TIDMBRGE TIDMBRGS
BlackRock Greater Europe Investment Trust plc
Annual results announcement
For the year ended 31 August 2015
Financial Highlights
Attributable to ordinary shareholders As at As at Change
31 August 2015 31 August 2014 %
Assets
Net asset value per ordinary share - 250.66p 237.98p +5.3
undiluted
- with income reinvested** +7.5
Net asset value per ordinary share - 250.22p 237.98p +5.1
diluted
- with income reinvested** +7.3
Net assets (GBP'000)* 261,459 258,987 +1.0
Ordinary share price (mid-market) 244.00p 228.50p +6.8
- with income reinvested** +9.1
Subscription share price (mid-market) 12.63p 10.00p +26.3
======= ======= ======
For the year ended For the year ended Change
31 August 2015 31 August 2014 %
Revenue
Net revenue return after taxation (GBP 5,609 4,964 +13.0
'000)
Revenue return per ordinary share -
basic and diluted 5.28p 4.59p +15.0
------- ------- -------
Dividends:
- Interim 1.65p 1.50p
- Final 3.35p 3.20p
------- ------- -------
Total dividends paid and payable 5.00p 4.70p +6.4
------- ------- -------
* The change in net assets reflects the tender offers implemented in the
year, market movements and the exercise of subscription shares.
** Net asset value and share price performance include the dividend
reinvestments.
Chairman's statement
Overview
European equities have performed strongly since the beginning of the year as
investor sentiment continued to be buoyed by the European Central Bank's
(ECB's) commitment to Quantitative Easing, recovering economic momentum and a
stabilising political backdrop. The depreciation of the Euro, the weaker oil
price and lower commodity prices also proved a net benefit to the market as
European companies reported an acceleration in earnings growth in the second
quarter reporting season.
Although momentum remained strong in Europe, markets continued to be volatile
as the possibility of a Greek exit from the Eurozone dominated headlines.
Towards the end of the period under review, investors grew increasingly nervous
about a slowdown in China and other emerging markets, prompting European
equities to sell off, although they subsequently rallied.
Performance
Over the twelve months to 31 August 2015, the Company's undiluted net asset
value (NAV) per share increased by 7.5%, compared with a rise of 1.3% in the
FTSE World Europe ex UK Index. The share price rose by 9.1% over the same
period. All percentages are calculated in Sterling terms with income
reinvested.
Since the period end to 19 October 2015, the Company's undiluted NAV per share
has increased by 0.7% compared with a rise in the FTSE World Europe ex UK Index
of 0.5% over the same period.
Revenue earnings and dividends
The Company's revenue return per share for the year to 31 August 2015 was 5.28p
per share compared with 4.59p per share for the previous year, representing an
increase of 15.0%.
The Board recommends the payment of a final dividend of 3.35p per share for the
year (2014: 3.20p) which, together with the interim dividend of 1.65p per share
(2014: 1.50p), makes a total dividend of 5.00p per share (2014: 4.70p). The
dividend will be paid on 18 December 2015 to shareholders on the Company's
register on 6 November 2015. The ex-dividend date is 5 November 2015.
Discount Control
The Board has the option to implement a tender in order to assist in
controlling the discount to NAV at which the shares are traded. In addition, it
will consider buying back shares between tenders when it is considered to be in
the interests of shareholders to do so.
Tender Offers
The Directors exercised their discretion to operate the half yearly tender
offer on 1 June 2015, being the succeeding business day to 31 May 2015. The
offer was for up to 20% of the ordinary shares in issue (excluding treasury
shares) at the prevailing fully diluted NAV less 2%. Valid tenders for
1,454,802 ordinary shares were received at a price of 256.66p per ordinary
share, representing 1.38% of the ordinary shares in issue. All shares tendered
were purchased by the Company and cancelled. In addition, 72,755 ordinary
shares held in treasury were cancelled to maintain the 5% limit on treasury
shares previously set by the Board.
It was announced on 21 September 2015 that the next semi-annual tender offer
will take place on 30 November 2015. The tender offer will be for up to 20% of
the ordinary shares in issue (excluding treasury shares) at the prevailing
fully diluted NAV per share subject to a discount of 2%. A Circular relating to
the tender offer is enclosed with this Annual Report. The Circular will be
available on the BlackRock website at blackrock.co.uk/brge, and additional
copies may be requested from the Company's registered office c/o The Secretary,
BlackRock Greater Europe Investment Trust plc, 12 Throgmorton Avenue, London
EC2N 2DL.
Resolutions to renew the Company's semi-annual tender authorities will be put
to shareholders at the forthcoming Annual General Meeting.
Subscription shares
In the year under review, the Company has issued a total of 102,670 ordinary
shares following the conversion of subscription shares into ordinary shares.
Total proceeds amounted to GBP255,000. The Company currently has 104,309,663
ordinary shares (excluding treasury shares) and 20,545,178 subscription shares
in issue.
Subscription shareholders have three further opportunities (31 October 2015, 31
January 2016 and 30 April 2016) to subscribe for all or any of the ordinary
shares to which their subscription shares relate at a price of 248p per
ordinary share.
Audit services
During October, the Company conducted a formal tender process for its external
audit services. The incumbent audit firm Ernst & Young LLP (EY) was asked to
participate in the process along with three other firms.
EY has acted as the external auditor since the Company's launch in 2004. The
Audit and Management Engagement Committee therefore considered that it was an
appropriate time to conduct a tender process in keeping with its commitment to
best practices in corporate governance and reporting and following the approval
of new EU regulations on mandatory auditor rotation which will require the
Company to put its audit out to tender every ten years with mandatory rotation
after twenty years.
Following presentations and interviews, it was agreed that the reappointment of
EY was in the best interests of the Company.
Management fee
In April, the Board announced that the Company and the Manager had agreed
revisions to the fees payable to the Manager under the Investment Management
Agreement. Effective 1 September 2015, the performance fee was removed and the
previous arrangements replaced with a base fee of 0.85% of net asset value.
The Board
After serving as a Director since the launch of the Company, Gerald Holtham
will be retiring at the conclusion of the forthcoming Annual General Meeting. I
would like to take this opportunity on behalf of your Board to thank Gerald for
his wise counsel and contribution over this period and wish him every success
in the future.
Outlook
Stock markets globally remain caught between concerns about a Chinese economic
slowdown on the one hand, and fears about the path of U.S. interest rates on
the other. Our Managers do not believe, however, that the current slowdown in
China will prompt the start of a global economic recession and the resulting
onset of a bear market.
European equities remain attractive in a global context, given the competitive
position of many exporters after the weakness of the Euro in recent years.
Shares are more reasonably rated than their U.S. counterparts and the ECB's
policy remains accommodating. Whilst numerous challenges remain, not least the
political and economic strains of coping with growing numbers of refugees, the
likely path of the region's economy overall remains one of continuing growth,
helped by lower energy costs and the favourable exchange rate. Our Portfolio
Managers will continue to focus on selecting attractive growth opportunities in
the wider region, recognising that the volatility of recent months may well
persist.
Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of
BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 10 December
2015 at 12 noon. As in previous years, the Portfolio Managers will make a
presentation to shareholders on the Company's performance and the outlook for
the year ahead.
We, the Directors of your Company, regard the Annual General Meeting as the
most important meeting of the year and we encourage you to come along. We have
considered the resolutions proposed in the Notice of the Annual General Meeting
and believe that all are in the interests of shareholders as a whole. We
therefore recommend that you vote in favour of each resolution.
Carol Ferguson
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October 22, 2015 09:59 ET (13:59 GMT)
22 October 2015
Strategic report
The Directors present the Strategic Report of the Company for the year ended 31
August 2015.
Principal Activity
The Company carries on business as an investment trust and its principal
activity is portfolio investment.
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 will also
have the flexibility to invest in any country included in the FTSE World Europe
ex UK Index, as well as the freedom to invest in developing countries not
included in the Index but considered by the Manager and the Directors as
part of greater Europe.
Strategy, Business Model and Investment Policy
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
EUR5 billion. Up to 25% may be invested in companies in developing Europe with
the flexibility to invest up to 5% of the portfolio in unquoted investments.
However, overall exposure to developing European companies and unquoted
investments together will not exceed 25% of the Company's portfolio.
As at 31 August 2015, the Company held 53 investments and 3.5% 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 2015. The use of any derivative instruments such as financial
futures, options and warrants and the entering into of stock lending
arrangements will only be for the purposes of efficient portfolio management.
While the Company may hold shares in other investment companies (including
investment trusts), the Board has agreed that the Company will not invest more
than 15%, in aggregate, of its gross assets in other listed closed-ended
investment funds (save to the extent that such closed-ended investment funds
have published investment policies to invest no more than 15% of their total
assets in such other listed closed ended investment funds).
The Company achieves an appropriate spread of risk by investing in a
diversified portfolio of securities.
The Investment Manager believes that appropriate use of gearing can add value
over time. This gearing typically is in the form of an overdraft facility which
can be repaid at any time. The level and benefit of any gearing is discussed
and agreed regularly by the Board. The Investment Manager generally aims to be
fully invested and it is anticipated that gearing will not exceed 15% of net
asset value (NAV) at the time of draw down of the relevant borrowings. At the
balance sheet date the Company did not have any net gearing (2014: nil).
The Directors recognise that it is in the long term interests of shareholders
that shares do not trade at a significant discount to their prevailing NAV. The
Board believes that this may be achieved through the use of regular tender
offers and the use of share buy back powers. In the year to 31 August 2015, the
Company's share price discount to NAV ranged from 1.3% to 6.8% calculated on an
undiluted cum income basis (diluted NAV: from a discount of 0.4% to a discount
of 6.5% respectively).
Performance
In the year to 31 August 2015, the Company's undiluted NAV per share returned
+7.5% (compared with a return in the FTSE World Europe ex UK Index of +1.3%)
and the share price returned +9.1% (all percentages calculated in Sterling
terms with income reinvested).
The Investment Manager's Report includes a review of the main developments
during the year, together with information on investment activity within the
Company's portfolio.
Results and dividends
The results for the Company are set out in the Income Statement. The total
profit for the year, after taxation, was GBP18,958,000 (2014: GBP11,696,000). The
revenue return amounted to GBP5,609,000 (2014: GBP4,964,000).
As explained in the Company's Half Yearly Financial Report, the Directors
declared an interim dividend of 1.65p per share (2014: 1.50p). The Directors
recommend the payment of a final dividend of 3.35p per share making a total
dividend of 5.00p per share (2014: 4.70p). Subject to approval at the
forthcoming Annual General Meeting, the dividend will be paid on 18 December
2015 to shareholders on the register of members at the close of business on 6
November 2015.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures
to help assess the Company's success in achieving its objectives. The key
performance indicators (KPIs) used to measure the progress and performance of
the Company over time and which are comparable to those reported by other
investment trusts are set out below.
As at As at
31 August 2015 31 August 2014
Net asset value per share - undiluted 250.66p 237.98p
Net asset value per share - diluted 250.22p 237.98p
Share price 244.00p 228.50p
Discount to net asset value - undiluted 2.7% 4.0%
Discount to net asset value - diluted 2.5% 4.0%
======= =======
Year ended Year ended
31 August 2015 31 August 2014
Revenue return per share - undiluted 5.28p 4.59p
Ongoing charges* 0.89% 0.94%
Ongoing charges# 1.22% 0.94%
--------- ---------
* Ongoing charges (excluding interest costs and any performance fees,
after any relief for taxation) as a % of average shareholders' funds.
# Ongoing charges (including any performance fees but excluding interest
costs, after any relief for taxation) as a % of average shareholders' funds.
The Board monitors the above KPIs on a regular basis. Additionally, it
regularly reviews a number of indices and ratios to understand the impact on
the Company's relative performance of the various components such as asset
allocation and stock selection. The Board also assesses the Company's
performance against its peer group of investment trusts with similar investment
objectives.
Principal risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
* Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objective and monitoring the performance of
the Investment Manager. An inappropriate strategy may lead to underperformance
against the reference index and the Company's peer group. To manage this risk
the Investment Manager provides an explanation of significant stock selection
decisions and the rationale for the composition of the investment portfolio.
The Board monitors and mandates an adequate spread of investments, in order to
minimise the risks associated with particular countries or factors specific to
particular sectors, based on the diversification requirements inherent in the
Company's investment policy. The Board also 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. Past performance is not
necessarily a guide to future performance and the value of your investment in
the Company and the income from it can fluctuate as the value of the underlying
investments fluctuate.
* Income/dividend risk - The amount of dividends and future dividend growth
will depend on the Company's underlying portfolio. Any change in the tax
treatment of the dividends or interest received by the Company (including as a
result of withholding taxes or exchange controls imposed by jurisdictions in
which the Company invests) may reduce the level of dividends received by
shareholders. The Board monitors this risk through the receipt of detailed
income forecasts and considers the level of income at each meeting.
* Regulatory risk - The Company operates as an investment trust in accordance
with the requirements of Chapter 4 of Part 24 of the Corporation Tax Act 2010.
As such, the Company is exempt from capital gains tax on the sale of its
investments. The Investment Manager monitors investment movements, the level 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 and the results are reported to the Board. Following authorisation
under the Alternative Investment Fund Managers' Directive (AIFMD), the Company
and its appointed Alternative Investment Fund Manager (AIFM) are subject to the
risks that the requirements of this Directive are not correctly complied with.
The Board and the Manager also monitor changes in government policy and
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legislation which may have an impact on the Company.
* Operational risk - In common with most other investment trust companies, the
Company has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems of the
Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the
Bank of New York Mellon (International) Limited (the administrator), who
maintain the Company's accounting records. The security of the Company's
assets, dealing procedures, accounting records and maintenance of regulatory
and legal requirements, depend on the effective operation of these systems.
These have been regularly tested and monitored throughout the period which is
evidenced through their Service Organisation Control (SOC 1) Reports to provide
assurance regarding the effective operation of internal controls which are
reported on by their service auditors and give assurance regarding the design
and effective operation of controls. The Board also considers succession
arrangements for key employees of the Manager and the business continuity
arrangements for the Company's key service providers.
* Market risk - Market risk arises from volatility in the prices of the
Company's investments. It represents the potential loss the Company might
suffer through holding investments in the face of negative market movements. In
addition, it should be noted that emerging markets tend to be more volatile
than more established stock markets and therefore present a greater degree of
risk. Changes in general economic and market conditions in certain countries,
such as interest rates, exchange rates, rates of inflation, industry
conditions, competition, political events and trends, tax laws, national and
international conflicts, economic sanctions and other factors can also
substantially and adversely affect the securities and, as a consequence, the
Company's prospects and share price. The Board considers asset allocation,
stock selection, unquoted investments 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.
* Financial risk - The Company's investment activities expose it to a variety
of financial risks that include market risk, currency risk, interest rate risk,
market price risk, liquidity risk and credit risk. Further details are
disclosed in note 18 on pages 47 to 53 of the Annual Report, together with a
summary of the policies for managing these risks.
* Gearing risk - The Company has the power to borrow money (gearing) and does
so when the Investment Manager is confident that market conditions and
opportunities exist to enhance investment returns. However, if the investments
fall in value, any borrowings will magnify the extent of this loss. All
borrowings require the approval of the Board and gearing levels are reviewed
regularly by the Board and the Investment Manager.
Future prospects
The Board's main focus is to achieve capital growth. The future performance of
the Company is dependent upon the success of the investment strategy and, to a
large extent, on the performance of financial markets. The outlook for the
Company in the next twelve months is discussed in the Investment Manager's
Report and the Chairman's Statement.
Social, community and human rights issues
As an investment trust with no employees, the Company has no direct social or
community responsibilities or impact on the environment. However, the Company
believes that it is in shareholders' interests to consider human rights issues
and environmental, social and governance factors when selecting and retaining
investments. Details of the Company's policy on socially responsible investment
are set out on page 27 of the Annual Report.
Directors, gender representation and employees
The Directors of the Company on 31 August 2015 are set out in the Governance
Structure and Directors' Biographies on page 15 of the Annual Report. The Board
currently consists of three male Directors and two female Directors. The
Company does not have any employees.
The information set out on pages 9 to 14 of the Annual Report, including the
Investment Manager's Report, forms part of the Strategic Report. The Strategic
Report was approved by the Board at its meeting on 22 October 2015.
By order of the Board
BlackRock Investment Management (UK) Limited
Company Secretary
22 October 2015
Related party transactions
BlackRock Fund Managers Limited (BFM) was appointed as the Company's AIFM with
effect from 2 July 2014, having been authorised as an AIFM by the FCA on 1 May
2014. The management contract is terminable by either party on six months'
notice.
BlackRock Investment Management (UK) Limited (BIM (UK)) continues to act 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. Up to and
including 31 August 2015, BFM received an annual fee of 0.70% of market value
plus a performance fee of 15% of any outperformance of the FTSE World Europe ex
UK Index, up to a maximum total investment management fee of 1.15% of
performance fee market value. With effect from 1 September 2015, the
arrangements have been replaced with a base fee of 0.85% of net asset value.
Where the Company invests in other investment or cash funds managed by BIM
(UK), any underlying fee charged is rebated. Fees are adjusted by adding all
dividends declared during the period.
The Company held an investment in BlackRock's Institutional Cash Fund - Euro
Assets Liquidity of GBP2,325,000 at 31 August 2015 (2014: GBP1,023,000).
The Company contributes to a focused investment trust sales and marketing
initiative operated by BIM (UK) on behalf of the investment trusts under its
management. The Company's contribution to the consortium element of the
initiative, which enables the trusts to achieve efficiencies by combining
certain sales and marketing activities, represents a budget of up to 0.03% per
annum of its net assets (GBP246.5 million) as at 31 December 2014 and this
contribution is matched by BIM (UK). In addition, a budget has been allocated
for Company specific sales and marketing activity. Total fees paid or payable
for these services for the year ended 31 August 2015 amounted to GBP48,000
(excluding VAT) (2014: GBP113,000). 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 consists of five non-executive Directors, all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. The Chairman receives an annual fee of GBP33,000, the Chairman
of the Audit and Management Engagement Committee receives an annual fee of GBP
27,500 and each other Director receives an annual fee of GBP23,000. Three members
of the Board hold shares in the Company. Carol Ferguson holds 57,600 ordinary
shares, Gerald Holtham holds 13,320 ordinary shares and Eric Sanderson holds
4,000 ordinary shares. Davina Curling and Peter Baxter do not hold any shares
in the Company.
As at 31 August 2015, fees of GBP11,000 (2014: GBP9,000) were outstanding to
Directors in respect of their annual fees.
Statement of Directors' Responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
Under that law they have elected to prepare the financial statements in
accordance with applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company as at the end of each financial year and of the profit
or loss of the Company for that period.
In preparing those financial statements, the Directors are required to:
* present fairly the financial position, financial performance and cash flows
of the Company;
* select suitable accounting policies in accordance with United Kingdom
Generally Accepted Accounting Practice and then apply them consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the
Directors' Report, the Directors' Remuneration Report, the Corporate Governance
Statement and the Report of the Audit and Management Engagement Committee in
accordance with the Companies Act 2006 and applicable regulations, including
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the requirements of the Listing Rules and the Disclosure and Transparency
Rules. The Directors have delegated responsibility to the Manager for the
maintenance and integrity of the Company's corporate and financial information
included on the BlackRock website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 15 of the Annual Report,
confirm to the best of their knowledge that:
* the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
* the Strategic Report contained in the Annual Report and Financial Statements
includes a fair review of the development and performance of the business and
the position of the Company, together with a description of the principal risks
and uncertainties that it faces.
The 2012 UK Corporate Governance Code requires Directors to ensure that the
Annual Report and Financial Statements are fair, balanced and understandable.
In order to reach a conclusion on this matter, the Board has requested that the
Audit and Management Engagement Committee advise on whether it considers that
the Annual Report and Financial Statements fulfils these requirements. The
process by which the Committee has reached these conclusions is set out in the
Audit and Management Engagement Committee's Report on pages 29 to 31 of the
Annual Report. As a result, the Board has concluded that the Annual Report for
the year ended 31 August 2015, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
For and on behalf of the Board
Carol Ferguson
Chairman
22 October 2015
Investment manager's report
Market overview
The Company's net asset value (NAV) and share price both increased over the
last twelve months to 31 August 2015. During the period, the Company's
undiluted NAV returned +7.5% and the share price +9.1%. By way of comparison,
the FTSE World Europe ex UK Index gained +1.3%.
The Europe ex-UK equity markets enjoyed a positive return over the year, but
the overall return in Sterling terms was limited by a weak Euro (worth 79 pence
at the beginning of the period but only 73 pence by the end). The most
significant driver of markets over the period proved to be the European Central
Bank's announcement of 'Quantitative Easing' in January via purchases of EUR60
billion of fixed income purchases per month from March onwards and lasting
until September 2016. This was officially instigated to stave off fears of
deflation but led to both a rise in equity markets and a weakening of the
currency in anticipation of the increase in the Eurozone money supply. Indeed,
by the end of the first quarter of 2015, the Euro had its largest six month
depreciation against the U.S. Dollar since its creation (the U.S. Dollar being
the most significant cross-exchange rate for the Euro).
The combination of lower oil prices, a cheaper currency, lower lending rates
and early signs of economic recovery in the Eurozone (such as an improvement in
new car sales) supported company earnings, with European earnings announcements
for both the first and second quarters of 2015 proving stronger than those seen
in recent years. However, the year was punctuated by periods of market
volatility, especially from April onwards. The weak oil price (falling by more
than 15% in the fourth quarter of 2014) created significant underperformance
for the energy sector for much of the year, excepting a short-lived rally early
in 2015. In southern Europe, the rise to power of Syriza in Greece led
to worries of a Greek exit from the Eurozone - fears which appeared concerning
to many market commentators but which we felt had little impact on company cash
flows in the European market overall. Finally, towards the end of the year,
fears of Chinese growth being weaker than expected led to an 8% market fall in
August and greater falls in commodity-related industries. Overall, therefore,
the year was positive both for markets and for corporate earnings in Europe but
a combination of extraneous factors and political uncertainty limited the
equity market gains.
Portfolio activity
In this environment, stock selection proved to be a very strong driver of the
portfolio's performance when compared with the broader market. The top
contributor to performance during the year, relative to the reference index,
was Irish airline Ryanair which returned 64%. The company increased its
full-year net profit guidance by around 20% after experiencing strong passenger
growth in the latter half of the year. The firm has effectively revamped its
offer to attract customers back and is starting to tackle the business market
by offering an attractively priced business ticket with flexible fares. Despite
external shocks to the travel industry during the year, 'Grexit' fears and the
tragic events in Tunisia, the company saw bookings for the summer 4% ahead of
the previous year. 2016 forward guidance posted by the company in May suggests
a likely continuation of these positive trends.
Anima Holding was an exceptionally strong performer during the year, with the
share price rising by 92%. The Italian asset manager has been a beneficiary of
the growing contingent of Italian investors who face historically low yields on
traditional income investments. In this context, Anima has seen strong asset
inflows and increases in management fee margins. They also stand to benefit
from a strategic alliance with Poste Italiane to distribute their funds into
the wider Italian savings market.
Novo Nordisk, a leading franchise for diabetes treatment, also contributed
positively to performance over the year with a share price return of 33%. The
company rallied in March after resubmitting applications for a key drug in the
U.S., suggesting the likelihood of approval and improved market positioning
against competitors. Additionally, the company is placed to revolutionise the
GLP-1 market with a drug which can help individuals with type 2 diabetes
achieve both good glycaemic control and, potentially, a reduction in the
associated weight gain.
The Company's sector allocation detracted from performance over the year.
Specifically, the decision to have lower exposure to consumer goods and a
higher exposure to industrials caused performance to suffer somewhat when
compared with the broader market. However, the lower exposure to both the
utilities and oil & gas sectors proved positive for performance, as both
sectors have seen negative returns over the year.
Investments in companies based in Turkey and Russia proved the weakest overall
during the year. The largest detractor from performance in the twelve months
was Halk Bank, falling by 43%. The Turkish market was weak, particularly
towards the end of the year, as negotiations to form a new government have
failed. The election has been rescheduled for November, increasing political
uncertainty. Halk Bank, as well as its Turkish competitor Garanti Bank,
suffered in this sell-off despite the companies' consistent record of
generating high returns on equity.
Sberbank of Russia also fell heavily, along with all Russian assets at the end
of 2014, returning -29% in the period. Investors were concerned about the
impact of the conflict in Ukraine, the sliding oil price and its impact on the
wider economy. Even though the stock has seen some recovery during the
first half of 2015, it has yet to recoup all of its losses despite announcing
results that were ahead of market expectations.
At the end of the year the portfolio was particularly weighted towards
positions in the financial, technology, consumer services and industrials
sectors. Exposure to the financial sector increased throughout as the prospects
for selected banks and other diversified financials improved. The portfolio
maintained lower levels of exposure to oil & gas, materials, utilities and
consumer goods during the year, although investment in the consumer goods
sector increased during the first half of 2015. In general, the portfolio had a
focus on businesses that are able to deliver attractive growth in a low growth
environment, selected income opportunities (especially as dividend yields in
insurance and real estate businesses became attractive) and areas of attractive
value such as a domestic infrastructure business and a travel operator.
Information regarding the Company's investment exposures is contained within
the investment listing on pages 12 and 13 of the Annual Report and the
investment size, market capitalisation and distribution of investment charts on
page 14 of the Annual Report.
Outlook
Despite recent market volatility, we remain positive on the prospects for the
broader European equity market given that the macroeconomic momentum remains
positive and monetary policies remain supportive. The recent correction has
made investors somewhat fearful of global growth prospects, but for companies
with more domestic exposure, European equity earnings momentum remains robust.
The ECB's programme of Quantitative Easing remains in place and is having a
positive impact on the credit cycle and European GDP growth. After five years
in crisis, economic growth is recovering across the European region and, with
supportive monetary policy, should continue to improve over the next twelve
months in our view. Over the long term we continue to believe that the
corporate earnings and cash generation of companies are the key drivers of
equity returns - we therefore continue to focus on fundamental analysis when
assessing opportunities.
Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
22 October 2015
Ten largest investments as at 31 August 2015
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October 22, 2015 09:59 ET (13:59 GMT)
Novartis: 5.4% (2014: nil) is a Swiss multinational pharmaceutical company
which ranked number one in sales among the world-wide industry in 2013. The
management team is looking to rationalise the business in 2015 with emphasis
being placed on cost savings. The company also recently announced the approval
in the U.S. of a new heart failure drug, which could propel sales growth in the
near future.
Novo Nordisk: 4.8% (2014: 4.6%) is a Danish pharmaceuticals company and the
dominant global franchise in diabetes treatment. The company has a very strong
pipeline of new drugs and is able to access the long term growth in diabetes
treatment through its high market shares globally. We believe that the company
has significant potential to continue its strong track record of delivering
double-digit earnings growth per year for the foreseeable future.
Bayer: 3.9% (2014: 4.2%) is a German company with divisions in health care,
nutrition and high-tech materials. The company offers strong growth over the
next 3 to 5 years, especially within its pharmaceuticals and crop science
businesses fuelled by new products coming to market. We see good value in the
company and it has a superior growth rate for the sector.
KBC Groep: 3.9% (2014: 2.5%) is a Belgian bank which is involved in multiple
businesses including retail and merchant banking. KBC is one of the largest
banks in Europe and has a significant presence in central and eastern Europe.
It remains one of our top picks in the sector due to its exposure to higher
returning and less competitive markets.
AXA: 2.9% (2014: nil) is a French-based company engaged in the business of
financial protection, insurance and asset management. The insurance business
can weather a low yield environment due to its strong balance sheet. There is
value in this business relative to its sector and the business is set to
continue its track record of solid earnings growth.
Zurich Insurance Group: 2.8% (2014: 3.3%) is Switzerland's largest insurance
company. The insurer has a strong capital position and disciplined cost saving
programme. This allows it to have an attractive dividend yield at around 5%.
There is also potential for share buy backs given excess capital. The company
is weathering the low yield environment better than peers due to their
geographic exposures and lower exposure to long-duration life liabilities.
LVMH Moët Hennessy: 2.7% (2014: nil) is a French multinational luxury goods
company. The company has a broad geographic mix with the key brand of Louis
Vuitton, but Sephora and Bulgari are strong anchor brands for their respective
divisions also. It is focused more towards retail with less wholesale exposure;
this is attractive given the risk of destocking pressure in China. The company
has low levels of gearing and exhibits value relative to its sector and its own
history.
Ryanair: 2.6% (2014: 2.4%) is an Irish airline company. The firm has
effectively revamped their offer to attract leisure customers back and is also
starting to tackle the business market by offering an attractively priced
business ticket with flexible fares. In the next five years the focus of
management is to grow passengers boarded, with a clear shift to both higher
yielding airports and passengers. Given the company's single largest cost is
fuel, they have been a strong beneficiary of the fall in oil price. We believe
the change in corporate strategy will help Ryanair grow despite the decline in
capacity of the European airline industry.
Intesa Sanpaolo: 2.5% (2014: 1.6%) is a banking group based in Italy. The stock
benefits from the positive lending trends environment in Italy, but more
importantly the bank offers a solid dividend yield and a strong balance sheet.
The bank has focused on growing fees and commissions, as opposed to lending,
allowing it a strong return on equity position.
Unibail-Rodamco: 2.5% (2014: 1.8%) is the largest commercial real estate
company in Europe. The company has a strong portfolio of assets, consistently
growing rents above indexation and can create value through the development of
its portfolio. The company also offers an attractive dividend yield in today's
environment.
All percentages reflect the value of the holding as a percentage of total
investments.
Percentages in brackets represent the value of the holding as at 31 August
2014.
Together, the ten largest investments represent 34.0% of the Company's
portfolio (31 August 2014: 34.4%).
Investments
as at 31 August 2015
Country of Market % of
operation value investments
GBP'000
Financials
KBC Groep Belgium 10,181 3.9
AXA France 7,688 2.9
Zurich Insurance Group Switzerland 7,476 2.8
Intesa Sanpaolo Italy 6,603 2.5
Unibail-Rodamco France 6,576 2.5
Bank of Ireland Ireland 5,548 2.1
Julius Baer Switzerland 5,486 2.1
Anima Italy 5,349 2.0
Sampo Oyj Finland 4,406 1.7
Helvetia Switzerland 3,843 1.5
Nordea Bank Sweden 3,669 1.4
Halk Bank Turkey 3,544 1.3
Azimut Italy 3,362 1.3
Sberbank Russia 3,247 1.2
Avanza Bank Sweden 3,066 1.2
Garanti Bank Turkey 2,536 1.0
BlackRock's Institutional Cash Fund - Euro Assets Ireland 2,325 0.9
Liquidity
--------- --------
84,905 32.3
--------- --------
Industrials
Ferrovial Spain 5,027 1.9
Thales France 4,926 1.9
Assa Abloy Sweden 4,700 1.8
Kingspan Ireland 4,383 1.7
Hexagon Sweden 4,063 1.5
Geberit Switzerland 3,722 1.4
Dassault Aviation France 3,365 1.3
Atlantia Italy 3,232 1.2
Aeroports de Paris France 2,861 1.1
Saft Groupe France 1,913 0.7
Cargotec Finland 1,870 0.7
--------- --------
40,062 15.2
--------- --------
Health Care
Novartis Switzerland 14,271 5.4
Novo Nordisk Denmark 12,716 4.8
Straumann Switzerland 3,072 1.2
Roche Switzerland 2,698 1.0
--------- --------
32,757 12.4
--------- --------
Consumer Goods
LVMH Moët Hennessy France 7,211 2.7
Heineken Netherlands 6,482 2.5
Unilever Netherlands 5,285 2.0
Pernod Ricard France 4,692 1.8
Luxottica Italy 4,434 1.7
Pandora Denmark 2,639 1.0
--------- --------
30,743 11.7
--------- --------
Consumer Services
Ryanair Ireland 6,804 2.6
RELX Netherlands 6,094 2.3
TUI Germany 3,995 1.5
ProSieben Germany 3,130 1.2
Television Francaise France 1,946 0.7
JCDecaux France 1,747 0.7
--------- --------
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October 22, 2015 09:59 ET (13:59 GMT)
23,716 9.0
--------- --------
Technology
Capgemini France 6,382 2.4
ASML Netherlands 6,127 2.3
Yandex Netherlands 3,341 1.3
United Internet Germany 2,994 1.2
--------- --------
18,844 7.2
--------- --------
Basic Materials
Bayer Germany 10,310 3.9
--------- --------
10,310 3.9
--------- --------
Telecommunications
Deutsche Telekom Germany 6,525 2.5
Koninklijke Netherlands 3,603 1.4
--------- --------
10,128 3.9
--------- --------
Utilities
Enel Italy 6,476 2.5
--------- --------
6,476 2.5
--------- --------
Oil & Gas
Lundin Petroleum Sweden 4,891 1.9
--------- --------
4,891 1.9
--------- --------
Total Investments 262,832 100.00
======= ======
All investments are in ordinary shares unless otherwise stated. The total
number of investments held at 31 August 2015 was 53 (31 August 2014: 55).
As at 31 August 2015, the Company did not hold any equity interests comprising
more than 3% of any company's share capital.
Investment exposure
Market Capitalisation as at 31 August 2015
% of Portfolio % of Index
<EUR1bn 0.7 0.1
EUR1bn to EUR10bn 23.7 16.4
EUR10bn to EUR20bn 22.3 14.5
EUR20bn to EUR50bn 24.1 27.4
>EUR50bn 29.2 41.6
Investment Size as at 31 August 2015
Number of Investments % of Portfolio
< GBP1m 0 0.0
GBP1m to GBP3m 10 8.9
GBP3m to GBP5m 22 32.2
GBP5m to GBP10m 17 40.8
> GBP10m 4 18.1
Distribution of Investments as at 31 August 2015
Financials 32.3
Industrials 15.2
Health Care 12.4
Consumer Goods 11.7
Consumer Services 9.0
Technology 7.2
Basic Materials 3.9
Telecommunications 3.9
Utilities 2.5
Oil & Gas 1.9
Source: BlackRock.
Income statement
for the year ended 31 August 2015
Revenue Revenue Capital Capital Total Total
2015 2014 2015 2014 2015 2014
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments held at
fair value through profit or - - 15,822 8,253 15,822 8,253
loss
Income from investments held
at fair value through profit 3 6,931 6,873 - - 6,931 6,873
or loss
Other income 3 195 42 - - 195 42
Investment management and
performance fees 4 (358) (364) (2,306) (1,454) (2,664) (1,818)
Operating expenses 5 (561) (678) (18) (19) (579) (697)
-------- -------- -------- -------- -------- --------
Net return before finance
costs and taxation 6,207 5,873 13,498 6,780 19,705 12,653
Finance costs (17) (151) (34) (48) (51) (199)
-------- -------- -------- -------- -------- --------
Return on ordinary activities
before taxation 6,190 5,722 13,464 6,732 19,654 12,454
Taxation on ordinary (581) (758) (115) - (696) (758)
activities
-------- -------- -------- -------- -------- --------
Return on ordinary activities
after 7 5,609 4,964 13,349 6,732 18,958 11,696
taxation
====== ====== ====== ====== ====== ======
Return per ordinary share -
basic and diluted 7 5.28p 4.59p 12.57p 6.22p 17.85p 10.81p
====== ====== ====== ====== ====== ======
The total column of this statement represents the profit or loss of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. The Company had
no recognised profits or losses other than those disclosed in the Income
Statement Funds. All items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year.
Reconciliation of movements in shareholders' funds
for the year ended 31 August 2015
Share Capital
Share premium redemption Capital Special Revenue
capital account reserve reserves reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the year ended
31 August 2015
At 31 August 2014 135 61,644 105 165,611 21,630 9,862 258,987
Return for the year - - - 13,349 - 5,609 18,958
Exercise of subscription - 255 - - - - 255
shares
Ordinary shares purchased
into treasury - - - - (317) - (317)
Ordinary shares purchased
and cancelled (5) - 5 - (11,043) - (11,043)
Share purchase costs - - - - (155) - (155)
Dividends paid* 6 - - - - - (5,226) (5,226)
------- --------- ------- ---------- -------- -------- ----------
At 31 August 2015 130 61,899 110 178,960 10,115 10,245 261,459
------- --------- -------- ---------- -------- -------- ----------
For the year ended
31 August 2014
At 31 August 2013 138 55,672 102 158,879 27,660 12,490 254,941
Return for the year - - - 6,732 - 4,964 11,696
Issue of ordinary shares
held in treasury - 60 - - 439 - 499
Ordinary shares purchased
into treasury (3) - 3 - (6,313) - (6,313)
Exercise of subscription - 5,912 - - - - 5,912
shares
Share issue and share
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purchase costs - - - - (156) - (156)
Dividends paid** 6 - - - - - (7,592) (7,592)
------- --------- -------- ---------- --------- ------- ----------
At 31 August 2014 135 61,644 105 165,611 21,630 9,862 258,987
------- --------- -------- ---------- ---------- ------- ----------
* Interim dividend paid in respect of the year ended 31 August 2015 of
1.65p per share was declared on 23 April 2015 and paid on 29 May 2015. Final
dividend paid in respect of the year ended 31 August 2014 of 3.20p per share
was declared on 21 October 2014 and paid on 12 December 2014.
** Interim dividend paid in respect of the year ended 31 August 2014 of
1.50p per share was declared on 17 April 2014 and paid on 30 May 2014. Final
dividend paid in respect of the year ended 31 August 2013 of 4.50p per share
was recommended on 21 October 2013 and paid on 13 December 2013 and special
dividend paid in respect of the year ended 31 August 2013 of 1.00p per share
was declared on 21 October 2013 and paid on 13 December 2013.
Balance sheet
as at 31 August 2015
2015 2014
Notes GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or loss 262,832 256,083
----------- -----------
Current assets
Debtors 2,206 5,585
Cash 95 88
-------- --------
2,301 5,673
-------- --------
Creditors - amounts falling due within one year
Bank overdraft - (4)
Other creditors (3,674) (2,765)
-------- --------
(3,674) (2,769)
-------- --------
Net current (liabilities)/assets (1,373) 2,904
-------- --------
Net assets 261,459 258,987
======= =======
Capital and reserves
Called-up share capital 8 130 135
Share premium account 61,899 61,644
Capital redemption reserve 110 105
Capital reserves 178,960 165,611
Special reserve 10,115 21,630
Revenue reserve 10,245 9,862
--------- ---------
Total equity shareholders' funds 261,459 258,987
======= =======
Net asset value per ordinary share - undiluted 7 250.66p 237.98p
======= =======
Net asset value per ordinary share - diluted 7 250.22p 237.98p
======= =======
Cash flow statement
for year ended 31 August 2015
2015 2014
Note GBP'000 GBP'000
Net cash inflow from operating activities 5(b) 3,915 1,550
Servicing of finance (42) (60)
Taxation recovered 1,183 526
-------- --------
Capital expenditure and financial investment
Purchase of investments (315,260) (349,819)
Proceeds from sale of investments 325,997 366,341
Realised losses on foreign currency transactions 673 422
-------- --------
Net cash inflow from capital expenditure and financial 11,410 16,944
investment
--------- ---------
Equity dividends paid (5,226) (7,592)
--------- ---------
Net cash inflow before financing 11,240 11,368
--------- ---------
Financing
Purchase of ordinary shares (11,360) (6,313)
Share issue and purchase costs paid (124) (578)
Proceeds from issue of ordinary shares out of treasury - 499
Proceeds from issue of subscription shares 255 5,912
Proceeds arising from the acquisition of portfolio
assets of Charter European Trust plc - 36
---------- --------
Net cash outflow from financing (11,229) (444)
---------- --------
Increase in cash in the year 11 10,924
====== ======
Notes to the financial statements
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. Accounting policies
(a) Basis of preparation
The Company's financial statements have been prepared in accordance with UK
Generally Accepted Accounting Practice (UK GAAP) and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies'
(SORP) revised in January 2009. The principal accounting policies adopted by
the Company are set out below. All of the Company's operations are of a
continuing nature.
The Company's financial statements are presented in Sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (GBP'000) except where
otherwise indicated.
(b) Presentation of the Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the Association of Investment Companies
(AIC), supplementary information which analyses the Income Statement between
items of a revenue and a capital nature has been presented alongside the Income
Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis gross of withholding taxes. 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. Fixed returns on debt securities are recognised on a time
apportionment basis. Interest income and expenses are accounted for on an
accruals basis.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been treated
as revenue except as follows:
* expenses which are incidental to the acquisition or disposal of an
investment are included within the cost of the investment. Details of
transaction costs on the purchases and sales of investments are disclosed in
note 11 on pages 44 and 45 of the Annual Report;
* the investment management fee has been allocated 80% to capital reserves and
20% to the revenue account 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;
* performance fees are allocated 100% to capital reserves, as performance has
been predominantly generated through capital returns of the investment
portfolio.
(f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are
allocated, insofar as they relate to the financing of the Company's
investments, 80% to capital and 20% to the revenue account, in line with the
Board's expected long term split of returns, in the form of capital gains and
income respectively, from the investment portfolio.
(g) Taxation
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Deferred taxation is recognised in respect of all timing differences at the
balance sheet date, where transactions or events that result in an obligation
to pay more tax in the future or right to pay less tax in the future have
occurred at the balance sheet date. This is subject to deferred taxation assets
only being recognised if it is considered more likely than not that there will
be suitable profits from which the future reversal of the timing differences
can be deducted.
(h) Investments held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with FRS 26 - 'Financial Instruments: Recognition and
Measurement' and are managed and evaluated on a fair value basis in accordance
with its investment strategy. All investments are designated upon initial
recognition as held at fair value through profit or loss.
The purchase and sales of assets are recognised at the trade date of the
transaction. Disposals will be measured at fair value which will be regarded as
the proceeds of sale less any transaction costs.
The investments are measured on initial recognition and subsequently at fair
value. 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 of the financial instruments is based on their quoted bid price
at the balance sheet date, 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 Association Guidelines. This
policy applies to all current and fixed asset investments of the Company.
(i) Dividends payable
Under FRS 21, 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 Reconciliation
of Movements in Shareholders' Funds when they have been approved by
shareholders and become a liability of the Company.
(j) Foreign currency translation
All transactions in foreign currencies are translated into Sterling at the
rates of exchange ruling on the dates of such transactions. Foreign currency
assets and liabilities at the balance sheet date are translated into Sterling
at the exchange rates ruling at that date. Exchange differences arising on the
revaluation of investments held as fixed assets are included in capital
reserves. Exchange differences arising on the translation of foreign currency
assets and liabilities are taken to capital reserves.
3. Income
2015 2014
GBP'000 GBP'000
Investment income:
Overseas dividends 6,931 6,873
-------- --------
6,931 6,873
-------- --------
Other income:
Bank interest 10 1
Interest on WHT reclaims 185 41
-------- --------
195 42
-------- --------
Total 7,126 6,915
===== =====
4. Investment management and performance fees
2015 2014
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 358 1,434 1,792 364 1,454 1,818
Performance fee - 872 872 - - -
-------- -------- -------- -------- -------- --------
Total 358 2,306 2,664 364 1,454 1,818
===== ===== ===== ===== ===== =====
The investment management fee is payable quarterly in arrears, calculated at a
pro rata rate of 0.70% of the market capitalisation of the Company's ordinary
shares on the last day of each month. A performance fee is payable at 15% of
the outperformance of the Company's share price relative to the FTSE World
Europe ex UK Index on a total return basis. The performance fee is based on the
outperformance of the Index over a three year rolling period. The aggregate of
the investment management fee and performance fee is capped up to a maximum of
1.15% of performance fee market value.
5. Operating activities
2015 2014
GBP'000 GBP'000
(a) Operating expenses
Custody fee 26 33
Auditor's remuneration:
- statutory audit 25 25
Depositary fees 36 7
Directors' emoluments 118 115
Marketing fees 48 113
Registrar's fees and other operating expenses 308 385
-------- --------
561 678
-------- --------
Transaction costs - capital 18 19
-------- --------
The Company's ongoing charges, calculated as a percentage of average
net assets and using expenses, excluding performance fees and
finance costs, after relief for any taxation were: 0.89% 0.94%
---------- ----------
The Company's ongoing charges, calculated as a percentage of average
net assets and using expenses, including performance fees but
excluding finance costs, after relief for any taxation were: 1.22% 0.94%
====== ======
2015 2014
GBP'000 GBP'000
(b) Reconciliation of net return before finance costs and taxation
to net cash flow from operating activities
Net return before finance costs and taxation 19,705 12,653
Less capital return before finance costs and taxation (13,498) (6,780)
---------- ----------
Net revenue return before finance costs and taxation 6,207 5,873
Expenses charged to capital (2,324) (1,473)
Decrease in prepayments and accrued income 86 2
Increase/(decrease) in accrued expenditure 1,156 (1,767)
Tax on investment income included within gross income (1,210) (1,085)
---------- ----------
Net cash inflow from operating activities 3,915 1,550
====== ======
6. Dividends
Record Payment 2015 2014
date date GBP'000 GBP'000
2013 Final dividend of 4.50p 4 December 2013 13 December 2013 - 4,893
2013 Special dividend of 4 December 2013 13 December 2013 - 1,087
1.00p
2014 Interim dividend of 2 May 2014 30 May 2014 - 1,612
1.50p
2014 Final dividend of 3.20p 31 October 2014 12 December 2014 3,482 -
2015 Interim dividend paid of 1 May 2015 29 May 2015 1,744 -
1.65p
-------- --------
5,226 7,592
====== ======
The Directors have proposed a final dividend of 3.35p (2014: 3.20p) per share
in respect of the year ended 31 August 2015. The dividend will be paid on 18
December 2015, subject to shareholders' approval on 10 December 2015, to
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shareholders on the Company's register on 6 November 2015. The proposed final
dividend has not been included as a liability in these financial statements, as
final dividends are only recognised in the financial statements when they have
been approved by shareholders, or in the case of special dividends not
recognised until they are paid.
The dividends disclosed in the note below have been considered in view of the
requirements 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
2015 meets the relevant requirements as set out in this legislation.
2015 2014
GBP'000 GBP'000
Dividends paid or proposed on equity shares:
Interim paid of 1.65p (2014: 1.50p) 1,744 1,612
Final proposed of 3.35p* per ordinary share (2014: 3.20p) 3,494 3,482
-------- --------
5,238 5,094
-------- --------
* Based on 104,309,663 ordinary shares in issue on 22 October 2015.
7. Return and net asset value per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
Undiluted 2015 2014
Net revenue return attributable to ordinary shareholders (GBP'000) 5,609 4,964
Net capital return attributable to ordinary shareholders (GBP'000) 13,349 6,732
-------- --------
Total return (GBP'000) 18,958 11,696
====== ======
Equity shareholders' funds (GBP'000) 261,459 258,987
----------- -----------
The weighted average number of ordinary shares in issue during the year,
on which the return per ordinary share was calculated was: 106,194,950 108,236,562
----------------- -----------------
The actual number of ordinary shares in issue at the year end, on which
the net asset value was calculated was: 104,309,663 108,828,058
----------------- -----------------
The number of ordinary shares in issue, including treasury shares, at 109,798,561 114,257,734
the year end was:
========== ==========
2015 2014
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on weighted
average number of shares 5.28 12.57 17.85 4.59 6.22 10.81
Calculated on actual
number of shares in issue 5.38 12.80 18.18 4.56 6.19 10.75
at year end
-------- -------- -------- -------- -------- --------
Net asset value per share 250.66 237.98
====== ======
Ordinary share price 244.00 228.50
Subscription share price 12.63 10.00
====== ======
Diluted 2015 2014
Net revenue return attributable to ordinary shareholders (GBP'000) 5,609 4,964
Net capital return attributable to ordinary shareholders (GBP'000) 13,349 6,732
-------- --------
Total return (GBP'000) 18,958 11,696
====== ======
Equity shareholders' funds* (GBP'000) 312,411 258,987
----------- -----------
The weighted average number of ordinary shares in issue during the year,
on which the diluted return per ordinary share was calculated was: 106,194,950 108,236,562
----------------- ----------------
The actual number of ordinary shares and subscription shares, at the
year end on which the fully diluted net asset value was calculated was: 124,854,841 129,475,906
========== ==========
2015 2014
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on weighted
average number of shares** 5.28 12.57 17.85 4.59 6.22 10.81
-------- -------- -------- -------- -------- --------
Net asset value per share* 250.22 237.98
---------- ----------
* In accordance with the AIC SORP, to the extent that the Company's
NAV is in excess of the exercise price, the subscription shares are considered
to be dilutive for the calculation of the NAV per share. The diluted NAV per
share at 31 August 2015 is calculated by adjusting equity shareholders' funds
for consideration receivable on the exercise of 20,545,178 subscription shares,
at the exercise price of 248 pence per share, and dividing by the total number
of shares that would have been in issue at 31 August 2015 had all the
subscription shares been exercised. As the Company's NAV was not in excess of
the exercise price at 31 August 2014, no dilutive price was calculated for
2014.
** In accordance with FRS 22 'Earnings per share', there is no
dilutive impact on the return per share for the year ended 31 August 2015 as
the average mid-market price of the ordinary shares for the year of 239.20p is
below the exercise price of the subscription shares of 248p per share.
8. Share capital
Ordinary Treasury Subscription
shares shares shares Total
number number number shares GBP
Allotted, called up and fully paid
share capital comprised:
Ordinary shares of 0.1p each
At 31 August 2014 108,828,058 5,429,676 - 114,257,734 114,257
Shares repurchased and cancelled
pursuant to tender offers during the (4,489,088) - - (4,489,088) (4,489)
year
Cancellation of treasury shares - (72,755) - (72,755) (73)
Shares repurchased and held in treasury
pursuant to the tender offers held (131,977) 131,977 - - -
during the year
--------------- -------------- ---------- --------------- ----------
104,206,993 5,488,898 - 109,695,891 109,695
Subscription shares of 0.1p each
At 31 August 2014 - - 20,647,848 20,647,848 20,648
Conversion of subscription shares into
ordinary shares 102,670 - (102,670) - -
--------------- ------------- --------------- --------------- ----------
At 31 August 2015 104,309,663 5,488,898 20,545,178 130,343,739 130,343
========= ======== ======== ========= =======
During the year 4,489,088 ordinary shares were repurchased and cancelled and
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