BlackRock Greater Europe Investment Trust Plc - Half-year Report
PR Newswire
London, May 2
BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC
LEI: 5493003R8FJ6I76ZUW55
Half yearly financial announcement of results in respect of the six months ended 28 February 2023
PERFORMANCE RECORD
| As at 28 February 2023 | As at 31 August 2022 | Change % | |
| Net assets (£'000)1 | 554,995 | 483,799 | 14.7 |
| Net asset value per ordinary share (pence) | 549.50 | 475.72 | 15.5 |
| Ordinary share price (mid-market) (pence) | 523.00 | 456.00 | 14.7 |
| Discount to cum income net asset value2 | 4.8% | 4.1% | |
| FTSE World Europe ex UK Index | 1896.86 | 1654.61 | 14.6 |
| ========= | ========= | ========= |
| For the six months ended 28 February 2023 | For the six months ended 28 February 2022 | | |
| Performance (with dividends reinvested) | |||
| Net asset value per share2 | 16.6% | -29.2% | |
| Ordinary share price2 | 15.9% | -33.4% | |
| FTSE World Europe ex UK Index | 14.6% | -11.5% | |
| ========= | ========= |
| For the six months ended 28 February 2023 | For the six months ended 28 February 2022 | Change % | |
| Revenue | |||
| Net profit on ordinary activities after taxation (£'000) | 22 | 1,367 | -98.4 |
| Revenue profit per ordinary share (pence)3 | 0.02 | 1.37 | -98.5 |
| Dividends (pence) | |||
| Interim dividend | 1.75 | 1.75 | - |
| ========= | ========= | ========= |
1 The change in net assets reflects payments for shares repurchased into treasury, portfolio movements and dividends paid.
2 Alternative Performance Measure, see Glossary contained within the Half Yearly Financial Report.
3 Further details are given in the Glossary contained within the Half Yearly Financial Report.
CHAIRMAN'S STATEMENT
OVERVIEW
The outlook for Europe has improved considerably with some of the macroeconomic and political shocks caused by Russia's invasion of Ukraine, which were weighing on global markets, now reversing. The improvements result from a variety of reasons including the success in filling gas storage and diversifying Europe's sources of energy, as well as the mild weather over the winter which helped to reduce energy demand and kept gas prices lower. As energy prices fell back and the overall inflation rate declined, the annual inflation rate in the Eurozone also finally dropped from double figures, having surged to a 41-year high in October. Europe should also benefit from the lifting of COVID-19 restrictions in China. This has already led to a rebound in the country's equities and should help broader equity markets, including Europe, one of China's largest trading partners. However, the consequences of China's closer association with Russia have yet to be evidenced.
PERFORMANCE
I am pleased to report that against this backdrop, over the six months ended 28 February 2023, the Company's net asset value per share (NAV) returned 16.6%, outperforming the FTSE World Europe ex UK Index (the reference index) which returned 14.6%. Over the same period, the Company's share price returned 15.9% (all percentages calculated in Sterling terms with dividends reinvested).
Since the period end to 9 May 2023, the Company's NAV has increased by 1.9% compared with a rise in the FTSE World Europe ex UK Index of 2.3% over the same period.
REVENUE EARNINGS AND DIVIDENDS
The Company's revenue return per share for the six-month period ended 28 February 2023 amounted to 0.02p compared with 1.37p for the corresponding period in 2022, a decrease of 98.5%. The majority of the Company's income typically is generated in the second half of the year when the portfolio companies announce and pay dividends. The Board has taken this into account in considering what the interim dividend should be.
The Board has declared an interim dividend of 1.75p (2022: 1.75p) per share. The dividend will be paid on 19 June 2023 to shareholders on the Company's register on 19 May 2023, the ex-dividend date being 18 May 2023.
TENDER OFFERS
The Directors of the Company have the discretion to make semi-annual tender offers at the prevailing NAV less 2%, for up to 20% of the issued share capital in May and November of each year. The Board announced on 20 September 2022 that it had decided not to proceed with a tender offer in November 2022 and on 22 March 2023 that the tender offer in May 2023 would also not be implemented.
Over the six-month period ended 28 February 2023, the Company's shares traded at an average discount to NAV of 5.5% compared to a discount of 2.0% to NAV, the price at which any tender offer would be made and has sustained a similar level of discount since that date. However, against a background of volatile market conditions and the Company trading at the narrowest discount within its peer group, the Board concluded that it was not in the interests of shareholders to implement the latest semi-annual tender offer. The Board will continue to monitor the Company's discount and may use the Company's share buyback powers to ensure that the share price does not go to an excessive discount to the underlying NAV. The Board remains committed to supporting the share price to a narrow discount or premium to its NAV.
PORTFOLIO MANAGER
As announced on 21 December 2022, Stefan Gries became the sole Portfolio Manager of the Company, as Sam Vecht stepped aside from his role as co-Portfolio Manager of the Company. This reflects the current focus and asset allocation within the Company's portfolio. The Board would like to thank Sam for his contribution to the Company and wish him well in continuing to manage his other portfolios at BlackRock.
Stefan is a Managing Director and Head of the European Equity team within the Fundamental Equity division of BlackRock's Portfolio Management Group. He has been co-Portfolio Manager of the Company since June 2017 and is supported by the extensive resources and significant expertise of BlackRock's market-leading European Equity team.
AUDIT AND MANAGEMENT ENGAGEMENT COMMITTEE CHAIRMAN
In February 2022, Ian Sayers was appointed as a Director of the Company and, towards the end of last year, Peter Baxter informed the Board of his wish to step away from his responsibilities as Chairman of the Audit and Management Engagement Committee. Ian, a qualified chartered accountant and chartered tax adviser, agreed to step into the role, which took effect from 1 January 2023.
MANAGEMENT FEE
I am pleased to report that, following a review of management fees and engagement with BlackRock, the Board reached an agreement to amend the Company's management fee arrangements. With effect from 1 January 2023, the Company's annual management fee, which is payable quarterly in arrears, reduced from 0.85% per annum of net asset value to 0.85% per annum of net asset value on net assets up to £350 million and 0.75% per annum of net asset value on net assets thereafter.
OUTLOOK
After a year of concerns over a recession hitting Europe and a significant interest rate hiking cycle, we continue to see many companies delivering good results and the consumer being more resilient than expected. However, market volatility is expected to remain in the near term as macro uncertainty continues to be elevated. Going forward it will be important to see whether inflation comes down to levels the market can deal with, and we continue to see evidence that inflation has peaked and is falling. A sharp drop in gas prices, China's reopening and slowing inflation has also meant that European equities not only rose in absolute terms but also significantly outperformed US equities over the six-month period under review.
Our Investment Manager's fundamental philosophy remains unchanged, with a continued focus on Europe's highest quality, well-capitalised, fastest-growing companies with strong management teams that can create real value for shareholders over time. This approach has served the Company well over many years and the Investment Manager sees opportunities for attractive returns.
ERIC SANDERSON
10 May 2023
INVESTMENT MANAGER'S REPORT
OVERVIEW
The Company's share price and underlying NAV rose by 15.9% and 16.6%, respectively, over the last six months to 28 February 2023. By way of comparison, the FTSE World Europe ex UK Index returned 14.6% during the same period (all percentages calculated in Sterling terms with dividends reinvested).
Over these last six months, we have witnessed the start of a strong recovery of European equity markets. Throughout the majority of calendar year 2022, Europe was deemed 'un-investable' given the war in Ukraine, the resulting energy crisis, high inflation and rising interest rates. There was a strong consensus that Europe would enter a recession. However, market performance started to improve from October onwards and, since then, the asset class has had one of its best starts to a new year, with the Stoxx Europe 600 Index materially outperforming the S&P 500 Index in the US.
We believe there are a number of reasons for this dramatic change. Firstly, gas and electricity prices have significantly come down, proving that Europe has been getting through the winter without a supply crunch. Europe managed to decrease its gas consumption by 13% in 2022, largely driven by corporates who a) have been able to use energy more efficiently and b) switched to other energy sources such as oil, coal, diesel and renewables. Meeting with over 2,000 companies every year, we have been able to witness this almost in real time. It immediately became clear that management teams' focus turned to controlling energy costs and embracing new energy sources. Simultaneously, gas storage was filled quickly and the majority of Russian gas has been replaced by new LNG (liquefied natural gas) terminals and alternative energies. Furthermore, unforeseen support came from the weather: Reuters/Refinitv data showed that from September to January, average temperatures in Germany, a key dependent on Russian gas given its large industrial complex, were 25% or 1.58 degrees Celsius above normal and even 29% (2.3 degrees Celsius) above normal during October and November 2022.
Secondly, inflation numbers started to fall sooner than expected, largely driven by decreasing energy prices. As we discussed in our Annual Report for the year ended 31 August 2022, the rapid rise of inflation led, in combination with rising interest rates, to the largest derating of stocks since the 1970s. We can now say with relative confidence that we have passed the peak of inflation. This seems particularly true for consumer goods, which after 12 to 18 months of exceptional demand driven by COVID-19 and government support, are finally seeing demand normalising and adjusting. This was also confirmed in discussions we have had with management teams, whose rhetoric around the ease of price increases changed towards the end of the year, with customers becoming more reluctant to accept further increases. Other data points, such as rent and wages, have also started moving in the right direction.
Importantly, these developments soften the pressure on central banks to further tighten monetary conditions. Whilst we have to expect a few more rate hikes in Europe, we would highlight that we do not believe equity markets necessarily require rate cuts to continue moving higher. We believe the derating of equities is largely behind us and monetary policy should no longer impact markets as negatively as it did last year.
Thirdly, the U-turn in China's zero COVID-19 policy and the subsequent reopening of the Chinese economy is a major positive for Europe given that the region generates circa 8% to 9% of revenue directly from China. We believe the Chinese recovery will be driven by the consumer. By some estimates during the long lockdowns, the Chinese consumer savings rate rose by 15% of GDP, compared to pre-pandemic levels of 9%. Similar to what we saw post COVID-19 in Europe and the US, we anticipate a degree of 'revenge spending'. Together with our team's data scientists, we follow how this spending is evolving, brand-by-brand and region-by-region. Key areas to benefit are likely to be luxury goods, as well as less high-end consumer companies, beauty and travel, as well as semiconductors and industrials. Indeed, from a European industrial perspective, China has been in a recession for the last two years. Another positive point is that the reduction of COVID-19 restrictions in China improves bottlenecks in the global supply chains, which have caused operational problems for many European companies in the last 12 to 18 months.
Equally of interest is the fact that there has been little investor participation in the recent rally in European stocks. Whilst outflows from the asset class have slowed and there has been a degree of short closing, we have not seen major asset allocation changes towards Europe yet, which remains an under-owned asset class overall.
At the time of writing, we are at the end of the Q4 earnings season and can report that the majority of our companies continue to do well. After four quarters of concerns over a recession hitting Europe and being one year into a significant rate hiking cycle, we continue to see many companies delivering decent results and the consumer being more resilient than expected.
PORTFOLIO
Over the period market leadership came from financials and cyclical assets such as consumer discretionary, industrials and technology. Real estate and defensives, including consumer staples and telecommunications, lagged the market.
The strongest contribution over the last six months came from the technology sector. The Company's semiconductor-names started a rapid recovery after suffering under the interest rate rise related technology sell-off during the first half of 2022. During that time, we had held on to shares arguing that higher interest rates will not have a material impact on the companies' long-term prospects. In previous reports we have argued that the semiconductor segment has become more structural and less cyclical. The companies we own service different parts of the semiconductor value chain, serving a broad range of end markets that should lend themselves to high, sustainable and value accretive growth. Continuing to hold large weights in shares paid off over the last six months. Shares in BESemiconductor for example started a strong recovery and shares rose a solid 56% over the period. BE Semiconductor remains well positioned to benefit from the industry adopting new innovative processes, particularly around Hybrid Bonding where key clients in Taiwan and the US are expected to ramp-up capacity. Similarly, a key holding in ASML contributed, due to stellar Q4 results and confident targets for 2030, with guidance of net sales to grow over 25% compared to 2022. Despite potential for ongoing macroeconomic uncertainties in the near term, ASML is somewhat insulated given 18 to 24 months of tool lead times and two years of order backlog.
Another long term, high conviction holding and strong contributor over the period was diabetes specialist Novo Nordisk. Novo Nordisk is not only a dominant player in the diabetes market with a wide range of products to address the disease at various stages, but also has a major opportunity to win in the obesity market with their new drug 'Wegovy'. During the period, the US Food and Drug Administration federal agency cleared the way for a key Wegovy manufacturer to increase supply, followed by confirmation that they were able to restock US pharmacies with all dose levels. We expect that the company will be able to continue to grow 10% to 15% out to 2025, with EBIT (earnings before interest and taxes) margins in the low 40% range.
Elsewhere it is worth highlighting our investments in European luxury goods producers Hermès and LVMH, which both remain great examples of well-run companies with impressive brand management and pricing power. LVMH for example, despite being a cyclical consumer business, has not seen a down year for organic growth in its Fashion & Leather Goods business over the last two decades aside from the extraordinary circumstances of 2020. The luxury house recorded strong revenue figures for the first half of the year, up 28% compared to the same period in 2021. Chinese lockdown related impacts were offset by strong tourism in Europe and robust sales in the US. More recently both names have also benefited from China's reopening and our alternative data sources indicate a powerful uptick in sales to come.
A negative contribution over the period came from a) an underweight to financials and b) two stock specific issues. Firstly, the European banks sector has delivered strong performance over the period on the back of solid results, as well as better short-to-medium term outlooks for earnings upgrades and capital returns. Whilst our position in KBC Groep aided returns, not owning several rate sensitive banks including Banco Santander, Unicredit, BBVA and BNP Paribas was negative for performance. Followers of the Company will know that we aim to identify and hold wealth creators: businesses that dominate their respective markets and thereby generate high cash returns on capital which can be reinvested at attractive incremental rates of return. Most European banks are not what we consider wealth creators. We agree banks' shares have potential to recover from low valuations over a short-term period, but we do not see them as long-term investments appropriate for this portfolio.
Secondly, we saw stock specific hiccups with our holdings in ChemoMetec and Royal Unibrew, which were the two single largest detractors from relative returns over the last six months. Shares in ChemoMetec came under pressure due to a change in management, as well as slowing growth. The announcement that the current, well-regarded CEO, Steen Søndergaard, will be resigning this year, ruffled feathers in markets. However, having met with the CEO and CFO post the announcement, we were reassured by the clear message that the CEO is leaving for personal reasons and will stay on until a successor is found to make sure the handover is smooth. Additionally, the manufacturer of cell therapy instruments saw a decline in order intake, particularly in the North American market which was impacted by subdued investment sentiment and subsequently weaker demand from capital-sensitive development companies. Yet, EBITDA (earnings before interest, taxes, depreciation and amortization) has held up well and the company delivered an impressive 63% and 57% margin in the last two quarters. Whilst we do not believe the long-term opportunity has materially changed and we continue to believe they are well positioned in a very attractive market, the magnitude of slowdown was unexpected and we stay in regular conversations with management.
Danish brewer Royal Unibrew suffered margin pressure from raw material costs. Royal Unibrew is a clear example of a high-quality company with long-term attractive profitability, which has been sustained through competitive pricing power dynamics. In the shorter term however, without a strategy for hedging energy and longer-term ties on contract pricing to customers, we saw margin deterioration, particularly versus peers. In recognition of this, we reduced our allocation to this stock in the portfolio. Going forward, as power prices have fallen sharply from the peak, the company may stand to benefit - both as their own contracts to customers roll over onto better pricing and as their cost of goods sold falls.
In line with the portfolio's mandate, turnover remains low at below 8% over the period under review. We continue to work intensely on our well-established fundamental research process, analysing estimates of earnings and cashflows, conducting over 2,000 company meetings per year and having rigorous internal discussions about where we could be wrong. Recently we have added resources to our own data scientist team, who have done invaluable work, studying alternative data sources around credit card spending, churn data of food delivery, house deposits, wages and rent to really help us understand businesses, industries, consumer behaviours and think about inflation in every way possible.
Portfolio activity over the period includes the purchase of a small number of well-positioned companies that we believe are excellent investments for years to come. For example, we added Sartorius to the portfolio, a leading player within the biopharmaceutical industry. Sartorius runs a portfolio of solutions that focus on all major steps in the manufacturing of biologic drugs, vaccines and genetic therapies. Its business addresses different stages of the manufacturing process and includes complex technologies such as cell line, cell culture media, bioreactors, products for separation, purification and concentration of product, and solutions for storage and transportation. In our view, this market is well placed for structural growth.
We also bought a new position in STMicroelectronics (STM). The French-listed company creates semiconductor technologies such as microcontrollers and sensors. STM has been outgrowing its end markets helped by a number of new innovative product launches around auto, smartphones and industrial. This has allowed STM to grow sales at 13% CAGR (compound annual growth rate) since 2016. We believe the company has the potential to continue on this path due to their continued innovation in power chips for electric vehicles, sensors for consumer electronics and connectivity for industrial applications. All these areas should see secular growth ahead as devices need to become smarter and more energy efficient.
OUTLOOK
Moving to our macro view, which is largely informed by our micro observations and insights we have on individual companies. We have discussed that we believe the environment for European equities has materially improved due to the better energy situation, falling inflation and China re-opening. However, as is usual in Europe, selectivity is key. We have seen a few sectors that have over-earned since the pandemic. Think autos for example, where we believe margins will come under pressure in the future due to rising rates, falling used car prices and intensifying competition. We also make sure to avoid highly leveraged or unprofitable companies with poor cash flow and near-term debt refinancing demands. Some companies have in the past supported their earnings growth by refinancing at lower levels. These times are clearly over.
Going forward, markets are likely to continue to closely follow inflation numbers. With energy prices coming down, there is reason to be hopeful they move to levels equity markets can deal with. Clarity on the terminal rate of this hiking cycle would likely be enough to bring attention back to company fundamentals - the ultimate driver of long-term equity returns.
Support comes from corporate balance sheets that are in decent shape and in much better positions than in previous downturns. Many companies in Europe have spent the last decade deleveraging balance sheets and interest coverage is significantly higher than during the Global Financial Crisis or other prior periods associated with deep recessions or prolonged bear markets. Corporate spending intentions also remain healthy and this spend is often linked to transformational capital expenditure.
Lastly, long-term structural trends and large amounts of fiscal spending via the Recovery Fund, Green Deal, the REPowerEU plan or the latest Green Deal Industrial Plan in Europe, can drive demand for years to come in areas such as infrastructure, automation, medical innovation, electric vehicles, digitisation and decarbonisation. We believe the portfolio is well aligned to many of these structural spending streams.
STEFAN GRIES
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
10 May 2023
TEN LARGEST INVESTMENTS
The Company's ten largest investments represented 52.6% of the Company's portfolio as at 28 February 2023
1 = Novo Nordisk (2022: 1st)
Health Care company
Market value: £51,432,000
Share of investments: 8.9%
A Danish multinational pharmaceutical company which is a leader in diabetes care. We expect Novo Nordisk to post strong growth in earnings and cashflows driven by demand for 'Ozempic' which treats Type 2 diabetes, as well as by its weight management drug Wegovy, which came to the market last year. Overall, we believe Novo Nordisk offers attractive long-term growth potential at high returns and sector leading cash flow conversion with any excess in cash being returned to shareholders.
2 + LVMH (2022: 3rd)
Consumer Discretionary company
Market value: £45,070,000
Share of investments: 7.8%
A French multinational holding corporation specialising in luxury goods. The group has a strong and well-diversified portfolio of luxury brands ranging from handbags to spirits to cosmetics. LVMH's business model enjoys high barriers to entry due to the heritage, provenance and exquisite quality of its product offering. Its consistent brand investment through economic cycles has helped to spur brand desirability and allowed for significant pricing power. LVMH's management team also has an impressive track record of taking over struggling brands and accelerating their growth and returns profile over time.
3 - ASML (2022: 2nd)
Technology company
Market value: £39,029,000
Share of investments: 6.7%
A Dutch company which specialises in the supply of photolithography systems for the semiconductor industry. The company is at the forefront of technological change, investing in leading research and development to capture the structural growth opportunity coming from growth in mobile devices and microchip components. High barriers to entry within the industry give ASML a protected position with strong pricing power allowing growth in margins whilst they continue to innovate. The company is run by an exceptional management team which aims to create long-term value whilst returning excess cash to shareholders.
4 = RELX (2022: 4th)
Consumer Discretionary company
Market value: £31,612,000
Share of investments: 5.4%
A multinational information and analytics company which has high barriers to entry in most of its divisions, including scientific publishing. This capital light business model allows for a high rate of cash flow conversion with repeatable revenues built on subscription-based models. The business also benefits from the structurally increasing usage of data globally, which supports their data analytics business.
5 = Lonza Group (2022: 5th)
Health Care company
Market value: £29,436,000
Share of investments: 5.1%
A Swiss health care services and life-sciences company which has established itself as one of the leading contract manufacturers of high-end biological drugs, as well as cell and gene therapy. The company's competitive advantages stem from the complexity of the production process - where few peers can match its offering. This is cemented by high barriers to entry given that all production facilities are required to be certified by the Food and Drug Administration. Overall, we expect the company's biologics business to grow in the mid-teens every year for the next ten years with positive pricing, as there is generally a shortage of capacity in the market.
6 = DSV Panalpina (2022: 6th)
Industrials company
Market value: £26,202,000
Share of investments: 4.5%
A Danish freight forwarding and logistics company run by an excellent management team with a strong track record in creating value through acquisitions and by instilling a best-in-class culture in its organisation. Their success in making acquisitions has been facilitated by a strong technology platform which drives operational efficiencies leading to high conversion margins.
7 + Hermès (2022: 9th)
Consumer Discretionary company
Market value: £23,156,000
Share of investments: 4.0%
A French luxury design house established in 1837. It specialises in leather goods, lifestyle accessories, home furnishings, perfumery, jewellery, watches and ready-to-wear. Due to deliberate brand management and craftsmanship, this ultimate high-end brand is supply constrained and enjoys strong earnings visibility given some of its most iconic products are sold on allocation via waiting lists. Hermès is a largely family-owned business and has been run in a conservative fashion for generations with any strategic decisions taken with the longest of time frames in mind. This business should prove resilient also during economic downturns as Hermès' client base is typically less sensitive to weaker macro environments.
8 = Sika (2022: 8th)
Industrials company
Market value: £20,704,000
Share of investments: 3.6%
A specialty chemical company with a leading position in both construction chemicals and in bonding agents for the automotive industry. The company has proprietary technology within adhesives, which has an increasing array of applications as technology advances. The company benefits from structural drivers of urbanisation and has exposure to multiple points in the construction cycle including new infrastructure projects, as well as maintenance or refurbishment of existing buildings. It is also likely to benefit from the EU Recovery Fund and the EU Green Deal channelling funds towards sustainable infrastructure projects. The company's decentralised structure of subsidiaries and strong culture of new product innovation continues to drive returns.
9 + Safran (2022: 12th)
Industrials company
Market value: £19,122,000
Share of investments: 3.3%
Safran is a French multinational supplier of systems and equipment for aerospace, defence and security. The industry is emerging from a heavy investment period in new planes and engines and we see Safran as well placed to benefit from continued strength in its best in class after-market business, as well as strong execution in its LEAP engine programme which should drive growth for the next decade.
10 + KBC Groep (2022: 14th)
Financials company
Market value: £18,959,000
Share of investments: 3.3%
KBC Groep (KBC) is a Belgian universal multi-channel bank-insurer, focusing on private clients and small- and medium-sized enterprises. KBC is a quality bank which changed its focus following the Global Financial Crisis, building resilience through conservative capital positions. KBC delivers above cost of capital returns in its developed markets, while its CEE (Central and Eastern Europe) exposure provides additional growth at higher returns. Management have proven strong capital allocation discipline and costs remain well-controlled.
All percentages reflect the value of the holding as a percentage of total investments.
Together, the ten largest investments represent 52.6% of the Company's portfolio (31 August 2022: 53.7%).
PORTFOLIO ANALYSISAS AT 28 FEBRUARY 2023
% France | % Switzerland | % Ireland | % Germany | % Sweden | % Netherlands | % Denmark | % Belgium | % Spain | % Italy | % Central Eastern Europe & other | % Portfolio 28.02.23 | % Portfolio 31.08.22 | % FTSE World Europe ex UK 28.02.23 | |
| Basic Materials | - | - | - | - | - | 3.0 | - | - | - | - | - | 3.0 | 3.3 | 4.8 |
| Consumer Services | - | - | - | - | - | - | - | - | - | - | - | - | - | 3.4 |
| Consumer Discretionary | 11.8 | - | - | - | - | 5.4 | - | - | - | 3.0 | - | 20.2 | 19.5 | 13.5 |
| Consumer Staples | - | 2.2 | - | - | - | - | 2.2 | - | - | - | - | 4.4 | 6.5 | 8.9 |
| Energy | - | - | - | - | - | - | - | - | - | - | - | - | - | 4.5 |
| Financials | - | 1.5 | - | - | - | - | - | 3.3 | - | 2.4 | 1.0 | 8.2 | 11.7 | 18.1 |
| Health Care | 2.3 | 7.3 | - | - | - | - | 9.9 | - | - | 1.3 | - | 20.8 | 21.3 | 15.2 |
| Industrials | 5.1 | 5.8 | 1.0 | 1.2 | 3.1 | 2.7 | 4.5 | - | - | - | - | 23.4 | 21.9 | 17.6 |
| Real Estate | - | - | - | - | - | - | - | - | - | - | - | - | - | 1.1 |
| Technology | 1.8 | 2.1 | - | - | 1.9 | 11.9 | - | - | 2.3 | - | - | 20.0 | 15.8 | 8.8 |
| Utilities | - | - | - | - | - | - | - | - | - | - | - | - | - | 4.1 |
| % Portfolio 28.02.23 | 21.0 | 18.9 | 1.0 | 1.2 | 5.0 | 23.0 | 16.6 | 3.3 | 2.3 | 6.7 | 1.0 | 100.0 | - | - |
| % Portfolio 31.08.22 | 14.9 | 17.1 | 1.2 | 1.2 | 6.5 | 23.0 | 20.3 | 2.6 | 2.5 | 6.2 | 4.5 | - | 100.0 | - |
| % FTSE World Europe ex UK 28.02.23 | 22.6 | 19.2 | 0.6 | 16.6 | 6.4 | 9.7 | 5.6 | 1.8 | 5.2 | 4.4 | 7.9 | - | - | 100.0 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ======== | ========= | ========= | ========= | ========= |
Percentages in the table above are a % of total investments.
INVESTMENTS AS AT 28 FEBRUARY 2023
| Country of operation | Market value £'000 | % of investments | |
| Industrials | |||
| DSV Panalpina | Denmark | 26,202 | 4.5 |
| Sika | Switzerland | 20,704 | 3.6 |
| Safran | France | 19,122 | 3.3 |
| Adyen | Netherlands | 15,479 | 2.7 |
| ALD | France | 10,527 | 1.8 |
| Atlas Copco | Sweden | 9,495 | 1.6 |
| Epiroc | Sweden | 8,759 | 1.5 |
| Belimo | Switzerland | 8,409 | 1.4 |
| Rational | Germany | 6,833 | 1.2 |
| Kingspan | Ireland | 6,054 | 1.0 |
| VAT Group | Switzerland | 4,598 | 0.8 |
| --------------- | --------------- | ||
| 136,182 | 23.4 | ||
| ========= | ========= | ||
| Health Care | |||
| Novo Nordisk | Denmark | 51,432 | 8.9 |
| Lonza Group | Switzerland | 29,436 | 5.1 |
| Sartorius | France | 13,459 | 2.3 |
| Straumann | Switzerland | 9,551 | 1.6 |
| DiaSorin | Italy | 7,382 | 1.3 |
| ChemoMetec | Denmark | 5,881 | 1.0 |
| PolyPeptide Group | Switzerland | 3,514 | 0.6 |
| --------------- | --------------- | ||
| 120,655 | 20.8 | ||
| ========= | ========= | ||
| Consumer Discretionary | |||
| LVMH | France | 45,070 | 7.8 |
| RELX | Netherlands | 31,612 | 5.4 |
| Hermès | France | 23,156 | 4.0 |
| Ferrari | Italy | 17,519 | 3.0 |
| Ozon Holdings* | Russia | 2 | - |
| Fix Price Group* | Russia | - | - |
| --------------- | --------------- | ||
| 117,359 | 20.2 | ||
| ========= | ========= | ||
| Technology | |||
| ASML | Netherlands | 39,029 | 6.7 |
| BE Semiconductor | Netherlands | 16,846 | 2.9 |
| Amadeus IT Group | Spain | 13,448 | 2.3 |
| ASM International | Netherlands | 13,048 | 2.3 |
| STMicroelectronics | Switzerland | 11,916 | 2.1 |
| Hexagon | Sweden | 10,982 | 1.9 |
| ALTEN | France | 10,611 | 1.8 |
| --------------- | --------------- | ||
| 115,880 | 20.0 | ||
| ========= | ========= | ||
| Financials | |||
| KBC Groep | Belgium | 18,959 | 3.3 |
| FinecoBank | Italy | 13,857 | 2.4 |
| Partners Group | Switzerland | 8,999 | 1.5 |
| Allfunds Group | United Kingdom | 5,819 | 1.0 |
| Sberbank* | Russia | 1 | - |
| --------------- | --------------- | ||
| 47,635 | 8.2 | ||
| ========= | ========= | ||
| Consumer Staples | |||
| Royal Unibrew | Denmark | 12,895 | 2.2 |
| Lindt | Switzerland | 12,496 | 2.2 |
| --------------- | --------------- | ||
| 25,391 | 4.4 | ||
| ========= | ========= | ||
| Basic Materials | |||
| IMCD | Netherlands | 17,665 | 3.0 |
| --------------- | --------------- | ||
| 17,665 | 3.0 | ||
| ========= | ========= | ||
| Energy | |||
| Lukoil* | Russia | - | - |
| --------------- | --------------- | ||
| - | - | ||
| ========= | ========= | ||
| Total investments | 580,767 | 100.0 | |
| ========= | ========= |
* During the year ended 31 August 2022, the investments in Sberbank, Ozon Holdings, Lukoil and Fix Price Group have been marked down to a nominal value of £0.01 as the secondary listings of depositary receipts of Russian companies have been suspended from trading.
All investments are in ordinary shares unless otherwise stated. The total number of investments held at 28 February 2023 was 40 (31 August 2022: 39).
Industry classifications in the table above are based on the Industrial Classification Benchmark standard for categorisation of companies by industry and sector.
As at 28 February 2023, the Company did not hold any equity interests comprising more than 3% of any company's share capital.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman's Statement and the Investment Manager's Report above give details of the important events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:
· Counterparty;
· Investment performance;
· Legal & regulatory compliance;
· Market;
· Operational;
· Financial; and
· Marketing.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 August 2022. A detailed explanation can be found in the Strategic Report on pages 31 to 34 and in note 15 on pages 90 to 97 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at www.blackrock.com/uk/brge.
In the view of the Board, there have not been any changes to the fundamental nature of the principal risks and uncertainties since the previous report and these are equally applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio, the Company's investment objective and the Company's projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. The Board is mindful of the continuing uncertainty surrounding the current environment of heightened geopolitical risk given the war in Ukraine. The Board believes that the Company and its key third-party service providers have in place appropriate business continuity plans and these services have continued to be supplied without interruption.
The Company has a portfolio of investments which are predominantly readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Accounting revenue and expense forecasts are maintained and reported to the Board regularly and it is expected that the Company will be able to meet all its obligations. The Investment Manager generally aims to be fully invested and it is anticipated that gearing will not exceed 15% of net asset value (NAV) at the time of drawdown of the relevant borrowings. Borrowings under the overdraft facility shall at no time exceed £60 million or 15% of the Company's net asset value (whichever is lower) and this covenant was complied with during the period. Based on the above, the Board is satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. Ongoing charges for the year ended 31 August 2022 were approximately 0.98% of net assets.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company's Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the fees payable are set out in note 4 and note 12 below. The related party transactions with the Directors are set out in note 11 below.
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within the Half Yearly Financial Report has been prepared in accordance with applicable UK Accounting Standards and the Accounting Standards Board's Statement 'Half Yearly Financial Reports'; and
· the Interim Management Report, together with the Chairman's Statement and Investment Manager's Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and Transparency Rules.
This Half Yearly Financial Report has not been audited or reviewed by the Company's auditor.
The Half Yearly Financial Report was approved by the Board on 10 May 2023 and the above responsibility statement was signed on its behalf by the Chairman.
ERIC SANDERSON
FOR AND ON BEHALF OF THE BOARD
10 May 2023
INCOME STATEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
| | Six months ended 28 February 2023 (unaudited) | Six months ended 28 February 2022 (unaudited) | Year ended 31 August 2022 (audited) | |||||||
| Notes | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| Gains/(losses) on investments held at fair value through profit or loss | - | 80,774 | 80,774 | - | (138,558) | (138,558) | - | (206,195) | (206,195) | |
| Gains on foreign exchange | - | 106 | 106 | - | 1,807 | 1,807 | - | 1,142 | 1,142 | |
| Income from investments held at fair value through profit or loss | 3 | 930 | - | 930 | 2,338 | - | 2,338 | 10,394 | 177 | 10,571 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total income | 930 | 80,880 | 81,810 | 2,338 | (136,751) | (134,413) | 10,394 | (204,876) | (194,482) | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Expenses | ||||||||||
| Investment management fee | 4 | (419) | (1,675) | (2,094) | (538) | (2,151) | (2,689) | (977) | (3,907) | (4,884) |
| Other operating expenses | 5 | (424) | (61) | (485) | (281) | (12) | (293) | (811) | (40) | (851) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total operating expenses | (843) | (1,736) | (2,579) | (819) | (2,163) | (2,982) | (1,788) | (3,947) | (5,735) | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 87 | 79,144 | 79,231 | 1,519 | (138,914) | (137,395) | 8,606 | (208,823) | (200,217) | |
| Finance costs | (14) | (57) | (71) | (54) | (216) | (270) | (68) | (270) | (338) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net profit/(loss) on ordinary activities before taxation | 73 | 79,087 | 79,160 | 1,465 | (139,130) | (137,665) | 8,538 | (209,093) | (200,555) | |
| Taxation charge | (51) | - | (51) | (98) | - | (98) | (810) | - | (810) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net profit/(loss) on ordinary activities after taxation | 7 | 22 | 79,087 | 79,109 | 1,367 | (139,130) | (137,763) | 7,728 | (209,093) | (201,365) |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Earnings/(loss) per ordinary share (pence) | 7 | 0.02 | 78.20 | 78.22 | 1.37 | (139.64) | (138.27) | 7.65 | (207.09) | (199.44) |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
The total column of this statement represents the Company's profit and loss account. The supplementary revenue and capital accounts are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Company.
The net profit/(loss) on ordinary activities for the period disclosed above represents the Company's total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
| Note | Called up share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Special reserve £'000 | Capital reserves £'000 | Revenue reserve £'000 | Total £'000 | |
| For the six months ended 28 February 2023 (unaudited) | ||||||||
| At 31 August 2022 | 117 | 85,325 | 130 | 71,572 | 315,960 | 10,695 | 483,799 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | - | - | - | - | 79,087 | 22 | 79,109 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares repurchased into treasury | - | - | - | (3,001) | - | - | (3,001) | |
| Share buyback costs | - | - | - | (13) | - | - | (13) | |
| Dividends paid1 | 6 | - | - | - | - | - | (4,899) | (4,899) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 28 February 2023 | 117 | 85,325 | 130 | 68,558 | 395,047 | 5,818 | 554,995 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the six months ended 28 February 2022 (unaudited) | ||||||||
| At 31 August 2021 | 113 | 48,340 | 130 | 71,541 | 522,321 | 9,286 | 651,731 | |
| Total comprehensive (loss)/income: | ||||||||
| Net (loss)/profit for the period | - | - | - | - | (139,130) | 1,367 | (137,763) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares issued | 5 | 30,067 | - | - | - | - | 30,072 | |
| Ordinary shares reissued from treasury | - | 6,974 | - | 2,843 | 2,743 | - | 12,560 | |
| Share issue costs | - | (58) | - | - | - | - | (58) | |
| Share reissue costs | - | - | - | (11) | (12) | - | (23) | |
| Tender offer costs written back | - | - | - | 14 | - | - | 14 | |
| Dividends paid2 | 6 | - | - | - | - | - | (4,529) | (4,529) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 28 February 2022 | 118 | 85,323 | 130 | 74,387 | 385,922 | 6,124 | 552,004 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the year ended 31 August 2022 (audited) | ||||||||
| At 31 August 2021 | 113 | 48,340 | 130 | 71,541 | 522,321 | 9,286 | 651,731 | |
| Total comprehensive (loss)/income: | ||||||||
| Net (loss)/profit for the period | - | - | - | - | (209,093) | 7,728 | (201,365) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares issued | 4 | 30,067 | - | - | - | - | 30,071 | |
| Ordinary shares reissued from treasury | - | 6,974 | - | 2,843 | 2,743 | - | 12,560 | |
| Ordinary shares repurchased into treasury | - | - | - | (2,804) | - | - | (2,804) | |
| Share issue costs | - | (56) | - | - | - | - | (56) | |
| Share reissue costs | - | - | - | (14) | (11) | - | (25) | |
| Share buyback costs | - | - | - | (8) | - | - | (8) | |
| Tender costs written back | - | - | - | 14 | - | - | 14 | |
| Dividends paid3 | 6 | - | - | - | - | - | (6,319) | (6,319) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 31 August 2022 | 117 | 85,325 | 130 | 71,572 | 315,960 | 10,695 | 483,799 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
1 Final dividend paid in respect of the year ended 31 August 2022 of 4.85p per share was declared on 3 November 2022 and paid on 16 December 2022.
2 Final dividend paid in respect of the year ended 31 August 2021 of 4.55p per share was declared on 5 November 2021 and paid on 17 December 2021.
3 Interim dividend paid in respect of the year ended 31 August 2022 of 1.75p per share was declared on 11 May 2022 and paid on 17 June 2022. Final dividend paid in respect of the year ended 31 August 2021 of 4.55p per share was declared on 5 November 2021 and paid on 17 December 2021.
For information on the Company's distributable reserves, please refer to note 9 below.
BALANCE SHEET AS AT 28 FEBRUARY 2023
| Notes | 28 February 2023 (unaudited) £'000 | 28 February 2022 (unaudited) £'000 | 31 August 2022 (audited) £'000 | |
| Fixed assets | ||||
| Investments held at fair value through profit or loss | 580,767 | 603,006 | 477,816 | |
| Current assets | ||||
| Current tax asset | 1,673 | 1,222 | 1,919 | |
| Debtors | 26 | 1,293 | 220 | |
| Cash and cash equivalents | - | 1 | 7,348 | |
| --------------- | --------------- | --------------- | ||
| Total current assets | 1,699 | 2,516 | 9,487 | |
| ========= | ========= | ========= | ||
| Creditors - amounts falling due within one year | ||||
| Bank overdraft | (23,869) | (49,089) | (182) | |
| Other creditors | (3,602) | (4,429) | (3,322) | |
| --------------- | --------------- | --------------- | ||
| Total current liabilities | (27,471) | (53,518) | (3,504) | |
| --------------- | --------------- | --------------- | ||
| Net current (liabilities)/assets | (25,772) | (51,002) | 5,983 | |
| --------------- | --------------- | --------------- | ||
| Net assets | 554,995 | 552,004 | 483,799 | |
| ========= | ========= | ========= | ||
| Capital and reserves | ||||
| Called up share capital | 8 | 117 | 118 | 117 |
| Share premium account | 85,325 | 85,323 | 85,325 | |
| Capital redemption reserve | 130 | 130 | 130 | |
| Special reserve | 68,558 | 74,387 | 71,572 | |
| Capital reserves | 395,047 | 385,922 | 315,960 | |
| Revenue reserve | 5,818 | 6,124 | 10,695 | |
| --------------- | --------------- | --------------- | ||
| Total shareholders' funds | 554,995 | 552,004 | 483,799 | |
| ========= | ========= | ========= | ||
| Net asset value per ordinary share (pence) | 7 | 549.50 | 539.59 | 475.72 |
| ========= | ========= | ========= |
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
| Six months ended 28 February 2023 (unaudited) £'000 | Six months ended 28 February 2022 (unaudited) £'000 | Year ended 31 August 2022 (audited) £'000 | |
| Operating activities | |||
| Net profit/(loss) on ordinary activities before taxation | 79,160 | (137,665) | (200,555) |
| Add back finance costs | 71 | 270 | 338 |
| (Gains)/losses on investments held at fair value through profit or loss | (80,774) | 138,558 | 206,195 |
| Gains on foreign exchange | (106) | (1,807) | (1,142) |
| Sale of investments held at fair value through profit or loss | 39,221 | 86,473 | 179,206 |
| Purchase of investments held at fair value through profit or loss | (61,398) | (151,233) | (185,158) |
| Decrease/(increase) in debtors | 194 | 159 | (23) |
| Increase/(decrease) in other creditors | 858 | 1,511 | (160) |
| Taxation on investment income | (246) | (176) | (1,498) |
| Interest paid | (71) | (270) | (338) |
| Refund of withholding tax reclaims | 441 | 96 | 9 |
| --------------- | --------------- | --------------- | |
| Net cash used in operating activities | (22,650) | (64,084) | (3,126) |
| ========= | ========= | ========= | |
| Financing activities | |||
| Ordinary shares issued | - | 32,888 | 32,889 |
| Ordinary shares reissued from treasury | - | 12,551 | 12,535 |
| Ordinary shares repurchased into treasury | (3,592) | - | (2,234) |
| Dividends paid | (4,899) | (4,529) | (6,319) |
| --------------- | --------------- | --------------- | |
| Net cash (used in)/generated from financing activities | (8,491) | 40,910 | 36,871 |
| ========= | ========= | ========= | |
| (Decrease)/increase in cash and cash equivalents | (31,141) | (23,174) | 33,745 |
| Cash and cash equivalents at the beginning of the period/year | 7,166 | (27,721) | (27,721) |
| Effect of foreign exchange rate changes | 106 | 1,807 | 1,142 |
| --------------- | --------------- | --------------- | |
| Cash and cash equivalents at the end of the period/year | (23,869) | (49,088) | 7,166 |
| ========= | ========= | ========= | |
| Comprised of: | |||
| Cash at bank | - | 1 | 1,104 |
| Cash Fund1 | - | - | 6,244 |
| Bank overdraft | (23,869) | (49,089) | (182) |
| --------------- | --------------- | --------------- | |
| (23,869) | (49,088) | 7,166 | |
| ========= | ========= | ========= |
1 Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc - Euro Liquid Environmentally Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.
2. BASIS OF PREPARATION
The financial statements of the Company are prepared on a going concern basis in accordance with Financial Reporting Standard 104 Interim Financial Reporting (FRS 104) applicable in the United Kingdom and Republic of Ireland and the revised Statement of Recommended Practice - 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP) issued by the Association of Investment Companies (AIC) in October 2019, and updated in July 2022, and the provisions of the Companies Act 2006.
The accounting policies and estimation techniques applied for the condensed set of financial statements are as set out in the Company's Annual Report and Financial Statements for the year ended 31 August 2022.
3. INCOME
| Six months ended 28 February 2023 (unaudited) £'000 | Six months ended 28 February 2022 (unaudited) £'000 | Year ended 31 August 2022 (audited) £'000 | |
| Investment income: | |||
| UK dividends | - | - | 681 |
| Overseas dividends | 929 | 2,234 | 9,072 |
| Overseas special dividends | - | 104 | 641 |
| --------------- | --------------- | --------------- | |
| Total investment income | 929 | 2,338 | 10,394 |
| ========= | ========= | ========= | |
| Other income: | |||
| Interest received | 1 | - | - |
| --------------- | --------------- | --------------- | |
| 1 | - | - | |
| --------------- | --------------- | --------------- | |
| Total income | 930 | 2,338 | 10,394 |
| ========= | ========= | ========= |
Dividends and interest received in cash during the period amounted to £691,000 and £1,000 respectively (six months ended 28 February 2022: £2,396,000 and £nil; year ended 31 August 2022: £8,893,000 and £nil).
No special dividends have been recognised in capital during the period (six months ended 28 February 2022: £nil; year ended 31 August 2022: £177,000).
4. INVESTMENT MANAGEMENT FEE
| Six months ended 28 February 2023 (unaudited) | Six months ended 28 February 2022 (unaudited) | Year ended 31 August 2022 (audited) | |||||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| Investment management fee | 419 | 1,675 | 2,094 | 538 | 2,151 | 2,689 | 977 | 3,907 | 4,884 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Total | 419 | 1,675 | 2,094 | 538 | 2,151 | 2,689 | 977 | 3,907 | 4,884 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | |
With effect from 1 January 2023, the investment management fee is levied quarterly based on a tiered basis: 0.85% per annum on month-end net asset value up to £350 million and 0.75% per annum on month-end net asset value above £350 million.
Up to and including 31 December 2022, the investment management fee was levied quarterly, based on 0.85% per annum of net asset value on the last day of each month.
The investment management fee is allocated 20% to the revenue account and 80% to the capital account of the Income Statement. There is no additional fee for company secretarial and administration services.
5. OTHER OPERATING EXPENSES
| Six months ended 28 February 2023 (unaudited) £'000 | Six months ended 28 February 2022 (unaudited) £'000 | Year ended 31 August 2022 (audited) £'000 | |
| Allocated to revenue: | |||
| Broker fees | 24 | 21 | 46 |
| Custody fees | 14 | 35 | 61 |
| Depositary fees | 32 | 37 | 62 |
| Audit fees1 | 29 | 26 | 52 |
| Legal fees2 | 13 | 13 | 142 |
| Registrar's fees | 48 | 41 | 92 |
| Directors' emoluments | 84 | 66 | 151 |
| Marketing fees | 46 | 48 | 130 |
| Postage and printing fees | 35 | 39 | 60 |
| AIC fees | 11 | 11 | 21 |
| Professional fees | 43 | 6 | 19 |
| Stock exchange listing fees | 24 | 9 | 17 |
| Write back of prior year expense accruals3 | - | (116) | (55) |
| Other administration costs | 21 | 45 | 13 |
| --------------- | --------------- | --------------- | |
| 424 | 281 | 811 | |
| ========= | ========= | ========= | |
| Allocated to capital: | |||
| Custody transaction costs4 | 61 | 12 | 40 |
| --------------- | --------------- | --------------- | |
| 485 | 293 | 851 | |
| ========= | ========= | ========= |
1 No non-audit services are provided by the Company's auditor.
2 For the year ended 31 August 2022, legal fees of £117,000 related to legal work for the aborted issuance of a long-dated loan note.
3 No prior year accruals have been written back in the period (six months ended 28 February 2022: legal fees, printing and postage fees, reclaim of VAT and miscellaneous fees; year ended 31 August 2022: legal fees, printing and postage fees, professional fees, miscellaneous fees and Directors' expenses).
4 For the six month period ended 28 February 2023, expenses of £61,000 (six months ended 28 February 2022: £12,000; year ended 31 August 2022: £40,000) were charged to the capital account of the Income Statement. These relate to transaction costs charged by the custodian on sale and purchase trades.
The direct transaction costs incurred on the acquisition of investments amounted to £98,000 for the six months ended 28 February 2023 (six months ended 28 February 2022: £221,000; year ended 31 August 2022: £244,000). Costs relating to the disposal of investments amounted to £28,000 for the six months ended 28 February 2023 (six months ended 28 February 2022: £30,000; year ended 31 August 2022: £55,000). All transaction costs have been included within the capital account.
6. DIVIDENDS
The Directors have declared an interim dividend of 1.75p per share for the period ended 28 February 2023, payable on 19 June 2023 to shareholders on the register on 19 May 2023. The total cost of the dividend based on 101,000,161 ordinary shares in issue at 10 May 2023 was £1,768,000 (28 February 2022: £1,790,000).
In accordance with FRS 102, Section 32 'Events After the End of the Reporting Period', the interim dividend payable on the ordinary shares has not been included as a liability in the financial statements, as interim dividends are only recognised when they have been paid.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue, capital earnings/(loss) and net asset value per ordinary share are shown below and have been calculated using the following:
| Six months ended 28 February 2023 (unaudited) | Six months ended 28 February 2022 (unaudited) | Year ended 31 August 2022 (audited) | |
| Net revenue profit attributable to ordinary shareholders (£'000) | 22 | 1,367 | 7,728 |
| Net capital profit/(loss) attributable to ordinary shareholders (£'000) | 79,087 | (139,130) | (209,093) |
| --------------- | --------------- | --------------- | |
| Total profit/(loss) attributable to ordinary shareholders (£'000) | 79,109 | (137,763) | (201,365) |
| --------------- | --------------- | --------------- | |
| Total shareholders' funds (£'000) | 554,995 | 552,004 | 483,799 |
| ========= | ========= | ========= | |
| Earnings per share | |||
| The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: | 101,136,375 | 99,633,726 | 100,964,479 |
| The actual number of ordinary shares in issue at the end of the period on which the net asset value per ordinary share was calculated was: | 101,000,161 | 102,300,411 | 101,698,853 |
| Calculated on weighted average number of ordinary shares: | |||
| Revenue earnings per share (pence) - basic and diluted | 0.02 | 1.37 | 7.65 |
| Capital earnings/(loss) per share (pence) - basic and diluted | 78.20 | (139.64) | (207.09) |
| --------------- | --------------- | --------------- | |
| Total earnings/(loss) per share (pence) - basic and diluted | 78.22 | (138.27) | (199.44) |
| ========= | ========= | ========= |
| As at 28 February 2023 (unaudited) | As at 28 February 2022 (unaudited) | As at 31 August 2022 (audited) | |
| Net asset value per share (pence) | 549.50 | 539.59 | 475.72 |
| Ordinary share price (pence) | 523.00 | 538.00 | 456.00 |
| ========= | ========= | ========= |
There were no dilutive securities at 28 February 2023 (28 February 2022: none; 31 August 2022: none).
8. CALLED UP SHARE CAPITAL
(unaudited) | Ordinary shares number | Treasury shares number | Total shares number | Nominal value £'000 |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 0.1 pence each: | ||||
| At 31 August 2022 | 101,698,853 | 16,230,085 | 117,928,938 | 117 |
| Ordinary shares repurchased into treasury | (698,692) | 698,692 | - | - |
| --------------- | --------------- | --------------- | --------------- | |
| At 28 February 2023 | 101,000,161 | 16,928,777 | 117,928,938 | 117 |
| ========= | ========= | ========= | ========= |
During the six months ended 28 February 2023, 698,692 ordinary shares were repurchased and held in treasury (six months ended 28 February 2022: nil; year ended 31 August 2022: 601,558) for a net consideration after expenses of £3,014,000 (six months ended 28 February 2022: £nil; year ended 31 August 2022: £2,812,000).
During the six months ended 28 February 2023, no new ordinary shares were issued (six months ended 28 February 2022: 4,300,000; year ended 31 August 2022: 4,300,000) for a net consideration after expenses of £nil (six months ended 28 February 2022: £30,014,000; year ended 31 August 2022: £30,015,000).
During the six months ended 28 February 2023, no ordinary shares were reissued from treasury (six months ended 28 February 2022: 1,945,000; year ended 31 August 2022: 1,945,000) for a net consideration after expenses of £nil (six months ended 28 February 2022: £12,537,000; year ended 31 August 2022: £12,535,000).
Since 28 February 2023 and up to the latest practicable date of 10 May 2023, no ordinary shares have been repurchased and placed in treasury.
9. RESERVES
The share premium account and capital redemption reserve are not distributable reserves under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the special reserve and capital reserves may be used as distributable reserves for all purposes and, in particular, the repurchase by the Company of its ordinary shares and for payments as dividends. In accordance with the Company's Articles of Association, the special reserve, capital reserves and revenue reserve may be distributed by way of dividend. The gain on the capital reserve arising on the revaluation of investments held of £132,037,000 (six months ended 28 February 2022: gain of £137,621,000; year ended 31 August 2022: gain of £54,590,000) is subject to fair value movements and may not be readily realisable at short notice; as such it may not be entirely distributable. The investments are subject to financial risks; as such the capital reserve (arising on investments sold) and the revenue reserve may not be entirely distributable if a loss occurred during the realisation of these investments.
10. FINANCIAL RISKS AND VALUATION OF FINANCIAL INSTRUMENTS
The Company's investment activities expose it to the various types of risk which are associated with the financial instruments and markets in which it invests. The risks are substantially consistent with those disclosed in the previous annual financial statements, with the exception of those outlined below.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, climate change or other events could have a significant impact on the Company and the market price of its investments.
The current environment of heightened geopolitical risk given the war in Ukraine has undermined investor confidence and market direction. In addition to the tragic and devastating events in Ukraine, the war has constricted supplies of key commodities, pushing prices up and creating a level of market uncertainty and volatility which is likely to persist for some time.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash and cash equivalents and overdrafts). Section 34 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note on page 82 of the Annual Report and Financial Statements for the year ended 31 August 2022.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm's length basis. The Company does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument's valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the Level 3 asset or liability, including an assessment of the relevant risks including but not limited to credit risk, market risk, liquidity risk, business risk and sustainability risk. The determination of what constitutes 'observable' inputs requires significant judgement by the Investment Manager and these risks are adequately captured in the assumptions and inputs used in measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
The table below is the analysis of the Company's financial instruments measured at fair value at the balance sheet date.
| Financial assets at fair value through profit or loss at 28 February 2023 (unaudited) | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
| Equity investments | 580,764 | - | 3 | 580,767 |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 580,764 | - | 3 | 580,767 |
| ========= | ========= | ========= | ========= |
| Financial assets at fair value through profit or loss at 28 February 2022 (unaudited) | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
| Equity investments | 603,006 | - | - | 603,006 |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 603,006 | - | - | 603,006 |
| ========= | ========= | ========= | ========= |
| Financial assets at fair value through profit or loss at 31 August 2022 (audited) | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
| Equity investments | 477,813 | - | 3 | 477,816 |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 477,813 | - | 3 | 477,816 |
| ========= | ========= | ========= | ========= |
The Company held four Level 3 securities as at 28 February 2023 (28 February 2022: nil; 31 August 2022: four).
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 financial assets at fair value through profit or loss
| Six months ended 28 February 2023 (unaudited) £'000 | Six months ended 28 February 2022 (unaudited) £'000 | Year ended 31 August 2022 (audited) £'000 | |
| Opening fair value | 3 | - | - |
| Transfers from Level 1 | - | - | 3 |
| --------------- | --------------- | --------------- | |
| Closing fair value | 3 | - | 3 |
| ========= | ========= | ========= |
During the year ended 31 August 2022, the investments in Ozon Holdings, Fix Price Group, Sberbank and Lukoil have been marked down to a nominal value of £0.01, as the secondary listings of depositary receipts of Russian companies have been suspended from trading.
For exchange listed equity investments, the quoted price is the bid price. Substantially all investments are valued based on unadjusted quoted market prices. Where such quoted prices are readily available in an active market, such prices are not required to be assessed or adjusted for any business risks, including climate change risk, in accordance with the fair value related requirements of the Company's financial reporting framework.
11. RELATED PARTY DISCLOSURE
The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £44,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £35,000 and each of the other Directors receives an annual fee of £30,000.
As at 28 February 2023, the following members of the Board hold shares in the Company: Eric Sanderson held 4,000 ordinary shares, Peter Baxter held 11,000 ordinary shares, Ian Sayers held 4,000 ordinary shares and Paola Subacchi held 9,017 ordinary shares.
Since the period end and up to the date of this report there have been no changes in Directors' holdings.
The transactions with the Investment Manager and AIFM are stated in note 12 below.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock Inc. ("Related BlackRock Funds"); or
b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are as a result, considered to be related parties to the Company ("Significant Investors").
As at 28 February 2023
Total % of shares held by Related BlackRock Funds | Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| 0.91% | n/a | n/a |
As at 28 February 2022
Total % of shares held by Related BlackRock Funds | Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| 1.28% | n/a | n/a |
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months' notice. BFM has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors' Report on page 45 in the Annual Report and Financial Statements for the year ended 31 August 2022.
With effect from 1 January 2023, the investment management fee is levied quarterly based on 0.85% per annum of net asset value on net assets up to £350 million and 0.75% on net asset value on net assets thereafter on the last day of each month. Up to and including 31 December 2022, the investment management fee was levied quarterly and was based on 0.85% per annum of net asset value on the last day of each month. The investment management fee due for the six months ended 28 February 2023 amounted to £2,094,000 (six months ended 28 February 2022: £2,689,000; year ended 31 August 2022: £4,884,000). At the period end, £3,145,000 was outstanding in respect of the management fee (28 February 2022: £3,992,000; 31 August 2022: £2,199,000).
In addition to the above services, BIM (UK) provided the Company with marketing services. The total fees paid or payable for these services for the six months ended 28 February 2023 amounted to £46,000 excluding VAT (six months ended 28 February 2022: £48,000; year ended 31 August 2022: £130,000). Marketing fees of £117,000 excluding VAT were outstanding at 28 February 2023 (28 February 2022: £112,000; 31 August 2022: £71,000).
During the year, the Manager pays the amounts due to the Directors. These fees are then reimbursed by the Company for the amounts paid on its behalf. As at 28 February 2023, an amount of £111,000 was payable to the Manager in respect of Directors' fees (28 February 2022: £88,000; 31 August 2022: £149,000).
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 28 February 2023 (28 February 2022: none; 31 August 2022: none).
14. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The financial information for the six months ended 28 February 2023 and 28 February 2022 has not been audited.
The information for the year ended 31 August 2022 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Sections 498 (2) or (3) of the Companies Act 2006.
15. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 August 2023 in early November 2023. Copies of the annual results announcement can be obtained from the Secretary on 020 7743 3000 or cosec@blackrock.com. The Annual Report should be available by November 2023 with the Annual General Meeting being held in December 2023.
12 Throgmorton Avenue
London
EC2N 2DL
10 May 2023
For further information please contact:
Melissa Gallagher, Head, Closed End Funds, BlackRock Investment Management (UK) Limited - 020 7743 3893
Stefan Gries, Fund Manager, BlackRock Investment Management (UK) Limited - 020 7743 3000
Press enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
END
The Half Yearly Financial Report will also be available on the BlackRock website at www.blackrock.com/uk/brge. Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.
