements as set out in this legislation. 2014 2013 £'000 £'000 Dividends paid or proposed on equity shares: Interim paid of 1.50p per ordinary share (2013: nil) 1,612 - 2013 special dividend of 1.00p per ordinary share - 1,087 Final proposed of 3.20p* per ordinary share (2013: 4.50p) 3,482 4,893 -------- -------- 5,094 5,980 ======= ======= * Based on 108,828,058 ordinary shares in issue on 21 October 2014. 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 2014 2013 Net revenue return attributable to ordinary shareholders (£'000) 4,964 7,295 Net capital return/(loss) attributable to ordinary shareholders (£'000) 6,732 54,824 ------- ------- Total return (£'000) 11,696 62,119 ------- ------- Equity shareholders' funds (£'000) 258,987 254,941 ------- ------- The weighted average number of ordinary shares in issue during the year, on which the return per ordinary share was calculated was: 108,236,562 115,410,120 =========== =========== The actual number of ordinary shares in issue at the year end, on which the net asset value was calculated was: 108,828,058 108,719,211 =========== =========== The number of ordinary shares in issue, including treasury shares, at the year end was: 114,257,734 114,437,564 =========== =========== 2014 2013 Revenue Capital Total Revenue Capital Total p p p p p p Return per share Calculated on weighted average number of shares 4.59 6.22 10.81 6.32 47.50 53.82 Calculated on actual number of shares in issue at year end 4.56 6.19 10.75 6.71 50.43 57.14 ------ ------ ------ ------ ------ ------ Net asset value per share 237.98 234.49 Ordinary share price 228.50 228.75 Subscription share price 10.00 23.38 ======= ======= Diluted 2014 2013 Net revenue return attributable to ordinary shareholders (£'000) 4,964 7,295 Net capital return attributable to ordinary shareholders (£'000) 6,732 54,824 ------- ------- Total return (£'000) 11,696 62,119 ======= ======= Equity shareholders' funds* (£'000) 258,987 308,960 ------- ------- The weighted average number of ordinary shares in issue during the year, on which the diluted return per ordinary share was calculated was: 108,236,562 115,410,120 ----------- ----------- The actual number of ordinary shares and 2013 subscription shares, at the year end on which the fully diluted net asset value was calculated was: 129,475,906 131,903,529 =========== =========== 2014 2013 Revenue Capital Total Revenue Capital Total p p p p p p Return per share Calculated on weighted average number of shares** 4.59 6.22 10.81 6.32 47.50 53.82 ------ ------ ------ ------ ------ ------ Net asset value per share* 237.98 234.23 ====== ====== * In accordance with the AIC SORP, to the extent that the Company's NAV is not in excess of the exercise price, the subscription shares are not considered to be dilutive for the calculation of the NAV per share. Hence no dilutive share price has been calculated. ** In accordance with FRS 22 "Earnings per share", there is no dilutive impact on the return per share for the year ended 31 August 2014 as the average mid-market price of the ordinary shares for the year of 228.50p is below the exercise price of the subscription shares of 248.00p 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 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) (2,628) Cancellation of treasury shares - (88,677) - (88,677) (89) Issue of shares out of treasury 200,000 (200,000) - - - 106,291,588 5,429,676 - 111,721,264 111,721 Subscription shares of 0.1p each At 31 August 2013 - - 23,184,318 23,184,318 23,184 Conversion of 2013 subscription shares into ordinary shares 2,536,470 - (2,536,470) - - ----------- --------- ---------- ----------- ------- At 31 August 2014 108,828,058 5,429,676 20,647,848 134,905,582 134,905 =========== ========= ========== =========== ======= During the year, 2,627,623 ordinary shares were repurchased and cancelled (2013: 12,298,362) for a total consideration, including expenses, of £6,445,000 (2013: £27,464,000). The number of ordinary shares in issue at the year end was 114,257,734 (2013: 114,437,564) of which 5,429,676 were held in treasury (2013: 5,718,353) and the number of subscription shares in issue was 20,647,848 (2013: 23,184,318). The number of treasury shares cancelled during the year was 88,677 (2013: 11,340,646). The number of shares issued from treasury was 200,000 (2013: nil) for total proceeds (before broker's commission) of £499,000. As a result of the conversion of subscription shares, 2,536,470 (2013: 70,495) new ordinary shares were issued for a total consideration of £5,912,000 (2013: £2,276,000). 9. Contingent liabilities There were no contingent liabilities at 31 August 2014 (2013: nil). 10. 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 2014 will be filed with the Registrar of Companies after the Annual General Meeting. The figures set out above have been reported upon by the Auditor, whose report for the year ended 31 August 2014 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 2013, which have been filed with the Registrar of Companies. The report of the Auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act. 11. 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. 12. Annual General Meeting The Annual General Meeting of the Company will be held at the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 3 December 2014 at 12.00 noon. ENDS The Annual Report will also be available on the BlackRock website at 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, Investment Trusts - 020 7743 5284 Vincent Devlin, Fund Manager - 020 7743 3000 Emma Phillips, Media & Communications - 020 7743 2922 BlackRock Investment Management (UK) Ltd 12 Throgmorton Avenue London EC2N 2DL 21 October 2014

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