BlackRock Grtr Eur: Half-year Report
10/05/2023 16:31
BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC
LEI: 5493003R8FJ6I76ZUW55
Half yearly financial announcement of results in respect of the six months
ended 28 February 2023
PERFORMANCE RECORD
As at 28 February 2023 As at 31 August 2022 Change %
Net assets (£’000) (1) 554,995 483,799 14.7
Net asset value per ordinary share (pence) 549.50 475.72 15.5
Ordinary share price (mid-market) (pence) 523.00 456.00 14.7
Discount to cum income net asset value (2) 4.8% 4.1%
FTSE World Europe ex UK Index 1896.86 1654.61 14.6
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For the six months ended 28 February 2023 For the six months ended 28 February 2022
Performance (with dividends reinvested)
Net asset value per share (2) 16.6% -29.2%
Ordinary share price (2) 15.9% -33.4%
FTSE World Europe ex UK Index 14.6% -11.5%
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For the six months ended 28 February 2023 For the six months ended 28 February 2022 Change %
Revenue
Net profit on ordinary activities after taxation (£’000) 22 1,367 -98.4
Revenue profit per ordinary share (pence) (3) 0.02 1.37 -98.5
Dividends (pence)
Interim dividend 1.75 1.75 -
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(1) The change in net assets reflects payments for shares repurchased
into treasury, portfolio movements and dividends paid.
(2) Alternative Performance Measure, see Glossary contained within the
Half Yearly Financial Report.
(3) Further details are given in the Glossary contained within the
Half Yearly Financial Report.
CHAIRMAN’S STATEMENT
OVERVIEW
The outlook for Europe has improved considerably with some of the
macroeconomic and political shocks caused by Russia’s invasion of Ukraine,
which were weighing on global markets, now reversing. The improvements result
from a variety of reasons including the success in filling gas storage and
diversifying Europe’s sources of energy, as well as the mild weather over
the winter which helped to reduce energy demand and kept gas prices lower. As
energy prices fell back and the overall inflation rate declined, the annual
inflation rate in the Eurozone also finally dropped from double figures,
having surged to a 41-year high in October. Europe should also benefit from
the lifting of COVID-19 restrictions in China. This has already led to a
rebound in the country’s equities and should help broader equity markets,
including Europe, one of China’s largest trading partners. However, the
consequences of China’s closer association with Russia have yet to be
evidenced.
PERFORMANCE
I am pleased to report that against this backdrop, over the six months ended
28 February 2023, the Company’s net asset value per share (NAV) returned
16.6%, outperforming the FTSE World Europe ex UK Index (the reference index)
which returned 14.6%. Over the same period, the Company’s share price
returned 15.9% (all percentages calculated in Sterling terms with dividends
reinvested).
Since the period end to 9 May 2023, the Company’s NAV has increased by 1.9%
compared with a rise in the FTSE World Europe ex UK Index of 2.3% over the
same period.
REVENUE EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the six-month period ended 28
February 2023 amounted to 0.02p compared with 1.37p for the corresponding
period in 2022, a decrease of 98.5%. The majority of the Company’s income
typically is generated in the second half of the year when the portfolio
companies announce and pay dividends. The Board has taken this into account in
considering what the interim dividend should be.
The Board has declared an interim dividend of 1.75p (2022: 1.75p) per share.
The dividend will be paid on 19 June 2023 to shareholders on the Company’s
register on 19 May 2023, the ex-dividend date being 18 May 2023.
TENDER OFFERS
The Directors of the Company have the discretion to make semi-annual tender
offers at the prevailing NAV less 2%, for up to 20% of the issued share
capital in May and November of each year. The Board announced on 20 September
2022 that it had decided not to proceed with a tender offer in November 2022
and on 22 March 2023 that the tender offer in May 2023 would also not be
implemented.
Over the six-month period ended 28 February 2023, the Company’s shares
traded at an average discount to NAV of 5.5% compared to a discount of 2.0% to
NAV, the price at which any tender offer would be made and has sustained a
similar level of discount since that date. However, against a background of
volatile market conditions and the Company trading at the narrowest discount
within its peer group, the Board concluded that it was not in the interests of
shareholders to implement the latest semi-annual tender offer. The Board will
continue to monitor the Company’s discount and may use the Company’s share
buyback powers to ensure that the share price does not go to an excessive
discount to the underlying NAV. The Board remains committed to supporting the
share price to a narrow discount or premium to its NAV.
PORTFOLIO MANAGER
As announced on 21 December 2022, Stefan Gries became the sole Portfolio
Manager of the Company, as Sam Vecht stepped aside from his role as
co-Portfolio Manager of the Company. This reflects the current focus and asset
allocation within the Company’s portfolio. The Board would like to thank Sam
for his contribution to the Company and wish him well in continuing to manage
his other portfolios at BlackRock.
Stefan is a Managing Director and Head of the European Equity team within the
Fundamental Equity division of BlackRock’s Portfolio Management Group. He
has been co-Portfolio Manager of the Company since June 2017 and is supported
by the extensive resources and significant expertise of BlackRock’s
market-leading European Equity team.
AUDIT AND MANAGEMENT ENGAGEMENT COMMITTEE CHAIRMAN
In February 2022, Ian Sayers was appointed as a Director of the Company and,
towards the end of last year, Peter Baxter informed the Board of his wish to
step away from his responsibilities as Chairman of the Audit and Management
Engagement Committee. Ian, a qualified chartered accountant and chartered tax
adviser, agreed to step into the role, which took effect from 1 January 2023.
MANAGEMENT FEE
I am pleased to report that, following a review of management fees and
engagement with BlackRock, the Board reached an agreement to amend the
Company’s management fee arrangements. With effect from 1 January 2023, the
Company’s annual management fee, which is payable quarterly in arrears,
reduced from 0.85% per annum of net asset value to 0.85% per annum of net
asset value on net assets up to £350 million and 0.75% per annum of net asset
value on net assets thereafter.
OUTLOOK
After a year of concerns over a recession hitting Europe and a significant
interest rate hiking cycle, we continue to see many companies delivering good
results and the consumer being more resilient than expected. However, market
volatility is expected to remain in the near term as macro uncertainty
continues to be elevated. Going forward it will be important to see whether
inflation comes down to levels the market can deal with, and we continue to
see evidence that inflation has peaked and is falling. A sharp drop in gas
prices, China’s reopening and slowing inflation has also meant that European
equities not only rose in absolute terms but also significantly outperformed
US equities over the six-month period under review.
Our Investment Manager’s fundamental philosophy remains unchanged, with a
continued focus on Europe’s highest quality, well-capitalised,
fastest-growing companies with strong management teams that can create real
value for shareholders over time. This approach has served the Company well
over many years and the Investment Manager sees opportunities for attractive
returns.
ERIC SANDERSON
10 May 2023
INVESTMENT MANAGER’S REPORT
OVERVIEW
The Company’s share price and underlying NAV rose by 15.9% and 16.6%,
respectively, over the last six months to 28 February 2023. By way of
comparison, the FTSE World Europe ex UK Index returned 14.6% during the same
period (all percentages calculated in Sterling terms with dividends
reinvested).
Over these last six months, we have witnessed the start of a strong recovery
of European equity markets. Throughout the majority of calendar year 2022,
Europe was deemed ‘un-investable’ given the war in Ukraine, the resulting
energy crisis, high inflation and rising interest rates. There was a strong
consensus that Europe would enter a recession. However, market performance
started to improve from October onwards and, since then, the asset class has
had one of its best starts to a new year, with the Stoxx Europe 600 Index
materially outperforming the S&P 500 Index in the US.
We believe there are a number of reasons for this dramatic change. Firstly,
gas and electricity prices have significantly come down, proving that Europe
has been getting through the winter without a supply crunch. Europe managed to
decrease its gas consumption by 13% in 2022, largely driven by corporates who
a) have been able to use energy more efficiently and b) switched to other
energy sources such as oil, coal, diesel and renewables. Meeting with over
2,000 companies every year, we have been able to witness this almost in real
time. It immediately became clear that management teams’ focus turned to
controlling energy costs and embracing new energy sources. Simultaneously, gas
storage was filled quickly and the majority of Russian gas has been replaced
by new LNG (liquefied natural gas) terminals and alternative energies.
Furthermore, unforeseen support came from the weather: Reuters/Refinitv data
showed that from September to January, average temperatures in Germany, a key
dependent on Russian gas given its large industrial complex, were 25% or 1.58
degrees Celsius above normal and even 29% (2.3 degrees Celsius) above normal
during October and November 2022.
Secondly, inflation numbers started to fall sooner than expected, largely
driven by decreasing energy prices. As we discussed in our Annual Report for
the year ended 31 August 2022, the rapid rise of inflation led, in combination
with rising interest rates, to the largest derating of stocks since the 1970s.
We can now say with relative confidence that we have passed the peak of
inflation. This seems particularly true for consumer goods, which after 12 to
18 months of exceptional demand driven by COVID-19 and government support, are
finally seeing demand normalising and adjusting. This was also confirmed in
discussions we have had with management teams, whose rhetoric around the ease
of price increases changed towards the end of the year, with customers
becoming more reluctant to accept further increases. Other data points, such
as rent and wages, have also started moving in the right direction.
Importantly, these developments soften the pressure on central banks to
further tighten monetary conditions. Whilst we have to expect a few more rate
hikes in Europe, we would highlight that we do not believe equity markets
necessarily require rate cuts to continue moving higher. We believe the
derating of equities is largely behind us and monetary policy should no longer
impact markets as negatively as it did last year.
Thirdly, the U-turn in China’s zero COVID-19 policy and the subsequent
reopening of the Chinese economy is a major positive for Europe given that the
region generates circa 8% to 9% of revenue directly from China. We believe the
Chinese recovery will be driven by the consumer. By some estimates during the
long lockdowns, the Chinese consumer savings rate rose by 15% of GDP, compared
to pre-pandemic levels of 9%. Similar to what we saw post COVID-19 in Europe
and the US, we anticipate a degree of ‘revenge spending’. Together with
our team’s data scientists, we follow how this spending is evolving,
brand-by-brand and region-by-region. Key areas to benefit are likely to be
luxury goods, as well as less high-end consumer companies, beauty and travel,
as well as semiconductors and industrials. Indeed, from a European industrial
perspective, China has been in a recession for the last two years. Another
positive point is that the reduction of COVID-19 restrictions in China
improves bottlenecks in the global supply chains, which have caused
operational problems for many European companies in the last 12 to 18 months.
Equally of interest is the fact that there has been little investor
participation in the recent rally in European stocks. Whilst outflows from the
asset class have slowed and there has been a degree of short closing, we have
not seen major asset allocation changes towards Europe yet, which remains an
under-owned asset class overall.
At the time of writing, we are at the end of the Q4 earnings season and can
report that the majority of our companies continue to do well. After four
quarters of concerns over a recession hitting Europe and being one year into a
significant rate hiking cycle, we continue to see many companies delivering
decent results and the consumer being more resilient than expected.
PORTFOLIO
Over the period market leadership came from financials and cyclical assets
such as consumer discretionary, industrials and technology. Real estate and
defensives, including consumer staples and telecommunications, lagged the
market.
The strongest contribution over the last six months came from the technology
sector. The Company’s semiconductor-names started a rapid recovery after
suffering under the interest rate rise related technology sell-off during the
first half of 2022. During that time, we had held on to shares arguing that
higher interest rates will not have a material impact on the companies’
long-term prospects. In previous reports we have argued that the semiconductor
segment has become more structural and less cyclical. The companies we own
service different parts of the semiconductor value chain, serving a broad
range of end markets that should lend themselves to high, sustainable and
value accretive growth. Continuing to hold large weights in shares paid off
over the last six months. Shares in BE Semiconductor for example started a
strong recovery and shares rose a solid 56% over the period. BE Semiconductor
remains well positioned to benefit from the industry adopting new innovative
processes, particularly around Hybrid Bonding where key clients in Taiwan and
the US are expected to ramp-up capacity. Similarly, a key holding in ASML
contributed, due to stellar Q4 results and confident targets for 2030, with
guidance of net sales to grow over 25% compared to 2022. Despite potential for
ongoing macroeconomic uncertainties in the near term, ASML is somewhat
insulated given 18 to 24 months of tool lead times and two years of order
backlog.
Another long term, high conviction holding and strong contributor over the
period was diabetes specialist Novo Nordisk. Novo Nordisk is not only a
dominant player in the diabetes market with a wide range of products to
address the disease at various stages, but also has a major opportunity to win
in the obesity market with their new drug ‘Wegovy’. During the period, the
US Food and Drug Administration federal agency cleared the way for a key
Wegovy manufacturer to increase supply, followed by confirmation that they
were able to restock US pharmacies with all dose levels. We expect that the
company will be able to continue to grow 10% to 15% out to 2025, with EBIT
(earnings before interest and taxes) margins in the low 40% range.
Elsewhere it is worth highlighting our investments in European luxury goods
producers Hermès and LVMH, which both remain great examples of well-run
companies with impressive brand management and pricing power. LVMH for
example, despite being a cyclical consumer business, has not seen a down year
for organic growth in its Fashion & Leather Goods business over the last two
decades aside from the extraordinary circumstances of 2020. The luxury house
recorded strong revenue figures for the first half of the year, up 28%
compared to the same period in 2021. Chinese lockdown related impacts were
offset by strong tourism in Europe and robust sales in the US. More recently
both names have also benefited from China’s reopening and our alternative
data sources indicate a powerful uptick in sales to come.
A negative contribution over the period came from a) an underweight to
financials and b) two stock specific issues. Firstly, the European banks
sector has delivered strong performance over the period on the back of solid
results, as well as better short-to-medium term outlooks for earnings upgrades
and capital returns. Whilst our position in KBC Groep aided returns, not
owning several rate sensitive banks including Banco Santander, Unicredit, BBVA
and BNP Paribas was negative for performance. Followers of the Company will
know that we aim to identify and hold wealth creators: businesses that
dominate their respective markets and thereby generate high cash returns on
capital which can be reinvested at attractive incremental rates of return.
Most European banks are not what we consider wealth creators. We agree
banks’ shares have potential to recover from low valuations over a
short-term period, but we do not see them as long-term investments appropriate
for this portfolio.
Secondly, we saw stock specific hiccups with our holdings in ChemoMetec and
Royal Unibrew, which were the two single largest detractors from relative
returns over the last six months. Shares in ChemoMetec came under pressure due
to a change in management, as well as slowing growth. The announcement that
the current, well-regarded CEO, Steen Søndergaard, will be resigning this
year, ruffled feathers in markets. However, having met with the CEO and CFO
post the announcement, we were reassured by the clear message that the CEO is
leaving for personal reasons and will stay on until a successor is found to
make sure the handover is smooth. Additionally, the manufacturer of cell
therapy instruments saw a decline in order intake, particularly in the North
American market which was impacted by subdued investment sentiment and
subsequently weaker demand from capital-sensitive development companies. Yet,
EBITDA (earnings before interest, taxes, depreciation and amortization) has
held up well and the company delivered an impressive 63% and 57% margin in the
last two quarters. Whilst we do not believe the long-term opportunity has
materially changed and we continue to believe they are well positioned in a
very attractive market, the magnitude of slowdown was unexpected and we stay
in regular conversations with management.
Danish brewer Royal Unibrew suffered margin pressure from raw material costs.
Royal Unibrew is a clear example of a high-quality company with long-term
attractive profitability, which has been sustained through competitive pricing
power dynamics. In the shorter term however, without a strategy for hedging
energy and longer-term ties on contract pricing to customers, we saw margin
deterioration, particularly versus peers. In recognition of this, we reduced
our allocation to this stock in the portfolio. Going forward, as power prices
have fallen sharply from the peak, the company may stand to benefit – both
as their own contracts to customers roll over onto better pricing and as their
cost of goods sold falls.
In line with the portfolio’s mandate, turnover remains low at below 8% over
the period under review. We continue to work intensely on our well-established
fundamental research process, analysing estimates of earnings and cashflows,
conducting over 2,000 company meetings per year and having rigorous internal
discussions about where we could be wrong. Recently we have added resources to
our own data scientist team, who have done invaluable work, studying
alternative data sources around credit card spending, churn data of food
delivery, house deposits, wages and rent to really help us understand
businesses, industries, consumer behaviours and think about inflation in every
way possible.
Portfolio activity over the period includes the purchase of a small number of
well-positioned companies that we believe are excellent investments for years
to come. For example, we added Sartorius to the portfolio, a leading player
within the biopharmaceutical industry. Sartorius runs a portfolio of solutions
that focus on all major steps in the manufacturing of biologic drugs, vaccines
and genetic therapies. Its business addresses different stages of the
manufacturing process and includes complex technologies such as cell line,
cell culture media, bioreactors, products for separation, purification and
concentration of product, and solutions for storage and transportation. In our
view, this market is well placed for structural growth.
We also bought a new position in STMicroelectronics (STM). The French-listed
company creates semiconductor technologies such as microcontrollers and
sensors. STM has been outgrowing its end markets helped by a number of new
innovative product launches around auto, smartphones and industrial. This has
allowed STM to grow sales at 13% CAGR (compound annual growth rate) since
2016. We believe the company has the potential to continue on this path due to
their continued innovation in power chips for electric vehicles, sensors for
consumer electronics and connectivity for industrial applications. All these
areas should see secular growth ahead as devices need to become smarter and
more energy efficient.
OUTLOOK
Moving to our macro view, which is largely informed by our micro observations
and insights we have on individual companies. We have discussed that we
believe the environment for European equities has materially improved due to
the better energy situation, falling inflation and China re-opening. However,
as is usual in Europe, selectivity is key. We have seen a few sectors that
have over-earned since the pandemic. Think autos for example, where we believe
margins will come under pressure in the future due to rising rates, falling
used car prices and intensifying competition. We also make sure to avoid
highly leveraged or unprofitable companies with poor cash flow and near-term
debt refinancing demands. Some companies have in the past supported their
earnings growth by refinancing at lower levels. These times are clearly over.
Going forward, markets are likely to continue to closely follow inflation
numbers. With energy prices coming down, there is reason to be hopeful they
move to levels equity markets can deal with. Clarity on the terminal rate of
this hiking cycle would likely be enough to bring attention back to company
fundamentals – the ultimate driver of long-term equity returns.
Support comes from corporate balance sheets that are in decent shape and in
much better positions than in previous downturns. Many companies in Europe
have spent the last decade deleveraging balance sheets and interest coverage
is significantly higher than during the Global Financial Crisis or other prior
periods associated with deep recessions or prolonged bear markets. Corporate
spending intentions also remain healthy and this spend is often linked to
transformational capital expenditure.
Lastly, long-term structural trends and large amounts of fiscal spending via
the Recovery Fund, Green Deal, the REPowerEU plan or the latest Green Deal
Industrial Plan in Europe, can drive demand for years to come in areas such as
infrastructure, automation, medical innovation, electric vehicles,
digitisation and decarbonisation. We believe the portfolio is well aligned to
many of these structural spending streams.
STEFAN GRIES
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
10 May 2023
TEN LARGEST INVESTMENTS
The Company’s ten largest investments represented 52.6% of the Company’s
portfolio as at 28 February 2023
1 = Novo Nordisk (2022: 1st)
Health Care company
Market value: £51,432,000
Share of investments: 8.9%
A Danish multinational pharmaceutical company which is a leader in diabetes
care. We expect Novo Nordisk to post strong growth in earnings and cashflows
driven by demand for ‘Ozempic’ which treats Type 2 diabetes, as well as by
its weight management drug Wegovy, which came to the market last year.
Overall, we believe Novo Nordisk offers attractive long-term growth potential
at high returns and sector leading cash flow conversion with any excess in
cash being returned to shareholders.
2 + LVMH (2022: 3rd)
Consumer Discretionary company
Market value: £45,070,000
Share of investments: 7.8%
A French multinational holding corporation specialising in luxury goods. The
group has a strong and well-diversified portfolio of luxury brands ranging
from handbags to spirits to cosmetics. LVMH’s business model enjoys high
barriers to entry due to the heritage, provenance and exquisite quality of its
product offering. Its consistent brand investment through economic cycles has
helped to spur brand desirability and allowed for significant pricing power.
LVMH’s management team also has an impressive track record of taking over
struggling brands and accelerating their growth and returns profile over time.
3 - ASML (2022: 2nd)
Technology company
Market value: £39,029,000
Share of investments: 6.7%
A Dutch company which specialises in the supply of photolithography systems
for the semiconductor industry. The company is at the forefront of
technological change, investing in leading research and development to capture
the structural growth opportunity coming from growth in mobile devices and
microchip components. High barriers to entry within the industry give ASML a
protected position with strong pricing power allowing growth in margins whilst
they continue to innovate. The company is run by an exceptional management
team which aims to create long-term value whilst returning excess cash to
shareholders.
4 = RELX (2022: 4th)
Consumer Discretionary company
Market value: £31,612,000
Share of investments: 5.4%
A multinational information and analytics company which has high barriers to
entry in most of its divisions, including scientific publishing. This capital
light business model allows for a high rate of cash flow conversion with
repeatable revenues built on subscription-based models. The business also
benefits from the structurally increasing usage of data globally, which
supports their data analytics business.
5 = Lonza Group (2022: 5th)
Health Care company
Market value: £29,436,000
Share of investments: 5.1%
A Swiss health care services and life-sciences company which has established
itself as one of the leading contract manufacturers of high-end biological
drugs, as well as cell and gene therapy. The company’s competitive
advantages stem from the complexity of the production process – where few
peers can match its offering. This is cemented by high barriers to entry given
that all production facilities are required to be certified by the Food and
Drug Administration. Overall, we expect the company’s biologics business to
grow in the mid-teens every year for the next ten years with positive pricing,
as there is generally a shortage of capacity in the market.
6 = DSV Panalpina (2022: 6th)
Industrials company
Market value: £26,202,000
Share of investments: 4.5%
A Danish freight forwarding and logistics company run by an excellent
management team with a strong track record in creating value through
acquisitions and by instilling a best-in-class culture in its organisation.
Their success in making acquisitions has been facilitated by a strong
technology platform which drives operational efficiencies leading to high
conversion margins.
7 + Hermès (2022: 9th)
Consumer Discretionary company
Market value: £23,156,000
Share of investments: 4.0%
A French luxury design house established in 1837. It specialises in leather
goods, lifestyle accessories, home furnishings, perfumery, jewellery, watches
and ready-to-wear. Due to deliberate brand management and craftsmanship, this
ultimate high-end brand is supply constrained and enjoys strong earnings
visibility given some of its most iconic products are sold on allocation via
waiting lists. Hermès is a largely family-owned business and has been run in
a conservative fashion for generations with any strategic decisions taken with
the longest of time frames in mind. This business should prove resilient also
during economic downturns as Hermès’ client base is typically less
sensitive to weaker macro environments.
8 = Sika (2022: 8th)
Industrials company
Market value: £20,704,000
Share of investments: 3.6%
A specialty chemical company with a leading position in both construction
chemicals and in bonding agents for the automotive industry. The company has
proprietary technology within adhesives, which has an increasing array of
applications as technology advances. The company benefits from structural
drivers of urbanisation and has exposure to multiple points in the
construction cycle including new infrastructure projects, as well as
maintenance or refurbishment of existing buildings. It is also likely to
benefit from the EU Recovery Fund and the EU Green Deal channelling funds
towards sustainable infrastructure projects. The company’s decentralised
structure of subsidiaries and strong culture of new product innovation
continues to drive returns.
9 + Safran (2022: 12th)
Industrials company
Market value: £19,122,000
Share of investments: 3.3%
Safran is a French multinational supplier of systems and equipment for
aerospace, defence and security. The industry is emerging from a heavy
investment period in new planes and engines and we see Safran as well placed
to benefit from continued strength in its best in class after-market business,
as well as strong execution in its LEAP engine programme which should drive
growth for the next decade.
10 + KBC Groep (2022: 14th)
Financials company
Market value: £18,959,000
Share of investments: 3.3%
KBC Groep (KBC) is a Belgian universal multi-channel bank-insurer, focusing on
private clients and small- and medium-sized enterprises. KBC is a quality bank
which changed its focus following the Global Financial Crisis, building
resilience through conservative capital positions. KBC delivers above cost of
capital returns in its developed markets, while its CEE (Central and Eastern
Europe) exposure provides additional growth at higher returns. Management have
proven strong capital allocation discipline and costs remain well-controlled.
All percentages reflect the value of the holding as a percentage of total
investments.
Together, the ten largest investments represent 52.6% of the Company’s
portfolio (31 August 2022: 53.7%).
PORTFOLIO ANALYSIS AS AT 28 FEBRUARY 2023
% France % Switzerland % Ireland % Germany % Sweden % Netherlands % Denmark % Belgium % Spain % Italy % Central Eastern Europe & other % Portfolio 28.02.23 % Portfolio 31.08.22 % FTSE World Europe ex UK 28.02.23
Basic Materials – – – – – 3.0 – – – – – 3.0 3.3 4.8
Consumer Services – – – – – – – – – – – – – 3.4
Consumer Discretionary 11.8 – – – – 5.4 – – – 3.0 – 20.2 19.5 13.5
Consumer Staples – 2.2 – – – – 2.2 – – – – 4.4 6.5 8.9
Energy – – – – – – – – – – – – – 4.5
Financials – 1.5 – – – – – 3.3 – 2.4 1.0 8.2 11.7 18.1
Health Care 2.3 7.3 – – – – 9.9 – – 1.3 – 20.8 21.3 15.2
Industrials 5.1 5.8 1.0 1.2 3.1 2.7 4.5 – – – – 23.4 21.9 17.6
Real Estate – – – – – – – – – – – – – 1.1
Technology 1.8 2.1 – – 1.9 11.9 – – 2.3 – – 20.0 15.8 8.8
Utilities – – – – – – – – – – – – – 4.1
% Portfolio 28.02.23 21.0 18.9 1.0 1.2 5.0 23.0 16.6 3.3 2.3 6.7 1.0 100.0 – –
% Portfolio 31.08.22 14.9 17.1 1.2 1.2 6.5 23.0 20.3 2.6 2.5 6.2 4.5 – 100.0 –
% FTSE World Europe ex UK 28.02.23 22.6 19.2 0.6 16.6 6.4 9.7 5.6 1.8 5.2 4.4 7.9 – – 100.0
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Percentages in the table above are a % of total investments.
INVESTMENTS AS AT 28 FEBRUARY 2023
Country of operation Market value £’000 % of investments
Industrials
DSV Panalpina Denmark 26,202 4.5
Sika Switzerland 20,704 3.6
Safran France 19,122 3.3
Adyen Netherlands 15,479 2.7
ALD France 10,527 1.8
Atlas Copco Sweden 9,495 1.6
Epiroc Sweden 8,759 1.5
Belimo Switzerland 8,409 1.4
Rational Germany 6,833 1.2
Kingspan Ireland 6,054 1.0
VAT Group Switzerland 4,598 0.8
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136,182 23.4
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Health Care
Novo Nordisk Denmark 51,432 8.9
Lonza Group Switzerland 29,436 5.1
Sartorius France 13,459 2.3
Straumann Switzerland 9,551 1.6
DiaSorin Italy 7,382 1.3
ChemoMetec Denmark 5,881 1.0
PolyPeptide Group Switzerland 3,514 0.6
--------------- ---------------
120,655 20.8
========= =========
Consumer Discretionary
LVMH France 45,070 7.8
RELX Netherlands 31,612 5.4
Hermès France 23,156 4.0
Ferrari Italy 17,519 3.0
Ozon Holdings* Russia 2 –
Fix Price Group* Russia – –
--------------- ---------------
117,359 20.2
========= =========
Technology
ASML Netherlands 39,029 6.7
BE Semiconductor Netherlands 16,846 2.9
Amadeus IT Group Spain 13,448 2.3
ASM International Netherlands 13,048 2.3
STMicroelectronics Switzerland 11,916 2.1
Hexagon Sweden 10,982 1.9
ALTEN France 10,611 1.8
--------------- ---------------
115,880 20.0
========= =========
Financials
KBC Groep Belgium 18,959 3.3
FinecoBank Italy 13,857 2.4
Partners Group Switzerland 8,999 1.5
Allfunds Group United Kingdom 5,819 1.0
Sberbank* Russia 1 –
--------------- ---------------
47,635 8.2
========= =========
Consumer Staples
Royal Unibrew Denmark 12,895 2.2
Lindt Switzerland 12,496 2.2
--------------- ---------------
25,391 4.4
========= =========
Basic Materials
IMCD Netherlands 17,665 3.0
--------------- ---------------
17,665 3.0
========= =========
Energy
Lukoil* Russia – –
--------------- ---------------
– –
========= =========
Total investments 580,767 100.0
========= =========
* During the year ended 31 August 2022, the investments in Sberbank,
Ozon Holdings, Lukoil and Fix Price Group have been marked down to a nominal
value of £0.01 as the secondary listings of depositary receipts of Russian
companies have been suspended from trading.
All investments are in ordinary shares unless otherwise stated. The total
number of investments held at 28 February 2023 was 40 (31 August 2022: 39).
Industry classifications in the table above are based on the Industrial
Classification Benchmark standard for categorisation of companies by industry
and sector.
As at 28 February 2023, the Company did not hold any equity interests
comprising more than 3% of any company's share capital.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report above 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:
· Counterparty;
· Investment performance;
· Legal & regulatory compliance;
· Market;
· Operational;
· Financial; and
· Marketing.
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 2022. A detailed explanation can be found in the Strategic Report on
pages 31 to 34 and in note 15 on pages 90 to 97 of the Annual Report and
Financial Statements which are available on the website maintained by
BlackRock at www.blackrock.com/uk/brge.
In the view of the Board, there have not been any changes to the fundamental
nature of the principal risks and uncertainties since the previous report and
these are equally applicable to the remaining six months of the financial year
as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio,
the Company’s investment objective and the Company’s projected income and
expenditure, are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
The Board is mindful of the continuing uncertainty surrounding the current
environment of heightened geopolitical risk given the war in Ukraine. The
Board believes that the Company and its key third-party service providers have
in place appropriate business continuity plans and these services have
continued to be supplied without interruption.
The Company has a portfolio of investments which are predominantly readily
realisable and is able to meet all of its liabilities from its assets and
income generated from these assets. Accounting revenue and expense forecasts
are maintained and reported to the Board regularly and it is expected that the
Company will be able to meet all its obligations. The Investment Manager
generally aims to be fully invested and it is anticipated that gearing will
not exceed 15% of net asset value (NAV) at the time of drawdown of the
relevant borrowings. Borrowings under the overdraft facility shall at no time
exceed £60 million or 15% of the Company’s net asset value (whichever is
lower) and this covenant was complied with during the period. Based on the
above, the Board is satisfied that it is appropriate to continue to adopt the
going concern basis in preparing the financial statements. Ongoing charges for
the year ended 31 August 2022 were approximately 0.98% of net assets.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s
Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. 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)). Both BFM and BIM (UK) are regarded as
related parties under the Listing Rules. Details of the fees payable are set
out in note 4 and note 12 below. The related party transactions with the
Directors are set out in note 11 below.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance 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 Guidance
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 10 May 2023 and
the above responsibility statement was signed on its behalf by the Chairman.
ERIC SANDERSON
FOR AND ON BEHALF OF THE BOARD
10 May 2023
INCOME STATEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
Six months ended 28 February 2023 (unaudited) Six months ended 28 February 2022 (unaudited) Year ended 31 August 2022 (audited)
Notes Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Gains/(losses) on investments held at fair value through profit or loss – 80,774 80,774 – (138,558) (138,558) – (206,195) (206,195)
Gains on foreign exchange – 106 106 – 1,807 1,807 – 1,142 1,142
Income from investments held at fair value through profit or loss 3 930 – 930 2,338 – 2,338 10,394 177 10,571
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income 930 80,880 81,810 2,338 (136,751) (134,413) 10,394 (204,876) (194,482)
========= ========= ========= ========= ========= ========= ========= ========= =========
Expenses
Investment management fee 4 (419) (1,675) (2,094) (538) (2,151) (2,689) (977) (3,907) (4,884)
Other operating expenses 5 (424) (61) (485) (281) (12) (293) (811) (40) (851)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (843) (1,736) (2,579) (819) (2,163) (2,982) (1,788) (3,947) (5,735)
========= ========= ========= ========= ========= ========= ========= ========= =========
Net profit/(loss) on ordinary activities before finance costs and taxation 87 79,144 79,231 1,519 (138,914) (137,395) 8,606 (208,823) (200,217)
Finance costs (14) (57) (71) (54) (216) (270) (68) (270) (338)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before taxation 73 79,087 79,160 1,465 (139,130) (137,665) 8,538 (209,093) (200,555)
Taxation charge (51) – (51) (98) – (98) (810) – (810)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities after taxation 7 22 79,087 79,109 1,367 (139,130) (137,763) 7,728 (209,093) (201,365)
========= ========= ========= ========= ========= ========= ========= ========= =========
Earnings/(loss) per ordinary share (pence) 7 0.02 78.20 78.22 1.37 (139.64) (138.27) 7.65 (207.09) (199.44)
========= ========= ========= ========= ========= ========= ========= ========= =========
The total column of this statement represents the Company’s profit and loss
account. The supplementary revenue and capital accounts 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 period. All income is attributable to
the equity holders of the Company.
The net profit/(loss) on ordinary activities for the period disclosed above
represents the Company’s total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
Note Called up share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserves £’000 Revenue reserve £’000 Total £’000
For the six months ended 28 February 2023 (unaudited)
At 31 August 2022 117 85,325 130 71,572 315,960 10,695 483,799
Total comprehensive income:
Net profit for the period – – – – 79,087 22 79,109
Transactions with owners, recorded directly to equity:
Ordinary shares repurchased into treasury – – – (3,001) – – (3,001)
Share buyback costs – – – (13) – – (13)
Dividends paid (1) 6 – – – – – (4,899) (4,899)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 28 February 2023 117 85,325 130 68,558 395,047 5,818 554,995
========= ========= ========= ========= ========= ========= =========
For the six months ended 28 February 2022 (unaudited)
At 31 August 2021 113 48,340 130 71,541 522,321 9,286 651,731
Total comprehensive (loss)/income:
Net (loss)/profit for the period – – – – (139,130) 1,367 (137,763)
Transactions with owners, recorded directly to equity:
Ordinary shares issued 5 30,067 – – – – 30,072
Ordinary shares reissued from treasury – 6,974 – 2,843 2,743 – 12,560
Share issue costs – (58) – – – – (58)
Share reissue costs – – – (11) (12) – (23)
Tender offer costs written back – – – 14 – – 14
Dividends paid (2) 6 – – – – – (4,529) (4,529)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 28 February 2022 118 85,323 130 74,387 385,922 6,124 552,004
========= ========= ========= ========= ========= ========= =========
For the year ended 31 August 2022 (audited)
At 31 August 2021 113 48,340 130 71,541 522,321 9,286 651,731
Total comprehensive (loss)/income:
Net (loss)/profit for the period – – – – (209,093) 7,728 (201,365)
Transactions with owners, recorded directly to equity:
Ordinary shares issued 4 30,067 – – – – 30,071
Ordinary shares reissued from treasury – 6,974 – 2,843 2,743 – 12,560
Ordinary shares repurchased into treasury – – – (2,804) – – (2,804)
Share issue costs – (56) – – – – (56)
Share reissue costs – – – (14) (11) – (25)
Share buyback costs – – – (8) – – (8)
Tender costs written back – – – 14 – – 14
Dividends paid (3) 6 – – – – – (6,319) (6,319)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 August 2022 117 85,325 130 71,572 315,960 10,695 483,799
========= ========= ========= ========= ========= ========= =========
(1) Final dividend paid in respect of the year ended 31 August
2022 of 4.85p per share was declared on 3 November 2022 and paid on 16
December 2022.
(2) Final dividend paid in respect of the year ended 31 August
2021 of 4.55p per share was declared on 5 November 2021 and paid on 17
December 2021.
(3) Interim dividend paid in respect of the year ended 31 August
2022 of 1.75p per share was declared on 11 May 2022 and paid on 17 June 2022.
Final dividend paid in respect of the year ended 31 August 2021 of 4.55p per
share was declared on 5 November 2021 and paid on 17 December 2021.
For information on the Company’s distributable reserves, please refer to
note 9 below.
BALANCE SHEET AS AT 28 FEBRUARY 2023
Notes 28 February 2023 (unaudited) £’000 28 February 2022 (unaudited) £’000 31 August 2022 (audited) £’000
Fixed assets
Investments held at fair value through profit or loss 580,767 603,006 477,816
Current assets
Current tax asset 1,673 1,222 1,919
Debtors 26 1,293 220
Cash and cash equivalents – 1 7,348
--------------- --------------- ---------------
Total current assets 1,699 2,516 9,487
========= ========= =========
Creditors – amounts falling due within one year
Bank overdraft (23,869) (49,089) (182)
Other creditors (3,602) (4,429) (3,322)
--------------- --------------- ---------------
Total current liabilities (27,471) (53,518) (3,504)
--------------- --------------- ---------------
Net current (liabilities)/assets (25,772) (51,002) 5,983
--------------- --------------- ---------------
Net assets 554,995 552,004 483,799
========= ========= =========
Capital and reserves
Called up share capital 8 117 118 117
Share premium account 85,325 85,323 85,325
Capital redemption reserve 130 130 130
Special reserve 68,558 74,387 71,572
Capital reserves 395,047 385,922 315,960
Revenue reserve 5,818 6,124 10,695
--------------- --------------- ---------------
Total shareholders’ funds 554,995 552,004 483,799
========= ========= =========
Net asset value per ordinary share (pence) 7 549.50 539.59 475.72
========= ========= =========
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
Six months ended 28 February 2023 (unaudited) £’000 Six months ended 28 February 2022 (unaudited) £’000 Year ended 31 August 2022 (audited) £’000
Operating activities
Net profit/(loss) on ordinary activities before taxation 79,160 (137,665) (200,555)
Add back finance costs 71 270 338
(Gains)/losses on investments held at fair value through profit or loss (80,774) 138,558 206,195
Gains on foreign exchange (106) (1,807) (1,142)
Sale of investments held at fair value through profit or loss 39,221 86,473 179,206
Purchase of investments held at fair value through profit or loss (61,398) (151,233) (185,158)
Decrease/(increase) in debtors 194 159 (23)
Increase/(decrease) in other creditors 858 1,511 (160)
Taxation on investment income (246) (176) (1,498)
Interest paid (71) (270) (338)
Refund of withholding tax reclaims 441 96 9
--------------- --------------- ---------------
Net cash used in operating activities (22,650) (64,084) (3,126)
========= ========= =========
Financing activities
Ordinary shares issued – 32,888 32,889
Ordinary shares reissued from treasury – 12,551 12,535
Ordinary shares repurchased into treasury (3,592) – (2,234)
Dividends paid (4,899) (4,529) (6,319)
--------------- --------------- ---------------
Net cash (used in)/generated from financing activities (8,491) 40,910 36,871
========= ========= =========
(Decrease)/increase in cash and cash equivalents (31,141) (23,174) 33,745
Cash and cash equivalents at the beginning of the period/year 7,166 (27,721) (27,721)
Effect of foreign exchange rate changes 106 1,807 1,142
--------------- --------------- ---------------
Cash and cash equivalents at the end of the period/year (23,869) (49,088) 7,166
========= ========= =========
Comprised of:
Cash at bank – 1 1,104
Cash Fund (1) – – 6,244
Bank overdraft (23,869) (49,089) (182)
--------------- --------------- ---------------
(23,869) (49,088) 7,166
========= ========= =========
(1) Cash Fund represents funds held on deposit with the BlackRock
Institutional Cash Series plc - Euro Liquid Environmentally Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
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 financial statements of the Company are prepared on a going concern basis
in accordance with Financial Reporting Standard 104 Interim Financial
Reporting (FRS 104) applicable in the United Kingdom and Republic of Ireland
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 October 2019, and updated in
July 2022, and the provisions of the Companies Act 2006.
The accounting policies and estimation techniques applied for the condensed
set of financial statements are as set out in the Company’s Annual Report
and Financial Statements for the year ended 31 August 2022.
3. INCOME
Six months ended 28 February 2023 (unaudited) £’000 Six months ended 28 February 2022 (unaudited) £’000 Year ended 31 August 2022 (audited) £’000
Investment income:
UK dividends – – 681
Overseas dividends 929 2,234 9,072
Overseas special dividends – 104 641
--------------- --------------- ---------------
Total investment income 929 2,338 10,394
========= ========= =========
Other income:
Interest received 1 – –
--------------- --------------- ---------------
1 – –
--------------- --------------- ---------------
Total income 930 2,338 10,394
========= ========= =========
Dividends and interest received in cash during the period amounted to
£691,000 and £1,000 respectively (six months ended 28 February 2022:
£2,396,000 and £nil; year ended 31 August 2022: £8,893,000 and £nil).
No special dividends have been recognised in capital during the period (six
months ended 28 February 2022: £nil; year ended 31 August 2022: £177,000).
4. INVESTMENT MANAGEMENT FEE
Six months ended 28 February 2023 (unaudited) Six months ended 28 February 2022 (unaudited) Year ended 31 August 2022 (audited)
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Investment management fee 419 1,675 2,094 538 2,151 2,689 977 3,907 4,884
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 419 1,675 2,094 538 2,151 2,689 977 3,907 4,884
========= ========= ========= ========= ========= ========= ========= ========= =========
With effect from 1 January 2023, the investment management fee is levied
quarterly based on a tiered basis: 0.85% per annum on month-end net asset
value up to £350 million and 0.75% per annum on month-end net asset value
above £350 million.
Up to and including 31 December 2022, the investment management fee was 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 20% to the revenue account and 80%
to the capital account of the Income Statement. There is no additional fee for
company secretarial and administration services.
5. OTHER OPERATING EXPENSES
Six months ended 28 February 2023 (unaudited) £’000 Six months ended 28 February 2022 (unaudited) £’000 Year ended 31 August 2022 (audited) £’000
Allocated to revenue:
Broker fees 24 21 46
Custody fees 14 35 61
Depositary fees 32 37 62
Audit fees (1) 29 26 52
Legal fees (2) 13 13 142
Registrar’s fees 48 41 92
Directors’ emoluments 84 66 151
Marketing fees 46 48 130
Postage and printing fees 35 39 60
AIC fees 11 11 21
Professional fees 43 6 19
Stock exchange listing fees 24 9 17
Write back of prior year expense accruals (3) – (116) (55)
Other administration costs 21 45 13
--------------- --------------- ---------------
424 281 811
========= ========= =========
Allocated to capital:
Custody transaction costs (4) 61 12 40
--------------- --------------- ---------------
485 293 851
========= ========= =========
(1) No non-audit services are provided by the Company’s auditor.
(2) For the year ended 31 August 2022, legal fees of £117,000 related
to legal work for the aborted issuance of a long-dated loan note.
(3) No prior year accruals have been written back in the period (six
months ended 28 February 2022: legal fees, printing and postage fees, reclaim
of VAT and miscellaneous fees; year ended 31 August 2022: legal fees, printing
and postage fees, professional fees, miscellaneous fees and Directors’
expenses).
(4) For the six month period ended 28 February 2023, expenses of
£61,000 (six months ended 28 February 2022: £12,000; year ended 31 August
2022: £40,000) were charged to the capital account of the Income Statement.
These relate to transaction costs charged by the custodian on sale and
purchase trades.
The direct transaction costs incurred on the acquisition of investments
amounted to £98,000 for the six months ended 28 February 2023 (six months
ended 28 February 2022: £221,000; year ended 31 August 2022: £244,000).
Costs relating to the disposal of investments amounted to £28,000 for the six
months ended 28 February 2023 (six months ended 28 February 2022: £30,000;
year ended 31 August 2022: £55,000). All transaction costs have been included
within the capital account.
6. DIVIDENDS
The Directors have declared an interim dividend of 1.75p per share for the
period ended 28 February 2023, payable on 19 June 2023 to shareholders on the
register on 19 May 2023. The total cost of the dividend based on 101,000,161
ordinary shares in issue at 10 May 2023 was £1,768,000 (28 February 2022:
£1,790,000).
In accordance with FRS 102, Section 32 ‘Events After the End of the
Reporting Period’, the interim dividend payable on the ordinary shares has
not been included as a liability in the financial statements, as interim
dividends are only recognised when they have been paid.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue, capital earnings/(loss) and net asset value per ordinary share are
shown below and have been calculated using the following:
Six months ended 28 February 2023 (unaudited) Six months ended 28 February 2022 (unaudited) Year ended 31 August 2022 (audited)
Net revenue profit attributable to ordinary shareholders (£’000) 22 1,367 7,728
Net capital profit/(loss) attributable to ordinary shareholders (£’000) 79,087 (139,130) (209,093)
--------------- --------------- ---------------
Total profit/(loss) attributable to ordinary shareholders (£’000) 79,109 (137,763) (201,365)
--------------- --------------- ---------------
Total shareholders’ funds (£’000) 554,995 552,004 483,799
========= ========= =========
Earnings per share
The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: 101,136,375 99,633,726 100,964,479
The actual number of ordinary shares in issue at the end of the period on which the net asset value per ordinary share was calculated was: 101,000,161 102,300,411 101,698,853
Calculated on weighted average number of ordinary shares:
Revenue earnings per share (pence) – basic and diluted 0.02 1.37 7.65
Capital earnings/(loss) per share (pence) – basic and diluted 78.20 (139.64) (207.09)
--------------- --------------- ---------------
Total earnings/(loss) per share (pence) – basic and diluted 78.22 (138.27) (199.44)
========= ========= =========
As at 28 February 2023 (unaudited) As at 28 February 2022 (unaudited) As at 31 August 2022 (audited)
Net asset value per share (pence) 549.50 539.59 475.72
Ordinary share price (pence) 523.00 538.00 456.00
========= ========= =========
There were no dilutive securities at 28 February 2023 (28 February 2022: none;
31 August 2022: none).
8. CALLED UP SHARE CAPITAL
(unaudited) Ordinary shares number Treasury shares number Total shares number Nominal value £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 0.1 pence each:
At 31 August 2022 101,698,853 16,230,085 117,928,938 117
Ordinary shares repurchased into treasury (698,692) 698,692 – –
--------------- --------------- --------------- ---------------
At 28 February 2023 101,000,161 16,928,777 117,928,938 117
========= ========= ========= =========
During the six months ended 28 February 2023, 698,692 ordinary shares were
repurchased and held in treasury (six months ended 28 February 2022: nil; year
ended 31 August 2022: 601,558) for a net consideration after expenses of
£3,014,000 (six months ended 28 February 2022: £nil; year ended 31 August
2022: £2,812,000).
During the six months ended 28 February 2023, no new ordinary shares were
issued (six months ended 28 February 2022: 4,300,000; year ended 31 August
2022: 4,300,000) for a net consideration after expenses of £nil (six months
ended 28 February 2022: £30,014,000; year ended 31 August 2022:
£30,015,000).
During the six months ended 28 February 2023, no ordinary shares were reissued
from treasury (six months ended 28 February 2022: 1,945,000; year ended 31
August 2022: 1,945,000) for a net consideration after expenses of £nil (six
months ended 28 February 2022: £12,537,000; year ended 31 August 2022:
£12,535,000).
Since 28 February 2023 and up to the latest practicable date of 10 May 2023,
no ordinary shares have been repurchased and placed in treasury.
9. RESERVES
The share premium account and capital redemption reserve are not distributable
reserves under the Companies Act 2006. In accordance with ICAEW Technical
Release 02/17BL on Guidance on Realised and Distributable Profits under the
Companies Act 2006, the special reserve and capital reserves may be used as
distributable reserves for all purposes and, in particular, the repurchase by
the Company of its ordinary shares and for payments as dividends. In
accordance with the Company’s Articles of Association, the special reserve,
capital reserves and revenue reserve may be distributed by way of dividend.
The gain on the capital reserve arising on the revaluation of investments held
of £132,037,000 (six months ended 28 February 2022: gain of £137,621,000;
year ended 31 August 2022: gain of £54,590,000) is subject to fair value
movements and may not be readily realisable at short notice; as such it may
not be entirely distributable. The investments are subject to financial risks;
as such the capital reserve (arising on investments sold) and the revenue
reserve may not be entirely distributable if a loss occurred during the
realisation of these investments.
10. FINANCIAL RISKS AND VALUATION OF FINANCIAL INSTRUMENTS
The Company’s investment activities expose it to the various types of risk
which are associated with the financial instruments and markets in which it
invests. The risks are substantially consistent with those disclosed in the
previous annual financial statements, with the exception of those outlined
below.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than
those arising from interest rate risk or currency risk), whether those changes
are caused by factors specific to the individual financial instrument or its
issuer, or factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issues, recessions,
climate change or other events could have a significant impact on the Company
and the market price of its investments.
The current environment of heightened geopolitical risk given the war in
Ukraine has undermined investor confidence and market direction. In addition
to the tragic and devastating events in Ukraine, the war has constricted
supplies of key commodities, pushing prices up and creating a level of market
uncertainty and volatility which is likely to persist for some time.
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 and cash equivalents and
overdrafts). Section 34 of FRS 102 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 on page 82 of the Annual
Report and Financial Statements for the year ended 31 August 2022.
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 prices for similar
instruments in markets that are considered less 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 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. 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 Level
3 asset or liability, including an assessment of the relevant risks including
but not limited to credit risk, market risk, liquidity risk, business risk and
sustainability risk. The determination of what constitutes ‘observable’
inputs requires significant judgement by the Investment Manager and these
risks are adequately captured in the assumptions and inputs used in
measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
The table below is the 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 28 February 2023 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Equity investments 580,764 – 3 580,767
--------------- --------------- --------------- ---------------
Total 580,764 – 3 580,767
========= ========= ========= =========
Financial assets at fair value through profit or loss at 28 February 2022 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Equity investments 603,006 – – 603,006
--------------- --------------- --------------- ---------------
Total 603,006 – – 603,006
========= ========= ========= =========
Financial assets at fair value through profit or loss at 31 August 2022 (audited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Equity investments 477,813 – 3 477,816
--------------- --------------- --------------- ---------------
Total 477,813 – 3 477,816
========= ========= ========= =========
The Company held four Level 3 securities as at 28 February 2023 (28 February
2022: nil; 31 August 2022: four).
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 financial assets at fair value through profit or loss
Six months ended 28 February 2023 (unaudited) £’000 Six months ended 28 February 2022 (unaudited) £’000 Year ended 31 August 2022 (audited) £’000
Opening fair value 3 – –
Transfers from Level 1 – – 3
--------------- --------------- ---------------
Closing fair value 3 – 3
========= ========= =========
During the year ended 31 August 2022, the investments in Ozon Holdings, Fix
Price Group, Sberbank and Lukoil have been marked down to a nominal value of
£0.01, as the secondary listings of depositary receipts of Russian companies
have been suspended from trading.
For exchange listed equity investments, the quoted price is the bid price.
Substantially all investments are valued based on unadjusted quoted market
prices. Where such quoted prices are readily available in an active market,
such prices are not required to be assessed or adjusted for any business
risks, including climate change risk, in accordance with the fair value
related requirements of the Company’s financial reporting framework.
11. RELATED PARTY DISCLOSURE
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 £44,000, the
Chairman of the Audit and Management Engagement Committee receives an annual
fee of £35,000 and each of the other Directors receives an annual fee of
£30,000.
As at 28 February 2023, the following members of the Board hold shares in the
Company: Eric Sanderson held 4,000 ordinary shares, Peter Baxter held 11,000
ordinary shares, Ian Sayers held 4,000 ordinary shares and Paola Subacchi held
9,017 ordinary shares.
Since the period end and up to the date of this report there have been no
changes in Directors’ holdings.
The transactions with the Investment Manager and AIFM are stated in note 12
below.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of
BlackRock Inc. (“Related BlackRock Funds”); or
b. investors (other than those listed in (a) above) who held more
than 20% of the voting shares in issue in the Company and are as a result,
considered to be related parties to the Company (“Significant Investors”).
As at 28 February 2023
Total % of shares held by Related BlackRock Funds Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc.
0.91% n/a n/a
As at 28 February 2022
Total % of shares held by Related BlackRock Funds Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc.
1.28% n/a n/a
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
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
page 45 in the Annual Report and Financial Statements for the year ended 31
August 2022.
With effect from 1 January 2023, the investment management fee is levied
quarterly based on 0.85% per annum of net asset value on net assets up to
£350 million and 0.75% on net asset value on net assets thereafter on the
last day of each month. Up to and including 31 December 2022, the investment
management fee was levied quarterly and was based on 0.85% per annum of net
asset value on the last day of each month. The investment management fee due
for the six months ended 28 February 2023 amounted to £2,094,000 (six months
ended 28 February 2022: £2,689,000; year ended 31 August 2022: £4,884,000).
At the period end, £3,145,000 was outstanding in respect of the management
fee (28 February 2022: £3,992,000; 31 August 2022: £2,199,000).
In addition to the above services, BIM (UK) provided the Company with
marketing services. The total fees paid or payable for these services for the
six months ended 28 February 2023 amounted to £46,000 excluding VAT (six
months ended 28 February 2022: £48,000; year ended 31 August 2022:
£130,000). Marketing fees of £117,000 excluding VAT were outstanding at 28
February 2023 (28 February 2022: £112,000; 31 August 2022: £71,000).
During the year, the Manager pays the amounts due to the Directors. These fees
are then reimbursed by the Company for the amounts paid on its behalf. As at
28 February 2023, an amount of £111,000 was payable to the Manager in respect
of Directors’ fees (28 February 2022: £88,000; 31 August 2022: £149,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 28 February 2023 (28 February 2022:
none; 31 August 2022: none).
14. 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 2023 and
28 February 2022 has not been audited.
The information for the year ended 31 August 2022 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.
15. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 August
2023 in early November 2023. Copies of the annual results announcement can be
obtained from the Secretary on 020 7743 3000 or cosec@blackrock.com. The
Annual Report should be available by November 2023 with the Annual General
Meeting being held in December 2023.
12 Throgmorton Avenue
London
EC2N 2DL
10 May 2023
For further information please contact:
Melissa Gallagher, Head, Closed End Funds, BlackRock Investment Management
(UK) Limited – 020 7743 3893
Stefan Gries, Fund Manager, BlackRock Investment Management (UK) Limited –
020 7743 3000
Press enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
END
The Half Yearly Financial Report will also be available on the BlackRock
website at www.blackrock.com/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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