TIDMBRGE
BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC
LEI: 5493003R8FJ6I76ZUW55
Annual Report and Financial Statements 31 August 2023
Performance record
As at As at
31 August 31 August
2023 2022
Net assets (£'000)1 565,710 483,799
Net asset value per ordinary share (pence) 560.11 475.72
Ordinary share price (mid-market) (pence) 527.00 456.00
Discount to cum income net asset value2 5.9% 4.1%
FTSE World Europe ex UK Index 1916.71 1654.61
======== ========
For the year For the year
ended ended
31 August 31 August
2023 2022
Performance (with dividends reinvested)
Net asset value per share2 19.2% -29.2%
Ordinary share price2 17.1% -33.4%
FTSE World Europe ex UK Index 15.8% -11.5%
======== ========
For the year For the year Change
ended ended %
31 August 31 August
2023 2022
Revenue
Net profit on ordinary 6,920 7,728 -10.5
activities after taxation
(£'000)
Revenue earnings per 6.85 7.65 -10.5
ordinary share (pence)3
-------------- -------------- --------------
Dividends (pence)
Interim dividend 1.75 1.75 -
Final dividend 5.00 4.85 +3.1
-------------- -------------- --------------
Total dividends payable/paid 6.75 6.60 +2.3
======== ======== ========
1The change in net assets reflects payments for shares repurchased into
treasury, portfolio movements and dividends paid.
2Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements.
3Further details are given in the Glossary in the Annual Report and Financial
Statements.
Chairman's Statement
Introduction
2023 has turned out to be a better year for both markets and economies than
envisaged, whereas 2022 was a challenging year for investors as stocks and bonds
fell together. Having lost its biggest supplier of energy following Russia's
invasion of Ukraine, feared economic disruption caused by energy shortages never
materialised due to warmer temperatures and effective stock piling of natural
gas. However, energy prices were significantly higher and substantial financial
support has been given to Ukraine from across the region. A swift intervention
by central banks following three large bank failures in the US and the rescue of
Credit Suisse in Europe also helped stabilise markets. Although the region has
faced economic headwinds and there has been a steady deterioration in the
manufacturing sector, respite has been provided by the larger services sector
and consumer spending post the COVID-19 pandemic.
Performance
Against this background, I am pleased to report that the portfolio performed
well during the year, delivering a strong positive return and outperforming its
reference index, the FTSE World Europe ex UK Index. The Company's net asset
value per share (NAV) returned +19.2% and the share price +17.1%. In comparison,
the reference index returned +15.8% over the same period (all percentages
calculated in Pound Sterling terms with dividends reinvested). As at 31 August
2023, our Company's NAV total return has outperformed every other investment
trust in the AIC Europe sector over one and five year periods.
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 equity markets have faced a challenging environment
and up to close of business on 3 November 2023, the Company's NAV has decreased
by 4.8% compared with a fall in the reference index of 2.0% 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 2023 declined to 6.85p per share, which compares with 7.65p per
share for the previous year, a fall of 10.5%.
In April, the Board declared an interim dividend of 1.75p per share (2022:
1.75p) and is now proposing the payment of a final dividend of 5.00p per share
for the year (2022: 4.85p). This, together with the interim dividend, makes a
total dividend for the year of 6.75p per share (2022: 6.60p), an increase of
2.3%. The dividend will be funded from revenue received in the year. Subject to
shareholder approval, the dividend will be paid on 20 December 2023 to
shareholders on the Company's register on 17 November 2023, the ex-dividend date
being 16 November 2023.
Management of share rating
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. It is worth noting that
the Company became a constituent of the FTSE 250 on 25 May 2023.
Over the year to 31 August 2023, the Company's shares have traded at an average
discount of 5.4%. During the year, the Company purchased 698,692 ordinary shares
at an average price of 431.38p per share and an average discount of 6.2% for a
total cost of £3,014,000. Since the year end up to 3 November 2023, a further
188,000 ordinary shares have been bought back at an average price of 528.72p per
share for a total cost of £994,000. All shares have been placed in treasury. No
shares were issued during the year.
As reported in the 2023 Half Yearly Financial Report, the Directors exercised
their discretion not to operate the half yearly tender offers in November 2022
and May 2023. It was also announced on 20 September 2023 that the Board had
decided not to implement a semi-annual tender offer in November 2023. Over the
six-months to 31 August 2023, the average discount to NAV (cum income) was 5.4%
and the discount as at close of business on 19 September 2023 was 4.4%. 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 2023.
Portfolio Manager
As announced on 28 September 2023, we are delighted that Alexandra Dangoor has
been named as co-portfolio manager of the Company, alongside lead manager Stefan
Gries. Alexandra joined the BlackRock Fundamental European Equity Team in 2019
after two years in BlackRock's graduate rotation program where she was an
analyst in the Natural Resources and European Equity teams. Her research support
for Stefan's strategies, including those of the Company, has given her a chance
to develop a deep understanding of the philosophy of running concentrated, high
conviction, low turnover portfolios.
The co-portfolio manager appointment reflects Alexandra's strong track record as
a research analyst, as well as the European Equity team's ongoing commitment to
the development of talent from within. The appointment also returns the Company
to a co-portfolio manager structure. The investment objective and policy of the
Company is unchanged.
Board composition
Davina Curling has informed the Board of her intention to retire as a Director
of the Company following the Annual General Meeting in December 2023 and,
accordingly, will not be seeking re-election. Davina joined the Board in
December 2011 and the Board would like to express its strong appreciation for
Davina's wise counsel and invaluable contribution to the Company. Her departure
marks the beginning of a Board refreshment policy.
During the year, the Board commenced a search to identify a new Director and we
are delighted to announce that Sapna Shah will be appointed following the
forthcoming Annual General Meeting. Sapna has 20 years of investment banking
experience advising UK companies, including listed REITs and investment
companies, on IPOs, equity capital market transactions and mergers and
acquisitions. Sapna was appointed as a non-executive director of The Association
of Investment Companies (AIC) in January 2021 and is a member of the AIC
remuneration committee. She is also a senior adviser at Panmure Gordon Limited
and prior to this held senior investment banking roles at UBS AG, Oriel
Securities (now Stifel Nicolaus Europe) and Cenkos Securities. Sapna is
currently a non-executive director of Supermarket Income REIT plc and BioPharma
Credit PLC.
Following Davina's departure the Board has agreed to appoint Paola Subacchi as
the Senior Independent Director.
Visit to Denmark
The Board takes its governance duties very seriously and in May 2023 joined
representatives of the Manager on a three-day trip to Denmark to meet the
management teams of some of the Company's largest holdings.This represented a
significant time commitment from the Board and the aim of the trip was to gain a
deeper understanding of the portfolio manager's due diligence processes when
meeting with investee companies, as well as gaining enhanced knowledge of these
companies and their business models and the operational challenges that they are
facing in current markets.During the course of the visit the Board undertook
site tours and met with representatives from Novo Nordisk, Royal Unibrew and DSV
(collectively representing 16.3% of the Company's portfolio as at 31 August
2023) as well as the Chief Equity Strategist at Danske Bank who provided insight
into challenges facing global markets and the Danish economy.
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 this report.
Outlook
European equities have defied expectations and produced strong performance over
the past 12 months. The rebound has been driven by a combination of rising
valuations and improved earnings expectations, as the mild winter averted an
energy crisis in Europe. However, it remains a challenging environment
especially with the war in Ukraine, the conflict in the Middle East and with
above-target inflation forcing the European Central Bank to initiate multiple
interest-rate hikes and the impact now being felt in the real economy. Levels of
uncertainty therefore remain high and market volatility is expected to remain a
key theme for the foreseeable future.
Against this background, our portfolio managers will continue to favour
companies that have resilience, robust balance sheets, strong cash flows and
management teams with deep experience through multiple cycles. Your Board
remains fully supportive of their approach, as markets tend to reward companies
with stronger quality credentials amid heightened uncertainty.
Annual General Meeting
The Annual General Meeting of the Company will be held in person at the offices
of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 12 December
2023 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.
Eric Sanderson
Chairman
7 November 2023
Investment Manager's Report
Market review
European equity markets rallied over the past year despite ongoing expectations
of an economic downturn. Certain economic indicators, such as Purchasing Manager
Indices (PMIs) have looked weak, but company earnings and guidance have exceeded
expectations across a wide range of industries. We believe this divergence
between the top-down and the bottom-up is best explained by the aftermath of
COVID-19 disruptions. Pent up demand for services and travel, improving supply
chains and efforts to reduce inventories to more normal levels, have led to
temporary demand weakness, de-stocking and subsequent recoveries across
different parts of the market and at different times.
Most of the period saw cyclical sectors outperform defensives, perhaps
reflecting that expectations had become too pessimistic as the result of an
aggressive rate hiking cycle, as well as the previously anticipated weaker
economic growth due to higher energy costs after the Russian invasion of
Ukraine.
In this report, we will discuss the portfolio's performance over the last 12
months, offer examples of high conviction ideas held in the portfolio, briefly
touch on limited portfolio changes and conclude with our expectations for what
the future holds. For the year ended 31 August 2023, performance was positive
with a share price total return of 17.1% and a NAV return of 19.2%. By way of
comparison, the reference index, the FTSE World Europe ex UK Index, returned
15.8% over the same period. All percentages calculated in Pound Sterling terms
with dividends reinvested.
Portfolio performance
Following the headwinds of 2022 (see the 2022 Annual Report and Financial
Statements) it is pleasing to note the strong positive contribution to relative
returns arising from investments in the semiconductor industry, where we had
maintained our positions. Our investment in BE Semiconductor (BESI) was the top
performer over the past year. The company designs and produces mission critical
semiconductor assembly equipment used by chip manufacturers, assembly
subcontractors and electronics and industrial companies. Specifically, they are
a leading provider of packaging solutions such as hybrid bonding, which is set
to become an increasingly important technology in enabling semiconductor chips
to continue getting smaller, yet more powerful and energy efficient.
BESI's strong share price performance of almost 130% over the last 12 months,
was driven by a better-than-expected earnings (Q2 2023 results showed revenues
up by 21.8% compared to the previous quarter, although down 24% year-on-year but
more importantly gross margins exceeded 65%) and a positive re-assessment of the
future prospects of the company following an update from Nvidia. The US based
chip designer said they were seeing `surging demand' for data centre products
used in generative Artificial Intelligence (AI), such as ChatGPT. To meet the
demands of emerging AI technologies, semiconductor chips will have to become
more powerful, meaning chip manufacturers will need to markedly increase their
use of advanced packaging tools such as those sold by BESI.
A number of other semiconductor companies held in the portfolio also added to
returns. ASM International, a company specialising in "atomic layer deposition"
(depositing a fine layer of chemicals on a microchip resulting in uniform
surfaces and better control of voltage along with current flow/leakage)
delivered results in-line with expectations but talked about new orders to
improve during the second half of 2023 helped by new technologies. Similarly,
ASML, a manufacturer of lithography machines (etching intricate patterns on
silicon wafer) reported that overall demand continued to outstrip supply, with
an order backlog of approximately EUR 38 billion.
A very different but equally exciting company was another significant driver of
returns. Novo Nordisk is a Danish-listed diabetes specialist and producer of the
semaglutide molecule which has already experienced significant commercial
success in diabetes under brand names Ozempic (injection) and Rybelsus (oral
tablet). However, it was its use in an obesity care setting which is rapidly
developing under brand name Wegovy (injection) that moved the share price higher
by over 60% during the past year.
We believe the obesity market opportunity is significant. Whilst there are an
estimated 764 million people living globally with obesity, only a small
percentage of these seek help from a healthcare professional. Even fewer are
treated with medications and the side effect profiles of older therapies mean
only a quarter stay on treatment for more than a year. With its strong efficacy
profile in weight loss, a well-established side effect profile and database from
its use in diabetes already, Wegovy has an opportunity to disrupt this market
and help people continue with their treatment.
The investment case became even more compelling towards the end of the period as
Novo Nordisk reported results from its `SELECT' cardiovascular outcomes clinical
trial which showed a statistically significant 20% reduction in major adverse
cardiovascular events for patients on Wegovy, a very positive outcome and above
investor expectations. We believe these results will help underpin the validity
of this new category of obesity drugs, leading to further uptake from commercial
insurers, physicians, government programmes and patients.
Novo Nordisk sales franchise split 2012:
+----------------------+--------------+
| |% of portfolio|
+----------------------+--------------+
|Insulin franchise |66 |
+----------------------+--------------+
|GLP-1 franchise |12 |
+----------------------+--------------+
|Rare Disease franchise|22 |
+----------------------+--------------+
Novo Nordisk sales franchise split 2022:
+----------------------+--------------+
| |% of portfolio|
+----------------------+--------------+
|Insulin franchise |32 |
+----------------------+--------------+
|GLP-1 franchise |47 |
+----------------------+--------------+
|Obesity franchise |9 |
+----------------------+--------------+
|Rare Disease franchise|12 |
+----------------------+--------------+
Source: BlackRock.
Negative contribution came mainly from two areas: a potential competitive threat
to payments provider Adyen and unexpected order weakness in the life sciences
and biopharma industries. Firstly, Adyen is a low-cost payments provider with a
best-in-class single-stack technology platform, which had driven profitable
growth through market share gains in the past. However, in the summer of 2023,
Adyen surprised markets with an earnings miss that led to a fall in the share
price by more than 40%. Management reported slowing growth driven by increased
pricing competition in North America. We had spoken to the company throughout
the year and tracked industry results where possible.
The change in competition comes from Braintree, a unit within PayPal, which we
believe may try to undercut Adyen despite a higher cost stack and therefore
accepting a near zero-profit as a result. The initial share price reaction was
extreme, even accounting for a derating reflecting lower confidence in future
forecasts: North America represents 25% of Adyen's business and the `Digital'
business (i.e. online purchases only) which is impacted by the new competition
represents circa 15%. Whilst revenue of the impacted business is unlikely to
decline to zero, a lower take rate would result in slower top line growth and
lower profitability. To what degree that will be the case is under review at the
time of writing. We have reduced our position reflecting lower conviction.
Secondly, several of the portfolio's life science holdings detracted from
performance. The industry faced headwinds from rising interest rates as funding
costs increased which in turn led to a decline in the funding required for their
customers' (typically large pharma companies) drug development programmes.
The key casualty in the portfolio was ChemoMetec, a company that specialises in
the sale of analytical equipment (primarily cell counters). While funding
pressures have recently led to weaker orders from customers, we expect these
trends to stabilise in the coming quarters and continue to see the business as
an excellent way of accessing the rapidly growing market for cell-based
therapies without taking product specific risk. Sartorius, a supplier of single
use equipment used to manufacture drugs, was particularly impacted by this
phenomenon but we do not believe there has been any change in the underlying
structural drivers and we expect to see a return to historical growth rates
through 2024. Finally, Lonza Group, the specialist in contract drug
manufacturing, faced weakness in its nutraceutical business (vitamins and
capsules), but its core business (large scale commercial biologics) continued to
see very strong demand and performed well and we see no evidence of weakening
long-term fundamentals.
High conviction areas
Amid the increasing volume of soundbites about regime change regarding the
interest rate environment, we remain focused on investing in companies whose
profits are aligned to long-term spending trends that will persist irrespective
of the level of interest rates, inflation and near-term economic growth. One
such spending trend, supported by supernational programmes, is the effort to re
-organise and improve the resilience of supply chains, bring manufacturing
closer to domestic markets and increase automation in the face of higher labour
costs or deteriorating demographics. An example of a company that we believe
will benefit from this "capex renaissance" is Swedish-listed Atlas Copco
(Atlas), a world leading manufacturer of compressors, vacuum solutions,
generators, pumps, power tools and assembly systems.
Atlas is an exceptionally well managed business with a long-term culture and
strong customer focus, aided by a decentralised structure with devolved decision
making. They pride themselves on integrating with their customers and thus being
able to provide rapid and extensive services and support of their installed base
of equipment. The largest part of Atlas' revenue is derived from producing,
selling, and servicing compressed air solutions such as industrial compressors
and air management systems which have a wide range of applications across the
industrial complex. Increasing factory automation is a structural tailwind, as
is producing the most energy efficient compressors, and we believe Atlas is well
positioned to benefit from customers' desire to reduce their total cost of
ownership.
Atlas' vacuum business is a global leading supplier of vacuum solutions -
primarily to the semiconductor and electronics manufacturing markets. We believe
it is well set to benefit from the expansion of the North American semiconductor
manufacturing market, which has become a national priority. Currently only 10%
of the world's chips are made in the US. However, as the chart in the Annual
Report and Financial Statements shows, we are seeing major investment in
semiconductor manufacturing facilities. Atlas is following suit with new
facilities in Arizona and Massachusetts to support the burgeoning industry.
Another long duration spending stream - the "renovation wave" - results from
global efforts to decarbonise. For instance, to meet the European Union's (EU)
2050 net-zero target, the European housing stock needs to be improved as it is
estimated that 75% of the EU building stock is energy inefficient and buildings
account for circa 40% of energy consumption and 36% of greenhouse gas emissions
in the EU. It is estimated that the region's total energy consumption and carbon
dioxide emission could be reduced by 5% to 6% by renovating the existing
building stock. Landlords and tenants alike are being pushed to act by
regulation and landlords have the additional incentive of moving quickly to
avoid their properties becoming stranded assets. As a result, companies such as
Sika, a leader in providing specialty chemicals to the construction industry,
should see its earnings underpinned for more than a decade. Sika's products are
used in flooring, roofing, sealing, bonding and waterproofing - key applications
needed for building and renovation work. With sales to both renovation projects,
as well as new builds, the company offers exposures to multiple points of the
construction cycle.
Kingspan is another beneficiary; the building materials company makes insulated
panels and boards often used in buildings such as warehouses, data centres and
battery factories where we expect strong demand in the near-term future.
An area where we have historically seldom deployed much capital, but where
market dynamics are changing, is the banking sector. Higher interest rates,
lower leverage and a remarkable benign default environment have combined to
create a profitable backdrop for the sector. That said, in the large economies
in Europe, there is little evidence that many banks will meet our long-term
investment criteria due to our scepticism on their ability to earn a spread
between their returns and their cost of capital on a prolonged basis. An
exception to this is Allied Irish Banks (AIB) which we added to the portfolio at
the beginning of 2023. AIB not only benefits from a higher interest rate regime
but also from an improved structural backdrop in Ireland. The economy has
materially de-levered post the Global Financial Crisis (GFC) meaning that credit
quality is significantly better than during the previous cycle and loan to
deposit ratios of the banks are circa 65% to 70%, some of the lowest in Europe.
The Irish banking market has also become highly consolidated, allowing AIB to
have a 31% market share in mortgages and 37% share in deposits. As the rate
cycle progresses, we believe that AIB has the tools to reduce its sensitivity to
rates if needed, which makes it one of a few banks to hold on a long-term view.
Structural change is favourable for market leaders
Figure 1: Ireland mortgage market share, 2020
+------+--------------+
| |% of portfolio|
+------+--------------+
|AIB |26 |
+------+--------------+
|BIRG |20 |
+------+--------------+
|PTSB |12 |
+------+--------------+
|Ulster|13 |
+------+--------------+
|KBC |9 |
+------+--------------+
|Other |20 |
+------+--------------+
Figure 2: Ireland mortgage market share, 2022 post M&A
+-----+--------------+
| |% of portfolio|
+-----+--------------+
|AIB |31 |
+-----+--------------+
|BIRG |27 |
+-----+--------------+
|PTSB |18 |
+-----+--------------+
|Other|24 |
+-----+--------------+
Figure 3: Ireland deposit market share, 2020
+------+--------------+
| |% of portfolio|
+------+--------------+
|AIB |36 |
+------+--------------+
|BIRG |34 |
+------+--------------+
|PTSB |9 |
+------+--------------+
|Ulster|11 |
+------+--------------+
|KBC |3 |
+------+--------------+
|Other |7 |
+------+--------------+
Figure 4: Ireland deposit market share, 2022 post M&A
+------+--------------+
| |% of portfolio|
+------+--------------+
|AIB |41 |
+------+--------------+
|BIRG |38 |
+------+--------------+
|PTSB |9 |
+------+--------------+
|Ulster|3 |
+------+--------------+
|Other |9 |
+------+--------------+
AIB: Allied Irish Banks plc
PTSB: Permanent TSB Group Holdings plc
KBC: KBC Bank Ireland plc
BIRG: Bank of Ireland Group plc
Source: Central Bank of Ireland.
Portfolio changes
As long term and concentrated investors, `competition for capital' is high and
therefore we typically do not change our positioning unless we see a fundamental
change to an investment case or there is an opportunity that is significantly
better than an asset we already own. Portfolio turnover over the last year was
16%, implying a more-than-six year holding period. As described above, we added
a position in AIB to the portfolio at the beginning of the year. We exited from
National Bank of Greece, Bank Pekao and Avanza Bank, hence the overall weight to
financials was reduced.
Our technology exposure increased over the period as we added a position in
STMicroelectronics (STM) which creates semiconductor technologies. STM has been
outgrowing its end markets given a number of new innovative product launches
around auto, smartphones and industrial projects. We expect this trend to
continue helped by continued innovation in power chips for electric vehicles,
sensors for consumer electronics and connectivity for industrial applications.
All these areas should see secular growth ahead, as devices need to become
smarter as well as more energy efficient. Following the sell-off in technology
assets in 2022, the shares' valuation offered an attractive entry point to make
an investment.
Elsewhere in the sector, we bought engineering and technology consulting company
ALTEN Group, which serves customers across a range of industries both in the
private and public sector. ALTEN Group is a beneficiary of increasing
digitisation trends, as companies everywhere seek to become more agile and
efficient with higher technology budgets. It joins a sizeable cohort of
companies in the portfolio which are founder-led: a trait which often results in
management teams focused on delivering long-term sustainable and profitable
growth.
Finally, we exited Diasorin and Polypeptide. Diasorin is an Italian-listed
diagnostics company that develops, produces and sells reagent kits and
instruments for diagnosis and research. We decided to sell the position after
losing conviction in the firm's management team upon poor execution on their
Luminex deal. Similarly, Polypeptide suffered a number of technical and
manufacturing process issues which led to a temporary suspension of two
manufacturing lines. Following those events, we reduced our weightings and
ultimately sold the positions.
Holdings in Russian stocks
Prior to Russia's invasion of Ukraine, 5.7% (£36.9 million) of the Company's
portfolio was invested in stocks with exposure to Russia (as at 31 January
2022). During the year under review, the Company was able to partially realise
its holding in Fix Price Group for proceeds of £0.3 million compared to a
carrying value of £0.9 million as at 31 January 2022, resulting in an uplift of
0.1% to the Company's NAV per share on 5 October 2023 as this position was
previously fair valued at zero.In addition, and subsequent to the year end, the
Company was also able to realise in full its holding in Ozon Holdings for £3.2
million (compared to a carrying value of £4.3 million as at 31 January 2022),
resulting in an uplift of 0.61% to the Company's NAV per share on 5 October 2023
as this position was previously fair valued at zero.The Company's holdings in
both Fix Price Group and Ozon were in the form of Depositary Receipts (rather
than direct equity exposure) and there were no sanctions restrictions in respect
of the disposal of these holdings.
Outlook
The noise around market moves seems to increase with every passing year. More
recently, the war in the Middle East has further complicated matters and has,
for now, put a risk premium on equities. As with all geographical risks, we
monitor the situation very carefully.
We make no attempt to predict to the basis point the next quarters' gross
domestic product (GDP), growth inflation or unemployment rate. Nor do we pay
much heed to top-down indicators or what they may reveal about the health of the
global economy. As described earlier in this report, the world is clearly in the
midst of several transitions: COVID-19 to post COVID-19, inflation to
disinflation, low interest rates to high interest rates. These dynamics must be
considered when assessing the health of the global economy and the prospects for
equity markets. Various end markets may continue to imply weak demand as
inventories are run down, while others - perhaps those associated with Chinese
real estate - may have more prolonged problems.
However, assessing the economy from the bottom-up, company by company, we see no
reason for investors with a reasonable time horizon to be alarmed. Household
debt relative to assets is low in large economies, interest rate sensitivity is
lower than in previous cycles and real wages are growing. Similarly, corporate
balance sheets are strong after 15 years of deleveraging, margins remain at
healthy levels and we may be at the foothills of an increase in capital
expenditure spending resulting in a `modern era industrial revolution'. Long
-term structural trends and large amounts of stimulus in both Europe and the US
can drive demand for years to come, for example in areas such as infrastructure,
automation, innovation in medicines, the shift to electric vehicles,
digitisation or decarbonisation. We believe the portfolio is well aligned to
many of these structural spending streams that should continue to support
earnings in the medium to long term.
As investors we must be forward looking, we must anticipate areas of enduring
demand and identify those special companies whose characteristics enable them to
capitalise on this demand and, in doing so, benefit their stakeholders and
shareholders. We remain optimistic about the prospects of companies held in our
portfolio.
Stefan Gries and Alexandra Dangoor
BlackRock Investment Management (UK) Limited
7 November 2023
Ten largest investments
Ten largest investments represented 53.4% of the portfolio as at 31 August 2023
(2022: 53.7%)
1 ? Novo Nordisk (2022: 1st)
Health Care company
Market value: £55,500,000
Share of investments: 9.3%
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 ? LVMH (2022: 3rd)
Consumer Discretionary company
Market value: £43,689,000
Share of investments: 7.3%
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.
3 ? ASML (2022: 2nd)
Technology company
Market value: £39,724,000
Share of investments: 6.7%
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.
4 ? RELX (2022: 4th)
Consumer Discretionary company
Market value: £32,544,000
Share of investments: 5.5%
RELX is a multinational information and analytics company with high barriers to
entry in most of its divisions, including scientific publishing. Their capital
light business model enables high rate of cash conversion with repeat
subscription-based revenues. The business benefits from increasing usage of data
globally supporting their data analytics business.
5 ? DSV Panalpina (2022: 6th)
Industrials company
Market value: £26,104,000
Share of investments: 4.4%
DSV Panalpina is a Danish freight forwarding and logistics company run by an
excellent management team with a strong track record in creating value through
acquisitions and by instilling a best-in-class culture. Their success in making
acquisitions has been facilitated by a strong technology platform which drives
operational efficiencies leading to high conversion margins.
6 ? Lonza Group (2022: 5th)
Health Care company
Market value: £26,021,000
Share of investments: 4.4%
Lonza Group is a Swiss healthcare services and life-sciences company which has
established itself as one of the leading contract-manufacturers of high-end
biological drugs, as well as cell and gene therapy. The company's competitive
advantages stem from the complexity of the production process - where few peers
can match its offering. This is cemented by high barriers to entry given that
all production facilities are required to be certified by the Food and Drug
Administration.
7 ? Hermès (2022: 9th)
Consumer Discretionary company
Market value: £25,094,000
Share of investments: 4.2%
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.
8 ? STMicroelectronics (2022: n/a)
Technology company
Market value: £24,426,000
Share of investments: 4.1%
STMicroelectronics is a Dutch technology company creating semiconductor
technologies. The company has been outgrowing its end markets due to a number of
new innovative product launches in automobile, smartphone and industrial
segments. The portfolio managers expect this trend to continue, helped by
continued innovation in power chips for electric vehicle cars, sensors for
consumer electronics and microcontrollers for industrial applications.
9 ? BE Semiconductor (2022: 18th)
Technology company
Market value: £23,811,000
Share of investments: 4.0%
BE Semiconductor is a Dutch supplier of semiconductor assembly equipment. The
company can continue to grow its market share of an overall growing market given
its best-in-class position to capture the advanced packaging segment of the
assembly market. The chip makers will have to rely on more innovative packaging
solutions (e.g. hybrid bonding) to continue to improve chip efficiency (faster
processing, lower power consumption) while also keeping control over
manufacturing costs.
10 ? Safran (2022: 12th)
Industrials company
Market value: £20,699,000
Share of investments: 3.5%
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.
All percentages reflect the value of the holding as a percentage of total
investments.
Investments as at 31 August 2023
Country of Market % of
operation value investments
£'000
Technology
ASML Netherlands 39,724 6.7
STMicroelectronics Switzerland 24,426 4.1
BE Semiconductor Netherlands 23,811 4.0
ASM International Netherlands 19,711 3.3
Amadeus IT Group Spain 14,032 2.4
ALTEN Group France 9,337 1.6
Hexagon Sweden 8,417 1.4
-------------- --------------
139,458 23.5
========= =========
Industrials
DSV Panalpina Denmark 26,104 4.4
Safran France 20,699 3.5
Sika Switzerland 19,917 3.3
Kingspan Ireland 15,962 2.7
Atlas Copco Sweden 10,800 1.8
Epiroc Sweden 8,269 1.4
Belimo Switzerland 8,142 1.4
Rational Germany 7,455 1.3
ALD France 7,334 1.2
VAT Group Switzerland 5,811 1.0
Adyen Netherlands 4,282 0.7
-------------- --------------
134,775 22.7
========= =========
Consumer Discretionary
LVMH France 43,689 7.3
RELX United Kingdom 32,544 5.5
Hermès France 25,094 4.2
Ferrari Italy 20,469 3.5
Fix Price Group+ Russia 939 0.2
Ozon Holdings* Russia 2 -
-------------- --------------
122,737 20.7
========= =========
Health Care
Novo Nordisk Denmark 55,500 9.3
Lonza Group Switzerland 26,021 4.4
Straumann Switzerland 10,406 1.7
ChemoMetec Denmark 9,233 1.6
Sartorius France 6,024 1.0
-------------- --------------
107,184 18.0
========= =========
Financials
Allied Irish Banks (AIB) Ireland 16,242 2.7
Partners Group Switzerland 13,031 2.2
KBC Groep Belgium 11,541 1.9
FinecoBank Italy 4,187 0.7
Allfunds Group United Kingdom 3,763 0.6
Sberbank* Russia 1 -
-------------- --------------
48,765 8.1
========= =========
Consumer Staples
Royal Unibrew Denmark 15,440 2.6
Lindt Switzerland 10,625 1.8
-------------- --------------
26,065 4.4
========= =========
Basic Materials
IMCD Netherlands 15,743 2.6
-------------- --------------
15,743 2.6
========= =========
Energy
Lukoil* Russia - -
-------------- --------------
- -
========= =========
Total investments 594,727 100.0
========= =========
+Investment held at Directors' valuation.
*The investments in Ozon Holdings, 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 2023 was 39 (31 August 2022: 39).
Industry classifications in the table above are based on the Industrial
Classification Benchmark standard for categorisation of companies by industry
and sector.
As at 31 August 2023, the Company did not hold any equity interests comprising
more than 3% of any company's share capital.
Investment exposure as at 31 August 2023
Market capitalisation
+--------------+--------------+
| |% of portfolio|
+--------------+--------------+
|<?1bn |1.6 |
+--------------+--------------+
|?1bn to ?10bn |19.9 |
+--------------+--------------+
|?10bn to ?20bn|10.5 |
+--------------+--------------+
|?20bn to ?50bn|37.0 |
+--------------+--------------+
|>?50bn |31.0 |
+--------------+--------------+
Investment size
+-----------+---------------------+--------------+
| |Number of investments|% of portfolio|
+-----------+---------------------+--------------+
|<£1m |4 |0.2 |
+-----------+---------------------+--------------+
|£3m to £5m |3 |2.0 |
+-----------+---------------------+--------------+
|£5m to £10m|9 |11.9 |
+-----------+---------------------+--------------+
|>£10m |23 |85.9 |
+-----------+---------------------+--------------+
Distribution of investments
+----------------------+----+
| |% |
+----------------------+----+
|Technology |23.5|
+----------------------+----+
|Industrials |22.7|
+----------------------+----+
|Consumer Discretionary|20.7|
+----------------------+----+
|Health Care |18.0|
+----------------------+----+
|Financials |8.1 |
+----------------------+----+
|Consumer Staples |4.4 |
+----------------------+----+
|Basic Materials |2.6 |
+----------------------+----+
Source: BlackRock.
Strategic Report
The Directors present the Strategic Report of the Company for the year ended 31
August 2023. 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 7 November 2023.
Principal activity
The Company carries on business as an investment trust and has a premium listing
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
(BNYM). Other service providers include the Depositary (also BNYM) 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 in the Annual
Report and Financial Statements.
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 2023, the Company held 39 investments. None (2022: 3.4%) 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 2023. 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 5.1% (2022: nil).
Performance
In the year to 31 August 2023, the Company's NAV per share increased by 19.2%
(compared with an increase in the reference index of 15.8%) and the share price
rose by 17.1% (all percentages calculated in Pound 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 £91,591,000
(2022: total loss, after taxation, of £201,365,000) which is reflected in the
increase in the net asset value of the Company. The revenue return amounted to
£6,920,000 (2022: £7,728,000) 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 (2022: 1.75p). The Directors
recommend the payment of a final dividend of 5.00p per share, making a total
dividend of 6.75p per share (2022: 6.60p). Subject to approval at the
forthcoming Annual General Meeting, the dividend will be paid on 20 December
2023 to shareholders on the register of members at the close of business on 17
November 2023.
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 above.
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 below.
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 2023 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 in 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
2023 2022
Net asset value per share 560.11p 475.72p
Net asset value total return1,2 19.2% -29.2%
Share price 527.00p 456.00p
Share price total return1,2 17.1% -33.4%
Discount to net asset value2 5.9% 4.1%
Revenue return per share 6.85p 7.65p
Ongoing charges2,3 0.98% 0.98%
========= =========
1This measures the Company's share price and NAV total return, which assumes
dividends paid by the Company have been reinvested.
2Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements.
3Ongoing 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, high 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.
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 risk
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 risk
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
below. This is monitored by the Board.
Legal & Compliance risk
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 risk
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 conflict. 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 risk
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 risk
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 in
the Annual Report and Financial Statements, together with a summary of the
policies for managing these risks.
Marketing risk
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 2028. 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 above, 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 Directors' Report in the Annual Report and Financial Statements.
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 function as an investment trust with a listing on
the premium segment of the official list of the FCA and trade on the London
Stock Exchange's (LSE) main market for listed securities, 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 activities 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.
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 above.
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 (above).
Area of Engagement
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 (many by video conference) and held discussions with a number of wealth
management desks and offices in respect of the Company during the year under
review.
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.
Area of Engagement
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 and 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 and sustainability is set out below. The Investment Manager's
engagement and voting policy is detailed above 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 above.
Area of Engagement
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 2023
as, over the six months to 31 August 2023, the average discount to NAV (cum
income) was 5.4%. It also decided not to implement the May 2023 semi-annual
tender offer, as over the six months to 28 February 2023, the average discount
to NAV (cum income) was 5.5%. 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 886,692 ordinary shares both during the
financial year and since the year end. As at 3 November 2023 the Company's
shares were trading at a discount of 7.6% to the cum income NAV.
Area of Engagement
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.
Area of Engagement
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 the year, the Board engaged the services of an external search consultant
to identify potential candidates to replace Ms Curling who retires as a Director
following the forthcoming Annual General Meeting. 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 2023 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 will be appointed as a
Director of the Company following the Annual General Meeting being 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 Ms Curling, have a tenure in excess
of nine years. Ms Curling will retire at the Company's Annual General Meeting in
December.
The Board considers that the tenure of the Chairman and Directors should be
determined principally by how the Board's purpose in providing strategic
leadership, governance and bringing challenge and support to the Manager can
best be maintained, whilst also recognising the importance of independence,
refreshment, diversity and retention of accumulated knowledge. It firmly
believes that an appropriate balance of these factors is essential for an
effective functioning board and, at times, will naturally result in some longer
serving Directors. Furthermore, the Board wishes to retain the flexibility to
recruit outstanding candidates when they become available rather than simply
adding new Directors based upon a predetermined timetable.
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 2022 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 threats to long-term investment performance. Whilst the Company does not
exclude investment in stocks purely on ESG criteria, ESG analytics are
integrated into the investment process when weighing up the risk and reward
benefits of investment decisions and the Investment Manager 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 ESG information and consideration
of sustainability risks into investment decisions in order to enhance risk
-adjusted returns. ESG integration does not change the Company's investment
objective or constrain the Investment Manager's investable universe and does not
mean that an ESG or impact focused investment strategy or any exclusionary
screens have been or will be adopted by the Company. Similarly, ESG integration
does not determine the extent to which the Company may be impacted by
sustainability risks. More information on sustainability risks may be found in
the AIFMD Fund Disclosures document of the Company available on the Company's
website at https://www.blackrock.com/uk/literature/policies/itc-disclosures
-blackrock-greater-europe-investment-trust-plc.pdf.
BlackRock Greater Europe Investment Trust plc - BlackRock Investment Stewardship
Engagement with portfolio companies for the year ended 31 August 2023
The Company benefits from the 20-strong European Equity team. The team has
excellent access to company management teams and undertakes in excess of 2,000
company meetings each year to identify the best management teams in the region
with the ability to create value for shareholders over the long term. In
addition, BlackRock also has a separate Investment Stewardship team (BIS) that
is committed to promoting sound corporate governance through engagement with
investee companies, development of proxy voting policies that support best
governance practices and wider engagement on public policy issues. For the year
to 31 August 2023, BIS held 57 company engagements on a range of governance
issues with the management teams of 26 companies in the BlackRock Greater Europe
Investment Trust plc portfolio, representing 67.7% of the portfolio by value at
31 August 2023. To put this into context, there were 39 companies in the
BlackRock Greater Europe Investment Trust plc portfolio as at 31 August 2023.
Additional information is set out in the tables below, as well as the key
engagement themes for the meetings held in respect of the Company's portfolio
holdings.
Year ended
31 August
2023
Number of engagements held1 57
Number of companies met1 26
% of equity investments covered2 67.7
Shareholder meetings voted at1 36
Number of proposals voted on1 667
Number of votes against management1 62
% of total items voted represented by votes against management 9.3
=========
1Source: BlackRock as at August 2023.
2Source: BlackRock. Company valuation as included in the portfolio at 31 August
2023 as a percentage of the total portfolio value.
Engagement themes¹
Governance 86%
Social 42%
Environmental 37%
Remuneration 54%
Board composition and effectiveness 44%
Climate risk management 35%
Human capital management 32%
Executive management 19%
Corporate strategy 18%
Supply chain labour management 18%
Diversity and inclusion 18%
Sustainability reporting 12%
Governance structure 11%
Board gender diversity 11%
¹Most engagement conversations cover multiple topics. The engagement statistics
reflect the primary topics discussed during the meeting.
More detail about BIS' engagement priorities can be found here:
www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities
-final.pdf.
Percentages reflect the number of meetings held in respect of the Company's
portfolio holdings at which a particular topic is discussed as a percentage of
the total meetings held; as more than one topic is discussed at each meeting,
the total will not add up to 100%.
Source: BlackRock.
BlackRock's approach to ESG integration
BlackRock believes that sustainability risks, including climate risks, are
investment risks. As a fiduciary, we manage material risks and opportunities
that could impact portfolios. Sustainability can be a driver of investment risks
and opportunities, and we incorporate them in our 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.
As part of BlackRock's structured investment process, material ESG risks and
opportunities (including sustainability/climate risk) are considered within the
portfolio management team's fundamental analysis of companies and industries and
the Company's portfolio managers work closely with BlackRock's Investment
Stewardship (BIS) team to assess the governance quality of companies and
investigate any potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio managers use ESG
information when conducting research and due diligence on new investments and
again when monitoring investments in the portfolio. In particular, portfolio
managers at BlackRock now have access to 1,200 key ESG performance indicators in
Aladdin (BlackRock's proprietary trading system) from third-party data
providers. BlackRock's internal sustainability research framework scoring is
also available alongside third-party ESG scores in core portfolio management
tools. BlackRock's analysts' sector expertise and local market knowledge allows
it to engage with companies through direct interaction with management teams and
conducting site visits. In conjunction with the portfolio management team, BIS
engages with company leadership to understand how they are identifying and
managing material business risks and opportunities, including sustainability
-related risks and the potential impacts these may have on long-term
performance. BIS and the portfolio management team's understanding of material
sustainability related risks and opportunities is further supported by
BlackRock's Sustainable and Transition Solutions (STS) function. STS looks to
advance ESG research and integration, active engagement and the development of
sustainable investment solutions across the firm.
Investment stewardship
Consistent with BlackRock's fiduciary duty as an asset manager, BIS seeks to
support investee companies in their efforts to deliver long-term financial value
on behalf of their clients. These clients include public and private pension
plans, governments, insurance companies, endowments, universities, charities
and, ultimately, individual investors, among others. BIS serves as a link
between BlackRock's clients and the companies they invest in. Clients depend on
BlackRock to help them meet their investment goals; the business and governance
decisions that companies make may have a direct impact on BlackRock's clients'
long-term investment outcomes and financial wellbeing.
Global Principles
The BIS Global Principles, regional voting guidelines and engagement priorities
(collectively, the `BIS policies') set out the core elements of corporate
governance that guide BIS' investment stewardship 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. Each year,
BIS reviews its 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. BIS'
Global Principles are available on its website at
www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment
-engprinciples-global.pdf.
Regional voting guidelines
BIS' voting guidelines are intended to help clients and companies understand its
thinking on key governance matters. They are the benchmark against which it
assesses a company's approach to corporate governance and the items on the
agenda to be voted on at the shareholder meeting. BIS applies its guidelines
pragmatically, taking into account a company's unique circumstances where
relevant. BlackRock informs voting decisions through research and engages as
necessary. BIS reviews its voting guidelines annually and updates them as
necessary to reflect changes in market standards, evolving governance practice
and insights gained from engagement over the prior year. BIS' regional voting
guidelines are available on its website at
www.blackrock.com/corporate/insights/investment-stewardship#stewardship
-policies.
BlackRock is committed to transparency in terms of disclosure of its stewardship
activities on behalf of clients. BIS publishes its stewardship policies - such
as the BIS Global Principles, regional voting guidelines and engagement
priorities - to help BlackRock's clients understand its work to advance their
interests as long-term investors in public 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.
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 2022 TCFD report can
be found at www.blackrock.com/corporate/literature/continuous-disclosure-and
-important-information/tcfd-report-2022-blkinc.pdf.
By order of the Board
CAROLINE DRISCOLL
For and on behalf of
BlackRock Investment Management (UK) Limited
Company Secretary
7 November 2023
RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM, AIFM or the Manager) was appointed as the
Company's AIFM with effect from 2 July 2014. BlackRock Investment Management
(UK) Limited (BIM (UK) or Investment Manager) acts as the Company's Investment
Manager under a delegation agreement with BFM. BIM (UK) also acted as the
Secretary of the Company throughout the year.
The management contract is terminable by either party on six months' notice. The
Board continues to be independent from the AIFM. The agreement provides the
appropriate balance between the Board's control over the Company, its investment
policies and compliance with regulatory obligations. The AIFM has (with the
Company's consent) delegated certain portfolio and risk management services, and
other ancillary services, to the Investment Manager.
The AIFM receives an annual management fee which is calculated based on 0.85% of
net asset value on net assets up to £350 million and 0.75% per annum of net
asset value on net assets thereafter on the last day of each month. Where the
Company invests in other investments or cash funds managed by BIM (UK), any
underlying fee charged is rebated. Fees are adjusted by adding all dividends
declared during the period. No penalty on termination of the investment
management contract would be payable by the Company in the event that six
months' written notice is given to the Manager. There are no provisions relating
to the payment of fees in lieu of notice.
The Company contributes to a focused investment trust sales and marketing
initiative operated by BlackRock on behalf of the investment trusts under its
management. The Company's contribution to the consortium element of the
initiative, which enables the trusts to achieve efficiencies by combining
certain sales and marketing activities, represents a budget of up to 0.025% per
annum of its net assets (£501 million as at 31 December 2022) and this
contribution is matched by BIM (UK). In addition, a budget of a further £25,000
has been allocated for Company specific sales and marketing activity. Total fees
paid or payable for these services for the year ended 31 August 2023 amounted to
£97,000 (excluding VAT) (2022: £130,000). The purpose of the programme overall
is to ensure effective communication with existing shareholders and to attract
new shareholders to the Company. This has the benefit of improving liquidity in
the Company's shares and helps sustain the stock market rating of the Company.
The Board currently consists of five non-executive Directors, all of whom are
considered to be independent of the Company's Manager. None of the Directors has
a service contract with the Company. With effect from 1 September 2023, the
Chairman receives an annual fee of £46,500, the Chairman of the Audit and
Management Engagement Committee receives an annual fee of £37,000 and each other
Director receives an annual fee of £31,500. The Senior Independent Director
receives an additional fee of £1,000. Four members of the Board hold shares in
the Company. Eric Sanderson holds 4,000 ordinary shares, Peter Baxter holds
11,000 ordinary shares, Paola Subacchi holds 11,109 ordinary shares and Ian
Sayers holds 4,000 ordinary shares.
As at 31August2023, an amount of £14,000 (2022: £14,000) was outstanding in
respect of Directors' fees.
Statement of Directors' Responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
Under that law they have elected to prepare the financial statements in
accordance with applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
Under company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company as at the end of each financial year and of the profit or
loss of the Company for that period. In preparing those financial statements,
the Directors are required to:
-present fairly the financial position, financial performance and cash flows of
the Company;
-select suitable accounting policies 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, whose names are listed in the
Annual Report and Financial Statements, confirm to the best of their knowledge
that:
-the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit 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 2023, 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
7 November 2023
Income Statement for the year ended 31 August 2023
2023 2022
Notes Revenue Capital Total Revenue Capital
Total
£'000 £'000 £'000 £'000 £'000
£'000
Gains/(losse - 87,830 87,830 - (206,195)
(206,195)
s) on
investments
held
at
fair value
through
profit or
loss
Gains on - 1,149 1,149 - 1,142
1,142
foreign
exchange
Income from 3 10,699 - 10,699 10,394 177
10,571
investments
held
at fair
value
through
profit or
loss
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Total 10,699 88,979 99,678 10,394 (204,876)
(194,482)
income/(loss
)
========= ========= ========= ========= =========
=========
Expenses
Investment 4 (888) (3,554) (4,442) (977) (3,907)
(4,884)
management
fee
Other 5 (1,934) (89) (2,023) (811) (40)
(851)
operating
expenses
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Total (2,822) (3,643) (6,465) (1,788) (3,947)
(5,735)
operating
expenses
========= ========= ========= ========= =========
=========
Net 7,877 85,336 93,213 8,606 (208,823)
(200,217)
profit/(loss
)
on ordinary
activities
before
finance
costs and
taxation
Finance (167) (665) (832) (68) (270)
(338)
costs
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Net 7,710 84,671 92,381 8,538 (209,093)
(200,555)
profit/(loss
)
on ordinary
activities
before
taxation
Taxation (790) - (790) (810) -
(810)
charge
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Net 7 6,920 84,671 91,591 7,728 (209,093)
(201,365)
profit/(loss
)
on ordinary
activities
after
taxation
========= ========= ========= ========= =========
=========
Earnings/(lo 7 6.85 83.77 90.62 7.65 (207.09)
(199.44)
ss)
per
ordinary
share
(pence)
========= ========= ========= ========= =========
=========
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/(loss) on ordinary activities for the year disclosed above
represents the Company's total comprehensive income/(loss).
Statement of Changes in Equity for the year ended 31 August 2023
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 2023
At 31 August 117 85,325 130 71,572 315,960
10,695 483,799
2022
Total
comprehensive
income:
Net profit - - - - 84,671
6,920 91,591
for the year
Transaction
with owners,
recorded
directly to
equity:
Ordinary 8,9 - - - (3,001) - -
(3,001)
shares
repurchased
into treasury
Share buyback 8,9 - - - (13) - -
(13)
costs
Dividends 6 - - - - -
(6,666) (6,666)
paid1
--------- --------- ---------- --------- --------- -
-------- ---------
------ ------ ----- ------ ------ -
----- ------
At 31 August 117 85,325 130 68,558 400,631
10,949 565,710
2023
========= ========= ========= ========= =========
========= =========
For the year
ended 31
August 2022
At 31 August 113 48,340 130 71,541 522,321
9,286 651,731
2021
Total
comprehensive
(loss)/income:
Net - - - - (209,093)
7,728 (201,365)
(loss)/profit
for the
year
Transaction
with owners,
recorded
directly to
equity:
Ordinary 4 30,067 - - - -
30,071
shares issued
Ordinary - 6,974 - 2,843 2,743 -
12,560
shares
reissued
from treasury
Ordinary - - - (2,804) - -
(2,804)
shares
repurchased
into treasury
Share issue - (56) - - - -
(56)
costs
Share reissue - - - (14) (11) -
(25)
costs
Share buyback - - - (8) - -
(8)
costs
Tender costs - - - 14 - -
14
written back
Dividends - - - - -
(6,319) (6,319)
paid2
--------- --------- ---------- --------- --------- -
-------- ---------
------ ------ ----- ------ ------ -
----- ------
At 31 August 117 85,325 130 71,572 315,960
10,695 483,799
2022
========= ========= ========= ========= =========
========= =========
1Interim 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.
2Interim dividend paid in respect of the year ended 31 August 2022 of 1.75p per
share was declared on 11 May 2022 and paid on 17 June 2022. Final dividend paid
in respect of the year ended 31 August 2021 of 4.55p per share was declared on 5
November 2021 and paid on 17 December 2021.
For information on the Company's distributable reserves, please refer to note 9
below.
Balance Sheet as at 31 August 2023
Notes 2023 2022
£'000 £'000
Fixed assets
Investments held at fair 594,727 477,816
value through profit or
loss
--------------- ---------------
Current assets
Current tax asset 2,350 1,919
Debtors 1,517 220
Cash and cash equivalents - 7,348
--------------- ---------------
Total current assets 3,867 9,487
========= =========
Creditors - amounts
falling due within one
year
Bank overdraft (27,617) (182)
Other creditors (5,267) (3,322)
--------------- ---------------
Total current liabilities (32,884) (3,504)
========= =========
Net current (29,017) 5,983
(liabilities)/assets
========= =========
Net assets 565,710 483,799
========= =========
Capital and reserves
Called up share capital 8 117 117
Share premium account 9 85,325 85,325
Capital redemption reserve 9 130 130
Special reserve 9 68,558 71,572
Capital reserves 9 400,631 315,960
Revenue reserve 9 10,949 10,695
--------------- ---------------
Total shareholders' funds 7 565,710 483,799
========= =========
Net asset value per 7 560.11 475.72
ordinary share (pence)
========= =========
Statement of Cash Flows for the year ended 31 August 2023
Note 2023 2022
£'000 £'000
Operating activities
Net profit/(loss) on ordinary 92,381 (200,555)
activities before taxation
Add back finance costs 832 338
(Gains)/losses on investments held (87,830) 206,195
at fair value through profit or
loss
Gains on foreign exchange (1,149) (1,142)
Sale of investments held at fair 86,863 179,206
value through profit or loss
Purchase of investments held at (115,924) (185,158)
fair value through profit or loss
Increase in debtors (25) (23)
Increase/(decrease) in other 1,231 (160)
creditors
Taxation on investment income (1,763) (1,498)
Interest paid (832) (338)
Refund of withholding tax reclaims 542 9
--------------- ---------------
Net cash used in operating (25,674) (3,126)
activities
========= =========
Financing activities
Ordinary shares issued - 32,889
Ordinary shares reissued from - 12,535
treasury
Ordinary shares repurchased into (3,592) (2,234)
treasury
Dividends paid 6 (6,666) (6,319)
--------------- ---------------
Net cash (used in)/generated from (10,258) 36,871
financing activities
========= =========
(Decrease)/increase in cash and (35,932) 33,745
cash equivalents
========= =========
Cash and cash equivalents at the 7,166 (27,721)
start of the year
Effect of foreign exchange rate 1,149 1,142
changes
--------------- ---------------
Cash and cash equivalents at the (27,617) 7,166
end of the year
========= =========
Comprised of:
Cash at bank - 1,104
Cash Fund1 - 6,244
Bank overdraft (27,617) (182)
--------------- ---------------
(27,617) 7,166
========= =========
1Cash Fund represents funds held on deposit with the BlackRock Institutional
Cash Series plc - Euro Liquid Environmentally Aware Fund.
Notes to the Financial Statements for the year ended 31 August 2023
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 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; and
-the risk is adequately captured in the assumptions and inputs used in
measurement of Level 3 assets, as noted in note 10 below.
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 Pound 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 on an accruals basis.
Where the Company has elected to receive its dividends in the form of additional
shares rather than in cash, the cash equivalent of the dividend is recognised as
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 Report and Financial
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 Section 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 Pound Sterling, reflecting
the primary economic environment in which the Company operates. Transactions in
foreign currencies are translated into Pound Sterling at the rates of exchange
ruling on the date of the transaction. Foreign currency monetary assets and
liabilities are translated into Pound 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 reserve.
(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
2023 2022
£'000 £'000
Investment income:
UK dividends 764 681
Overseas dividends 9,907 9,072
Overseas special dividends 27 641
--------------- ---------------
Total investment income 10,698 10,394
========= =========
Other income:
Interest received 1 -
--------------- ---------------
Total income 10,699 10,394
========= =========
Dividends and interest received in cash during the year amounted to £7,781,000
and £1,000 respectively (2022: £8,893,000 and £nil).
No special dividends have been recognised in capital during the year (2022:
£177,000).
4. Investment management fee
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment 888 3,554 4,442 977 3,907 4,884
management
fee
--------- --------- --------- --------- --------- ---------
------ ------ ------ ------ ------ ------
Total 888 3,554 4,442 977 3,907 4,884
========= ========= ========= ========= ========= =========
With effect from 1 January 2023, the investment management fee is levied
quarterly based on a tiered basis: 0.85% per annum 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
2023 2022
£'000 £'000
Allocated to revenue:
Broker fees 48 46
Custody fees 36 61
Depositary fees 65 62
Audit fees1 57 52
Legal fees2 26 142
Registrar's fees 97 92
Directors' emoluments3 173 151
Marketing fees 97 130
Postage and printing fees 68 60
AIC fees 21 21
Professional fees 66 19
Stock exchange listing fees 35 17
Write back of prior year expense accruals4 (23) (55)
Other administration costs 24 13
Provision for doubtful debts5 1,144 -
--------------- ---------------
1,934 811
========= =========
Allocated to capital:
Custody transaction costs6 89 40
--------------- ---------------
2,023 851
========= =========
The Company's ongoing charges7, calculated 0.98% 0.98%
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:
========= =========
1No non-audit services are provided by the Company's auditor (2022: none).
2For the year ended 31 August 2022, legal fees of £117,000 related to legal work
for the aborted issuance of a long-dated loan note.
3Further information on Directors' emoluments can be found in the Directors'
Remuneration Report in the Annual Report and Financial Statements. The Company
has no employees.
4Relates to legal fees and registrar's fees written back in the year ended 31
August 2023 (31 August 2022: legal fees, postage and printing fees, professional
fees, miscellaneous fees and Directors' expenses).
5Provision 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.
6For the year ended 31 August 2023, expenses of £89,000 (2022: £40,000) were
charged to the capital account of the Income Statement. These relate to
transaction costs charged by the custodian on sale and purchase trades.
7Alternative Performance Measure, see Glossary in the Annual Report and
Financial Statements.
6. Dividends
Dividends paid Record Payment date 2023 2022
on equity date £'000 £'000
shares
2021 Final 19 17 December 2021 - 4,529
dividend of November
4.55p 2021
2022 Interim 20 May 17 June 2022 - 1,790
dividend of 2022
1.75p
2022 Final 18 16 December 2022 4,899 -
dividend of November
4.85p 2022
2023 Interim 19 May 19 June 2023 1,767 -
dividend of 2023
1.75p
--------------- ---------------
6,666 6,319
========= =========
The Directors have proposed a final dividend of 5.00p per share in respect of
the year ended 31 August 2023. The final dividend will be paid on 20 December
2023, subject to shareholders' approval on 12 December 2023, to shareholders on
the Company's register on 17 November 2023. 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 2023, meet the relevant requirements as set out in
this legislation.
Dividends paid or proposed on equity shares 2023 2022
£'000 £'000
Interim paid of 1.75p (2022: 1.75p) 1,767 1,790
Final proposed of 5.00p* (2022: 4.85p) 5,041 4,899
--------------- ---------------
6,808 6,689
========= =========
*Based on 100,812,161 ordinary shares (excluding treasury shares) in issue on 7
November 2023.
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/(loss) and net asset value per ordinary share are
shown below and have been calculated using the following:
2023 2022
Net revenue profit attributable to ordinary 6,920 7,728
shareholders (£'000)
Net capital profit/(loss) attributable to 84,671 (209,093)
ordinary shareholders (£'000)
--------------- ---------------
Total profit/(loss) attributable to ordinary 91,591 (201,365)
shareholders (£'000)
========= =========
Total shareholders' funds (£'000) 565,710 483,799
========= =========
Earnings per share
The weighted average number of ordinary 101,067,709 100,964,479
shares in issue during the year on which the
earnings per ordinary share was calculated
was:
The actual number of ordinary shares in 101,000,161 101,698,853
issue at the end of the year on which the
net asset value per ordinary share was
calculated was:
--------------- ---------------
Calculated on weighted average number of
ordinary shares:
Revenue earnings per share (pence) - basic 6.85 7.65
and diluted
Capital earnings/(loss) per share (pence) - 83.77 (207.09)
basic and diluted
--------------- ---------------
Total earnings/(loss) per share (pence) - 90.62 (199.44)
basic and diluted
========= =========
As at As at
31 August 31 August
2023 2022
Net asset value per share (pence) 560.11 475.72
Ordinary share price (pence) 527.00 456.00
========= =========
There were no dilutive securities at the year end.
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 2022 101,698,853 16,230,085 117,928,938 117
Ordinary shares repurchased (698,692) 698,692 - -
into treasury
----------- ---------- ----------- ---------
---- ----- ---- ------
At 31 August 2023 101,000,161 16,928,777 117,928,938 117
========= ========= ========= =========
During the year, 698,692 ordinary shares (2022: 601,558) were repurchased and
held in treasury for a net consideration after expenses of £3,014,000 (2022:
£2,812,000).
During the year, no new ordinary shares (2022: 4,300,000) were issued for a net
consideration after expenses of £nil (2022: £30,015,000).
During the year, no ordinary shares (2022: 1,945,000) were reissued from
treasury for a net consideration after expenses of £nil (2022: £12,535,000).
Since 31 August 2023 and up to the latest practicable date of 7 November 2023,
no new ordinary shares have been issued and no ordinary shares have been
reissued from treasury. A further 188,000 ordinary shares have been repurchased
for a net consideration after expenses of £994,000 and placed in treasury.
9. RESERVES
Distributable
Reserves
Share Capital Special Capital Capital
Revenue
premium redemption reserve1 reserve reserve
reserve
account reserve £'000 (arising on (arising on
£'000
£'000 £'000 investments revaluation
sold) of
£'000 investments
held)
£'000
At 31 August 85,325 130 71,572 261,370 54,590
10,695
2022
Movement
during the
year:
Total
comprehensive
(loss)/income:
Net - - - (10,189) 94,860
6,920
(loss)/profit
for the
year
Transaction
with owners,
recorded
directly to
equity:
Ordinary - - (3,001) - -
-
shares
repurchased
into treasury
Share buyback - - (13) - -
-
costs
Dividends - - - - -
(6,666)
paid during
the
year
--------- ---------- ------------- ----------- -----------
---------
------ ----- -- ---- ----
------
At 31 August 85,325 130 68,558 251,181 149,450
10,949
2023
========= ========= ========= ========= =========
=========
Distributable
Reserves
Share Capital Special Capital Capital
Revenue
premium redemption reserve1 reserve reserve
reserve
account reserve £'000 (arising on (arising on
£'000
£'000 £'000 investments revaluation
sold) of
£'000 investments
held)
£'000
At 31 August 48,340 130 71,541 233,571 288,750
9,286
2021
Movement
during the
year:
Total
comprehensive
income/(loss):
Net - - - 25,067 (234,160)
7,728
profit/(loss)
for the
year
Transaction
with owners,
recorded
directly to
equity:
Ordinary 30,067 - - - -
-
shares issued
Ordinary 6,974 - 2,843 2,743 -
-
shares
reissued
from treasury
Ordinary - - (2,804) - -
-
shares
repurchased
into treasury
Share issue (56) - - - -
-
costs
Share reissue - - (14) (11) -
-
costs
Share buyback - - (8) - -
-
costs
Tender costs - - 14 - -
-
written back
Dividends - - - - -
(6,319)
paid during
the
year
--------- ---------- ------------- ----------- -----------
---------
------ ----- -- ---- ----
------
At 31 August 85,325 130 71,572 261,370 54,590
10,695
2022
========= ========= ========= ========= =========
=========
1Relates 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 of
£149,450,000 (2022: gain of £54,590,000) is subject to fair value movements and
may not be readily realisable at short notice; as such it may not be entirely
distributable. The investments are subject to financial risks; as such the
capital 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 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 Level 1 Level 2 Level 3 Total
value through profit or £'000 £'000 £'000 £'000
loss
at 31 August 2023
Equity investments 593,785 - 942 594,727
--------- --------- --------- ---------------
------ ------ ------
Total 593,785 - 942 594,727
========= ========= ========= =========
Financial assets at fair Level 1 Level 2 Level 3 Total
value through profit or £'000 £'000 £'000 £'000
loss
at 31 August 2022
Equity investments 477,813 - 3 477,816
--------- --------- --------- ---------------
------ ------ ------
Total 477,813 - 3 477,816
========= ========= ========= =========
The Company held four Level 3 securities as at 31 August 2023 (2022: four).
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets at fair value 2023 2022
through profit or loss £'000 £'000
Opening fair value 3 -
Transfers from Level 1 - 3
Gain on investments included in 939 -
gains/(losses) on investments in the
Income Statement
--------------- ---------------
Closing balance 942 3
========= =========
As at 31 August 2023, the investments in Sberbank, Ozon Holdings and Lukoil have
been valued at a nominal value of £0.01 as the secondary listings of depositary
receipts of Russian companies have been suspended from trading. The investment
in Fix Price Group was previously valued at a nominal value of £0.01. From 31
August 2023, the BlackRock Pricing Committee determined that this investment
should now be valued at US$1.75 based on the price quotation received from
brokers in the OTC markets.
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 change 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 2023 amounted to
£4,442,000 (2022: £4,884,000). At the year end, £3,426,000 was outstanding in
respect of these fees (2022: £2,199,000).
In addition to the above services, BIM (UK) provided the Company with marketing
services. The total fees paid or payable for these services for the year ended
31 August 2023 amounted to £97,000 excluding VAT (2022: £130,000). Marketing
fees of £168,000 were outstanding at 31 August 2023 (2022: £71,000).
During the year, the Manager pays the amounts due to the Directors. These fees
are then reimbursed by the Company for the amounts paid on its behalf. As at 31
August 2023, an amount of £113,000 was payable to the Manager in respect of
Directors' fees (2022: £149,000).
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
2023, an amount of £14,000 (2022: £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).
As at 31 August 2023
Total % of Total % of Number of Significant Investors
shares held by shares held by who are not affiliates of
Related Significant BlackRock Group or
BlackRock Funds Investors who BlackRock, Inc.
are
not affiliates
of BlackRock
Group
or BlackRock,
Inc.
1.4 n/a n/a
========= =========
As at 31 August 2022
Total % of Total % of Number of Significant Investors
shares held by shares held by who are not affiliates of
Related Significant BlackRock Group or
BlackRock Funds Investors who BlackRock, Inc.
are
not affiliates
of BlackRock
Group
or BlackRock,
Inc.
1.8 n/a n/a
========= =========
13. Contingent liabilities
There were no contingent liabilities at 31 August 2023 (2022: 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 2023 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 2022,
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, 12 December 2023
at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock website at
www.blackrock.com/uk/brge. Neither the contents of the Manager's website nor the
contents of any website accessible from hyperlinks on the Manager's website (or
any other website) is incorporated into, or forms part of, this announcement.
For further information please contact:
Sarah Beynsberger, Director - Closed End Funds, BlackRock Investment Management
(UK) Limited
Tel: 020 7743 2639
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
7 November 2023
This information was brought to you by Cision http://news.cision.com
END
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