REG-BlackRock Greater Europe Investment Trust Plc: Final Results
05/11/2024 18:15
BlackRock Greater Europe Investment Trust plc
LEI: 5493003R8FJ6I76ZUW55
Annual Report and Financial Statements 31 August 2024
Performance record
As at As at
31 August 31 August
2024 2023
Net assets (£’000) 1 640,300 565,710
Net asset value per ordinary share (pence) 644.60 560.11
Ordinary share price (mid-market) (pence) 601.00 527.00
Discount to cum income net asset value 2 6.8% 5.9%
FTSE World Europe ex UK Index 2219.24 1916.71
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For the year For the year
ended ended
31 August 31 August
2024 2023
Performance (with dividends reinvested)
Net asset value per share 2 16.4% 19.2%
Ordinary share price 2 15.5% 17.1%
FTSE World Europe ex UK Index 15.8% 15.8%
========= =========
For the period For the period
since inception 4 since inception 4
to 31 August to 31 August
2024 2023
Performance (with dividends reinvested)
Net asset value per share 2 797.6% 671.0%
Ordinary share price 2 747.3% 633.9%
FTSE World Europe ex UK Index 461.2% 384.7%
========= =========
For the year For the year Change
ended ended %
31 August 31 August
2024 2023
Revenue
Net profit on ordinary activities after taxation (£’000) 7,379 6,920 +6.6
Revenue earnings per ordinary share (pence) 3 7.35 6.85 +7.3
--------------- --------------- ---------------
Dividends (pence)
Interim dividend 1.75 1.75 –
Final dividend 5.25 5.00 +5.0
--------------- --------------- ---------------
Total dividends payable/paid 7.00 6.75 +3.7
========= ========= =========
1 The change in net assets reflects payments for shares repurchased into
treasury, portfolio movements and dividends paid.
2 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements.
3 Further details are given in the Glossary in the Annual Report and
Financial Statements.
4 20 September 2004.
Chairman’s Statement
Overview
The European economy entered 2024 on a weaker footing than previously expected
after narrowly avoiding a technical recession in the second half of 2023. This
was against a background of weak consumer demand. The European Central Bank
maintained a tight monetary policy despite improving inflation, and adopted a
cautious stance in light of persistent geopolitical instability and underlying
inflationary risks. Despite the above, European equities delivered strong
positive returns in the first half of 2024, as inflation figures continued
their downward trend and in the expectation of further interest rate cuts by
central banks.
Performance
Against this background, I am pleased to report that the portfolio performed
well during the year, outperforming its reference index. The Company’s net
asset value per share (NAV) returned +16.4% and the share price +15.5%. In
comparison, the FTSE World Europe ex UK Index returned +15.8% over the same
period (all percentages calculated in Sterling terms with dividends
reinvested).
More details on this and the significant contributors to and detractors from
performance during the year are given in the Investment Manager’s Report
below. Since the financial year end and up to close of business on 1 November
2024, the Company’s NAV has decreased by 7.0% compared with a fall in the
FTSE World Europe ex UK Index of 3.4% over the same period.
Revenue earnings and dividends
Your Company’s total revenues each year are a reflection of the dividends we
receive from portfolio companies. The revenue return per share for the year
ended 31 August 2024 amounted to 7.35p per share, which compares with 6.85p
per share for the previous year, an increase of 7.3%.
At present, the dividends paid from the Russian securities in the Company’s
portfolio are held in a custody ‘S’ account in Moscow. The balance on the
‘S’ account as at 31 August 2024 was equivalent to approximately £2.45
million at the exchange rate applicable on that date. The Company’s
Investment Manager is monitoring the receipts into the ‘S’ account against
dividends announced by the portfolio companies, although there is no certainty
that the sums in the ‘S’ account will ever be received by the Company.
They are not recognised in the Company’s net asset value or in its income
statement.
The Board also monitors the underlying local value of the Russian securities
on the Moscow Stock Exchange which at 31 August 2024 were approximately £23.1
million at the exchange rate applicable on that date, although again there is
much uncertainty whether the Company will ever be able to receive any value in
respect of these securities. These investments have been held at a nominal
value of £0.01 in the net asset value at 31 August 2024.
In April, the Board declared an interim dividend of 1.75p per share (2023:
1.75p) and the Board is proposing the payment of a final dividend of 5.25p per
share for the year (2023: 5.00p). This, together with the interim dividend,
makes a total dividend for the year of 7.00p per share (2023: 6.75p), an
increase of 3.7%. The dividend will be funded from revenue received in the
year. Subject to shareholder approval, the dividend will be paid on 20
December 2024 to shareholders on the Company’s register on 22 November 2024,
the ex-dividend date being 21 November 2024.
Management of share rating
Over the year to 31 August 2024, the Company’s shares have traded at an
average discount of 5.6%. During the year, the Company purchased 1,668,000
ordinary shares at an average price of 613.13p per share and an average
discount of 5.4% for a total cost of £10,227,000. Since the year end up to 4
November 2024, a further 1,094,011 ordinary shares have been bought back at
an average price of 578.60p per share for a total cost of £6,330,000. All
shares have been placed in treasury.
As reported in the Half Yearly Financial Report, the Directors exercised their
discretion not to operate the half yearly tender offers in November 2023 and
May 2024. It was also announced on 24 September 2024 that the Board had
decided not to implement a semi-annual tender offer in November 2024. Over the
six months to 31 August 2024, the average discount to NAV (cum income) was
4.9% and the discount as at close of business on 23 September 2024 was 5.6%.
Against a background of volatile market conditions and the Company trading at
the narrowest discount within its peer group at that date, the Board concluded
that it was not in the interests of shareholders as a whole to implement a
semi-annual tender offer in November 2024.
The Directors recognise the importance to investors that the market price of
the Company’s shares should not trade at a significant premium or discount
to the underlying NAV. Accordingly, in normal market conditions, the Board may
use the Company’s share buy back and share issue powers, or operate six
monthly tender offers, to ensure that the share price does not go to an
excessive discount or premium to the underlying NAV. Resolutions to renew the
Company’s semi-annual tender offers and the authorities to issue and buy
back shares will be put to shareholders at the forthcoming Annual General
Meeting.
Board composition and policy on tenure
Having served as a Director of the Company since April 2013, and as Chair
since November 2016, it is my intention to step down from the Board in due
course, subject to a suitable successor being identified. As part of orderly
succession planning, the Board commenced a search in the year to identify a
new Director, assisted by a third-party recruitment firm. As part of this
process, consideration is being given to ensuring that the Board retains an
appropriate balance of skills, knowledge and experience, independence and
diversity that meets or exceeds relevant best practice. The process is
underway and a further announcement will be made in due course.
The Board has also decided to introduce guidelines on Directors’ tenure,
with the intention that (under normal conditions) no Director will normally
serve on the Board for more than nine years, or twelve years in the case of
the Chairman. The longer time limit for the Chairman’s tenure is to allow
for continuity of leadership in circumstances where a Chairman is appointed
from the ranks of existing Board members after having already served on the
Board for a period of time. In setting this policy, the Board is mindful that
two Board members have exceeded the proposed nine-year limit. To ensure an
orderly Board refreshment process, the implementation of the new guidance on
tenure will therefore be phased in over a period of time.
The Board is cognisant of the benefits of a diverse range of skills on the
Board and the Company is compliant with the Parker Review recommendation that
FTSE 350 companies have at least one director from an ethnically diverse
background by 2024. In accordance with the Listing Rules we have disclosed the
ethnicity of the Board and policy on matters of diversity in the Corporate
Governance Statement in the Annual Report and Financial Statements. The Board
is also compliant with the recommendations of the FTSE Women Leaders Review.
The review set targets for FTSE 350 companies which are designed to achieve
boards with 40% female representation (previously 33%) and at least one woman
in the role of Chair or Senior Independent Director on the board.
Shareholder communications
The Board appreciates how important access to regular information is to our
shareholders. To supplement our website, we offer shareholders the ability to
sign up to the Trust Matters newsletter which includes information on the
Company, as well as news, views and insights. Further information on how to
sign up is included on the inside cover of the Annual Report and Financial
Statements.
Outlook
There are uncertainties in the outlook based on events such as the recent
elections both in the US and Europe, inflation and interest rates, as well as
geo-politics. However, a combination of interest rates starting to trend
downwards (the ECB has indicated a clear direction after easing policy twice
since June) and signs of moderate but improving economic momentum, give
reasons for cautious optimism for the European economy and its stock markets.
European stocks are attractively valued both relative to their history and
global markets, especially so in comparison to the US market. This could bring
positive returns, helped by the macroeconomic environment, the potential for
improvement in corporate earnings and the increased use of buybacks by
European management teams returning capital to shareholders.
Annual General Meeting
The Annual General Meeting (AGM) of the Company will be held in person at the
offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 10
December 2024 at 12 noon. Details of the business of the meeting are set out
in the Notice of Annual General Meeting in the Annual Report and Financial
Statements.
For the benefit of shareholders who are unable to attend this year’s AGM in
person, we have arranged for the proceedings to be viewed via a webinar. You
can register to watch the AGM by scanning the QR Code inside the cover of the
Annual Report and Financial Statements or by visiting our website at
www.blackrock.com/uk/brge and clicking on the registration banner. Please note
that it is not possible to speak or vote at the AGM via this medium and
joining the webinar does not constitute attendance at the AGM. Shareholders
wishing to exercise their right to attend, speak and vote at the AGM should
either attend in person or exercise their right to appoint a proxy to do so on
their behalf.
ERIC SANDERSON
Chairman
5 November 2024
Investment Manager’s Report
Market review
For the year ended 31 August 2024 performance was positive with a share price
total return of 15.5% and underlying NAV return of 16.4%. By way of
comparison, the reference index (FTSE World Europe ex UK Index) returned 15.8%
over the same period. All percentages are calculated in Sterling terms with
dividends reinvested. Despite the strong performance, the market was volatile,
driven by rapidly shifting market narratives concerning the resilience (or
lack thereof) of global economic growth and the future path of interest rates.
Reviewing events chronologically, the Company’s financial year started with
persistently high interest rates weighing on sentiment. Equity markets moved
off their lows from October 2023 as inflation in both the US and Europe
surprised to the downside leading to a downward shift in interest rate
expectations and enabling policy makers at the Federal Reserve and the
European Central Bank to pause further rate hikes. Cyclical and long-duration
assets led the charge as investors anticipated rate cuts in 2024. This
positive momentum carried over into the first quarter of 2024, finding
additional support from better-than-expected macroeconomic data as well as
robust corporate earnings. 2023 full year results – reported in the first
quarter of 2024 – saw capital expenditure announcements from large US
technology groups which surprised significantly to the upside and led to
strong share price moves in technology and semiconductor related issuers. The
market overall favoured cyclical and quality growth assets, which generally
benefited the Company’s portfolio positioning during this period.
Beginning in the early second quarter of 2024 the market’s enthusiasm ebbed,
with higher inflation and weaker growth data causing a repricing in interest
rate expectations, a re-emergence of ‘hard landing’ fears and a coincident
change in equity market leadership – with defensive and value stocks
favoured over cyclicals and growth.
The distressing ongoing conflicts in Ukraine and the Middle East were never
far from the news. While the human costs of these events are enormous and
tragic, the impact on financial markets has been limited – with major
commodity prices generally well behaved and an imperceptible influence on
major European company earnings. Closer to home, French parliamentary
elections led to a temporary rise in risk premia applied to French domiciled
assets, but there is limited evidence of any impact on future earnings so far.
Portfolio performance
Defensives
Reviewing performance at the single stock level, two very different defensive
businesses – Novo Nordisk (Novo) and RELX – were top contributors. Novo
was the Company’s top performing stock over the period. Several years of
exceptional share price developments have left the company’s merits better
recognised by market participants today, with Novo growing into the largest
holding in the Company over the past two years.
Over the last year Novo shares continued to rise due to strong sales growth of
its GLP-1 drugs, ongoing expansion into the obesity treatment market, positive
clinical trial results, as well as regulatory approvals. Its obesity
blockbuster drug Wegovy experienced surging demand globally, particularly so
in the US, with sales increasing by over 200% year-on-year in 2023, adding
approximately US$2.4 billion to group revenues.
Despite the gradual emergence of new players in the obesity market, we take
comfort from the fact that most new entrants are still in the early
development stage with potentially new drugs years away from entering this
highly attractive market; they also fail to offer clear differentiation from
Novo’s injectable product portfolio thus far.
Additionally, the combination of a large total addressable market in obesity
and continued supply shortages experienced by the leading manufacturers means
this segment should offer room for multiple players; in fact, having more than
two players would help to develop the category benefiting all companies
involved. For now, we expect the obesity market to remain dominated by Novo
and Eli Lilly.
Looking ahead, we remain positive on Novo’s outlook. We anticipate several
catalysts to drive the shares higher, including positive Phase III data for
CagriSema, which is currently undergoing clinical trials. Early results have
shown promising efficacy in weight reduction and glycaemic control compared to
existing treatments, which could make it the best-in-class drug when it
launches in the second half of 2025.
The closure of the Catalent deal, a strategic collaboration to expand
production capacity for Wegovy, should significantly boost manufacturing
capacity to serve currently unmet demand, as 1.2 billion people are expected
to live with obesity by 2030, up from 800 million in 2020. From here, we
expect Novo Nordisk to continue growing sales at 20% top line with over
proportional growth in operating earnings.
Secondly, RELX showed strong share price developments on the back of a step
change in its organic sales growth profile. As a leading provider of
information-based analytics and decision tools for professional and business
customers, RELX has undergone a significant business transformation in recent
years. It has invested heavily in value-add tools, particularly in their
subscription-based ‘Scientific, Technical, and Medical’ (STM) and
‘Legal’ divisions, which tend to run on contract structures of at least
three to five years. This provides excellent revenue visibility, as for many
of its clients renewing those subscriptions represents a business-critical
decision, with high switching costs.
Above all, RELX’s strength lies in the vast amount of data they possess.
Instead of just selling data, they build state of the art analytical tools.
One example of this is in the Legal division which allows lawyers to search
for historic case verdicts and assist in drafting legal documents. Their Legal
division generated 2% organic growth pre-Covid which has accelerated to 6%
since then.
Finally, following years of investing smartly in those capabilities, RELX has
managed to emerge as an ‘artificial intelligence (AI) winner’. It benefits
from holding intellectual property (IP) and has made significant steps in
monetising AI, already generating revenue from their AI tools, leaving
potential for further acceleration in revenue growth in future years.
Consumer cyclical
Shares in high-end sports car manufacturer Ferrari, a quasi-luxury company in
the autos sector, also contributed successfully rising by 50% over the period.
This success can be attributed primarily to a strong build out of its order
book, a significant shift in mix and personalisation revenues that increased
the average sale price per car by over 10% over the past year.
Ferrari’s strategy of focusing on limited production volumes, selling just
14,000 cars per year, continues to create elevated levels of brand desire, an
unparalleled degree of pricing power and has demonstrably enhanced its
earnings resilience over time. Despite weakness in the broader consumer
market, particularly among ‘aspirational buyers’, Ferrari has managed to
stay largely unaffected as 74% of its cars were sold to existing customers in
2023.
Major upcoming product launches, including the 12 Cilindri and 12 Cilindri
Spider sportscars, ensure the group’s product pipeline remains strong and
should also support attractive growth in the coming years. Additionally, brand
equity remains carefully managed with its high-quality management team
ensuring that the second-hand market supports their overall pricing strategy.
One of Ferrari’s greatest advantages lies in its unique ability to increase
or restrict supply of any one model at any given time, allowing for increased
levels of control over the progression in its operating margins and cashflows.
Ferrari enjoys excellent visibility provided by an order book that provides
revenue coverage well into 2026. All told, we consider the company to be among
royalty in European markets as Ferrari remains one of the highest quality
assets in our universe with operating earnings compounding at +10% for the
foreseeable future.
Unlike Ferrari, the broader luxury sector has struggled this past year, with
our long-term holding in LVMH being among the largest detractors. Indeed
Hermès, which operates a business model more aligned to Ferrari, has also
faced some difficulties.
For the better part of a decade the luxury goods sector has enjoyed strong
momentum delivering 10% organic growth on average. In the past three years
this stellar growth accelerated further, with top brands benefiting from both
pricing power and very positive global consumption trends. This was despite
the Chinese consumer contributing materially less to growth than in prior
years. Overall, we identify two negative factors being faced by luxury
companies that have led to a more muted near-term growth outlook and, in some
cases, operating deleverage, namely: a weaker-for-longer consumer backdrop in
China and ‘aspirational’ buyers cutting back on discretionary spending in
the US.
Zooming in on China, this has been a major growth engine for the luxury sector
for much of the past decade, driven by fast-rising wealth and increasing
consumer awareness. However, in more recent times, a weaker economic
environment, declining property values and restrictive government policy has
dampened consumer confidence. This has resulted in more volatile demand trends
in what remains an important luxury end-market, comprising circa 30% of sales
on average for most brands. Currently, only a select few operators, counting
Hermès and Louis Vuitton among them, are enjoying positive growth with
Chinese consumers, while most are suffering. Despite those cyclical headwinds
we believe that long-term prospects for luxury goods consumption in China are
bright and structural drivers remain firmly intact. In the face of negative
headlines, average incomes are still rising year-on-year, the middle class
continues to expand and it is expected that China’s ultra-high-net-worth
population grows 47% between 2023 and 2028 (source: Knight Frank). Meanwhile,
a recent shift in government policy suggests more of a focus on stimulating
consumption as a driver of GDP growth than in the past. While we are not out
of the woods just yet, we believe that Chinese appetite for luxury goods
remains intact.
Industrial cyclical
Technology, and more specifically the semiconductor subsector, was the source
of some of the biggest winners of the year in the wafer fabrication equipment
companies ASML and ASM International (ASMI) but also the biggest detractor in
STMicroelectronics.
We have regularly cited in previous reports the attraction of running large
exposures to this industry as the segment serves many structurally growing end
markets. The businesses we own in this industry can be regarded as enablers of
large transformational changes occurring in the world around us. Those include
the decarbonisation of transport, elevated demand for computing power to
conduct data analytics, the omnipresence of inter-connected devices, Industry
4.0, as well as accelerated demand for high end logic chips as we move to more
wide scaled adoption of generative AI applications, which in itself demands
significant build out of data infrastructure.
Overall, demand for leading edge chips was driven by a significant increase in
investment spend by US tech giants such as Amazon Web Services, Microsoft,
Alphabet and Meta which in large part went into the expansion of their AI
capabilities. ASML and ASMI are prime examples of why technological
breakthroughs are not just contained to the US, with some of the key enabling
technologies coming out of those two businesses listed in Europe.
Last year we argued we were seeing a trough in the semiconductor cycle and
were positioned to play a multi-year recovery in the sector. This recovery has
started to materialise, with order numbers coming through strongly. In 2023,
ASML achieved net sales of €27.6 billion, reflecting 30% growth compared to
the previous year. By the end of 2023 ASML had built a robust order backlog of
€39 billion, bolstered by a record order intake of €6.3 billion in the
fourth quarter of 2023. This growth was driven by high demand for their
cutting-edge lithography tools, Extreme Ultraviolet systems. With 2024 guided
to be a transition year for the company, ASML is preparing for a healthy
market recovery in 2025 as it ramps-up capacity and expects further growth
driven by advancements in AI and demand for new high bandwidth memory
technologies.
Like ASML, ASMI also enjoyed strong order momentum, despite experiencing heavy
quarterly fluctuations during 2023. By the first quarter of 2024, ASMI’s
order intake had risen to €698 million, showing a 10% increase compared to
the first quarter of 2023, supported by strong demand in advanced
semiconductor technologies like gate-all-around (GAA) and increased memory
orders. ASMI’s fortunes are closely tied to leading edge chip architectures
moving to 2 nano-meter nodes with manufacturers like TSMC adopting ASMI’s
cutting edge GAA technology in the process. ASMI also made strides in silicon
carbide Epitaxy technology, a key growth area, primarily used in high-power
and high-temperature applications. We expect both companies to experience
multi-year growth as the semiconductor cycle continues to recover and
technology roadmaps of its key clients require increased spend well into the
second half of the decade.
Against this stronger background, the industry has also faced challenges as
normalisation of extraordinary demand patterns experienced during Covid led to
a prolonged period of order disappointments and inventory destocking in auto
and industrial verticals.
STMicroelectronics, the portfolio’s largest detractor over the period,
struggled primarily due to losing market share in China and seeing its
industrial business shrink by half. Uncharacteristically, the company had to
lower its full-year guidance twice in 2023, attributing the cuts to weakening
demand in key sectors like automotives and industrials. Those challenges were
caused above all by a slowdown in electric vehicle sales in Europe, as well as
inventory build-up across different industry verticals.
The subsequent decline in customer orders led to underutilised fabrication
plants, causing adverse effects on STMicroelectronics’ operating
profitability and significant downgrades to consensus expectations.
Considering the continued weaker outlook for both the auto and industrial end
markets and taking into consideration the general predicament traditional
European car manufacturers find themselves in, we are currently re-assessing
positioning in this part of the portfolio.
Portfolio changes
As long-term investors we aim to give portfolio company management teams
sufficient time to execute on their respective value creating strategies and,
with this in mind, it is pleasing to note that over the course of the
financial year portfolio turnover was just below 22% – in line with target
holding periods of three to five years. The key transactions accounting for
this turnover and summaries of the careful due diligence undertaken are
outlined below.
Danish freight forwarding and logistics company DSV had been held since 2016
and one of the key tenets of the investment case was the management team’s
track record in creating value through acquisitions and fostering a
best-in-class culture. However, several red flags started to emerge over the
course of last year. Firstly, the company announced a US$10 billion exclusive
logistics joint venture with Saudi’s NEOM city project. Not only did this
raise concerns about corporate governance, capital intensity of the project
and pointed to a material shift in a well-rehearsed strategy, it also raised
questions around heightened execution risks potentially destroying value over
time. Additionally, DSV made significant leadership changes in early 2024 with
its highly regarded CEO stepping down after 15 years in the job. Lastly, from
an organic growth perspective, DSV’s operations continued to be adversely
impacted by low growth in global trading volumes which remain on a slow
recovery path overall. This combination of factors lowered our conviction in
the investment thesis and led to exiting the shares.
Diminished faith in company management was also a contributing factor in the
sale of pharmaceutical equipment supplier Sartorius Stedim. The company saw
its revenues drop by 18% in the first nine months of 2023 and was forced to
revise down its full-year sales and earnings guidance due to reduced demand
and excess inventories held by clients. Whilst this appears a forgivable
event, we took serious issue with the overpriced acquisition of Polyplus which
was closed in the summer of 2023. This deal raised questions around capital
allocation, as the multiple paid was high: partially interpreted as an attempt
to buy in growth at a time of weaker demand, Stedim had to raise equity to
finance the transaction diluting existing shareholders in the process. Like
DSV, we felt this was a material break of our original thesis and decided to
redeploy capital into issuers where conviction levels were meaningfully
higher.
Finally, we added L’Oréal to the portfolio. The company has been almost
uniquely focused on the beauty category since its foundation in 1909. As the
world’s largest cosmetics company, L’Oréal benefits from a diverse brand
portfolio that spans mass-market to luxury beauty products, appealing to a
wide range of consumers. The company’s consistent investment in research and
development keeps it at the forefront of beauty trends, such as the growing
demand for sustainable and eco-friendly products, while its investments in
technology and data analytics have enhanced its ability to understand consumer
preferences and deliver personalised experiences, meaning it is well placed to
capitalise on the growing online beauty market. Additionally, its continued
expansion into emerging markets, particularly in Asia and Latin America,
offers substantial growth opportunities, whilst further premiumisation of its
product offerings could boost profitability.
Outlook
Following the “AI Boom” at the beginning of 2024, at the time of writing
the global investment community had begun a more critical assessment of the
return on investment on the large amounts of money pouring into the build-out
of AI infrastructure. Market concerns have centred around the sustainability
of this AI capital expenditure cycle. While some of the initial excitement was
clearly overdone, we remain of the view that new technological breakthroughs
often follow a familiar pattern – investors overestimate their potential in
the near term while underestimating what is possible in the medium to longer
term. We suspect the adoption of AI and its different use cases are no
different in that regard. The race to build leading AI infrastructure is still
in its infancy, with significant competitive momentum pushing cash rich
companies to continue to innovate and invest to stay ahead. It is clear
hardware infrastructure roadmaps are not keeping up with the pace of
development in AI, leading to a widening gap between model training
computational needs and the key infrastructure that is available in compute,
rack design, network, cooling systems and power. None of today’s technology
leaders can afford to be left behind in delivering breakthrough technologies
in what could be the defining technological development of this generation.
This is relevant to us because the European market is home to an ecosystem of
companies which possess the enabling technologies required in these
transformational changes – not just AI adoption, but also the energy
transition and global efforts to reorganise supply chains. Many of these
businesses sell to global customer bases and are the world leaders in their
fields. These competitively advantaged and secular growth businesses have
become an increasingly important component of the overall market whilst
undifferentiated ‘older economy sectors’ like telcos, auto and energy
producers have shrunk in size over the last decade.
Alongside the investment opportunities afforded by these structural forces, we
detect a cyclical upturn in a variety of industries like construction,
life-sciences and chemicals which have suffered from pronounced volume
declines for the best part of two years. Global manufacturing Purchasing
Managers Indices have stayed below 50 for the last 23 months, signalling the
longest period of contraction since 1951; importantly, in many end markets
management teams are now talking about stabilisation of demand with painful
inventory adjustments having come to an end. European construction is a good
example, where easing financial conditions are helping activity levels to
recover following the 40-45% collapse in new built residential volumes over
the past couple of years.
Against the backdrop of a structurally improved market composition and a
cyclical recovery, we see valuations in the European market at a record wide
discount relative to the US. This dichotomy does not make sense to us. A
healthy market operates as a discounting mechanism and the investment
community’s myopic focus on near term problems should soon make way for the
medium- to long-term opportunities. We see 2025 as a recovery year for
earnings and beyond that we envisage a multi-year period of healthy profit
growth, alongside the potential for this historic valuation gap to the US to
narrow. Those prepared to take the optimistic view should be rewarded over
time.
STEFAN GRIES AND ALEXANDRA DANGOOR
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
5 November 2024
Ten largest investments
Together, the Company’s ten largest investments represented 51.8% of the
Company’s portfolio as at 31 August 2024 (2023: 53.4%)
1 ► Novo Nordisk (2023: 1st)
Health Care company
Market value: £61,540,000
Share of investments: 8.9%
Novo Nordisk is a Danish multinational pharmaceutical company and a leader in
diabetes care. Novo Nordisk is expected to post strong earnings and cashflow
growth driven by demand for Ozempic which treats Type 2 diabetes and its
weight management drug Wegovy. The latter has recently provided evidence of
reducing major adverse cardiovascular events by 20%.
2 ▲ ASML (2023: 3rd)
Technology company
Market value: £49,827,000
Share of investments: 7.2%
ASML is a Dutch company specialising in 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.
3 ▲ RELX (2023: 4th)
Consumer Discretionary company
Market value: £44,732,000
Share of investments: 6.5%
RELX is a UK based multinational information and analytics company with high
barriers to entry in most of its divisions, including scientific publishing.
Their capital light business model enables a high rate of cash conversion with
repeat subscription-based revenues. The business benefits from increasing
usage of data globally supporting their data analytics business.
4 ▼ LVMH (2023: 2nd)
Consumer Discretionary company
Market value: £36,935,000
Share of investments: 5.3%
LVMH is a French multinational 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.
5 ▲ Ferrari (2023: 11th)
Consumer Discretionary company
Market value: £30,706,000
Share of investments: 4.4%
Ferrari is an Italian luxury sports car manufacturer emphasising exclusivity,
performance and quality globally, with a strong focus on innovation and
delivering unique driving experiences to its clientele. There is a lot of
excitement for 2024 as limited release models are being introduced including
the SF90 XX Stradale, followed by the Spider. Both cars are expected to come
at higher price points that will be additive to Ferrari’s overall revenue
mix. Demand will remain strong beyond 2024, with the company’s order book
already sold out up to 2026.
6 ▲ Hermès (2023: 7th)
Consumer Discretionary company
Market value: £28,156,000
Share of investments: 4.1%
Hermès is a French luxury design house specialising in leather goods,
lifestyle accessories, home furnishings, perfumery, jewellery, watches and
high-end clothing. With good brand management and craftsmanship, Hermès
products are supply constrained and the company enjoys strong earnings
visibility as some of its most iconic products are sold on allocation via
waiting lists. Hermès has been run in a conservative fashion for generations
with strategic decisions taken with the longest of timeframes.
7 ▲ Safran (2023: 10th)
Industrials company
Market value: £27,166,000
Share of investments: 3.9%
Safran is a French multinational supplier of aerospace, defence and security
systems. The industry has emerged from a heavy investment period and Safran is
well-placed to benefit from continued strength in its best in class
after-market business and strong execution in its LEAP engine program which
should drive growth for the next decade.
8 ▲ Schneider Electric (2023: n/a)
Industrials company
Market value: £26,774,000
Share of investments: 3.9%
Schneider Electric is a French multinational corporation specialising in
digital automation and energy management. The group is a global industrial
technology leader in electrification, automation and digitization to smart
industries, resilient infrastructure, future-proof data centers, intelligent
buildings and intuitive homes.
9 ▲ ASM International (2023: 13th)
Technology company
Market value: £26,551,000
Share of investments: 3.8%
ASM International is a Dutch international company that designs and
manufactures equipment and process solutions to produce semiconductor devices
for wafer processing. The company aims to create sustainable, long-term value
for their stakeholders and a degree of recovery in logic/foundry. The company
is also set to benefit from the increasing importance of power emerging
technologies such as Artificial Intelligence (AI), where we have seen a step
change with the roll out of generative AI tools in 2023.
10 ▲ Linde (2023: n/a)
Basic Materials
Market value: £26,276,000
Share of investments: 3.8%
Linde is a global multinational chemical company and, since 2018, domiciled in
Ireland and headquartered in the United Kingdom. Linde is the world’s
largest industrial gas company by market share and revenue, serving customers
in the health care, petroleum refining, food, beverage carbonation,
fiber-optics, steel making, material handling equipment, chemicals and water
treatment industries.
All percentages reflect the value of the holding as a percentage of total
investments.
Arrows indicate the change in relative ranking of the position in the
portfolio compared to its ranking as at 31 August 2023.
Investments as at 31 August 2024
Country of Market % of
operation value investments
£’000
Industrials
Safran France 27,166 3.9
Schneider Electric France 26,774 3.9
Sika Switzerland 21,723 3.1
Belimo Switzerland 20,675 3.0
Adyen Netherlands 19,778 2.9
Atlas Copco Sweden 16,866 2.4
Kingspan Ireland 15,810 2.3
Rational Germany 14,515 2.1
VAT Group Switzerland 9,252 1.3
Epiroc Sweden 8,026 1.2
Kone Finland 3,001 0.4
--------------- ---------------
183,586 26.5
========= =========
Consumer Discretionary
RELX United Kingdom 44,732 6.5
LVMH France 36,935 5.3
Ferrari Italy 30,706 4.4
Hermès France 28,156 4.1
L’Oréal France 18,438 2.7
--------------- ---------------
158,967 23.0
========= =========
Technology
ASML Netherlands 49,827 7.2
ASM International Netherlands 26,551 3.8
BE Semiconductor Netherlands 24,279 3.5
Hexagon Sweden 11,549 1.7
STMicroelectronics Switzerland 8,937 1.3
ALTEN Group France 5,926 0.9
--------------- ---------------
127,069 18.4
========= =========
Health Care
Novo Nordisk Denmark 61,540 8.9
Lonza Group Switzerland 23,468 3.4
ChemoMetec Denmark 11,184 1.6
Straumann Switzerland 10,549 1.5
--------------- ---------------
106,741 15.4
========= =========
Financials
Allied Irish Banks Ireland 25,238 3.6
Partners Group Switzerland 23,187 3.4
KBC Groep Belgium 13,151 1.9
Sberbank* Russia 1 –
--------------- ---------------
61,577 8.9
========= =========
Basic Materials
Linde United States 26,276 3.8
IMCD Netherlands 21,429 3.1
--------------- ---------------
47,705 6.9
========= =========
Consumer Staples
Lindt Switzerland 6,186 0.9
--------------- ---------------
6,186 0.9
========= =========
Energy
Lukoil* Russia – –
--------------- ---------------
Total investments 691,831 100.0
========= =========
* The investments in 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.
All investments are in ordinary shares unless otherwise stated. The total
number of investments held at 31 August 2024 was 34 (31 August 2023: 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 31 August 2024, the Company did not hold any equity interests comprising
more than 3% of any company’s share capital.
Investment exposure as at 31 August 2024
Market capitalisation
%
of portfolio
<€1bn 1.6
€1bn to €10bn 12.6
€10bn to €20bn 10.3
€20bn to €50bn 22.4
>€50bn 53.1
Investment size
Number of investments % of portfolio
<£1m 2 0.0
£3m to £5m 1 0.4
£5m to £10m 5 5.6
>£10m 26 94.0
Distribution of investments
%
Industrials 26.5
Consumer Discretionary 23.0
Technology 18.4
Health Care 15.4
Financials 8.9
Basic Materials 6.9
Consumer Staples 0.9
Source: BlackRock.
Strategic Report
The Directors present the Strategic Report of the Company for the year ended
31 August 2024. 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.
The Chairman’s Statement together with the Investment Manager’s Report
form part of this Strategic Report. The Strategic Report was approved by the
Board at its meeting on 5 November 2024.
Principal activity
The Company carries on business as an investment trust and is listed on the
London Stock Exchange. 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
investment risk.
Investment 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
also has 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 objective given above. 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 BlackRock Fund Managers Limited (the Manager). Matters
reserved 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. In accordance with the
Alternative Investment Fund Managers’ Directive (AIFMD), as implemented,
retained and onshored in the UK, the Company is an Alternative Investment Fund
(AIF). BlackRock Fund Managers Limited is the Company’s Alternative
Investment Fund Manager.
The management of the investment portfolio and the administration of the
Company have been contractually delegated to the Manager who in turn (with the
permission of the Company) has delegated certain investment management and
other ancillary services to BlackRock Investment Management (UK) Limited (BIM
(UK) or 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.
The Company delegates fund accounting services to the Manager, which in turn
sub-delegates these services to The Bank of New York Mellon (International)
Limited (BNY). Other service providers include the Depositary (also BNY) and
the Registrar, Computershare Investor Services PLC. Details of the contractual
terms with the Manager and the Depositary and more details of arrangements in
place governing custody services are set out in the Directors’ Report.
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 2024, the Company held 34 investments. None (2023: none) 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 2024. 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 total assets in other listed closed-ended
investment funds.
In order to comply with the current Listing Rules, the Company will also not
invest more than 10% of its gross asset value in other listed closed-ended
investment funds which themselves may invest more than 15% of their gross
assets in other listed closed-ended investment funds. This restriction does
not form part of the Company’s investment policy.
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 net asset value (NAV) at the time of drawdown of the relevant
borrowings. At the balance sheet date, the Company had net gearing of 8.0%
(2023: 5.1%).
Performance
In the year to 31 August 2024, the Company’s NAV per share increased by
16.4% (compared with an increase in the reference index of 15.8%) and the
share price rose by 15.5% (all percentages calculated in Sterling terms with
dividends 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 in the
Financial Statements. The total profit for the year, after taxation, was
£91,610,000 (2023: total profit, after taxation, of £91,591,000) which is
reflected in the increase in the net asset value of the Company. The revenue
return amounted to £7,379,000 (2023: £6,920,000) and relates to net revenue
earnings from dividends received during the year after adjusting for expenses
allocated to revenue.
As explained in the Company’s Half Yearly Financial Report, the Directors
declared an interim dividend of 1.75p per share (2023: 1.75p). The Directors
recommend the payment of a final dividend of 5.25p per share, making a total
dividend of 7.00p per share (2023: 6.75p). Subject to approval at the
forthcoming Annual General Meeting, the dividend will be paid on 20 December
2024 to shareholders on the register of members at the close of business on 22
November 2024.
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 is discussed in both the Chairman’s Statement and Investment
Manager’s Report.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community
responsibilities or impact on the environment and the Company has not adopted
an ESG investment strategy or exclusionary screens. However, the Directors
believe that it is important and in shareholders’ interests to consider
human rights issues and environmental, social and governance factors when
selecting and retaining investments. Details of the Company’s approach to
ESG integration and socially responsible investment is set out in 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 2024 are set out in the Directors’
Biographies in the Annual Report and Financial Statements The Board consists
of three male Directors and two female Directors. The Company’s policy on
diversity is set out in the Annual Report and Financial Statements. The
Company does not have any executive employees.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures
to 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 other investment trusts,
are set out below. As indicated in footnote 2 to the table below, some of
these KPIs fall within the definition of ‘Alternative Performance
Measures’ (APMs) under guidance issued by the European Securities and
Markets Authority (ESMA) and additional information explaining how these are
calculated is set out within the Glossary in the Annual Report and Financial
Statements.
Additionally, the Board regularly reviews the performance of the portfolio, as
well as the net asset value and share price of the Company and compares this
against various companies and indices. The Company does not have a benchmark.
However, the Board reviews performance and ongoing charges against a peer
group of European investment trusts and open-ended funds, as well as the FTSE
World Europe ex UK Index.
As at As at
31 August 31 August
2024 2023
Net asset value per share 644.60p 560.11p
Share price 601.00p 527.00p
Net asset value total return 1, 2 16.4% 19.2%
Share price total return 1, 2 15.5% 17.1%
Discount to net asset value 2 6.8% 5.9%
Revenue return per share 7.35p 6.85p
Ongoing charges 2, 3 0.95% 0.98%
========= =========
1 This measures the Company’s net asset value and share price total return,
which assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements
3 Ongoing charges represent the management fee and all other operating
expenses, excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items, as a % of average daily net assets.
Principal risks
The Company is exposed to a variety of risks and uncertainties. As required by
the 2018 UK Corporate Governance Code (the UK Code), the Board has in place a
robust ongoing process to identify, assess and monitor the principal risks and
emerging risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. A core element of
this process is the Company’s risk register which identifies the risks
facing the Company and assesses the likelihood and potential impact of each
risk and the quality of controls operating to mitigate it. A residual risk
rating is then calculated for each risk based on the outcome of the
assessment.
The risk register, its method of preparation and the operation of key controls
in BlackRock’s and 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
BlackRock’s and other third-party service providers’ risk management
processes and how these apply to the Company’s business, BlackRock’s
internal audit department provides an annual presentation to the Audit
Committee chairs of the BlackRock investment trusts setting out the results of
testing performed in relation to BlackRock’s internal control processes. The
Audit and Management Engagement Committee also periodically receives and
reviews internal control reports from BlackRock and the Company’s service
providers.
The Board has undertaken a robust assessment of both the principal and
emerging risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. For instance, the
risk that unforeseen or unprecedented events including (but not limited to)
heightened geo-political tensions such as the war in Ukraine and conflict in
the Middle East, inflation and the current cost of living crisis has had a
significant impact on global markets. The Board has taken into consideration
the risks posed to the Company by these events and incorporated them into the
Company’s risk register. The threat of climate change has also reinforced
the importance of more sustainable practices and environmental responsibility.
Emerging risks are considered by the Board as they come into view and are
incorporated into the existing review of the Company’s risk register.
Additionally, the Manager considers emerging risks in numerous forums and the
Risk and Quantitative Analysis team produces an annual risk survey. Any
material risks of relevance to the Company identified through the annual risk
survey will be communicated to the Board.
Emerging risks that have been considered by the Board over the year include
the impact of climate change, escalating geo-political conflict and
technological advances.
The key emerging risks identified are as follows:
Climate change: Investors can no longer ignore the impact that the world’s
changing climate will have on their portfolios, with the impact of climate
change on returns, including climate related natural disasters, now
potentially significant and with the potential to escalate more swiftly than
one is able to predict. The Board receives ESG reports from the Manager on the
portfolio and the way ESG considerations are integrated into the investment
decision-making, so as to mitigate risk at the level of stock selection and
portfolio construction.
Artificial Intelligence (‘AI’): Advances in computing power means that AI
has become a powerful tool that will impact a huge range of areas and with a
wide range of applications that have the potential to dislocate established
business models and disrupt labour markets, creating uncertainty in corporate
valuations. The significant energy required to power this technological
revolution will create further pressure on environmental resources and carbon
emissions.
Geo-political risk: Escalating geo-political tensions (including, but not
limited to tensions in the Middle East and the ongoing war in Ukraine, or
deteriorating relations between China and the US/other countries) have a
significant negative impact on global markets, with an increasing use of
tariffs and domestic regulations making global trade more complex and driving
economic fragmentation.
The Board will continue to assess these risks on an ongoing basis. In relation
to the UK 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 principal risks and uncertainties faced by the Company during the
financial year, together with the potential effects, controls and mitigating
factors are set out below.
Counterparty
Principal risk
The potential loss that the Company could incur if a counterparty is unable
(or unwilling) to perform on its commitments.
Mitigation/Control
Due diligence is undertaken before contracts are entered into and exposures
are diversified across a number of counterparties.
The Depositary is 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
Principal risk
Returns achieved are reliant primarily upon the performance of the portfolio.
The Board is responsible for:
· deciding the investment strategy to fulfil the Company’s objective; and
· monitoring the performance of the Investment Manager and the
implementation of the investment strategy.
An inappropriate investment strategy may lead to:
· underperformance compared to the reference index and the Company’s peer
group;
· a reduction or permanent loss of capital; and
· dissatisfied shareholders and reputational damage.
The Board is also cognisant of the long-term risk to performance from
inadequate attention to ESG issues and in particular the impact of climate
change.
Mitigation/Control
To manage this risk the Board:
· regularly reviews the Company’s investment mandate and long-term
strategy;
· has set investment restrictions and 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 the maintenance of 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; and
· 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.
ESG analysis is integrated into the Manager’s investment process as set out
in the Annual Report and Financial Statements. This is monitored by the Board.
Legal and regulatory compliance
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust,
subject to continuing to meet the relevant eligibility conditions and operates
as an investment trust in accordance with Chapter 4 of Part 24 of the
Corporation Tax Act 2010. As such, the Company is exempt from corporation tax
on capital gains on the profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the Company
losing investment trust status and being subject to corporation tax on capital
gains realised within the Company’s portfolio. In such event, the investment
returns of the Company may be adversely affected.
A serious regulatory breach could result in the Company and/or the Directors
being fined or the subject of criminal proceedings, or the suspension of the
Company’s shares which could in turn lead to a breach of the Corporation Tax
Act 2010.
Amongst other relevant laws, 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 Guidance and
Transparency Rules, the Sanctions and Anti-Money Laundering Act 2018 and the
Market Abuse Regulation.
Mitigation/Control
The Investment Manager monitors investment movements, the level and type of
forecast income and expenditure and the amount of proposed dividends to ensure
that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010
are not breached. The results are reported to the Board at each meeting.
Compliance with the accounting rules affecting investment trusts are also
carefully and regularly monitored.
The Company Secretary, Manager and the Company’s professional advisers
provide regular reports to the Board in respect of compliance with all
applicable rules and regulations. The Board and the Manager also monitor
changes in government policy and legislation which may have an impact on the
Company.
The Company’s Investment Manager, BlackRock, at all times complies with the
sanctions administered by the UK Office of Financial Sanctions Implementation,
the United States Treasury’s Office of Foreign Assets Control, the United
Nations, European Union member states and any other applicable regimes.
Market
Principal risk
Market risk arises from volatility in the prices of the Company’s
investments. It represents the potential loss the Company might suffer through
realising investments in the face of negative market movements.
Changes in general economic and market conditions, such as currency exchange
rates, interest rates, rates of inflation, industry conditions, tax laws and
political events can also substantially and adversely affect the securities
and, as a consequence, the Company’s prospects and share price.
Market risk includes the potential impact of events which are outside the
Company’s control, including (but not limited to) heightened geo-political
tensions and military conflict, a global pandemic and high inflation.
Companies operating in the sectors in which the Company invests may be
impacted by new legislation governing climate change and environmental issues,
which may have a negative impact on their valuation and share price.
Mitigation/Control
The Board considers the diversification of the portfolio, asset allocation,
stock selection and levels of gearing on a regular basis and has set
investment restrictions and guidelines which are monitored and reported on by
the Investment Manager.
The Board monitors the implementation and results of the investment process
with the Investment Manager.
The Board also recognises the benefits of a closed-end fund structure in
extremely volatile markets such as those experienced as a consequence of the
COVID-19 pandemic and Russia/Ukraine and Middle East conflicts. Unlike
open-ended counterparts, closed-end funds are not obliged to sell down
portfolio holdings at low valuations to meet liquidity requirements for
redemptions. During times of elevated volatility and market stress, the
ability of a closed-end fund structure to remain invested for the long term
enables the portfolio managers to adhere to disciplined fundamental analysis
from a bottom-up perspective and be ready to respond to dislocations in the
market as opportunities present themselves.
The portfolio managers spend a considerable amount of time understanding the
environmental, social and governance (ESG) risks and opportunities facing
companies and industries in the portfolio. The Company does not exclude
investment in stocks based on ESG criteria, but the portfolio managers
consider ESG information when conducting research and due diligence on new
investments and again when monitoring investments in the portfolio.
Operational
Principal risk
In common with most other investment trust companies, the Company has no
employees. The Company therefore relies on the services provided by third
parties and is dependent on the control systems of the Manager, the Depositary
and Fund Accountant which maintain the Company’s assets, dealing procedures
and accounting records.
The security of the Company’s assets, dealing procedures, accounting records
and adherence to regulatory and legal requirements depend on the effective
operation of the systems of these other third-party service providers. There
is a risk that a major disaster, such as floods, fire, a global pandemic, or
terrorist activity, renders the Company’s service providers unable to
conduct business at normal operating capacity and effectiveness.
Failure by any service provider to carry out its obligations to the Company
could have a material adverse effect on the Company’s performance.
Disruption to the accounting, payment systems or custody records (including
cyber security risk) could prevent the accurate reporting and monitoring of
the Company’s financial position.
Mitigation/Control
Due diligence is undertaken before contracts are entered into with third-party
service providers. Thereafter, the performance of the provider is subject to
regular review and reported to the Board.
The Board reviews on a regular basis an assessment of the fraud risks that the
Company could potentially be exposed to and also a summary of the controls put
in place by the Manager, Depositary, Custodian, Fund Accountant and Registrar
specifically to mitigate these risks.
Most third-party service providers produce Service Organisation Control (SOC
1) reports to provide assurance regarding the effective operation of internal
controls as reported on by their reporting accountants. These reports are
provided to the Audit and Management Engagement Committee for review. The
Committee would seek further representations from service providers if not
satisfied with the effectiveness of their control environment.
The Company’s financial instruments held in custody are subject to a strict
liability regime and, in the event of a loss of such financial instruments
held in custody, the Depositary must return financial instruments of an
identical type or the corresponding amount, unless able to demonstrate the
loss was a result of an event beyond its reasonable control.
The Board reviews the overall performance 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 on an ongoing basis and reviews these as
part of its review of the Company’s risk register.
Financial
Principal risk
The Company’s investment activities expose it to a variety of financial
risks which include interest rate risk, counterparty credit risk and liquidity
risk.
Mitigation/Control
Details of these risks are disclosed in note 16 to the Financial Statements,
together with a summary of the policies for managing these risks.
Marketing
Principal risk
Marketing efforts are inadequate or do not comply with relevant regulatory
requirements. There is a failure to communicate adequately with shareholders
or reach out to potential new shareholders resulting in reduced demand for the
Company’s shares and a widening of the discount.
Mitigation/Control
The Board reviews marketing strategy and initiatives and the Manager is
required to provide regular updates on progress. BlackRock has a dedicated
investment trust sales team visiting both existing and potential clients on a
regular basis. Data on client meetings and issues raised are 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 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the twelve months referred to by the ‘Going Concern’ guidelines. The
Company is an investment trust with the objective of achieving capital growth.
The Directors expect the Company to continue for the foreseeable future and
have therefore conducted this review for the period up to the Annual General
Meeting in 2029. The Directors believe that five years is an appropriate
investment horizon to assess the viability of the Company. This is based on
the Company’s long-term mandate, the low turnover in the portfolio and the
investment holding period investors generally consider while investing in the
European sector.
In making an assessment on the viability of the Company, the Board has
considered the following:
· the impact of a significant fall in European equity markets on the value
of the Company’s investment portfolio;
· the ongoing relevance of the Company’s investment objective, business
model and investment policy in the prevailing market;
· the principal and emerging risks and uncertainties, as set out on the
previous pages, and their potential impact;
· the level of ongoing demand for the Company’s shares;
· the Company’s share price discount/premium to NAV;
· the liquidity of the Company’s portfolio; and
· the level of income generated by the Company and future income and
expenditure forecasts.
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 based on the following considerations:
· the Investment Manager’s compliance with the investment objective and
policy, its investment strategy and asset allocation;
· the portfolio is liquid and mainly comprises of readily realisable assets,
which continue to offer a broad range of investment opportunities for
shareholders as part of a balanced investment portfolio;
· the operational resilience of the Company and its key service providers
and their ability to continue to provide a good level of service for the
foreseeable future;
· the effectiveness of business continuity plans in place for the Company
and its key service providers;
· the ongoing processes for monitoring operating costs and income which are
considered to be reasonable in comparison to the Company’s total assets;
· the Board’s discount management policy; and
· the Company is a closed-end investment company and therefore does not
suffer from the liquidity issues arising from unexpected redemptions.
In addition, the Board’s assessment of the Company’s ability to operate in
the foreseeable future is included in the Going Concern Statement which can be
found in the Annual Report and Financial Statements in the Directors’
Report.
Section 172 Statement: promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to
explain in greater detail how they have discharged their duties under Section
172(1) of the Companies Act 2006 in promoting the success of their companies
for the benefit of members as a whole. This includes the likely consequences
of their decisions in the longer term and how they have taken wider
stakeholders’ needs into account.
The disclosure that follows covers how the Board has engaged with and
understands the views of stakeholders and how stakeholders’ needs have been
taken into account, the outcome of this engagement and the impact that it has
had on the Board’s decisions. The Board considers the main stakeholders in
the Company to be the Manager, Investment Manager and the shareholders. In
addition to this, the Board considers investee companies and key service
providers of the Company to be stakeholders; the latter comprise the
Company’s Custodian, Depositary, Registrar and Broker.
Stakeholders
Shareholders
Continued shareholder support and engagement are critical to the continued
existence of the Company and the successful delivery of its long-term
strategy. The Board is focused on fostering good working relationships with
shareholders and on understanding the views of shareholders in order to
incorporate them into the Board’s strategy and objectives in delivering
long-term capital growth.
Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is
responsible for the Company’s portfolio management (including asset
allocation, stock and sector selection) and risk management, as well as
ancillary functions such as administration, secretarial, accounting and
marketing services. The Manager has sub-delegated portfolio management to the
Investment Manager. Successful management of shareholders’ assets by the
Investment Manager is critical for the Company to successfully deliver its
investment strategy and meet its objective. The Company is also reliant on the
Manager as AIFM to provide support in meeting relevant regulatory obligations
under the AIFMD and other relevant legislation.
Other key service providers
In order for the Company to trade on the London Stock Exchange’s (LSE) Main
Market for listed securities and generally function as an investment trust
with a listing on the official list of the FCA, the Board relies on a diverse
range of advisors for support in meeting relevant obligations and safeguarding
the Company’s assets. For this reason, the Board considers the Company’s
Custodian, Depositary, Registrar and Broker to be stakeholders. The Board
maintains regular contact with its key external service providers and receives
regular reporting from them through the Board and committee meetings, as well
as outside of the regular meeting cycle.
Investee companies
Portfolio holdings are ultimately shareholders’ assets and the Board
recognises the importance of good stewardship and communication with investee
companies in meeting the Company’s investment objective and strategy. The
Board monitors the Manager’s stewardship arrangements and receives regular
feedback from the Manager in respect of meetings with the management of
portfolio companies.
A summary of the key areas of engagement undertaken by the Board with its key
stakeholders in the year under review and how Directors have acted upon this
to promote the long-term success of the Company are set out below.
Area of Engagement
Investment mandate and objective
Issue
The Board is committed to promoting the role and success of the Company in
delivering on its investment mandate to shareholders over the long term. The
Board also has responsibility to shareholders to ensure that the Company’s
portfolio of assets is invested in line with the stated investment objective
and in a way that ensures an appropriate balance between spread of risk and
portfolio returns.
Engagement
The Board worked closely with the Investment Manager throughout the year in
further developing investment strategy and underlying policies, not simply for
the purpose of achieving the Company’s investment objective but in the
interests of shareholders and future investors. In addition to the scheduled
Board meetings each year, the Board holds a Strategy session which is
dedicated to an in-depth review of the Company’s strategy in conjunction
with key advisers, including the Company’s Broker.
The Company does not exclude investment in stocks based on Environmental,
Social and Governance (ESG) criteria, but the approach of the portfolio
managers to the consideration of ESG factors in respect of the Company’s
portfolio, as well as engagement with investee companies, is to encourage the
adoption of sustainable business practices which support long-term value
creation.
Impact
The portfolio activities undertaken by the Investment Manager can be found in
their report in the Annual Report and Financial Statements.
The Investment Manager aims to construct a portfolio that is high conviction
and concentrated in nature but diversified by end market exposures.
Details regarding the Company’s NAV and share price performance can be found
in the Chairman’s Statement and in this Strategic Report in the Annual
Report and Financial Statements.
Shareholders
Issue
Continued shareholder support and engagement are critical to the continued
existence of the Company and the successful delivery of its long-term
strategy.
Engagement
The Board is committed to maintaining open channels of communication and to
engage with shareholders. The Company welcomes and encourages attendance and
participation from shareholders at its Annual General Meetings. Shareholders
will have the opportunity to meet the Directors and Investment Manager and to
address questions to them directly. The Investment Manager will also provide a
presentation on the Company’s performance and the outlook.
The Annual Report and Half Yearly Financial Report are available on the
BlackRock website and are also circulated to shareholders either in printed
copy or via electronic communications. In addition, regular updates on
performance, monthly factsheets, the daily NAV and other information are also
published on the Manager’s website at www.blackrock.com/uk/brge.
The Board also works closely with the Manager to develop the Company’s
marketing strategy, with the aim of ensuring effective communication with
shareholders. Unlike trading companies, one-to-one shareholder meetings
normally take the form of a meeting with the Portfolio Managers as opposed to
members of the Board. The Company’s willingness to enter into discussions
with institutional shareholders is also demonstrated by the programmes of
institutional presentations by the portfolio managers.
If shareholders wish to raise issues or concerns with the Board, they are
welcome to do so at any time. The Chairman is available to meet directly with
shareholders periodically to understand their views on governance and the
Company’s performance where they wish to do so. He may be contacted via the
Company Secretary whose details are given in the Annual Report and Financial
Statements.
Impact
The Board values any feedback and questions from shareholders ahead of and
during Annual General Meetings in order to gain an understanding of their
views and will take action when and as appropriate. Feedback and questions
will also help the Company evolve its reporting, aiming to make reports more
transparent and understandable.
Feedback from all substantive meetings between the Investment Manager and
shareholders will be shared with the Board. The Directors will also receive
updates from the Company’s Broker on any feedback from shareholders, as well
as share trading activity, share price performance and an update from the
Investment Manager.
The portfolio management team attended a number of professional investor
meetings and held discussions with a number of wealth management desks and
offices in respect of the Company during the year under review. The portfolio
managers also held group webcasts in the year to provide investors with
portfolio updates.
Portfolio holdings are ultimately shareholders’ assets and the Board
recognises the importance of good stewardship and communication with investee
companies in meeting the Company’s investment objective and strategy. The
Board monitors the Manager’s stewardship activities and receives regular
feedback from the Investment Manager in respect of meetings with the
management of portfolio companies.
Responsible investing
Issue
Good governance and consideration of sustainable investment are key factors in
making investment decisions. Climate change is becoming a defining factor in
companies’ long-term prospects across the investment spectrum, with
significant and lasting implications for economic growth and prosperity.
Engagement
The Company does not exclude investment in stocks based on ESG criteria but
the Board believes that responsible investment and sustainability are integral
to the longer-term delivery of the Company’s success. The Board works
closely with the Investment Manager to regularly review the Company’s
performance, investment strategy and underlying policies to ensure that the
Company’s investment objective continues to be met in an effective and
responsible way in the interests of shareholders and future investors.
The Investment Manager’s approach to the consideration of ESG factors in
respect of the Company’s portfolio, as well as the Investment Manager’s
engagement with investee companies are kept under review by the Board. The
Board also expects to be informed by the Manager of any sensitive voting
issues involving the Company’s investments.
The Investment Manager reports to the Board in respect of its ESG policies and
how these are integrated into the investment process; a summary of
BlackRock’s approach to ESG is set out in the Annual Report and Financial
Statements.The Investment Manager’s engagement and voting policy is detailed
in the Annual Report and Financial Statements and on the BlackRock website.
Impact
The Investment Manager believes there is likely to be a positive correlation
between strong ESG practices and investment performance over time. Details of
the Company's performance in the year are given in the Chairman's Statement
and the Performance Record in the Annual Report and Financial Statements.
Management of share rating
Issue
The Board recognises that it is in the long-term interests of shareholders
that shares do not trade at a significant discount or premium to their
prevailing NAV. Therefore, where deemed to be in shareholders’ long-term
interests, the Board may exercise its powers to issue shares or buy back
shares with the objective of ensuring that an excessive premium or discount
does not arise.
Engagement
The Board monitors the Company’s share rating on an ongoing basis and
receives regular updates from the Manager and the Company’s Broker regarding
the level of discount or premium and the drivers behind this.
The Board believes that the best way of maintaining the share rating at an
optimal level over the long term is to create demand for the shares in the
secondary market. To this end, the Investment Manager is devoting considerable
effort to broadening the awareness of the Company, particularly to wealth
managers and to the wider retail market.
In addition, the Board has worked closely with the Manager to develop the
Company’s marketing strategy, with the aim of ensuring effective
communication with existing shareholders and to attract new shareholders to
the Company in order to improve liquidity in the Company’s shares and to
sustain the share rating of the Company.
Impact
The Board will continue to monitor the Company’s premium/discount to NAV and
will look to issue, buy back shares and/or operate six monthly tender offers
if it is deemed to be in the interests of shareholders as a whole.
The Board decided not to implement a semi-annual tender offer in November 2024
as, over the six months to 31 August 2024, the average discount to NAV (cum
income) was 4.9%. It also decided not to implement the May 2024 semi-annual
tender offer, as over the six months to 29 February 2024, the average discount
to NAV (cum income) was 6.3%. Against a background of volatile market
conditions and the Company trading at a narrow discount versus its peers, the
Board concluded that it was not in the interests of shareholders to implement
the latest semi-annual tender offers.
During the financial year the Company did not reissue any ordinary shares from
treasury. The Company bought back 2,762,011 ordinary shares both during the
financial year and since the year end (up to close of business 4 November
2024) . As at 4 November 2024 the Company’s shares were trading at a
discount of 6.8% to the cum income NAV.
Service levels of third-party providers
Issue
The Board acknowledges the importance of ensuring that the Company’s
principal suppliers are providing a suitable level of service, including the
Manager in respect of investment performance and delivering on the Company’s
investment mandate; the Custodian and Depositary in respect of their duties
towards safeguarding the Company’s assets; the Registrar in its maintenance
of the Company’s share register and dealing with investor queries; and the
Company’s Broker in respect of the provision of advice and acting as a
market maker for the Company’s shares.
Engagement
The Manager reports to the Board on the Company’s performance on a regular
basis. The Board carries out a robust annual evaluation of the Manager’s
performance, their commitment and available resources.
The Board performs an annual review of the service levels of all third-party
service providers and concludes on their suitability to continue in their
role. The Board receives regular updates from the AIFM, Depositary, Registrar
and Broker on an ongoing basis.
The Board works closely with the Manager to gain comfort that relevant
business continuity plans are in place and operating effectively for all of
the Company’s key service providers.
Impact
All performance evaluations were performed on a timely basis and the Board
concluded that all key third-party service providers, including the Manager,
were operating effectively and providing a good level of service.
The Board has received updates in respect of business continuity planning from
the Company’s Manager, Custodian, Depositary, Fund Accountant, Registrar,
Printer and Broker and is confident that arrangements in place are
appropriate.
Board composition
Issue
The Board is committed to ensuring that its own composition brings an
appropriate balance of knowledge, experience and skills, and that it is
compliant with best corporate governance practice under the UK Code, including
guidance on tenure and the composition of the Board’s committees.
Engagement
During 2023, the Board engaged the services of an external search consultant
to identify potential candidates to replace Ms Curling who retired as a
Director following the Annual General Meeting on 12 December 2023. The
Nomination Committee agreed the selection criteria and the method of
selection, recruitment and appointment.
All Directors are subject to a formal evaluation process on an annual basis
(more details and the conclusions of the 2024 evaluation process are given in
the Annual Report and Financial Statements). All Directors stand for
re-election by shareholders annually.
Shareholders may attend the Annual General Meeting and raise any queries in
respect of Board composition or individual Directors in person or may contact
the Company Secretary or the Chairman using the details provided in the Annual
Report and Financial Statements with any issues.
Impact
As a result of the recruitment process, Ms Sapna Shah was appointed as a
Director of the Company following the Annual General Meeting held on 12
December 2023.
As at the date of this report, the Board was comprised of three men and two
women. Two Board Directors, Mr Sanderson and Mr Baxter, have a tenure in
excess of nine years. The Board has recently retained the services of an
external search consultant to identify suitable candidates to replace Mr
Sanderson. Board diversity, including gender, is taken into account when
establishing recruitment criteria.
Details of each Directors’ contribution to the success and promotion of the
Company are set out in the Directors’ Report in the Annual Report and
Financial Statements and details of Directors’ biographies can be found in
the Annual Report and Financial Statements.
The Directors are not aware of any issues that have been raised directly by
shareholders in respect of Board composition in the year under review. Details
of the proxy voting results in favour and against individual Directors’
re-election at the 2023 Annual General Meeting are given on the Manager’s
website at www.blackrock.com/uk/brge.
Environmental, Social and Governance issues and approach
The Company’s approach to ESG
Environmental, social and governance (ESG) issues can present both
opportunities and risks to long-term investment performance. Whilst the
Company does not exclude investment in stocks purely on ESG criteria, material
ESG analytics are integrated into the investment process when weighing up the
risk and reward benefits of investment decisions and the Board believes that
communication and engagement with portfolio companies is important and can
lead to better outcomes for shareholders and the environment than merely
excluding investment in certain areas.
More information on BlackRock’s global approach to ESG integration, as well
as activity specific to the BlackRock Greater Europe Investment Trust plc
portfolio, is set out below. BlackRock has defined ESG integration as the
practice of incorporating financially material E, S and/or G data and
information and consideration of sustainability risks into investment
decisions with the objective of enhancing risk-adjusted returns. ESG
integration does not change the Company’s investment objective. More
information on sustainability risks may be found in the AIFMD Fund Disclosures
document of the Company available on the Company’s website at
www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-greater-europe-investment-trust-plc.pd
(http://www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-greater-europe-investment-trust-plc.pdf)f
BlackRock’s approach to ESG integration
BlackRock believes that sustainability risks, including climate risks, are
investment risks. As a fiduciary, BlackRock manages material risks and
opportunities that could impact portfolios. Sustainability can be a driver of
investment risks and opportunities, and BlackRock incorporates them in its
firm wide processes when they are material. This in turn (in BlackRock’s
view) is likely to drive a significant reallocation of capital away from
traditional carbon intensive industries over the next decade. BlackRock
believes that carbon-intensive companies will play an integral role in
unlocking the full potential of the energy transition, and to do this, they
must be prepared to adapt, innovate and pivot their strategies towards a low
carbon economy.
BlackRock incorporates into its firmwide processes relevant, financially
material information, including financially material data and information
related to ESG. BlackRock’s investment view is that doing so can provide
better risk-adjusted returns for its clients over the long term.
BlackRock’s clients have a wide range of perspectives on a variety of issues
and investment themes, including sustainable and low-carbon transition
investing. Given the wide range of unique and varied investment objectives
sought by its clients, BlackRock’s investment teams have a range of
approaches to considering financially material E, S, and/or G factors. As with
other investment risks and opportunities, the financial materiality of E, S
and/or G considerations may vary by issuer, sector, product, mandate, and time
horizon. Depending on the investment approach, this financially material E, S
and/or G data or information may help inform due diligence, portfolio or index
construction, and/or monitoring processes of client portfolios, as well as
BlackRock’s approach to risk management.
BlackRock’s ESG integration framework is built upon its history as a firm
founded on the principle of thorough and thoughtful risk management. Aladdin,
BlackRock’s core risk management and investment technology platform, allows
investors to leverage financially material E, S and/or G data or information
as well as the combined experience of BlackRock’s investment teams to
effectively identify investment opportunities and investment risks.
BlackRock’s heritage in risk management combined with the strength of the
Aladdin platform enables BlackRock’s approach to ESG integration.
BlackRock structures its approach around three main pillars: investment
processes, material insights and transparency. These pillars underpin ESG
integration at BlackRock and they are supported by equipping BlackRock
employees with investment relevant E, S and/or G data, tools, and education.
More information in respect of BlackRock’s approach to ESG integration can
be found at
https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pd
(https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf)f.
BlackRock Investment Stewardship
BlackRock Greater Europe Investment Trust plc – BlackRock Investment
Stewardship engagement with portfolio companies for the year ended 31 August
2024
The BlackRock portfolio management team has excellent access to company
management teams and undertakes about 700 company meetings each year to
identify high quality, cash generative businesses with strong management teams
that are able to generate growth in a more challenging economic environment.
In addition, BlackRock also has a separate Investment Stewardship (BIS) team
that is responsible for engaging with investee companies, proxy voting on the
behalf of clients when authorised, contributing to industry dialogue on
stewardship and reporting on its activities. For the year to 31 August 2024,
BIS held 42 company engagements on a range of governance issues with the
management teams of 25 companies in the BlackRock Greater Europe Investment
Trust portfolio, representing 74% of the portfolio holdings at 31 August 2024.
Additional information is set out in the table and charts below and in the
Annual Report and Financial Statements as well as the key engagement themes
for the meetings held in respect of the Company’s portfolio holdings.
Year ended
31 August
2024
Number of engagements held 1 42
Number of companies met 1 25
% of equity investments covered 2 74
Shareholder meetings voted at 3 31
Number of proposals voted on 3 543
Number of votes against management 1 45
% of total items voted represented by votes against management 6.7
=========
1 Source: BlackRock as at 31 August 2024.
2 Source: BlackRock. As a percentage of total portfolio holdings at 31 August
2024.
3 Source: BlackRock, Institutional Shareholder Services as at 31 August 2024.
Engagement Topics1
Biodiversity 3
Climate Risk Management 10
Deforestation/Land Use 3
Water and Waste 4
Board Composition and Effectiveness 22
Business Oversight/Risk Management 5
Corporate Strategy 8
Executive Management 7
Governance Structure 7
Remuneration 21
Sustainability Reporting 8
Diversity and Inclusion 4
Health and Safety 3
Human Capital Management 8
Social Risks and Opportunities 4
Supply Chain Labour Management 4
Other* 7
* Other:
Other company impacts on the environment 1; Board gender diversity 1; Business
ethics and integrity 2;
Community relations 1; Other human capital management issues 1; and Privacy
and data security 1.
Engagement Themes1
Governance 39
Social 16
Environmental 11
1 Engagements include multiple company meetings during the year with the same
company. Most engagement conversations cover multiple topics and are based on
our vote guidelines and our engagement priorities found
here: https://www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf
Source: BlackRock.
BlackRock Investment Stewardship
The BlackRock Investment Stewardship (BIS) team takes a long-term approach in
its stewardship efforts, reflecting the investment horizons of the majority of
BlackRock’s clients. BIS’ activities include engaging with companies,
proxy voting on clients’ behalf, contributing to industry dialogue on
stewardship, and reporting on its activities. These activities are the main
components of the stewardship toolkit and are performed all year long. BIS
aims to take a globally consistent approach, while recognising the unique
markets and sectors in which companies operate.
BIS benchmark policies
The BIS Global Principles, regional voting guidelines and engagement
priorities (collectively, the ‘BIS benchmark policies’) set out the core
elements of corporate governance that guide BIS’ efforts globally and within
each regional market, including when engaging with companies and voting at
shareholder meetings when authorised to do so on behalf of clients. BIS is
committed to transparency in terms of disclosure of its stewardship activities
on behalf of clients and publishes these benchmark policies to help
BlackRock’s clients understand its work to advance their interests as
long-term investors in public companies. Each year, BIS reviews its benchmark
policies and updates them as necessary to reflect changes in market standards
and regulations, insights gained over the year through third-party and its own
research, and feedback from clients and companies. Additionally, BIS publishes
both annual and quarterly reports detailing its stewardship activities, as
well as vote bulletins that describe its rationale for certain votes at
high-profile shareholder meetings. More detail in respect of BIS reporting can
be found at www.blackrock.com/corporate/insights/investment-stewardship.
Global principles
The BIS Global Principles reflect BIS’ views on the globally-applicable
fundamental elements of corporate governance that contribute to a company’s
ability to create long-term financial value.
The Global Principles are available on BIS’ website:
https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pd
(https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf)f.
Regional voting guidelines
The BIS regional voting guidelines provide context on local market rules and
norms within the framework of BIS’ overarching global corporate governance
principles. The regional voting guidelines help provide clients, companies,
and others guidance on BIS’ position on common voting matters in each
market. BIS’ regional voting guidelines are available on its website:
https://www.blackrock.com/corporate/insights/investment-stewardship#stewardship-policies.
Engagement priorities
The BIS engagement priorities are the five themes on which BIS most frequently
engages with companies, where they are relevant and a source of material
business risk or opportunity. The engagement priorities are available on
BIS’ website:
https://www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the Sustainability
Accounting Standards Board provides a clear set of standards for reporting
sustainability information across a wide range of issues, from labour
practices to data privacy to business ethics. For evaluating and reporting
climate-related risks, as well as the related governance issues that are
essential to managing them, the Task Force on Climate-related Financial
Disclosures (TCFD) provides a valuable framework. BlackRock recognises that
reporting to these standards requires significant time, analysis, and effort.
BlackRock’s 2023 TCFD report can be found at
www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pd
(http://www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pdf)f.
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
5 November 2024
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 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 Guidance 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, 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 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 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 in the Annual Report
and Financial Statements. As a result, the Board has concluded that the Annual
Report and Financial Statements for the year ended 31 August 2024, taken as a
whole, are fair, balanced and understandable and provide 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
5 November 2024
Income Statement for the year ended 31 August 2024
2024 2023
Notes Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Gains on investments held at fair value through profit or loss 10 – 88,991 88,991 – 87,830 87,830
Gains on foreign exchange – 1,075 1,075 – 1,149 1,149
Income from investments held at fair value through profit or loss 3 11,969 31 12,000 10,699 – 10,699
--------------- --------------- --------------- --------------- --------------- ---------------
Total income 11,969 90,097 102,066 10,699 88,979 99,678
========= ========= ========= ========= ========= =========
Expenses
Investment management fee 4 (994) (3,976) (4,970) (888) (3,554) (4,442)
Other operating expenses 5 (2,420) (9) (2,429) (1,934) (89) (2,023)
--------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (3,414) (3,985) (7,399) (2,822) (3,643) (6,465)
========= ========= ========= ========= ========= =========
Net profit on ordinary activities before finance costs and taxation 8,555 86,112 94,667 7,877 85,336 93,213
Finance costs 6 (467) (1,870) (2,337) (167) (665) (832)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit on ordinary activities before taxation 8,088 84,242 92,330 7,710 84,671 92,381
Taxation charge (709) (11) (720) (790) – (790)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit on ordinary activities after taxation 7 7,379 84,231 91,610 6,920 84,671 91,591
========= ========= ========= ========= ========= =========
Earnings per ordinary share (pence) 7 7.35 83.88 91.23 6.85 83.77 90.62
========= ========= ========= ========= ========= =========
The total columns of this statement represent 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 year. All income is attributable to
the equity holders of the Company.
The net profit on ordinary activities for the year disclosed above represents
the Company’s total comprehensive income.
Statement of Changes in Equity for the year ended 31 August 2024
Notes Called Share Capital Special Capital Revenue Total
up share Premium redemption reserve reserves reserve £’000
capital account reserve £’000 £’000 £’000
£’000 £’000 £’000
For the year ended 31 August 2024
At 31 August 2023 117 85,325 130 68,558 400,631 10,949 565,710
Total comprehensive income:
Net profit for the year – – – – 84,231 7,379 91,610
Transaction with owners, recorded directly to equity:
Ordinary shares repurchased into treasury 14,15 – – – (10,171) – – (10,171)
Share buyback costs 14,15 – – – (56) – – (56)
Dividends paid 1 8 – – – – – (6,793) (6,793)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 August 2024 117 85,325 130 58,331 484,862 11,535 640,300
========= ========= ========= ========= ========= ========= =========
For the year ended 31 August 2023
At 31 August 2022 117 85,325 130 71,572 315,960 10,695 483,799
Total comprehensive income:
Net profit for the year – – – – 84,671 6,920 91,591
Transaction with owners, recorded directly to equity:
Ordinary shares repurchased into treasury – – – (3,001) – – (3,001)
Share buyback costs – – – (13) – – (13)
Dividends paid 2 – – – – – (6,666) (6,666)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 August 2023 117 85,325 130 68,558 400,631 10,949 565,710
========= ========= ========= ========= ========= ========= =========
1 Interim dividend paid in respect of the year ended 31 August 2024 of 1.75p
per share was declared on 2 May 2024 and paid on 19 June 2024. Final dividend
paid in respect of the year ended 31 August 2023 of 5.00p per share was
declared on 8 November 2023 and paid on 20 December 2023.
2 Interim dividend paid in respect of the year ended 31 August 2023 of 1.75p
per share was declared on 10 May 2023 and paid on 19 June 2023. 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.
Balance Sheet as at 31 August 2024
Notes 2024 2023
£’000 £’000
Non current assets
Investments held at fair value through profit or loss 10 691,831 594,727
Current assets
Current tax asset 3,100 2,350
Debtors 11 748 1,517
Cash and cash equivalents - cash at bank 8 –
--------------- ---------------
Total current assets 3,856 3,867
========= =========
Current liabilities
Cash and cash equivalents - bank overdraft 13,16(c) (50,150) (27,617)
Other creditors 12 (5,237) (5,267)
--------------- ---------------
Total current liabilities (55,387) (32,884)
========= =========
Net current liabilities (51,531) (29,017)
========= =========
Net assets 640,300 565,710
========= =========
Equity
Called up share capital 14 117 117
Share premium account 15 85,325 85,325
Capital redemption reserve 15 130 130
Special reserve 15 58,331 68,558
Capital reserves 15 484,862 400,631
Revenue reserve 15 11,535 10,949
--------------- ---------------
Total shareholders’ funds 9 640,300 565,710
========= =========
Net asset value per ordinary share (pence) 9 644.60 560.11
========= =========
Statement of Cash Flows for the year ended 31 August 2024
Note 2024 2023
£’000 £’000
Operating activities
Net profit on ordinary activities before taxation 92,330 92,381
Add back finance costs 2,337 832
Gains on investments held at fair value through profit or loss (88,991) (87,830)
Gains on foreign exchange (1,075) (1,149)
Sale of investments held at fair value through profit or loss 134,209 86,863
Purchase of investments held at fair value through profit or loss (142,473) (115,924)
Net amount for capital special dividends received (20) –
Increase in debtors (21) (25)
Increase in other creditors 630 1,231
Taxation on investment income (2,291) (1,763)
Interest paid (2,337) (832)
Refund of withholding tax reclaims 821 542
--------------- ---------------
Net cash used in operating activities (6,881) (25,674)
========= =========
Financing activities
Ordinary shares repurchased into treasury (9,926) (3,592)
Dividends paid 8 (6,793) (6,666)
--------------- ---------------
Net cash used in financing activities (16,719) (10,258)
========= =========
Decrease in cash and cash equivalents (23,600) (35,932)
========= =========
Cash and cash equivalents at the start of the year (27,617) 7,166
Effect of foreign exchange rate changes 1,075 1,149
--------------- ---------------
Cash and cash equivalents at the end of the year (50,142) (27,617)
========= =========
Comprised of:
Cash at bank 8 –
Bank overdraft (50,150) (27,617)
--------------- ---------------
(50,142) (27,617)
========= =========
Notes to the Financial Statements for the year ended 31 August 2024
1. Principal activity
The Company was incorporated on 1 June 2004 and its principal activity 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 The Financial Reporting Standard applicable in the UK and
Republic of Ireland (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 October 2019 and updated in July 2022, and the provisions of the Companies
Act 2006.
Substantially, all of the assets of the Company consist of securities that are
readily realisable and, accordingly, the Directors are satisfied that the
Company has adequate resources to continue in operational existence for the
period to 30 November 2025, being a period of at least 12 months from the date
of approval of the financial statements, and therefore consider the going
concern assumption to be appropriate. The Directors have reviewed compliance
with covenants associated with the bank overdraft facility, income and expense
projections and the liquidity of the investment portfolio in making their
assessment.
The Directors have considered the impact of climate change on the value of the
investments included in the Financial Statements and have concluded that there
was no further impact of climate change to be considered as the investments
are valued based on market pricing as required by FRS 102.
None of the Company’s other assets and liabilities were considered to be
potentially impacted by climate change.
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
functional currency of the Company and 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 on the face of 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 particular
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 using the effective interest rate
method in accordance with Section 11 of FRS 102.
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 revenue. Any excess in the value of the shares received over the
amount of the cash dividend is recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue account of the Income
Statement, 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 in the annual
reports and finanical statements;
· expenses are treated as capital where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated; and
· the investment management fee and finance costs have been allocated 20% to
the revenue account and 80% to the capital account 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.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Income Statement
because it excludes items of income or expenses that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Company’s liability for current tax is calculated using tax
rates that were applicable at the balance sheet date.
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 taxation 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.
(g) 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 Sections 11 and 12 of FRS 102 and are
managed and evaluated on a fair value basis in accordance with its investment
strategy.
All investments are classified 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.
Unquoted investments are valued by the Directors at fair value using
International Private Equity and Venture Capital Valuation Guidelines. This
policy applies to all current and non-current asset investments of the
Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
‘Gains or losses on investments held at fair value through profit or
loss’. Also included within this heading are transaction costs in relation
to the purchase or sale of investments.
The fair value hierarchy consists of the following three levels:
Level 1 – Quoted market price for identical instruments in active markets.
Level 2 – Valuation techniques using observable inputs.
Level 3 – Valuation techniques using significant unobservable inputs.
(h) Debtors
Debtors include sales for future settlement, other debtors and prepayments 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.
(i) Creditors
Creditors include purchases for future settlement, 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 (or in the normal operating cycle of business if
longer). If not, they are presented as creditors – amounts due after more
than one year.
(j) 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.
(k) Cash and cash equivalents
Cash comprises cash in hand and on 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.
(l) 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 are translated into Sterling at the rates of exchange ruling at
the balance sheet date. Profits and losses thereon are recognised in the
capital account of the Income Statement and taken to the capital reserves.
(m) Share repurchases, share reissues and new share issues
Shares repurchased and subsequently cancelled – share capital is reduced by
the nominal value of the shares repurchased and the capital redemption reserve
is correspondingly increased in accordance with Section 733 of the Companies
Act 2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is
charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are credited to the
special reserve and capital reserves based on a weighted average basis of
amounts utilised from these reserves on repurchases; and
· any surplus received in excess of the repurchase price is taken to the
share premium account.
Where new shares are issued, the par value is taken to called up share capital
and amounts received to the extent of any surplus received in excess of the
par value are taken to the share premium account.
Share issue costs are charged to the share premium account. Costs on share
reissues are charged to the special reserve and capital reserves.
(n) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are
accounted for on an accruals basis in the Income Statement.
(o) Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future. The
resulting accounting estimates and assumptions will, by definition, seldom
equal the related actual results. Estimates and judgements are regularly
evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. The Directors do not believe that any accounting judgements or
estimates have a significant risk of causing a material adjustment to the
carrying amount of assets and liabilities within the next financial year.
3. Income
2024 2023
£’000 £’000
Investment income:
UK dividends 807 764
Overseas dividends 10,687 9,907
Overseas special dividends 475 27
--------------- ---------------
Total investment income 11,969 10,698
========= =========
Other income:
Interest received – 1
--------------- ---------------
Total 11,969 10,699
========= =========
Dividends and interest received in cash during the year amounted to
£8,119,000 and £nil respectively (2023: £7,781,000 and £1,000).
Special dividends of £31,000 have been recognised in capital during the year
(2023: £nil).
4. Investment management fee
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 994 3,976 4,970 888 3,554 4,442
--------------- --------------- --------------- --------------- --------------- ---------------
Total 994 3,976 4,970 888 3,554 4,442
========= ========= ========= ========= ========= =========
With effect from 1 January 2023, the investment management fee is levied
quarterly based on a tiered basis: 0.85% per annum of the month-end net asset
value up to £350 million and 0.75% per annum of the 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 the 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
2024 2023
£’000 £’000
Allocated to revenue:
Broker fees 48 48
Custody fees 65 36
Depositary fees 70 65
Audit fees 1 64 57
Legal fees 26 26
Registrar’s fees 94 97
Directors’ emoluments 2 186 173
Marketing fees 157 97
Postage and printing fees 46 68
AIC fees 22 21
Professional fees 37 66
Stock exchange listing fees 30 35
Write back of prior year expense accruals 3 (12) (23)
Other administration costs 30 24
Provision for doubtful debts 4 1,557 1,144
--------------- ---------------
Total revenue expenses 2,420 1,934
========= =========
Allocated to capital:
Custody transaction costs 5 9 89
--------------- ---------------
Total 2,429 2,023
========= =========
The Company’s ongoing charges 6 , calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items were: 0.95% 0.98%
========= =========
1 No non-audit services are provided by the Company’s auditors (2023:
none).
2 Further information on Directors’ emoluments can be found in the
Directors’ Remuneration Report in the Annual Report and Financial
Statements.The Company has no employees.
3 Relates to professional fees and postage and printing fees written back in
the year ended 31 August 2024 (2023: legal fees and registrar’s fees).
4 Provision for doubtful debts relate to dividend income from Sberbank which
has not been received due to measures imposed by the Russian authorities in
response to the sanctions that have been imposed on Russia as a result of the
invasion of Ukraine.
5 For the year ended 31 August 2024, expenses of £9,000 (2023: £89,000)
were charged to the capital account of the Income Statement. These relate to
transaction costs charged by the custodian on sale and purchase trades.
6 Alternative Performance Measure, see Glossary in the Annual Report and
Financial Statements.
6. Dividends
Dividends paid on equity shares Record date Payment date 2024 2023
£’000 £’000
2022 Final dividend of 4.85p 18 November 2022 16 December 2022 – 4,899
2023 Interim dividend of 1.75p 19 May 2023 19 June 2023 – 1,767
2023 Final dividend of 5.00p 17 November 2023 20 December 2023 5,041 –
2024 Interim dividend of 1.75p 24 May 2024 19 June 2024 1,752 –
--------------- ---------------
6,793 6,666
========= =========
The Directors have proposed a final dividend of 5.25p per share in respect of
the year ended 31 August 2024. The final dividend will be paid on 20 December
2024, subject to shareholders’ approval on 10 December 2024, to shareholders
on the Company’s register on 22 November 2024. The proposed final dividend
has not been included as a liability in these financial statements as final
dividends are only recognised in the financial statements when they have been
approved by shareholders.
The 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 2024, meet the relevant requirements as
set out in this legislation.
Dividends paid or proposed on equity shares 2024 2023
£’000 £’000
Interim paid of 1.75p (2023: 1.75p) 1,752 1,767
Final proposed of 5.25p* (2023: 5.00p) 5,158 5,041
--------------- ---------------
6,910 6,808
========= =========
* Based on 98,238,150 ordinary shares (excluding treasury shares) in issue
on 4 November 2024.
All dividends paid or payable are distributed from the Company’s current
year revenue profits and, if required, from brought forward revenue reserves.
7. Earnings and net asset value per ordinary share
Revenue, capital earnings and net asset value per ordinary share are shown
below and have been calculated using the following:
2024 2023
Net revenue profit attributable to ordinary shareholders (£’000) 7,379 6,920
Net capital profit attributable to ordinary shareholders (£’000) 84,231 84,671
----------------- -----------------
Total profit attributable to ordinary shareholders (£’000) 91,610 91,591
========== ==========
Total shareholders’ funds (£’000) 640,300 565,710
========== ==========
Earnings per share
The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: 100,411,682 101,067,709
The actual number of ordinary shares in issue at the end of the year on which the net asset value per ordinary share was calculated was: 99,332,161 101,000,161
Calculated on weighted average number of ordinary shares:
Revenue earnings per share (pence) – basic and diluted 7.35 6.85
Capital earnings per share (pence) – basic and diluted 83.88 83.77
----------------- -----------------
Total earnings per share (pence) – basic and diluted 91.23 90.62
========== ==========
As at As at
31 August 31 August
2024 2023
Net asset value per share (pence) 644.60 560.11
Ordinary share price (pence) 601.00 527.00
========= =========
There were no dilutive securities at the year end (2023: none).
8. Called up share capital
Ordinary Treasury Total Nominal
shares shares shares value
number number number £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 0.1 pence each:
At 31 August 2023 101,000,161 16,928,777 117,928,938 117
Ordinary shares repurchased into treasury (1,668,000) 1,668,000 – –
------------------- ------------------- ------------------- -------------------
At 31 August 2024 99,332,161 18,596,777 117,928,938 117
=========== =========== =========== ===========
During the year, 1,668,000 ordinary shares (2023: 698,692) were repurchased
and held in treasury for a net consideration after expenses of £10,227,000
(2023: £3,014,000).
Since 31 August 2024 and up to the latest practicable date of 4 November 2024,
a further 1,094,011 ordinary shares have been repurchased for a net
consideration after expenses of £6,330,000 and placed in treasury.
9. Reserves
Distributable Reserves
Share Capital Special Capital Capital Revenue
premium redemption reserve 1 reserve reserve reserve
account reserve £’000 (arising on (arising on £’000
£’000 £’000 investments revaluation of
sold) investments
£’000 held)
£’000
At 31 August 2023 85,325 130 68,558 251,181 149,450 10,949
Movement during the year:
Total comprehensive income:
Net profit for the year – – – 4,166 80,065 7,379
Transaction with owners, recorded directly to equity:
Ordinary shares repurchased into treasury – – (10,171) – – –
Share buyback costs – – (56) – – –
Dividends paid during the year – – – – – (6,793)
--------------- --------------- --------------- --------------- --------------- ---------------
At 31 August 2024 85,325 130 58,331 255,347 229,515 11,535
========= ========= ========= ========= ========= =========
Distributable Reserves
Share Capital Special Capital Capital Revenue
premium redemption reserve 1 reserve reserve reserve
account reserve £’000 (arising on (arising on £’000
£’000 £’000 investments revaluation of
sold) investments
£’000 held)
£’000
At 31 August 2022 85,325 130 71,572 261,370 54,590 10,695
Movement during the year:
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – (10,189) 94,860 6,920
Transaction with owners, recorded directly to equity:
Ordinary shares repurchased into treasury – – (3,001) – – –
Share buyback costs – – (13) – – –
Dividends paid during the year – – – – – (6,666)
--------------- --------------- --------------- --------------- --------------- ---------------
At 31 August 2023 85,325 130 68,558 251,181 149,450 10,949
========= ========= ========= ========= ========= =========
1 Relates to amount transferred from the share premium account to a special
reserve pursuant to Court approval received on 15 October 2004.
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 such as dividends. In
accordance with the Company’s Articles of Association, the special reserve,
capital reserves and the revenue reserve may be distributed by way of
dividend. The gain on the capital reserve arising on the revaluation of
investments held of £229,515,000 (2023: gain of £149,450,000) 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 reserves (arising on investments sold)
and the revenue reserve may not be entirely distributable if a loss occurred
during the realisation of these investments.
10. 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 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 to the Financial Statements can be
found in the Annual Report and Financial Statements.
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 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 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 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 the
measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
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 31 August 2024 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Equity investments 691,830 – 1 691,831
--------------- --------------- --------------- ---------------
Total 691,830 – 1 691,831
========= ========= ========= =========
Financial assets at fair value through profit or loss at 31 August 2023 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Equity investments 593,785 – 942 594,727
--------------- --------------- --------------- ---------------
Total 593,785 – 942 594,727
========= ========= ========= =========
The Company held two Level 3 securities as at 31 August 2024 (2023: 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
2024 2023
£’000 £’000
Opening fair value 942 3
(Loss)/gain on investments included in gains on investments in the Income Statement (941) 939
--------------- ---------------
Closing balance 1 942
========= =========
As at 31 August 2024, the investments in Sberbank and Lukoil have been valued
at a nominal value of £0.01 due to closure of the Moscow Stock Exchange to
overseas investors and the secondary listings of depositary receipts of
Russian companies having been suspended from trading. At the time of the
invasion on 23 February 2022, the original book cost of these holdings was
£28.7m and its carrying value was £20.7m and these amounts were fair valued
to a nominal value of £0.01 on 3 March 2022.
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 price related
risks, including climate risk, in accordance with the fair value related
requirements of the Company’s financial reporting framework.
11. 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 in the
Annual Report and Financial Statements.
The investment management fee is levied quarterly based on a tiered basis:
0.85% per annum on the month-end net asset value up to £350 million and 0.75%
per annum on the 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 the net asset value on the last day of
each month. The investment management fee due for the year ended 31 August
2024 amounted to £4,970,000 (2023: £4,442,000). At the year end, £3,872,000
was outstanding in respect of these fees (2023: £3,426,000).
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
year ended 31 August 2024 amounted to £157,000 excluding VAT (2023:
£97,000). Marketing fees of £198,000 were outstanding at 31 August 2024
(2023: £168,000).
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
31 August 2024, an amount of £205,000 was payable to the Manager in respect
of Directors’ fees (2023: £113,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
12. 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 in the Annual Report and Financial
Statements. At 31 August 2024, an amount of £15,000 (2023: £14,000) was
outstanding in respect of Directors’ fees.
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).
Total % of shares Total % of shares held by Number of Significant Investors
held by Related Significant Investors who are who are not affiliates of
BlackRock Funds not affiliates of BlackRock BlackRock Group or
Group or BlackRock, Inc. BlackRock, Inc.
As at 31 August 2024 1.3 n/a n/a
As at 31 August 2023 1.4 n/a n/a
13. Contingent liabilities
There were no contingent liabilities at 31 August 2024 (2023: none).
14. 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 2024 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 2023 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
2023, 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.
15. 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.
16. 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 Tuesday, 10 December 2024
at 12 noon.
ENDS
The Annual Report will also be available on the BlackRock website at
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.
For further information please contact:
Sarah Beynsberger, Director, Closed End Funds, BlackRock Investment Management
(UK) Limited
Tel: 020 7743 3000
Stefan Gries, Fund Manager, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
12 Throgmorton Avenue
London
EC2N 2DL
5 November
Release (https://mb.cision.com/Main/22396/4060862/3096101.pdf)
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