Final Results
BLACKROCK GREATER EUROPE INVESTMENT TRUST plc
Annual results announcement
for the year ended 31 August 2012
MANAGEMENT REPORT
Chairman's Statement
Overview
The year under review has seen a continuation of the challenging market
environment, with recurring concerns over the strength of the global economy
and the stability of the Eurozone undermining investor confidence. In recent
weeks, however, support for Mario Draghi's more active engagement in peripheral
bond markets by the European Central Bank, and a favourable ruling from the
German constitutional court calmed markets.
Against this background, in the year ended 31 August 2012, the Company's
undiluted net asset value (NAV) per share increased by 3.8%, compared with a
rise of 1.4% in the FTSE World Europe ex UK Index. The Company's share price
rose by 0.2% over the same period. All percentages are calculated in Sterling
terms with income reinvested.
Since the year end, the Company's undiluted NAV per share has risen by 4.7%
compared with an increase in the FTSE World Europe ex UK Index of 3.8% over the
same period.
Revenue return and dividends
The Company's undiluted revenue return for the year amounted to 5.52p per share
compared with 6.77p for the previous year. The Directors are recommending the
payment of a final dividend of 4.20p per share (2011: 3.50p and a special
dividend of 2.50p). The dividend will be paid on 7 December 2012 to
shareholders on the Company's register on 26 October 2012; the ex dividend date
is 24 October 2012.
Tender offers
The Directors exercised their discretion to operate the half yearly tender
offer on 31 May 2012. The offer was for up to 20% of the shares in issue at the
prevailing NAV less 2%. Valid tenders for 2,025,685 shares were received at a
price of 166.45p per share, representing 1.66% of the shares in issue,
excluding treasury shares. All shares tendered in May were placed in treasury.
It was announced on 18 September 2012 that the next semi-annual tender offer
will take place on 30 November 2012, 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 available at the end of October on the BlackRock
Investment Management website at www.blackrock.co.uk/brge and in hard copy on
request from the Company's registered office c/o The Secretary, BlackRock
Greater Europe Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
A resolution for the renewal of the Company's semi-annual tender authority will
be put to shareholders at the forthcoming Annual General Meeting.
Subscription shares
In the year under review, the Company has issued a total of 64,060 ordinary
shares following the conversion of the 2010 subscription shares into ordinary
shares. Total proceeds amounted to £117,000. The Company currently has
119,793,123 ordinary shares (excluding treasury shares) and 23,484,013
subscription shares in issue.
Subscription shareholders have one final opportunity to subscribe for all or
any of the ordinary shares to which their subscription shares relate on
31 October 2012 at a price of 183p per share. A reminder letter was posted to
subscription shareholders on 28 September 2012.
Change of broker
On 2 July 2012, the Company announced that Cenkos Securities plc had been
appointed as the Company's sole corporate broker with immediate effect.
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 Thursday,
29 November 2012. We hope that as many shareholders as possible will attend.
The Portfolio Managers will be making a presentation to shareholders on the
Company's performance and the outlook for the year ahead.
Outlook
The level of activity in most global economies has deteriorated in recent
months as momentum behind the economic recovery has stalled. However, the
radical response of the Federal Reserve in embarking on a further round of
quantitative easing should help support global demand. The actions of the
European Central Bank in promising support for short dated bonds in peripheral
government bond markets have also calmed fears of a disorderly break-up of the
Euro. However, the momentum behind political reform, and in particular for
European banking union, will need to be sustained if these initiatives are to
prove of lasting benefit. Against all this, it is noteworthy that the
valuations of European equities remain attractive both in absolute terms
and against their own history and if a more lasting solution to the Eurozone
crisis were to emerge markets could recover substantially from these levels.
John Walker-Haworth
10 October 2012
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 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
and type 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.
- 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
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 quarterly and annual internal
control reports respectively which are reviewed by their respective auditors
and give assurance regarding the effective operation of controls and are also
reviewed by the Audit and Management Engagement Committee.
- 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.
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 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. At the date of this
document, it is unclear to what extent the economies and political structure of
the Eurozone member countries may be affected by the financial crisis within
the Eurozone or that the Euro as a currency in its current form will continue.
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
John Walker-Haworth
Chairman
10 October 2012
Investment Manager's Report
Overview
Various concerns surrounding the levels of indebtedness in the peripheral
Eurozone countries have dominated the headlines for European equities over the
last twelve months. The fear of a complete break-up of the monetary union has
been a persistent influence on equity market returns, both positive and
negative, as policy makers struggled to find a solution that combined economic
effectiveness and political expediency.
After an extemely weak ending to our last financial year, European markets
recovered to deliver a positive start to this financial year beginning in the
final quarter of 2011. Improved US economic data and supportive Eurozone summit
proposals provided positive news, leading to strong performance of globally
exposed cyclical sectors such as oil & gas, basic materials and parts of the
industrials sector during the quarter. Equity markets in Europe also delivered
positive returns in January and February of 2012. The European Central Bank's
(ECB's) long term refinancing operations provided much-needed liquidity in
the bond market and Italian and Spanish bond yields fell back to much lower and
more sustainable levels. Global leading indicators rebounded and Euro flash
PMIs (Purchasing Managers' Indices) recovered above the 50-threshold
indicating tentative signs of expansion, while the IFO survey (a measure of
business expectations in Germany) was stronger than expected. Despite
investors' overall optimism, the solvency of Greece remained a concern and the
approval of its second bail-out package in February was met with relief.
The second quarter of 2012 was also heavily influenced by political
announcements, with a €100 billion Spanish bank bail-out, Greek elections and
an EU summit on 'growth' providing further staging posts in the development of
the crisis. Deteriorating economic conditions and a loss of momentum in the
global lead indicator provided a negative background for the market. Despite
this, June saw a brief return to risk appetite as Eurozone summit comments were
taken positively. European equity markets fell over the quarter, with financials,
oil & gas and information technology leading the losses. Consumer services,
health care and telecoms were the best performing sectors in the quarter as
investors switched into the 'defensive' areas of the market.
A further stage in the development of the crisis during the period began with a
little-publicised but highly significant speech made by Mario Draghi, the head
of the ECB, in London at the beginning of August. Mr Draghi's statement that,
"Within its mandate, the ECB is ready to do whatever it takes to preserve the
Euro; and believe me, it will be enough" clearly signalled to the market that
he was prepared to take aggressive action to support the troubled sovereigns in
Europe and ultimately remove the risk of systemic meltdown. This brought a
fresh wave of optimism during August, with Spanish and Italian equity markets
rallying strongly as the market risk premium applied to domestic assets
lowered. By the end of August expectations were high for additional policy
announcements in September to provide further, and potentially unlimited, ECB
support for a troubled Eurozone nation, perhaps signalling the beginning of the
end of the solvency crisis in Europe.
In this market environment, the Company's undiluted NAV increased by 3.8% and
its share price grew by 0.2% in the year ended 31 August 2012 (both in Sterling
terms with income reinvested). By comparison, the FTSE World Europe ex UK Index
increased by 1.4% in the same period.
Portfolio activity
During the year the Company benefited from both sector allocation and stock
selection. At a sector level, the decision to avoid telecommunications
businesses on the whole aided the portfolio's performance as the sector proved
the worst performing area of the market during the period. This decision was
taken due to the higher degree of exposure to lower growth domestic European
markets in the sector and the view that the high dividend yield offered by many
telecoms companies was unsustainable; this view was proved correct during the
first quarter of 2012 as a number of companies cut their dividend guidance for
2012.
The portfolio's positioning within financials also proved beneficial to
returns. Financial companies, especially banks, were a very volatile part of
the market during the year, with the fortunes of many banks being priced in
close relation to sentiment surrounding the sovereign debt crisis as a whole in
Europe. We took the decision to avoid exposure to Eurozone banks where
appropriate, instead favouring more resilient and better-capitalised insurance
companies that offer higher and more sustainable dividend yields. As an
investment team we remain negative on the outlook for banks in Europe due to
further deleveraging, increased regulation and muted GDP growth across the
region.
At a stock level the best performing companies in the portfolio tended to be
internationally exposed, higher-quality growth companies that can perform at a
time when growth is scarce in Europe. A holding in brewer Anheuser-Busch InBev
produced very strong returns during the first quarter of the year as the
outlook for the brewer remained robust, especially within the US and Brazil. In
addition, a position in wine and spirits company Pernod Ricard performed
strongly as it continues to enjoy strong pricing power in its cognac
products. Within the industrials sector, a position in the Dutch oil and
chemical storage company Vopak was a key contributor to performance. Vopak
benefited from strong results which confirmed the success of their
existing expansion projects and highlighted good opportunities for the future
growth of this high quality business. Other successful positions included
Danish pharmaceutical company Novo Nordisk, which continued to benefit from
structural growth trends in the international insulin treatment market, and
German auto supplier Continental, which enjoys premium growth within its sector
due to its attractive 'Powertrain' business.
The portfolio had less success in the oil & gas sector, with a position in
Italian oil & gas producer ENI performing poorly. A position in Portuguese name
Galp also detracted as the price they achieved for the sale of Brazilian assets
disappointed market expectations.
The portfolio had an average exposure of 7.9% of NAV to emerging Europe during
the year. We took advantage of selected opportunities in this region, although
some of the larger positions disappointed. A holding in Russian
state-controlled oil pipeline operator Transneft suffered losses towards the
end of 2011 when it was confirmed that Vladimir Putin would seek a return to
the Presidency. In addition, a position in Hungarian bank OTP Bank detracted
from returns as concerns surrounding systemic risk in the European financial
system affected the company's share price. The crisis has had an indirect but
substantial impact at times upon emerging European countries, even though some
countries, such as the Czech Republic and Poland, are in healthy fiscal
positions. Even Hungary, which was perceived to be in a more vulnerable
position, has sovereign debt levels that are closer to those of Germany than
the more troubled of the Eurozone states.
Gearing
The portfolio made use of its gearing facility during the year and, at the end
of the year, net gearing stood at 9.8% of shareholders' funds.
Outlook
It is clear that Europe continues to offer amongst the cheapest valuations of
all the developed equity regions and we believe that the current valuation
levels, driven by euro crisis risk aversion, provide attractive entry levels
for long term investors who are prepared to tolerate shorter term volatility.
Corporate balance sheets remain robust in Europe and we do not expect a
collapse in earnings while the global economy continues to expand (albeit at a
slower pace). European equities offer a very attractive dividend yield of close
to 4%, the highest yield of any developed market region and significantly
higher than the yield currently offered by a number of other asset classes.
Investors are pricing in a significant risk premium for the current political
and economic uncertainties and we believe our strategy of building positions in
the long term winners - companies with highly differentiated business models,
strong balance sheets and structural growth driven largely by international
demand - will deliver attractive returns over the medium term. Further progress
around the sovereign debt crisis could allow a reduction in the equity risk
premium attached to Europe.
Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
10 October 2012
Ten Largest Investments
31 August 2012
Roche - 4.9% (2011: nil) is a Swiss pharmaceuticals and diagnostics company
with global exposure. Roche has gone through a strong period of growth but has
now transitioned to focusing on profitability and improving shareholder
returns. The company has the ability to improve productivity and cut costs
whilst trading on an attractive valuation given its double-digit earnings
growth profile.
Novo Nordisk - 4.8% (2011: 4.6%) is a Danish pharmaceuticals company and the
dominant global franchise in diabetes treatment. The company has high levels of
market share in Asia ex-Japan, which is a rapidly growing market for insulin
demand, and we believe that the company has the most attractive pipeline of
short and long term acting insulin products on the market.
Zurich Insurance Group - 3.8% (2011: nil) 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 and has a solid management team.
BASF - 3.7% (2011: nil) is a global diversified chemicals company, with product
ranges including plastics, coatings, chemicals, agricultural products and oil &
gas. The company is a key beneficiary of global growth trends and we initially
bought into the stock at a cheap valuation following a period of strong
downgrades in the market. Inventories are relatively low and we do not envisage
a significant slowdown in global demand for their products.
LVMH Moët Hennessy Louis Vuitton - 3.3% (2011: 4.6%) is a French luxury goods
company with exposure to the global high-end consumer. The company owns a
number of highly regarded luxury brands in five main areas: wines and spirits,
perfumes and cosmetics, watches and jewellery, fashion and leather goods, and
selective retailing. The company offers attractive exposure to consumption
growth in some of the fastest-growing markets in the world and enjoys strong
profitability due to the strength of its branding and the quality of its
product line-up.
SAP - 3.2% (2011: 2.2%) is a German software services company. In our view, SAP
is a high quality business which is able to compound its year-on-year growth in
a sustainable way. Half of the company's revenues are in its maintenance
business, which is relatively defensive, but the high returns on capital
generated in its new product lines are extremely attractive. The company also
has a higher degree of exposure to the US and is therefore a natural
beneficiary of a weakening Euro.
Swiss Re - 3.2% (2011: nil) is a Swiss re-insurance business. The attraction of
Swiss Re lies in its strong underwriting skills, defensive asset allocation,
high dividend yield and more active management of spare capital. The company's
solvency ratios based on the Swiss Solvency Test remain strong and Swiss Re has
very little exposure to the peripheral European countries in its investment
portfolio. We view the stock as a resilient business with an attractive and
sustainable dividend yield.
Pernod Ricard - 3.1% (2011: 2.6%) is a global spirit and beverage company. The
company possesses a strong portfolio of wines and spirits brands and offers a
higher exposure to emerging market growth with high barriers to entry. It
currently trades as one of the cheapest spirits stocks in Europe and is enjoying
strong earnings growth in its cognac business through higher pricing power. We
believe the stock offers attractive double digit growth potential over a number
of years.
Electrolux - 3.1% (2011: nil) is a Swedish-based company which manufactures and
markets household and professional appliances. The company has recently changed
its management team and is going through a re-structuring phase which involves
consolidation to the 'Electrolux' brand and increased modularisation of its
production lines. We believe the company has the potential to significantly
improve its gross margin through a combination of this re-structuring and an
increased focus on higher-growth global markets.
Nestlé - 3.0% (2011: 5.6%) is a Swiss company engaged in the nutrition, health
and wellness sectors. Nestlé has one of the world's leading product and brand
portfolios offering consistent, structural growth. The company has achieved
organic sales growth of more than 4% per year in 20 of the last 22 years and is
a high quality stable growth company. Nestlé also offers strong free cash flow
generation and has maintained or increased dividend payments every year since
1959.
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 2011.
Investments
31 August 2012
Market
Country of value % of
incorporation £'000 investments
Consumer Goods
LVMH Moët Hennessy Louis Vuitton France 8,077 3.3
Pernod Ricard France 7,674 3.1
Electrolux Sweden 7,503 3.1
Nestlé Switzerland 7,437 3.0
Renault France 7,239 2.9
Anheuser-Busch Belgium 5,381 2.2
Daimler Germany 4,769 1.9
Continental Germany 4,579 1.9
------ ----
52,659 21.4
------ ----
Industrials
Kone Finland 6,847 2.8
Amadeus Spain 6,135 2.5
Vopak Netherlands 6,074 2.5
EADS Netherlands 5,651 2.3
Schneider Electric France 5,338 2.2
Geberit Switzerland 3,638 1.5
GEA Germany 3,123 1.3
Wartsila Finland 3,097 1.2
Abertis Infraestructuras Spain 2,247 0.9
Novorossiysk Commercial Sea Port Russia 54 0.0
------ ----
42,204 17.2
------ ----
Basic Materials
BASF Germany 9,156 3.7
Linde Germany 7,429 3.0
Syngenta Switzerland 6,147 2.5
ArcelorMittal Luxembourg 5,987 2.5
Tenaris Italy 4,308 1.8
Lanxess Germany 2,958 1.2
------ ----
35,985 14.7
------ ----
Oil & Gas
Technip France 6,714 2.7
CGG Veritas France 4,843 2.0
Saipem Italy 4,798 1.9
LUKOIL Russia 3,409 1.4
Petroleum Geo-Services Norway 2,733 1.1
KazMunaiGas Kazakhstan 2,584 1.1
------ ----
25,081 10.2
------ ----
Consumer Services
Inditex Spain 6,247 2.5
Reed Elsevier Netherlands 5,540 2.3
Deutsche Lufthansa Germany 4,806 2.0
Ryanair Ireland 4,790 2.0
Jerónimo Martins Portugal 3,060 1.2
------ ----
24,443 10.0
------ ----
Health Care
Roche Switzerland 12,011 4.9
Novo Nordisk Denmark 11,801 4.8
------ ---
23,812 9.7
------ ---
Financials
Zurich Insurance Group Switzerland 9,261 3.8
Swiss Re Switzerland 7,744 3.2
OTP Bank Hungary 2,195 0.9
Sberbank Russia 2,078 0.8
GAM Switzerland 2,063 0.8
BlackRock Institutional Cash Fund 30 0.0
------ ---
23,371 9.5
------ ---
Telecommunications
TeliaSonera Sweden 6,241 2.5
Mail.Ru Russia 3,816 1.6
------ ---
10,057 4.1
------ ---
Technology
SAP Germany 7,963 3.2
----- ---
7,963 3.2
------- -----
Total investments 245,575 100.0
======= =====
All investments are in ordinary shares unless otherwise stated. The total
number of investments held at 31 August 2012 was 46 (31 August 2011: 53).
Investment Exposure
Investment Size as at 31 August 2012
Number of % of
Investments Portfolio
<£1m 2 0.0
£1m to £3m 7 6.9
£3m to £5m 13 21.6
£5m to £10m 22 61.9
>£10m 2 9.6
-- -----
46 100.0
== =====
Market Capitalisation as at 31 August 2012
% of % of
Portfolio Reference
Index
<€1bn 0.0 0.2
€1bn to €10bn 31.7 23.3
€10bn to €20bn 16.9 18.6
€20bn to €50bn 23.6 26.5
>€50bn 27.8 31.4
----- -----
100.0 100.0
===== =====
Distribution of Investments as at 31 August 2012
% of
Portfolio
Consumer Goods 21.4
Industrials 17.2
Basic Materials 14.7
Oil & Gas 10.2
Consumer Services 10.0
Health Care 9.7
Financials 9.5
Telecommunications 4.1
Technology 3.2
-----
100.0
=====
Source: BlackRock.
Income Statement
for the year ended 31 August 2012
Revenue Revenue Capital Capital Total Total
2012 2011 2012 2011 2012 2011
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on
investments
held at fair
value through
profit or loss - - 1,121 9,345 1,121 9,345
Income from
investments
held at fair
value through
profit or loss 3 7,411 8,115 - - 7,411 8,115
Other income 3 19 68 - - 19 68
Investment
management and
performance
fees 4 (262) (268) (2,264) (1,649) (2,526) (1,917)
Operating
expenses 5 (504) (453) (6) (4) (510) (457)
------ ------ ------ ------ ------ ------
Net return/
(loss) before
finance costs
and taxation 6,664 7,462 (1,149) 7,692 5,515 15,154
Finance costs (7) (41) (26) (162) (33) (203)
------ ------ ------ ------ ------ ------
Return/(loss)
on ordinary
activities
before
taxation 6,657 7,421 (1,175) 7,530 5,482 14,951
Taxation on
ordinary
activities (673) (840) - - (673) (840)
------ ------ ------ ------ ------ ------
Return/(loss)
on ordinary
activities
after taxation 7 5,984 6,581 (1,175) 7,530 4,809 14,111
===== ===== ====== ===== ===== ======
Return/(loss)
per ordinary
share -
undiluted 7 5.52p 6.77p (1.08p) 7.74p 4.44p 14.51p
Return/(loss)
per ordinary
share -
diluted 7 5.52p 6.69p (1.08p) 7.66p 4.44p 14.35p
===== ===== ====== ===== ===== ======
The total column of this statement represents the profit or loss of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. The Company had
no recognised profits 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 Capital Special Revenue
capital account reserve reserves reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
For the
year ended
31 August 2012
At
31 August 2011 116 2,813 68 105,230 60,284 10,024 178,535
(Loss)/return
for the year - - - (1,175) - 5,984 4,809
Ordinary and
subscription
shares issued†32 50,490 - - - - 50,522
Ordinary shares
purchased - - - - (5,855) - (5,855)
Exercise of
subscription
shares - 117 - - - - 117
Sale of shares
out of
treasury - - - - 825 - 825
Share purchase
costs - - - - (130) - (130)
Dividend paid* - - - - - (5,782) (5,782)
--- ------ --- ------- ------ ------ -------
At 31 August 2012 148 53,420 68 104,055 55,124 10,226 223,041
--- ------ --- ------- ------ ------ -------
For the
year ended
31 August 2011
At
31 August 2010 122 151 62 97,681 69,648 6,711 174,375
Return for the
year - - - 7,530 - 6,581 14,111
Ordinary shares
purchased (6) - 6 - (10,298) - (10,298)
Exercise of
subscription
shares - 2,662 - - - - 2,662
Write back of
prior years'
tender and
subscription
share costs - - - 19 218 - 237
Sale of shares
out of
treasury - - - - 898 - 898
Share purchase
costs - - - - (182) - (182)
Dividend paid** - - - - - (3,268) (3,268)
--- ----- --- ------- ------ ------ -------
At 31 August 2011 116 2,813 68 105,230 60,284 10,024 178,535
--- ----- --- ------- ------ ------ -------
* Final dividend paid in respect of the year ended 31 August 2011 of 3.50p per
share and a special dividend of 2.50p per share were declared on 12 October 2011
and paid on 8 December 2011.
** Final dividend paid in respect of the year ended 31 August 2010 of 3.30p per
share, declared on 14 October 2010 and paid on 9 December 2010.
†Shares issued following the acquisition of assets of Charter European Trust
plc (Charter) as part of the reconstruction and winding-up of Charter.
Balance Sheet
as at 31 August 2012
2012 2011
Notes £'000 £'000
Fixed assets
Investments held at fair value through
profit or loss 245,575 176,514
------- -------
Current assets
Debtors 3,032 3,192
Cash - 841
------ ------
3,032 4,033
------ ------
Creditors - amounts falling due within
one year
Bank overdraft (21,909) -
Other creditors (3,657) (2,012)
------- -------
(25,566) (2,012)
------- -------
Net current (liabilities)/assets (22,534) 2,021
------- -------
Net assets 223,041 178,535
======= =======
Capital and reserves
Called-up share capital 8 148 116
Share premium account 53,420 2,813
Capital redemption reserve 68 68
Capital reserves 104,055 105,230
Special reserve 55,124 60,284
Revenue reserve 10,226 10,024
------- -------
Total equity shareholders' funds 223,041 178,535
======= =======
Net asset value per ordinary share -
undiluted 7 186.19p 186.25p
Net asset value per ordinary share -
diluted 7 185.67p 185.73p
======= =======
Cash Flow Statement
for the year ended 31 August 2012
2012 2011
Note £'000 £'000
Net cash inflow from operating
activities 5(b) 4,474 4,926
Servicing of finance (30) (191)
Taxation recovered 718 1,198
-------- --------
Capital expenditure and financial
investment
Purchase of investments (395,537) (344,498)
Proceeds from sale of investments 327,727 363,378
Realised losses on foreign currency
transactions (571) (392)
------- ------
Net cash (outflow)/inflow from capital
expenditure and financial investment (68,381) 18,488
------- ------
Equity dividends paid (5,782) (3,268)
------- ------
Net cash (outflow)/inflow before financing (69,001) 21,153
------- ------
Financing
Purchase of ordinary shares (5,855) (10,298)
Share purchase costs (114) (405)
Proceeds from issue of ordinary shares
out of treasury 1,538 185
Proceeds from issue of subscription shares 117 2,662
Proceeds from issue of ordinary shares
to acquire Charter European Trust plc
investment portfolio 50,565 -
------- ------
Net cash inflow/(outflow) from financing 46,251 (7,856)
------- ------
(Decrease)/increase in cash in the year (22,750) 13,297
======= ======
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 Income Statement
In order to better reflect 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 and section 1158 of the Corporation
Tax Act 2010, 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 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. These sales of assets are recognised at the trade date
of the disposal. Disposals 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 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
2012 2011
£'000 £'000
Investment income:
Overseas dividends 7,411 8,115
----- -----
7,411 8,115
Other income:
Deposit interest 19 68
----- -----
Total 7,430 8,183
===== =====
4. Investment management and performance fees
2012 2011
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment
management fee 262 1,049 1,311 268 1,072 1,340
Performance fee - 1,215 1,215 - 577 577
--- ----- ----- --- ----- -----
Total 262 2,264 2,526 268 1,649 1,917
=== ===== ===== === ===== =====
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 for the year amounted to £1,311,000 (2011:
£1,340,000). A performance fee of £1,215,000 was accrued for the year ended
31 August 2012 (2011: £577,000) based on the outperformance of the Company's
share price relative to the FTSE World Europe ex UK Index. The performance fee
is based on the outperformance of the Index over a three year rolling period.
The 2012 performance fee includes an underaccrual of £316,000 relating to the
2011 performance fee.
5. Operating activities
2012 2011
£'000 £'000
(a) Operating expenses
Custody fee 32 40
Auditor's remuneration:
- statutory audit 25 25
- other audit services* 5 5
Directors' emoluments 97 90
Registrar's fees and other operating expenses 345 293
--- ---
504 453
=== ===
The Company's ongoing charges, calculated as a
percentage of average net assets and using expenses,
excluding performance fees and interest costs, after
relief for any taxation were: 0.9% 0.9%
==== ====
* Other audit services relate to the review of the half yearly financial
statements
2012 2011
£'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 5,515 15,154
Capital loss/(return) before finance costs and taxation 1,149 (7,692)
------ ------
Net revenue return before finance costs and taxation 6,664 7,462
Expenses charged to capital (2,270) (1,653)
(Increase)/decrease in accrued income (74) 1
Decrease in debtors 8 -
Increase in creditors 1,208 253
Tax on investment income included within gross income (1,062) (1,137)
----- -----
Net cash inflow from operating activities 4,474 4,926
===== =====
6. Dividends
The Directors have proposed a final dividend of 4.20p per share in respect of the
year ended 31 August 2012. The dividend will be paid on 7 December 2012,
subject to shareholders' approval on 29 November 2012, to shareholders on the
Company's register on 26 October 2012. 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 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 proposed for the year ended 31 August 2012
meets the relevant requirements as set out in this legislation.
2012 2011
£'000 £'000
Dividend payable on equity shares:
2011 special dividend of 2.50p per ordinary share - 2,409
Final proposed of 4.20p* per ordinary share (2011: 3.50p) 5,031 3,373
----- -----
5,031 5,782
===== =====
* Based on 119,793,123 ordinary shares in issue on 10 October 2012.
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 2012 2011
Net revenue return attributable to ordinary
shareholders (£'000) 5,984 6,581
Net capital (loss)/return attributable to
ordinary shareholders (£'000) (1,175) 7,530
------- -------
Total return (£'000) 4,809 14,111
------- -------
Equity shareholders' funds (£'000) 223,041 178,535
------- -------
The weighted average number of ordinary shares
in issue during the year, on which the return
per ordinary share was calculated, was: 108,410,736 97,224,326
----------- ----------
The actual number of ordinary shares in issue at
the year end, on which the net asset value was
calculated, was: 119,793,123 95,859,314
----------- ----------
The number of ordinary shares in issue,
including treasury shares, at the year end, was: 124,553,760 97,599,102
=========== ==========
2012 2011
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on
weighted average
number of shares 5.52 (1.08) 4.44 6.77 7.74 14.51
Calculated on actual
number of shares in
issue at year end 4.99 (0.98) 4.01 6.87 7.85 14.72
----- ----- ----- ----- ----- ------
Net asset value per
share 186.19 186.25
====== ======
Ordinary share price 175.00 181.00
Subscription share
price 2.00 14.75
====== ======
Diluted 2012 2011
Net revenue return attributable to ordinary
shareholders (£'000) 5,984 6,581
Net capital return attributable to ordinary
shareholders (£'000) (1,175) 7,530
------ ------
Total return (£'000) 4,809 14,111
------- -------
Equity shareholders' funds* (£'000) 266,017 212,119
------- -------
The weighted average number of ordinary shares
in issue during the year, on which the diluted
return per ordinary share was calculated, was: 108,410,736 98,364,252
----------- ----------
The actual number of ordinary shares and
subscription shares, at the year end on which
the fully diluted net asset value was
calculated, was: 143,277,136 114,210,989
=========== ===========
2012 2011
Revenue Capital Total Revenue Capital Total
p p p p P p
Return per share
Calculated on
weighted average
number of shares†5.52 (1.08) 4.44 6.69 7.66 14.35
------ ------
Net asset value per
share* 185.67 185.73
====== ======
* In accordance with the AIC SORP, to the extent that the Company's NAV is in
excess of the exercise price, the subscription shares are considered to be
dilutive for the calculation of the NAV per share. The diluted NAV per share at
31 August 2012 is calculated by adjusting equity shareholders' funds for
consideration receivable on the exercise of 23,484,013 subscription shares, at
the exercise price of 183 pence per share, and dividing by the total number of
shares that would have been in issue at 31 August 2012 had all the subscription
shares been exercised.
†In accordance with FRS 22 "Earnings per share", there is no dilutive impact
on the return per share for the year ended 31 August 2012 as the average
mid-market price of the ordinary shares for the year is below the exercise
price of the subscription shares of 183 pence 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 2011 95,859,314 1,739,788 - 97,599,102 97,599
Shares transferred
into treasury pursuant
to tender offer on
2 December 2011 (1,495,164) 1,495,164 - - -
Shares transferred into
treasury pursuant to
tender offer on
2 June 2011 (2,025,685) 2,025,685 - - -
Ordinary shares issued* 26,890,598 - - 26,890,598 26,891
Sale of shares out of
treasury 500,000 (500,000) - - -
----------- --------- ---------- ----------- -------
119,729,063 4,760,637 - 124,489,700 124,490
Subscription shares of
0.1p each:
At 31 August 2011 - - 18,351,675 18,351,675 18,352
Conversion of
subscription shares
into ordinary shares 64,060 - (64,060) - -
Subscription shares
issued* - - 5,196,398 5,196,398 5,196
----------- --------- ---------- ----------- -------
At 31 August 2012 119,793,123 4,760,637 23,484,013 148,037,773 148,038
=========== ========= ========== =========== =======
* Following the acquisition of assets of Charter European Trust plc.
During the year 3,520,849 ordinary shares were purchased (2011: 5,127,954) for
a total consideration, including expenses, of £5,985,000 (2011: £10,480,000).
No shares (2011: 5,540,212) were subsequently cancelled. Following the
acquisition of the assets of Charter European Trust plc (Charter) 26,890,598
ordinary shares and 5,196,398 subscription shares were issued for a total
consideration of £50,522,000. The number of ordinary shares in issue at the
year end was 124,553,760 (2011: 97,599,102) of which 4,760,637 were held in
treasury (2011: 1,739,788) and the number of subscription shares in issue was
23,484,013 (2011: 18,351,675). The number of shares sold out of treasury during
the year was 500,000 (2011: 490,000) for a total consideration of £825,000
(2011: £898,000). As a result of the conversion of 64,060 subscription shares
(2011: 1,454,845), ordinary shares were issued for a total consideration of
£117,000 (2011: £2,662,000).
9. Related party disclosure
The investment management fee for the year was £1,311,000 (2011: £1,340,000)
and the performance fee for the year was £1,215,000 (2011: £577,000).
At the year end, the following amounts were outstanding in respect of the
investment management fee: £1,022,000 (2011: £326,000); performance fee
£1,215,000 (2011: £577,000) and Directors' fees: £50,000 (2011: £53,000).
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. With effect from 1 September 2012 the Chairman receives an
annual fee of £32,000, the Chairman of the Audit and Management Engagement
Committee receives an annual fee of £26,500, and each other Director receives
an annual fee of £22,000. Three members of the Board hold shares in the
Company. Mr Walker-Haworth holds 33,932 ordinary shares and 6,786 subscription
shares, Ms Ferguson 40,000 ordinary shares and 8,000 subscription shares and
Mr Holtham 11,100 ordinary shares and 1,620 subscription shares. Mrs Curling
does not hold any shares in the Company.
10. Contingent liabilities
There were no contingent liabilities at 31 August 2012 (2011: nil).
11. 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 2012 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 2011 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 2011,
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.
12. 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.
13. Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of
BlackRock Investment Management (UK) Limited, 12 Throgmorton Avenue, London
EC2N 2DL on Thursday, 29 November 2012 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management
website at www.blackrock.co.uk/brge. Neither the contents of the Manager's
website nor the contents of any website accessible from hyperlinks on the
Manager's website (or any other website) is incorporated into, or forms part
of, this announcement.
For further information please contact:
Simon White, Managing Director, Investment Company Division - 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
10 October 2012
D
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