Final Results
BLACKROCK GREATER EUROPE INVESTMENT TRUST plc
Annual results announcement
for the year ended 31 August 2008
KEY POINTS
- Revenue return per share of 3.73p (2007: 3.06p), an increase of 21.9%.
- Proposed final dividend of 3.00p (2007: 2.40p) per ordinary share, an increase
of 25.0%.
MANAGEMENT REPORT
Chairman's Statement
During the year to 31 August 2008, European equities were affected by continued
volatility in global financial markets as the true extent of the damage caused
by the credit crunch and fears over the state of the global economy began to
take effect. Against this difficult background, the Company's net asset value
("NAV") fell by 6.8% during the twelve month period (compared with a fall of
3.4% for the FTSE World Europe ex UK Index) and the share price fell by 11.3%
(all percentages calculated in Sterling terms with income reinvested). These
falls would have been greater but for the appreciation of the Euro against
Sterling over the financial year.
Revenue and dividends
Revenue per share for the year amounted to 3.73p compared with 3.06p for the
corresponding year, a rise of 21.9% reflecting dividend growth from our
portfolio companies. The Directors are proposing a final dividend of 3.00p per
share, representing an increase of 25.0% on the previous year. The dividend is
payable on 3 December 2008 to shareholders on the Company's register on
31 October 2008.
Tender offer
The Directors exercised their discretion to operate the semi-annual tender
offer on 2 June 2008, being the succeeding business day to 31 May, which in
common with previous tender offers was for up to a maximum of 20% of the shares
in issue at the prevailing NAV less 2%. Valid tenders for 2,728,833 shares were
received at a price of 179.68p per share, representing 2.37% of the shares in
issue at the time. All shares tendered on this occasion have been placed in
treasury and the 4,726,178 shares previously held in treasury were cancelled in
line with the Directors' policy.
It was announced on 8 September 2008 that the next semi-annual tender offer
would take place on 1 December 2008, being the succeeding business day to 30
November, for up to 20% of shares in issue at the prevailing NAV per share
subject to a discount of 2%.
Portfolio manager change
The Board is pleased to report the appointment of Vincent Devlin as
co-portfolio manager of the Company with effect from 31 July 2008. Mr Devlin
succeeds James Macmillan, who together with Sam Vecht managed the Company's
portfolio since its launch in September 2004. Mr Macmillan has stepped down to
focus on his European Value and International Value funds and we wish to thank
him for his contribution. Mr Vecht will continue to manage the emerging Europe
part of the Company's portfolio.
Mr Devlin has fourteen years' experience in fund management and more than ten
years' managing European equities. He joined BlackRock in January 2008.
New Articles of Association
At the forthcoming Annual General Meeting, the Directors will be proposing that
the Company should adopt New Articles of Association in substitution for the
existing Articles of Association in order to reflect the changes in UK company
law which have been brought into force by the Companies Act 2006 (the "2006
Act".) The 2006 Act is being introduced in stages and is expected to be fully
in force by 1 October 2009.
Outlook
Following the recent turmoil in financial markets and the substantial declines
in equity markets, it now appears that, as a result of the determination of
governments to underpin the banking sector there is hope that the markets worst
fears may be avoided. Nevertheless, many countries, including the major
European countries, are now facing the prospect of a possibly protracted
recession. European equity market values will recover when there is some
certainty and confidence in economic recovery and corporate earnings, and the
picture will become clearer in the coming year. In the meantime, your
Company will continue to seek to invest in those European companies which it
considers to be excellent long term investments.
Key risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
- Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objective and monitoring the performance of
the Investment Manager. An inappropriate strategy may lead to underperformance
against the reference index and the Company's peer group. To manage this risk
the Investment Manager provides an explanation of significant stock selection
decisions and the rationale for the composition of the investment portfolio.
The Board monitors and mandates an adequate spread of investments, in order to
minimise the risks associated with particular countries or factors specific to
particular sectors, based on the diversification requirements inherent in the
Company's investment policy. The Board also receives and reviews regular
reports showing an analysis of the Company's performance against the FTSE World
Europe ex UK Index and other similar indices.
- Income/dividend risk - The amount of dividends and future dividend growth
will depend on the Company's underlying portfolio. Any change in the tax
treatment of the dividends or interest received by the Company (including as a
result of withholding taxes or exchange controls imposed by jurisdictions in
which the Company invests) may reduce the level of dividends received by
shareholders. The Board monitors this risk through the receipt of detailed
income forecasts and considers the level of income at each meeting.
- Regulatory risk - The Company operates as an investment trust in accordance
with section 842 of ICTA 1988. As such the Company is exempt from capital gains
tax on the sale of its investments. The Investment Manager monitors investment
movements, the level and type of forecast income and expenditure and the amount
of proposed dividends to ensure that the provisions of section 842 are not
breached and the results are reported to the Board.
- Operational risk - Like most other investment trust companies, the Company
has no employees. The Company therefore relies upon the services provided by
third parties and is dependent on the control systems of the Investment Manager
and the Company's service providers. The security, for example, of the
Company's assets, dealing procedures, accounting records and maintenance of
regulatory and legal requirements, depend on the effective operation of these
systems. These are regularly tested and monitored and an internal control
report, which includes an assessment of risks together with procedures to
mitigate such risks, is prepared by the Investment Manager and reviewed by the
Audit and Management Engagement Committee twice a year. The custodian and the
Investment Manager also produce annual AAF 01/06 and SAS 70 reports which are
reviewed by their respective auditors and give assurance regarding the
effective operation of controls.
- Financial risks - The Company's investment activities expose it to a variety
of financial risks that include market price risk, foreign currency risk,
interest rate risk, liquidity risk and credit risk. In addition, it should be
noted that emerging markets tend to be more volatile than more established
stock markets and therefore present a greater degree of risk.
Related party transactions
The Investment Manager is regarded as a related party and details of the
investment management fees payable are set out in note 4.
Statement of Directors' Responsibilities
In accordance with Disclosure and Transparency Rule 4.1.12, the Directors
confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
- the annual report includes a fair view 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 the Company faces.
For and on behalf of the Board of Directors
John Walker-Haworth
Chairman
17 October 2008
INVESTMENT MANAGER'S REPORT
The main features of European financial markets in the twelve month period to
31 August 2008 were the number of ripple effects that resulted from the global
credit crisis. These included a rapid slowdown in the European economy as low
business and consumer confidence coincided with rising raw material prices,
significantly lower property prices mirroring trends seen in the US and the UK,
and a reduction of debt levels by banks and other lending institutions looking
to repair their balance sheets in response to tightening credit availability.
Against this backdrop, the Company saw a decline of 11.3% in the share price
with the underlying NAV falling by 6.8% in the twelve month period ended 31
August 2008, both with income reinvested. By comparison, the FTSE World Europe
ex UK Index declined by 3.4% (with income reinvested).
The appreciation of crude oil and other resources which began in 1998 but
reached its peak in the summer of 2008, gave rise to some awkward consequences
for policy makers, companies and consumers alike. For policy makers there was
growing concern over the tendency for inflation to rise and this prevented the
European Central Bank ("ECB") from adopting a more accommodating stance in
response to the economic weakness that emerged in the second quarter of the
financial year. For directors of companies, their biggest concern was the rise
in the input costs of their businesses and, in an environment of softening
demand, the ability to pass these increases on to their customers depended on
the level of industry concentration and hence pricing power in their industry.
The rise in oil, metals and electricity prices during the period under review
was also accompanied by a substantial increase in food prices, resulting in an
overall decrease in consumer spending power. However, this was partly mitigated
by the strength of the Euro, which appreciated by 16.3% against Sterling, as
well as reaching record levels against other currencies.
Corporate earnings in 2008 remained robust outside of the financial sector
which had borne the brunt of the write-downs and many companies, especially
export led sectors, continued to benefit from the favourable trends in global
industrial production, particularly in the developing countries where GDP
growth remained at a premium to the developed world. The sectors that thrived
in the stock market have generally been closely tied to the underlying
fundamentals of their industries, so shares in financials generally suffered
material declines; other poor performing areas included the consumer sectors,
especially automobiles and media as well as selected industrials, while energy
and resources shares performed positively. These trends peaked in mid summer
and we witnessed a period of reversal, prompted by the rapid decline in the oil
price from its peak at close to US$150 a barrel.
Over the period under review, the Company's performance was hampered by its
investments in the stock markets of emerging Europe despite the MSCI Emerging
Europe Index returning 1.6%. An average of 12.6% of the Company's net assets
were invested in emerging Europe and contributions from Poland, Russia, Turkey
and the BlackRock Eurasian Frontiers Hedge Fund were negative. The Company's
performance also suffered due to modest gearing in a declining market.
During the twelve month period to 31 August 2008, stock selection made an
overall negative impact on performance. This was mostly due to exposure within
the financial sector including the holdings in Fortis, Société Générale and Dom
Maklerski IDM which were affected by continued turmoil in global credit
markets. In addition, selected holdings in the energy sector performed poorly
in response to the falling oil price and a re-pricing of risk in the wake of
political uncertainty in Russia. These included the holdings in StatoilHydro
and Total, as well as Russian based companies Integra, Transneft and
Surgutneftegaz. Elsewhere, the Company's holdings in Telecom Italia and
Praktiker also produced negative returns.
Stocks which contributed positively to performance were mainly found in the
health care sector, one of the best performing sectors over the year,
benefiting from strong revenue growth and lack of correlation to the economic
cycle. A good example is clinical research provider ICON which grew
revenues in excess of 30% and was a beneficiary of outsourcing trends from
large pharmaceutical companies. Elsewhere in the sector, holdings in
Fresenius, Novartis and Bayer were also advantageous. In addition, other
solid stocks included selected holdings in the technology sector which
included Ness Technologies and Cap Gemini.
The Company significantly reduced its weighting in the financial sector during
the period under review; this was achieved mainly by cutting exposure to banks
on concerns that the ongoing credit crisis would continue to impact negatively
on the sector. The Company also reduced exposure to the automobile sector due
to a clear emergence of slowing in the European consumer sector as well as
rising input costs. Proceeds were partially reinvested into defensive areas of
the market such as consumer staples and health care, as well as capital goods
and utilities. The emerging market exposure declined during the year under
review to close at 10.3%, with the largest exposures being Russia and the
BlackRock Eurasian Frontiers Hedge Fund which provided diversified exposure to
the region. In addition, the Company also reduced its net market exposure from
109% to 99%.
At the end of the review period the Company had a bias towards financials, but
still retained an underweight position relative to the reference benchmark,
especially in banks and diversified financials, with a small overweight
position in insurance. Other key sector positions included health care and
industrials. The Company had limited exposure to consumer sectors, especially
consumer staples, although we had been gradually building positions in selected
names. We continue to favour companies with a combination of robust balance
sheets, comprising low gearing, cash generating business models and an ability
to pass on price increases or cut costs through self help measures or
restructuring. We place emphasis on good earnings visibility and earnings
growth as we believe these companies should be resilient in a downturn. The
Company maintains a bias toward large capitalisation stocks.
Outlook
The worldwide economic slowdown that emerged back in 2007 still clearly
presents a challenge for global equity markets. The US market has already coped
with a material slowdown and has experienced significant reductions in interest
rates. However, continental Europe has lagged and it is only in recent months
that there has been a meaningful deterioration in business and consumer
confidence, as well as economic growth. In addition, with inflation measures
now peaking and continued downward revisions to growth, investors are
anticipating further policy easing in 2009. This could act as a catalyst for
the market and would be a further stimulus for a weaker Euro which would boost
European competitiveness and profitability especially in export led sectors.
In the current climate it is difficult to have certainty on the direction of
European corporate earnings and it is probable that market estimates for the
current year may be too high and could be revised down. However, we believe
that this has been reflected in equity market valuations where significant
earnings risk has already been priced in and where we have seen the market
de-rate to multi year lows. In the coming months we anticipate consolidation
driven by companies with strong balance sheets.
In emerging Europe we expect the economic slowdown to feed through to the
region, hence absolute growth rates are likely to be subdued. In Russia, the
investor focus on politics, rather than fundamentals, points to ongoing
volatility in the short term. However, for the investor with a longer term
view, this environment offers some extraordinary value. We expect to see
inflationary pressures ease across the region, as the combined effects of
falling fuel and food prices are factored in. This should be particularly
beneficial for Turkey, where consumer confidence is increasing and the AK Party
can concentrate on its reform programme.
While there may be more volatility in equity markets over the coming months, we
believe that over the longer term greater Europe offers many attractive
investment opportunities and that the recent sell-off provides a good
opportunity to purchase holdings in leading European companies at historically
low valuations.
Vincent Devlin & Sam Vecht
BlackRock Investment Management (UK) Limited
17 October 2008
Key Holdings
31 August 2008
Seven Largest European Holdings
Novartis - 4.9% (2007: 3.3%) is a Swiss based pharmaceutical company engaged in
the development and manufacture of pharmaceuticals and nutritional products.
Growth prospects are superior to the industry and pipeline risk is relatively
less than other major peers. Valuation is attractive relative to the growth
prospects.
Roche - 4.2% (2007: 2.7%) is a Swiss based pharmaceuticals and diagnostics
company. Roche has the most defensive product portfolio, with a pipeline that
continues to deliver and with limited exposure to drug expiries and generics
risk. Roche is strong in specialty pharmaceuticals with lower risk of pricing
pressure and limited patent risk. Valuation remains attractive given earnings
growth prospects.
Allianz - 4.0% (2007: 2.6%) is a leading German based insurance group with
significant operations throughout Europe. Its core activities include
traditional life, health and property & casualty insurance with a skew towards
non life. We prefer non life insurers to life insurers due to the higher cash
flow generation and more resilient earnings power and we continue to prefer
insurers to banks due to their relatively strong capital positions and low
exposures to toxic assets. Allianz management has now also dealt with Dresdner,
the most problematic part of the company, by selling the investment bank to
Commerzbank above book value. Allianz will retain a stake in the combined
entity and should therefore benefit from the large cost synergy potential.
Nestlé - 3.8% (2007: nil) is a Swiss based food producer focusing on milk,
chocolate, confectionary and coffee products. It has a broad geographic reach
and a diversified stream of income. The company offers defensive
characteristics which we find attractive in the current market environment and
valuation is undemanding.
E.On - 3.4% (2007: 2.6%) is a German based utility engaged in power and gas
generation. The company has an attractive generation mix with 50% in low carbon
emission and is therefore well positioned to continue to benefit from the
rising power and electricity prices. With additional optionality in Russia,
combined with good earnings visibility and an attractive valuation, we believe
this is one of the more favourable names in the sector.
StatoilHydro - 3.4% (2007: 2.1%) is one of Europe's leading integrated oil and
gas companies and the largest operator on the Norwegian continental shelf. We
believe it stands out among its European peer group due to sector leading
production growth, its high quality Exploration & Production (E&P) portfolio
and its superior leverage to raising oil and gas prices. With over 90% of group
earnings derived from the E&P division, the Norwegian government has a mandate
to increase its stake which is supportive for this share price.
Bayer - 3.3% (2007: 4.3%) is a German Pharmaceutical and Chemicals company with
strong market positions and a promising product pipeline. Following the
successful takeover bid for Schering, the company has benefited from a
re-rating of the business towards higher multiples on the back of cost savings
from the integration of Schering and new drug launches. In the medium term,
significant changes in the current Group structure could also be value
accretive as the company increasingly focuses on its pharmaceutical business.
Management has a strong reputation and we see significant absolute upside from
the current share price.
Three Largest Emerging European Holdings
BlackRock Eurasian Frontiers Hedge Fund - 4.3% (2007: 3.1%) is a hedge fund
generating its returns from Eastern European, Middle Eastern and "frontier"
markets through a variety of strategies. The fund has returned -7.7% during the
year under review.
Polski Koncern Naftowy Orlen - 1.1% (2007: nil) is a Polish oil refiner with a
diverse product mix, including petrol, diesel, heating oil and aviation fuel.
The company trades on an attractive multiple and is a beneficiary of the easing
price of crude oil.
Ness Technologies - 1.0% (2007: nil) is an Israeli IT outsourcing company
focused on software development, system integration and consulting. We took a
position as the stock had began to look oversold. Investors became concerned
about the company's exposure to any slowdown in the US economy; however the
business has proved to be robust and we see continued upside from the current
share price.
Investments
31 August 2008
Book Market
Country of cost value % of
operation £'000 £'000 investments
Financials
Allianz Germany 7,668 7,492 4.0
Zurich Financial Services Switzerland 6,346 5,962 3.1
BNP Paribas France 5,014 5,168 2.7
Credit Suisse Switzerland 5,633 4,919 2.6
Intesa Sanpaolo Italy 5,830 4,547 2.4
Société Générale France 3,858 4,336 2.3
Bank of Cyprus Cyprus 4,220 3,957 2.1
AFI Development Russia 1,862 1,188 0.6
Dom Maklerski Poland 3,036 992 0.5
------ ------ ----
43,467 38,561 20.3
------ ------ ----
Health Care
Novartis Switzerland 8,675 9,272 4.9
Roche Switzerland 8,113 7,936 4.2
Fresenius Germany 2,247 4,664 2.4
Icon Ireland 3,065 3,612 1.9
------ ------ ----
22,100 25,484 13.4
------ ------ ----
Industrials
GEA Germany 6,162 5,474 2.9
Siemens Germany 4,878 5,204 2.7
Alstom France 4,942 4,653 2.5
Bouygues France 3,920 3,962 2.1
Deutsche Post Germany 3,186 2,881 1.5
Koza Daetiyeleri Turkey 1,864 1,040 0.5
------ ------ ----
24,952 23,214 12.2
------ ------ ----
Utilities
E.On Germany 5,322 6,580 3.4
GDF Suez France 5,690 5,271 2.8
Fortum Finland 4,202 4,132 2.2
Électricité de France France 2,246 3,690 1.9
Red Eléctrica Spain 1,912 2,041 1.1
Suez France 588 687 0.4
------ ------ ----
19,960 22,401 11.8
------ ------ ----
Basic Materials
Bayer Germany 3,875 6,300 3.3
ArcelorMittal Steel Netherlands 3,114 5,240 2.8
Akzo Nobel Netherlands 3,927 3,417 1.8
Norsk Hydro Norway 3,373 2,829 1.5
------ ------ ---
14,289 17,786 9.4
------ ------ ---
Oil & Gas
StatoilHydro Norway 7,688 6,396 3.4
Saipem Italy 2,979 2,738 1.4
Vestas Wind Systems Denmark 1,729 2,035 1.1
Polski Koncern Naftowy Orlen Poland 2,212 2,002 1.1
Surgutneftegaz Russia 2,165 1,586 0.8
Transneft Russia 1,812 1,198 0.6
Integra Russia 2,531 1,088 0.6
------ ------ ---
21,116 17,043 9.0
------ ------ ---
Telecommunications
Telefonica Spain 5,114 4,707 2.5
KPN Netherlands 4,125 4,206 2.2
Telecom Italia Italy 4,327 2,505 1.3
------ ------ ---
13,566 11,418 6.0
------ ------ ---
Consumer Goods
Nestlé Switzerland 7,300 7,076 3.8
Compagnie Financiere Richemont Switzerland 3,636 3,771 2.0
Africa-Israel Israel 1,068 422 0.2
------ ------ ---
12,004 11,269 6.0
------ ------ ---
Consumer Services
Opap Greece 5,434 5,368 2.8
Vivendi France 4,695 5,315 2.8
------ ------ ---
10,129 10,683 5.6
------ ------ ---
Technology
Cap Gemini France 1,779 1,991 1.0
Ness Technologies Israel 1,176 1,749 1.0
----- ----- ---
2,955 3,740 2.0
----- ----- ---
Other
BlackRock Eurasian Frontiers Hedge Emerging
Fund Europe 6,026 8,085 4.3
----- ----- ---
6,026 8,085 4.3
------- ------- -----
Total investments 190,564 189,684 100.0
------- ------- -----
All investments are in ordinary shares unless otherwise stated.
The total number of investments held at 31 August 2008 was 47 (31 August 2007:
58).
Investment Exposure
Investment Size as at 31 August 2008
Number of % of
Investments Portfolio
<£1m 3 1.1
£1m to £2m 7 5.1
£2m to £3m 7 9.0
£3m to £4m 6 11.8
>£4m 24 73.0
-- -----
47 100.0
-- -----
Market Capitalisation as at 31 August 2008
% of % of
Portfolio Reference Index
<€5bn 20.5 8.8
€5bn to €10bn 8.0 11.7
€10bn to €20bn 10.3 17.7
€20bn to €50bn 25.4 31.0
>€50bn 35.8 30.8
----- -----
100.0 100.0
----- -----
Distribution of Investments as at 31 August 2008
Portfolio
Financials 20.3
Health Care 13.4
Industrials 12.2
Utilities 11.8
Basic Materials 9.4
Oil & Gas 9.0
Telecommunications 6.0
Consumer Goods 6.0
Consumer Services 5.6
Technology 2.0
Other 4.3
-----
100.0
-----
Source: BlackRock
INCOME STATEMENT
for the year ended 31 August 2008
Revenue Revenue Capital Capital Total Total
2008 2007 2008 2007 2008 2007
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/
gains on
investments
held at fair
value through
profit or
loss - - (16,847) 34,318 (16,847) 34,318
Income from
investments
held at fair
value through
profit or
loss 3 6,998 6,642 - - 6,998 6,642
Other income 3 26 7 - - 26 7
Investment
management
and
performance
fees 4 (202) (252) (754) (1,472) (956) (1,724)
Operating
expenses 5 (667) (775) - - (667) (775)
----- ----- ------- ------ ------- ------
Net return/
(loss) before
finance costs
and taxation 6,155 5,622 (17,601) 32,846 (11,446) 38,468
Finance costs (101) (212) (402) (850) (503) (1,062)
----- ----- ------- ------ ------- ------
Return/(loss)
on ordinary
activities
before
taxation 6,054 5,410 (18,003) 31,996 (11,949) 37,406
Taxation on
ordinary
activities (1,746) (1,587) 153 310 (1,593) (1,277)
------ ------ ------- ------ ------- ------
Return/(loss)
on ordinary
activities
after
taxation 4,308 3,823 (17,850) 32,306 (13,542) 36,129
----- ----- ------- ------ ------- ------
Return/(loss)
per ordinary
share - basic
and diluted 7 3.73p 3.06p (15.44p) 25.87p (11.71p) 28.93p
===== ===== ======= ====== ======= ======
The total column of this statement represents the Income Statement 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 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. No operations were
acquired or discontinued during the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Share Share Capital
capital premium redemption Special Capital Revenue
£'000 account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the year
ended
31 August 2008
At 31 August
2007 125 151 39 103,213 112,554 5,249 221,331
(Loss)/return
for the year - - - - (17,850) 4,308 (13,542)
Shares
purchased (10) - 10 (13,705) - - (13,705)
Share purchase
costs - - - (168) - - (168)
Dividend paid* - - - - - (2,876) (2,876)
--- --- --- ------ ------ ----- -------
At 31 August
2008 115 151 49 89,340 94,704 6,681 191,040
=== === === ====== ====== ===== =======
For the year
ended
31 August 2007
At 31 August
2006 134 151 30 121,679 80,248 4,031 206,273
Return for the
year - - - - 32,306 3,823 36,129
Shares
purchased (9) - 9 (18,187) - - (18,187)
Share purchase
costs - - - (279) - - (279)
Dividend paid** - - - - - (2,605) (2,605)
--- --- --- ------- ------- ----- -------
At 31 August
2007 125 151 39 103,213 112,554 5,249 221,331
=== === === ======= ======= ===== =======
* Final dividend paid in respect of the year ended 31 August 2007 of 2.40p per
share declared on 16 October 2007 and paid on 6 December 2007.
** Final dividend paid in respect of the period ended 31 August 2006 of 2.00p
per share declared on 16 October 2006 and paid on 30 November 2006.
BALANCE SHEET
as at 31 August 2008
2008 2007
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit
or loss 189,684 237,326
Current assets
Debtors 1,059 7,121
Cash 1,735 49
------- -------
2,794 7,170
------- -------
Creditors - amounts falling due within one
year
Bank overdrafts - (19,783)
Other creditors (843) (2,954)
------- -------
(843) (22,737)
------- -------
Net current assets/(liabilities) 1,951 (15,567)
------- -------
Total assets less current liabilities 191,635 221,759
Provision for liabilities and charges (595) (428)
------- -------
Net assets 191,040 221,331
======= =======
Capital and reserves
Share capital 8 115 125
Share premium account 151 151
Capital redemption reserve 49 39
Special reserve 89,340 103,213
Capital reserve 94,704 112,554
Revenue reserve 6,681 5,249
------- -------
Total equity shareholders' funds 191,040 221,331
======= =======
Net asset value per ordinary share 7 169.98p 184.68p
======= =======
CASH FLOW STATEMENT
for the year ended 31 August 2008
2008 2007
Note £'000 £'000
Net cash inflow from operating activities 5(b) 3,736 3,354
Servicing of finance (503) (1,086)
Taxation paid (305) (455)
Capital expenditure and financial investment
Purchase of investments (200,542) (230,290)
Proceeds from sale of investments 236,004 237,238
Realised (losses)/gains on foreign currency
transactions (158) 138
------- -------
Net cash inflow from capital expenditure and
financial investment 35,304 7,086
------- -------
Equity dividends paid (2,876) (2,605)
------- -------
Net cash inflow before financing 35,356 6,294
------- -------
Financing
Purchase of ordinary shares (13,705) (18,187)
Share purchase costs (182) (176)
------- -------
Net cash outflow from financing (13,887) (18,363)
------- -------
Increase/(decrease) in cash in the year 21,469 (12,069)
======= =======
Notes to the ANNUAL RESULTS ANNOUNCEMENT
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 842 of the Income and Corporation Taxes Act 1988.
2. Accounting policies
a) Basis of preparation
The Company's financial statements have been prepared in accordance with UK
Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies'
("SORP") revised in December 2005. The principal accounting policies adopted by
the Company are set out below. All of the Company's operations are of a
continuing nature.
The Company's financial statements are presented in Sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£'000) except where
otherwise indicated.
b) Presentation of Income Statement
In order to 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 capital nature has been presented alongside the Income
Statement. In accordance with the Company's status as a UK investment company
under section 833 of the Companies Act 2006, net capital returns may not be
distributed by way of dividend.
c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. Where no ex-dividend date is available, dividends receivable
on or before the year end are treated as revenue for the year. Provisions are
made for dividends not expected to be received. Fixed returns on debt
securities are recognised on a time apportionment basis. Interest income and
expenses are accounted for on an accruals basis.
e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been treated
as revenue except as follows:
- expenses which are incidental to the acquisition or disposal of an investment
are included with the cost of the investment;
- the investment management fee has been allocated 80% to capital reserve 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;
- to the extent that any performance fees arise, they are allocated between
revenue and capital reserves in line with the respective contribution to
performance of revenue and capital returns.
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 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.
g) Taxation
Deferred taxation is recognised in respect of all temporary 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 temporary
differences can be deducted.
h) Investments held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with FRS 26 - Financial 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. Sales of assets are recognised at the trade date of the
disposal. Proceeds will be measured at fair value which will be regarded as the
proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid price
at the balance sheet date, without deduction for the estimated future selling
costs. Unquoted investments are valued by the Directors at fair value using
International Private Equity and Venture Capital Association Guidelines. This
policy applies to all current and non current asset investments of the Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
"Gains or losses on investments held at fair value through profit or loss".
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
i) Dividends payable
Under FRS 21 final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the balance sheet date.
Dividends payable to equity shareholders are recognised in the Reconciliation
of Movement in Shareholders' Funds when they have been approved by the
shareholders and become a liability of the Company.
j) Foreign currency translation
All transactions in foreign currencies are translated into Sterling at the
rates of exchange ruling on the dates of such transactions. Foreign currency
assets and liabilities at the balance sheet date are translated into Sterling
at the exchange rates ruling at that date. Exchange differences arising on the
revaluation of investments held as fixed assets are included in capital reserve.
Exchange differences arising on the translation of foreign currency assets
and liabilities are taken to capital reserve.
3. Income
2008 2007
£'000 £'000
Investment income:
UK dividends 57 33
Overseas dividends 6,941 6,609
----- -----
6,998 6,642
Other income:
Deposit interest 26 7
----- -----
Total 7,024 6,649
===== =====
4. Investment management and performance fees
2008 2007
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fees 202 807 1,009 223 891 1,114
Performance fees - - - - 409 409
VAT (written back)/
charged - (53) (53) 29 172 201
--- --- --- --- ----- -----
Total 202 754 956 252 1,472 1,724
=== === === === ===== =====
The investment management fee is levied quarterly, based on the value of the
market capitalisation on the last day of each month. Investment management fees
for the year amounted to £1,009,000 (2007: £1,114,000).
The performance fee accrued at 31 August 2007 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. No performance fee was accrued for the year ended
31 August 2008 (2007: £409,000).
The credit of £53,000 relates to VAT arising on the performance fee accrued at
31 August 2007. Following the outcome of the JPMorgan Claverhouse case,
management fees are now exempt from VAT and VAT on the performance fee has been
written back accordingly, as this amount had not been invoiced at the date HMRC
ceded the case.
5. Operating activities
2008 2007
£'000 £'000
(a) Operating activities
Custody fee 79 89
Auditors' remuneration:
- audit services 23 22
- non audit services* 5 4
Directors' emoluments 74 67
Registrar's fees and other operating expenses 486 593
---- ----
667 775
==== ====
The Company's total expense ratio ("TER"),
calculated as a percentage of average net assets
and using expenses, excluding performance fees and
interest costs, after relief for taxation was: 0.6% 0.7%
* Non audit services relate to the review of the half yearly financial
statements.
2008 2007
£'000 £'000
(b) Reconciliation of net (loss)/return before
finance costs and taxation to net cash flow from
operating activities
Net (loss)/return before finance costs and
taxation (11,446) 38,468
Losses/(gains) on investments held at fair value
through profit or loss 16,847 (34,318)
Decrease in accrued income 87 104
Decrease in other debtors 31 10
(Decrease)/increase in creditors (607) 81
Tax on investment income included within gross
income (1,176) (991)
------ -----
Net cash inflow from operating activities 3,736 3,354
====== =====
6. Dividends
The Directors have proposed a final dividend of 3.00p per share in respect of the
year ended 31 August 2008. The dividend will be paid on 3 December 2008 subject
to shareholders' approval on 25 November 2008 to shareholders on the Company's
register on 31 October 2008. 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.
The dividends disclosed in the note below have been considered in view of the
requirements of section 842 of the Income and Corporation Taxes Act 1988 and
section 833 of the Companies Act 2006, and the amounts proposed meet the
relevant requirements as set out in this legislation.
2008 2007
£'000 £'000
Dividend payable on equity shares:
Final proposed of 3.00p* (2007: 2.40p) 3,372 2,876
----- -----
3,372 2,876
===== =====
*Based on 112,388,958 ordinary shares in issue on 16 October 2008.
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:
2008 2007
Net revenue return attributable to
ordinary shareholders (£'000) 4,308 3,823
Net capital (loss)/return attributable
to ordinary shareholders (£'000) (17,850) 32,306
------- -------
Net total (loss)/return (£'000) (13,542) 36,129
======= =======
Equity shareholders' funds (£'000) 191,040 221,331
The weighted average number of ordinary shares in
issue during the year, on which the return per
ordinary share was calculated, was: 115,644,222 124,871,436
The actual number of ordinary shares in issue at
the year end, on which the net asset value was
calculated, was: 112,388,958 119,843,969
The number of ordinary shares in issue including
treasury shares at the year end, was: 115,117,791 124,729,045
2008 2007
Revenue Capital Total Revenue Capital Total
Return per share
Calculated on weighted
average number of
shares 3.73p (15.44p) (11.71p) 3.06p 25.87p 28.93p
Calculated on actual
number of shares 3.83p (15.88p) (12.05p) 3.19p 26.96p 30.15p
Net asset value per
share 169.98p 184.68p
8. Share capital
Ordinary Treasury
shares shares
number number Total
(nominal) (nominal) shares £
Authorised share capital
comprised:
Ordinary shares of 0.1p each 900,000,000 - 900,000,000 900,000
----------- ---------- ----------- -------
Allotted, issued and fully
paid:
Shares in issue at 31 August
2007 119,843,969 4,885,076 124,729,045 124,729
Shares transferred into
treasury pursuant to tender
offer on 30 November 2007 (4,726,178) 4,726,178 - -
Shares cancelled from
treasury on 3 December 2007 - (4,885,076) (4,885,076) (4,885)
Shares transferred into
treasury pursuant to tender
offer on 2 June 2008 (2,728,833) 2,728,833 - -
Shares cancelled from
treasury on 3 June 2008 - (4,726,178) (4,726,178) (4,726)
----------- --------- ----------- -------
At 31 August 2008 112,388,958 2,728,833 115,117,791 115,118
=========== ========= =========== =======
During the year, 7,455,011 ordinary shares were purchased (2007: 10,394,963)
for a total consideration including expenses of £13,873,000 (2007: £18,466,000)
and a total of 9,611,254 (2007: 8,976,051) shares were subsequently cancelled.
The number of ordinary shares in issue at the year end was 115,117,791 of which
2,728,833 were held in treasury (2007: 4,885,076). There were no sales of shares
out of treasury during the year (2007: nil).
9. Publication of non-statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in section 435 of the Companies Act 2006. The
2008 annual report and financial statements will be filed with the Registrar of
Companies after the Annual General Meeting. The report of the auditor for the
year ended 31 August 2008 contains no qualification or statement under section
498(2) or (3) of the Companies Act 2006.
10. Copies of the annual report will be sent to members shortly and will be
available from the registered office, c/o The Company Secretary, BlackRock
Greater Europe Investment Trust plc, 33 King William Street, London EC4R 9AS.
This report will also be available on the BlackRock Investment Management
website at www.blackrock.co.uk/.
11. The Annual General Meeting of the Company will be held at the offices of
BlackRock Investment Management (UK) Limited, 33 King William Street, London
EC4R 9AS on Tuesday, 25 November 2008 at 2.30 p.m.
For further information please contact:
Jonathan Ruck Keene, Managing Director,
Investment Company Division - 020 7743 2178
Vincent Devlin, Fund Manager - 0131 472 7376
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Ltd
Or
William Clutterbuck - 020 7379 5151
The Maitland Consultancy
33 King William Street
London
EC4R 9AS
17 October 2008
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