Final Results
16 October 2009
BLACKROCK GREATER EUROPE INVESTMENT TRUST plc
Annual results announcement
for the year ended 31 August 2009
MANAGEMENT REPORT
Chairman's Statement
The sharp decline in global economic activity in the last quarter of 2008
continued in the first few months of 2009. However, further underpinning of the
banking sector, combined with interest rate cuts and quantitative easing (the
creation of new money), saw equity markets stabilising and risk appetite
increasing.
The rally in European equities which continued throughout much of the summer,
together with the weakness of Sterling, helped to negate some of the earlier
losses and in the year to 31 August 2009 the Company's net asset value ("NAV")
decreased by 1.0%, compared with a fall of 5.8% in the FTSE World Europe ex UK
Index. The share price rose by 0.5% over the year to 31 August 2009.
All the above percentages are calculated in Sterling terms with income
reinvested.
Revenue return and dividends
Revenue return per share for the year amounted to 3.26p compared with 3.73p for
the previous year, representing a fall of 12.6%. This reflected a reduction in
corporate dividend rates during the economic slowdown, particularly in the
financial sectors. The Directors are recommending a final dividend of 3.15p per
share, which represents an increase of 5.0% on the previous year. The dividend
is payable on 9 December 2009 to shareholders on the Company's register on 30
October 2009.
Tender offers
The Directors exercised their discretion to operate the semi-annual tender
offer on 1 June 2009, being the succeeding business day to 31 May, which was
for up to a maximum of 20% of the shares in issue at the prevailing NAV less
2%. Valid tenders for 1,696,092 shares were received at a price of 135.59p per
share, representing 1.59% of the shares in issue at the time. All shares
tendered in June have been placed in treasury and the 5,568,268 shares
previously held in treasury were cancelled in line with the Directors' policy.
It was announced on 3 September 2009 that the next semi-annual tender offer
would take place on 30 November 2009, for up to 20% of shares in issue at the
prevailing NAV per share subject to a discount of 2%. A circular relating to
the Tender Offer will be posted to shareholders on 28 October 2009.
VAT
I am pleased to report that, following the success of the challenge of the
Association of Investment Companies ("AIC") and JPMorgan Claverhouse to the
imposition of VAT on management services supplied to investment trusts, HM
Revenue and Customs has now repaid all previously paid VAT for the period from
the Company's launch to November 2007. The total amount of VAT recovered
amounts to £374,000 and a further amount in respect of interest is due to be
received shortly.
Outlook
European economies are coming out of recession but uncertainty remains about
the strength and sustainability of future economic growth.
Markets are likely to respond to this uncertainty with short term volatility
but the Board considers that the longer term outlook for European equities
is positive.
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 internal control 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, each of the
Directors confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
- the annual report includes a fair review of the development and performance
of the business and the position of the Company, together with a description of
the principal risks and uncertainties that it faces.
For and on behalf of the Board of Directors
John Walker-Haworth
Chairman
INVESTMENT MANAGER'S REPORT
European financial markets saw both significant losses and gains over the
financial year ("year"). The effects of the global credit crisis continued to
erode share prices towards the end of 2008 and into 2009, although from March
2009 onwards reasons for optimism had emerged as investors realised that the
shape of the world's economies may not have been as bad as anticipated.
Against this backdrop, the Company's share price returned 0.5%, and the NAV
decreased by 1.0%, both with income reinvested. By comparison, the FTSE World
Europe ex UK Index fell 5.8% (with income reinvested). This outperformance
reflects the Company's ability to perform well in both rising and falling
markets, as seen over the period under review. We believe that by following a
disciplined investment process and focusing on stock specific investment cases
we can generate attractive returns for our shareholders.
Further financial turmoil hindered the progress of global equity markets during
the autumn of 2008. Global economic activity collapsed against a backdrop of
ongoing fragility in the financial system. Risk aversion increased when
investors began switching out of sectors sensitive to the economic decline,
notably oil & gas, industrials and materials, into more defensive sectors, such
as health care, telecoms, utilities and consumer staples.
Governments and central banks responded aggressively by lowering interest rates
and introducing significant capital injections into failing banks, whilst
announcing co-ordinated fiscal stimulus packages in order to stabilise the
financial system and help to speed up the economic recovery.
March and April saw the first emergence of positive data since the beginning of
the credit crisis, with investment banks announcing strong earnings as the
credit markets once again began to function. This led to organic growth in bank
balance sheets, and indeed financials led the rally in this period as
confidence returned once again to parts of the system. Defensive stocks lagged
during these rallies as the market aggressively rotated into cyclical stocks as
investors favoured lower quality companies.
The end of the period continued to see gains in European equity markets,
despite a retracement in June as investors hesitated ahead of the second
quarter company earnings announcements. Financials continued to lead the way as
banks again announced surprisingly positive earnings, with many banks returning
to profitability following severe losses. In addition, cyclical names in areas
such as industrials rallied strongly as the market anticipated a strong uptick
in production as inventory levels remained depressed.
The Company's investments in emerging Europe contributed to outperformance over
the year, with an average weight of 6% of the Company's total NAV. Our holding
in the BlackRock Eurasian Frontiers Hedge Fund contributed well and helped to
preserve capital in declining markets. The holding was sold in May 2009 and the
proceeds were reinvested into equities. On average, the Company did not make
use of its gearing facility, with a cash position of around 2% during the first
half of the year. However, the Company did utilise the facility in the second
quarter of 2009 to benefit from the market rallies, with a gearing level of
around 4% at the end of June. Being invested in Euro denominated equities
also boosted the Company's performance over the year as the Euro appreciated
relative to Sterling.
At the beginning of the year, the best performing stocks were mainly large
capitalisation names with defensive characteristics. Within the telecoms
sector, the Company's holding in Belgacom outperformed the market as investors
favoured strong balance sheets, high dividend yields and a resilient earnings
profile in volatile markets. In addition, the Company's exposure to the health
care sector, through its holdings in pharmaceutical companies Roche and
Novartis, also outperformed due to their defensive business models.
Our holdings in financials were the strongest contributors in the period, as
the Company moved to a positive view of the sector during the first half of
2009. At the beginning of the year, our stock selection was vital as we strived
to avoid the banks most affected by the credit crisis. However, from March 2009
onwards the Company actively sought selected banks that were likely to benefit
from surprisingly positive earnings announcements; as such, positions in Credit
Suisse, Unicredito and Banco Santander proved particularly profitable in the
period. Later in the year, the Company acquired holdings in retail banks such
as BBVA and KBC, as their valuations remained depressed despite the gains seen
in other areas of financials.
The holdings within the portfolio rotated significantly, as the market
experienced first severe declines and then strong rallies. As mentioned
previously, the Company took a significant overweight in financials, and
especially banks, in the second quarter of 2009, having been underweight as the
markets declined in the first part of the year. Conversely, having been
overweight the sector in 2008, the Company rotated away from health care in the
second half of the year as investors sought more cyclical stocks to benefit
from the market rallies. In addition, the Company moved overweight industrial
names towards the end of the year in anticipation of a strong pick up in
production towards the end of 2009.
Outlook
Following the recent market rebound, we remain positive on the outlook for
European equities. European equity market valuations have started to normalise
and, although they remain attractive, the market overall is no longer looking
very cheap. We believe the economic recovery is gaining momentum and that
current earnings forecasts may be too low in the face of further aggressive
cost cutting and a recovery in demand. However, we believe that we could now
enter a period of market consolidation in the wake of the recent strong rally.
Looking forward, we anticipate that the rest of 2009 is likely to see gains in
industrial names which should benefit from an increase in production as
inventory levels remain depressed. We believe that there is still cash on the
sidelines and a number of investors are yet to return to the equity markets. We
would expect market returns to be driven increasingly by stock specific factors
over the coming months and we are focusing our fundamental research on
companies where there is a likelihood of earnings upgrades.
Vincent Devlin & Sam Vecht
BlackRock Investment Management (UK) Limited
Key Holdings
31 August 2009
Telefónica- 4.2% (2008: 2.5%) is a Spanish telecom company with a large
exposure to Latin America. Telefónica has an excellent growth profile, as
mobile and broadband penetration is low in Latin America, especially in Brazil.
The dividend yield is increasing and is expected to get close to 7.2% for next
year and is well covered. The company's valuation is attractive and management
is arguably the best in the sector.
Nestlé - 4.1% (2008: 3.8%) is a Swiss based company and the world's leading
food manufacturer with activities in coffee, bottled water, milk products,
dietetics, prepared dishes, pet food, chocolate, confectionery and
pharmaceuticals. Following a significant period of underperformance since
earlier this year, the company now trades at a discount to sector peers, which
is attractive given the prospects of a sizeable cash return to shareholders
from the existing share buy back programme and from the potential cash proceeds
from the sale of its remaining stake in Alcon to Novartis. We believe the
de-rating has been overdone and have built a position in the stock.
E.ON - 3.9% (2008: 3.4%) is a German based utility company. It is fully
integrated with businesses in electricity generation and distribution and gas
production. The company will benefit from rising power prices as demand picks
up. The valuation is attractive in the sector and relative to history and the
new CEO is focused on restructuring, cost cutting and delivering on past
investments.
Unicredito - 3.4% (2008: nil) is an Italian banking corporation with operations
in over 22 countries and main exposures in its home market and Eastern Europe.
We found that the market was far too pessimistic about the loan loss cycle in
Eastern Europe. Unicredito's biggest market in Eastern Europe is Poland, which
is behaving more like a developed market rather than a developing market and
loan losses are still relatively low. Unicredito was, and still is, an
undervalued share versus the rest of the banking sector and we expect its
outperformance versus market expectations to continue.
ING - 3.3% (2008: nil) is a Dutch based global banking and insurance
conglomerate with operations in over 40 countries. The company has been
punished for being over leveraged and over expanded during the credit crunch
with its share price declining by 93%. However, the investment case is
appealing with high absolute upside to our target price against low
expectations and good potential for management to deleverage, simplify and
solidify the business. There is also scope for further upside to the earnings
and target price through more cost cutting and the constructive disposal of
assets.
Lafarge - 3.2% (2008: nil) is a French building materials company, producing
cement, aggregates, concrete and gypsum, with cement contributing 85% of sales.
The company is well diversified geographically with high exposure to emerging
markets, particularly the Middle East and Africa, where there is a high demand
for infrastructure investment.
BBVA - 3.0% (2008: nil) is a Spanish bank with a large exposure to its home
market and to Mexico. It became clear after talking to management that loan
losses in Spain were not as bad as we and the market had feared. This is due
mainly to low interest rates which has increased household's disposable income.
In addition to Spain performing better than expectations, management was also
seeing signs that the Mexican economy had bottomed. BBVA owns one of the
leading banks in Mexico and any improvement in the economy there is very
important. While Spain and Mexico have been through tough times in the past
twelve months, BBVA's earnings are forecast to fall less than 10% versus 2008
levels which is a testament to how well the bank is run.
KBC - 3.0% (2008: nil) is a Belgian bank with core businesses in its home
market and Central and Eastern Europe. The group has been through a period of
balance sheet stress over the past twelve months due to a number of toxic
assets it holds. The fall in the value of these assets led to KBC requiring a
bail out from the Belgian and Flemish governments which limited the downside
risk to their balance sheet and has allowed us to refocus our attention on the
underlying business once more. The group is currently working on a
restructuring plan to strengthen its balance sheet further and we are confident
that this will be done without damaging its longer term earnings power. KBC is
one of the cheapest banks in Europe and we are confident that the new
management team can unlock this value for shareholders.
Atlas Copco - 2.7% (2008: nil) is a Swedish machinery company with leading
global positions in compressors, construction and mining equipment and
industrial tools. Atlas Copco has an excellent record of generating
consistently high returns on invested capital given its high operating margins,
asset light production model and well established after-market business. In
addition, the company has excellent growth prospects due to its high exposure
to emerging markets.
Credit Suisse - 2.7% (2008: 2.6%) is a Swiss based leading global investment
and private bank. The company has managed its business well throughout the
recent downturn and did not require any form of government bail out. A positive
sloping yield curve and a reduction in competitors have led to a very
favourable operating environment for Credit Suisse. The group has gained market
share in most areas which provides a good platform for future profitability. We
believe the market is still underestimating the group's potential and so remain
positive on the stock.
Investments
31 August 2009
Book Market
Country of cost value % of
operation £'000 £'000 investments
Financials
Unicredito Italy 3,292 5,776 3.4
ING Netherlands 4,339 5,662 3.3
BBVA Spain 3,796 5,055 3.0
KBC Belgium 3,470 5,049 3.0
Credit Suisse Switzerland 4,386 4,620 2.7
Swiss Reinsurance Switzerland 3,069 4,044 2.4
Julius Baer Switzerland 3,492 3,889 2.3
BNP Paribas France 2,437 3,569 2.1
EFG Eurobank Greece 2,937 3,558 2.1
Erste Austria 2,949 3,467 2.0
Banco Santander Spain 1,821 3,465 2.0
Euler Hermes France 2,825 3,137 1.8
Irish Life & Permanent Ireland 1,564 2,334 1.4
OTP Bank Hungary 1,468 2,073 1.2
Danske Bank Denmark 1,141 1,586 0.9
KBS Ancora Belgium 658 947 0.5
------ ------ ----
43,644 58,231 34.1
------ ------ ----
Industrials
Lafarge France 3,323 5,412 3.2
Atlas Copco Sweden 4,262 4,673 2.7
Valourec France 3,735 4,082 2.4
MAN Germany 2,680 3,981 2.3
ThyssenKrupp Germany 3,030 3,615 2.1
Vopak Netherlands 3,004 3,505 2.1
Adecco Switzerland 3,058 3,198 1.9
Vinci France 2,354 2,585 1.5
Schneider Electric France 2,117 2,484 1.4
Bouygues France 2,310 2,241 1.3
Thales France 1,781 1,801 1.1
Kuehne + Nagel Switzerland 1,822 1,799 1.1
Técnicas Reunidas Spain 1,673 1,755 1.0
KCI Konecranes Finland 1,476 1,722 1.0
Bilfinger Berger Germany 1,291 1,440 0.8
Wienerberger Austria 232 289 0.2
------ ------ ----
38,148 44,582 26.1
------ ------ ----
Consumer Goods
Nestlé Switzerland 6,635 7,039 4.1
Anheuser-Busch Belgium 4,164 4,442 2.6
Swatch Switzerland 3,356 3,462 2.0
Daimler Germany 2,987 3,456 2.0
ElringKlinger Germany 619 775 0.5
------ ------ ----
17,761 19,174 11.2
------ ------ ----
Basic Materials
ArcelorMittal Netherlands 2,822 3,828 2.2
LANXESS Germany 2,745 3,653 2.2
Bayer Germany 3,391 3,395 2.0
----- ------ ---
8,958 10,876 6.4
----- ------ ---
Utilities
E.On Germany 5,675 6,689 3.9
Energias de Portugal Portugal 2,642 3,122 1.8
----- ----- ---
8,317 9,811 5.7
----- ----- ---
Telecommunications
Telefónica Spain 6,616 7,250 4.2
----- ----- ---
6,616 7,250 4.2
----- ----- ---
Consumer Services
Jerónimo Martins Portugal 2,604 2,880 1.7
PPR France 1,220 2,105 1.2
SKY Deutschland Germany 1,002 1,166 0.7
Betandwin.com Interactive Austria 1,156 1,095 0.6
----- ----- ---
5,982 7,246 4.2
----- ----- ---
Health Care
Nobel Biocare Switzerland 3,012 3,150 1.8
Roche Switzerland 1,486 1,707 1.0
Novo Nordisk Denmark 1,483 1,647 1.0
----- ----- ---
5,981 6,504 3.8
----- ----- ---
Oil & Gas
StatoilHydro Norway 3,926 3,951 2.3
Integra Russia 2,328 553 0.4
----- ----- ---
6,254 4,504 2.7
----- ----- ---
Technology
SAP Germany 2,386 2,805 1.6
----- ----- ---
2,386 2,805 1.6
------- ------- -----
Total investments 144,047 170,983 100.0
======= ======= =====
All investments are in ordinary shares.
The total number of investments held at 31 August 2009 was 53 (31 August 2008:
47).
Investment Exposure
Investment Size as at 31 August 2009
Number of % of
Investments Portfolio
<£1m 4 1.6
£1m to £2m 10 9.2
£2m to £3m 8 11.3
£3m to £4m 18 37.0
>£4m 13 40.9
-- -----
53 100.0
== =====
Market Capitalisation as at 31 August 2009
% of % of
Portfolio Reference Index
<€5bn 20.0 12.4
€5bn to €10bn 20.7 13.7
€10bn to €20bn 15.9 14.4
€20bn to €50bn 26.0 33.0
>€50bn 17.4 26.5
----- -----
100.0 100.0
===== =====
Distribution of Investments as at 31 August 2009
% of
Portfolio
Financials 34.1
Industrials 26.1
Consumer Goods 11.2
Basic Materials 6.4
Utilities 5.7
Telecommunications 4.2
Consumer Services 4.2
Health Care 3.8
Oil & Gas 2.7
Technology 1.6
-----
100.0
=====
Source: BlackRock
INCOME STATEMENT
for the year ended 31 August 2009
Notes Revenue Revenue Capital Capital Total Total
2009 2008 2009 2008 2009 2008
£'000 £'000 £'000 £'000 £'000 £'000
Losses on
investments
held at fair
value through
profit or loss - - (8,914) (16,847) (8,914) (16,847)
Income from
investments
held at fair
value through
profit or loss 3 5,514 6,998 - - 5,514 6,998
Other income 3 55 26 - - 55 26
Investment
management
fees 4 (142) (202) (568) (754) (710) (956)
Write back of
prior years'
VAT 4 75 - 299 - 374 -
Operating
expenses 5 (668) (667) - - (668) (667)
---- ---- ---- ---- ---- ----
Net return
before finance
costs and
taxation 4,834 6,155 (9,183) (17,601) (4,349) (11,446)
Finance costs (4) (101) (14) (402) (18) (503)
----- ----- ------ ------- ------ -------
Return on
ordinary
activities
before
taxation 4,830 6,054 (9,197) (18,003) (4,367) (11,949)
Taxation on
ordinary
activities (1,311) (1,746) (16) 153 (1,327) (1,593)
------ ------ ------ ------- ------ -------
Return on
ordinary
activities
after taxation 7 3,519 4,308 (9,213) (17,850) (5,694) (13,542)
----- ----- ------ ------- ------ -------
Return per
ordinary share
- basic and
diluted 7 3.26p 3.73p (8.54p) (15.44p) (5.28p) (11.71p)
===== ===== ====== ======= ====== =======
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 Capital
Share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year
ended
31 August 2009
At 31 August
2008 115 151 49 89,340 94,704 6,681 191,040
Return for the
year - - - - (9,213) 3,519 (5,694)
Shares
purchased (8) - 8 (9,114) - - (9,114)
Share purchase
costs# - - - (147) - - (147)
Dividend paid* - - - - - (3,372) (3,372)
--- --- --- ------ ------ ------ -------
At 31 August
2009 107 151 57 80,079 85,491 6,828 172,713
=== === == ====== ====== ===== =======
For the year
ended
31 August 2008
At 31 August
2007 125 151 39 103,213 112,554 5,249 221,331
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
=== === == ====== ====== ===== =======
* Final dividend paid in respect of the year ended 31 August 2008 of 3.00p per
share declared on 16 October 2008 and paid on 3 December 2008.
** 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.
# Share purchase costs of £74,000 were written back to the special reserve in
the year ended 31 August 2009. The costs represented over
accruals relating to share purchases in prior years.
BALANCE SHEET
as at 31 August 2009
2009 2008
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit
or loss 170,983 189,684
Current assets
Debtors 5,142 1,059
Cash 6,010 1,735
------- -------
11,152 2,794
------- -------
Creditors - amounts falling due within one
year
Bank overdraft (7,310) -
Other creditors (2,112) (843)
------- -------
(9,422) (843)
------- -------
Net current assets 1,730 1,951
------- -------
Total assets less current liabilities 172,713 191,635
Provision for liabilities and charges - (595)
------- -------
Net assets 172,713 191,040
======= =======
Capital and reserves
Share capital 8 107 115
Share premium account 151 151
Capital redemption reserve 57 49
Special reserve 80,079 89,340
Capital reserves 85,491 94,704
Revenue reserve 6,828 6,681
------- -------
Total equity shareholders' funds 172,713 191,040
======= =======
Net asset value per ordinary share 7 164.29p 169.98p
======= =======
CASH FLOW STATEMENT
for the year ended 31 August 2009
2009 2008
Note £'000 £'000
Net cash inflow from operating activities 5(b) 3,852 3,736
Servicing of finance (25) (503)
Taxation paid (644) (305)
Capital expenditure and financial investment
Purchase of investments (423,640) (200,542)
Proceeds from sale of investments 429,976 236,004
Realised gains/(losses) on foreign currency
transactions 23 (158)
-------- --------
Net cash inflow from capital expenditure and
financial investment 6,359 35,304
-------- --------
Equity dividends paid (3,372) (2,876)
-------- --------
Net cash inflow before financing 6,170 35,356
-------- --------
Financing
Purchase of ordinary shares (9,114) (13,705)
Share purchase costs (91) (182)
------- -------
Net cash outflow from financing (9,205) (13,887)
------- -------
(Decrease)/increase in cash in the year (3,035) 21,469
====== ======
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 January 2009. The principal accounting policies adopted by
the Company are set out below. All of the Company's operations are of a
continuing nature.
The Company's financial statements are presented in Sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£'000) except where
otherwise indicated.
b) Presentation of Income Statement
In order to 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 within the cost of the investment;
- the investment management fee has been allocated 80% to capital reserves and
20% to the revenue account in line with the Board's expected long term split of
returns, in the form of capital gains and income respectively, from the
investment portfolio;
- performance fees have been allocated 100% to capital reserves, as performance
has been predominantly generated through capital returns of the investment
portfolio.
f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are
allocated, insofar as they relate to the financing of the Company's
investments, 80% to capital 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. The sale of assets is 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
reserves. Exchange differences arising on the translation of foreign currency
assets and liabilities are taken to capital reserves.
3. Income
2009 2008
£'000 £'000
Investment income:
UK dividends - 57
Overseas dividends 5,514 6,941
----- -----
5,514 6,998
Other income:
Deposit interest 55 26
----- -----
5,569 7,024
===== =====
4. Investment management and performance fees
2009 2008
---------------------------------------------------
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fees 142 568 710 202 807 1,009
Write back of prior
years' VAT (75) (299) (374) - (53) (53)
--- ---- ---- --- --- ---
67 269 336 202 754 956
=== === === === === ===
The investment management fee is levied quarterly, based on the market
capitalisation of the Company on the last day of each month. Investment
management fees for the year amounted to £710,000 (2008: £1,009,000). No
performance fee was accrued for the year ended 31 August 2009 (2008: nil).
Following the outcome of the JPMorgan Claverhouse case, management fees are now
exempt from VAT.
5. Operating activities
2009 2008
£'000 £'000
(a) Operating expenses
Custody fee 41 79
Auditors' remuneration:
- audit services 24 23
- other audit services* 5 5
Directors' emoluments 74 74
Registrar's fees and other operating expenses 524 486
---- ----
668 667
==== ====
The Company's total expense ratio ("TER"),
calculated as a percentage of average net assets,
excluding interest costs and VAT written back,
after relief for taxation was: 0.6% 0.6%
2009 2008
£'000 £'000
(b) Reconciliation of net loss before finance
costs and taxation to net cash flow from operating
activities
Net loss before finance costs and taxation (4,349) (11,446)
Add: capital loss before finance costs and
taxation 9,183 17,601
------ -------
Net revenue before finance costs and taxation 4,834 6,155
Expenses charged to capital (269) (754)
Decrease in accrued income 97 87
Decrease in other debtors - 31
Increase/(decrease) in creditors 235 (607)
Tax on investment income included within gross
income (1,045) (1,176)
------ ------
Net cash inflow from operating activities 3,852 3,736
===== =====
* Other audit services relate to the review of the half yearly financial
statements.
6. Dividends
The Directors have proposed a final dividend of 3.15p per share in respect of
the year ended 31 August 2009. The dividend will be paid on 9 December 2009,
subject to shareholders' approval on 1 December 2009, to shareholders on the
Company's register on 30 October 2009. 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.
2009 2008
£'000 £'000
Dividend payable on equity shares:
Final proposed of 3.15p* (2008: 3.00p) 3,311 3,372
----- -----
3,311 3,372
===== =====
*Based on 105,124,598 ordinary shares in issue on 15 October 2009.
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:
2009 2008
Net revenue return attributable to ordinary
shareholders (£'000) 3,519 4,308
Net capital loss attributable to ordinary
shareholders (£'000) (9,213) (17,850)
------ -------
Net total loss (£'000) (5,694) (13,542)
====== =======
Equity shareholders' funds (£'000) 172,713 191,040
The weighted average number of ordinary shares in
issue during the year, on which the return per
ordinary share was calculated, was: 107,841,142 115,644,222
The actual number of ordinary shares in issue at
the year end, on which the net asset value was
calculated, was: 105,124,598 112,388,958
The number of ordinary shares in issue, including
treasury shares at the year end, was: 106,820,690 115,117,791
2009 2008
------------------------------------------------------
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on weighted
average number of
shares 3.26 (8.54) (5.28) 3.73 (15.44) (11.71)
Calculated on actual
number of shares
excluding treasury
shares 3.35 (8.77) (5.42) 3.83 (15.88) (12.05)
Net asset value per
share 164.29 169.98
As the Company's share price at 31 August 2009 stood at a discount of greater
than 2%, in line with the Company's policy, shares could not be sold out of
treasury and consequently there was no dilution to the Company's net asset
value or return per share as a result.
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
2008 112,388,958 2,728,833 115,117,791 115,118
Shares transferred into
treasury pursuant to tender
offer on 1 December 2008 (5,568,268) 5,568,268 - -
Shares cancelled from
treasury on 2 December 2008 - (2,728,833) (2,728,833) (2,729)
Shares transferred into
treasury pursuant to tender
offer on 1 June 2009 (1,696,092) 1,696,092 - -
Shares cancelled from
treasury on 2 June 2009 - (5,568,268) (5,568,268) (5,568)
----------- ---------- ----------- -------
At 31 August 2009 105,124,598 1,696,092 106,820,690 106,821
=========== ========= =========== =======
During the year, 7,264,360 ordinary shares were purchased (2008: 7,455,011) for
a total consideration, including expenses, of £9,335,000 (2008: £13,873,000)
and a total of 8,297,101 (2008: 9,611,254) shares were subsequently cancelled.
The number of ordinary shares in issue at the year end was 106,820,690 of which
1,696,092 were held in treasury (2008: 2,728,833). There were no sales of
shares out of treasury during the year (2008: nil).
9. 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 2009 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 2009 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, 1 December 2009 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
16 October 2009
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