BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC
BlackRock Greater Europe Investment Trust plc
LEI: 5493003R8FJ6I76ZUW55
Annual results announcement
for the year ended 31 August 2017
FINANCIAL HIGHLIGHTS
As at As at
31 August 31 August Change
Attributable to ordinary shareholders 2017 2016 %
Assets
Net asset value per ordinary share 347.05p 287.43p +20.7
- with income reinvested** - - +23.0
Net assets (£'000)* 330,727 294,908 +12.1
Ordinary share price (mid-market) 328.00p 272.00p +20.6
- with income reinvested** - - +22.9
======== ======== ========
For the year For the year
ended ended
31 August 31 August Change
2017 2016 %
Revenue
Net profit return after taxation (£ 5,172 5,782 -10.5
'000)
Revenue profit per ordinary share - 5.33p 5.60p -4.8
basic and diluted
======== ======== ========
* The change in net assets reflects the tender offer implemented in the
year, buyback of shares into treasury and market movements.
** Net asset value and share price performance include the dividend
reinvestments
CHAIRMAN'S STATEMENT
I am pleased to present my first annual statement to you since becoming
Chairman last November.
PERFORMANCE OVERVIEW
The European economy began to show signs of a slow but steady recovery in the
fourth quarter of 2016 and, with a number of leading economic indicators
showing strong improvement during 2017, years of investor pessimism on Europe
have shifted towards cautious optimism. This positive sentiment was supported
by the European Central Bank maintaining its accommodative stance, as well as
the pro-European results of the French and German elections. The strength of
company earnings in the first half of the year has also been particularly
encouraging.
During the year to 31 August 2017, the Company's net asset value per share
(NAV) increased by 23.0%, compared with a rise of 26.0% in the FTSE World
Europe ex UK Index. The share price rose by 22.9% over the same period. (All
percentages calculated in sterling terms with income reinvested.) Returns for
UK investors were positively impacted by sterling weakness in the period under
review. However, notwithstanding that returns were positive, the Company lagged
behind the reference index in this period principally due to sector allocation
and stock selection. Further information is set out in the Investment Manager's
Report. Over the longer term, performance remains strong as set out in the
chart on page 3 of the Annual Report and Financial Statements.
Since the financial year end and up to close of business on 19 October 2017,
the Company's NAV per share has increased by 2.0% compared with a rise in the
FTSE World Europe ex UK Index of 1.3% over the same period.
REVENUE EARNINGS AND DIVIDENDS
The Company's revenue return per share for the year ended 31 August 2017
amounted to 5.33p per share, which compares with 5.60p per share for the
previous year, a decrease of 4.8%. This in part reflects the absence this year
of the one-off receipt of French withholding tax reclaims which was a feature
of earnings in the first half of 2016. In April the Board declared an interim
dividend of 1.75p per share (2016: 1.65p). The Board is proposing the payment
of a final dividend of 3.70p per share for the year (2016: 3.65p). This,
together with the interim dividend, makes a total dividend for the year of
5.45p per share (2016: 5.30p), an increase of 2.8%. Subject to shareholder
approval, the dividend will be paid on 8 December 2017 to shareholders on the
Company's register on 3 November 2017, the ex-dividend date being 2 November
2017.
DISCOUNT CONTROL AND TENDER OFFERS
The Board has the option to implement a tender offer in order to assist in
controlling the discount to NAV at which the shares are traded. In addition, it
will consider buying back shares in the market between tenders when it is
considered to be in the interests of shareholders to do so.
The Directors exercised their discretion to operate the half yearly tender
offer in November 2016, which in common with previous tenders, was for up to
20% of the ordinary shares in issue at the prevailing NAV. Valid tenders for
6,582,160 shares (6.45% of the shares in issue excluding treasury shares) were
received at a price of 272.08p per share. The Board concluded that it was not
in the interests of shareholders to implement the May semi-annual tender offer,
having taken into account the narrow discount and costs of the tender.
It was announced on 14 September 2017 that the next semi-annual tender offer
will take place on 30 November 2017. The tender offer will be for up to 20% of
the ordinary shares in issue (excluding treasury shares) at the prevailing cum
income fully diluted NAV per share, subject to a discount of 2%. A Circular
relating to the tender offer is enclosed with this Annual Report. The Circular
will be available on the BlackRock website at blackrock.co.uk/brge, and
additional copies may be requested from the Company's registered office c/o The
Secretary, BlackRock Greater Europe Investment Trust plc, 12 Throgmorton
Avenue, London EC2N 2DL.
In addition to the tender offer, during the year and up to the date of this
report, the Company has repurchased 725,000 ordinary shares in the market.
Resolutions to renew the Company's semi-annual tender offer and share buyback
authorities will be put to shareholders at the forthcoming Annual General
Meeting.
PORTFOLIO MANAGER CHANGE
The Board is pleased to report that Stefan Gries was appointed as co-portfolio
manager with effect from 20 June 2017. Mr Gries succeeds Vincent Devlin, who
co-managed the Company's portfolio from 31 July 2008.
Stefan joined BlackRock's European equity team in 2008, after previous roles at
Scottish Widows, Aberdeen Asset Management and Deutsche Bank. Sam Vecht will
continue as co-manager with particular responsibility for Emerging Europe.
Following this change the number of holdings in the portfolio has been reduced
to give emphasis to those holdings which the Portfolio Managers' believe offer
the best long term returns.
SECONDARY LISTING IN SOUTH AFRICA
The Company continues to explore the possibility of a secondary listing of its
shares on the Main Board of the Johannesburg Stock Exchange, whilst maintaining
its primary listing on the Main Market of the London Stock Exchange, and the
new Portfolio Manager has had a number of positive exploratory meetings with
potential investors in South Africa. Any issue of shares would fall within the
existing authorities granted by shareholders at last year's Annual General
Meeting. In the event that sufficient demand exists to make a secondary listing
worthwhile, a listing is planned for the end of November and the Company will
make an announcement in due course.
BOARD COMPOSITION
I am pleased to report that the Board appointed Dr Paola Subacchi as a
non-executive Director of the Company with effect from 27 July 2017. Paola also
serves as a member of the Company's Audit and Management Engagement Committee.
In accordance with the Company's Articles of Association, she will stand for
election at the forthcoming Annual General Meeting in November and her
biography can be found on page 17 of the Annual Report and Financial
Statements.
Having served on the Board since the Company's inception in 2004, with three of
the thirteen years as Chairman of the Company, Carol Ferguson will retire
following the conclusion of the Annual General Meeting. On behalf of the Board,
I would like to take this opportunity to thank Carol for her invaluable
contribution during her tenure and we wish her well for the future.
OUTLOOK
Europe's economy is enjoying a cyclical upswing, supported by an accommodative
European Central Bank and subdued inflation. Additionally, after several years
of stagnation, European companies have been reporting strong earnings, driven
by rising sales, and economic indicators show that growth may be sustainable.
Notwithstanding some continuing political uncertainty in certain
countries, positive economic and corporate results have underpinned the
attraction of European equities and the Euro and, following a protracted period
of outflows, investors appear to be responding to optimism over Europe's
prospects. As unemployment falls and business confidence grows, we believe that
the European recovery remains intact and retain our confidence that investors
will continue to increase weightings to this asset class.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at the offices of
BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 29 November
2017 at 12 noon. As in previous years, the Portfolio Managers will make a
presentation to shareholders on the Company's progress and the outlook for the
year ahead.
We, the Directors of your Company, regard the Annual General Meeting as the
most important meeting of the year and we encourage you to come along. We have
considered the resolutions proposed in the Notice of the Annual General Meeting
and believe that all are in the interests of shareholders as a whole. We
therefore recommend that you vote in favour of each resolution as we intend to
do in respect of our beneficial holdings.
ERIC SANDERSON
23 October 2017
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31
August 2017. The aim of the Strategic Report is to provide shareholders with
the information to assess how the Directors have performed their duty to
promote the success of the Company for the collective benefit of shareholders.
PRINCIPAL ACTIVITY
The Company carries on business as an investment trust and its principal
activity is portfolio investment. Investment trusts are pooled investment
vehicles which allow exposure to a diversified range of assets through a single
investment, thus spreading, although not eliminating, investment risk.
OBJECTIVE
The Company's objective is the achievement of capital growth, primarily through
investment in a focused portfolio constructed from a combination of the
securities of large, mid and small capitalisation European companies, together
with some investment in the developing markets of Europe. The Company will also
have the flexibility to invest in any country included in the FTSE World Europe
ex UK Index, as well as the freedom to invest in developing countries not
included in the Index but considered by the Manager and the Directors as part
of greater Europe.
STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
The Company invests in accordance with the investment objective. The Board is
collectively responsible to shareholders for the long term success of the
Company and is its governing body. There is a clear division of responsibility
between the Board and the Manager. Matters for the Board include setting the
Company's strategy, including its investment objective and policy, setting
limits on gearing, capital structure, governance, and appointing and monitoring
of performance of service providers, including the Manager.
Business model
The Company's business model follows that of an externally managed investment
trust. Therefore the Company does not have any employees and outsources its
activities to third party service providers including the Manager who is the
principal service provider. The management of the investment portfolio and the
administration of the Company have been contractually delegated to BlackRock
Fund Managers Limited (the Manager) who in turn (with the permission of the
Company) has delegated certain investment management and other ancillary
services to the Investment Manager. The Manager, operating under guidelines
determined by the Board, has direct responsibility for the decisions relating
to the day-to-day running of the Company and is accountable to the Board for
the investment, financial and operating performance of the Company.
Other service providers include the Depositary, currently BNY Mellon Trust &
Depositary (UK) Limited (BNYMTD). With effect from 1 November 2017, the role of
the Depositary will be transferred from BNYMTD to its parent company, The Bank
of New York Mellon (International) Limited. The Company delegates fund
accounting services to BlackRock Investment Management (UK) Limited (BIM (UK)
or the Investment Manager), which in turn sub-delegates these services to Bank
of New York Mellon (International) Limited. The Company delegates registration
services to the Registrar, Computershare Investor Services PLC.
Investment policy
The Company's policy is that the portfolio should consist of approximately
30-70 securities and the majority of the portfolio will be invested in larger
capitalisation companies, being companies with a market capitalisation of over
€5 billion. Up to 25% of the portfolio may be invested in companies in
developing Europe. The Company may also invest up to 5% of the portfolio in
unquoted investments. However, overall exposure to developing European
companies and unquoted investments will not in aggregate exceed 25% of the
Company's portfolio.
As at 31 August 2017, the Company held 35 investments and 7.6% of the portfolio
was invested in developing Europe. The Company had no unquoted investments.
Investment in developing European securities may be either direct or through
other funds, including those managed by BlackRock Fund Managers Limited,
subject to a maximum of 15% of the portfolio. Direct investment in Russia is
limited to 10% of the Company's assets. Investments may also include depositary
receipts or similar instruments representing underlying securities.
The Company also has the flexibility to invest up to 20% of the portfolio in
debt securities, such as convertible bonds and corporate bonds. No bonds were
held at 31 August 2017. The use of any derivative instruments such as financial
futures, options and warrants and the entering into of stock lending
arrangements will only be for the purposes of efficient portfolio management.
While the Company may hold shares in other investment companies (including
investment trusts), the Board has agreed that the Company will not invest more
than 15%, in aggregate, of its gross assets in other listed closed-ended
investment funds (save to the extent that such closed-ended investment funds
have published investment policies to invest no more than 15% of their total
assets in such other listed closed-ended investment funds).
The Company achieves an appropriate spread of risk by investing in a
diversified portfolio of securities.
The Investment Manager believes that appropriate use of gearing can add value
over time. This gearing typically is in the form of an overdraft facility which
can be repaid at any time. The level and benefit of any gearing is discussed
and agreed regularly by the Board. The Investment Manager generally aims to be
fully invested and it is anticipated that gearing will not exceed 15% of the
net asset value (NAV) at the time of draw down of the relevant borrowings. At
the balance sheet date the Company had net gearing of 1.2% (2016: 0.2%).
INVESTMENT PROCESS
The Investment Manager takes a bottom-up approach to investing, meaning
companies are analysed on an individual basis upon a number of qualitative and
quantitative measures. Research is comprehensive and collaborative, backed by a
team of 20 European Equity analysts and a further seven Emerging European
analysts who conduct over 1,200 company meetings a year.
Idea generation is the first step of the investment process and important in
ensuring that there is a continuous flow of new ideas entering the team's
proprietary research process. There is a structured approach to research, a
dedicated research coordinator, and a formal research pipeline to ensure that
efficient use is made of team resources and to prioritise research to take
advantage of the most promising investment opportunities.
As part of their research, the analyst will conduct a thorough industry and
company analysis using a range of valuation techniques depending on the company
and sector. Time is spent analysing a company's market dynamics, revenue
drivers, financial statements, valuations and risks to the central scenario.
The team also seek to understand the factors that influence a share price, as
well as what the market is anticipating or missing.
As part of the company analysis, the analyst completes a proprietary research
template which has been designed to capture all data relevant to the investment
case in a concise and consistent framework. This consistency drives focus on
debate and discussion and helps to ensure the investment case is robust.
Research on each company belongs to the analyst; however, portfolio
construction and investment decisions within the Company are entirely the
responsibility of the Investment Manager. Primary investment criteria the
Investment Manager looks for includes:
* Quality management
* Strong free cash flow conversion
* Options to invest in growth
* Unique aspects
We believe this focus on sustainable cash returns and unique franchises will
help concentrate the portfolio towards the best ideas delivered by the European
and Emerging European Equity teams and drive positive outcomes for our clients.
PERFORMANCE
In the year to 31 August 2017, the Company's NAV per share returned +23.0%
(compared with a return in the FTSE World Europe ex UK Index of +26.0%) and the
share price returned +22.9% (all percentages calculated in sterling terms with
income reinvested).
The Investment Manager's Report includes a review of the main developments
during the year, together with information on investment activity within the
Company's portfolio.
RESULTS AND DIVIDENDS
The results for the Company are set out in the Income Statement. The total
profit for the year, after taxation, was £61,227,000 (2016: £42,881,000). The
revenue return amounted to £5,172,000 (2016: £5,782,000) and relates to net
revenue earnings from dividends received during the year after adjusting for
expenses.
As explained in the Company's half yearly financial report, the Directors
declared an interim dividend of 1.75p per share (2016: 1.65p). The Directors
recommend the payment of a final dividend of 3.70p per share making a total
dividend of 5.45p per share (2016: 5.30p). Subject to approval at the
forthcoming Annual General Meeting, the dividend will be paid on 8 December
2017 to shareholders on the register of members at the close of business on 3
November 2017.
KEY PERFORMANCE INDICATORS
The Directors consider a number of performance measures to help assess the
Company's success in achieving its objectives. The key performance indicators
(KPIs) used to measure the progress and performance of the Company over time
and which are comparable to those reported by other investment trusts are set
out below.
As at As at
31 August 31 August
2017 2016
Net asset value per share 347.05p 287.43p
Net asset value total return1 +23.0% +16.9%
Share price 328.00p 272.00p
Share price total return1 +22.9% +13.8%
Discount to net asset value2 5.5% 5.4%
======== ========
Year ended Year ended
31 August 31 August
2017 2016
Revenue return per share 5.33p 5.60p
Ongoing charges*3 1.10% 1.07%
======== ========
1. This measures the Company's share price and NAV total return, which
assumes dividends paid by the Company have been reinvested.
2. This is the difference between the share price and the NAV per share with
debt at par. It is an indicator of the need for shares to be bought back or, in
the event of a premium to NAV per share, issued.
3. This data shows whether the Company is being run efficiently. It measures
the running costs as a percentage of average net assets.
* Ongoing charges (excluding interest costs and after any relief for
taxation) as a % of average shareholders' funds.
The Board monitors the above KPIs on a regular basis. Additionally, it
regularly reviews a number of indices and ratios to understand the impact on
the Company's relative performance of the various components such as asset
allocation and stock selection. The Board also assesses the Company's
performance against its peer group of investment trusts with similar investment
objectives.
DISCOUNT
The Directors recognise that it is in the long term interests of shareholders
that shares do not trade at a significant discount to their prevailing NAV. The
Board believes that this may be achieved through the use of regular tender
offers and the use of share buy back powers. In the year to 31 August 2017, the
Company's share price discount to NAV ranged from 2.4% to 9.5% calculated on an
undiluted cum income NAV.
PRINCIPAL RISKS
The key risks faced by the Company are set out below. The Board has put in
place a robust process to assess and monitor these risks. A core element of
this process is the Company's risk register which identifies the risks facing
the Company, the likelihood and potential impact of each risk and the quality
of controls established for mitigation. A residual risk rating is then
calculated for each risk based on the outcome of the assessment. This approach
allows the effect of any mitigating procedures to be reflected in the final
assessment.
The risk register, its method of preparation and the operation of key controls
in the Manager's and other third party service providers' systems of internal
control, are reviewed on a regular basis by the Audit and Management Engagement
Committee. In order to gain a more comprehensive understanding of the Manager's
and other third party service providers' risk management processes and how
these apply to the Company's business, the Audit and Management Engagement
Committee periodically receives presentations from BlackRock's Internal Audit
and Risk & Quantitative Analysis teams and receives internal control reports
from the Company's service providers.
In relation to the 2016 UK Corporate Governance Code, the Board is confident
that the procedures that the Company has put in place are sufficient to ensure
that the necessary monitoring of risks and controls has been carried out
throughout the reporting period. The Board will continue to assess the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity, on an ongoing basis.
The principal risks and uncertainties faced by the Company during the financial
year, together with the potential effects, controls and mitigating factors are
set out in the table below.
Principal Risk Mitigation/Control
Counterparty
The potential loss that the Company could Due diligence is undertaken before
incur if a counterparty is unable (or contracts are entered into and exposures
unwilling) to perform on its commitments. are diversified across a number of
counterparties.
The Depositary is now liable for
restitution for the loss of financial
instruments held in custody unless able to
demonstrate the loss was a result of an
event beyond its reasonable control.
Investment performance
Returns achieved are reliant primarily upon To manage this risk the Board:
the performance of the portfolio.
- regularly reviews the Company's
An inappropriate investment policy may lead investment mandate and long term strategy;
to underperformance compared to the
benchmark index, a loss of capital and - has set investment restrictions and
dissatisfied shareholders. guidelines which the Investment Manager
monitors and regularly reports on;
- receives from the Investment Manager a
regular explanation of stock selection
decisions, portfolio exposure, gearing and
any changes in gearing and the rationale
for the composition of the investment
portfolio;
- 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 investment policy;
- 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; and
- ensures that the Investment Manager has
training and development programmes in
place for its employees and its recruitment
and remuneration packages are developed in
order to retain key staff.
Legal & Compliance
The Company has been accepted by HM Revenue The Investment Manager monitors investment
& Customs as an investment trust, subject movements, the level and type of forecast
to continuing to meet the relevant income and expenditure and the amount of
eligibility conditions, and operates as an proposed dividends to ensure that the
investment trust in accordance with Chapter provisions of Chapter 4 of Part 24 of the
4 of Part 24 of the Corporation Tax Act Corporation Tax Act 2010 are not breached.
2010. As such, the Company is exempt from The results are reported to the Board at
capital gains tax on the profits realised each meeting. Compliance with the
from the sale of its investments. accounting rules affecting investment
trusts are also carefully and regularly
Any breach of the relevant eligibility monitored.
conditions could lead to the Company losing
investment trust status and being subject The Company Secretary, Manager and the
to corporation tax on capital gains Company's professional advisers provide
realised within the Company's portfolio. regular reports to the Board in respect of
compliance with all applicable rules and
Any serious breach could result in the regulations. The Board and Manager also
Company and/or the Directors being fined or monitor changes in government policy and
the subject of criminal proceedings or the legislation which may have an impact on the
suspension of the Company's shares which Company.
would in turn lead to a breach of the
Corporation Tax Act 2010.
The Company is required to comply with the
provisions of the Companies Act 2006, the
Alternative Investment Fund Managers'
Directive, the UK Listing Rules, Disclosure
Rules and Transparency Rules and the Market
Abuse Regulation.
Market
Market risk arises from volatility in the The Board considers the diversification of
prices of the Company's investments. It the portfolio, asset allocation, stock
represents the potential loss the Company selection, and levels of gearing on a
might suffer through realising investments regular basis and has set investment
in the face of negative market movements. restrictions and guidelines which are
monitored and reported on by the Investment
Changes in general economic and market Manager. The Board monitors the
conditions, such as currency exchange implementation and results of the
rates, interest rates, rates of inflation, investment process with the Investment
industry conditions, tax laws, political Manager.
events and trends, including the impact of
the UK leaving the EU, can also
substantially and adversely affect the
securities and, as a consequence, the
Company's prospects and share price.
Operational
In common with most other investment trust Due diligence is undertaken before
companies, the Company has no employees. contracts are entered into with third party
The Company therefore relies on the service providers. Thereafter, the
services provided by third parties and is performance of the provider is subject to
dependent on the control systems of the regular review and reported to the Board.
Manager, Depositary, and the Bank of New
York Mellon (International) Limited, who Third party service providers produce
maintain the Company's assets, dealing internal control reports to provide
procedures and accounting records. The assurance regarding the effective operation
security of the Company's assets, dealing of internal controls as reported on by
procedures, accounting records and their reporting accountants. These reports
adherence to regulatory and legal are provided to the Audit and Management
requirements depend on the effective Engagement Committee.
operation of the systems of these third
party service providers. The Company's assets are subject to a
strict liability regime and, in the event
Failure by any service provider to carry of a loss of assets, the Depositary must
out its obligations could have a material return assets of an identical type or the
adverse effect on the Company's corresponding amount, unless able to
performance. Disruption to the accounting, demonstrate the loss was a result of an
payment systems or custody records could event beyond its reasonable control.
prevent the accurate reporting and
monitoring of the Company's financial The Board reviews the overall performance
position. of the Manager, Investment Manager and all
other third party service providers on a
regular basis and compliance with the
Investment Management Agreement annually.
The Board also considers the business
continuity arrangements of the Company's
key service providers.
Financial
The Company's investment activities expose Details of these risks are disclosed in
it to a variety of financial risks which note 18 on pages 54 to 60 of the Annual
include market risk, counterparty credit Report and Financial Statements, together
risk, liquidity risk and the valuation of with a summary of the policies for managing
financial instruments. these risks.
Marketing
Marketing efforts are inadequate or do not The Board reviews marketing strategy and
comply with relevant regulatory initiatives and the Manager is required to
requirements. There is a failure to provide regular updates on progress.
communicate adequately with shareholders or BlackRock has a dedicated investment trust
reach out to potential new shareholders sales team visiting both existing and
resulting in reduced demand for the potential clients on a regular basis. Data
Company's shares and a widening of the on client meetings and issues raised are
discount. provided to the Board on a regular basis.
All investment trust marketing documents
are subject to appropriate review and
authorisation.
VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months referred to by the 'Going Concern' guidelines. The Board
conducted this review for a period of three years. This is generally the
investment holding period investors consider while investing in the European
sector. In its assessment of the viability of the Company, the Directors have
noted that:
* the Company invests predominantly in highly liquid, large listed companies
so its assets are readily realisable;
* the Company has limited gearing and no concerns around facilities, headroom
or covenants;
* the Company's forecasts for revenues, expenses and liabilities are
relatively stable and it has largely fixed overheads which comprise a small
percentage of net assets (1.10%); and
* the business model should remain attractive for much longer than three
years, unless there is significant economic or regulatory change.
The Directors have also reviewed:
* the Company's principal risks and uncertainties as set out above;
* the ongoing relevance of the Company's investment objective, business model
and investment policy in the current environment; and
* the level of demand for the Company's shares.
The Directors reviewed the assumptions and considerations underpinning the
Company's existing going concern assertion which are based on:
* processes for monitoring costs;
* key financial ratios;
* evaluation of risk management controls;
* compliance with the investment objective;
* portfolio risk profile;
* share price discount;
* gearing; and
* counterparty exposure and liquidity risk.
Based on the results of their analysis, the Directors have concluded that there
is a reasonable expectation that the Company will continue in operation and
meet its liabilities as they fall due over the period of their assessment.
FUTURE PROSPECTS
The Board's main focus is to achieve capital growth. The future performance of
the Company is dependent upon the success of the investment strategy and, to a
large extent, on the performance of financial markets. The outlook for the
Company in the next twelve months is discussed in both the Investment Manager's
Report and Chairman's Statement.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no direct social or
community responsibilities or impact on the environment. However, the Company
believes that it is in shareholders' interests to consider human rights issues
and environmental, social and governance factors when selecting and retaining
investments. Details of the Company's policy on socially responsible investment
are set out on page 31 of the Annual Report and Financial Statements.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the
normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015. In any event,
the Board considers the Company's supply chains, dealing predominantly with
professional advisers and service providers in the financial services industry,
to be low risk in relation to this matter.
DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 31 August 2017 are set out in the Governance
Structure and Directors' Biographies on page 17 of the Annual Report and
Financial Statements. The Board currently consists of two male Directors and
three female Directors. The Company's policy on diversity is set out on page 29
of the Annual Report and Financial Statements. The Company does not have any
employees.
The Chairman's Statement and the Investment Manager's Report and portfolio
analysis forms part of this Strategic Report. The Strategic Report was approved
by the Board at its meeting on 23 October 2017.
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
23 October 2017
RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM) was appointed as the Company's AIFM with
effect from 2 July 2014, having been authorised as an AIFM by the FCA on 1 May
2014. The management contract is terminable by either party on six months'
notice. Under the agreement, the Board continues to be independent from the
AIFM. The agreement provides the appropriate balance between the Board's
control over the Company, its investment policies and compliance with
regulatory obligations.
BFM (the Manager) has (with the Company's consent) delegated certain portfolio
and risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited (BIM (UK)) the Company's Investment Manager.
BIM (UK) also acted as the Secretary of the Company throughout the year. The
Manager receives an investment management fee which is calculated based on
0.85% of net asset value. Where the Company invests in other investment or cash
funds managed by BIM (UK), any underlying fee charged is rebated. Fees are
adjusted by adding all dividends declared during the period. Further details
are disclosed in note 4. No penalty on termination of the investment management
contract would be payable by the Company in the event that six months' written
notice is given to the Manager. There are no provisions relating to the payment
of fees in lieu of notice.
The Company contributes to a focused investment trust sales and marketing
initiative operated by BIM (UK) on behalf of the investment trusts under its
management. The Company's contribution to the consortium element of the
initiative, which enables the trusts to achieve efficiencies by combining
certain sales and marketing activities, represents a budget of up to 0.025% per
annum of its net assets (£281.2 million) as at 31 December 2016 and this
contribution is matched by BIM (UK). In addition, a budget of a further £15,000
has been allocated for Company specific sales and marketing activity. Total
fees paid or payable for these services for the year ended 31 August 2017
amounted to £90,000 (excluding VAT) (2016: £49,000). For the year ended 31
August 2017, £70,000 (including VAT) has been accrued in respect of these
initiatives. The purpose of the programme overall is to ensure effective
communication with existing shareholders and to attract new shareholders to the
Company. This has the benefit of improving liquidity in the Company's shares
and helps sustain the stock market rating of the Company.
The Board consists of five 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 £36,500, the Chairman
of the Audit and Management Engagement Committee receives an annual fee of £
30,000 and each other Director receives an annual fee of £26,000. Three members
of the Board hold shares in the Company. Carol Ferguson holds 73,216 ordinary
shares, Eric Sanderson holds 4,000 ordinary shares and Peter Baxter holds 5,000
ordinary shares.
As at 31 August 2017, fees of £12,000 (2016: £9,000) were outstanding to
Directors in respect of their annual fees.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
Under that law they have elected to prepare the financial statements in
accordance with applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company as at the end of each financial year and of the profit
or loss of the Company for that period. In preparing those financial
statements, the Directors are required to:
* present fairly the financial position, financial performance and cash flows
of the Company;
* select suitable accounting policies in accordance with United Kingdom
Generally Accepted Accounting Practice and then apply them consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the
Directors' Report, the Directors' Remuneration Report, the Corporate Governance
Statement and the Report of the Audit and Management Engagement Committee in
accordance with the Companies Act 2006 and applicable regulations, including
the requirements of the Listing Rules and the Disclosure and Transparency
Rules. The Directors have delegated responsibility to the Manager for the
maintenance and integrity of the Company's corporate and financial information
included on the BlackRock website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors at the date of this report, whose names are listed on
page 17 of the Annual Report and Financial Statements, confirm to the best of
their knowledge that:
* the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
* the Strategic Report contained in the Annual Report and Financial
Statements includes a fair review of the development and performance of the
business and the position of the Company, together with a description of
the principal risks and uncertainties that it faces.
The 2016 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit and Management Engagement Committee advise on whether
it considers that the Annual Report and Financial Statements fulfils these
requirements. The process by which the Committee has reached these conclusions
is set out in the Audit and Management Engagement Committee's Report on pages
32 to 35 of the Annual Report and Financial Statements. As a result, the Board
has concluded that the Annual Report for the year ended 31 August 2017, taken
as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position, performance,
business model and strategy.
FOR AND ON BEHALF OF THE BOARD
ERIC SANDERSON
Chairman
23 October 2017
INVESTMENT MANAGER'S REPORT
MARKET OVERVIEW
The Company enjoyed positive performance over the year with a share price
increase of 22.9% and a NAV increase of 23.0% in the twelve months to 31 August
2017. However, by way of comparison, the FTSE World Europe ex UK Index gained
26.0% over the period. (All figures in sterling terms with income reinvested.)
Whilst European market performance was positive over the year, drivers of
return varied. The election of President Trump at the beginning of the period
had a strong influence on market direction as investors believed his policies
would bring greater growth to the US and, by extension, Europe. With this, a
'reflationary narrative' became a dominant driver of investment decisions
across the market. Consequently, according to surveys of investment managers,
the ownership of European banking shares rose to the highest level since the
financial crisis, as investors expected rising interest rates to drive
profitability. Thus far, interest rates in Europe have remained historically
low, with the European Central Bank (ECB) continuing to inject liquidity into
the system via its quantitative easing programme.
Despite the potential for political disruption with numerous elections across
Europe, economic growth has strengthened over the period. European Purchasing
Manager Indices, a reliable gauge of economic activity, have risen to their
highest rate in six years. Job creation in the euro area has also been the
strongest recorded over the past decade as firms continue to expand capacity in
response to rising demand. Perhaps, to an extent, this can also be attributed
to the sense of reduced political risk within the region as fears of populism
spreading across Europe have subsided for the time being. The election of
Emmanuel Macron as the President of France, and further legitimisation of his
reform mandate with his party winning the largest majority in parliament, has
the potential to aid political and economic cohesion in the European Union (EU)
and instil a sense of greater stability. However, it must be highlighted that
risks remain around this scenario given the history of reform efforts,
particularly related to labour, within France.
In this more constructive environment, we have seen an improvement in company
earnings. The first quarter earnings reporting season in Europe proved
especially strong with earnings per share (EPS) growth up 23% year-on-year.
Earnings growth continued into the second quarter, albeit at a slower rate.
Importantly, earnings growth was primarily driven by an improvement in sales
rather than rationalisation and cost cutting initiatives. This environment has
proved beneficial for stock selection as share prices have reacted to changing
company fundamentals.
PORTFOLIO ACTIVITY
Over the year, sector allocation detracted from the Company's returns. In
particular, this was exhibited by the higher allocation to the consumer
services sector when compared with the reference index which underperformed the
market, as well as the lower weighting towards the financials sector which
proved the best performing area of the market. As mentioned, banks performed
strongly over the year as we witnessed a small increase in interest rates.
Whilst the sector has rerated, we have not seen any improvement in Eurozone
banks' net interest income, a key measure for profitability; we therefore
remain very selective within this space. Positively, a lower allocation to
health care and a higher allocation to information technology benefited the
Company's performance over the year.
Stock selection was negative overall during the period but varied by sector. A
number of consumer names detracted from returns, including a holding in
international food retailer group, Ahold Delhaize. While the company had
relatively robust results over the period and stable margins which are poised
to rise further with the synergies from the Delhaize deal, the share price
suffered due to fears of food retail deflation in the US, which was also
evident across a number of Ahold's competitors. The shares suffered further
towards the end of the period as the announcement came that Amazon had bought
Wholefoods and, subsequently, significantly cut pricing. Whilst the current
market crossover for Ahold with Wholefoods is limited, this competitive threat
is concerning for the entire industry, especially in regard to online strategy;
we therefore opted to exit the position.
The Company also saw weaker performance from a holding in building materials
group CRH. As rhetoric grew around President Trump and his potential
infrastructure spending plans towards the start of the period, many
construction names exposed to the US, such as CRH, saw strong performance
outcomes. However, as Trump's credibility and ability to pass policy came into
question, the market witnessed an unwinding in many of these associated names.
We continue to believe that CRH is an attractive investment, boasting a strong
management team. The company has balance sheet capacity for M&A opportunities
and has a history of executing strongly on these deals and creating value for
shareholders.
More positively, the Company saw strong performance from a holding in Finnish
industrial company Wartsila. The company has seen robust results over the
period, with orders growing particularly within their marine division. Their
most recent results for the second quarter of 2017 showed further evidence of
marine recovery with orders up by 11% year-on-year. We believe Wartsila
continues to be an attractive investment given its ability to grow aftermarket
sales, which is the highest margin area of the business and also allows for
strong visibility. In addition to its cost cutting programme, we believe the
group will grow earnings and move to a net cash position, with potential for
cash generated to be returned to shareholders.
The Company also saw strong performance from a holding in dental implant
manufacturer Straumann. Straumann has been a long-term holding in the Company
and has grown its top line by c.15% over the last 18 months. This growth has
been driven by new products such as bond level tapered implants. Market share
in this area, relative to their other products, is low. We therefore believe
that the company can improve penetration of this product and continue to
support top line growth, as reflected by the company's recent upgrade of
revenue growth guidance.
In the Emerging Europe portion of the portfolio we have seen mixed outcomes
over the year. The Company has seen strong performance from a holding in
Sberbank, Russia's largest state-owned bank. It continues to build on its
restructuring strategy which has driven much of its success over the past few
years, improving its services and the efficiency with which they are delivered.
Positive performance also came from a holding in Poland's largest insurance
company PZU. Less positively, holdings in Gazprom and IT outsourcer Luxoft
detracted. The latter fell following disappointing earnings and a lowering of
guidance as the company is experiencing slowing trends from their clients on IT
outsourcing.
PORTFOLIO POSITIONING
Following the change in Portfolio Manager, we have made a number of changes in
an attempt to deliver more consistent and stable outperformance to the
Company's shareholders going forward. This includes increasing the conviction
present in the portfolio, ensuring all ideas have a strong fundamental
investment case and offering the most attractive upside to current value. In
this vein, we have concentrated the number of holdings to 35 and ensured the
highest conviction ideas coming out of our codified investment process are
weighted appropriately within the Company. We also intend to use gearing and
the allocation to the Emerging Europe portion of the portfolio more fully in
the future, in line with the opportunities present in the market.
We have acted to increase the allocation to the health care sector, weighted
more towards med-tech companies which offer specialised products and greater
opportunities for earnings growth than large-cap pharmaceuticals. We have also
increased the weighting towards consumer services, adding a holding in luxury
brand Kering, which has recently seen a strong reacceleration in growth from
their revived Gucci brand, which delivered organic growth in the second quarter
of 39%.
We further reduced exposure to financials and remain very selective within the
banking space. We continue to believe that the euro area is an overbanked
market with significant pressure on margins which is unlikely to be relieved by
the small amount of loan growth that has come back to the market. Where we do
hold investments in banks, we have invested in more consolidated markets which
have better pricing discipline and more potential for margin upgrades, such as
Danish bank Danske.
At the end of the period, the portfolio was particularly weighted (when
compared with the reference index) towards positions in the industrials,
consumer services, technology, health care and oil & gas sectors. The portfolio
had lower exposure to the financials, consumer goods, utilities, telecoms and
basic materials sectors.
OUTLOOK
Overall we are positive on the European economy as the recovery remains on
track. We are cautious about valuations given the strong run the market has
enjoyed but would note that valuations remain undemanding relative to other
developed market equities and bonds, and indeed the Emerging Europe portion of
the portfolio is attractively valued. With the positive inflection in both cash
flows and earnings in Emerging European markets, we believe there is potential
for a number of attractive investment opportunities in this region in the
coming years.
The potential for political cohesion in the euro area should also support
markets if the EU is to become more stable and robust going forward. With core
elections in the euro area now passed, we believe investor focus is likely to
fall to central bank action, as the ECB nears the end of its bond buying
programme. Given the continued deflationary pressures present in the economy
and the structural drivers apparent that keep downward pressure on rates, such
as high levels of debt, demographics and technological innovation, we believe
Mario Draghi will take a cautious approach to increasing rates. A slow, steady
and considered increase in rates parallel to a sustained economic expansion
should continue to be supportive for European equities going forward.
STEFAN GRIES AND SAM VECHT
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
23 October 2017
TEN LARGEST INVESTMENTS AS AT 31 AUGUST 2017
Unilever: 4.4% (2016: nil) is a transnational consumer goods company with more
than 400 brands. Management have set out clear targets to 2020 to improve
margins, returns and cash-flow conversion which we believe has the potential to
create significant value for shareholders. In addition, the measures taken
should translate into sector leading earnings growth and will allow the company
to return significant amounts of capital via share buy backs and dividends.
Bayer: 4.4% (2016: 2.7%) is a German Life Science company, with M&A
optionality. The proposed deal to buy Monsanto reinforces Bayer's core business
segments as well as targeting attractive long-term growth in agriculture
protection and seeds. Monsanto is an innovative biotech business which is
highly cash generative; the deal is expected to be accretive to core earnings
and will ultimately create the leading global provider of crop sciences
creating a platform for Bayer to offer sustainable growth at high returns.
Lonza Group: 4.1% (2016: 2.0%) is a Swiss multinational chemicals and
biotechnology company. We believe the company offers attractive growth which is
less dependent upon the economic cycle, given their large and diversified
biopharma and speciality chemicals client base. The recent acquisition of
Cappsugel, which adds 25% to revenues, adds valuable technologies to the
existing group offering and thereby further enhances barriers to entry as well
as the competitive position for the group.
SAP: 4.1% (2016: nil) is one of the leading global enterprise software
providers. Its recently launched S4/Hana software and database solution appears
'a must own' product for a large existing client base in need of enhanced data
analytics capabilities. We believe this has created a platform for profitable,
multi-year growth at high returns. With the balance sheet turning net cash we
also see potential for a further enhanced shareholder return policy.
ASML: 4.0% (2016: 2.1%) is a Dutch company which specialises in the supply of
photolithography systems for the semiconductor industry. The company is at the
forefront of technological change and invests in leading research and
development to capture the structural growth opportunity supported by growth in
mobile devices and microchip components. The high barriers to entry within the
industry give ASML a protected position which allows growth in margins whilst
they continue to innovate. The company has strong management who aim to create
long-term value for the business whilst returning excess cash to shareholders.
Compagnie Financière Richemont: 3.9% (2016: nil) is a Swiss-based luxury goods
holding company, which owns some of the world's most high-end jewellery and
watch brands. The company has great potential for a significant recovery in
both growth and returns, with the return of the chairman Johann Rupert who is
aiming to drive better results in the business going forward. Profit margins
are likely to rise as operational efficiency increases and growth comes through
within jewellery, particularly the branded category which the company is
positively exposed to through brands such as Cartier.
Kering: 3.6% (2016: nil) is a global luxury group. The group has experienced a
strong revival of its largest and most valuable brand, Gucci, which represents
circa 65% of group earnings. The Gucci business, as well as seeing a
reacceleration in sales growth, has been able to improve the percentage of full
price sales which is supportive for margins. Despite strong performance over
the last twelve months, we see the company delivering sector leading growth in
earnings and cash-flows at a very attractive valuation.
Wartsila: 3.6% (2016: 1.5%) is a Finnish industrial company producing high
technology engines for the marine and energy markets. As a global leader in its
field, the company is positioned for solid growth at high returns as its
engines are used for back-up power in energy generation and its marine end
market is at the start of a multi-year recovery following several years of
stagnation. Lastly, with 43% of sales coming from aftermarket services earnings
and cash flows it is strongly underpinned by activities that grow regardless of
general macro-economic conditions.
RELX: 3.5% (2016: 2.9%) is a multinational information and analytics company.
The company is aiming to promote organic development, transforming its core
business and building out new products. RELX has established high barriers to
entry, giving confidence to its competitive position and allowing for more
predictable revenues going forward. The stock offers steady compounding growth.
Novo Nordisk: 3.4% (2016: nil) is a Danish multinational pharmaceutical company
which is a leader in diabetes care. The stock suffered underperformance in 2016
as drug pricing deteriorated, particularly in the US. Recent results have
re-instilled confidence as pricing pressure has abated and there is now
significantly enhanced visibility over the further trajectory in earnings and
cash flows. We believe the company offers attractive long-term growth
potential, at high returns and sector leading cash-flow conversion with any
excess cash being returned to shareholders.
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
2016.
Together, the ten largest investments represent 39.0% of the Company's
portfolio (31 August 2016: 28.4%).
INVESTMENTS AS AT 31 AUGUST 2017
Market
Country of value % of
operation £'000 investments
Industrials
Wartsila Finland 12,079 3.6
CRH Ireland 10,801 3.2
DSV Denmark 10,651 3.2
Vinci France 10,516 3.1
Assa Abloy Sweden 9,768 2.9
Volvo Sweden 9,453 2.8
Eiffage France 9,349 2.8
Sika Switzerland 9,102 2.7
Hexagon Sweden 8,724 2.6
Thales France 8,138 2.4
-------- --------
98,581 29.3
-------- --------
Health Care
Lonza Group Switzerland 13,750 4.1
Novo Nordisk Denmark 11,284 3.4
Fresenius Medical Care Germany 10,936 3.3
Straumann Switzerland 10,572 3.2
Chr.Hansen Denmark 7,691 2.3
-------- --------
54,233 16.3
-------- --------
Consumer Services
Kering France 12,205 3.6
RELX Netherlands 11,776 3.5
Telenet Belgium 10,418 3.1
Industria De Diseño Textil Inditex Spain 9,431 2.8
-------- --------
43,830 13.0
-------- --------
Consumer Goods
Unilever Netherlands 14,708 4.4
Compagnie Financière Richemont Switzerland 12,961 3.9
Remy Cointreau France 8,368 2.5
Renault France 7,475 2.2
-------- --------
43,512 13.0
-------- --------
Financials
Danske Bank Denmark 10,225 3.1
KBC Groep Belgium 7,901 2.4
Alpha Bank Greece 5,794 1.7
Sberbank Russia 4,392 1.3
Nets Denmark 3,769 1.1
-------- --------
32,081 9.6
-------- --------
Technology
SAP Germany 13,559 4.1
ASML Netherlands 13,311 4.0
Luxoft Ukraine 4,126 1.2
-------- --------
30,996 9.3
-------- --------
Oil & Gas
Novatek Russia 6,245 1.9
Gazprom Russia 6,053 1.8
Rosneft Oil Company Russia 4,556 1.4
-------- --------
16,854 5.1
-------- --------
Basic Materials
Bayer Germany 14,573 4.4
-------- --------
14,573 4.4
-------- --------
Total investments 334,660 100.0
-------- --------
All investments are in ordinary shares unless otherwise stated. The total
number of investments held at 31 August 2017 was 35 (31 August 2016: 59).
As at 31 August 2017 the Company did not hold any equity interests comprising
more than 3% of any company's share capital.
INVESTMENT EXPOSURE
MARKET CAPITALISATION AS AT 31 AUGUST 2017
% of Portfolio
<€1bn 1.2
€1bn to €10bn 16.7
€10bn to €20bn 25.0
€20bn to €50bn 32.7
>€50bn 24.4
INVESTMENT SIZE AS AT 31 AUGUST 2017
Number of Investments % of Portfolio
<£1m - -
£1m to £3m - -
£3m to £5m 4 5.0
£5m to £10m 14 33.9
>£10m 17 61.1
DISTRIBUTION OF INVESTMENTS AS AT 31 AUGUST 2017
Industrials 29.3
Health Care 16.3
Consumer Services 13.0
Consumer Goods 13.0
Financials 9.6
Technology 9.3
Oil & Gas 5.1
Basic Materials 4.4
Source: BlackRock
INCOME STATEMENT FOR THE YEAR ENDED 31 AUGUST 2017
Revenue Revenue Capital Capital Total Total
2017 2016 2017 2016 2017 2016
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair - - 57,909 38,028 57,909 38,028
value through profit or loss
Gains on foreign exchange - - 270 967 270 967
Income from investments held at fair 3 7,236 6,306 - - 7,236 6,306
value through profit or loss
Other income 3 - 162 - - - 162
-------- -------- -------- -------- -------- --------
Total income 7,236 6,468 58,179 38,995 65,415 45,463
-------- -------- -------- -------- -------- --------
Expenses
Investment management fees 4 (515) (462) (2,058) (1,850) (2,573) (2,312)
Other operating expenses 5 (720) (544) (29) (36) (749) (580)
-------- -------- -------- -------- -------- --------
Total operating expenses (1,235) (1,006) (2,087) (1,886) (3,322) (2,892)
-------- -------- -------- -------- -------- --------
Net profit on ordinary activities 6,001 5,462 56,092 37,109 62,093 42,571
before finance costs and taxation
Finance costs (52) (53) (37) (10) (89) (63)
-------- -------- -------- -------- -------- --------
Net profit on ordinary activities 5,949 5,409 56,055 37,099 62,004 42,508
before taxation
Taxation (charge)/credit (777) 373 - - (777) 373
-------- -------- -------- -------- -------- --------
Net profit on ordinary activities 7 5,172 5,782 56,055 37,099 61,227 42,881
after taxation
======== ======== ======== ======== ======== ========
Earnings per ordinary share 7 5.33p 5.60p 57.76p 35.94p 63.09p 41.54p
======== ======== ======== ======== ======== ========
The total column of this statement represents the Company's profit and loss
account. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies (AIC). All items
in the above statement derive from continuing operations. No operations were
acquired or discontinued during the year. All income is attributable to the
equity holders of the Company.
The net profit for the year disclosed above represents the Company's total
comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 AUGUST 2017
Called up Share Capital
share premium redemption Capital Special Revenue
capital account reserve reserves reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 31 August
2017
At 31 August 2016 110 63,214 130 216,059 4,555 10,840 294,908
Total comprehensive income:
Profit for the year - - - 56,055 - 5,172 61,227
Transaction with owners,
recorded directly to equity:
Ordinary shares purchased into - - - (357) (1,665) - (2,022)
treasury
Tender offer into Treasury - - - (15,027) (2,882) - (17,909)
Share purchase and tender - - - (189) (8) - (197)
costs
Tender cost accruals written - - - 111 - - 111
back
Dividends paid (a) 6 - - - - - (5,391) (5,391)
-------- -------- -------- -------- -------- -------- --------
At 31 August 2017 110 63,214 130 256,652 - 10,621 330,727
-------- -------- -------- -------- -------- -------- --------
For the year ended 31 August
2016
At 31 August 2015 130 61,899 110 178,960 10,115 10,245 261,459
Total comprehensive income:
Profit for the year - - - 37,099 - 5,782 42,881
Transaction with owners,
recorded directly to equity:
Exercise of subscription - 1,315 - - - - 1,315
shares
Ordinary shares purchased into - - - (5,582) - (5,582)
treasury
Ordinary shares purchased and (20) - 20 - - - -
cancelled
Share purchase costs written - - - - 22 - 22
back
Dividends paid (b) 6 - - - - - (5,187) (5,187)
-------- -------- -------- -------- -------- -------- --------
At 31 August 2016 110 63,214 130 216,059 4,555 10,840 294,908
-------- -------- -------- -------- -------- -------- --------
(a) Interim dividend paid in respect of the year ended 31 August 2017 of 1.75p
per share was declared on 26 April 2017 and paid on 26 May 2017. Final dividend
paid in respect of the year ended 31 August 2016 of 3.65p per share was
declared on 19 October 2016 and paid on 5 December 2016.
(b) Interim dividend paid in respect of the year ended 31 August 2016 of 1.65p
per share was declared on 19 April 2016 and paid on 27 May 2016. Final dividend
paid in respect of the year ended 31 August 2015 of 3.35p per share was
declared on 22 October 2015 and paid on 18 December 2015.
BALANCE SHEET AS AT 31 AUGUST 2017
2017 2016
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 334,660 295,592
-------- --------
Current assets
Debtors 5,010 1,841
Cash and cash equivalents - 432
-------- --------
5,010 2,273
-------- --------
Creditors - amounts falling due within one year
Bank overdraft (5,748) -
Other creditors (3,195) (2,957)
-------- --------
(8,943) (2,957)
-------- --------
Net current liabilities (3,933) (684)
-------- --------
Net assets 330,727 294,908
======== ========
Capital and reserves
Called up share capital 8 110 110
Share premium account 63,214 63,214
Capital redemption reserve 130 130
Capital reserves 256,652 216,059
Special reserve - 4,555
Revenue reserve 10,621 10,840
-------- --------
Total shareholders' funds 330,727 294,908
======== ========
Net asset value per ordinary share 7 347.05p 287.43p
======== ========
STATEMENT OF CASH FLOWS FOR YEAR ENDED 31 AUGUST 2017
2017 2016
£'000 £'000
Operating activities
Net profit before taxation 62,004 42,508
Add back finance costs 89 63
Gains on investments held at fair value through profit or (57,909) (38,028)
loss
Net gains on foreign exchange (270) (997)
Sales of investments 342,583 191,634
Purchase of investments (326,523) (188,018)
Increase in debtors (110) (100)
Increase/(decrease) in other creditors 189 (761)
Tax on investment income (1,256) (858)
Refund of withholding tax reclaim 312 1,024
-------- --------
Net cash generated from operating activities 19,109 6,467
-------- --------
Financing activities
Purchase of ordinary shares (19,931) (5,582)
Share issue and share repurchase costs (paid)/refunded (183) 65
Proceeds from issue of subscription shares - 1,315
Interest paid (54) (63)
Dividends paid (5,391) (5,187)
-------- --------
Net cash used in financing activities (25,559) (9,452)
-------- --------
Decrease in cash and cash equivalents (6,450) (2,985)
-------- --------
Cash and cash equivalents at the beginning of the year 432 2,420
Effect of foreign exchange rate changes 270 997
-------- --------
Cash and cash equivalents at the end of the year (5,748) 432
-------- --------
Comprised of:
Cash at bank - 2
Bank overdraft (5,748) -
BlackRock's Institutional Cash Series plc - Euro Assets - 430
Liquidity Fund
-------- --------
(5,748) 432
======== ========
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
The principal accounting policies adopted by the Company are set out below:
(a) Basis of preparation
The financial statements have been prepared on a going concern basis in
accordance with FRS 102 and the revised Statement of Recommended Practice -
'Financial Statements of Investment Trust Companies and Venture Capital Trusts'
(SORP) issued by the Association of Investment Companies (AIC) in November 2014
and the provisions of the Companies Act 2006.
The principal accounting policies adopted by the Company are set out below.
Unless specified otherwise, the policies have been applied consistently
throughout the year and are consistent with those applied in the preceding
year. 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 AIC, supplementary information which
analyses the Income Statement between items of a revenue and a capital nature
has been presented alongside the Income Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. 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.
Special dividends are recognised on an ex-dividend basis and treated as capital
or revenue depending on the facts or circumstances of each dividend.
Dividends are accounted for in accordance with Section 29 of FRS 102 on the
basis of income actually receivable, without adjustment for tax credits
attaching to the dividend. Dividends from overseas companies continue to be
shown gross of withholding tax.
Deposit interest receivable is accounted for on an accruals basis.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the cash equivalent of the dividend is
recognised as income. Any excess in the value of the shares received over the
amount of the cash dividend is recognised in capital.
(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 treated as capital. Details of transaction costs on the
purchases and sales of investments are disclosed in note 10, on page 52 of
the Annual Report and Financial Statements;
* the investment management fee has been allocated 80% to the capital column
and 20% to the revenue column of the Income Statement 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;
* expenses relating to tender costs are taken to capital reserves.
(f) Finance costs
Finance costs are accounted for on an effective yield method and on an accrual
basis. Finance costs are allocated, insofar as they relate to the financing of
the Company's investments, 80% to the capital column and 20% to the revenue
column of the Income Statement, 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
The current tax effect of different items of expenditure is allocated between
capital and revenue on the marginal basis using the Company's effective rate of
corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing differences at the
financial reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to less taxation in the
future have occurred at the balance sheet date. Deferred tax is measured on a
non-discounted basis, at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse based on
tax rates and laws that have been enacted or substantively enacted by 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 Section 11 and 12 of FRS102 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. Purchases of investments are recognised on a trade date
basis. Sales are recognised at the trade date of the disposal and the proceeds
are measured at fair value, which is regarded as the proceeds of the sale less
any transaction costs.
The fair value of the financial investments is based on their quoted bid price
at the balance sheet date on the exchange on which the investment is quoted,
without deduction for the estimated future selling costs.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
'Gains or losses on investments held at fair value through profit or loss'.
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
The fair value hierarchy consists of the following three levels:
Level 1 - Quoted prices for identical instruments in active markets
Level 2 - Valuation techniques using observable inputs
Level 3 - Valuation techniques using significant unobservable inputs
(i) Debtors
Debtors include sales for future settlement, other debtors and pre-payments and
accrued income in the ordinary course of business. If collection is expected in
one year or less, they are classified as current assets. If not, they are
presented as non-current assets.
(j) Creditors
Creditors include purchases for future settlements, interest payable, share buy
back costs and accruals in the ordinary course of business. Creditors are
classified as creditors - amounts due within one year if payment is due within
one year or less. If not, they are presented as creditors - amounts due after
more than one year.
(k) Dividends payable
Under Section 32 of FRS 102, 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 Statement of Changes in Equity when they have been approved by shareholders
and have become a liability of the Company. Interim dividends are only
recognised in the financial statements in the period in which they are paid.
(l) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents include bank
overdrafts repayable on demand and short term, highly liquid investments, that
are readily convertible to known amounts of cash and that are subject to an
insignificant risk of changes in value.
(m) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to nominate a
functional currency being the currency in which the Company predominately
operates. The functional and reporting currency is sterling, reflecting the
primary economic environment in which the Company operates. Transactions in
foreign currencies are translated into sterling at the rates of exchange ruling
on the date of the transaction. Foreign currency monetary assets and
liabilities and non-monetary assets held at fair value are translated into
sterling at the rates of exchange ruling at the Balance Sheet date. Profits and
losses thereon are recognised in the capital column of the Income Statement and
taken to the capital reserve.
3. INCOME
2017 2016
£'000 £'000
Investment income:
Overseas dividends 6,922 6,126
Overseas special dividends 314 180
-------- --------
7,236 6,306
-------- --------
Other income:
Interest on WHT reclaims - 162
-------- --------
- 162
-------- --------
Total 7,236 6,468
======== ========
Dividends and interest received during the period amounted to £7,131,000 and £
nil respectively (2016: £6,198,000 and £162,000).
Special dividends of £nil have been recognised in capital (2016: £410,000) and
deducted from investment costs.
4. INVESTMENT MANAGEMENT FEE
2017 2016
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 515 2,058 2,573 462 1,850 2,312
-------- -------- -------- -------- -------- --------
Total 515 2,058 2,573 462 1,850 2,312
======== ======== ======== ======== ======== ========
The investment management fee is levied quarterly, based on 0.85% per annum of
net asset value on the last day of each month. The investment management fee is
allocated 80% to capital reserves and 20% to the revenue reserve.
5. OTHER OPERATING EXPENSES
2017 2016
£'000 £'000
Taken to revenue
Custody fees 38 30
Depositary fees 41 37
Audit fees 24 24
Registrars' fees 75 84
Directors' emoluments 117 116
Marketing fees 90 49
Other administration costs 335 204
-------- --------
720 544
Taken to capital: -------- --------
Transaction charges 29 36
-------- --------
749 580
The Company's ongoing charges, calculated as a percentage of average
shareholders' funds and using operating expenses, finance costs, and 1.10% 1.07%
taxation were:
======== ========
6. DIVIDENDS
Record Payment 2017 2016
date date £'000 £'000
2015 Final dividend of 3.35p 6 November 2015 18 December 2015 - 3,494
2016 Interim dividend of 29 April 2016 27 May 2016 - 1,693
1.65p
2016 Final dividend of 3.65p 3 November 2016 5 December 2016 3,723 -
2017 Interim dividend of 4 May 2017 26 May 2017 1,668 -
1.75p
-------- --------
5,391 5,187
======== ========
The Directors have proposed a final dividend of 3.70p per share in respect of
the year ended 31 August 2017. The dividend will be paid on 8 December 2017,
subject to shareholders' approval on 29 November 2017, to shareholders on the
Company's register on 3 November 2017. 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 total dividends payable in respect of the year which form the basis of
determining retained income for the purpose 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 2017, meet the relevant requirements as set out in
this legislation.
Dividends paid or proposed on equity shares 2017 2016
£'000 £'000
Interim paid of 1.75p (2016: 1.65p) 1,668 1,693
Final proposed of 3.70p* (2016: 3.65p) 3,526 3,723
-------- --------
5,194 5,416
-------- --------
* Based on 95,295,953 ordinary shares (excluding treasury shares) in issue
on 23 October 2017.
All dividends paid or payable are distributed from the Company's revenue
profits.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue and capital earnings per share are shown below and have been calculated
using the following:
2017 2016
Net revenue profit attributable to ordinary shareholders (£'000) 5,172 5,782
Net capital profit attributable to ordinary shareholders (£'000) 56,055 37,099
-------- --------
Total profit attributable to ordinary shareholders (£'000) 61,227 42,881
-------- --------
Total shareholders' funds (£'000) 330,727 294,908
-------- --------
Earnings per share
The weighted average number of ordinary shares in issue during the 97,046,595 103,222,155
year on which the earnings per ordinary share was calculated was:
-------- --------
The actual number of ordinary shares in issue at the end of the year 95,295,953 102,603,113
on which the net asset value was calculated was:
-------- --------
The number of ordinary shares in issue, including treasury shares at 110,328,938 110,328,938
the year end was:
-------- --------
Calculated on weighted average number of ordinary shares
Revenue profit 5.33p 5.60p
Capital profit 57.76p 35.94p
-------- --------
Total 63.09p 41.54p
======== ========
2017 2016
Net asset value 347.05p 287.43p
-------- --------
Ordinary share price 328.00p 272.00p
-------- --------
There are no dilutive securities at the year end.
8. SHARE CAPITAL
Ordinary Treasury
shares shares Total
number number shares £'000
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 0.1p each
At 31 August 2016 102,603,113 7,725,825 110,328,938 110
Shares repurchased and held in treasury (725,000) 725,000 - -
Shares bought back to treasury pursuant to tender (6,582,160) 6,582,160 - -
offer
-------- -------- -------- --------
At 31 August 2017 95,295,953 15,032,985 110,328,938 110
======== ======== ======== ========
During the year 725,000 ordinary shares were repurchased and held in treasury
(2016: 1,000,000) for a total consideration, including expenses, of £2,032,000
(2016: £2,461,000). During the year there was also a tender offer and 6,582,160
shares were transferred into treasury (2016: 1,236,927) for a total
consideration of £18,096,000 (2016: £3,099,000). The number of ordinary shares
in issue at the year end was 110,328,938 (2016: 110,328,938) of which
15,032,985 were held in treasury (2016: 7,725,825). No treasury shares were
issued or cancelled during the year (2016: nil).
9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Balance
Sheet at their fair value (investments) or at an amount which is a reasonable
approximation of fair value (due from brokers, dividends and interest
receivable, due to brokers, accruals, cash at bank and bank overdrafts).
Section 11 of FRS102 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of inputs used in
making the measurements. The valuation techniques used by the Company are
explained in the accounting policies note in the Annual Report and Financial
Statements on page 47.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency and those prices represent
actual and regularly occurring market transactions on an arm's length basis.
The Company does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using: quoted market prices in active
markets for similar instruments; quoted prices for similar instruments in
markets that are considered less than active; or other valuation techniques
where all significant inputs are directly or indirectly observable from market
data.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument's valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The determination of what
constitutes 'observable' inputs requires significant judgement by the
Investment Manager. The Investment Manager considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. For this purpose, the
significance of an input is assessed against the fair value measurement in its
entirety. If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that measurement is a
Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes 'observable' inputs
requires significant judgement by the Investment Manager.
The table below is an analysis of the Company's financial instruments measured
at fair value at the balance sheet date.
Financial assets at fair value through profit or loss at Level 1 Level 2 Level 3 Total
31 August 2017 £'000 £'000 £'000 £'000
Equity investments 334,660 - - 334,660
======= ======= ======= ========
= = =
Financial assets at fair value through profit or loss at Level 1 Level 2 Level 3 Total
31 August 2016 £'000 £'000 £'000 £'000
Equity investments 295,592 - - 295,592
======= ======= ======= =======
= = = =
There were no transfers between levels for financial assets and financial
liabilities during the year recorded at fair value as at 31 August 2017 and 31
August 2016. The Company did not hold any Level 3 securities throughout the
financial year or as at 31 August 2017 (2016: nil).
10. TRANSACTIONS WITH MANAGER AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months'
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment
management contract are disclosed in the Directors' Report on pages 18 and 19
of the Annual Report and Financial Statements.
The investment management fee is levied quarterly, based on 0.85% per annum of
net asset value on the last day of each month. The investment management fee
due for the year ended 31 August 2017 amounted to £2,573,000 (2016: £
2,312,000). At the year end, £1,352,000 was outstanding in respect of the
management fee (2016: £1,190,000).
At 31 August 2017 the Company did not hold an investment in BlackRock's
Institutional Cash Series plc - Euro Liquidity Fund liquidity (2016: £430,000).
In addition to the above services BlackRock provided the Company with marketing
services. The total fees paid or payable for these services for the year ended
31 August 2017 amounted to £90,000 excluding VAT (2016: £49,000). Marketing
fees of £70,000 excluding VAT were outstanding at 31 August 2017 (2016: £
45,000).
11. RELATED PARTY DISCLOSURE
Disclosures of the Directors' interests in the ordinary shares of the Company
and fees and expenses payable to the Directors are set out in the Directors'
Remuneration Report on pages 26 and 27 of the Annual Report and Financial
Statements. At 31 August 2017, £12,000 (2016: £9,000) was outstanding in
respect of Directors' fees.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 August 2017 (2016: nil).
13. 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 2017 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 2017 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
2016, 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.
14. ANNUAL REPORT
Copies of the Annual Report and Financial Statements 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.
15. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at the offices of
BlackRock, 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 29 November
2017 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock website at
blackrock.co.uk/brge. Neither the contents of the Manager's website nor the
contents of any website accessible from hyperlinks on the Manager's website (or
any other website) is incorporated into, or forms part of, this announcement.
For further information please contact:
Simon White, Managing Director, Investment Trusts, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 5284
Stefan Gries, Fund Manager, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Lucy Horne, Lansons Communications - Tel: 020 7294 3689
E-mail: lucyh@lansons.com
12 Throgmorton Avenue
London
EC2N 2DL
23 October 2017
BlackRock Greater Euro Inv Tst : Europe Investment Trust Plc - Final Results
October 23, 2017 at 05:44 am EDT
Share
Share
© PRNewswire - 2017
