BLACKROCK GREATER EUROPE
INVESTMENT TRUST PLC
LEI:
5493003R8FJ6I76ZUW55
Annual Report and Financial Statements 31 August 2023
Performance record
|
As at
31 August
2023
|
As at
31 August
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
|
|
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|
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|
|
For the year
ended
31 August
2023
|
For the year
ended
31 August
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%
|
|
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|
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|
|
For the year
ended
31 August
2023
|
For the year
ended
31 August
2022
|
Change
%
|
Revenue
|
|
|
|
Net profit on ordinary activities after taxation (£’000)
|
6,920
|
7,728
|
-10.5
|
Revenue earnings per ordinary share (pence)3
|
6.85
|
7.65
|
-10.5
|
|
--------------
|
--------------
|
--------------
|
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
|
|
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|
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|
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|
1 The
change in net assets reflects payments for shares repurchased into
treasury, portfolio movements and dividends paid.
2 Alternative
Performance Measures, see Glossary
in the Annual Report and Financial Statements.
3 Further
details are given in the Glossary in the Annual Report and
Financial Statements.
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
operation
|
Market
value
£’000
|
% of
investments
|
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
31 August
2023
|
As at
31 August
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%
|
|
=========
|
=========
|
1 This
measures the Company’s share price and NAV total return, which
assumes dividends paid by the Company have been
reinvested.
2 Alternative
Performance Measures, see Glossary in the Annual Report and
Financial Statements.
3 Ongoing
charges represent the management fee and all other operating
expenses, excluding finance costs, direct transaction costs,
custody transaction charges, VAT recovered, taxation, prior year
expenses written back and certain non-recurring items, as a % of
average daily net assets.
Principal risks
The Company is exposed to a variety of risks and uncertainties. As
required by the 2018 UK Corporate Governance Code (the UK Code),
the Board has in place a robust ongoing process to identify, assess
and monitor the principal risks and emerging risks facing the
Company, including those that would threaten its business model,
future performance, solvency or liquidity. A core element of this
process is the Company’s risk register which identifies the risks
facing the Company and assesses the likelihood and potential impact
of each risk and the quality of controls operating to mitigate it.
A residual risk rating is then calculated for each risk based on
the outcome of the assessment.
The risk register, its method of preparation and the operation of
key controls in BlackRock’s and third-party service providers’
systems of internal control, are reviewed on a regular basis by the
Audit and Management Engagement Committee. In order to gain a more
comprehensive understanding of BlackRock’s and other third-party
service providers’ risk management processes and how these apply to
the Company’s business, BlackRock’s internal audit department
provides an annual presentation to the Audit Committee chairs of
the BlackRock investment trusts setting out the results of testing
performed in relation to BlackRock’s internal control processes.
The Audit and Management Engagement Committee also periodically
receives and reviews internal control reports from BlackRock and
the Company’s service providers.
The Board has undertaken a robust assessment of both the principal
and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. For instance, the risk that unforeseen or unprecedented
events including (but not limited to) heightened geo-political
tensions such as the war in Ukraine, 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
|
|
=========
|
1 Source:
BlackRock as at August
2023.
2 Source:
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%
|
¹ Most
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 31 August 2023,
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
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Gains/(losses) on investments held at fair value through profit or
loss
|
|
–
|
87,830
|
87,830
|
-
|
(206,195)
|
(206,195)
|
Gains on foreign exchange
|
|
–
|
1,149
|
1,149
|
-
|
1,142
|
1,142
|
Income from investments held at fair value through profit or
loss
|
3
|
10,699
|
–
|
10,699
|
10,394
|
177
|
10,571
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total income/(loss)
|
|
10,699
|
88,979
|
99,678
|
10,394
|
(204,876)
|
(194,482)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Expenses
|
|
|
|
|
|
|
|
Investment management fee
|
4
|
(888)
|
(3,554)
|
(4,442)
|
(977)
|
(3,907)
|
(4,884)
|
Other operating expenses
|
5
|
(1,934)
|
(89)
|
(2,023)
|
(811)
|
(40)
|
(851)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total operating expenses
|
|
(2,822)
|
(3,643)
|
(6,465)
|
(1,788)
|
(3,947)
|
(5,735)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Net profit/(loss) on ordinary activities before finance
costs and taxation
|
|
7,877
|
85,336
|
93,213
|
8,606
|
(208,823)
|
(200,217)
|
Finance costs
|
|
(167)
|
(665)
|
(832)
|
(68)
|
(270)
|
(338)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Net profit/(loss) on ordinary activities before
taxation
|
|
7,710
|
84,671
|
92,381
|
8,538
|
(209,093)
|
(200,555)
|
Taxation charge
|
|
(790)
|
–
|
(790)
|
(810)
|
–
|
(810)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Net profit/(loss) on ordinary activities after
taxation
|
7
|
6,920
|
84,671
|
91,591
|
7,728
|
(209,093)
|
(201,365)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Earnings/(loss) per ordinary share
(pence)
|
7
|
6.85
|
83.77
|
90.62
|
7.65
|
(207.09)
|
(199.44)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
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
up share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Special
reserve
£’000
|
Capital
reserves
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
For the year ended 31 August 2023
|
|
|
|
|
|
|
|
|
At 31 August 2022
|
|
117
|
85,325
|
130
|
71,572
|
315,960
|
10,695
|
483,799
|
Total comprehensive income:
|
|
|
|
|
|
|
|
|
Net profit for the year
|
|
–
|
–
|
–
|
–
|
84,671
|
6,920
|
91,591
|
Transaction with owners, recorded directly to equity:
|
|
|
|
|
|
|
|
|
Ordinary shares repurchased into treasury
|
8,9
|
–
|
–
|
–
|
(3,001)
|
–
|
–
|
(3,001)
|
Share buyback costs
|
8,9
|
–
|
–
|
–
|
(13)
|
–
|
–
|
(13)
|
Dividends paid1
|
6
|
–
|
–
|
–
|
–
|
–
|
(6,666)
|
(6,666)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 31 August 2023
|
|
117
|
85,325
|
130
|
68,558
|
400,631
|
10,949
|
565,710
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
For the year ended 31 August 2022
|
|
|
|
|
|
|
|
|
At 31 August 2021
|
|
113
|
48,340
|
130
|
71,541
|
522,321
|
9,286
|
651,731
|
Total comprehensive (loss)/income:
|
|
|
|
|
|
|
|
|
Net (loss)/profit for the year
|
|
–
|
–
|
–
|
–
|
(209,093)
|
7,728
|
(201,365)
|
Transaction with owners, recorded directly to equity:
|
|
|
|
|
|
|
|
|
Ordinary shares issued
|
|
4
|
30,067
|
–
|
–
|
–
|
–
|
30,071
|
Ordinary shares reissued from treasury
|
|
–
|
6,974
|
–
|
2,843
|
2,743
|
–
|
12,560
|
Ordinary shares repurchased into treasury
|
|
–
|
–
|
–
|
(2,804)
|
–
|
–
|
(2,804)
|
Share issue costs
|
|
–
|
(56)
|
–
|
–
|
–
|
–
|
(56)
|
Share reissue costs
|
|
–
|
–
|
–
|
(14)
|
(11)
|
–
|
(25)
|
Share buyback costs
|
|
–
|
–
|
–
|
(8)
|
–
|
–
|
(8)
|
Tender costs written back
|
|
–
|
–
|
–
|
14
|
–
|
–
|
14
|
Dividends paid2
|
|
–
|
–
|
–
|
–
|
–
|
(6,319)
|
(6,319)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 31 August 2022
|
|
117
|
85,325
|
130
|
71,572
|
315,960
|
10,695
|
483,799
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 Interim
dividend paid in respect of the year ended 31 August 2023 of 1.75p per share was declared on
10 May 2023 and paid on 19 June 2023. Final dividend paid in respect of
the year ended 31 August 2022 of
4.85p per share was declared on 3 November
2022 and paid on 16 December
2022.
2 Interim
dividend paid in respect of the year ended 31 August 2022 of 1.75p per share was declared on
11 May 2022 and paid on 17 June 2022. Final dividend paid in respect of
the year ended 31 August 2021 of
4.55p per share was declared on 5 November
2021 and paid on 17 December
2021.
For information on the Company’s distributable reserves, please
refer to note 9 below.
Balance Sheet as at 31 August
2023
|
Notes
|
2023
£’000
|
2022
£’000
|
Fixed assets
|
|
|
|
Investments held at fair value through profit or loss
|
|
594,727
|
477,816
|
|
|
---------------
|
---------------
|
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 (liabilities)/assets
|
|
(29,017)
|
5,983
|
|
|
=========
|
=========
|
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 ordinary share
(pence)
|
7
|
560.11
|
475.72
|
|
|
=========
|
=========
|
Statement of Cash Flows for the year ended 31 August 2023
|
Note
|
2023
£’000
|
2022
£’000
|
Operating activities
|
|
|
|
Net profit/(loss) on ordinary activities before taxation
|
|
92,381
|
(200,555)
|
Add back finance costs
|
|
832
|
338
|
(Gains)/losses on investments held at fair value through profit or
loss
|
|
(87,830)
|
206,195
|
Gains on foreign exchange
|
|
(1,149)
|
(1,142)
|
Sale of investments held at fair value through profit or
loss
|
|
86,863
|
179,206
|
Purchase of investments held at fair value through profit or
loss
|
|
(115,924)
|
(185,158)
|
Increase in debtors
|
|
(25)
|
(23)
|
Increase/(decrease) in other creditors
|
|
1,231
|
(160)
|
Taxation on investment income
|
|
(1,763)
|
(1,498)
|
Interest paid
|
|
(832)
|
(338)
|
Refund of withholding tax reclaims
|
|
542
|
9
|
|
|
---------------
|
---------------
|
Net cash used in operating activities
|
|
(25,674)
|
(3,126)
|
|
|
=========
|
=========
|
Financing activities
|
|
|
|
Ordinary shares issued
|
|
–
|
32,889
|
Ordinary shares reissued from treasury
|
|
–
|
12,535
|
Ordinary shares repurchased into treasury
|
|
(3,592)
|
(2,234)
|
Dividends paid
|
6
|
(6,666)
|
(6,319)
|
|
|
---------------
|
---------------
|
Net cash (used in)/generated from financing
activities
|
|
(10,258)
|
36,871
|
|
|
=========
|
=========
|
(Decrease)/increase in cash and cash
equivalents
|
|
(35,932)
|
33,745
|
|
|
=========
|
=========
|
Cash and cash equivalents at the start of the year
|
|
7,166
|
(27,721)
|
Effect of foreign exchange rate changes
|
|
1,149
|
1,142
|
|
|
---------------
|
---------------
|
Cash and cash equivalents at the end of the
year
|
|
(27,617)
|
7,166
|
|
|
=========
|
=========
|
Comprised of:
|
|
|
|
Cash at bank
|
|
–
|
1,104
|
Cash Fund1
|
|
–
|
6,244
|
Bank overdraft
|
|
(27,617)
|
(182)
|
|
|
---------------
|
---------------
|
|
|
(27,617)
|
7,166
|
|
|
=========
|
=========
|
1 Cash
Fund represents funds held on deposit with the BlackRock
Institutional Cash Series plc - Euro Liquid Environmentally Aware
Fund.
Notes to the Financial Statements for the 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
£’000
|
2022
£’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
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Investment management fee
|
888
|
3,554
|
4,442
|
977
|
3,907
|
4,884
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
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
£’000
|
2022
£’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 as a percentage of average daily net assets and using
the management fee and all other operating expenses, excluding
finance costs, direct transaction costs, custody transaction
charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items were:
|
0.98%
|
0.98%
|
|
=========
|
=========
|
1 No
non-audit services are provided by the Company’s auditor (2022:
none).
2 For
the year ended 31 August 2022, legal fees of £117,000 related to
legal work for the aborted issuance of a long-dated loan
note.
3 Further
information on Directors’ emoluments can be found in the Directors’
Remuneration Report in the Annual Report and Financial Statements.
The Company has no employees.
4 Relates
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).
5 Provision
for doubtful debts relate to dividend income from Sberbank which
has not been received due to measures imposed by the Russian
authorities in response to the sanctions that have been imposed on
Russia as a result of the invasion of Ukraine.
6 For
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.
7 Alternative
Performance Measure, see Glossary in the Annual Report and
Financial Statements.
6. Dividends
Dividends paid on equity shares
|
Record date
|
Payment date
|
2023
£’000
|
2022
£’000
|
2021 Final dividend of 4.55p
|
19 November 2021
|
17 December 2021
|
–
|
4,529
|
2022 Interim dividend of 1.75p
|
20 May 2022
|
17 June 2022
|
–
|
1,790
|
2022 Final dividend of 4.85p
|
18 November 2022
|
16 December 2022
|
4,899
|
–
|
2023 Interim dividend of 1.75p
|
19 May 2023
|
19 June 2023
|
1,767
|
–
|
|
|
|
---------------
|
---------------
|
|
|
|
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
£’000
|
2022
£’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 shareholders
(£’000)
|
6,920
|
7,728
|
Net capital profit/(loss) attributable to ordinary shareholders
(£’000)
|
84,671
|
(209,093)
|
|
---------------
|
---------------
|
Total profit/(loss) attributable to ordinary shareholders
(£’000)
|
91,591
|
(201,365)
|
|
=========
|
=========
|
Total shareholders’ funds (£’000)
|
565,710
|
483,799
|
|
=========
|
=========
|
Earnings per share
|
|
|
The weighted average number of ordinary shares in issue during the
year on which the earnings per ordinary share was calculated
was:
|
101,067,709
|
100,964,479
|
The actual number of ordinary shares in issue at the end of the
year on which the net asset value per ordinary share was calculated
was:
|
101,000,161
|
101,698,853
|
|
---------------
|
---------------
|
Calculated on weighted average number of ordinary
shares:
|
|
|
Revenue earnings per share (pence) – basic and diluted
|
6.85
|
7.65
|
Capital earnings/(loss) per share (pence) – basic and
diluted
|
83.77
|
(207.09)
|
|
---------------
|
---------------
|
Total earnings/(loss) per share (pence) – basic and
diluted
|
90.62
|
(199.44)
|
|
=========
|
=========
|
|
As at
31 August
2023
|
As at
31 August
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
shares
number
|
Treasury
shares
number
|
Total
shares
number
|
Nominal
value
£’000
|
Allotted, called up and fully paid share capital
comprised:
|
|
|
|
|
Ordinary shares of 0.1 pence each:
|
|
|
|
|
At 31 August 2022
|
101,698,853
|
16,230,085
|
117,928,938
|
117
|
Ordinary shares repurchased into treasury
|
(698,692)
|
698,692
|
–
|
–
|
|
---------------
|
---------------
|
---------------
|
---------------
|
At 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
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Special
reserve1
£’000
|
Capital
reserve
(arising on
investments
sold)
£’000
|
Capital
reserve
(arising on
revaluation of
investments
held)
£’000
|
Revenue
reserve
£’000
|
At 31 August 2022
|
85,325
|
130
|
71,572
|
261,370
|
54,590
|
10,695
|
Movement during the year:
|
|
|
|
|
|
|
Total comprehensive (loss)/income:
|
|
|
|
|
|
|
Net (loss)/profit for the year
|
–
|
–
|
–
|
(10,189)
|
94,860
|
6,920
|
Transaction with owners, recorded directly to equity:
|
|
|
|
|
|
|
Ordinary shares repurchased into treasury
|
–
|
–
|
(3,001)
|
–
|
–
|
–
|
Share buyback costs
|
–
|
–
|
(13)
|
–
|
–
|
–
|
Dividends paid during the year
|
–
|
–
|
–
|
–
|
–
|
(6,666)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 31 August 2023
|
85,325
|
130
|
68,558
|
251,181
|
149,450
|
10,949
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
|
|
Distributable Reserves
|
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Special
reserve1
£’000
|
Capital
reserve
(arising on
investments
sold)
£’000
|
Capital
reserve
(arising on
revaluation of
investments
held)
£’000
|
Revenue
reserve
£’000
|
At 31 August 2021
|
48,340
|
130
|
71,541
|
233,571
|
288,750
|
9,286
|
Movement during the year:
|
|
|
|
|
|
|
Total comprehensive income/(loss):
|
|
|
|
|
|
|
Net profit/(loss) for the year
|
–
|
–
|
–
|
25,067
|
(234,160)
|
7,728
|
Transaction with owners, recorded directly to equity:
|
|
|
|
|
|
|
Ordinary shares issued
|
30,067
|
–
|
–
|
–
|
–
|
–
|
Ordinary shares reissued from treasury
|
6,974
|
–
|
2,843
|
2,743
|
–
|
–
|
Ordinary shares repurchased into treasury
|
–
|
–
|
(2,804)
|
–
|
–
|
–
|
Share issue costs
|
(56)
|
–
|
–
|
–
|
–
|
–
|
Share reissue costs
|
–
|
–
|
(14)
|
(11)
|
–
|
–
|
Share buyback costs
|
–
|
–
|
(8)
|
–
|
–
|
–
|
Tender costs written back
|
–
|
–
|
14
|
–
|
–
|
–
|
Dividends paid during the year
|
–
|
–
|
–
|
–
|
–
|
(6,319)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 31 August 2022
|
85,325
|
130
|
71,572
|
261,370
|
54,590
|
10,695
|
|
=========
|
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1 Relates
to amount transferred from the share premium account to a special
reserve pursuant to Court approval received on 15 October
2004.
The share premium account and capital redemption reserve are not
distributable reserves under the Companies Act 2006. In accordance
with ICAEW Technical Release 02/17BL on Guidance on Realised and
Distributable Profits under the Companies Act 2006, the special
reserve and capital reserves may be used as distributable reserves
for all purposes and, in particular, the repurchase by the Company
of its ordinary shares and for payments such as dividends. In
accordance with the Company’s Articles of Association, the special
reserve, capital reserves and the revenue reserve may be
distributed by way of dividend. The gain on the capital reserve
arising on the revaluation of investments 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 value through profit or loss
at 31 August 2023
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
|
|
|
|
|
Equity investments
|
593,785
|
–
|
942
|
594,727
|
|
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|
---------------
|
---------------
|
---------------
|
Total
|
593,785
|
–
|
942
|
594,727
|
|
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Financial assets at fair value through profit or loss
at 31 August 2022
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
|
|
|
|
|
Equity investments
|
477,813
|
–
|
3
|
477,816
|
|
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|
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|
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|
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|
Total
|
477,813
|
–
|
3
|
477,816
|
|
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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 through profit or
loss
|
2023
£’000
|
2022
£’000
|
Opening fair value
|
3
|
–
|
Transfers from Level 1
|
–
|
3
|
Gain on investments included in gains/(losses) on investments in
the Income Statement
|
939
|
–
|
|
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|
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|
Closing balance
|
942
|
3
|
|
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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 shares held by Related
BlackRock Funds
|
Total % of shares held by
Significant Investors who are
not affiliates of BlackRock Group
or BlackRock, Inc.
|
Number of Significant Investors
who are not affiliates of
BlackRock Group or
BlackRock, Inc.
|
1.4
|
n/a
|
n/a
|
|
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|
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|
As at 31 August 2022
Total % of shares held by Related
BlackRock Funds
|
Total % of shares held by
Significant Investors who are
not affiliates of BlackRock Group
or BlackRock, Inc.
|
Number of Significant Investors
who are not affiliates of
BlackRock Group or
BlackRock, Inc.
|
1.8
|
n/a
|
n/a
|
|
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|
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