Half-yearly Report
BlackRock Greater Europe Investment Trust plc
Half Yearly Financial Report 28 February 2014
For further information please contact:
Simon White, Head of Investment Trusts,
BlackRock Investment Management (UK) Limited - 020 7743 5284
Vincent Devlin, Fund Manager,
BlackRock Investment Management (UK) Limited - 020 7743 3000
Emma Phillips, Media & Communications,
BlackRock Investment Management (UK) Limited - 020 7743 2922
Chairman's statement
In my first half yearly report to you as Chairman, I am pleased to be able to
report further growth in the Company's net asset value (NAV) per share over the
six month period to 28 February 2014. For the first time we are declaring an
interim dividend.
Overview
European markets delivered positive returns in the autumn of 2013, rounding off
the best calendar year for Europe since 2009. Economic conditions showed signs
of improvement, with increased business and consumer confidence, a relatively
stable political environment and some easing in austerity measures put in place
after the financial crisis. Data for the Euro area continued to improve into
2014 and with increased business confidence and stabilising inflation, the
European Central Bank recently opted to leave interest rates unchanged.
Less positively, despite the growing optimism in developed markets, emerging
European equities remained out of favour during the period amid concerns that
the 'tapering' of the US Federal Reserve's bond buying programme would lead to
reduced support for all emerging markets. This, combined with political
uncertainty, slowing growth and fears of higher interest rates, led to
considerable volatility. Countries with significant current account deficits
and more dependent on external financing, such as Turkey, fared particularly
badly and towards the end of the period growing turmoil in Ukraine also
contributed to reduced investor appetite.
Performance
During the six month period, the Company's undiluted NAV per share returned
11.5%, compared with a return of 11.3% in the FTSE World Europe ex UK Index.
The Company's share price returned 10.6% over the same period (all percentages
calculated in sterling terms with income reinvested).
Since the period end, the Company's undiluted NAV has declined by 3.3%
compared with a fall in the FTSE World Europe ex UK Index of 0.8% over the
same period.
Earnings and dividend
Revenue earnings per share for the period to 28 February 2014 amounted to
0.10p (2013: 0.54p). The net revenue return for the six months ended
28 February 2013 included one-off special dividend receipts of £570,000. No
special dividends were received during the six months ended 28 February 2014.
Given the growth in earnings in recent years we are proposing that, in
future, the Company pays both an interim and a final dividend. Accordingly, I am
pleased to report that the Board has declared an interim dividend of 1.50p per
share. This dividend will be paid on 30 May 2014 to shareholders on the
register on 2 May 2014; the ex-dividend date is 30 April 2014.
Tender offers
The Directors exercised their discretion to operate the half yearly tender
offer on 30 November 2013, which in common with previous tender offers was for
up to 20% of the shares in issue at the prevailing NAV less 2%. Valid tenders
for 2,627,623 shares were received at a price of 240.27p per share,
representing 2.39% of the shares in issue excluding treasury shares. All shares
tendered in November were repurchased by the Company and cancelled. In
addition, 88,677 shares previously held in treasury were cancelled in line with
the Directors' policy to limit the number of treasury shares to 5% of the
ordinary shares in issue at such time.
The Directors announced on 24 March 2014 that they had decided not to implement
a semi-annual tender offer in May 2014 as the shares had traded at an average
discount to NAV of 2.2% over the six month period to 28 February 2014. Taking
into consideration the tight discount and the costs of the exercise, the Board
concluded that it was not in the interests of shareholders as a whole to
operate the tender. However, it remains the Board's intention to offer
shareholders the opportunity to tender shares on a regular basis when the Board
believes that it is in shareholders' interests to do so.
Treasury shares
During the period, 100,000 ordinary shares held in treasury have been
subsequently reissued at a discount of less than 2% to the prevailing NAV per
ordinary share. Since the period end, a further 100,000 ordinary shares were
issued from treasury on similar terms. Total proceeds (before broker commission)
amounted to £499,000.
Subscription shares
A total of 23,254,813 subscription shares were allotted to shareholders in
April 2013 by way of a bonus issue. Following three conversions of the
subscription shares since the bonus issue, the Company has issued 1,354,737
ordinary shares. Total proceeds amounted to £3,157,000. The Company currently
has 107,575,830 ordinary shares (excluding treasury shares) and 21,900,076
subscription shares in issue.
Subscription share rights conferred by the subscription shares are exercisable
quarterly on the last business day of January, April, July and October up to
the last business day in April 2016, after which the subscription share rights
will lapse. The detailed terms and conditions of the subscription shares are
set out in the combined Prospectus and Circular dated 25 March 2013.
Subscription shareholders have one final opportunity to subscribe for all of or
any of the ordinary shares to which their subscription shares relate on
30 April 2014 at a price of 233p per share. Thereafter, the exercise price will
rise to 248p per share. A reminder letter was posted to subscription
shareholders on 31 March 2014.
The ordinary shares resulting from the exercise of the subscription share rights
on 30 April 2014, will not qualify for the interim dividend payment.
Facilitating retail investments
The Company currently conducts its affairs so that its securities can be
recommended by independent financial advisers to ordinary retail investors in
accordance with the Financial Conduct Authority (FCA) rules in relation to
non-mainstream investment products and intends to continue to do so for the
foreseeable future. The securities are excluded from the FCA's restrictions
which apply to non-mainstream investment products because they are shares in an
investment trust.
Outlook
Russia's military ventures in Ukraine are likely to cast a blight over
emerging European markets and further afield. Russia has promised to respond to
any sanctions proposed by Western nations with economic sanctions of her own,
actions that could inflict real damage on the economies of its near neighbours.
Meanwhile, further 'tapering' of the 'quantitative easing', or bond purchasing
programme, underway in the US could yet unsettle all financial markets, as
there is no precedent for the withdrawal of central bank support on this scale.
A stronger Euro and fears of deflation taking hold could also prove tough
headwinds for many European companies, although the European Central Bank has a
number of options at its disposal to loosen monetary conditions further and
combat the risks of low growth and deflation, should it choose to use them.
More encouragingly, sentiment towards the developed European markets has
improved markedly over the last six months, boosted by investor inflows. In
historical terms, European equities are attractively priced compared with
other markets around the world and the potential for positive earnings
momentum remains.
Carol Ferguson
17 April 2014
Interim management report and responsibility statement
The Chairman's Statement and the Investment Manager's Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into various areas as
follows:
- Performance;
- Income/dividend;
- Regulatory;
- Operational;
- Market;
- Financial;
- Gearing; and
- Third party.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended
31 August 2013. A detailed explanation can be found in the Directors' Report
on pages 13 and 14 and in note 18 on pages 42 to 47 of the Annual Report and
Financial Statements which are available on the website maintained by the
Investment Manager, BlackRock Investment Management (UK) Limited, at
blackrock.co.uk/brge.
In the Board's opinion, an additional uncertainty to those outlined in the
Annual Report and Financial Statements now exists. As at the date of this
document, it is unclear to what extent events in Ukraine will impact Europe
as a whole.
Related party disclosure and transactions with Investment Manager
The Investment Manager is regarded under the Listing Rules as a related party
and details of the management and marketing fees payable are set out in note 4
and note 10. The related party transactions with the Directors are set out in
note 9.
Going concern
The Directors are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
For this reason, they continue to adopt the going concern basis in preparing
the financial statements. The Company has a portfolio of investments which are
considered to be readily realisable and is able to meet all of its liabilities
from its assets and income generated from these assets.
Directors' responsibility statement
The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require
the Directors to confirm their responsibilities in relation to the preparation
and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
- the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with applicable UK
Accounting Standards and the Accounting Standards Board's Statement 'Half
Yearly Financial Reports'; and
- the Interim Management Report, together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information
required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency
Rules.
This half yearly financial report has not been audited or reviewed by the
Company's auditor.
The half yearly financial report was approved by the Board on 17 April 2014 and
the above responsibility statement was signed on its behalf by the Chairman.
Carol Ferguson
For and on behalf of the Board
17 April 2014
Investment manager's report
Overview
The Company's share price and underlying NAV gained over the last six months to
28 February 2014. In the six month period, the Company's share price returned
10.6% and the underlying NAV 11.5%. By way of comparison, the FTSE World
Europe ex UK Index returned 11.3% (all percentages calculated in sterling terms
with income reinvested).
European markets delivered strong returns in the latter half of 2013 rounding
off the best calendar year for European equities since 2009. Whilst 2014
started off at a sluggish pace with January delivering a negative return, this
was offset in February with the best return since the summer of 2013.
The European market was able to move upwards in the latter half of 2013 as the
political environment became relatively benign, economies began to show signs
of improvement and austerity measures began to ease. However, emerging
economies suffered during the period after the US Federal Reserve mentioned the
potential for the US to begin reducing the rate of their asset purchase
programme. This particularly affected countries with significant current
account deficits such as Turkey. However, this was somewhat overshadowed by the
ongoing events in Ukraine which led to the Russian market seeing a large
sell-off.
Portfolio activity
Sector allocation was the main driver of the Company's portfolio performance
during the period, especially taking the decision to have a low exposure to the
oil & gas sector and a high exposure to the financial sector. Stock selection
detracted overall as the strong returns made in the consumer goods and health
care sectors were offset by stock selection in financials and consumer
services. The portfolio also benefited from the use of gearing during the
period.
Within consumer goods, positions in the auto sector performed well, especially
German tyre and auto part manufacturer Continental and French car manufacturer
Renault, as the European autos market strengthened and the demand for cars
improved globally. Also, within consumer goods, a position in Danish jeweller
Pandora performed well as its declining raw material costs continued to help
margins and it saw growing sales.
Within health care, a position in Danish diabetes treatment company Novo
Nordisk and Spanish plasma specialist Grifols, performed notably. Novo Nordisk
reported solid earnings and benefited from the news that a competitor's new
rival drug has not demonstrated any improved efficiencies over its own product
offering. Grifols performed well after announcing strong results and the
acquisition of a blood diagnostic unit from Swiss health care company Novartis.
The purchase of the unit will help expand the company's core plasma business.
The Company's financial holdings including Société Générale, KBC, Commerzbank
and ING were all top performing stocks over the period. However, positions in
Turkish banks Garanti Bankasi and Halk Bankasi, along with Russian bank
Sberbank, offset these returns. As emerging markets suffered on the
back of the discussion around US tapering, Turkey in particular saw a material
market sell-off and its currency lost significant value. The ongoing
political situation in the Ukraine has also caused Russian stocks to lose value
as investors move out of the market. Other notably poor performers over the
period have been stocks with high emerging market exposure such as Remy
Cointreau, which derives a significant amount of its revenue from China.
Positions in Russian oil & gas company Gazprom and Hungarian bank OTP Bank also
detracted from performance.
At the end of the period, the portfolio was particularly weighted towards
positions in the consumer services, financial and health care sectors. The
portfolio had lower exposure to the basic materials, oil & gas, consumer goods,
telecoms, utilities, industrials and technology sectors.
Outlook
Events in Ukraine have dominated the headlines. The political turmoil comes at
a time when the macroeconomic environment in Russia, which is one of sluggish
growth, looks set to continue. Sanctions in their current form are unlikely to
have a significant impact on the earnings of listed Russian companies. That said,
geo-political risk has risen and valuations in Russia are adjusting to reflect
this.
Nevertheless, the general outlook for Europe continues to improve, with growing
evidence of a European economic recovery. Economic conditions are showing signs
of improvement; public policy and political uncertainties have eased and the
Eurozone has passed the peak of austerity measures. The fly in the ointment
remains the ability of corporates to improve profits. However, lower labour and
input costs combined with economic momentum should provide the much needed
impetus following a prolonged period of falling profits. We expect equity
markets to provide a return of 10% to 12% this year given the potential for
positive earnings surprise, valuation and dividend attractions and investors
returning to European equities. However, it is worth reminding ourselves that
there is risk surrounding any scenario. The recovery in Europe remains fragile
and while much progress has been made in unifying the banking system, banking
stress tests and lack of credit may hinder economic recovery. European
elections could also bring in some increased volatility but are unlikely to
have a significant impact on future Eurozone policies.
Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
17 April 2014
Ten largest investments
28 February 2014
Roche - 6.6% (2013: 6.1%) is a Swiss pharmaceuticals and diagnostics company
with global exposure. Roche has gone through a period of strong growth but has
now transitioned to focusing on profitability and improving shareholder
returns. Continued cost control, combined with a growing and attractive
dividend yield and a strong pipeline of drugs coming to market, make this an
attractive investment case.
Novo Nordisk - 4.2% (2013: 3.4%) is a Danish pharmaceuticals company and the
dominant global franchise in diabetes treatment. The company has high levels of
market share in Asia ex-Japan, which is a rapidly growing market for insulin
demand, and we believe that the company has significant potential to continue
its track record of delivering double-digit earnings growth per year for the
foreseeable future.
Bayer - 3.9% (2013: 3.3%) is a German company with divisions in health care,
nutrition and high-tech materials. The company offers strong growth over the
next 3 to 5 years, especially within its pharmaceuticals and crop science
businesses fuelled by new products coming to market. The company also trades at
a discount to the sector average and offers an attractive free cash flow
profile.
Société Générale - 3.4% (2013: 2.0%) is a French banking and financial services
company, split into three divisions: retail banking, specialised financial
services and corporate & investment banking. The company offers a significant
market share in an oligopolistic retail market and is attractively valued on a
medium term view.
Zurich Insurance Group - 3.2% (2013: 3.0%) is a Swiss-based insurance company.
The company is relatively defensive when compared to the broad insurance sector
due to its exposure to non-life products and has a resilient balance sheet in
our view. The company also offers a high and stable dividend yield paid net of
withholding tax and has a solid management team.
ING - 3.0% (2013: 1.9%) is a Dutch banking and financial services company with
its primary businesses being retail banking, commercial banking, investment
banking, direct banking, asset management and insurance. The company has been
undergoing a restructuring process to dispose of several insurance assets
focusing more on its banking divisions. The company is attractively priced with
further upside potential as the macro environment improves and interest rates
start to rise.
Adecco - 2.7% (2013: nil) is a Swiss-based human resource consulting company.
The company has been a beneficiary of the improving macro environment in
Europe and particularly Germany, where it has a strong presence and the macro
environment has recovered as many businesses begin to hire temporary staff.
Deutsche Post - 2.7% (2013: 2.0%) is a German-based courier and mail business.
The company has undergone several years of heavy investment and restructuring
costs and is now starting to produce strong cash flow conversion. The express
parcel business has been growing steadily, although e-commerce is still
immature in Germany so there is significant potential for this business to grow
in the future.
Continental - 2.7% (2013: 3.4%) is a German auto supplier. We believe it is one
of the highest quality large cap auto-related stocks in Europe and is able to
benefit from the 'mega trends' of CO2 emission reduction and active safety in
the global car market. The company is priced at a very attractive valuation
given the potential growth rate and could benefit from a rebound in the
depressed European car market.
Publicis - 2.6% (2013: nil) is a French advertising and public relations
company. It announced it would merge with Omnicom in July 2013. This merger
provides better synergies and offers a whole range of services to clients
putting the company ahead of the curve as it brings technology, data and
creativity into one company. It has a leading global market share and is in a
prime position with the infrastructure to respond to further technological
change and respond to clients' needs.
All percentages reflect the value of the holding as a percentage of total
investments. Percentages in brackets represent the value of the holding as at
31 August 2013. Together, the ten largest investments represent 35.0% of the
Company's portfolio (ten largest investments at 31 August 2013: 36.1%).
Investments
28 February 2014
Country of Market value % of
operation £'000 investments
Financials
Société Générale France 9,287 3.4
Zurich Insurance Group Switzerland 8,752 3.2
ING Netherlands 8,266 3.0
Swiss Re Switzerland 6,654 2.4
KBC Belgium 6,551 2.4
Nordea Bank Sweden 6,291 2.3
AXA France 5,553 2.0
Türkiye Garanti Bankasi Turkey 4,820 1.8
Sberbank Russia 4,605 1.7
Unibail-Rodamco France 4,277 1.6
Commerzbank Germany 4,086 1.5
Partners Group Switzerland 3,269 1.2
OTP Bank Hungary 2,854 1.1
Türkiye Halk Bankasi Turkey 2,749 1.0
GAM Switzerland 2,278 0.8
Cembra Money Bank Switzerland 1,622 0.6
Azimut Italy 828 0.3
-------- --------
82,742 30.3
-------- --------
Health Care
Roche Switzerland 17,914 6.6
Novo Nordisk Denmark 11,434 4.2
Sanofi France 6,809 2.5
GN Store Nord Denmark 4,660 1.7
Grifols Spain 4,280 1.5
-------- --------
45,097 16.5
-------- --------
Industrials
Adecco Switzerland 7,498 2.7
Deutsche Post Germany 7,241 2.7
Airbus Netherlands 6,992 2.6
Assa Abloy Sweden 4,291 1.6
Koninklijke Boskalis Westminster Netherlands 4,165 1.5
CTT - Correios de Portugal Portugal 3,868 1.4
Hexagon Sweden 3,620 1.3
Geberit Switzerland 3,032 1.1
-------- --------
40,707 14.9
-------- --------
Consumer Goods
Continental Germany 7,149 2.7
Renault France 6,590 2.4
Anheuser-Busch InBev Belgium 4,951 1.8
Beiersdorf Germany 4,102 1.5
BMW Germany 3,930 1.4
Pandora Denmark 3,245 1.2
OSRAM Licht Germany 3,202 1.2
Norma Germany 2,773 1.0
Autoliv Sweden 2,695 1.0
-------- --------
38,637 14.2
-------- --------
Consumer Services
Publicis France 7,144 2.6
Ryanair Ireland 6,397 2.3
Reed Elsevier Netherlands 6,099 2.3
Ahold Netherlands 4,209 1.5
ProSiebenSat.1 Media Germany 4,000 1.5
Jerónimo Martins Portugal 3,274 1.2
Inditex Spain 2,205 0.8
Kuoni Reisen Switzerland 1,276 0.5
-------- --------
34,604 12.7
-------- --------
Technology
ASML Netherlands 4,891 1.8
Capgemini France 3,485 1.3
Yandex Netherlands 2,495 0.9
-------- --------
10,871 4.0
-------- --------
Basic Materials
Bayer Germany 10,606 3.9
-------- --------
10,606 3.9
-------- --------
Utilities
GDF SUEZ France 5,878 2.2
-------- --------
5,878 2.2
-------- --------
Oil & Gas
Gazprom Russia 3,517 1.3
-------- --------
3,517 1.3
-------- --------
Total investments 272,659 100.0
======== ========
All investments are in ordinary shares unless otherwise stated. The total
number of investments held at 28 February 2014 was 53 (31 August 2013: 53).
Income statement
for the six months ended 28 February 2014
Revenue £'000 Capital £'000 Total £'000
Six months Year Six months Year Six months Year
ended ended ended ended ended ended
Notes 28.02.14 28.02.13 31.08.13 28.02.14 28.02.13 31.08.13 28.02.14 28.02.13 31.08.13
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains on
investments
held at
fair value
through
profit or
loss - - - 30,502 57,784 57,436 30,502 57,784 57,436
Income from
investments
held at
fair value
through
profit or
loss 3 711 1,220 9,181 - - - 711 1,220 9,181
Investment
management
and
performance
fees 4 (182) (164) (339) (1,377) (1,816) (2,492) (1,559) (1,980) (2,831)
Operating
expenses 5 (330) (350) (688) - - - (330) (350) (688)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return
before
finance
costs and
taxation 199 706 8,154 29,125 55,968 54,944 29,324 56,674 63,098
Finance
costs (14) (10) (26) (54) (39) (105) (68) (49) (131)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return
on
ordinary
activities
before
taxation 185 696 8,128 29,071 55,929 54,839 29,256 56,625 62,967
Taxation
on
ordinary
activities (78) (60) (833) - - (15) (78) (60) (848)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return on
ordinary
activities
after
taxation 7 107 636 7,295 29,071 55,929 54,824 29,178 56,565 62,119
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return per
ordinary
share
- basic 7 0.10p 0.54p 6.32p 26.88p 47.29p 47.50p 26.98p 47.83p 53.82p
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return per
ordinary
share
- diluted 7 0.10p 0.54p 6.32p 26.72p 47.29p 47.50p 26.82p 47.83p 53.82p
-------- -------- -------- -------- -------- -------- -------- -------- --------
The total column of this statement represents the profit or loss of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies (AIC). The
Company had no recognised gains or losses other than those disclosed in the
Income Statement and the Reconciliation of Movements in Shareholders' Funds.
All items in the above statement derive from continuing operations.
There is no material difference between the profit on ordinary activities
before taxation and the profit for the financial year stated above and their
historical cost equivalents.
Reconciliation of movements in shareholders' funds
for the six months ended 28 February 2014 and comparative periods
Called-up Share Capital
share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
For the six months
ended 28 February
2014 (unaudited)
At 31 August 2013 138 55,672 102 27,660 158,879 12,490 254,941
Return for the period - - - - 29,071 107 29,178
Exercise of
subscription shares - 2,968 - - - - 2,968
Issue of ordinary
shares held in
treasury - 25 - 219 - - 244
Ordinary shares
purchased into
treasury - - - (6,310) - - (6,310)
Cancellation of
treasury shares (3) - 3 - - - -
Share purchase costs - - - (132) - - (132)
Dividend paid* - - - - - (5,979) (5,979)
------- -------- -------- -------- -------- -------- --------
At 28 February 2014 135 58,665 105 21,437 187,950 6,618 274,910
------- -------- -------- -------- -------- -------- --------
For the six months
ended 28 February
2013 (unaudited)
At 31 August 2012 148 53,420 68 55,124 104,055 10,226 223,041
Return for the period - - - - 55,929 636 56,565
Exercise of
subscription shares - 2,111 - - - - 2,111
Cancellation of
subscription shares (22) - - - 22 - -
Ordinary shares
purchased into
treasury - - - (9,080) - - (9,080)
Cancellation of
treasury shares (4) - 4 - - - -
Share purchase costs - - - (132) - - (132)
Dividend paid* - - - - - (5,031) (5,031)
-------- -------- -------- -------- -------- -------- --------
At 28 February 2013 122 55,531 72 45,912 160,006 5,831 267,474
-------- -------- -------- -------- -------- -------- --------
For the year ended 31
August 2013 (audited)
At 31 August 2012 148 53,420 68 55,124 104,055 10,226 223,041
Return for the year - - - - 54,824 7,295 62,119
Ordinary shares
purchased - - - (26,839) - - (26,839)
Exercise of 2010 and
2013 subscription
shares - 2,276 - - - - 2,276
Bonus issue of 2013
subscription shares 24 (24) - - - - -
Cancellation of
treasury shares (12) - 12 - - - -
2010 subscription
shares expired (22) - 22 - - - -
Share purchase costs - - - (625) - - (625)
Dividend paid** - - - - - (5,031) (5,031)
-------- -------- -------- -------- -------- -------- --------
At 31 August 2013 138 55,672 102 27,660 158,879 12,490 254,941
======= ======= ======= ======= ======= ======= =======
* In respect of the year ended 31 August 2013 a final dividend of 4.50p per
share and a special dividend of 1.00p per share were declared on
21 October 2013 and paid on 13 December 2013.
** Final dividend in respect of the year ended 31 August 2012 of 4.20p per
share was declared on 10 October 2012 and paid on 7 December 2012.
The transaction costs incurred on the acquisition and disposal of investments
are included within the capital reserves and amounted to £312,000 for the six
months ended 28 February 2014 (six months ended 28 February 2013: £352,000;
year ended 31 August 2013: £865,000).
Balance sheet
as at 28 February 2014
28 February 28 February 31 August
2014 2013 2013
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Fixed assets
Investments held at fair value
through profit or loss 272,659 271,607 268,376
======= ======= =======
Current assets
Debtors 7,540 748 1,226
Cash at bank and in hand 1 - -
-------- -------- --------
7,541 748 1,226
-------- -------- --------
Creditors - amounts falling due
within one year
Bank overdraft (1,277) (1,455) (10,840)
Other creditors (4,013) (3,426) (3,821)
-------- -------- --------
(5,290) (4,881) (14,661)
-------- -------- --------
Net current assets/(liabilities) 2,251 (4,133) (13,435)
-------- -------- --------
Net assets 274,910 267,474 254,941
======= ======= =======
Capital and reserves
Called-up share capital 8 135 122 138
Share premium account 58,665 55,531 55,672
Capital redemption reserve 105 72 102
Special reserve 21,437 45,912 27,660
Capital reserves 187,950 160,006 158,879
Revenue reserve 6,618 5,831 12,490
-------- -------- --------
Total equity shareholders' funds 274,910 267,474 254,941
======= ======= =======
Net asset value per share -
undiluted 7 255.79p 230.02p 234.49p
======= ======= =======
Net asset value per share -
diluted 7 251.93p 230.02p 234.23p
======= ======= =======
Summarised cash flow statement
for the six months ended 28 February 2014
Six months Six months
ended ended Year ended
28 February 28 February 31 August
2014 2013 2013
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash (outflow)/inflow from operating
activities (845) (672) 4,725
Servicing of finance (68) (64) (131)
Taxation refunded 295 - 218
======= ======= =======
Capital expenditure and financial
investment
Purchase of investments (123,970) (127,774) (287,717)
Proceeds from sale of investments 143,246 161,291 324,588
Realised gains/(losses) on foreign
currency transactions 453 (197) (801)
-------- -------- --------
Net cash inflow from capital expenditure
and financial investment 19,729 33,320 36,070
-------- -------- --------
Equity dividends paid (5,979) (5,031) (5,031)
-------- -------- --------
Net cash inflow before financing 13,132 27,553 35,851
-------- -------- --------
Financing
Purchase of ordinary shares (6,427) (9,080) (26,839)
Exercise of subscription shares 2,968 2,111 -
Proceeds from issue of ordinary shares
out of treasury 244 - 2,276
Net proceeds/(costs) from issue of
ordinary shares to acquire Charter
European Trust plc's investment portfolio 50 (75) (75)
Share purchase costs paid (404) (55) (144)
-------- -------- --------
Net cash outflow from financing (3,569) (7,099) (24,782)
-------- -------- --------
Increase in cash 9,563 20,454 11,069
======= ======= =======
Reconciliation of net return before finance costs and taxation to net cash flow
from operating activities
Six months Six months
ended ended Year ended
28 February 28 February 31 August
2014 2013 2013
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net return before finance costs and
taxation 29,324 56,674 63,098
Less: Capital return before finance costs
and taxation (29,125) (55,968) (54,944)
-------- -------- --------
Net revenue return before finance costs
and taxation 199 706 8,154
Expenses charged to capital (1,377) (1,816) (2,507)
Decrease/(increase) in accrued income 98 114 (24)
Decrease in other debtors - 3 4
Increase in other creditors 313 381 468
Tax on investment income included within
gross income (78) (60) (1,370)
-------- -------- --------
Net cash (outflow)/inflow from operating
activities (845) (672) 4,725
======= ======= =======
Notes to the financial statements
for the six months ended 28 February 2014
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. Basis of preparation
The half yearly financial statements have been prepared on the basis of the
accounting policies set out in the Company's financial statements at
31 August 2013.
The financial statements have been prepared on a going concern basis on the
historical cost basis of accounting, modified to include the revaluation of
fixed asset investments in accordance with the Companies Act 2006, UK Generally
Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended
Practice (SORP) for investment trusts and venture capital trusts issued by the
Association of Investment Companies, revised in January 2009.
3. Income
Six months Six months Year
ended ended ended
28 February 28 February 31 August
2014 2013 2013
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment income:
Overseas dividends 711 1,220 9,181
-------- -------- --------
Total 711 1,220 9,181
======= ======= =======
4. Investment management and performance fees
Six months ended Six months ended Year ended
28 February 2014 28 February 2013 31 August 2013
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
management
fees 182 730 912 164 656 820 339 1,355 1,694
Performance
fees - 647 647 - 1,160 1,160 - 1,137 1,137
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 182 1,377 1,559 164 1,816 1,980 339 2,492 2,831
======= ======= ======= ======= ======= ======= ======= ======= =======
The investment management fee is levied quarterly, based on the value of the
market capitalisation of the Company's ordinary shares on the last day of each
month. The investment management fee is allocated 80% to the capital reserves
and 20% to the revenue reserve.
A performance fee has been accrued of £647,000 for the six months ended
28 February 2014 (six months ended 28 February 2013: £1,160,000; year ended
31 August 2013: £1,137,000). The performance fee accrued at 28 February 2014
is based on the outperformance of the Company's share price relative to the
FTSE World Europe ex UK Index over a three year rolling period.
5. Operating expenses
Six months Six months Year
ended ended ended
28 February 28 February 31 August
2014 2013 2013
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Custody fee 18 18 37
Other administration costs 312 332 651
-------- -------- --------
330 350 688
======= ======= =======
6. Dividend
The Board has declared an interim dividend of 1.50p per share for the period
ended 28 February 2014 payable on 30 May 2014 to shareholders on the register
on 2 May 2014. The total cost of the dividend based on 107,575,830 ordinary
shares in issue at 17 April 2014 is £1,614,000 (28 February 2013: £nil).
7. Return and net asset value per ordinary share
28 February 28 February 31 August
2014 2013 2013
(unaudited) (unaudited) (audited)
Net revenue return attributable to
ordinary shareholders (£'000) 107 636 7,295
Net capital return attributable to
ordinary shareholders (£'000) 29,071 55,929 54,824
-------- -------- --------
Total return (£'000) 29,178 56,565 62,119
-------- -------- --------
Equity shareholders' funds (£'000) 274,910 267,474 254,941
-------- -------- --------
The weighted average number of ordinary
shares in issue during the period on
which the undiluted return per ordinary
share was calculated was: 108,165,496 118,266,456 115,410,120
----------- ----------- -----------
The actual number of ordinary shares in
issue at the end of each period on
which the undiluted net asset value was
calculated was: 107,475,830 116,285,355 108,719,211
----------- ----------- -----------
Return per share
Undiluted
Calculated on weighted average number
of shares
Revenue return 0.10p 0.54p 6.32p
Capital return 26.88p 47.29p 47.50p
-------- -------- --------
Total 26.98p 47.83p 53.82p
-------- -------- --------
Net asset value per share - undiluted 255.79p 230.02p 234.49p
-------- -------- --------
Calculated on actual number of shares
Revenue return 0.10p 0.55p 6.71p
Capital return 27.05p 48.09p 50.43p
-------- -------- --------
Total 27.15p 48.64p 57.14p
-------- -------- --------
Return per share
Diluted
The weighted average number of ordinary
shares in issue during the period on
which the diluted return per ordinary
share was calculated was: 108,773,546 118,266,456 115,410,120
----------- ----------- -----------
The actual number of ordinary shares in
issue, including subscription shares,
at the end of each period on which the
fully diluted net asset value was
calculated was: 129,375,906 116,285,355 131,903,529
----------- ----------- -----------
Calculated on weighted average number
of shares
Revenue return 0.10p 0.54p 6.32p
Capital return 26.72p 47.29p 47.50p
-------- -------- --------
Total 26.82p 47.83p 53.82p
Net asset value per share - diluted 251.93p 230.02p 234.23p
======= ======= =======
Dilution for subscription shares is assessed at the reporting date and over the
duration of the reporting period. A diluted NAV is calculated to the extent
that the period end NAV and the mid-market closing share price are both above
the exercise price for the subscription shares. Diluted returns are calculated
where, over the reporting period, the mid-market closing share price is above
the subscription share exercise price.
The diluted NAV per share at 28 February 2014 and 31 August 2013 is calculated
by adjusting equity shareholders' funds for the consideration receivable on the
exercise of the subscription shares (six months ended 28 February 2014:
21,900,076; year ended 31 August 2013: 23,184,318) at the exercise price of
233p per share and dividing by the total number of shares that would have been
in issue at those dates had all the subscription shares been exercised.
Diluted returns per share for a reporting period are calculated using the
weighted average number of subscription shares in issue and the notional
equivalent number of ordinary shares based on the average mid-market closing
prices during the reporting period.
At 28 February 2014, the Company had 5,529,676 shares held in treasury. The
treasury shares will not have a dilutive effect if they are cancelled. The
Company's policy on issuing treasury shares, set out on page 18 of the Annual
Report for the year ended 31 August 2013, permits the Board of Directors to
sell treasury shares at a price below NAV in certain circumstances. As a result
this would have a dilutive effect.
8. Share capital and shares held in treasury
Number of Number of Number of
ordinary treasury subscription Nominal
shares shares shares value
in issue in issue in issue Total £
Allotted, called up
and fully paid share
capital comprised:
Ordinary shares of
0.1p each:
At 1 September 2013 108,719,211 5,718,353 - 114,437,564 114,438
Shares repurchased
and cancelled
pursuant to tender
offer on 9 December
2013 (2,627,623) - - (2,627,623) (2,627)
Cancellation of
treasury shares - (88,677) - (88,677) (89)
Issue of shares out
of treasury on
14 February 2014 100,000 (100,000) - - -
----------- --------- -------- ----------- --------
106,191,588 5,529,676 - 111,721,264 111,722
Subscription shares
of 0.1p each:
At 1 September 2013 - - 23,184,318 23,184,318 23,184
Conversion of
subscription shares
into ordinary shares 1,284,242 - (1,284,242) - -
----------- --------- ---------- ----------- -------
At 28 February 2014 107,475,830 5,529,676 21,900,076 134,905,582 134,906
=========== ========= ========== =========== =======
On 4 April 2014, the Company issued 100,000 ordinary shares from the shares held in
treasury for net proceeds of £252,000.
9. Related party disclosure
The Board consists of four non-executive Directors, all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. The Chairman receives an annual fee of £33,000, the Chairman
of the Audit and Management Engagement Committee receives an annual fee of
£27,500 and each other Director receives an annual fee of £23,000.
Three members of the Board hold shares in the Company. Carol Ferguson holds
48,000 ordinary shares and 9,600 subscription shares, Gerald Holtham holds
13,320 ordinary shares and Eric Sanderson holds 4,000 ordinary shares. Davina
Curling does not hold any shares in the Company.
10. Transactions with the Investment Manager
BlackRock Investment Management (UK) Limited (BlackRock) provides management
and administration services to the Company under a contract which is terminable
on six months' notice. BlackRock receives an annual fee in relation to these
services of 0.70% of market value plus a performance fee of 15% of any
outperformance of the FTSE World Europe ex UK Index, up to a maximum total
investment management fee of 1.15%. Where the Company invests in other
investments or cash funds managed by BlackRock, any underlying fee charged is
rebated.
The investment management and performance fees for the six months ended
28 February 2014 were £1,559,000 (six months ended 28 February 2013: £1,980,000;
year ended 31 August 2013: £2,831,000). At the period end, an amount of
£2,050,000 (excluding the 2013 performance fee accrual) was outstanding in
respect of the investment management and performance fees (28 February 2013:
£2,341,000; 31 August 2013: £2,011,000).
In addition to the above services, with effect from 1 November 2013, BlackRock
has provided the Company with marketing services. The total fees paid or
payable for these services for the period ended 28 February 2014 amounted to
£67,000 including VAT (six months ended 28 February 2013: nil; year ended
31 August 2013: nil) of which £67,000 (28 February 2013: nil; 31 August 2013: nil)
was outstanding at 28 February 2014.
11. Contingent liabilities
There were no contingent liabilities at 28 February 2014 (28 February 2013: nil;
31 August 2013: nil).
12. Publication of non statutory accounts
The financial information contained in this half yearly report does not
constitute statutory accounts as defined in section 435 of the Companies Act
2006. The financial information for the six months ended 28 February 2014 and
28 February 2013 has not been audited.
The information for the year ended 31 August 2013 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies. The report of the auditor on those accounts contained
no qualification or statement under sections 498(2) or (3) of the Companies Act
2006.
13. Annual results
The Board expects to announce the annual results for the year ending
31 August 2014 as prepared under UK GAAP in late October 2014. Copies of the
results announcement can be obtained from the Secretary on 020 7743 3000. The
annual report should be available by the beginning of November 2014, with the
Annual General Meeting being held in December 2014.
12 Throgmorton Avenue
London
EC2N 2DL
e 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.
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